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First Move with Julia Chatterley
U.S. And Saudi Investigation Sources Tell CNN That It's High Probability The Weekend Attacks On Saudi Oil Facility Came From Iranian Base, But No Evidence Revealed; General Motors Union Workers Hold Steady On Day Two Of Their Strike As Well; Out With The Old, In With The Older: Netflix Banks On "Seinfeld" After Losing "Friends." Aired 9-10a ET
Aired September 17, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:20]
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Live from the New York Stock Exchange, I'm Alisok Kosik and here's what you need to know. U.S. and
Saudi investigation sources tell CNN that it's a high probability that the weekend attacks on Saudi oil facility came from an Iranian base, but so
far, no evidence revealed. Tense negotiations.
General Motors' union workers hold steady on day two of their strike as well; and out with the old, in with the older. Netflix banks on "Seinfeld"
after losing "Friends." It's Tuesday and this is FIRST MOVE.
And welcome to FIRST MOVE. So glad to have you with us. Let's get you up to speed on the oil markets and action right here on Wall Street. Crude
prices are steadying today after Monday's record breaking advance. Both Brent and U.S. crude are down by about one and a half percent at the
moment. That's after settling up 14 percent on Monday, it was the biggest jump in oil prices in history.
As oil gives back some of Monday's gains, there remains a lot of concern over when Saudi oil production will be back up and running and whether
there will be retaliation for this weekend's attacks. U.S. stocks are set for a lower open today after a weak finish on Monday.
The U.S. Federal Reserve begins its two-day policy meeting today, and most investors, they're still expecting a rate cut, but uncertainty over how oil
prices could boost inflation, that's going to be a real concern for U.S. central bankers as they get into those meetings today.
The aftermath of the attack on Saudi Arabia remains our top driver today. A U.S.-Saudi investigation has found very high probability that Saturday
strikes on Saudi oil fields were launched from an Iranian base, a source has told CNN. Evidence to back the claim hasn't been made public yet and
Iran has repeatedly denied responsibility for the attack.
Its Supreme Leader has ruled out any talks with the U.S. after President Donald Trump said it looks like Tehran was behind me attack. CNN's Nick
Paton Walsh is live for us in the Iranian capital. Nick, what else are you learning?
NICK PATON WALSH, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, the Supreme Leader pretty much denies with an authoritative voice you can get
in Iran was very clear today. Ayatollah Ali Khamenei saying that there will be no negotiations with the United States now on any levels now.
He also went on to say that at times -- I'm paraphrasing here -- sometimes, the Americans appear to want preconditions, other times they appear to have
12 conditions, essentially saying that their position continually changes because what he referred to is that turbulent politics, but he said that
the government here from President to Foreign Minister is unanimous in saying there will not be any talks, saying essentially the U.S. campaign of
maximum pressure, the ratcheting up of sanctions, the increased military presence in the region was all designed to try and push Iran to a
negotiating table, which it shouldn't be at.
Now, he held out a slim possibility there might be an avenue for diplomacy in the future, but only really, frankly, for the U.S. and the humiliating
circumstances that Donald Trump turned around and said that he apologized, withdrew his comments, rejoin the nuclear deal, only then could Iran
foresee them being allowed to join the multilateral talks around the nuclear deal.
So for those looking at this tense situation in the region that's frankly reached a trough after months of escalating seriousness. This is the
avenue for diplomacy, pretty much cut off by Iran.
It was always a dicey shot in all honesty because Donald Trump consistently vacillated about whether he wanted preconditions or didn't want
preconditions. His officials appear to contradict him. He blamed the media. He's also been similarly inconsistent about military intervention
as well saying he doesn't want to war, but then sometimes you have to do something.
And it's really unclear I think at this point for many Iranian officials quite what the U.S. position is. They all along have denied since Saturday
morning when U.S. Secretary of State Mike Pompeo accused them of doing this particular attack in Saudi Arabia on its oil refineries. They've denied
any involvement at all.
Then their Foreign Minister, Javad Zarif said that he believe Mike Pompeo was practicing max deceit rather than maximum pressure. And even last
night, Iran's President Hassan Rouhani while visiting Turkey said that he still thought it was the Yemeni rebels who are behind this attack saying it
was basically a revenge attack for the damage done against their population by the Saudi Arabian and U.S.-backed air campaigns.
[09:05:07]
PATON WALSH: So Iran firm in its position, firm still in the fact that it doesn't see an avenue for diplomacy right now, and I have to say, none of
that will be comforting for those who want to see the situation calm down. Saudi Arabia has been slow to join the U.S. and directly blaming Iran,
you'll hear from my colleague, Nic Robertson, shortly more information about their latest assessment of the investigation.
But those in Iran here, I think will still be looking for evidence to back up those claims. It's slim, frankly, at best, and Iran consistently denied
any involvement. Back to you.
KOSIK: All right, Nick Paton Walsh live from Tehran. Thank you very much. And let's go ahead and head to the Saudi capital with Nic Robertson. He is
in Riyadh with more on details of the U.S.-Saudi investigation. How, Nic, is the U.S. getting information about where this strike came from?
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: Well, what we're learning from a source familiar with the investigation is that some of
these weapons that were fired at the oil facilities fell short that they landed in the desert to the north of those facilities.
And therefore investigators, both U.S. and Saudi have been able to look at relatively undamaged pieces of these weapons systems, concluding that they
are a low-flying missile with drone technology added on if you will, to give it that low-flying capacity and direction ability, if you will, to
give it that level of control.
So it does seem to be by the U.S. is getting its information by working with Saudi authorities in the desert in Saudi Arabia with pieces of
relatively undamaged missile. Now undoubtedly, they're going to be putting that together with radar recordings from here in Saudi Arabia from the
U.S.'s own extensive monitoring of the Persian Gulf.
Saudi's defense systems for its oil facilities have generally in the past have been postured out towards sea, out across the Persian Gulf, not just
against a potential Iranian threat, but against potential any sort of potential threat coming in from the sea.
But all of this information and data can be scrubbed back, go back, look at the recordings, examine what's been seen, examine any phone traffic or any
other data streams that might provide intelligence.
So all of this will undoubtedly contribute to the U.S. investigation. But these pieces of sophisticated low-flying cruise missiles, sort of a hybrid
drone cruise missile technology that does seem to be giving the sort of most solid evidence.
But that additional piece from that source of course, with the knowledge in the investigation saying that the conclusion, the high probability
conclusion at the moment is that these weapons systems took off from Iran close to the border with Iraq, flew into Iraq, flew over Kuwait and then
targeted the oil facilities here in Saudi Arabia -- Alison.
KOSIK: All right, Nic Robertson, with the latest on the investigation live for us from Riyadh. Thanks very much.
And it is day two of the strike by nearly 50,000 auto workers against General Motors. Negotiations between the union and G.M. will restart soon.
While both sides are talking, they are also preparing for what could be a long and costly fight. CNN's Vanessa Yurkevich is live for us from Detroit
with all the latest. So we are what? 24 hours in? What does it look like from your standpoint?
VANESSA YURKEVICH, CNN BUSINESS AND POLITICS REPORTER: Yes, hi, Alison, just a little over 24 hours in, no deal yet, both sides still negotiating.
They're going to get together again a little bit later today. But we're hearing from a source close to these negotiations, that there are still
dozens of sticking points that they're not able to work out right now.
One of those includes the UAW asking to G.M. to bring jobs back from Mexico to the United States. We are also hearing that talks wrapped up last night
at 9:00 p.m. That's earlier than expected. And that's signaling that they still have a long way to go.
But the picketers behind me still very hopeful. They've been out here in different shifts. We spoke to one woman who said that even though she
isn't getting her full salary, she is in it for the long fight.
(BEGIN VIDEO CLIP)
MOESHEE EDWARDS, G.M. EMPLOYEE: If you look at it, $250.00 a week is not a lot for us to provide for our families, to pay our bills and things, but as
you can see, we're out here fighting for what we believe in. So we're willing to take that sacrifice and we're willing to go all the way.
(END VIDEO CLIP)
YURKEVICH: And you heard her they're saying that she is getting $250.00 a week to strike. That is what the union pays all of these G.M. workers to
be out here in six-hour shifts. There are people here all night long, all morning long and they are really committed to this cause in order to get a
good deal for themselves, but Alison that $250.00 a week is nowhere close to what they're making at one of these plants at G.M. behind me.
[09:10:12]
YURKEVICH: So clearly, still hopeful. But you can imagine they're wanting to get back to work as soon as possible -- Alison.
KOSIK: Yes, clearly not a living wage that they're getting, but they're certainly standing up for what they feel is right. I mean, realistically,
how long can they be out there striking and be able to pay their bills? I mean, at what point do they have to say, "Look, I can't stand out here
anymore and do this."
YURKEVICH: We've asked a couple of them that. You know, we are only on day two. So there's not that pressure right now. But a lot of people
thinking about how they are going to pay bills for their families. I think that they're very optimistic.
You know, in the beginning of a strike, people are very excited and very motivated, but as this does drag out, you start to wonder how long these
G.M. workers can hold out. They are hoping for a quick resolution, but as of right now, looking like this may take a little bit of time -- Alison.
KOSIK: OK, and you will be right along with Vanessa Yurkevich in Detroit. Thanks so much for your reporting.
And these are the stories making headlines around the world. Britain's top court will decide this week if the government's move to suspend Parliament
for five weeks was lawful or an attempt to hinder the Brexit process, as a Scottish court ruled last week. The U.K. Supreme Court is currently
hearing the case, which will run until Thursday.
For the second time this year, Israelis are voting in a general election. It was called after Prime Minister Benjamin Netanyahu failed to form a
governing coalition following weeks of negotiations. His Likud Party is facing stiff competition from the Blue and White Party led by Benny Gantz.
Sam Kiley now has more from Tel Aviv. So the polls are open. When can we expect results that are coming in?
SAM KILEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: The results won't be formally announced until later this week because on Friday, there's a thing
called the double ballots, which get counted as soldiers and prisoners and various other diplomats around the world. But we should have a pretty good
idea about the overall drift of all of this by tomorrow morning, local time.
But it is, according to the opinion polls going to be a fairly close run thing with the last opinion polls showing 32-33 for the Likud Party that is
seats in the 120-seat Knesset of -- and that's Benjamin Netanyahu's party versus 32-33-31 for the Blue and White Party of Benny Gantz, the former
head of the Israeli Defense Forces.
Now, all of this means ultimately in the electoral system here, which is proportional representation that the smaller parties can play a very
powerful and important role and it will depend on really the arithmetic that emerges tomorrow as to who in the end gets asked by the Israeli
President to start to form a government.
And he will ask the person, the leader of the party that is, in his view, most likely to be successful in that. Now, that will produce a carousel of
non-stop negotiations that could go on for some time. But equally, it may, if there is a sufficiently large number of seats going to either Likud or
the Blue and White Party mean that things will be done a lot quicker, but it was the fact that it all ran into the sands back in April that caused
this another round of elections and there is a creeping feeling among many Israelis that this could, Alison, end up in a third bout of Israeli
politics towards the end of the year.
The turnout so far is very similar to what it was in the last two or three elections around 35-36 percent which would indicate net turn out at the end
of the day have close to 70 percent.
So really, quite a rich showing if it continues that way, a sign that broadly speaking, people aren't bored by this process. But what will be
critical is who has turned out, as it is in any election -- Alison.
KOSIK: All right, Sam Kiley, I know you'll keep your eye on the results. Thanks so much for your reporting. And CNN will have a special coverage of
the Israeli elections when polls close later. That begins at 10:00 p.m. in Jerusalem, that's 3:00 p.m. in New York, anchored by Becky Anderson.
Coming up after the break, Iran's Supreme Leader ruled out talks with the U.S. amid the row over who launched attacks on Saudi Arabia.
Plus Purdue Pharma, maker of the highly addictive opioid, OxyContin due in Court as bankruptcy proceedings get underway.
(COMMERCIAL BREAK)
[09:17:56]
KOSIK: In the next hour, we are expecting the first hearing in Purdue Pharma's bankruptcy process. The drug company filed for Chapter 11 as part
of an agreement to settle lawsuits brought because of its alleged role in fueling America's epidemic of opioid addiction.
Jean Casarez joins us live now with more. Jean, what is expected to come out of today's hearing?
JEAN CASAREZ, CNN CORRESPONDENT: Well, Alison, this is the first hearing, of course. They just filed for bankruptcy. And I can tell you I was just
in that courtroom, it is a relatively small courtroom. It is Bankruptcy Court. We are at the Federal Courthouse in White Plains, New York. It's
about 30 minutes outside of New York City and the courtroom is filled to capacity with attorneys.
It is all attorneys in there and I was listening to some of them and I heard one of them say I am representing the multi-district litigation,
which is the national opioid case, shook his hands, who are you representing? I'm here for the Sackler family. So you can see it's a lot
of attorneys from a lot of different areas from the litigation to the Sacklers to Purdue Pharma, and even the states can be represented here if
they so choose. So it's packed to capacity.
We understand a lot of housekeeping matters are going to be dealt with today. Money to creditors to keep operating and things like that of
substance. We think that will come later as emotions begin to fly, but the attorneys, they're shaking hands with each other, they're meeting each
other. They've obviously spoken on the phone, but for many of them, this is the first time that they've actually met in person -- Alison.
KOSIK: What about the drug itself? What's the sort of future of the drug that this company produced?
CASAREZ: Right. OxyContin, well, that will be part of this bankruptcy proceeding and it will be up to the court if the family, the Sackler
family, can keep manufacturing OxyContin. It is a legal drug. People in this country do need it. They use it. They use it with prudence, and it
could be part of the plan of reorganization that they continue to manufacture it and some of the monies do go to the communities of this
country.
[09:20:09]
CASAREZ: A lot of the money would go to communities and the Sacklers would take some, but there are members of the communities and municipalities that
disagree with that on a moral level, just with the Sacklers and the monies that they have gotten. They feel that it is not right for them to make one
dime more out of this drug that has killed so many.
KOSIK: This could -- fair to say this could be one of the most closely watched bankruptcy hearings that we've seen it a long time. Jean Casarez,
thanks so much for keeping an eye on it.
And a quick check of the markets. Futures are still pointing to a modestly lower open for U.S. stocks. The Dell fell for the first time in nine
sessions on Monday, but energy stocks advanced in reaction to the weekend attacks on Saudi oil facilities.
Oil stocks are mixed in premarket trading today. The S&P remains only about one percent below record highs as we await tomorrow's key Fed
interest rate decision.
For now on how the rising tensions following Saturday strikes on Saudi oil facilities will impact the market, I am joined by Michael Tran. He is
Energy Strategist at RBC Capital Markets. Glad to have you on today to talk specifically about what we're seeing happen with oil.
You know, the risk premium on oil is back. We saw oil depressed for a very long time, so this really came as a shock. But, you know, the attacks over
the weekend, and then the spike in oil. How high the prices go, even though prices are settling today.
MICHAEL TRAN, ENERGY STRATEGIST, RBC CAPITAL MARKETS: Right. So look, you saw material rally -- the biggest rally that we've seen ever in percentage
terms yesterday. So naturally, you would expect maybe a little bit of profit taking today.
But on a structural basis, prices could potentially go much higher. I mean, the main lesson that we learned over the weekend is a lesson in
vulnerability. And when we think about what that ultimately means, I mean, almost six percent of total global oil production was taken offline.
So when you see massive attacks like that, this is no longer a black swan. This is not a fat tail. This is not a hypothetical anymore. It's no
longer geopolitical risk, it is geopolitical reality. So there's still a lot that we don't know yet in terms of the extent to the damage, when
production could come back online, whether or not they're going to be subsequent attacks. So from that perspective, I wouldn't want to go home
short.
KOSIK: Speaking of which, how are investors positioned? I mean, market sentiment is such a major driver in oil.
TRAN: Like you said, there's been a significant amount of malaise in the oil market for quite some time now. But what we've seen is the length in
the oil market has been generally trending around multi-year lows over the course of the past several months.
So what we need to do is essentially kick start some of these lazy longs to get back in the market, and from that perspective, that's what could
ultimately push oil prices materially higher.
KOSIK: And pushing oil prices higher means gasoline prices could move higher. What does that mean for the American consumer? What does all of
this mean for U.S. energy security as well?
TRAN: This is a great question because when people talk about being isolated in the U.S. because we've grown shale production so much to the
point where we're becoming a net energy exporter. This is all a political stump speech. This is all a party line. And here's why.
When you think about the U.S., you have a lot of places where you can produce a lot of oil like Texas, like Louisiana. You have a lot of places
that are still relying on imports in a major way like the U.S. northeast New York area.
So from that angle, what you're seeing is you export from one part of the country, you import from the other part of the country. But there's a lot
of part of the countries that is not insulated from major supply disruptions in other parts of the world. So we're all held hostage to a
global oil price.
KOSIK: Yes, and not just here in the United States. There are other countries, China for one, you know, a huge consumer of Saudi oil. So in
your opinion, if Saudi production remains offline for a while, where are countries like China going to turn?
TRAN: Right, so we've already seen earlier this morning, there's going to be a delay in terms of exports from Saudi Arabia, so deliveries are going
to be slower.
If you're China, China imports 15 percent of their crude from Saudi Arabia. So you're ultimately going to have to lean on other Middle Eastern
countries. The problem there is, is there's not much spare capacity there. So the physical market is tightening in a hurry.
KOSIK: And then, of course, the prices go up. And then there's this thing called demand destruction, or this downward shifting the demand curve,
meaning lower demand for oil because of a long period of high prices with less supply. Do you see demand destruction coming into play here?
TRAN: So it's too early to tell, but we're watching that really closely. On one hand, you've seen oil prices spike yesterday. You've already seen
gasoline prices in the U.S. at the pump increase anywhere between nine to 18 cents across the country.
So we're watching that closely. The good thing is here, the summer driving season is already behind us. So we're heading into the fall and the winter
where driving demand is lower.
So from that angle, it may not have as much of an impact at this point, but it's certainly something to watch very closely.
KOSIK: But the consumer in the U.S. economy is really driving this economy. Now if gas prices go higher, even though it's not the peak
driving season, it's going to eat into the spending power of Americans. How do you see that playing out in the scheme of the pressures on the U.S.
economy, you know, between trade? You know, we see the inverted yield curve. Could this tip us into a recession?
[09:25:14]
TRAN: Well, so again, it's too early to tell on that front and there's potentially many different economic levers you can pull to try to get
gasoline prices lower. We also know that Trump favors lower gasoline prices to, to your point, keep the economy moving at a robust level.
So higher gasoline prices definitely does dig into the wallet of the consumer, and that's something to watch really, really closely.
KOSIK: So with the oil that the Saudis have right now, we're hearing it's going to last anywhere from 30 to 45 days' supply, what do you think, and
what can we sort of glean from how the Saudis are handling those oil commitment?
TRAN: Right. So this is really great because -- this is a really great question. What we've seen is the Saudis could potentially try to dig into
inventory to try to continue to send barrels out at the regular rate that they have been.
The problem is the way we've run our math, we think that there's only about 27 days of export cover if you continue to export at this pace, which means
that at that point, you're essentially hitting tank bottoms, you just have no more left to give, and you need to rely on other countries to ultimately
make up for that shortfall.
But from our math, there's not many countries that can really step up to the plate.
KOSIK: This is going to be an interesting thing to watch as time goes on. Michael Tran with RBC Capital Markets, so good to get your expertise this
morning.
TRAN: Thank you.
KOSIK: Thanks so much for coming on the show. OK, opening bell, that's up after the break. We'll see you in a bit.
(COMMERCIAL BREAK)
[09:30:00]
KOSIK: And you're taking a live look at the New York Stock Exchange. That's the opening bell on this Tuesday morning. Johnson & Johnson ringing
the opening bell this morning commemorating its 75th year listed here at the New York Stock Exchange.
And U.S. stocks are mostly lower in early trading one day after the biggest jump in global oil prices on record. We are seeing though oil giving back
some of Monday's double digit gains. That said, investors fear that political risk could keep prices elevated for some time to come perhaps
even after Saudi Arabia gets oil production back online.
As we had mentioned earlier, the U.S. Federal Reserve begins its two-day policy meeting today. A quarter point cut is likely, but what Fed Chair
Jerome Powell says about the outlook for rates going forward -- that's going to be key here.
Before the bell today, we received another strong read on the U.S. economy. U.S. industrial production rose stronger than expected, six tenths of a
percent last month. That's the strongest gain we've seen in months.
Joining me now with more on the markets, Mona Mahajan. She is the U.S. Investment Strategist for Allianz Global Investors. So good to have you on
the show.
MONA MAHAJAN, U.S. INVESTMENT STRATEGIST, ALLIANZ GLOBAL INVESTORS: Thank you.
KOSIK: Okay, so let's start with the Fed. You know, it's kind of everybody sort of expects the Fed to go ahead and cut another quarter
point. But the question is, will the Fed stay on this rate cutting track? And if it does, do you think the Fed is justified in doing so?
MAHAJAN: Yes, you know, generally speaking, our base case is for 25 basis point rate cut this Wednesday. You know, Jerome Powell has had probably
three consistent messages to the market.
The first, he wants to continue this expansion in the U.S. The second he is concerned about what's happening globally, both on trade, but also
what's happening with global slowdown. And then third, you know, he has pointed to this mid-cycle adjustment.
Typically, that means two to three rate cuts. So we think 25 basis points is likely on Wednesday. We also think one or two more likely for the
remainder of the year as well.
Typically, when the Fed cuts during a time where there is no recession on the horizon, risk markets respond pretty positively.
KOSIK: Do you think that a succession of cuts, let's say after Wednesday, are those justified considering we're getting lots of mixed signals in the
economy both showing the economy I strong and that the economy is showing weakness?
MAHAJAN: You know they call this insurance rate cutting for a reason. Clearly, there are reasons for concern. I think, trade is first and
foremost. You know, while there may be some softening in the rhetoric between China and the U.S., clearly, tariffs are actually escalating.
You know, October 15th, we will get another set of escalation. December 15th, we will get the final set which could impact the U.S. consumer.
Obviously, that's been an area of key strength in the U.S. economy.
You know, aside from the China trade situation, we have global growth slowing in Europe, in particular, and in Asia.
In the U.S., we're seeing some softening, but like you noted, recently, the data has stabilized both in the consumer front and the manufacturing front.
So we will be watching that trend. But growth overall is slowing from last year's levels.
KOSIK: And now we can introduce another factor or possible headwind for the U.S. economy, and that's spiking oil prices, especially with supply
issues now with what happened in Saudi Arabia.
Do you see spiking oil prices tipping the U.S. into a recession, keeping in mind that that could lead to higher gas prices and consumer spending has
really been an engine of growth for this economy?
MAHAJAN: Yes, you know, first and foremost, with the higher oil prices, we look at the impact to the consumer. What we're seeing at the pump is a
potential 25 percent or 25 cent increase at gas prices for the pump prices.
And so right now the national average is about $2.60. So an additional 20 cents or so would get it to $2.80. The threshold tends to be around $3.00
or so where, you know U.S. consumers really might change their behavior. So we're not quite there yet. We're not extremely worried about the impact
near-term. We will be watching if this trend continues, and if oil prices continue to move higher.
More broadly, the economic impact, you know, GDP impact, what tends to happen is certain industries like transportation, airlines, retail do tend
to get hit by higher oil prices. But that's offset now by a very strong shale economy in the U.S. that tends to benefit from these higher oil
prices.
So the economic impact tends to be more neutral. What we will be watching as noted is the consumer impact.
KOSIK: Seemingly as the news headlines have changed. We've seen sentiment change in the market more broadly. You know for much of the quarter, it's
been all about defensive sectors, yields fell.
[09:35:04]
KOSIK: You know, we saw investors go for safe havens like gold and the U.S. dollar showing strength, but taking out the oil shock out of the
picture, you know, you look at what's happened over the past week and we've seen this rise in bond yields, and this rotation out of defensives,
although gold continues to stay higher.
What can you say about what's going on here in the market?
MAHAJAN: Yes, you know, it's been a really interesting rotation. You know, the rotation of the defensives. We didn't get it back into the
traditional technology and discretionary sectors that had been driving much of the momentum for 2019.
Where investors did rotate to were the more under loved sectors, so energy, financials, parts of industrials. To us, you know, that move may be
somewhat short lived, perhaps even driven a little bit by short covering, but to really sustain that kind of rally, we have to see continued momentum
in not only, you know, the U.S. economy, but the global economy perhaps actual progress on trade.
In our view, you know, the barbell approach that we recommend, which is on one hand of that barbell continued defensive exposure, I think that's
really served investors well during this volatility, so areas like gold, IG credit, but also in equities, you know, utilities, consumer staples, REITs.
But on the other hand of that barbell, we continue to like the long term secular growth theme. You know, we think areas of technology, especially,
you know, cloud computing, cybersecurity, mobile payments will continue to have long term legs.
So that barbell approaches is kind of how we are favored and how we are positioned and I think that could work well towards the end of the year as
well.
KOSIK: Okay, let me ask you to take out your crystal ball on oil, where do you see it going? We do see it settling today though.
MAHAJAN: Yes, you know, I think our long term kind of view remains around the $60.00 to $65.00 level and WTI continues to make sense.
You know, much above that, it continues to put downward pressure on the economy and the consumer like we mentioned, much below that continues to
put pressure on a lot of shale producers and oil producers generally. So we think that sweet spot is somewhere in that $60.00 to $70.00 range.
KOSIK: All right, Mona Mahajan, U.S. Investment Strategist at Allianz Global Investors. So great to talk with you today.
MAHAJAN: Thank you so much. Have a great one.
KOSIK: You, too. In Hong Kong, fallout from months of protests is hitting perceptions around the economy, but the city's Chief Executive Carrie Lam
is fighting back.
The credit rating agency Moody's says it is downgrading Hong Kong's outlook from stable to negative. Lam says she does not agree with the
announcement. But she acknowledged that the last few weeks in Hong Kong have damaged Hong Kong's international reputation.
(BEGIN VIDEO CLIP)
CARRIE LAM, CHIEF EXECUTIVE HONG KONG: The continued instability and social unrest in Hong Kong as we have seen some of these violent acts from
time to time, will inevitably undermine and adversely affect international perception about Hong Kong's business environment.
So this is something that we have to be very alert to and that's why I said, while creating this dialogue platform, the first priority is still to
stop this violence and to restore law and order in Hong Kong as soon as possible.
(END VIDEO CLIP)
KOSIK: On Tuesday, Lam said she will begin dialogue sessions with members of the public next week, but stressed that suppressing violence is still a
priority.
Still ahead, Apple fights back against a major E.U. ruling on tax. The very latest from the case in just a moment.
(COMMERCIAL BREAK)
[09:41:42]
KOSIK: Welcome back to FIRST MOVE. Let's take a check of today's global movers. We continue to keep an eye on shares of global oil companies after
this weekend's attack on Saudi oil facilities.
Energy stocks posted their biggest advance of the year on Monday. Shares of many oil majors like Exxon and Chevron are pulling back in early trading
today.
Airline stocks fell sharply Monday as oil prices surged. American Airlines was one of the hardest hit carriers finishing down over seven percent.
It's up over three percent today.
Also today's shares of Kraft Heinz are down by over four percent. The company's second biggest shareholder 3G Capital is selling more than 25
million shares of the troubled company which has already fallen more than 30 percent year-to-date.
A top E.U. court is hearing appeals against the Commission's 2016 judgment ordering Apple to pay Ireland $14 billion of taxes. Hadas Gold is on the
story for us? So what? It's been three years of preparation for this case and the E.U.'s General Court begins hearing the case today.
Something tells me it's going to be quite a while before we hear the outcome, but how precedent setting could this outcome be?
HADAS GOLD, CNN BUSINESS REPORTER: Well, this could be and this is a huge case, as you noted since it has been three years in the making. This court
case is going on in Luxembourg right now, and it all stems from a 2016 European Union ruling, which pretty much said that Ireland needs to be paid
$14 billion in unpaid taxes by Apple.
They said that pretty much that Ireland was giving Apple sort of a sweetheart deal and that it was the equivalent to a legal state aid. They
even claimed that Apple was paying something like less than one percent of taxes over the years.
This was a huge ruling and Apple and Ireland actually are together trying to push against this. Now Apple said today in court, that the judgment
defied reality and commonsense. They said the court was trying to retrofit changes to national law, and was trying to change the international tax
system and creating a lot of legal uncertainty.
Now, Ireland, called the judgment an astonishing misinterpretation of their tax law. That might seem unusual. Why would Ireland not want $14 billion
of a windfall that could be great for them? But what's important here is that they don't want to scare off all these tech firms that take up
residence in Ireland because partly because of these lower tax rates.
There are dozens of American tech firms that are in Ireland right now that use it as its European home base, and they don't want to scare off these
companies, because if you look at the impact on the economy, it is much greater than some $14 billion tax windfall.
But for the E.U., this is part of a big effort to try to tax tech firms in what they say is a more fair manner. We have the E.U. Competitions
Commando Margrethe Vestager, this has been a big part of her MO and she was just appointed to another five years in the E.U. and she is also doing some
similar issues with companies like Starbucks, and also with Amazon in Luxembourg.
This is a big part of what she is trying to do to try and sort of change the conversation around tech firms and what they're supposed to pay. But
you're right in that we're not going to see a decision on this in quite some time. We're going to have one more day of arguments.
We're not going to hear a judgment on this for a few months, definitely not before 2020 and Alison, we are almost guaranteed, we are going to get an
appeal on this on either side that is going to take it to the European Union's highest court, probably that will take another few years.
[09:45:08]
KOSIK: Yes, quickly, the irony is, is that Apple has the $14 billion sitting in a bank right now. It's less about the money and more about what
this ruling would mean.
Let me quickly ask you because I know that Apple unveiled its big product line last week, how is it doing as far as sales go?
GOLD: Well, actually, and good news for Apple, some analysts are saying that some of the early orders that they're seeing is pointing to greater
sales. We don't have firm numbers yet. But what they do is they compare sort of the order times, compared to the previous iPhone iterations, the
iPhone X iterations.
They are saying that they're seeing some positive numbers, which is good because the declining iPhone sales have been a drag on Apple's businesses
because we're holding on to our phones for longer. These things are really expensive, and we're seeing less of those sort of greater leaps of
innovation.
So this could be some really good news for Apple. We should see a little bit more of those harder numbers coming in the next few weeks on really how
much they are actually selling these new phones for.
KOSIK: And I'm proud to say I'm getting rid of my iPhone 7. I'm one of those sales figures. I bought the iPhone 11. Yay for me. Hadas Gold,
thank you so much.
And WeWork has put off its long awaited stock market debut. The office- sharing startup was due to list its shares this month, but abruptly it called off its IPO preparations, calling off on Monday.
Matt Egan joins me now with what's going on here. You know, gosh, so many concerns mounting over the valuation of this and the business prospects at
WeWork?
MATT EGAN, CNN BUSINESS LEAD WRITER: Yes, Alison, this might just be the worst IPO rollout in recent memory. WeWork was one of the highest flying
startups, and now it can't even get its IPO off the ground. Investors are just too concerned about the epic losses at this company and some of these
corporate governance issues.
And I mean, we just have to kind of take a step back and think about what has happened here, right?
In January, WeWork did a private round of funding and it was raised -- it was valued at $47 billion. I mean, just to put that in context, I mean,
that's more than the valuation of Ford and Under Armour combined.
And then what happened was the IPO really hit some serious turbulence. In September, just earlier this month, "The Wall Street Journal" reported that
the valuation had been slashed to around $20 billion. And then late last week, Reuters reported that the valuation could be as low as $10 billion.
And now there's these reports that WeWork has postponed the IPO until at least next month, it could slip even further. Now, WeWork were put out a
statement, it was sort of cryptically worded. The company said that they are looking forward to still going public.
They said that the IPO is expected to be completed by the end of next year. Now, no matter when the timing is, I mean, the rise and fall of WeWork
really just sort of underscores this sudden shift on Wall Street, right?
I mean, after the Uber and Lyft IPO duds and more recently, the disappointing debut of the SmileDirect Club and all of these recession
fears in the background, investors are no longer willing to turn a blind eye to massive losses, and they're no longer willing to let founders have
unbridled control over their firms.
So in short, Alison, you know, the IPO market is growing up, and WeWork is suffering the consequences.
KOSIK: Yes, I mean, you look at the valuation going lower. Its leadership roles undergoing changes, never mind the massive losses of the company of
about $1.6 billion last year. How would investors even get the confidence to invest in this IPO if it does make a public debut?
EGAN: So they have made some changes to the corporate governance structure. They've tried to sort of ease some of these concerns that the
CEO and co-founder Adam Neumann has too much control.
And so maybe that will ease the worries around the governance issues. But that doesn't solve, as you mentioned, the fact that this company is losing
money very rapidly. So the hope is that if they have a strong third quarter, and they release those results that may be that gets people
excited again about this IPO. We don't know yet.
We need to keep watching this one because it really does have widespread consequences, right. I mean, their biggest backer is Softbank. And
Softbank could take a very big hit because they were in at that $47 billion valuation. And Softbank has been one of the biggest investors in startups
in Silicon Valley.
There's also some implications as far as you know, the next round of companies that are looking to go public, they may be scared off by what
they're seeing with WeWork and they may decide not to go public, and even some of the companies that are already trading, right, I mean, if you look
at the momentum stocks, those high flying really expensive stocks, they've taken a big, big hit in the last two weeks, Alison.
So we need to keep an eye on what happens here because the consequences are wide reaching.
[09:50:06]
KOSIK: Yes, the IPO market suddenly just changing, isn't it? Matt Egan, so good to talk with you. Thanks. After the break, Netflix strikes a
massive media deal.
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KOSIK: Welcome back. Here's today's "Boardroom Brief." The maker of Budweiser AB InBev says it is helping to raise $4.8 billion when it lists
its Asia business in Hong Kong. That's roughly half of what was originally planned when it first mooted a public offering. The world's biggest
brewers scrapped those plans in July, blaming market conditions.
Netflix has acquired the global rights to 90's sitcom classic "Seinfeld." The deal runs from 2021 for five years. The terms were not disclosed.
It's a boost for Netflix which recently lost "Friends" and "The Office" to competitors.
Brian Stelter joins me live now to walk us through where, you know, what shows are going where and what's happened here. Although one thing I have
to say about this, Brian is that I'm wondering if "Seinfeld" is really going to be enough to fill "The Office" void --
BRIAN STELTER, CNN CHIEF MEDIA CORRESPONDENT: Well, it is a good time -- yes, it's a good time to be a 90's or 2000 sitcom. There's all this demand
for these shows. I don't think "Seinfeld" is up to the caliber of "The Office" or "Friends."
There's no evidence that it is as popular as a streaming phenomenon, but it still is like comfort food, right, Alison? You pull off a highway you see
20 restaurants, you don't know where to eat. So you go to the place, you know, you gravitate toward the thing, you know, and that's kind of what
these sitcoms are. "Seinfeld: is comfortable. It's familiar. It has that long lasting appeal, it is definitely not "The Office" though.
KOSIK: Hold on, Brian, Brian. No. Millennials don't know what "Seinfeld" is. They know what "The Office" is. Walk me through what's happening
here.
STELTER: Well, that is true. "Seinfeld" is also a more of a cynical sitcom. It's more acerbic. You're right, it doesn't have that same
appeal, especially with young people.
But I think what Netflix is banking on is the ability to create and generate new interest in the show from people who've never seen it before,
including from millennials. And notably, it's a worldwide deal.
So "The Office," "Friends" -- some of these deals have been domestic rights for U.S. right only. Netflix is paying for worldwide rights to "Seinfeld,"
hoping to introduce it in new countries as well.
It is an amazing thing to see how these bidding wars are happening. "The Wall Street Journal" is calling it a streaming scramble. That's exactly
what it is.
These companies like Disney and NBC are trying to make sure they have the rights to popular shows to launch their own streaming services. NBC just
in the last hour announced the name for their new streaming service. It's called Peacock. We know that CNN's parent company Warner Media has HBO Max
coming out next year.
But everybody is starting from behind because Netflix had such an advantage to head start right now, and by locking in "Seinfeld" for five years going
through 2026, you know, they're trying to make sure they have some key programming, even though it's not quite "Friends" or "The Office."
KOSIK: Very quickly, yes or no. Are we going to see consolidation in this space with streaming?
STELTER: I think it's inevitable, but it's a couple of years away.
KOSIK: All right, Brian Stelter, thanks so much.
STELTER: Thanks.
KOSIK: Oil prices are pulling back after Monday's record breaking advance, Brent is lower by over five percent. U.S. crude down by six percent. This
after the biggest surge in oil prices since the Gulf War on Monday. That's after strikes on Saudi oil facilities on Saturday took out five percent of
global crude supply.
All right, that's it for FIRST MOVE. I'm Alison Kosik. "INTERNATIONAL DESK" is up next. That's after this short break. Thanks for watching.
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