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First Move with Julia Chatterley
Vision Fund Is Looking Less Rosy After Softbank Posts $6.5 Billion Loss; Billionaire Ray Dalio Says Easy Money For Those Who Have Good Credit Has Broken The System; "Wall Street Journal" Says Xerox Is Considering A Takeover Of HP. Aired 9-10a ET
Aired November 06, 2019 - 09:00 ET
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[09:00:14]
ZAIN ASHER, CNN INTERNATIONAL ANCHOR: Coming to you live from the New York Stock Exchange, I'm Zain Asher in for my colleague, Julia Chatterley. And
here is what you need to know.
The Vision Fund is looking less rosy after Softbank posts a $6.5 billion loss.
And the world has gone mad. Billionaire Ray Dalio says easy money for those who have good credit has broken the system.
And looking for more copy. "Wall Street Journal" says Xerox is considering a takeover of HP.
It is Wednesday my friends and this is FIRST MOVE.
All right, everyone I'm Zain Asher. Welcome to FIRST MOVE. So good to have you with us. Let's begin with a quick check of the action in terms of
what's happening here on this Wednesday on Wall Street.
U.S. stocks are on track for a modestly higher start to the session. The Dow is up ever so slightly, pretty much flat there of about 36 points in
terms of futures.
The Dow and the NASDAQ though are indeed set for fresh record highs after yesterday. The S&P is also close to record territory as well. Investors
are clearly waiting on further news in terms of what's happening with the U.S.-China trade negotiations before making any new bets. So we are in a
bit of a holding pattern here.
Reports yesterday said a tariff rollback of some kind might be on the table along with other possible concessions as well but it's been a pretty quiet
trade on the trade front here today.
The Dow and the NASDAQ posted slight gains on Tuesday and finished at fresh record highs.
European stocks are sitting near 21-month highs. The action in the bond market is also important as well. U.S. 10-year yields are lower today, but
they hit seven-week highs earlier this week. The European yields have also moved higher. It's a sign that investors believe the worst of the global
economic slowdown might indeed be over.
That said, there was a lot of good news that's already priced into stocks right now, which is why we might be seeing some investor caution today.
More on markets a little bit later on, but first, let's get right to our drivers now.
Japan's Softbank is counting the cost after a disastrous quarter for its tech investments. Its Vision Fund took a $9 billion hit on key holdings
and that includes WeWork and Uber as well. Sherisse Pham joins us live now. So Sherisse, how on Earth is Softbank justifying this to investors?
SHERISSE PHAM, CNN BUSINESS REPORTER: Yes, Masayoshi Son playing a little bit of accounting jujitsu during the earnings presentation today saying
repeatedly over and over that the rescue of WeWork was not a rescue, it was a chance for them to lower the overall cost of their investment in WeWork.
But of course numbers do not lie, Zain. $9 billion hit to the Vision Fund that completely dragged down operating revenue for the entire group as a
whole. Softbank would have posted a profit, but instead overall posting $6.5 billion down for the third quarter. That made it the first quarterly
loss that Softbank has posted in 14 years, I believe, more than a decade, anyway.
And so these are all Softbank Vision Fund's fault, right? This is Uber and WeWork. These massive bets on these massive tech companies are just not
panning out. They certainly didn't pan out last quarter. And you know, Son, he did address the criticism of the faith and the money that he poured
behind the controversial WeWork founder, Adam Neumann saying at times that, you know, I put too much faith on his good side and I ignored his negative
sides, especially Zain, when it came to governance.
ASHER: And so just going forward, how is this going to affect Mr. Son's reputation? I mean, will his investment decisions, Sherisse be trusted
from this point forward?
PHAM: That is the hundred billion dollar question, right? Son was humble and apologetic at times today, but he was also at times defiant and
stubborn saying, look, all the criticism that I have heard over the past few months over my investments in WeWork, over my investments in Uber, even
the investments in Slack because a lot of the companies that the Vision Fund has invested in have gone down since they've gone public.
Son said, a lot of this is deja vu. People criticized me when I was saying that the internet was going to be the future 20 years ago. I had
confidence back then and I have confidence now. And he said the Vision Fund 1 has closed as of September -- mid-September.
[09:05:10]
PHAM: And he said, plans to go ahead with a second Vision Fund, a second $100 billion tech fund that's moving forward because Masayoshi Son is not
done betting on massive tech companies -- Zain.
ASHER: All right, Sherisse Pham live for us. Thank you so much.
American billionaire investor Ray Dalio says quote, "The world has gone mad and the system is broken." Christine Romans is here to explain. So
Christine, what does he mean by those comments and what sort of financial America is Ray Dalio describing here?
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS: It's just really an interesting post that he put on LinkedIn. He asked for people to sort of
weigh in. He sort of puts this treatise out there on what he sees has happened in the 10 to 11 years of really easy money policies since the
financial crisis, and he is very concerned that capitalism is broken here and not working for everyone.
Central Banks flooding the world with money since 2008. That has benefited the rich. It has benefited investors and has rushed into investments not
necessarily spending.
Here's what -- I want to read you his words, because I think it's really kind of powerful here, "At the same time as money is essentially free for
those who have money and credit worthiness, it is essentially unavailable to those who don't have money and credit worthiness, which contributes to
the rising wealth, opportunity and political gaps."
He goes on to say, "Because the trickle down process of having money at the top trickle down to workers and others by improving their earnings and
credit worthiness is not working, the system of making capitalism work well for most people is broken."
He talks about how the money, Zain, around the world, all of this stimulus that is flooding into tech, where some of the brightest minds in business
who are being rewarded and showered with all this investment, they believe in robotics and artificial intelligence actually, you know, replacing human
capital. What is that going to mean for workers?
He talks about exploding government deficits. He talks about rising healthcare and pension liabilities. All of it, you really do need like two
shots, tequila to read it all and just kind of really think about where we are 11 years into our recovery.
ASHER: So then what sort of solutions does he suggest in terms of coming up, addressing the problems that he is describing there?
ROMANS: He is saying that there's going to be, you know, big decisions that are going to have to be made. He kind of just lays it all out there
and asks investors, asks readers on this LinkedIn post, tell me what you think.
He is saying there's going to have to be a dramatic paradigm shift. And that's kind of how he ends it. And what does that mean? Is it tax
structure? Is it government policy? Is it investment? Is it Fed? He doesn't really lay out a prescription like that, just sort of lays out this
broken capitalism story, and you know, he is a legendary investor. It's getting a lot of attention in many circles this morning.
ASHER: All right, Christine Romans live for us there. Thank you so much.
ROMANS: You're welcome.
ASHER: British Prime Minister Boris Johnson met with the Queen of Buckingham Palace earlier to formally dissolve Parliament ahead of a
general election on December 12th. Campaigning has been already overshadowed by claims the Conservative Party doctored a video of an
opponent's TV interview.
Nic Robinson joins us live now from London. So Nic, what more can you tell us and based on these sort of early blunders by the Conservative Party,
what can you tell us about what kind of campaign this will end up being?
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: Well, I think it is going to be quite a brutal and bruising campaign, particularly for the
leading figures and listening to Boris Johnson today, he was taking a lot of shots at the leader of the opposition, Jeremy Corbyn.
He had written an op-ed in "The Daily Telegraph" newspaper here, the Prime Minister had and comparing Jeremy Corbyn to Stalin and he went on in his
speech here today to speak about Jeremy Corbyn as being a leader who would tax the country, a leader who would allow immigration to get to such
terrible uncontrolled levels that it would threaten the National Health Service, a leader who wouldn't even stick up for children at school.
So it's going to be bruising and personal in that regard. The Prime Minister really has a twin track strategy that he can deliver a better
Britain for the people in the United Kingdom. He is offering already to build 40 new hospitals, 20,000 police, improve education, improve social
services.
But the other thrust of his campaign is that it is Parliament that's been blocking the will of the people to have Brexit. This is how he framed it.
(BEGIN VIDEO CLIP)
BORIS JOHNSON, BRITISH PRIME MINISTER: I don't want an early election and no one much wants to have an election in December. But we've got to the
stage where we have no choice because our Parliament is paralyzed. It's been stuck in a rut for three and a half years, and I'm afraid our MPs are
just refusing time and again to deliver Brexit and honor the mandate of the people.
[09:10:03]
ROBERTSON: So it's not without its pitfalls as well, this campaign and already for the Conservative Party, the Prime Minister is being dogged now
by what is essentially, it appears to be an over-zealous spin team working behind the scenes that had a doctored video yesterday of one of the leading
opposition figures, that then they had to change, take down, no formal apology from the Prime Minister today, he didn't even mention it. But that
has drawn a lot of criticism.
One of his Ministers has been criticized, by the way that he has addressed people that were caught up and indeed died in the Grenfell Tower tragedy
here in the United Kingdom two years ago. So that was - that is a major faux pas. He also, you know, climbed down from that, but another Minister
put his foot in it as well. He has had a Minister today, the Secretary of State for Wales has resigned because of issues within his constituency.
So there are -- this, as I say is not without its pitfalls and troubles for the Prime Minister. Okay, he is doing well in the polls today. But you
know, I think a lot of people feel he has taken a significant risk for having this election.
ASHER: All right. Nic Robertson live for us, thank you, in London.
Okay, so these are the stories making headlines around the world. A key witness in the U.S. Impeachment Inquiry has revised his testimony to House
investigators. Gordon Sondland, an ally of President Trump admitted he was instructed after all to demand a quid pro quo in exchange for restoring
military aid to Ukraine.
It comes as we expect to get further transcripts today and hear from more witnesses this week. Suzanne Malveaux joins us live now from Washington.
So Suzanne, how on Earth is the White House going to defend itself given these dramatic revelations?
SUZANNE MALVEAUX, CNN U.S. CORRESPONDENT: The White House is defending itself. The top adviser to the President, Kellyanne Conway is saying that
she doesn't think these transcripts really matter all that much, and so we'll have to see how the strategy evolves over time.
I have to tell you, it was just 30 minutes ago, we did see David Hale, he is a top State Department official appointed by Trump, he works under
Secretary Pompeo. Democrats are going to want to know what did he know about the smear campaign against the former Ambassador to Ukraine, Marie
Yovanovitch.
And at the same time, Zain, you mentioned that there is this key witness now who had originally testified no quid pro quo, who has now reversed his
testimony and you're seeing the impact of that.
(BEGIN VIDEO CLIP)
MALVEAUX (voice over): A stunning reversal from Gordon Sondland, now admitting there was a quid pro quo between President Trump and Ukraine over
military aid.
The Trump campaign donor turned U.S. Ambassador to the European Union submitting a three-page revision to the testimony he gave last month,
saying statements of top U.S. diplomat to Ukraine, Bill Taylor, and former top adviser on Russia, Tim Morrison, "refreshed my recollection about
certain conversations."
Sondland writing, "I now recall speaking individually with an aide to Ukraine's President, where I said that resumption of U.S. aid would likely
not occur until Ukraine provided the public anti-corruption statement that we had been discussing for many weeks."
(BEGIN VIDEO CLIP)
REP. GERRY CONNOLLY (D-VA): His defense, in case anyone hasn't noticed, is now on the floor. It's crumbled. Because Ambassador Sondland explicitly
admitted in his corrected testimony today that a quid pro quo most certainly did occur.
(END VIDEO CLIP)
MALVEAUX (voice over): Sondland also detailing Trump's personal attorney, Rudy Giuliani's, involvement, testifying, "It kept getting more insidious,"
and "The State Department was fully aware of the issues," adding, "There was very little they could do about it if the President decided he wanted
his lawyer involved."
Giuliani also a highlight in former U.S. Envoy to Ukraine Kurt Volker's testimony, recalling a May meeting with the President in which he directed
his aides to speak with Giuliani about Ukraine.
On meeting with the Ukrainians, Volker says Trump pushed back, saying, "They're all corrupt. They're all terrible people. I don't want to spend
any time with that."
President Trump's allies praising Volker's remarks when asked if he talked to other diplomats about a possible quid pro quo. Volker telling
investigators, "None, because I didn't know there was a quid pro quo."
The White House maintaining that both transcripts are good for Trump.
(BEGIN VIDEO CLIP)
STEPHANIE GRISHAM, WHITE HOUSE PRESS SECRETARY: The transcripts that were released today show exactly what the President has been saying all along.
And that is that he did nothing wrong and that there was no quid pro quo.
(END VIDEOTAPE)
MALVEAUX: And Zain, there will be more witnesses, at least they're scheduled to arrive, Jennifer Williams. She is the first aide of Vice
President Mike Pence, who will be called for a deposition to find out what he knew about all of this involving Ukraine and also Democrats are still
holding out hope, they're not confident, but holding out hope that they might get the former National Security adviser, John Bolton to also answer
their questions tomorrow behind closed doors -- Zain.
[09:15:12]
ASHER: Suzanne Malveaux watching it all closely for us. Thank you so much. Okay, so Mexican authorities investigating the massacre of nine
members of the same Mormon family say they've arrested an individual.
On Monday, three women, four children and two infants were ambushed and burned to death while driving near the U.S. border. Authorities say the
family may have been targeted by drug cartels. They say the suspect was found holding two hostages and had weapons and ammunition as well.
The global environmental movement, Extension Rebellion, has won a legal battle against London Police. The High Court accepted the police acted
unlawfully in imposing a total ban with movements and demonstrators in London for a week in October.
The police called the ruling disappointing and said they are considering their next steps.
Okay, so still to come here on FIRST MOVE, two fading hardware giants are set to be considering a marriage of convenience. We discuss reports of an
HP-Xerox merger.
And Wall Street doesn't believe in unicorns. Why tech's newest companies have not enchanted the markets. That's next.
(COMMERCIAL BREAK)
ASHER: All right. Welcome back to FIRST MOVE. I'm Zain Asher. We are live for you at the New York Stock Exchange. Let's take a look at global
markets right now.
U.S. stocks still look set for a modestly flat to higher open. It is pretty much flat in terms of Dow futures up about 34 points or so. Most of
the major global indices are creeping higher as well as we await new developments on trade.
The Dow and the NASDAQ begin the session at record highs. They look to set rise further into record territory in early trading today. The S&P 500
could hit fresh records as well.
[09:20:06]
ASHER: So joining me live now is Art Hogan, the Chief Market Strategist for National Security Corporation. Thank you so much for being with us,
Art.
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITY CORPORATION: Thank you.
ASHER: So we've got fresh record highs Monday, Tuesday on the Dow. In terms of what the market is thinking when it comes to the U.S.-China trade
war, are we in a wait and see pattern right now? Or is the market really anticipating that we're going to get some kind of a piecemeal deal between
the U.S. and China?
HOGAN: Yes, that's a great question. I think one of the biggest drivers in the run to new highs here has been the fact that the tone around U.S.-
China trade has improved. It's improved remarkably.
So just think back to August, when every other day we'd be up or down a couple of percentage points, because things were going backwards on trade.
And now we're at this point where both sides really have gotten to a place where we can get this Phase 1 deal done.
And what that means for the market is it removes a ton of uncertainty, and it puts trade over here. We can compartmentalize trade and say, this is
not going to escalate from here. We're not increasing tariffs.
ASHER: Okay.
HOGAN: We're going to, at the very least, be static into next year. I think the market is celebrating that. I don't think it's fully priced in
because we were always nervous that we're one sweet away from a tragedy.
ASHER: Right, right.
HOGAN: So, right, I think it feels much better than it's felt for the entire cycle on trade. I think that's part of the reason why there's new
highs.
ASHER: And then in terms of -- listen, we've got that interest rate cut not so long ago. Are we expecting another rate cut in December? And what
will the market do if it doesn't get one?
HOGAN: Yes, so the market is expecting the Fed to stand past. It has cut rate three times. They've really signaled -- we're taking some of the
language out of the statement that they're where they want to be right now, unless incoming data show the market is getting or the economy is getting
worse, and that doesn't seem to the case right now.
So I think the Fed has done a masterful job of getting us to where we expect them to stand still. And as a matter of fact, if you look at
expectations, there's no rate cuts all the way out into March of next year in the expectation set. So I think the market is fine with that right now.
Now if things were to unravel and the global PMIs start to get worse and not better and they seem to stabilize, then I think we'd expect the Fed to
step in here. But right now, I think the Fed --
ASHER: And you also don't believe that a rate cut would be justified.
HOGAN: No, it is not going to be on December, I'm sure. And then as we enter the first quarter next year, if things are the way they are now in
terms of steadily improving in economic data, we're probably where we're going to be for a little while.
ASHER: So, you know, it wasn't so long ago that I would sit here and literally every person I interviewed would talk about an imminent
recession, inverted yields curve, you know, we're 12 to 18 months out of a recession. I mean, those talks, we don't hear it anymore.
HOGAN: Right.
ASHER: But, I mean, are we out of the woods completely, do you think?
HOGAN: Well, we're never out of the woods. There's always a recession on the horizon. It just depends on how far out it is, right? So it has
always been a part of the business cycle.
It's not happening imminently and in August and certainly December of last year and August of this year, it felt like it was around the corner, it
feels like a lot of the stabilization that we've seen in global economies, I think we bottomed out and now factoring in globally and starting to
domestically, I think that's the important key factor.
I think housing has gotten much better in the United States. I think that's very important. So we're actually pivoting. I think the third
quarter is probably a bottoming in both earnings and economic data, and we get better into the first quarter of next year, which is going to be a big
difference on a year-over-year basis.
Remember how bad last fourth quarter was? We were down some 20 percent in the S&P 500. I think we're going to see the reverse of that this year,
where things are steadily going to get better as in the fourth quarter.
ASHER: And how important is the strength of the U.S. consumer, in terms of holding up the U.S. economy?
HOGAN: More important than anything -- anything. So when you think about the economy, you have this dichotomy where consumers continue to spend,
corporations don't. Corporations don't because of uncertainty over U.S.- China trade, consumers are confident because of high levels of employment, slowly rising wages, and that confidence has also helped with low
inflation, low energy prices, and rising housing prices.
So all of those things that consumers think about when they make decisions are positive. On the corporate side, not so much. The total addressable
markets are coming into a challenge, complex supply chains and uncertainty over trade war. Remove some of those uncertainties, then corporate
spending might start to pick up. I mean, consumers have been holding this economy up.
ASHER: All right. Art Hogan, always good to have you. Thank you so much.
HOGAN: Thank you.
ASHER: Appreciate you being with us. Okay, so shares of HP are surging premarket following a "Wall Street Journal report" that it could be taken
over by Xerox. Clare Sebastian joins us live now.
So Clare, what more do we know about this potential deal?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Well, HP investors, Zain are clearly very excited about this. The stock up some 16 percent premarket
and "The Wall Street Journal" is reporting that the Xerox Board actually met on Tuesday and discussed the option of taking over HP. Nothing is
guaranteed or confirmed yet. They only know this, according to people familiar with the matter.
But Xerox has got as far as getting an informal agreement from a major bank, they say to fund this. The deal would be cash and stock and would be
at a premium they say to HP's current valuation and that is why this deal is so bold, Zain.
Take a look at the relative sizes of these companies. Xerox out with an $8 billion market cap, is dwarfed by HP with a market cap of $27 billion.
Xerox's 2018 revenue was $9.8 billion. By contrast, HP's 2018 revenue was $58.5 billion.
[09:25:14]
SEBASTIAN: But dig a little deeper, and you see that HP stock is actually down some 10 percent this year, although, it could of course, reverse that
on the open today. Whereas Xerox is up 84 percent.
Both companies have been undergoing a transformation. Xerox is -- they're already starting to pay dividends. But I think still some questions about
how exactly they're going to pay for this.
ASHER: But in terms of the fact that, you know, both of these companies are really past their prime, you know, the demands of printed documents is
declining. What are their turnaround strategies in order to make this merger really worth it?
SEBASTIAN: Right, they've clearly found themselves pretty much on the wrong side of tech history, Zain. Office hardware printers, photocopy and
even PCs have been declining in the age of mobile.
So, really the sector has been seen as ripe for consolidation. In fact, Xerox was supposed to be merging with Fujifilm - that was called off last
year under pressure from Carl Icahn, another activist investor in Xerox. They actually got a $2.3 billion windfall from exiting a joint venture with
Fujifilm that was announced earlier this week.
So, look, this is about synergies. It's about more cost savings. HP just announced 7,000 to 9,000 layoffs by the end of 2022. Both companies are
aggressively trying to bring down costs, so merging the two would mean safety in numbers and of course bringing together similar product.
ASHER: All right. Clare Sebastian live for us there. Thank you so much.
Okay, my friends, you are watching FIRST MOVE. The opening bell is next after this quick break. Don't go away.
(COMMERCIAL BREAK)
[09:30:00]
ASHER: That was the opening this Wednesday morning here at the New York Stock Exchange, I'm Zain Asher. Welcome back to FIRST MOVE.
As expected, we have got a mostly flat start to the trading day, up only about 13 points or so. We are in record territory though. We did get
record highs both on Monday and Tuesday and we are in this sort of wait and see pattern where investors are already waiting to see what happens with
the U.S.-China trade deal.
We see that there has been intimations that we will get some kind of a deal soon, so investors are waiting to see what exactly that looks like.
Investors are also waiting to see what kind of other new catalysts will drive stocks higher after a strong run this past month. Tech stocks have
fared the best since early October rising about six percent or so.
The Global Movers -- let's take a look here. Shares of Uber are rallying - - are falling rather in early trading and hitting fresh all-time lows. The company's post IPO lockup period ends today. A large chunk of shares that
were held by corporate insiders and early investors are finally available to be traded. This could of course trigger fresh downward pressure on
shares. We will have more on Uber in just a few minutes.
Also shares the Walgreens Boots Alliance are higher. Reports say the Dow component is talking to private equity firms about possibly going private.
It could be one of the largest corporate buyouts in Wall Street history.
Also, shares of HP - Hewlett Packard shares are rallying as we mentioned earlier. Reports say that Xerox is considering a takeover offer for the
tech giant.
Many of us who send money abroad know about the currency base transfer service, TransferWise, it's a key disruptor in the sector, but until
recently thrived on hefty foreign exchange fees and full rates. TransferWise has six million customers and has offices on four continents.
Every month, more than $5 billion is moved from one country to another and according to TransferWise, customers are saving more than a billion dollars
a year in bank fees.
Now, TransferWise is actually joining with partners including GoCardless to create a global network of recurring payments, helping businesses collect
debit worldwide without the need for a bank account in each country.
Taavet Hinrikus is the cofounder and chairman of TransferWise, and joins me live now from the Web Summit in London. So Taavet, just talk to us a bit
more about this GoCardless partnership that you guys have got.
TAAVET HINRIKUS, CO-FOUNDER AND CHAIRMAN, TRANSFERWISE: So we launched TransferWise in 2011 focusing on consumers, very quickly we realized that
businesses have the very same issues. And as we've been building the company, we realized that the next step for us is really to open up the
TransferWise platform as an API, so any company can build a transfer solution into their own product.
So GoCardless as they are going on our global expansion found TransferWise the best way to enable their customers to collect recurring payments around
the world, so very excited to get two of London's best FinTech companies together into one product offering.
ASHER: So how does this fit into your overall strategy to power a currency exchange for other service -- financial service providers as well?
HINRIKUS: Sorry, can you repeat the question?
ASHER: Yes. How does this fit into your overall strategy? How does your partnership with GoCardless fit into your overall strategy to power
currency exchange for other financial services and providers?
HINRIKUS: So we have been expanding our offering as a platform for quite a while now. So you can see we have launched partnerships with quite a
number of banks. So N26 and Monzo, a couple of the better neo banks have all come with TransferWise built in now.
So it's a natural step for us to continue on this and look for other FinTech companies that can implement TransferWise FX solution inside their
own offering.
So it's something we're putting quite a little effort in as we're continuing to expand and offer our services to more businesses and also not
only small to medium businesses, but looking at how do we go for bigger companies.
ASHER: So talk to us about your expansion in the Middle East, how are you capitalizing on the growing remittance market in that part of the world?
HINRIKUS: So we just launched in Abu Dhabi, and we're looking at the other countries in the region. It is a big place where there's a big expat
population that is moving lots of money in and out.
But similar to this, we're continuing the expansion to other parts as well. We will be launching in Malaysia very soon. We just brought the
TransferWise borderless card available in Singapore following the launch in Australia. So we're still continuing on a global expansion and there's
quite a few more countries we're going to.
[09:35:15]
ASHER: TransferWise's mission is money without borders. How do you anticipate that the global banking system will be disrupted and will
evolve, say 20 to 30 years from now?
HINRIKUS: I think in 20 to 30 years, we're really questioning what does it mean to be a bank? Is there a role for banks besides just keeping their
money or bank's vault for money or are banks providing value-added services?
You can look now that pretty much every value added service that a bank provides is being done better by a financial services company like
TransferWise or you look at companies offering credit services.
So I think we'll see a world where banking as such, maybe will become less exciting in the coming decades to come and people are looking for very
seamless and integrated banking services.
You know, for example, I don't think anyone wakes up wanting to go to a bank branch, but you want to wake you wake -- you up, you want to buy a
car, so you need a flexible leasing solution, the financing solution which may come from a bank or a specialist provider, so it has to be all much
more seamless.
ASHER: And what are some of the ways in which you're fighting for regulatory changes to the current global banking system?
HINRIKUS: So I think there is a big part here, which is about educating the regulators. So we're lucky that we're headquartered in in London and
the London regulator, the FCA has been one of the most innovative in this area.
Europe in general benefits from a single regulatory scheme. But I think around the world, there are still quite a lot to be done to make sure that
consumers have access to very fair and transparent services.
In Europe last year, the European Commission passed a law which states that any financial institution offering foreign exchange services needs to
disclose a rate markup, so I'm very happy to grow up in a continent where consumers finally will have much more transparency and that's thanks to
regulation.
ASHER: All right. Taavet Hinrikus, CEO of TransferWise live from Lisbon at the Web Summit. Thank you so much. I appreciate it.
Okay, so up next, $9 billion in damage, Softbank counts the cost after its tech unicorns fail to impress Wall Street. We discuss the valuation
problem, next.
(COMMERCIAL BREAK)
[09:40:35]
ASHER: Japan's Softbank took a $9 billion hit on its tech investments this quarter. Among its key holdings are Uber, WeWork and Slack. All three
were tech unicorns, companies valued at over a billion dollars while still privately held. All three have fallen flat. WeWork never actually even
debuted in its IPO, while Uber and Slack are trading well below their IPO prices. So what's behind the mismatch between private and public
valuations?
Bradley Tusk, Uber investor, and founder and CEO of Tusk Ventures joins us live now. So when you think about Softbank taking this massive hit because
of their investments in Uber, and WeWork, what should change going forward in terms of their strategy about how they invest in these tech unicorns?
BRADLEY TUSK, FOUNDER AND CEO, TUSK VENTURES: Yes, I mean, I think their underlying strategy of when you're going to place bets on the companies
that are going to be leaving the S&P in 10 years, and we want to own chunks of each of these companies is still a really good idea. There's only as
much money to do it.
If they have lost, you know, a billion dollars at WeWork instead of 10, we would say, okay, that's how things go. But when you raise $100 billion
after deploying these crazy sums of money, when it goes wrong, it's gone wrong a lot. The losses are really big.
And so I think generally, you have this problem where valuations are way too high, Softbank is a big factor in that and when they make a bet that
works, like they way they did with Alibaba, it's great. But when they don't, it goes really bad.
ASHER: There's a popular saying in business, you bet the jockey and not the horse. So when you think about Mr. Son, when you think about Softbank,
did they place too much emphasis in Adam Neumann as this, you know, brash, sort of charismatic founder, as opposed to looking at the underlying
fundamentals of the business?
TUSK: Yes, I think that's right.
ASHER: Everyone gets tempted by that, the personality of the founder.
TUSK: Because keep in mind, the founder becomes this genius icon, in part because the valuation of the company keeps going up. When Adam Neumann had
a startup for knee pads for kids that were crawling, nobody cared about Adam Neumann, right?
ASHER: Yes.
TUSK: And if WeWork never rose past $100 million valuation, nobody would care about Adam Neumann. So in some ways, if you're betting that much on
the jockey, you're almost creating this cult of personality around the jockey as a result and that to Nuemann's case not just being a bad
investment, but I think behavior by him, that was just unacceptable.
ASHER: Right, right, right. So Ray Dalio penned the piece on LinkedIn. One of the things -- he said a lot, but one of the things that stood out
and is relevant for this conversation is this idea that it is bananas. It is bonkers that these companies can rack up billions of dollars in
valuations without offering in return a penny of profit.
TUSK: Yes.
ASHER: What are your thoughts on that?
TUSK: I mean, so on one hand, startups need to be able to grow and expand and lose money along the way, because that's the playbook to building a
really big business. But, the notion that a company that is only losing money is all of a sudden should be worth $10 billion, $20 billion, $30
billion doesn't really make sense.
And the reason why Uber, Lyft, Slack, Peloton, all of these companies keep seeing their shares falling in the public market is that there's a
significant misalignment between how the private markets are evaluating these companies, and how the public markets are and until there's an
efficient midpoint, these options will keep falling.
ASHER: I know but when you -- if you focus too much on profitability early on and people say that takes away from the innovation.
TUSK: Yes, then you're not going to grow. So there's a happy medium, but I think we can see Masa throwing $10.5 billion at WeWork 14 at Uber or
whatever he spent, that goes from putting an emphasis on innovation to an over exuberance that leads to too high valuations and then really big
losses.
ASHER: So Uber's lockup period ended today.
TUSK: Yes, 9:30.
ASHER: I don't know if we have the Uber share price that we can pull up, but I believe the stock is down.
TUSK: Yes, I am scared to see it, yes.
ASHER: I believe the stock is down about five and a half. Oh, six, just over six percent. Is that what you would have expected?
TUSK: I mean --
ASHER: Is that in line with what you would have thought?
TUSK: When they reported earnings on Monday that were better than expected and the stock still kept falling, it is a pretty clear sign the market just
feel that this company is overvalued, and the stocks are going to keep falling. Is there a point where the right valuation for Uber is?
Absolutely.
Look, WeWork was not a $47 billion company, but had it gone public, $4 billion might that have been the right price. Yes, there's the right price
for everything. But it doesn't seem like we're out there yet.
[09:45:00]
ASHER: So what does Uber need to do differently? We've got their earnings, obviously, what is it -- what do they need to do differently to
show a clear path? I mean, I hate saying that, because it's such a cliche now, and everyone says that, but a clear path to profitability.
TUSK: Two things. One is you're not betting on Uber for kind of small short term gains, you're betting on Uber because you believe that they can
truly transform the way that people or goods or burritos get from point A to point B. If you believe that Uber can be that Amazon of movement, then
they're a really good buy especially today.
But to do that, you have to really believe in the vision and really believe in the innovation abilities of the leadership of the company. And I think
one of the things we will really suffer when Travis Kalanick left as CEO is it kind of took that entrepreneurial spirit with him.
And Uber right now has been much more like a big bureaucracy, and if it's a big money losing bureaucracy, and you don't have that much faith in the
future, why would you buy the stock?
ASHER: Some people thought that even though the lockup period was ending today, some people thought that because the early investors would have been
so deep in the red already, that it would have made more sense for them to just hold on to the stocks.
TUSK: Look, I'm holding today more than I plan to because I want to see if the stock bounces back a little bit. But if you need liquidity,
especially, you know, if you're a venture capitalist like me, and you have income coming in from different flows, you can afford to be a little more
patient.
But if you've been working in Uber for the last 10 years and this has been the day that you've been waiting for a decade, to finally get some
liquidity, you're probably still selling no matter what.
ASHER: All right. Bradley Tusk live for us there. Thank you so much.
TUSK: Thanks for having me.
ASHER: Appreciate it. All right. So the fallout from WeWork and other tech IPOs that failed is being felt and Lisbon. Tech leaders are getting
together that for the Annual Web Summit. Hadas Gold is joining us live now.
Hadas, I understand you've been speaking to the CEO of Lime. What has he been telling you particularly about a potential IPO on the horizon?
HADAS GOLD, CNN BUSINESS REPORTER: Yes, that's a big question everybody has is when and if Lime is going to go public and to be honest, he sort of
dodged the question and said they're focusing more on profitability right now. Take a listen to what he had to say.
(BEGIN VIDEOTAPE)
BRAD BAO, CEO, LIME: We focus on the beauty of the business right now and also focus on the profitability. So I think, you know, that's the -- what
we are obsessed with.
GOLD: Now, we have seen some reports about Lime's revenue right now. Some potential investors might be a little bit worried. Do you think that you
can continue to tap investors after what seems like a Wall Street backlash against companies such as yours, such as an Uber or Lyft and a WeWork?
BAO: I think the, you know, the capital chases performance and the performance really is divided in a simple way. Growths and profitability
and we're advancing on both hand. That really might make some difference. We are already the leader in the micro mobility space and our revenue has
never been seen before in any industry.
Now, we're growing so fast. In the meantime, that we're also improving our own profitability. We, as a company has been gross margin positive for the
entire quarter as a whole company and we anticipate that it will be profitable entirely in 2020.
GOLD: Now one of the uncontrollable in your business is one of the most important parts, which is the rider. And we've heard some complaints from
cities, you know, the people are leaving scooters in places in Paris, they throw them into the river. How do you control the uncontrollable? How do
you help keep a handle on your riders?
BAO: Well, first of all that, the percentages in terms of those incidents are very small, even though it's a little bit disproportionally reported or
being unnoticed, but percentage-wise, it is very small.
On the other hand, we are working very closely and collaborating with cities that come up with better regulation and education as well.
First, rider campaigns is something we do to advocate the user to ride safely, but also very importantly, to advocate the user to ride
respectfully right to the pedestrians, to the community and to the city as well.
And technology really helps in here. By using and leveraging the connected IoT devices and sensors, we can help you regulate or incentivize the right
behaviors.
(END VIDEOTAPE)
GOLD: And Zain, what I found really interesting in this whole conversation is that relationship that they have with the governments and the local city
regulators, because we've all seen those scooters all over the street. Some people complain that they blocked the walkways.
In cities like Paris, they've been thrown into the river a lot. But he was very, very positive about the future, about the relationship with
governments. He actually cited Germany as a place where he feels as though they have had a very good relationship with regulators there. But it is an
ongoing relationship for them.
In terms of their future, they are focused right now on Europe and the United States. They don't seem to have any plans to consolidate or buy up
any sort of smaller companies or try to expand in some other areas say in South America or places like India or Asia. They're very much focused on
Europe and the United States. Really fascinating company to watch right now.
I also asked him how often he himself rides a Lime scooter? We've seen them all around Lisbon here. He says he uses it, Zain, every single day.
[09:50:11]
ASHER: I would have expected none -- nothing else from the founder. All right, Hadas God live for us there at the Web Summit in Portugal. Thank
you so much. Okay, still to come here, no recession fears here. What this Federal Reserve official had to say about the outlook for the U.S. economy.
Stay with us.
(COMMERCIAL BREAK)
ASHER: Welcome back everybody. Another quick check of the markets now. U.S. stocks are looking mostly flat in early trading. The Dow and the
NASDAQ are pulling back from record highs. The Dow is about down 20 points or so. The stocks have posted strong gains recently amid hopes that the
worst of the global economic slowdown is over.
Poppy Harlow spoke with Mary Daly, the President of the San Francisco Federal Reserve about the economic outlook and the pressures coming from
the White House in the latest edition of "Boss Files."
(BEGIN VIDEOTAPE)
POPPY HARLOW, CNN HOST: The President has called the Fed quote out of control, wrong, boneheads, no guts, no sense, no vision. Are you worried,
Mary about the independence of the Fed?
MARY DALY, PRESIDENT OF SAN FRANCISCO FEDERAL RESERVE: No. The reason I'm not worried is because our independence has been long standing since 1913
and the FOMC room is where we go to meet and when you cross the threshold, there's a certain reverence and politics literally never come up -- ever.
HARLOW: So you guys don't care what the President says.
DALY: We don't talk about it.
HARLOW: Insulting the Fed. You don't talk about it.
DALY: We never talk about it.
HARLOW: So to anyone who may be watching saying, well, I wonder if the Fed kept cutting rates because the President kept telling them.
DALY: No. The answer is no. It's unequivocal.
HARLOW: And to the President saying that the Fed is putting the U.S. economy at a competitive disadvantage.
DALY: Our work is to calibrate monetary policy so that we can achieve the dual mandate goals. It's a narrow mandate and we have one instrument and
two goals, price stability and full employment, and we take that very seriously.
HARLOW: This is the longest economic expansion in American history.
DALY: Which is terrific. And look at how many people have been lifted up from it.
HARLOW: Do you think it's got a lot more muscle?
DALY: I do think we have more muscle, I think we have more room to run. I think there are more people we can bring from the sidelines into the labor
market, they can get into jobs and get skills and training and experience.
HARLOW: What do you make of the manufacturing contraction three straight months now?
DALY: Well, there's two things going on there that is really pushing on manufacturing and also business investment. One is slower global growth.
I mean, I'd put that at the top of the list, and then also trade uncertainty.
HARLOW: What about the potential for a Midwest recession?
DALY: It's possible. It's very possible. But right now, if you look over the comments from the other Regional Fed Presidents who cover the Midwest,
they're not seeing that kind of recession. They're seeing a slow down for sure.
But in their written comments that you can see publicly, they're not calling a recession even in their areas. A recession is not in my judgment
right around the corner. But we are mindful of the slowdown.
(BEGIN VIDEOTAPE)
[09:55:09]
ASHER: And you can listen to the rest of Poppy Harlow's interview with San Francisco Fed President, Mary Daly on her "Boss Files" podcast.
Okay, so here is today's "Boardroom Brief." Marks and Spencer says underlying profits slump by 17 percent in the first half of the year. The
British retailer said clothing and homeware sales were down blaming supply chain issues and not offering the clothe sizes that customers wanted.
And no love lost. Shares of internet dating firm Match Group are falling. The owner of match.com, Tinder and OK, Cupid reported better than expected
earnings, but its fourth quarter guidance was weaker than Wall Street have been hoping for.
Okay, my friends, that's it for the show. That's it for FIRST MOVE. I am Zain Asher. Great to be with you. "CONNECT THE WORLD" is after this short
break. You're watching CNN.
(COMMERCIAL BREAK)
[10:00:00]
END
