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First Move with Julia Chatterley
Investors Take Stock After Monday's 1,000-Point Fall; President Trump's Trip To India Ends Without Major Deals; Intuit Snaps Up Credit Karma For $7 Billion. Aired 9-10a ET
Aired February 25, 2020 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:26]
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE. And here's what you
need to know.
Dow drop. Investors take stock after Monday's 1,000-point fall.
Styled but little substance. President Trump's trip to India ends without major deals.
And good karma. Intuit snaps up Credit Karma for $7 billion.
It's Tuesday. Let's make a move.
A warm welcome once again to our FIRST MOVErs all around the globe.
I can tell you, investors certainly today hoping for some Mardi-Gras style momentum after the worst one day trading session for U.S. stocks -- never
mind the rest of the globe -- in two years.
What we're seeing right now for U.S. futures is a bounce back. NASDAQ futures at this moment up around three quarters of one percent. That said,
of course, we will be gaining back just a fraction of Monday's three percent plus losses.
History, though, suggests that big pullbacks like yesterday tend to be followed by snapbacks of around one percent the day after with the S&P 500
specifically higher overall a week later.
I have to say though, this situation incredibly tough to gauge. Uncertainty about the ongoing spread of the coronavirus increasing rather than
lessening overnight.
The details coming shortly, but in the meantime United Airlines and MasterCard are the latest U.S. multinationals to warn on profits.
United shares have turned around premarket, but MasterCard is still set to see a one percent loss at the open. We'll see a true change in sentiment, I
think when investors begin easing back on safe havens, and we're simply not there yet.
Ten-year yields remain close to record lows once again today. Gold, though easing a little bit here from seven-year highs. Oil, slightly firmer, but a
long way to go as I mentioned in terms of the demand that we've seen for these safe havens.
What about over in Europe though? The situation remains delicate. Italian stocks in the red after Monday's five percent slide. Authorities still
trying to control the coroner virus outbreak there.
In Asia, we saw some buying in Hong Kong and in South Korea, but Chinese stocks did lose some ground. The Nikkei, of course, playing catch up after
being closed on Monday's session. That fell over three percent today as the Japanese government made a series of recommendations to try and contain the
virus outbreak.
Let me get you the latest here on the coronavirus. New clusters emerging in Italy, South Korea and Iran. That's the headline.
Italy has puts in place travel restrictions and halted at the Venice Carnival. Authorities say 283 people have been diagnosed with the virus.
Seven have died.
Questions, of course remain about the handling of the outbreak as governments around the world struggle to halt the contagion.
Japan's government, as I mentioned there making several recommendations for businesses to try and contain the outbreak, including phased sessions of
working.
In China, meanwhile, only 30 percent of small businesses have reopened despite government measures to try and support them.
David Culver is in Beijing once again for us. David, do we have any sense of what is stopping these businesses? I'm sure clearly, people want to get
back to work, but at the same time, workers will be frightened. Consumers, I'm sure will be frightened. What's the hold up?
DAVID CULVER, CNN CORRESPONDENT: It comes down to logistics, Julia. I mean, the reality is, you still have hundreds of millions of people within
these lockdown zones. They can't leave, they can't get out and they can't come back to the places like here in Shanghai where perhaps they usually
are working most of the year.
Because of when this happened, the timing was a perfect storm in many ways. I mean, all of this leading up to the Lunar New Year, the Spring Festival
where the mass migration of people, the largest each year, going back to their home provinces, so now many of them still there and in place and a
lot of the factories can't come up to speed, a lot of the businesses simply cannot reopen.
So that's where things come as far as the slowdown in reopening. And then the other thing is the customer base. I mean, some of these businesses even
if they were to reopen simply would not have the flow of consumers coming in to actually buy their products or use their services and that's
something we've noticed just walking the streets here.
So what are they doing from the top up? We know that Premier Li with the State Council today came out with some big changes, essentially making it
easier for micro, small and those medium-sized businesses when it comes to repaying the loans, trying to ease some of the penalties and in fact waving
them in some cases and deferring them for several months so that they can get back on their feet and start to kind of find their ground again.
[09:05:22]
CULVER: And on the other side of things, they're easing things for the taxpayers, in some cases.
In Hubei Province, the epicenter of all of this, Julia, some of those taxpayers will not have to pay the value added tax -- that will essentially
be waived -- outside of Hubei and other places here in Mainland China, they're going to reduce it significantly.
So they're trying to make it easier for these household businesses and these small businesses in particular, to weather what has been an
incredibly difficult period.
And we know this is something that President Xi Jinping himself has made a priority. I mean, not only are they looking to contain this virus, but even
with the World Health Organization just 24 hours ago, coming out to say, look, containing the virus is one thing, getting back to business is
another thing. And that, likewise is essential.
It was interesting hearing that from the WHO, and essentially endorsing China's containment efforts, but acknowledging things have to come back
online. But in doing so, you've got to manage risk because as soon as they start reopening, and things come back to this new normal, if you will,
there is that chance that the number of cases could surge again.
CHATTERLEY: Yes, I mean, the whole world is struggling with what the appropriate response here and what quarantine measures, what limitations --
it's clearly not just China that's grappling with this.
So clearly, given population size and what we've seen there, it's a huge challenge. What about big event spaces? I think the one that comes to mind
here that everyone will be recognizing is Disneyland in Shanghai.
I know you've got as close as you could go though, that and big event spaces like this remain closed.
CULVER: As close as we could, Julia, which really brought us right up to the front gate and that's about it and then going around a bunch of empty
parking lots. It's deserted.
I mean, it's been shut down here, Shanghai Disney for 30 days. But it's not only this park that's feeling it. Go to neighboring territory in Hong Kong,
the Disney Resort there, likewise shut down. And they're expecting it could be shut down for maybe another month or so. So that's two months total.
Disney earlier this month had projected that that would be roughly combined $280 million in loss of operating income for this quarter alone. So it's a
significant hit. And it's noticeable when you go to those parks. I mean, they're desolate.
CHATTERLEY: Yes, it's just erring on the side of caution here, I think, but to your point, logistics. The theory is good here, putting it into
practice and getting back to work remains a challenge.
Great to have you with us, David. Thank you so much for that.
All right. Let's bring it back to markets now because we mentioned the stock price falls that we saw globally yesterday. Oil, also taking a
significant hit, sliding back into bear market territory on Monday, the worst day of trading for oil in over a month.
Though we have seen a bit of stabilization today, but of course the volatility remains. John Defterios is in Riyadh. John, you and I have
debated endlessly, it seems about the prospect of OPEC, OPEC Plus members stepping in here to restrict output and sure up prices here.
The Russians have remained reluctant. What are the Saudis saying? Because I know you've caught up with them there in Riyadh.
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Well, I'll tell you, when you're in Riyadh, Julia, you know that saying, money talks. This is
where oil talks, no doubt about it. So that's shot across the bow that we saw yesterday, that five percent correction really resonated throughout the
region. It's like a dark cloud, the coronavirus and it is keeping prices range bound.
So I asked Abdulaziz bin Salman, the new Minister of Energy who is the half-brother by the way of the Crown Prince Mohammad bin Salman. If we need
the extra 600,000 barrels to be cut -- this was his compromise proposal onto the 1.7 that they agreed on last December and suggested with Russia in
the mix, are they being too complacent within the OPEC Plus because of the virus? Let's take a listen to his answer.
(BEGIN VIDEO CLIP)
ABDULAZIZ BIN SALMAN, SAUDI ENERGY MINISTER: Every issue in the world which requires attendance, I think we all would need to pull its socks and
pull its resources and abilities to make sure that everybody would be attended, be it medical, be it financial, be it economical.
(END VIDEO CLIP)
DEFTERIOS: So if you've covered Saudi Arabia for a quarter century, like I have, this is the Saudi nuanced approach.
He tried to broaden out the context here. But it was subtle but clear enough to the Russians. Everybody needs to pull up their socks going
forward, Julia. That's the message out of Riyadh today at a big oil and gas conference in the capital.
CHATTERLEY: Yes, subtle for everybody else like a sledgehammer for the Russians. Has anything budged on the Russian side here? I know. Naughty.
Has anything budged on the Russian side here or what's the prospect of some of the Gulf States, perhaps I'm talking the UAE, the Kuwaitis and the
Saudis, perhaps coming together here and saying, we'll go it alone?
[09:10:16]
DEFTERIOS: Well, and to your answer, because I posed that to His Royal Highness Abdulaziz bin Salman, he said, every OPEC Plus producer will be
responsive and responsible thinking that the Russians will come along.
He even said, we have technology, a WhatsApp group talking to each other on the phone all the time. They just haven't made the decision yet.
But he doesn't want to be boxed in like his predecessor Khalid Al-Fali where Saudi Arabia is going to do anything to preserve that agreement.
When I spoke to the New Minister of Energy back in September, when he got the job, he said, we cannot go at it alone. He doesn't want to be blamed
for it breaking up. But I think he's going to wait and come around and say to the Russians, really, it's just 600,000 barrels. Let's stabilize the
market.
CHATTERLEY: John Defterios, great to have you with us. Thank you so much for that.
Now, U.S. President Donald Trump says the coronavirus won't have a lasting effect on the global economy.
(BEGIN VIDEO CLIP)
DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: We lost almost a thousand points yesterday on the market and that's something -- you know,
things like that happen where -- and you have it in your business all the time -- had nothing to do with you. It's an outside source that nobody
would have ever predicted if you go back six months or three months ago, nobody would have ever predicted.
But let's see. I think it's going to be under control.
(END VIDEO CLIP)
CHATTERLEY: The President spoke a short time ago in India announcing increased defense and security cooperation with New Delhi though he does
head back to Washington it seems with no major deals.
He spent the day meeting with the Indian Prime Minister and a State Dinner is set to begin in the next half an hour or so.
CNN's Sam Kylie joins us now from New Delhi. Has this been more about the relationship, Sam, and great to have you with us -- than perhaps, as we
said there, hopes for greater negotiations over trade in the future and major deals? More about the friendship perhaps?
SAM KILEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: Yes, I think this trip has been about burnishing the populist reputations of these two populist
politicians, Narendra Modi facing problems at home notably over a Citizenship Amendment Act, a complicated name for what is being described
by its opponents as anti-Muslim legislation that has resulted in riots and demonstrations across the country.
Just yesterday, Julia, seven people at least were killed including one policeman, we understand from medical sources, hospital sources here,
actually shot with a firearm by rioters right as Donald Trump was enjoying addressing a rally put on for him by Narendra Modi in Ahmedabad of over
100,000 people. That has taken the gloss of things for Mr. Modi.
But in terms of the polished relationship that they have, it's getting shinier and shinier by the day it would seem with the Donald Trump looking
forward very much to this State Dinner, very pleased with the numbers that he says had turned out to see him and the announcement of a relatively
small $3 billion arms deal with India for the export from the United States of Apache and MH-60 helicopters. Formidable bits of equipment that will add
to India's already growing military capability.
And one aspect of that that Donald Trump also drove home is that he's -- well, they're forming an international organization of the quad including
Japan, India, United States and Australia to take more interest, more control over joint policy in the Indo-Pacific region, particularly to
offset the growing influence of China not only strategically but obviously also commercially with India, of course being on China's doorstep, Julia.
But no, no great trade deals struck yet. And indeed, there was a lot of indications that that would be the case anyway -- Julia.
CHATTERLEY: Thanks, Sam. And I'll just mention to our viewers, you are looking at live pictures there of President Trump, and the First Lady
Melania, of course, arriving at that State Banquet. The shake of hands there between the two world leaders.
Melania wearing a beautiful fuchsia pink color, actually noticeable there, the beauty of that dress and the stark contrast with the background of now,
of course, for that State Banquet and Dinner this evening, and we will bring you any further live pictures of that.
But as you can see, the two leaders there shaking hands and hands raised together there. Seemingly, a good relationship between the two leaders.
All right. We're going to take a quick break here on FIRST MOVE. We'll be back after this, plenty more to come.
(COMMERCIAL BREAK)
[09:18:05]
CHATTERLEY: Welcome back to FIRST MOVE with a look at some of the stories making headlines around the world.
Israeli Prime Minister Benjamin Netanyahu pay tribute to Hosni Mubarak, saying he led his people to peace and security. The former President of
Egypt has died at the age of 91. His 29-year tenure ended in 2011 when he was ousted after mass protests. He died in a military hospital in Cairo.
Cyril Vanier looks back at Mubarak's rise to power in Egypt.
(BEGIN VIDEOTAPE)
CYRIL VANIER, CNN CORRESPONDENT (voice over): Muhammad Hosni Mubarak, a symbol of stability and moderation to his admirers, a symbol of
dictatorship to his critics.
Trained as a fighter pilot in the Soviet Union, Mubarak gradually climbed through the ranks taking command of Egypt's Air Force shortly before the
1973 Yom Kippur War, when Egypt and Syria launched a surprise attack on Israel.
Two years later, President Anwar Sadat appointed Mubarak Vice President. Six years after that, in 1981, he became President following the
assassination of Sadat at the hands of Islamic militants.
Mubarak was with Sadat on that dramatic day and only narrowly escaped the assassin's bullets himself.
As President, Mubarak fought a long and bloody war against Islamic militants bent on toppling his regime. The struggle climaxed in 1997 when
militants massacred more than 60 people, mostly European and Japanese tourists.
In the wake of the attack, Egypt's Security Forces crushed the militants, while Human Rights groups accused the Mubarak regime of widespread torture
and abuse.
President Mubarak was a regular guest at the White House and Egyptian troops made up the largest Arab contingent in the U.S.-led multinational
force that drove the Iraqi Army out of Kuwait in 1991.
But friendship had its limits. Twelve years later, Mubarak declined to join President George W. Bush's U.S.-led coalition against Saddam Hussein and he
reacted coolly to Bush's calls for democratic reform in the Arab world.
[09:20:10]
VANIER (voice over): But under intense pressure from Washington, Mubarak began to ease his grip on power.
In September 2005, Egypt had its first ever multi-candidate presidential election, while his opponents the Muslim Brotherhood made some gains,
Mubarak still held firmly onto power.
That was until growing discontent over corruption, police brutality and economic inequality boiled over on January 25, 2011, when a group of young
activists using social media organized an uprising that took the regime by surprise.
What followed was 18 days of mounting nationwide protests calling for his resignation. Human Rights organizations estimated more than 800 protesters
were killed in clashes with police and supporters of Mubarak.
But the tide had turned. The movement against Mubarak only grew.
A military man to the end, Mubarak vowed he would not shirk his duty as President of Egypt.
But on February 11th, he finally stepped down and millions of Egyptians took to the streets in wild celebration.
A year and a half later, a Cairo Court handed Mubarak a life prison sentence for his role in the death of protesters during the uprising.
Barely seven months later, an Appeals Court reversed that decision, and a frail Mubarak was set free with little fanfare or opposition six years
after the uprising that toppled him.
A dramatic final chapter for Egypt's modern Pharaoh who wants loomed so large.
(END VIDEOTAPE)
CHATTERLEY: We'll have much more on his life and legacy at the top of the next hour on "CONNECT THE WORLD."
For now though, we're counting down to the market open where we're expecting to see a bounce after Monday's steep drop around the world.
Joining us now is Peter Oppenheimer. He is Chief Global Equity Strategist and Head of European Macro Research at Goldman Sachs. Peter, great to have
you with us.
PETER OPPENHEIMER, CHIEF GLOBAL EQUITY STRATEGIST AND HEAD OF EUROPEAN MACRO RESEARCH, GOLDMAN SACHS: Thank you for having me.
CHATTERLEY: Last week, you guys were saying we were looking ahead and you were predicting a market correction because you said valuations simply got
ahead of themselves. We weren't pricing the coronavirus impact. Have we have the correction or do you think there's more downside to come?
OPPENHEIMER: Well, clearly, as you say, there has been a correction now. And I think that that's healthy, as markets start to take a little bit more
seriously the near term impact and disruption that the virus has caused. I think there's still probably a little bit further to go.
On the positive side, I don't think that we are at risk of seeing a sustained or deep bear market, rather a reset, given how high valuations
were before the beginning of this week, and how much further earnings expectations have likely to come down in the short term.
CHATTERLEY: So to your point, you think we may see an interim bounce here as perhaps investors dip their toes in. But actually, if we rationalize the
kind of economic impact that we could see as a result of the coronavirus, actually, it makes sense for us to be lower here, whether in the United
States or whether in Europe?
OPPENHEIMER: Yes, I think context is important. We have to bear in mind that last year, equity markets around the world had a staggering return,
most were up about 25 percent and that was in a year when there wasn't really very much profit growth.
So most of that rise really came from valuations getting higher from PE ratios increasing. And so we started this year already with quite high
valuations and strong expectations for the economy for this year.
As the coronavirus has hit, a lot of people were looking back to 2003, the SARS epidemic and thinking well it will be short lived as it was then and
therefore we should look through it.
But it's worth noting that you know since 2003, when SARS hit, the Chinese economy has grown more than six fold. It's much bigger and much more
influential. And of course, supply chains are much more integrated for lots of industries and companies now.
So although we think the economic cycle is still intact, and we're reasonably optimistic about the long run, I still think there's room for a
little bit of a reset in terms of valuations and expectations in the near term.
CHATTERLEY: Are you comfortable about your predictions for their impact on the Chinese economy this year? To your point, the relative scale of
importance in global supply chains, tourism is that much more important now than it was during the SARS virus?
And a couple of weeks ago, Goldman Sachs came out and said, actually, that the relative impact on an annual basis won't be that large. Do you think
that needs revising lower, too, because that for me jarred -- it felt too early to be able to predict?
OPPENHEIMER: Well, bear in mind that the view that it wouldn't have that much effect on the annual growth rate was based on the assumption that you
will get a big hit in the first quarter, first quarter growth will be weaker, but you get a recovery from a lower base in the second or third
quarter.
[09:25:10]
OPPENHEIMER: So the overall year wouldn't be affected so much. Our economists have bought down their forecasts from just around six percent,
5.9 percent to five and a half percent for the year as a whole.
But I think it's still reasonable to expect that this is a short term hit to the economy in China and elsewhere, which weakens the first quarter, but
from which there could be still a fairly decent recovery.
Bear in mind that companies are grinding down their inventories, their stocks. They're using those up, so at some point they will need to restock,
orders will go higher and that will help to compensate for the short-term negative impact that we're seeing at the moment.
CHATTERLEY: I think part of the eagerness as well from investors to dip their toes back in is what we've seen in the past with this kind of virus
outbreak, is an immediate snap back in the following three to six months and investors are afraid to miss that rally.
What's your sense of whether this time will be different? And is perhaps the bond market telling us something different from what the equity market
is saying because rates there look very worrying?
OPPENHEIMER: Well, of course, there's two ways of looking at this. One of them is that there are very few alternatives in terms of investment
opportunities outside of equities that have valuations that suggests there's going to be a reasonable return.
You know, as you say, bond yields are extremely low, difficult to get a positive return from those, the people who buy and hold to maturity, cash
rate are close to zero or even negative in some parts of the world.
So equities are relatively attractive because as long as economies do grow, profits and dividends will grow and they do offer income as well. There's a
reasonable dividend yield, and it's that lack of alternatives that I think continue to make equities look an attractive opportunity set for investors,
particularly when there are setbacks like this and when there are corrections.
Having said that, you're right to say that bond yields have fallen again to really very extraordinarily low levels, close to record lows in the U.S.,
U.K., many parts of Europe and so on.
And in the long run, those very low bond yields are telling us something about long-term growth expectations coming down.
Some of it is that long-term inflation expectations are also low, and that's a healthy thing. But to the extent that long term growth
expectations are also coming down, that will also reduce the long term opportunities in equities.
So I think that equities do look attractive relative to other asset classes, but people have got to be realistic that the longer term returns
are likely to be lower than we've enjoyed in recent years.
CHATTERLEY: It's so important to understand. Peter Oppenheimer, great to have you with us. Thank you so much for that.
OPPENHEIMER: Thank you.
CHATTERLEY: Peter Oppenheimer there, Chief Global Equity Strategist at Goldman Sachs. Stay with us. The opening bell is next.
(COMMERCIAL BREAK)
[09:31:24]
CHATTERLEY: Welcome back to FIRST MOVE. I'm Julia Chatterley live from the New York Stock Exchange, and as expected a bit of a bounce we can see for
U.S. markets after Monday's three percent plus pullback.
As you can see, a few analysts warning though, however, that it may be too soon to buy on the dip. You heard there, Peter Oppenheimer from Goldman
Sachs saying that he believes we could see more downside, too.
Paul La Monica joins me now. Paul, a temporary bounce? It was a punishing day yesterday. It feels a bit too soon to call it here.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, I agree. I think that it's obviously good news to see some buying on the dip and it was a massive dip,
of course, yesterday, Julia, but, you know, we're still not necessarily out of the woods with regards to concerns about the coronavirus spreading as it
has done to Italy and Iran and South Korea.
Obviously, worries about that, even though maybe things have stabilized in China. But the other thing to keep in mind, even with the selloff
yesterday, we were only halfway to a correction.
The S&P 500 about five percent or so off its all-time highs from just a week ago. So people who've been waiting for this bull market that's been
going on since 2009 to finally pause, we might need a correction or even a bear market.
CHATTERLEY: Yes, and just to be clear, correction normally 10 percent from recent highs, and we're only -- we're actually less than half of that and
of course rapidly taking it back in the session today.
It's going to be interesting to watch. As you and I say, as these markets and we hear from more and more corporates, perhaps warning about the
coronavirus impact on the business, it'll be interesting to see how investors react. Not stopping some deal making though. Oh, you were going
to say something there.
LA MONICA: No, I was just going to say, MasterCard actually did warn that the coronavirus could hurt it, and MasterCard is a perfect segue into what
I think you were about to ask me because the world of financial tech is pretty interesting right now.
CHATTERLEY: Absolutely. Intuit buying Credit Karma for a cool $7 billion. What do we make of this deal? Interesting competitor.
LA MONICA: Yes, Intuit buying Credit Karma really is something that will expand into its financial technology offerings pretty significantly because
they obviously own Turbo Tax which I think is what most people know Intuit for.
But they also bought Mint a while ago so that gives them a personal finance aspect as well.
Now, you add Credit Karma so people can monitor their credit for free. That is something that I think makes into it an even bigger powerhouse in the
world of financial services and helps them go toe-to-toe with MasterCard and Visa, which, by the way, just announced its own financial technology
acquisition, you know, not that long ago buying Plaid for more than $5 billion.
So FinTech seems to be an area of the market that companies that are getting private funding are going the acquisition route instead of the IPO
route.
CHATTERLEY: Yes, we spoke to the CEO early last year and he said exactly that. He said, the flexibility that staying private gives you is far
outweighing the idea of IPO-ing and clearly he is putting his mouth where - - or money where his mouth is.
Paul La Monica, thank you so much for that.
All right, India-based OYO, one of the fastest growing hotel chains in the world, not without its challenges, though, how its young CEO is planning to
expand his empire further. Coming up next.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE. Now just as President Trump was preparing to fly to India, a multi-billion dollar Indian unicorn was
meeting investors here in the U.S.
OYO is a seven-year-old hotel chain that launched in India, raised investment from big funds like Softbank, and is now operating in more than
800 cities in 80 countries around the world, including China.
So that's where I began when I spoke to OYO's founder and CEO. I asked him what kind of impact they're seeing there specifically as a result of the
coronavirus outbreak. Listen in.
(BEGIN VIDEOTAPE)
RITESH AGARWAL, FOUNDER AND CEO, OYO ROOMS: Coronavirus to begin with is - - this stuff, I mean, I look back and I just feel like -- my heart goes out for the people in Hubei who are fighting this really unique situation.
I believe that the response has been tremendous out there from the people and the communities and the government to try and restrict it as much as
possible.
The business impact is still very early. It's hard for me to share at this point of time. It's too early to judge, but that said, we are working hard
to keep our hotels open including hotels in Hubei, making sure that we can serve the doctors who are visiting in subsidized or no prices at all.
And our partners, they're the real heroes. They are the one's saying we are going to serve customers and not charge them anything including near the
hospital that just got constructed in 10 days.
CHATTERLEY: Is that what is happening?
AGARWAL: So the communities are really coming together. Our employees are coming together, not just in China across the world. OYO employees, over
25,000 of them across the world have given away days of salary, to make sure that they can send tens of thousands of masks for employees in China.
CHATTERLEY: One day's salary.
AGARWAL: A few days.
CHATTERLEY: A few days.
AGARWAL: More than this, and I have given, you know, my month of salary because we all really feel for our colleagues out there who are really
fighting such a noble situation. It's a tough situation, but I believe this is the test of making sure that all of us can stand behind our colleagues
in such a tough situation.
(END VIDEOTAPE)
CHATTERLEY: As I mentioned, OYO, is backed by Japan's Softbank, the Vision Fund and it has an estimated valuation of $10 billion.
Now, although the startup's aggressive expansion is raising some pretty big questions the company has been accused of letting quality slide, the 26-
year-old CEO is defending his business strategy.
(BEGIN VIDEO CLIP)
AGARWAL: OYO's revenues on a year-on-year kept growing. But what I'm really here to talk about are our losses. Our losses expanded from minus 24
percent to minus 35 percent in the fiscal 2019.
CHATTERLEY: Yes.
AGARWAL: Having said that, our India specific business improved its losses from minus 24 percent to minus 14 percent. The reason for that is our
company needs to be seen in three different faces.
The face of presence, the face of gross margin, and the face of operating leverage.
In the phase of operating leverage, we have India and Europe. In the face of gross margin, we have China and Southeast Asia and in the face of
presence, we have United States, Latin America and Japan.
So wherever you look at our mature markets, you will see us delivering strong improvement in our losses and earnings and that's the part we are
leaning towards.
CHATTERLEY: You know, Masayoshi Son and of course, Softbank, a big investor in your company which is perhaps why you attract so much attention
at this stage suggested that you could have one million rooms in in Japan. It was a promise.
Right now, I think -- how many have you got? 7,500? So you've not kept up with the kind of pace that Masayoshi Son was suggesting you could. What's
actually going on in Japan? And do you think perhaps, you've been pushed too hard by Softbank?
[09:40:30]
AGARWAL: Yes. I think, first off, I think OYO globally manages close to a million rooms now.
CHATTERLEY: Yes.
AGARWAL: We never established any specific target like that anyway. The only thing --
CHATTERLEY: He did.
AGARWAL: I think that's a conjecture. But that said, I think the three important perspectives within this are, first of, OYO is a Board-run
company. We have very strong representation on our Board from Sequoia, Lightspeed, Softbank Vision Fund.
Our independent director like Betsy Atkins and our Board makes the decisions of our business. If you're successful, or if you're not doing
well, the management along with the Board is responsible to make each of the decisions for that, and I, as a leader of the company, am responsible
for the direction we're charting for the company.
So we are very happy with the results so far and excited about the opportunity in the future.
Specific to Japan, it's been less than nine months since we've been operating in Japan. In less than nine months, we operate over 6,000 hotel
rooms and 6,000 apartments, revenue rounded of over $95 million.
I think that's a reasonable business to be built in Japan in less than a year. And that's part of the context that you were also talking about,
which is the attention that we received.
I think if you look at OYO's data points, like our revenue and our losses and as a percentage, and compare that to a few of the younger companies who
are in a high growth mode, you'll find OYO actually doing much better than a few companies.
CHATTERLEY: So if someone says to you, you're being pressured, you're being pushed, you're being forced to move too quickly by a big name
investor like Masayoshi Son, you say, no, we aren't.
AGARWAL: I think absolutely. I think I say that our company is a management run company. And if we grow very quickly, or if we say that
accretive growth is our strategy, that is our management and Board's decision, and that's for great things. We'd take credit.
And if there is a problem, we take responsibility and accountability for it.
CHATTERLEY: Part of the other attention that you've received as a result of Softbank is the unfortunate situation with WeWork and I have seen some
comparisons made. And you're clearly different companies in what you're doing and how you're operating.
But it's an unfortunate comparison. What do you make of it? What's your response?
AGARWAL: Thank you.
CHATTERLEY: Thank you?
AGARWAL: We are nothing like WeWork. Thank you for saying that. Thank you for saying that it is an unfortunate comparison. But that said, we are
nothing like WeWork. OYO is a different company.
OYO is a company which is focused on building hospitality experiences for millions of customers across the world. Last year we serve 180 million
customers.
In cities like that of San Antonio, we get 40 percent revenue from OYO's app and direct demand channels. And at the end of the day, it's a company
run with a high quality Board, a high quality management, not a single management leader of OYO has ever left whoever reported to me.
It has five regional CEOs, some of whom who have run public companies and have managed significant amount of shareholder engagement and have returned
a lot of money to shareholders.
So we are operators and we are operators building our business which is growing sustainably over a period of time.
CHATTERLEY: What are investors saying to you, at this point? Are they nervous? Are they asking you whether we're at peak loss as a percentage of
revenues here? And are they asking you about come on, when are you going to be profitable?
AGARWAL: I think our investors see our business plan and they say you have a good business plan. Please execute with that.
CHATTERLEY: You're not getting any pressure?
AGARWAL: We don't have a perspective of saying that jolt and make a quick change in another two or three quarters. I think people see our longer term
plan and say that if this is the plan you have, which is a good plan and you have been delivering bases, at least for the last few years. So just
keep executing behind it.
CHATTERLEY: And they are comfortable with the speed of the expansion?
AGARWAL: They are comfortable with a strategy that we have laid out. Our strategy starts with saying accretive growth, consumer and partner
relationships and stronger governance.
To the extent we can follow this three, whatever is the growth, I think we'll all be pleasantly happy.
CHATTERLEY: I think there's going to be questions about expansion speed. There's going to be questions about more losses potentially coming.
You're a private company. So the fact that you're providing information is important to note here, too. You're also young, are you the right person to
lead this company? As a founder? But now in the expansion and growth stage. Are you the right leader?
AGARWAL: Sure. I think OYO is not at a stage of expansion. I think OYO is at a stage of building its operations very well as a well-run organization.
I think specific to myself, the company' has already outgrown me.
The company has very solid CEOs running their businesses. These are people who come from investing backgrounds, consumer backgrounds and running their
own detailed businesses right from the top line to the bottom line.
And I continue to attract more talent like this. Let them do what they need to do, due to which, not a single of them have left the company until date.
[09:45:18]
AGARWAL: And specific to the third base, I believe that OYO's perspective or the success in the coming years will depend on its ability to look at
this focused strategy of making sure that we bring accretive growth, so growth leading to bottom line improvement, consumers and partner
satisfaction and making sure that our governance like you said, you don't need to tell our numbers, but for three years in a row, we have issued our
detailed audited financials not just consolidated, but even standalone company results at a subsidiary level.
So from our perspective, we will not just do this, we will build our Board like we brought in Betsy and other independent directors.
CHATTERLEY: You're trying to be transparent.
AGARWAL: We have been trying to be transparent for the last few years and you will see this quest will continue.
(END VIDEO CLIP)
CHATTERLEY: The CEO and founder of OYO there. All right, so as stock markets struggle around the world, should ordinary investors be taking a
look at alternative assets like crypto? We'll discuss, next.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE. Nervousness about the impact of the coronavirus outbreak on Monday, so the Dow wipe out year-to-date gains,
yet Bitcoin is up around 30 percent so far this year, far more over the last 12 months.
So is it a safe haven in stormy markets or something else entirely? Morgan Creek Digital Assets co-founder and partner, Anthony Pompliano joins us
now.
Great to have you with us.
ANTHONY POMPLIANO, CO-FOUNDER AND PARTNER, MORGAN CREEK DIGITAL ASSETS: Julia, thanks so much for having me.
CHATTERLEY: You made two observations about the coronavirus outbreak, not that we want to take away from the tragedy that it represents.
But the first thing was mining because a lot of that happens in China. Thoughts there?
POMPLIANO: The big thing is a lot of manufacturing plants are being shut down, and so those companies are losing revenue. But when it comes to
mining, computers are doing most of the work, it takes very few humans, so mining is not impacted. And it's also very decentralized across the globe.
And so if you get kind of a virus outbreak in one geographic area, it doesn't necessarily affect the mining hash rate nearly as much. And so I
don't think that mining is really susceptible to the same things like a traditional manufacturing company is.
CHATTERLEY: Okay, we're going to come back to that, I promise you, but we'll move on to the point that I was just making there and I think,
perhaps lack of understanding about how you view crypto specifically Bitcoin relative to markets, a safe haven or a hedge? It doesn't
necessarily have to be rising when markets go down.
POMPLIANO: Yes, I think a lot of people confuse safe haven and non- correlation, right, and so a non-correlated asset just means that the value drivers are different, right?
You see stocks or other assets in the traditional markets are driven by GDP, interest rates, et cetera. Bitcoin is not driven by that.
Bitcoin is an artificially kept supply asset that is driven by demand and demand continues to increase. And so over time, you expect supply and
demand economics to play out.
CHATTERLEY: So, sometimes you could have Bitcoin rising when markets rise, sometimes it could go down, that's positive correlation. It can also be
negative, but what you're saying is, remember what the drivers are here and they're different things.
POMPLIANO: Absolutely. Bitcoin over a long period of time has been a non- correlated asset. And what I think is exciting about that is when we see times of global instability, geopolitical uncertainty, things like
coronavirus, et cetera, stocks, bonds, gold, et cetera kind of do what you expect them to do. Bitcoin doesn't do that.
And so the fact that it doesn't go up is not bad. It's actually -- it's a non-correlated asset. So it's doing exactly what it's supposed to do for
your portfolio, which is exactly why we think investors should have it in their portfolio.
CHATTERLEY: Critics would say though that, hang on a second, you're telling me to add it to my portfolio. Surely, I want it to be doing sort of
the opposite thing when markets are going down.
[09:50:08]
POMPLIANO: Yes. Again, as long as it is preserving your wealth, or increasing it, that non-correlation makes it a safe haven asset, right? You
don't want to have everything in your portfolio have the same value drivers, that non-correlation actually reduces the overall risk of the
portfolio.
Bitcoin has served that purpose for many, many years now. We think that it will continue to do that into the future.
CHATTERLEY: So Brad Garlinghouse, the CEO of Ripple was recently on and he said, what's going to define crypto assets in 2020 is the utility value.
Where on that curve between a store of wealth, something that you just hold and the price goes up, versus actually something that you can use is
Bitcoin? Because a lot of the criticisms that I read, one, its energy intensive, it uses a lot of energy; and two, in terms of transaction
speeds, it's really slow.
POMPLIANO: Yes. So first, when it comes to the energy consumption, Bitcoin is using majority renewable energy, right? People are having input into
that business a cost that is the energy cost.
And so what they're actually doing is they're going to find the lowest cost energy, which happens to be renewable. So we see things like gas flaring,
waste to energy, geothermal, hydroelectric, et cetera.
So I think that's actually driving a lot of innovation.
CHATTERLEY: That's true. I see a lot of criticism of that. But then if you go to China, I mean, that's coal fuel. They are fossil fuel fueled. Energy
supply.
POMPLIANO: Yes. So there's definitely some not renewable energy. But there's many studies that have now come public, where 60, 70, 80 percent of
the energy consumption is actually renewable energy.
CHATTERLEY: In total.
POMPLIANO: In total. Yes.
CHATTERLEY: Wow.
POMPLIANO: Absolutely. And then when it comes to utility on the transaction side, last year, the adjusted transaction volume on chain, so
this is not exchange traded volume or anything like that. Actually, people sending it for one purpose or another was over half a trillion dollars.
And so what that means is, it's bigger than Venmo, Apple Pay, PayPal, et cetera in terms of transaction volumes, and so people --
CHATTERLEY: As long as you're not doing it too often, I guess the point.
POMPLIANO: Well, so again, people can complain about transaction speeds, cost, et cetera, but at the end of the day, people are using this more than
they're using Venmo, Apple Pay and PayPal.
CHATTERLEY: As a store of wealth though. It's the biggest argument here for Bitcoin is the store of wealth.
POMPLIANO: It definitely serves a purpose as a store of wealth. We've seen that do very well, it is up 30 percent this year. It is up 150 percent over
the last 12 months. But people are also using it to transact and send it for one purpose or another to either businesses or to other individuals.
CHATTERLEY: Warren Buffett, very dismissive yesterday. He said shorting suitcases i.e., you know, people laundering money, perhaps they're not
going to use suitcases anymore, they're going to use things like digital assets, Bitcoin specifically.
POMPLIANO: So my two things with Warren, first of all, somebody should tell him that Wells Fargo one of the companies in his portfolio recently
was found guilty of helping the Sinaloa cartel launder a lot of money. So I don't know necessarily --
CHATTERLEY: Safe accounts, I guess would be the -- we don't have enough proof on anything else. But obviously things like that with Wells Fargo
have been a concern.
POMPLIANO: And the second thing is I don't really take technology advice from somebody who is -- an owner who doesn't use e-mail, right?
Again, you shouldn't ask me for value investing advice. And so he kind of has his domain, which he is the best in that hat.
CHATTERLEY: What you're saying is Warren Buffett doesn't get it, so stay out of it basically.
POMPLIANO: People will listen to his opinion, because he's one of the best investors of all time; when it comes to technology, though I think there's
better people to listen to than Warren Buffett.
CHATTERLEY: You're saying he is behind the curve. Seriously behind the curve. Talk to me about Sweden because they've launched a digital coin. It
is in the testing -- the testing phases, they're way more advanced, it seems then then even the Chinese who are clearly pumping a lot of money in
investment. What happened to this?
POMPLIANO: Yes, so this, these Central Bank digital currencies are all coming. And really what I think people need to understand is, all of the
Central Bank digital currencies are simply taking the existing monetary policy and changing the technology form factor, right?
What Bitcoin does is it actually is a different monetary policy. It's not a Fiat inflationary type model. And so, ultimately what we're going to have
is a competition of currencies, but it's not going to be a competition on technology. It won't be, are they digital? Are they not? Everything will be
digital.
Instead, what we're going to have is a competition of monetary policy. That's I think, where we believe that the Bitcoin monetary policy is
superior to Central Bank monetary policies, and ultimately Bitcoin will be the winner. It will be the next global reserve currency at some point in
the future.
CHATTERLEY: We're going to continue this conversation. There's always more to discuss here. A hundred thousand call by 2021. And we're going to come
back to the energy, the renewables. I'm going to do some digging.
Anthony Pompliano there, thank you so much for joining us on the show.
POMPLIANO: Thanks for having me.
CHATTERLEY: All right, let me bring you up to speed with today's Boardroom Brief. Travel giant, Expedia announced it will cut 3,000 jobs laying off 12
percent of its workforce following what it's calling a disappointing year.
The online travel conglomerate houses several travel brands including homeawayhotels.com and Orbits. In an e-mail, executives said they've been
pursuing unhealthy and undisciplined growth.
Apple will have to pay damages after it lost a decade long battle over patent infringement. The Supreme Court refused to consider Apple's appeal
against an order to pay $440 million dollars to VirnetX, a U.S. firm that holds multiple technology licenses.
Now to Asia where one company is grabbing the attention of Japanese investors. The ride-hailing app Grab raising $856 million from Japanese
bank MUFG and IT services firm, TIS.
[09:55:17]
CHATTERLEY: Grab says they will use the money to expand their financial services offerings.
All right, let me give you a quick look at what we're seeing for U.S. markets at this moment, of course following that thousand point drop for
the Dow yesterday.
We are holding in positive territory there. We've slipped a bit even in the last 15 minutes or so, right now higher by some four tenths of one percent
for the NASDAQ.
Watch the session today, I think it's going to be an interesting one.
Stay with us. We'll be back in a couple of hours' time with "The Express," but for now, that's it for the show.
You've been watching FIRST MOVE, time to go make yours. We'll see you tomorrow.
(COMMERCIAL BREAK)
[10:00:00]
END
