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First Move with Julia Chatterley
Investors Are Digesting What Is And Isn't In The Phase 1 Deal Between The U.S. And China; Boeing Could Slow Or Completely Halt Production Of The 737 MAX; Hallmark Channel Says Sorry For Dropping Ads That Featured Same Sex Couples. Aired 9-10a ET
Aired December 16, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:15]
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Live from the New York Stock Exchange, I'm Alison Kosik sitting in for Julia Chatterley. Here's what
you need to know.
Trade uncertainty. Investors are digesting what is and isn't in the Phase 1 deal between the U.S. and China.
Under pressure. Boeing could slow or completely halt production of the 737 MAX.
And a quick reversal. Hallmark Channel says sorry for dropping ads that featured same sex couples.
This is Monday and this is FIRST MOVE.
It's the last full trading week of the decade and investors are feeling very festive. U.S. stocks looks set to rise at the open after finishing at
record highs last week.
Across the Atlantic, there's a strong rally happening there. The stocks 600 index, a measure of markets across the region hit an all-time high
earlier today.
In Britain, Prime Minister Boris Johnson's election landslide continues to boost U.K. assets by offering Brexit clarity.
But the real driver is the U.S.-China deal. Both countries announcing they had completed Phase 1 on Friday and the U.S. dropped the extra tariffs that
were due to kick in on Sunday.
Trade Representative Robert Lighthizer said yesterday the deal was totally done, but the details are fuzzy. We're still trying to find out what's in
it, which is where we begin our drivers.
And let's start with Christine Romans. She joins us live now for more on the U.S.-China trade deal. So walk me through here. This is Phase 1. It
still needs to go through a legal review. It's got to go through a translation process before it's signed. So the first question, could it
still hit roadblocks and if it doesn't hit roadblocks, what's in it? And what's not in it?
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS: Well, I can tell you this has been elusive, hasn't it? I mean, this is 18-19 months in the making.
It was not easy to get, and you're right, the Trade Representative Robert Lighthizer very confident here. He says this is, you know, Friday, in
fact, he said was the best day trade news in history in the entire world. Because of USMCA and this.
So what's in it? Well, we know that the U.S. will not put a tariffs on $160 billion in in Chinese goods that was supposed to happen this weekend.
That's off the table. They'll roll back other tariffs here. They're keeping about 25 percent tariffs on $250 billion of important, you know,
economically sensitive things that the Chinese are sending to the U.S.
In exchange, the U.S. is going to get some foreign products bought by the Chinese. It looks like $200 billion worth over the next couple of years.
And we know that there's some rollback or snapback provisions, meaning that if the Chinese don't live up to their end of the bargain, which has been a
big criticism in years past and the Chinese promised something and never deliver that Donald Trump will go ahead and put some tariffs back on.
But that brings three kinds of questions with three kinds of doses of caution, Alison. I think, one, look this Phase 1 deal doesn't reverse two
years of tariff damage in the global trading system. The 25 percent tariffs do remain on $250 billion worth of goods, so there's still our
tariffs there. And three, that snap back provision really does continue the uncertainty for companies.
They would like a little bit more clarity that you're not going to snap back and have tariffs go back on next year. That said, it comes against
the backdrop of the Fed that's cut rates three times and in a U.S. economy that's going at two percent, so all of this is why stocks seem a little bit
confident today.
KOSIK: Okay, so if we're going to hash out who are the winners and who are the losers in this case? Who's the winner? Who's the loser? Which is it?
ROMANS: I think they both win here. Both countries had to get some clarity here. This does not fix the trade problem. It doesn't even come
close to fixing the trade problem. It is as if literally and figuratively, the U.S. and China are speaking two different languages on trade, two
completely different trading systems.
And as Lighthizer said over the weekend when he was talking to reporters, this at least tries to find a little sliver of common ground here so that
they can continue working forward next year and work on a Phase 2.
I will say though, Ian Shepherdson, who is an economist at Pantheon Macroeconomics, he said it very well. This is low hanging fruit. They --
the two sides managed to agree on low hanging fruit that benefits both of them, but the hard work, the hard work still is yet to come.
KOSIK: I agree with you there with those points. Christine Romans. Thanks so much.
ROMANS: Nice to see you.
KOSIK: Urgent talks are underway after Mexico objected to last minute changes by the U.S. to their trade deal. Mexico's negotiator, top
negotiator flew to Washington as the future of the NAFTA replacement known as USMCA hangs in the balance. Matt Rivers is live for us in Mexico City
with the latest.
[09:05:15]
KOSIK: So, Matt, good to see you. What is it that Mexico has an issue with here? And does this put the USMCA deal in jeopardy?
MATT RIVERS, CNN INTERNATIONAL CORRESPONDENT: Well, it certainly makes it more complicated, Alison. It was less than a week ago, it was last Tuesday, in fact, here in Mexico City that all three
countries signed on to this newly revised version of the USMCA after changes were made that House Democrats in the United States had lobbied the
White House for, for the better part of the year, and this looked like a very rare example of bipartisan agreement.
You had President Trump and also House Speaker Nancy Pelosi saying this is a great deal. Well, what happened here is that on Friday, a bill was sent
to the House of Representatives and in that bill, it specifically calls for what's called labor attache. It is essentially inspectors to be based here
in Mexico City.
As a part of this deal, House Democrats wanted to make sure that new labor laws that were enacted here in Mexico specifically surrounding making it
easier and more effective for workers to unionize here in Mexico City, well, the Democrats wanted to make sure that those rules were being
followed. And to do so, they want to place up to five inspectors on the ground here in Mexico City to go around the country and actually make sure
that those new laws are being followed.
Well, what Mexico City is now saying, what the government is now saying is hold on, no one told us that. We didn't agree to that and we think that
inspectors on the ground here in Mexico City could be some sort of a violation of our sovereignty.
So you heard the Mexican President talk about it this morning in his daily press conference. He said that there will be dialogue with the United
States. He doesn't expect this deal to fall apart or anything, but what we do know is that Mexico has serious reservations with this language included
by the United States. They're saying that they weren't consulted on it, and they didn't agree to it.
And don't forget, Alison, this is a three country trade deal. If Mexico decides to walk away, the whole thing falls apart. I don't think we're
there yet. But it certainly is more complicated than it seemed just last Friday.
KOSIK: Yes, this measure was supposed to go to the House this week for a vote. Does that look like it's unlikely to happen now?
RIVERS: Well, no, I think House Democrats will likely move forward with this. We're hearing that it could happen as early as Thursday, a vote on
this, and I think the USMCA would still pass in the U.S. House. It's already been passed here by the Mexican Senate, so it's unclear exactly
what Mexico would do should this come to some sort of an impasse.
The Mexican Senate already ratified this deal. The U.S. could do so as early as this week, and I don't think that this hiccup, as you might call
it is going to stop House Democrats from wanting to push this legislation through and give their caucus something to talk about when they go home and
meet with their constituents over the Christmas and New Year's break.
KOSIK: Yes, still, it's got a chance of possibly falling apart. We will keep our eye on it with you. Matt Rivers, thanks so much, from Mexico
City.
Boeing's challenging 2019 is not over yet. A source tells CNN that the aerospace giant could curb or entirely freeze the production of the 737 MAX
jet as soon as today after the closing bell.
Boeing shares are currently down almost four percent in premarket trading. Clare Sebastian joins me live now. You know what Clare, we kind of knew
this could have been an option, CEO Dennis Muilenburg, he warned in July that Boeing would be forced to consider slowing or even shutting its
production of the MAX 737 if there were any more delays in winning approval to get this thing in the air again before the fourth quarter, so now it's
come to this.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Right, Alison. Yes, they've been -- they've been trying to avoid this the whole year. This is a really
big deal not only for Boeing, but for its entire supply chain.
But look at emerged when Boeing had a meeting with the F.A.A., the Federal Aviation Administration last week that they came out of that meeting now
believing that the plane would not be certified by the F.A.A. this year. That was something they had hoped would happen. It now looks like that
wouldn't happen.
So now we know that the Board is meeting. They started meeting yesterday, Sunday and they are meeting again today, a regularly scheduled meeting, but
a source telling CNN they could make an announcement today after the market closed on either curbing production even further or pausing it all
together.
Now, this is a huge deal, as I said, when Boeing cut production back in April, after the grounding of this plane from 52 planes to 42 planes a
month that not only triggered problems for some of the companies in their supply chain, but it also cuts about one to two tenths of a percentage of
U.S. GDP in the second quarter according to JPMorgan. That just shows the scale of this supply chain.
Boeing, of course, the largest manufacturing exporter in the United States, so a stoppage could trigger furloughs at Boeing. It could certainly
inflate the cost for that company, but it could also trigger real problems for companies and their supply chain.
If you look at Spirit AeroSystems, which makes the fuselage 737 MAX, that stock is down some 3.4 percent premarket, so you can see those issues are
being factored in there by investors as well. So this is something that could ripple through the supply chain through the supply chain and through
the economy, and the longer it drags on Alison, the more expensive it gets.
[09:10:15]
KOSIK: Absolutely. We will be waiting for Boeing's announcement sometime after the closing bell today. Clare Sebastian, thanks so much. And these
are the stories making headlines around the world.
The U.S. House Judiciary Committee has released its report outlining the case for impeaching President Trump. It lays out the evidence behind the
charges of abuse of power and obstruction of justice. Congress will vote on the Articles of Impeachment by the end of this week.
In Britain, a new intake of lawmakers is turning up for work after Boris Johnson's Conservative Party won by a landslide in last week's general
election.
And as you can see the FTSE is rallying on expectations for what's to come with the new government -- in the new government. It's up around two
percent today.
For more on what comes next, I'm joined by Phil Black who is live for us in London. So what is next? I know that Boris Johnson has been hard at work
even over the weekend to shuffle his Cabinet. What can we expect this week?
PHIL BLACK, CNN INTERNATIONAL CORRESPONDENT: Yes, Alison, there is a Cabinet reshuffle being announced today. Not so much a Cabinet reshuffle,
it is simply filling a couple of jobs in Cabinet that we knew were going to be vacant, and we knew that before the election. Important jobs like the
Secretary of State for Wales and of Culture as well. But these are not the big offices of state.
The Cabinet as it was, it is the Cabinet that is going to take this government through and as Boris Johnson would like to say, get Brexit done.
The new MPs that make up this Parliament will travel to London today.
Today, Boris Johnson or later this evening, we think, he is going to be meeting with the 365 Members of Parliament, the Conservative Members of
Parliament, who will be sitting in this parliamentary term, including of course those who really brought it over the line, who really helped Boris
Johnson secure his big new majority. Those MPs elected in parts of the country that have not elected Conservatives for decades. In some cases,
they have never done.
He is going to be welcoming, congratulating, and no doubt really firing up that new parliamentary intake. It's going to be a room full of very
excited politicians this evening.
Then over the next couple of days, it's all about process and ceremony. The MPs will be sworn in in Parliament. Then Thursday comes the formal
state opening by the Queen where she reads the Queen's Speech. That's the speech written by the government which details what they hope to achieve
legislatively over the coming parliamentary term.
And then Friday, Parliament gets down to the business of debating and potentially voting on things as well, and at the top of the list from the
government's point of view, is the E.U. withdrawal bill that is the bill that initially triggered the election in the first place because Boris
Johnson feared that he wouldn't be able to get it through the old Parliament and changed. He no longer has to worry about that, of course,
because he has that whopping big majority of 80 MPs. So he is easily on course to secure Brexit by his next deadline of January the 31st -- Alison.
KOSIK: It's shaping up to be a busy and historic week in the United Kingdom. Phil Black live for us in London, thanks.
British socialite Tamara Ecclestone reportedly had jewelry worth tens of millions of dollars stolen after thieves broke into her home. British
newspaper, "The Sun" says Ecclestone, the daughter of the former Formula One chief, Bernie lost items valued at about $67 million.
Still to come on FIRST MOVE, the crypto mystery, why investors in one exchange want to exhume its founder's body.
And from virtual reality to the virtual border wall, what the creator of Oculus did, next.
(COMMERCIAL BREAK)
[09:17:04]
KOSIK: Welcome back to FIRST MOVE. I'm Alison Kosik, and we are on the floor of the New York Stock Exchange. Stocks are set for a higher open as
the U.S. and China announced the bare bones of a deal.
And joining me now is David Bailin. He is the Chief Investment Officer at Citi Private Bank. It's great to have you on because you take a look at
the big picture as we kind of wind down 2019. What does 2020 look like now that we've got a little of the ambiguity gone with the U.S.-China trade
deal, with Brexit?
But still we're getting these signs of slowing here in the U.S. We're hearing that retail sales numbers may not have been as good in the early
part of November. You know, of course, manufacturing is showing a contraction. What can we expect for 2020?
DAVID BAILIN, CHIEF INVESTMENT OFFICER, CITI PRIVATE BANK: So I think we're getting a bit of a head fake right now in terms of the data. When we
look at it, we think about consumer demand remaining very strong not only in the United States, but even in Europe, and in Asia, and what we've seen
is that for the last six months, the manufacturing sector has been under producing consumer demand very consistently.
So what we're expecting as we begin next year is a real pickup in manufacturing to meet consumer demand, and we can see the consumer is very
healthy in terms of their savings rates, in terms of the absence of debt. Really no, what I would call bubble is taking place there. So that's the
first step.
And then the second is if that's right, we can expect the U.S. earnings per share to be up about seven percent next year over this year's relatively
modest gains. And if that's true, you can have a reasonable market.
Everybody is very focused on the fact that markets are up so much, but if you look back over two years, not so much. You know, to like a nine
percent plus per annum, you know, on an average basis.
KOSIK: Well, the market up so much can also cause a bit of anxiety among investors. I mean, you know, this has kind of been the year of signals,
you know, the inverted yield curve and more recently, the black swan which is talking specifically about the CBOE Skew Index. It's where investors go
to bet that the market is going to crash, and it looks like investors are piling into that as protection, just in case.
Is this -- is this a real phenomenon? Or is this just another head fake?
BAILIN: Yes. So the idea of protecting one's portfolio makes a lot of sense to us. You know, ultrahigh net worth clients create structured notes
and structured products that really help them do that to change the actual portfolio construction.
But that's really because volatility is so low. Insurance is cheap and that's when you should buy it. So that makes sense to me. But in terms of
the actual fear, the data that we have to suggest that there's an imminent problem, we just do not see that.
You know, where the black swan is going to come from, we don't see that either. We don't have a debt problem, and we certainly don't have an issue
in terms of given where rates are, what valuations look like.
KOSIK: So are you saying there's no fear on Wall Street?
BAILIN: Well, there are concerns. You know, investors have not put money to work during 2019.
If you take a look at the actual flows out of ETFs and out of mutual funds, we should have almost $200 billion of outflows during the course of the
year.
[09:20:03]
BAILIN: So I agree with you that people are concerned, but they've also been wrong, and that's one of the things why you want to have your
portfolio fully invested and diversified and especially globally diversified.
One of the things we're telling everybody now is that what's happened in the last 10 years, which has been the U.S. outperformance of all markets is
highly unlikely to repeat.
When we look at the strategic return estimates for non US stocks, they're almost twice as high as U.S. stocks. So we need to have our clients more
exposed outside of the United States, especially with valuations on a relative basis being high.
KOSIK: What about exposure to bonds?
BAILIN: So that's a tough call, right, if you're in -- we are very much against both negative yielding and low yielding bonds, so we're doing some
substitutions, right? So we're looking at specific sectors of the market like real estate related loans and bank related loans.
But we're also advising clients who have long duration bond portfolios to consider buying high dividend high growth stocks. So dividends, companies
that have good earnings growth and dividend growth which actually are yielding considerably more, almost twice what the bond yields are, and we
think that that's something they should be putting in portfolios in a pretty considerable degree.
KOSIK: Give me your quick predictions for 2020.
BAILIN: So I think that 2020 is going to have some surprises once people start focus on the election. So I think that that will be, you know, three
to six months, there will be a lot of noise, and then you know, people will then look at the election possible outcomes and then look at markets in
that light.
And the second thing we really have to focus on is the degree to which these trade issues are actually abating. The China trade deal is really
not a trade deal. It's a postponement of negotiation, and as a result of that, we have to see what else takes place.
The President has actually taken a look at European autos, he is taking a look at steel in Argentina and Brazil.
KOSIK: Right. This could still go on and on.
BAILIN: You know, I think it is likely to go on and on because that is part of the news cycle. You know, it's what's happening with trade. And
that's really what's reduced confidence in the industrial sector globally. It is that. So we'll see that.
And then the second thing really has to do with energy. Energy has been an under producer. The energy sector, an underperformer all of 2019. Could
there be a rebound in that sector? You know, what would that mean for the economy? But otherwise that's going to be a drag as new technologies take
hold.
KOSIK: Okay. David Bailin, it is so great to talk with you. Thanks for your time.
BAILIN: Thank you so much. It's a pleasure.
KOSIK: And we will be right back after the opening bell.
(COMMERCIAL BREAK)
KOSIK: The death of 30-year-old Gerald Cotten rocked the cryptocurrency world last year. The founder of the crypto exchange Quadriga CX died while
on a trip to India last December. Now, investors who lost money in the collapsed exchange are demanding extraordinary action be taken.
Our Paul La Monica joins me now. I'm not going to give away with that extraordinary action is, Paul. I'm going to let you say it because this is
like something out of a movie.
PAUL LA MONICA, CNN BUSINESS REPORTER: Exactly. This has all the makings of a very bizarre Hollywood drama. They want the body exhumed to prove
that it is in fact him because ever since Cotton did pass away, there has been a lot of conspiracy theories sort of chatter about whether or not he
actually did really die because he holds the only keys for these digital wallets that have all the assets for this particular cryptocurrency tied up
into it.
[09:25:06]
LA MONICA: So that's about $150 million or so that the investors in Quadriga now cannot get a hold of, and that, again, has led to the
conspiracy theories, all just speculation and chatter that maybe he didn't in fact die and has absconded with the money.
KOSIK: So what are the chances that his body will be exhumed? And what will these investors do if he is exhumed and it is discovered that yes, it
is him who died? What's the next step?
LA MONICA: Well, yes. This is all taking part as part of a bankruptcy proceeding and Canada, whether or not the court decides to exhume the body
and then prove that is him. I think there are issues of whether or not they will be able to definitively prove that because he did die and was
buried about a year ago, or at least that's what everyone is obviously saying.
So if he is found to not be the body that has been buried, whether or not the people who have all their money tied up in these Quadriga coins, can
they get some of the money back? That remains to be seen. This is all going to play out in the bankruptcy hearings because there is no physical
way to unlock these digital wallets to allow these investors to get their funds back.
KOSIK: You know, it's amazing in this day and age with all of our technology, how we can't find somebody to hack into that. Right? Have
they tried that route?
LA MONICA: No. Well, that is the problem. The reason why this particular cryptocurrency was so secure is because he held the only key to the digital
wallet, which made it pretty much impervious to hackers.
So this is a weird sort of case where, you know, a lot of people flock to crypto currencies because they are less susceptible to fraud and hacking.
But in this case, you have one guy with the only key, he is now dead. People can't get their money back.
KOSIK: Oh, this is a movie that will just, I think, keep going on and on and we'll be watching it together.
LA MONICA: I am seeing Tom Hanks and Steven Spielberg for some reason. Yes.
KOSIK: Yes. Those are good characters for them. Yes. All right, Paul La Monica. Thanks so much. And we are going to be back with the opening bell
next.
(COMMERCIAL BREAK)
[09:30:00]
KOSIK: Welcome back to FIRST MOVE. I'm Alison Kosik live from the New York Stock Exchange. That was the opening bell. Stocks in fact, they are
rising at the open after closing at record highs on Friday. It is the last full trading week of 2019, and here are some of the Global Movers for you.
DuPont is up by around three percent after announcing it is creating a consumer goods giant valued at up to $45 billion by merging its food
business with international flavors and fragrances.
Shares of IFF are down more than four percent. Meantime, Boeing is making its descent down a little bit after a news leak that it could halt
production of its troubled 737 MAX, something we will learn more about after the closing bell today.
The American TV network, Hallmark Channel is apologizing for a decision which it's now reversed to take a number of ads off the air because they
featured same sex couples.
Polo Sandoval joins us live with more. Polo, I know you've been on this story, you know, just overnight, it's just -- it's just literally reversed.
First of all, what made Hallmark make the decision to take the ads off the air in the first place? And then what pushed them to make that that
reversal so quickly?
POLO SANDOVAL, CNN CORRESPONDENT: Alison, it really was a remarkable reversal that we saw overnight, that reversal that you mentioned a little
while ago. Now initially, this was late last week when there was a conservative group here in the United States that submitted various
complaints that it said it was getting from viewers of the Hallmark Channel saying that this advertisement that showed a lesbian couple kissing at the
altar was not quote, "family friendly."
So as a result, Crown Media, the parent company of this channel said that this controversy was distracting to their goals. So they took down four of
the six ads. And then eventually Zola is saying, look, if you're not going to run all of our ads, then we're going to take them all down, or we're
going to take them all back.
And ultimately, I think that that was certainly a big factor here is the potential threat of losing out on more advertisers. And so what we saw
overnight was a statement that was released by the CEO of the Hallmark Channel, very, rather significantly different when you compare it to what
we saw yesterday, Mike Perry, the CEO of Hallmark writing, "We are truly sorry for the hurt and disappointment this has caused across our brand. We
will continue to look for ways to be more inclusive and celebrate our differences."
So there was that threat of more advertisers pulling out. There was also this call for a boycott on Twitter and then Alison, when you look at what
Hallmark Channel's competition was tweeting including Netflix, taking to Twitter and promoting what they were describing as other titles that they
had to offer their audience members, you can see it here, they said they promoted, quote, "Titles featuring lesbians, joyfully existing." And then
they also wrote, "It's Christmas. Can we just let people love who they love?"
These are the kind of messages that we're seeing from their competition. So Alison, as you can imagine, those are three main factors that would
certainly not lead to any surprise when it comes to this reversal from Hallmark.
KOSIK: Yes, I mean, this stunning reversal from Hallmark saying I'm sorry, and being very direct. That really caught my eye. But do you think the
damage has already been done for Hallmark?
SANDOVAL: It's a good question here. I could tell you that Zola, this is again, this website, this wedding planning website that was initially --
whose ads were sort of the center of the controversy did respond to this and they did say that they were relieved about this reversal and then they
also said that they would be getting in touch with Hallmark about the potential for returning to Hallmark for their advertisements.
So there certainly is that indication or that evidence that they are open to purchasing more airtime on Hallmark. So it may not be too late for this
channel. As you clearly see in that apology, they are trying to make it up to their viewers, especially make it up to their advertisers as well.
KOSIK: Okay, CNN's Polo Sandoval, thanks so much.
SANDOVAL: Thanks.
KOSIK: The Chinese government has invited an arsenal footballer to visit Xinjiang after he criticized China's treatment of the Muslim Uyghur people.
Alex Thomas joins us now live with details. So this all started on social media, right?
ALEX THOMAS, CNN WORLD SPORT: Yes, Alison. Mesut Ozil who is a very famous footballer playing for Arsenal in England's Premier League and also
for the Germany national team who were world champions as recently as 2014 getting into trouble not for the first time involving politics overlapping
with his football career after posting on Twitter and Instagram, a message saying that, Muslim people around the world, we're not doing enough to
speak out at the treatments of the Uyghur Muslims in China, both the U.S. State Departments and the United Nations estimating up to two million
Uyghurs have been detained in China or that the Chinese have always denied that they're treating them at all harshly.
And in fact, the Chinese Foreign Ministry were the ones that came out earlier on Monday to say that Mesut Ozil should come to the country and see
that he is talking nonsense. They say that he's been fooled by fake news, if you like in this controversy.
It actually led to the Chinese state broadcaster refusing to televise an English Premier League game between Arsenal and the reigning premier league
champions, Manchester City on Sunday that was pulled from broadcast although, without explanation, as is the way with CCTV and Arsenal doing
their best to distance themselves from those comments from Ozil, releasing a statement in China only saying it was the player's opinion only and not
the opinion of the club.
All very reminiscent of the row between China and the NBA and the Houston Rockets after the Rockets General Manager Daryl Morey back in October,
posted a message in support of the protesters in Hong Kong. We know how sensitive Beijing officials are to anyone questioning the sovereignty of
China, and here we are having China and a sporting controversy all rolled up together -- Alison.
KOSIK: Is Arsenal seen as kowtowing to China? Listen, there are widespread reports about the Uyghur Muslim community, the harsh treatment
of them, and then you have Arsenal apparently kowtowing to what China wants obviously because of money. What are you hearing about that?
THOMAS: I mean, the Arsenal Football Club have been heavily criticized for trying to distance themselves from Ozil comments, because to most impartial
Western observers, there seems certainly no controversy over the fact that Uyghurs are being detained in China. Obviously, China continue to deny it.
Instead, it looks like Arsenal have been pandering to their commercial interest in the country much as the NBA was criticized for doing the same
over the Rockets Morey affair, but in the end ultimately, the NBA took a hard line saying the players are allowed to say what they want, even if it
becomes quite political.
Certainly, all sports throughout history and teams and clubs have tried to stay apolitical, stay out of politics, if you like because of the trouble
that it can cause. Clearly, Arsenal is not going to get out of this in a hurry. England's Premier League been very, very quiet on the matter.
KOSIK: Okay, Alex Thomas, thanks so much for joining us. Up next, high tech and even higher security. CNN talks to the man behind the virtual
wall at the Mexican border about his journey from founding Oculus to taking on Boeing.
(COMMERCIAL BREAK)
KOSIK: Welcome back. At 16 years old, Palmer Luckey founded Oculus Virtual Reality. At 24, he sold it to Facebook for $2.3 billion. Now, 27
Luckey's newest company provides the quote, "Virtual border wall technology that covers the U.S.-Mexico border." Luckey spoke to CNN's Julia
Chatterley about patriotism, taking on Boeing and military ethics. She began by asking him about the tech community's position on working for the
U.S. government.
(BEGIN VIDEOTAPE)
PALMER LUCKEY, FOUNDER, OCULUS VIRTUAL REALITY: I think that different companies have had different reactions. I think there was a great talk by
Jeff Bezos at the Reagan National Defense Forum just a few days ago, I was there. And he said that sometimes it's the role of the executive to push
back and say, no, we are going to work with the national security community because it's important to secure our country.
It's important to see our secure our values. And we're not going to run away from controversy because there's a lot of problems that are important
to work on that are still controversial and that we can't let that be our guiding principle, not as a company, not their company and not as a country
either.
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR: Patriotism.
LUCKEY: In a word, yes.
CHATTERLEY: Yes. Talk to me about who else you're working with because you are not just working with the United States government, you've also got
contracts with the U.K. government as well, the U.K. Marines, I believe.
LUCKEY: Yes. So we work with -- we work with the U.K. Royal Marines on the security side, and also selling them autonomous drones. You know,
we're willing to work with the United States and our strong allies.
And there's a lot of reasons that you want the United States and our allies to be using a lot of the same technology, particularly when it comes to the
types of systems we're building.
You know, we're building, you know, autonomous security towers that tell you everything that's going on for miles around a military base, autonomous
drones that are communicating with not just fleets of other drones, but also with humans on the ground that they're collaborating with.
And it's good for all of us when our when all of our allies are all using the same technology so that our systems can talk to one another, so that we
can collaborate without having a lot of these kind of lost in translation problems that you have when two countries have totally different technology
stacks.
CHATTERLEY: Talk to me about some of the technology at the U.S.-Mexican border wall as well because I know you've talked about a virtual wall, we
actually don't need to be seeing physical structures being built, technology can replace that.
LUCKEY: I don't know if technology can replace physical barriers. I mean, there's a lot of areas where you'll have one urban area, and then another
one right on the opposite sides of the border. And in that case, you still do need physical barriers.
But for a lot of areas, what you need far more than a physical barrier is the ability to know everything that's going on, and then immediately
respond to it in an accurate way. So, you know, the same security towers that we've been putting on military bases, we've also been deploying on the
U.S. southern and northern border, so that Border Patrol agents are able to see where all the people are, where all the vehicles are, where all the
drones are, and whether they respond to those things or not. They know what's happening.
They know what's crossing and they can have a historical record of what's crossed the border in both directions. And that allows them to do their
jobs a lot more effectively.
CHATTERLEY: You know, to get back to the conversation that we were having in it is incorporated into this, too. There's always an ethics question
when we're talking about this kind of technology and weaponry, whether it's artificial intelligence, facial recognition technology. Do you have to
assume as a company that when you're dealing with government contracts that the government always falls on the right side of this? Or is it okay for
people to question whether their workers or others?
LUCKEY: Oh, of course, it's okay for people to question it. In fact, when people at technology companies say that they're upset about their companies
working on defense technology, I somewhat sympathize with them.
A lot of these people didn't sign up to work on defense technology. It doesn't mean they're anti-defense. It doesn't mean they're anti-military
or anti-American. A lot of them just don't personally want to work in that technology. And that's fine.
When they come to our company, on the other hand, they know exactly what they're signing up to do. And so I think the ethics are actually very
important piece of this. The United States and our allies have a pretty good track record of using technology and ethical ways, and I think that a
lot of these new technologies, we need to think about them the same way, you know.
If the United States would not have been a leader in nuclear technology, we never would have been able to set the norms for how nuclear weapons would
be used, or in most cases not used.
I think the statement is true of artificial intelligence and autonomy. If the United States is not the leader in that space, then we're going to have
to cede international norms to countries like Russia and China, which do not share our values. They want to use autonomy in very different ways.
[09:45:19]
LUCKEY: Russia, for example does not have any qualms about autonomous weapons that can find, acquire and fire on human targets without human
intervention.
In China, there's already multiple companies building armed autonomous drones that are able to do the same. In the United States, we have a very
strong doctrine around keeping a human in the loop, making sure that a person always takes responsibility.
So you can never just say, it was the machine, it was the robot. It made a decision that we didn't like and so it's its fault. There's always a
person who is supervising that process and they're the one who has to take responsibility for any decision.
So I think the ethics of this are important, and I think that's why we have to make sure that we lead in this space.
CHATTERLEY: But to your point, is there a risks, the responsibility and the ethical questions that we ask, limits technology development in
countries like the United States relative to countries like China and Russia. Where's the line?
LUCKEY: You know, I think it's not up to me to draw. I think our military has done a really good job of drawing the line. I think in the last few
years, it's become very kind of very much of the popular consciousness this idea around how should the military be using autonomous systems? But
they've actually thought about a lot of these problems many years ago.
You know, we have cruise missiles that are capable of autonomously striking targets like surface to air missile sites that are emitting certain radar
signatures.
We have autonomous gun systems that are doing things like shooting down incoming projectiles that are coming at Navy vessels.
And so a lot of these questions have actually already been thought out very, very extensively. I do think that people should continue to raise
concerns and they should make their voice heard. I don't think that the military is going to make the wrong decision just because people are
raising their concerns and I don't think people should be quiet because they're concerned that it might limit the military. I'm pretty confident
we're going to come out in the right place in the end.
CHATTERLEY: Would you ever turn down a potential contract from the government because you had issues with what you were being asked to do? I
know you've said that, actually, you're developing technology that they knew then. And so it's sort of cocks sort of coming before the horse in in
the case that I'm making.
But do you reserve the right to refuse a contract if you simply don't agree with what's being done?
LUCKEY: Oh, we absolutely do. We have the right and actually that's one of the things that makes our country great relative to China where they
have the military civil fusion strategy where any technology in the private sector is de facto property of the military as well.
If they say they want to take something and use it, then they can just take it from you, and in the United States, we have the right to say we don't
want to do a certain contract, other companies have the right to say that.
I will say that nothing we've been asked to do comes even remotely close to that line. And honestly, I don't think that it ever will. I think that
the United States is pretty -- we're pretty aware of what can happen when technology is taken too far and based on all the work that I've done with
our government partners, I think that they're treating this technology very responsibly.
(END VIDEOTAPE)
KOSIK: Fantastic discussion. Our thanks to Julia Chatterley. Still to come on FIRST MOVE. Is this fish good to eat? A company invents a scanner
that uses blockchain technology to break your food down to molecules.
(COMMERCIAL BREAK)
[09:50:27]
KOSIK: Welcome back. We are in peak season for indulging ourselves. I can certainly vouch for that, I've had plenty of junk to eat just this
week, and not everything we eat is going to be good for us. So how much sugar is in your favorite Christmas latte? How much salt is in that gravy
are about to pour all over your potatoes?
A company called TellSpec is trying to help answer those questions. It's created a scanner that uses blockchain technology to offer real time
analysis of the food that's in front of you.
The CEO of TellSpec is Isabel Hoffmann and she joins me now live. I'm so excited you're here because the timing is terrific. I've been eating like,
yuck all week, and I'm often curious what is in our food, but you're saying this can tell us all the answers.
ISABEL HOFFMANN, CEO, TELLSPEC: Some of the answers, at least we use artificial intelligence to do the chemical analysis of food.
KOSIK: Okay, so what so what is this? This is a scanner.
HOFFMANN: This is actually a sensor, a spectrometer. It reads the light that is reflected from the molecules of a substance. So from that light,
we have a unique fingerprint of the substance, and then we use AI to come up with from that fingerprint, the chemical composition of it.
KOSIK: Is this device out now?
HOFFMANN: Yes.
KOSIK: OK. What does it retail for?
HOFFMANN: $1,899.00.
KOSIK: Okay, so knowing that, I want to see what happens when you have that orange. She has got an orange in her hand and show us how it works.
HOFFMANN: So basically you, you see here, it's warming up. And now I'm just going to put it in context. It's throwing light to which performing a
scan.
KOSIK: She is performing the scan on her iPhone here, it literally says, performing a scan. And then there's a little circle going around. So it's
reading what's literally inside this orange. So what is it telling us?
HOFFMANN: So here it is a spectrum.
KOSIK: Okay.
HOFFMANN: So that spectrum now is going to be analyzed by our AI machine learning.
KOSIK: And so is this analysis instant? So it's basically --
HOFFMANN: It is in the Cloud. Yes.
KOSIK: It is instant, so it's going to feed back now and tell us what exactly is inside the orange.
HOFFMANN: So bricks 9.9, that's the sugar.
KOSIK: Okay, so there's 9.9 --
HOFFMANN: Of sugar.
KOSIK: Milligrams of sugar.
HOFFMANN: Of bricks.
KOSIK: Okay.
HOFFMANN: Try to pull acidity -- is our acid. The orange has actually very little acid.
KOSIK: The acidity.
HOFFMANN: Yes, 0.83. Vitamin C content. So it's 40 percent in vitamin C and just ratio about 35 percent of juice ratio. So it gives you an
analysis how much juice you could get out of here and what vitamin C you have, how sweet it is. And how acid it is.
KOSIK: How important is it to know those factors of let's say the orange and we can just sort of go online and Google, what are the nutrients in an
orange?
HOFFMANN: Right. But that's the general orange, right? That's not this specific orange. So you know, you go to a store and you buy an orange and
sometimes you go squeeze it and there's no juice.
So this chemistry, this analysis, it is sensing this exact orange.
KOSIK: Who is buying this device?
HOFFMANN: Well, we have many application, so for this particular application, supermarkets and distributors, and producers.
KOSIK: What about critics who say look, this is a great, great invention, but it can't read a product that has a multitude of ingredients, let's say
a giant sandwich with bacon and lettuce and tomato and turkey?
HOFFMANN: This particular sensor is an infrared sensor. So yes, it's limited to scanning each item that is sort of homogeneous. But other
sensors can read. I mean, right now we are at this stage, we actually have three sensors in the market very soon this year coming out, 2020, we'll
have two more.
One of them will be reading milk, human milk, breast milk, because breast milk sometimes is not enough for the baby. It doesn't have enough
composition in terms of fat and protein. So we are making specific applications and one day hopefully we'll be able to scan the sandwiches.
KOSIK: Can it tell if fish is really wild or farmed or what's in it?
HOFFMANN: Yes, that's the interesting part is that we got a huge fund from the European Union actually to produce fish -- a series of 21 fish species.
And we can do actually wild versus farmed, fresh versus the frosted, as well as the composition of the fish. And sometimes we can differentiate
fishes without a DNA test.
KOSIK: Real world impact. I love it. Isabel Hoffmann. Thanks so much for joining us.
HOFFMANN: Thank you.
KOSIK: Really appreciate it.
[09:55:03]
KOSIK: And finally this hour, "Frozen 2" is still red hot at the box office. Disney's "Frozen" sequel has now earned more than $1 billion in
global ticket sales. It opened less than a month ago. It's the sixth Disney film to hit the billion dollar mark just this year.
And let's take a quick look of the markets before we head out. If we can see them. I'll turn my head, it looks like we are in the green. It looks
like the Dow is up a little less than one percent.
We are waiting to hear from Boeing after the bell, waiting to see what Boeing decides to do with the MAX 737 jets.
And that's it for the show. Thanks for watching FIRST MOVE. I'm Alison Kosik. Listen to our podcast at cnn.com/podcast. "CONNECT THE WORLD" is
up after this short break. Thanks for joining us.
(COMMERCIAL BREAK)
[10:00:00]
END
