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First Move with Julia Chatterley
Moscow: U.S. Response on Ukraine Fails to Address Concerns; Moscow Threatened Withdrawal from Swift Network; Fed on Track for its First Rate Hike in March; Tesla Posts Record Profits, Warns of Supply-Chain Issues; Rising Chemicals Prices Boost Earnings for Dow; Investors Clamor to Buy Virtual Real Estate, Assets; Olympic Sponsors Caught in Middle of Diplomatic Boycotts. Aired 9-10a ET
Aired January 27, 2022 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:15]
JULIA CHATTERLEY, CNN ANCHOR: Live from New York, I'm Julia Chatterley. This is "FIRST MOVE." And here's your need to know.
Diplomatic differences. Russia says the U.S. and NATO are failing to address its main concerns.
Powell pressure. The Fed's hawkish stunts has investors in a tailspin.
And supply slowdown. Tesla's profits beat but the chip shortage limits production.
It is Thursday. Let's make a move.
(MUSIC PLAYING)
A warm welcome to "FIRST MOVE." Fantastic to have you with us as always.
As Fed Chair Jay Powell provides a hawkish scare and stock market gains vanishing to a virtual thin air.
Elon Musk riding high with Tesla's profits on a tear.
Apple's earnings are up next, another firm with no chips to spare.
And in the UK, the Sue Gray party gate reports still nowhere with all the strain meme yet wilder Boris hair.
Yes, we're struggling there from messy head to messy markets. There's a connection.
U.S. future is volatile. The Nasdaq giving up a 3 percent gain on Wednesday to close virtually unchanged. We just released economic numbers helping
give futures a bit of a boost.
And Europe is higher to no recovery.
In the Asia's session however, just pressure Japan down 3 percent. The Nikkei now in deep correction territory, down 14 percent in fact from
recent highs.
Investors clearly rattled, I think, by the Feds' tightening message. Summed by the `80's hit song "Nothin's Gonna Stop Us Now." No, I'm not singing.
Fed Chair Jay Powell though stressing that the jobs market is strong enough to absorb aggressive rate hikes if high inflation demands it. The problem,
of course, where investors says that the ultimate Fed and point here is unknown and the Fed does not know either. That's also the point. Everyone
is effectively winging it.
The good news though, the U.S economy is flying into this tightening cycle. The first look at U.S fourth quarter, GDP shows the economy expanding at a
faster than expected rate of almost 7 percent. The fastest pace in fact since the 1980s.
Economic growth is solid now. Can the fog pull off a soft landing? That is the critical question.
But first, to our main driver and that's Ukraine. The U.S. says it's laid out a diplomatic path forth to prevent a Russian invasion of Ukraine.
Moscow says America's response fails to address their key concern, any eastward expansion of NATO. Meanwhile, in Ukraine, there are fears Russia
wants to destabilize the country from within.
(BEGIN VIDEO CLIP)
DMYTRO KULEBA, UKRAINIAN FOREIGN MINISTER: We believe that plan A for Russia now is to use the threat force to destabilize Ukraine internally, to
sow panic and force us into concessions. Military operation is plenty. However, this plan A consists of many instruments of hybrid warfare. This
includes not only messing troops but also cyberattacks, disinformation campaigns.
(END VIDEO CLIP)
CHATTERLEY: Nic Robertson is in Moscow for us.
Nic, it is fascinating because those comments about destabilizing from within is exactly what the Naftogaz CEO said he feared yesterday far more
perhaps than an invasion. And you could argue, we've been seeing that going on in Ukraine now for many years and you can still do that while you're on
the surface saying the diplomacy will continue and that's the challenge for NATO and allies.
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: It is. And by virtue of their very moves, reenforcing a deterrence message by reenforcing troop
numbers closer to Russia. The very thing that Russia says that it doesn't want - Russia then turns around and says well that's actually cover for a
provocation on the other side.
You know the narrative over the past few days was that the provocation would come around the Donbas region. You have separatists there appealing
for the Russian government to get more weapons from the Russian government because they say that the Ukrainian side is getting weapons from the United
States, so they want more support. You have the Russian government saying that they believe the Ukrainian government is trying to spark something
around that Donbas region. And perhaps some of the temperature went out of that temporarily, if you will, yesterday without meeting in Paris.
And now, both are -- all sides are committed to holding the ceasefire and they'll have another meeting in two weeks in Berlin. So, maybe that area of
-- of potential spark to cause a bigger fire. Maybe that's tamped down a bit. But I think the focus comes back on the big central issues and that is
Russia's response to the United States letter and the first read from the foreign minister and from the Kremlin is it doesn't get at the core issues.
[09:05:08]
I think there's some light there because they say look, it does - on some of our secondary concerns, yes, it addresses those. But really, it's
Russia's move. Now, how does it respond given that it's not got what it wants on its core issue. And that's an open question but the answer is
going to come soon, we're told.
CHATTERLEY: Yeah. And they knew that already. They'd that verbal response. They knew they weren't going to get what they were asking for whether they
got this document or not even though clearly now they have it. Nic, what's your sense? What next from Russia's perspective because they've said
they'll take the time to consider it.
ROBERTSON: Yeah. Look, I mean, Julia, you were speaking on your business show here, right? So, let's give it some business type analogies.
CHATTERLEY: Right.
ROBERTSON: I mean, very few CEOs, presidents, right, go into difficult commercial territory, possibility sanctions not having a real understanding
of what's at play on the shop floor or the factory of what's at play, you know, what all the moving pieces are and how they can - you know, and how
they could be factored in.
And I think certainly, the Russian president knew that he was going to get a letter back that wasn't going to give him what he wanted. So, I think,
you know the leadership here although they're saying let's not rush, it takes time to formulate a position.
You know, I think the position in their minds is already there. The number of - number of options that they have and which one they take. So, I don't
think that - there isn't - there isn't a big shot to the political system here. Because all is sort of have been baked into the price of getting into
these talks.
Remember they precipitated all of these. So, they've taken the initiative every step along the way here. So, I think, while the world looks at them
for their answer, they probably have that already and they're probably already looking several moves ahead.
CHATTERLEY: Yeah. I mean, I guess the difference within a business analogy is in most cases, you're at least your exec committee has some sense of way
ahead in this case. The CEO or Vladimir Putin perhaps the only one who know where he's headed.
Nic Robertson, great to have you on as always, thank you.
A swift action against Russia. The "Financial Times" reporting the European Central Bank has warned lenders with significant exposure to Russia. They
prepare for sanctions against Moscow including potentially cutting his off from the global financial network, known as Swift.
Anna Stewart is here to explain more.
Anna, great to have you with us.
We have talked about Swift on the show once or twice in the past when we're talking about crypto alternatives. Just explain to us if can briefly, what
swift is and what the implications would be if cutting a country like Russia are off for it. Because the ripple effects go far beyond one nation.
ANNA STEWART, CNN REPORTER: And that is certainly the issue here. So, Swift is essentially high security network that links financial institutions
around the world. It underpins financial transactions for some 11,000 banks and other institutions across 200 countries. As what replaced telex in the
1970s.
Now why is this important? What would it do firstly for Russia? Well, if it was, be cut-off, you could see massive capital outflows for firms that rely
on foreign financing, you could serious currency volatility. This was something that was worrying about for Russia back in 2014 with the illegal
annexation of Crimea. And the finance minister then said the economy could shrink by 5 percent.
Now, since then they have tried to put some contingency planning in place. We've actually come up with their own version, SPFS.
The problem is you can't really create a viable alternative to this because it is global. It is standardized. It is trussed. It is under pinning a
global financial system. Anything you can mark with domestically. Well, of course, only really be used by your financial institutions within that
country.
So, this has big ramifications. But as you say, there's also such potential for fallout. Not at least if you consider the investments that the world
has within Russia. The EU, for example, is the biggest foreign investor of 2019. I believe its investments that were valued at some $350 billion.
And then, there's also the risk right now of retaliation. And we've spoken about this a lot. But of course, Russia holds many of the cards when it
comes to energy, security, again particularly with Europe. So, those are some of the issues and some of the fallout that you could see if this sort
of tool were to be used.
CHATTERLEY: Yeah. How does Europe pay for its energy, imports, if it can't wire some money over to the Russian government or their control of gas of
course of Russia?
Anna, there is precent for this though, of course. And I think that's the only comparison really, we can make because Iran was switched out, taken
out of SWIFT network, what, back in I believe it was 2012 and there were significant protests at that time there too. Resistance. Let's call it
that.
STEWART: Yeah. Resistance from all sorts of different fronts. Including of course, from SWIFT which was ran as a cooperative. It's got 25 board
members, banks from different parts of the world, including in fact, Russia, is unlikely to want to go down that route. It likes to see as
others are neutral body.
[09:10:07]
However, as you say, there is precent and Americans certainly can pressure it to do this. It's successfully did so in 2012 with Iran. The thing is,
Russia and Iran, they're not really that comparable. Russia's economy is absolutely massive compared to Iran's. And again, it's so interconnected
financially. Otherwise, really interesting, this week the German foreign minister said to a Germany's paper that when you're looking at this sort of
option, it may be, she said, the biggest stick. But it's not necessarily the sharpest sword. And I think that's why this is likely to be maybe our
last resort option on the table because I think it will struggle to get enough backing.
CHATTERLEY: Yeah. It's -- you smack some of it with a stick, but it hurts you as well. It hurts your hand as much as it hurts them. I think that's
the - maybe not as much but still hurts.
Anna Stewart, thank you for that.
OK. No swift fix for the Fed as it revs up its battle against inflation. Fed Chair Jay Powell warning of protracted monetary tightening during his
press conference yesterday. He says the economy can handle it. And just released economic data. As we've mentioned already that GDP data backs him
up.
Christine Romans is here.
Christine, you can give me your take. But I feel like he could have communicated better on the things that they do know and the things that
they want to do. The problem is, there are so many implications and things that they don't know, the number of rate hikes, -
CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: Right.
CHATTERLEY: -- the speed at which they perhaps reduced the balance sheet. But you're going to create instability just by discussing it.
ROMANS: Exactly. And look, let's be really clear here. The Fed chief yesterday said the economy is strong. The economy can handle multiple you
know rate hikes with plenty of room to go before it would hurt the economy and that's what rattled - rattled some folks without the specificity but
saying that maybe they could go a little faster than the market had thought.
And then you get this GDP number this morning that shows you wow, the U.S. economy strongest since the 1980s in 2021 ended the year very strongly. It
gives the Fed room to you know ready set hike, I guess here, right? So, this is -- we are - to mix my sports metaphors, we are off to the races. I
mean, this 2022 will be the year of higher interest rates drawing down that balance sheet and the only thing we need to know now is when, how, and how
much. But it is here.
CHATTERLEY: Yeah. There's so much fear out there. Because we are unused to a Federal Reserve that's in tightening mode. But to your point, the
conditions, be inflation, be at the jobs' recovery, be at the growth, be economy is experiencing now argues the conditions should be tighter.
Financial conditions should not be this easy. It is fascinating to me, if I sort of tie it to what we're seeing in terms of the stock market.
I think - I read this morning, the average Nasdaq stocks down 44 percent from recent highs. The S&P 500 average stocks is down, it's down 17
percent. Guys, I feel like we have to get a grip here.
ROMANS: Well, yeah. And a lot of people have been looking at what happened the last time we were in a rate hike mode for the Fed, right? It was in
2018. And you had two or three months where the S&P 500 lost something like, I want to say a little more than 20 percent, maybe 25 percent, right?
But then what happened after that? Well, it was -- the Fed tightened interest rates and conditions were perfectly fine, and the economy
continued to - to grow and the stock market continued to do well and made years and years and years of records beyond that.
The difference is, we don't really have a playbook for where we are now. Right, Julia? Because you got to - you got to - you got to stop the asset
purchases, you got to start hiking rates and you have to draw down the pile of assets that they already have. So, that's sort of these three things
that we don't really have a gamebook for how our playbook for how that's going to - how that's going to happen.
Also, you know our colleague, Julia, Howard yesterday had a really great piece about how don't freak out about rate hikes, guys. Over time, rate
hikes sometimes you know switching from an easy money to tighter money has actually been good longer term, you know. That's the Fed fine tuning - fine
tuning. And then you know that's good for you longer term. So, she had some great analysis and perspective on that, too.
CHATTERLEY: Yeah. Worth reading. I feel like if you look at a long - a long-term chart of the S&P 500, you know it looks like it went straight up
but within that you have got plenty of corrections -
ROMANS: Exactly.
CHATTERLEY: -- and some of them big as your perspective here. If you're looking on a five-day, a 10-day, or five-month perspective versus a long-
term perspective. Things can look very different.
ROMANS: Yeah.
CHATTERLEY: They've got some work to do. They've got some challenges but that will watch financial conditions and the response in the real economy
closer perhaps that they ever have before.
ROMANS: There's a lot of -- there is a lot of headline risk. There really is.
CHATTERLEY: Yeah.
ROMANS: And remember, the Fed is a dual mandate of inflation and employment. My 401k value is not actually in their mandate, but you know
that they don't like to roil markets and they don't like to roil the financial system.
CHATTERLEY: They're watching.
Christine Romans. Thank you so much for that.
ROMANS: You are welcome.
CHATTERLEY: Some good news and some bad news for Elon Musk and Tesla. The good news, Tesla posted record earnings of $2.9 billion in the last quarter
after shaking off supply chain issues that hammered much of the auto industry.
[09:15:07]
The bad news, they would not be able to shake off those issues for much longer.
CNN Paul La Monica joins me now.
Great to have you with, Paul.
I mean, let's be clear. These were incredible earnings and when you can't fulfill this year, extent of demand that you are facing, it is sort of bad
news but it's good news. And there was a lot of good news in these numbers.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes. Sales are phenomenal for Tesla. The company is profitable. This is all good. And I think it's probably a
reason why the stock at last check in premarket trading was somewhat flat. It was not you know looking to be a major drop today.
But make no mistake, the supply chain issues that have roil the entire automotive industry are impacting Tesla as well and Elon Musk came on the
earnings call to discuss that and was pretty clear that the company is going to prioritize deliveries of its current vehicles because there is
such strong demand and not really step-up production of newer models just yet. That might be a slight disappointment for the Tesla bulls, but I don't
think that Tesla is going to be abandoning any of these plans for the long haul. They may just take a little bit longer to get things done because of
supply strain constrains.
And let's be honest, Tesla is a company that has been notorious for not exactly making those deadlines that Elon Musk first promised. He would be a
terrible journalist.
CHATTERLEY: Yeah. Elon Musk time. You know, Dan Ives, who is a regular on the show said in his note, that they could have the capacity to deliver 2
million vehicles by the end of this year, from 1 million a year ago. And if you have to prioritize something, you know getting those deliveries out
there rather than tinkering with the $25,000 car that he promised all the Cybertruck quite frankly. If it's about making sure that you've got the
degree of market sharing. You've got those vehicles out there as more competition come on.
It sort of makes sense to me for a number of reasons and the worst things that we heard there. Yes, you're going to have to wait if you like the
Cybertruck. Many people were a little bit cautious on this one. But it was the battery sale technology that they're working on for the Y vehicle that
was fascinating to me too. We have a fascination I think with new technologies and batteries on this show, Paul. Did that capture your
attention, too?
LA MONICA: Oh, without a doubt, Julia. Definitely the newer batteries where the Model Y that Elon Musk has been talking about, that is going to be key
to getting mass production of this vehicle which is the more affordable version. The you know Model X crossover and it promises you know longer
battery life, you know longer range, a higher power output. These 4180 batteries.
So, if they are able to start producing them at scale sometimes soon then that could mean that the Model Y will be another successful model for Tesla
just like the S, the 3 and the X. But the Cybertruck, yes, I think we're going to have to wait. My kid has a toy version of the Cybertruck but
there's not going to be one in anyone's garage anytime soon.
CHATTERLEY: You have to stick with that one for now.
Paul La Monica, thank you.
OK. Coming up here on "FIRST MOVE."
Robust chemical demand and pricing power makes a winning formula for Dow Inc. The CEO join us after the break.
And metaverse is just, well, so meta right now. The risks and rewards of buying virtual land and virtual yachts.
Yes, that's coming up. Stay with us.
(COMMERCIAL BREAK)
[09:21:25]
CHATTERLEY: Welcome back to "FIRST MOVE."
U.S. futures higher. Sentiment in consolidating, I think, a round after that stronger than expected read on U.S. GDP. A strong economy will help
cushion the blow from the Federal Reserve intent on guiding inflation lower.
Markets now pressing in some five U.S. rate hikes this year.
In the meantime, Brent Crude hitting $91 a barrel today.
Natural gas also higher on continued Ukraine uncertainty.
Now rising prices driving better than expected results at chemicals company, Dow. It says net operating income surge more than 160 percent in
the final three months of 2021. Compared to a year earlier, sales were up by a third, volumes dip slightly. But that was more than offset by Dow
hiking prices for its products which are used in everything from packaging to textiles and electronics. The company's forecasting sales will improve
further this quarter.
Joining us now from Dow's headquarters in Midland, Michigan is the CEO and chairman, Jim Fitterling.
Jim, always great to have you on the show. And congrats on the solid quarter. I have to say, when I was looking through the highlights, I find
myself counting the number of times you mentioned supply constraints and challenges. And it has been and was another quarter of that and it
continues.
JIM FITTERLING, CHAIRMAN AND CEO, DOW INC.: Well, good morning Julia. Thank you for having me. Always good to see you.
We had a very good quarter. Supply constraints for us kind of took - took on two dimensions in 2021. Obviously, you remember the freeze in Texas that
happened about this time last year. That took a lot of capacity offline. And that had depleted inventories. And then, we had a very strong year,
demand for all of our product lines was very strong in 2021, but that didn't allow us to really catch up with inventories.
And then, in first quarter, hurricane in the Gulf Coast and obviously the supply disruptions related to - really related to people being able to
report in for work as the Omicron wave swept through. Kind of curtailed exports.
We did see in the month of December the best marine packed cargo shipments exports out of the United States that we saw since March. That's great. And
we're seeing continual study improvement.
So, as we move forward into 2022, we are expecting global GDP of 4 to 4.5 percent. For us, that should translate into about 6 percent volume growth.
I think prices have moderated somewhat from the big spike that we saw second and third quarter. But it is still going to be a very solid year and
demand still looks good whether you look at packaging, housing and all the implications of housing which for durable goods and appliances, furniture
and bedding has been very positive.
Electronics, automobiles, especially electric vehicles which have more content. And we are starting to see the personal care markets come back.
Those have been impacted quite a bit from COVID.
So, I think we got really good demand and inflation, a little bit of inflation for our markets historically over the last 30 years has always
been positive. It has always led to outperformance in our sector.
CHATTERLEY: Yeah. It's fascinating, is it? Because we were just talking there about the Federal Reserve and of course the whole world I think
watching closely of what the United States does to try to temper down some of the inflation that we're seeing. You obviously have a great sense of to
what extent the market can withstand high prices, what the supply chain bottlenecks feel like. And the sort of pent-up demand that still exists.
Are you worried that the Federal Reserve gets it wrong or perhaps clamps down on some of us are still recovering economics that we're seeing and
still need to see? Or do you think now is the right time to move based on what you're feeling. You see many of these cycles.
[09:25:05]
FITTERLING: No, I am not worried. I mean, you have to keep an eye on it and I really appreciate Fed Chair Powell looking for the signal in the data.
You know it is very noisy out there right now and it's very emotional. And you got to find a signal in all of that and I think they're trying not to
overreact. They don't want to create that situation.
So, I think, they're trying to be prudent and they've got two levers they're trying to pull, one is the tapering, and one is raising rates. And
I think you know a month ago, people were worried they're going to pull them both at the same time. And now people are worried they're going to go
to another extreme. So, there is a balanced view in here that I think we're going to get to.
I think that the demand side is still really good. And we are working through the pandemic. I think most people have their head around moving on
and getting on with things and getting back to normal. We have to remember there are still good consumer strength. There's still some pent-up demand.
Most all supply chains are below their to normal levels and they don't have the kind of stock to get service levels up to customers. So, that to me
means we are going to have a strong 2022. And that's what we are getting ready for.
CHATTERLEY: Yeah. So, if echoing Jay Powell there, we do have the strength to withstand this.
You know, you are one of the most outspoken CEOs on innovative ways to tackle our carbon footprints and promote sustainability. And I saw
something that you did last year. And I made a mental note to ask you about it. Because you - you've got a collaboration with Ralph Lauren. ECOFAST
collaboration. And it's a new process for dying carton. And you can correct me if I am wrong, requiring 90 percent less chemicals, 50 percent less
energy, and 50 percent less water and you've also made the technology open source because you're saying look, this could benefit a lot more beyond
just the two of you and the two brands. This feels pretty important, Jim.
FITTERLING: Yes, this is an area that most people would not think of but one of the oldest chemistries in the business is textile dying.
CHATTERLEY: Right.
FITTERLING: And because cotton is difficult to dye, you have to use a lot of energy, a lot of water, a lot of pressure, use a lot of materials
enforce it into the cotton and we came up with chemical process that actually changes the charge on the cotton which means you don't need as
much chemicals and you don't have all that energy and pressure and you don't create all that waste water. It is one of the single largest
wastewaters producing processes in the world.
And so, Ralph Lauren has been a fantastic partner. We showcased it with the launch of the uniforms for the U.S. Olympics team.
CHATTERLEY: Yes.
FITTERLING: For the Tokyo Olympics. But you know they are proxy. They are the world leader from my standpoint. And you know cotton has been a part of
their portfolio for so long. And we are trying to get the mills to adopt that. And we're having good success.
And that was a reason for the open sourcing is if we can convert those mills then you're going to see that show up in a lot of other things that
you buy and use every day. Think about uniforms for FedEx or UPS driver, uniforms for factory worker, your jeans, you're probably wearing more of
these days because you are working from home and doing other things. So, that's good. I think that's good for business.
CHATTERLEY: Yeah. I couldn't agree more. For an industry as well that comes on the fierce criticism for its lack of attention and sustainability in
this throwaway society. This is something that certainly caught my attention.
Jim, great to chat to you, as always. Thank you for joining us today.
FITTERLING: Always great to see you.
CHATTERLEY: Congrats again. Likewise. Jim Fitterling there, the CEO and chairman of Dow.
We're back after this.
FITTERLING: Thank you, stay safe.
CHATTERLEY: You, too. We'll see you after this.
(COMMERCIAL BREAK)
[09:32:00]
CHATTERLEY: Welcome back to "FIRST MOVE."
The U.S. stock markets are up and running this Thursday. And we do have a higher open. Investors still trying to come to grip, I think, with a
prospect of a much less market friendly Fed. Rate hikes and bond yield runups are on the way. But the U.S. economy remains strong. And I think
that is key from our discussions this morning so far.
Just released numbers show GDP rising at enormous 7 percent. Annualized rate in the fourth quarter of 2021. Robust growth should help lend support
to corporate profits too.
Tesla reporting record earnings. Intel beating estimates. Both firms however constrained by the chip shortage. And Intel is out with mixed
guidance for the current quarter two. So, there's problem certainly lingering into 2022.
Netflix shares also rallying in early trade. Activist investor Bill Ackman has built up more than a $1 billion stake in the streaming giant that
disappointed on subscription growth numbers last week.
And that will be toasting strong sales at Diageo HQ as more people switched to premium drinks. The company's first half revenue jumped 16 percent and
it is now above pre-COVID levels despite inflation and supply chain disruptions. Sales of tequila increased at more than 55 percent and scotch
grew by better-than-expected 25 percent.
And joining is Diageo CEO, Ivan Menezes.
Ivan, great to have you with us and Happy New Year.
I have to say, your results say that the recovery trade is in full swing. People are saying get me back out there. And when they're out there or at
home, they're spending more money on alcohol.
IVAN MENEZES, CEO, DIAGEO: Hello. Good to see you again.
I would just say the trends we are seeing existed pre-COVID and they continue to be strong. People are drinking better not more. So, the premium
end of the market is doing really well. And as we come out of COVID restrictions, the human desire to socialize outside the home is very strong
be it going to bars and pubs or sporting events.
And so, when you look at our numbers, our sales are up 20 percent, every region of the world grew double digit. Our category scotch whiskey grew 27
percent, John Walker grew 31, tequila business which is largely in the U.S., Don Julio or Casamigos grew 56 percent. Guinness came back strongly
as bars and pubs opened in Europe and in Africa.
So, we are feeling good about the sustained trends and we are expanding our margins while we do this and investing in the business. And we think
there's a good runway ahead for the company.
CHATTERLEY: You know, it's fascinating, isn't it? And to your point on point, we don't - we don't promote excessive in vibration of any alcohol or
anything else on this show. So, a qualified put not drinking more or drinking higher premium brands.
What about supply constraints because as you said, and you are giving me double digit growth in all sorts of brands that you have seen.
[09:35:00]
To what extent could that perhaps have been larger had you not been held back to some degree whether it is shipping cost, whether it's even just
down to the basics like glassware in order to bottle some of these products.
MENEZES: Yeah. Sure. It is a little more challenging, but I would say we are fortunate in supply chain teams and our partnerships with our suppliers
including the shipping lines. And we have been able to sustain. Our business grew volumes 9 percent in this last six months.
We have been able to fulfill most of the demand. There are some crunch points, but we believe we can navigate our way through this in part because
of the scale and the expertise and relationships we built with the supply base.
You know Johnny Walker ships seven bottles a minute to 180 countries around the world. And it has been doing it for 200 years.
So, we do have a bit of experience in dealing with global volatility. And I am pleased because in these results business held or grew market share in
85 percent of the world. So, the supply chain issues, we are navigating our way through it pretty effectively and it is not having a material impact on
the business.
CHATTERLEY: You know, that's fascinating. I remember you saying that to me last quarter, well about gaining or holding market share in 85 percent of
your businesses. And I remember thinking afterwards, what about the 15 percent where you want? Where is that? And what's the game plan for 15
percent? Just how my mind works.
MENEZES: Yeah. So, well, we are clearly not satisfied. And these are four or five countries, one in Latin America, one in Africa, one in - but it's -
- although every period, you will have some markets not sustaining market share growth. They may have taken price increases. So, it's not 85 is a
very high bar to maintain. And we're perfectly happy of two-thirds of our businesses are growing shares.
CHATTERLEY: Yeah.
MENEZES: So, we're doing a -- the teams are doing an exceptional job right now. And it points to our portfolio which over the years, we've added
terrific brands like Casamigos and Don Julio. We've also divested businesses that were not that attractive like our wine business. And as a
result, today, we - we've added to our investment in Baijiu in China and that's doing really well.
So, the actions we have taken position in Diageo better for the trends and where the world is going. And we feel very good about categories, brands,
price points and geographies and the global mix for the company.
CHATTERLEY: Yeah. 85 percent is about as close to perfection as it gets. I hear the message. And you've got some experience to know what you are
doing.
I do want to ask you about Russia too because I know you have been operating your own distribution network there for, what, 15 years ago. So,
again, you have seen volatility. You've seen noise surrounding a nation like Russia or beyond in the past. We were just talking earlier on the show
about some of the sanctions risks that's at least being discussed. Are you having a conversation at the board level about the what ifs in this case?
Or we've been here before and you know, you're not so worried. Can you give me your sense and wisdom?
MENEZES: Sure. I mean, it is a relatively small business for Diageo. So, it is not a material position. We sell largely important products into Russia.
So, the whiskeys and Johnny Walker do well. We will and we have over the decades gone through volatility in Russia. We will stay the course. Our
teams on the ground will execute and from a Diageo standpoint, I feel at any point in time when you operate in 180 countries, you are dealing with
volatility and challenges in certain parts of the world. And so, it's - we will be able to handle it in the totality of our performance.
CHATTERLEY: Yes, I was about to say. If anyone understands volatility in certain parts of the world, in the east and beyond, it's Diageo.
Sir, congrats on some great numbers. And congrats to you and the team again.
Ivan Menezes there, the CEO of Diageo. Great to chat you to, sir. Thank you.
MENEZES: Thank you.
CHATTERLEY: OK. Coming up after the break.
Investors are shelling out for a fortune for a slice of the metaverse. Some assets costing millions as much as those in the real world. Why would that
be?
We'll discuss next.
(COMMERCIAL BREAK)
[09:42:20]
CHATTERLEY: Welcome back to "FIRST MOVE."
Where we're living the real world for a moment and diving into the digital metaverse, where investors continue to shell out small fortunes to buy
digital assets. Like this one for an example. Last year, an NFT of a super yacht sold for $650,000. I kid you not. That makes it the most valuable NFT
in the -- what is known as the Sandbox in the metaverse, all of its own. Republic Realm which sold the NFT manages and invests in virtual real
estate, gaming and metaverse platforms. But even the fans of this metaverse gold rush warns it can come with risks.
Janine Yorio is the CEO of Republic Realm and she joins us now.
Janine, fantastic to have you on the show. I read your CV and you have a background in physical real estate. So, I think you're probably one of the
best people to help us understand the similarities and of course the differences in digital real estate. Help us, please. What does it mean?
JANINE YORIO, CEO, REPUBLIC REALM: So happy to be here.
So, metaverse real estate is a really bad name for this idea. But we use it because we can't think of a better way to describe it. And our first real
estate is basically designated pixels inside a software that's designed to mimic the real world in a video game like environment. We call it real
estate because they are designated and specific. But that's where the similarity ends.
It is not like real estate in the sense that it is software. It's technology. It is highly risky and volatile. But it's also really exciting
time to be invested in this asset class. As the whole world wakes up to what the metaverse is. And more importantly, businesses are starting to
understand how important it is to be in the metaverse.
CHATTERLEY: Why? Why is it important to be in the metaverse?
YORIO: Because there is an entire generation of young people who are spending every single day in the metaverse. Children today are conducting
most of their socialization in metaverses like Fortnite and Minecraft and Roblox. And they expect something very different from the Internet and the
people who grew up in the Google and Facebook generation.
They want to walk into immersive and video game like environments that are interactive and social and meet their friends there. And do all the things
that you and I do on the Internet but in a very different format. And if companies want to start marketing to that generation, that will soon have a
lot of purchasing power, they're going to have to formulate a strategy and figure out how to build metaverse environments to attract customers there.
Last year, over $41 billion of NFTs were sold. But that's a drop in the bucket compared to the $5 trillion e-commerce market. All of those
consumers who grew up spending time in Minecraft and Roblox are going to want to buy things with their friends in stores that they can walk into.
[09:45:02]
And so, companies have to figure out how to build those stores and that's where Republic Realm comes in.
CHATTERLEY: Yeah. I mean, this is the key, I think. And maybe it's an age thing. But it's this sort of intersection between what goes on in the
physical world and what goes on in the digital world. Because even if we talk about the Sandbox and I know you've got this Fantasy Island collection
of villas there. And I mentioned that someone bought with crypto, let's be clear, with $650,000 digital yacht. I think -- I hate to keep using the
word why but I am a why child. Why would someone want to own a $650,000 NFT of a digital yacht? What does that mean in this specific metaverse? Is it
just a status thing?
YORIO: It is a bit of a status symbol. It's like, you know, a lot of people want boats. But a few people in the world can afford some of the largest
yachts in the world. And the Metaflower which is that mega yacht that Republic Realm built is a status symbol. There is only one.
But we are also creating things in the metaverse that are more accessible to a much broader audience. So, for example, today, we want a new retail
store concept in the metaverse called GFT Shoppe and their NFT is designed for gifting.
We're doing that because we know people want to buy NFTs but not everybody knows how. So, this is an opportunity for people to go to the metaverse and
buy NFT that they can give as a gift.
We have launched it in concert with Atari because the metaverse is built on the backbone of the video games industry. And what better way to start than
where the video gaming industries started for most of us with a much-loved brand from Atari. It's their 50th anniversary. So, we've designed our first
edition collectibles that you can find at GFTshoppe.com. That's shoppe with two P's. G-F-T-S-H-O-P-P-E .com. And it is a retail store in the metaverse
where you can go buy NFTs designed for gifting. And the price point is much more accessible that the yacht. It is only about $250 to buy one of these
gift boxes.
CHATTERLEY: Yeah. I mean, it is just an illustration but are we only ever going to buying digital products -
YORIO: No.
CHATTERLEY: -- in the metaverse versus physical products. Because this is - this is - I think this is for most people is, where is the intersection of
these two things, the on-ramp because you're sort of giving it to me there in something that's much cheaper than a -- you know multi thousand-dollar
yacht. But where the intersection of these two things? Because that has to be established, I think, first.
YORIO: Here's the best example I can think of. So, children are already spending lots of money on wearable for their avatars. So, Fortnite skins
are clothing and Roblox. The idea of dressing up your avatar in basically, clothing that has a status symbol is something that's long established.
And what we've done is taken that same behavior and made it more accessible for a large number of people. The best example I can think of is a clothing
brand I heard of that is now selling clothing on their regular website in the following sizes, S, M, L, and V. And V stands for virtual.
So, people can go and buy a real world in size medium and buy one for their avatar that's completely virtual because those online and offline
representation of their physical identity are becoming something very important for. Again, this generation of people who does a lot of their
socialization in the metaverse.
CHATTERLEY: And how much could you get away with charging for a size V?
YORIO: It depends on what market will bear, right? You know, I think - a brand like Louis Vuitton can charge a lot more for their virtual clothing
than a more mainstream brand can. But there is certainly a lot of latitude. It depends on things like scarcity and how desirable the items really end
up being for that next generation.
CHATTERLEY: Yeah. I mean, that - it's kind of gets to the core of the discussion really is judging value. I mean, we can talk about how you
invest in real estate or you know for you to understand a gain, a market of any kind, whether it's real estate in the physical world or others. How do
people that are looking at this, how do they judge value? How do they judge demand and supply and scarcities? Do you just treat it perhaps even in your
mind as an effective bencher capitalist like any other market?
YORIO: It is so early. I mean, we are really at the equivalent of the prodigy and AOL days of dial-up for the metaverse.
CHATTERLEY: Yeah.
YORIO: So, how the total transaction volume happening in the metaverse today is just a trickle. We're expecting massive numbers to come online.
And anybody who's considering investing in metaverse real estate which you can do through us at Republic Realm, but you have to think about building a
very broad diversified portfolio because it really is early-stage venture capital where many of the platforms have not launched yet and you are
really investing on a strength of a team that you believe can build something that's innovative and more importantly addictive.
CHATTERLEY: Very - yeah. Oh my gosh. The keyword there. For better and for worse. I saw this great quote from you and I just want to read it because
it goes to your point.
Having been in it four months longer than everybody else. We actually had a huge head start. Which I think says everything. We've had experts in this
field and admittedly, it's early, saying that 99 percent of NFTs will be worthless in the future. Do you agree with that?
YORIO: Yeah. I mean, I think, but that's not necessarily a condemnation of the entire category.
[09:50:03]
CHATTERLEY: No, for sure we are.
YORIO: 99 percent of clothing is - you know ends up in a landfill after a few months, too. It doesn't mean that apparel isn't an enormous industry.
Humans love consumerism and this is a new asset class that people are waking up to and they are having so much fun doing it.
Buying NFTs isn't just about buying NFTs. It is about being part of a community and then figuring out how to use them in the metaverse. Taking
all of your collectibles and displaying your collection whether it's things that you can dress your avatar and/or ways to decorate your metaverse home.
There's so many possibilities and our digital identities are going to be just as important to us as our real-world ones. We'll spend money creating
that image if we have to.
CHATTERLEY: Yeah. I'll tell you what, Louis Vuitton and those brands out there are rubbing their hands together in the short-term. We'll see about
the long-term.
Janine, great to have you with us. Thank you for making it so simple.
YORIO: Thank you.
CHATTERLEY: Janine Yorio there, the CEO of Republic Realm.
We are back after this. Stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "FIRST MOVE."
With the Beijing Winter Olympics just a week away. Big corporate sponsors continue to play it safe as they can.
Selina Wang explains. They're trying to walk that fine line between China and the U.S. and beyond.
(BEGIN VIDEOTAPE)
SELINA WANG, CNN CORRESPONDENT (voice-over): Beijing is gearing up for the biggest show on earth, but the lead-up for sponsors of the Winter Olympics
has been quiet. Foreign brands are caught in the middle of diplomatic boycotts from outside China, in fear of retaliation by the Chinese
government and consumers.
DIPANJAN CHATTERJEE, VICE PRESIDENT AND PRINCIPAL ANALYST, FORRESTER: Whereas you would expect brands to sort of beat their chests and come out
strong. Instead, what you found is that they've retreated into their chests.
WANG: Some of the largest Olympics sponsors, like Airbnb, Coca-Cola, Intel, Procter & Gamble, and Visa have collectively spent billions to be a part of
what's normally a marketing bonanza.
MARK DIMASSIMO, FOUNDER, DIMASSIMO GOLDSTEIN: They're being much more pragmatic advertisers, sticking with their evergreen themes. And no one
wants to be seen as a sponsor of human rights abuses.
WANG: The muted global campaigns have focused on athletes with little mention of Beijing.
CHATTERJEE: They have paid top dollars to be associated with this incredible equity of the Olympics. And now they find themselves having to
backtrack.
WANG: While it's all quiet outside China, inside China, the sponsors are seizing the Olympic opportunity. Over Christmas, Coca-Cola had an online
campaign to send free Olympic memorabilia to Chinese consumers, showing off an interactive exhibition at the Jinzhou train station.
Visa creating an emotional video 100 days before the games. Procter and Gamble unveiling a beauty salon for athletes in the Olympic Village.
(on camera): But there's growing pressure from Washington and rights groups on these giant corporations to take a stand on Chinese human rights record.
The Biden administration and other U.S. allies will not send government officials to the Winter Olympics as a statement against allegations of
genocide in China's Xinjiang region, allegations that China strongly denies.
[09:55:04]
(voice-over): But industry analysts say the priority of many Olympic sponsors for these games is to keep and grow their market share in China,
because retaliation can be swift and painful.
CNN has reached out to all of the top Olympic sponsors. Most have either declined to comment or not responded.
France-based Atos said, "We fully abide by the IOC's strategy on human rights, in addition to our own ethics and compliance program."
Switzerland-based Omega and Germany-based Allianz said their focus is on the athletes. Allianz adding, "We consider dialogue with civil society
organizations to be very important and regularly exchange in our NGO- dialogue on socio-political issues."
RICK BURTON, PROFESSOR OF SPORTS MANAGEMENT, SYRACUSE UNIVERSITY: They're all very cautious right now to not do something that could be perceived as
insulting the Chinese government or the Chinese people.
WANG: And last year, Nike, H&M, and other western brands faced a boycott in China because of a stand they took against the alleged use of forced labor
in Xinjiang.
Then in 2019, comments made by then-Houston Rockets GM in support of Hong Kong pro-democracy protests almost ended a multibillion-dollar deal between
the NBA and China.
So, for these Olympics, sponsors are likely to play it safe.
Selina Wang, CNN, Tokyo.
(END VIDEOTAPE)
CHATTERLEY: And that's it for the show. If you've missed any of our interviews today, they will be on my Twitter and Instagram pages. Search
for @jchatterleycnn.
I have to go and watch some of them to understand them as well today. Stay safe. "Connect the World" with Becky Anderson is next. I will see you
tomorrow.
(COMMERCIAL BREAK)
[10:00:00]
END
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