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First Move with Julia Chatterley
Biden to say Inflation is "Top Priority" in Speech Today; U.S. Futures Rise as Fed gets set to Hike Interest Rates; Dudley: Inflation is a Problem for the Biden Administration; Bitfury CEO: Crypto Slump has no Obvious Bottom to it; More than 250 COVID Cases Linked to Bar in Beijing; Stocks Enter Bear Market on Fears of Steep Rate Hikes. Aired 09-10a ET
Aired June 14, 2022 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
JULIA CHATTERLEY, CNN HOST, FIRST MOVE: I'm Julia Chatterley in New York. A warm welcome to "First Move" fantastic to have you with us on a day of
pricing predicaments and rate readjustments for global investors and for global consumers.
Take a look at this U.S. stocks coming off a truly miserable Monday with the S&P 500 finishing the day in bear market territory. So we're talking
down 20 percent from recent highs as investors began pricing in a more aggressive rate rising path from the Federal Reserve.
Goldman Sachs one of the first to say they expect a three quarter percent rate hikes at the meeting tomorrow. And at the next meeting in July too,
tomorrow's move would be the biggest one day hike in borrowing costs since 1994. And that, of course is going to have a clear impact on consumer
activity and market mentality too.
And I think that's what we saw playing out very clearly on Monday shock at how fast the Federal Reserve may now have to move? The S&P 500 finishing
the day down almost 4 percent the tech heavy NASDAQ tumbling more than 4.5 percent it was the worst day for U.S. stocks since the start of the global
pandemic.
And it wasn't just about stocks U.S. 10 year government bond yields hitting their highest levels in more than a decade too. Fast forward then to today
and U.S. futures are at least for now as you can see higher. We're seeing some consolidation after the pain yesterday at some point, more clarity
over the Feds' path and greater commitment to fighting inflation will be considered a good thing.
The problem is investors have just forgotten or are too young even to remember what a tightening cycle looks and feels like? The Federal
Reserve's task or the more urgent with the release of today's latest inflation numbers the Producer Price Index, which measures the cost of
inflation at the factory gate rising at an almost 11 percent annual rate, actually a little weaker than expected but still near record levels.
Rahel Solomon joins us now, Rahel plenty to discuss. But it did feel like a dramatic shift in expectations and suddenly everyone in the market was
saying, particularly in light of that inflation print that we got in Friday, the Fed is going to have to come sooner, and it's going to have to
move quicker.
RAHEL SOLOMON, CNN CORRESPONDENT: Julia exactly. I think Friday meant that the Fed is going to have to throw out its playbook right? The last time we
heard from Powell, he said that 50 basis points was on the table for the next two meetings. And even that seemed like acceleration.
But then after Friday, we learned that inflation here in the U.S. is not only not moderating, but it appears to be accelerating. And so the fear now
is that that's going to have to throw out that playbook. It's going to have to do a lot more. And so that's why we're hearing these reports now that 75
basis points will be on the table, which surely as you know, we haven't seen since 1994, since our boys to man was on the radio here in the U.S.
So it will be quite a stark announcement when we hear from the Powell when we hear from the Fed Chair Powell tomorrow, if in fact they do 75. But
look, I think you have sort of two camps out there, right? You have those who are concerned about recession, and now the risk of recession growing
with the Fed having to be more aggressive. And then you have those who are just very concerned about inflation. And we know that Fed Chair Powell has
said that fighting inflation is his top priority. And unfortunately, you know if that causes a recession that will remain to be seen. But it looks
like the fighting inflation is no top priority at this point.
CHATTERLEY: Yes. And higher prices also has an impact on consumer behavior, too if you can't afford to fill your car and go on journeys or can't afford
to feed your family, then that's also recessionary, too. So to your point, it's caught between the devil and the deep also caught between the devil
and the deep here, President Biden himself. He's set to talk today 11 am Eastern to discuss the economy, inflation, ongoing challenges there. Rahel
what can he say that he hasn't already said?
SOLOMON: Well, we know he needs to say something different because sentiment is at historic lows. People are feeling overwhelmingly
pessimistic about the U.S. economy right now. What can he say is, you know, one thing I think what he can do is another thing, there had been calls
Julia for the administration to reconsider some of its tariffs on China.
And there are - there's a feeling that doing so would actually reduce price pressures in the short term on some goods that are imported from China. So
that's one thing we know that increased supply of oil. That would be another thing, perhaps why we're seeing a thawing of relationships between
the U.S. and Saudi Arabia, Saudi Arabia being one of the few OPEC countries that has spare oil.
So those are two things that folks see as potential price pressure improvements in the short term. But look, Julia, to your point he has to
say something that he hasn't said before, because we have heard from both the president and the administration quite a bit over the last few weeks,
and it doesn't appear to be helping sentiment consumers are still feeling overly pessimistic about the economy.
CHATTERLEY: Yes, looking for those relief valves and to your exact point it's a difference between what he can say and what he can do.
[09:05:00]
CHATTERLEY: And you gave us the perfect teaser to the next segment there too Rahel, thank you very much for that. And I was speaking to Former New
York Fed Chief Bill Dudley all about inflation and the Federal Reserve and Brian Brooks, the CEO of Bitfury Group about what's going on in the crypto
markets or coming up later on in the show.
For now, though, as Rahel mentioned, there President Biden will make a controversial trip to Saudi Arabia next month, according to the White House
reversing his campaign pledge to treat the kingdom as a pariah after the death of "The Washington Post journalist Jamal Khashoggi" four years ago.
The White House Press Secretary was grilled exactly on this on Monday.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: --Saudi issue for a second. Does President Biden believe that Crown Prince Mohammed bin Salman was responsible for Jamal
Khashoggi?
KARINE JEAN-PIERRE, WHITE HOUSE PRESS SECRETARY: I mean we've spoken to this before. I think he was asked this question directly recently last
week. So what the President is focused on getting things done for the American people
UNIDENTIFIED FEMALE: On the question that I asked though, does he believe that MBC was responsible for Khashoggi's death?
JEAN-PIERRE: The President has spoken to this before and I'm going to just let his words stand. I've already answered the question.
(END VIDEOCLIP)
CHATTERLEY: Nic Robertson joins me now. Nic, an ongoing awkward exchange there and I think the Press Secretary was alluding to their energy
security, not the only reason for these two leaders to get together. But surely the situation with pricing pressures and the oil market and the
reliance of the energy markets on Saudi oil is a catalyst at the very least.
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: They're a swing state. They could - they're a swing producer, rather than that that's huge for the
United States right now huge for Europeans as well struggling to find replacement for oil that they would have previously purchased from Russia.
The pressure has been on the Saudis for some time at the OPEC Plus meeting. And they've resisted that pressure, along with Russia to increase. But the
reality is that the Saudis also want something from the United States, they want that strong relationship.
Crown Prince Mohammed bin Salman, really is expected to be the leader of what is going to be as essentially the most powerful kingdom in the Gulf
for decades to come. And that relationship with the United States is as important to the Saudis as it is to the United States.
And right now, that relationship has tilted in the favor of Saudi having something that's very valuable for President Biden. And the real politic is
President Biden needs to give up a little bit of that ground that he talked about, about making Saudi Arabia a pariah.
A little bit of the ground that he talks about in some of his early speeches as president as being a president who values and cherishes
democracy and democratic values around the world. But it's a historic relationship between the two countries. And I think that's what they're
both leaning on here.
And when you read the press statement, from the Saudis about this meeting, they stressed that it's coming at the invitation of King Salman that likely
is something that will please President Biden very much. They stressed the fact that the first meeting will be with King Salman that however,
President Biden does go on to meet with the Crown Prince Mohammed bin Salman.
And there's a whole raft of different issues in there, you know, technology, space, food, many, many issues that the Saudis want to talk
about. Energy security is one of those in there. But interestingly, it's not the top of the list for the Saudis.
In fact, you know, late last year, they were quite displeased that the way they felt they were being treated coming out of the big COP Summit and
Climate Change Summit in Glasgow being told to dial back, you know, petroleum products and then later being told no, dial it up again.
CHATTERLEY: Yes, each needs something at least something from this relationship and the timing fits both sides here real politic Nic, to your
point. Thank you so much for that.
OK, let's move on. One of the most brutal battles in Europe and for Europe, President Zelenskyy on the battlefield for Donbas in Ukraine after Russian
forces seizes control of the center of Sievierodonetsk. And to add to that Ukrainian official now say all three bridges into the city are impossible.
CNN's Salma Abdelaziz joins us now from Kyiv. Salma, good to have you with us!
If these bridges now these main routes are impossible what does that mean both for getting supplies in but also perhaps evacuations and getting
people out?
SALMA ABDELAZIZ, CNN CORRESPONDENT: It makes it ever more difficult Julia. Ukrainian officials say that evacuations continue by the minute but again
with those three bridges now broken and you do have to remember the shelling is constant in that city. That means people are in down in
basements pinned down underground evacuations are becoming extremely, extremely difficult.
We have an estimated 10,000 people that are still trapped in Sievierodonetsk. Some of them a few hundred of them are in a steel plant a
steel factory pinned down there.
[09:10:00]
ABDELAZIZ: And Russia is stepping in with a very worrying remark here. They say they want to help with these evacuations, but they're going to take
residents to Russian occupied territories. Now this has happened in the past and other Russian occupied places. And these civilians have had to
move through what are called filtration camps have their paperwork checked and human rights groups say essentially forced into Russian territory with
no option.
So that's not something that you are going to want to see Ukrainian forces, of course, see happen here. And President Zelenskyy yesterday in his
nightly address, painting a very bleak picture, take a listen.
(BEGIN VIDEO CLIP)
VOLODYMYR ZELENSKYY, UKRAINIAN PRESIDENT: The price of this battle for us is very high. It's just scary. And we draw the attention of our partners on
a daily basis to the fact that only a sufficient number of modern artillery for Ukraine will ensure our advantage and finally the end of Russian
torture of the Ukrainian Donbas.
(END VIDEO CLIP)
ABDELAZIZ: You hear President Zelenskyy there yet again pleading for weaponry from the west. They are outmanned. They are outgunned. Russia is
using superior artillery power. They're using multiple rocket launch systems, which Ukraine has very few of.
And importantly, they're using air power air support to really push back these Ukrainian positions, according to Ukraine's own reporting, 70 to 80
percent, of Severodonestk including the city center is now under Russian control. It's just a matter of when the city will fall not if any longer
Russian backed separatists already calling on Ukrainian forces to lay down their arms.
They say surrender or die. And this would be a major victory, of course, for Moscow's troops. They see these territories as Russian territories,
they completely disregard the sovereignty of Ukraine and it's one step towards taking that whole of the Donbas eventually annexing it, much like
they did with Crimea and creating that connection that land bridge that President Putin wants to see from Russian territory down to Crimea into
those ports on the blocks.
President Zelenskyy keeps making the same point over and over again, Julia, and it's are we going to allow might to make right or will the West step in
and say brute force is not going to allow President Putin to just take these territories?
CHATTERLEY: One of Europe's most brutal battles, the words of President Zelenskyy to your point, Sam, thank you, Sam Abdelaziz there. OK, let me
bring you up to speed now with some of the other stories making headlines around the world.
The January 6th Committee is revealing damning testimony from members of Former U.S. President Donald Trump's inner circle. The Committee laid out
evidence during its second televised hearing on Monday that President Trump Former President Trump knew his claims that widespread vote fraud had taken
place were false. The House panel also presented a case for Trump then use the lie as a fundraising tool.
In Russia an aid of Alexei Navalny says the Opposition Politician has disappeared from the penal colony where he was imprisoned. A member of his
organization sees he failed to appear for a planned meeting with his attorneys today, and they haven't been told where he is? CNN has reached
out to Navalny's lawyers for comment.
UK authorities say the first deportation flight to remove asylum seekers to Rwanda will take place this Tuesday. Critics have condemned the migration
agreement between the UK and Rwanda as inhumane, saying Britain is outsourcing its responsibilities. But London says the deportations
unnecessary to deter illegal migration and people smuggling networks.
OK, straight ahead here on "First Move", consumer prices higher stocks lower. We have Former New York Federal Reserve President Bill Dudley on the
new investment climate that's coming up. Stay with us.
(COMMERCIAL BREAK)
[09:15:00]
CHATTERLEY: Welcome back to "First Move". And we're moving from patient power perhaps to punish a power. Global investors didn't that state of
corporate policy perturbation after a truly remarkable albeit painful day on Monday that saw investors pricing in a more aggressive rate hike when
the U.S. Federal Reserve wraps up its policy meeting tomorrow.
With apologies to Sherlock Holmes we could perhaps also call it the 75 basis points solution in English. Three quarters of a percent hike rather
than a tamer half a percent hike is now the markets expectation. It's a tough life message for investors to but perhaps a necessary one to convince
investors.
The Fed is truly on the inflation fighting case. U.S. Futures trying to bounce after its - S&P 500 tumbled into bear market territory yesterday.
Bond yields also easing slightly after Monday's jump higher but more volatility could also be on its way as we wait to the Fed statement
tomorrow and Chair Powell's press conference.
Someone who has the better sense of this perhaps than any of them Bill Dudley joins us now. He's the Former President of the New York Federal
Reserve. And he's currently the Senior Research Scholar at Princeton University's Center for Economic Policy Studies.
Bill fantastic to have you on the show and get your wisdom! Given everything that you've seen, be it data and the market moves do you think
that three quarters of a percentage point rate hike is on the cards tomorrow?
WILLIAM DUDLEY, FORMER NY FEDERAL RESERVE PRESIDENT: Yes, yes, absolutely at this point, I think this was choreographed by the Federal Reserve. I
think they wanted to make sure that they were not falling further behind the curve. And so they had some conversations with some key journalists,
and it's priced in now. So definitely we're going to see 75 basis points at this meeting.
CHATTERLEY: It's called fed whispering. There were some whispering in the ears of people just to prepare everybody; they don't want to have
surprises. Now, there's no surprise because everyone's predicting it.
DUDLEY: Yes, the big surprise would be now if they went back to 50 basis points.
CHATTERLEY: Right. What about July?
DUDLEY: I think they were really concerned - July, I think still up in the air. But you're absolutely right, if you do 75 in June 75 in July, so it
has to be on the table. I think the reason why they're moving faster is two things.
One, the inflation data is worse, stay higher for longer, and two we saw some figures on inflation expectations that were not as benign as the ones
we'd seen earlier. So I think the Fed was worried about their credibility. So I think the 75 basis points is really about ensuring that the Fed has
credibility as an inflation fighter so that inflation expectations don't get further unlinked.
CHATTERLEY: Do you think they have it now under control with this shift in messaging, because I think your point, there's very valid. There are a few
things that they've watched the data, having looked like it was stabilizing to some degree in the past month, we now got the sense from that inflation
data on Friday that it simply hasn't.
And at the same time, they was willing to wait and see what happens and follow the data and suddenly all look alike, particularly with a shift in
expectations for consumers, which is so important to if that gets entrenched. They're just way behind.
DUDLEY: It feel a bit like alerts. Yes, it feels a bit - feels a bit like alerts to me, but at the end of the day, I think they do need to show a
tighter monetary policy path. And I think what's going to be very interesting in the meeting is what they show in terms of their economic
projections?
The economic projections they've had for both the last two times December and March were sort of Alice in Wonderland. Inflation just magically melted
away even though monetary policy wasn't made very tight and the unemployment rates in rise.
[09:20:00]
DUDLEY: So I think they're going to have to show a much more credible forecast.
CATTERLEY: I'm going to ask - because it was literally my second question to you before we saw what we saw yesterday was, what I simply do not
understand in their forecasts is how inflation comes down? What's the catalyst for bringing it down? And you're sort of asking the same question
here?
DUDLEY: Well, I think they thought that some of the inflation would come down just because the demand for goods would which fall in the demand for
services would go up as the countries reopen. So they would take some of the upward pressure on goods price.
CHATTERLEY: But there's no guarantee?
DUDLEY: Its upside. I think the new wildcard is the Ukraine Russia war, which is causing a pretty big energy price shock that looks like it could
be persistent.
CHATTERLEY: There are two things that take place with policy steps. There's the announcement that the Federal Reserve make, and then the market
adjusts. And there's the actual action that they take. And so far, what we've seen is talk about Federal Reserve rate hikes and the prospect of
them coming in the future. But at the same time, the market already adjusts.
The U.S. Dollar is stronger, credit conditions have already tightened which makes credit for people borrowing credit cards more expensive anyway,
because that price first built and there it's a sort of finger in the wind question, but how much of the tightening work is being done for them by the
shifts that we're already seeing in the market versus what they ultimately have to do?
I guess the question that I'm asking is, to our earlier point about what brings inflation down? How much do they have to do versus is done for them
anyway?
DUDLEY: Well, the reason its being done for them is because markets expect the Fed to fall through and raise rates further. So the Fed is basically
you know foreshadow the future path of short term interest rates, which is considerably higher than where we are now.
So the markets are incorporating those expectations. And so the bond market is selling off the stock market selling off. And that's what the Federal
Reserve wants to happen the Fed wants financial conditions to tighten because that does going to be the mechanism that slows economic growth
generates more slack in the labor market.
And that's what brings inflation down. So the Fed is not unhappy about what's happening to the bond market or stock market. This is by design, not
by accident.
CHATTERLEY: All of it?
DUDLEY: Pretty much all of it, I think, yes, I think the Fed if they had to do it over again, they would have started a lot sooner.
CHATTERLEY: Yes. Should or would or could something that you mentioned there, which I think is really important. And we've not talked about it at
all really is the labor market, the other side of the dual mandate and what isn't incorporated in the data that we saw on Friday, and that's wage
pressures.
If you want to introduce some stability in that, where do you need to be in the labor market in terms of the unemployment rate, and it sounds like a
crazy thing to say, given how hard they've worked to add those incremental jobs and get those people back into the labor force and perhaps goes to
your point about why they waited so long? But where's the sweet spot there in terms of the labor market?
DUDLEY: Well, you want to tight labor market, but you don't want to too tight labor market, and right now we have a too tight labor market, because
there are 1.9 unfilled jobs for every unemployed worker and that compares to where we were in February 2020 before the pandemic, the ratio was 1.2 to
1.
So we have basically the tightest labor market probably in history. And that's really what's generating some upward pressure on wages. The labor
markets too tight, the Fed needs to make it looser, and so the unemployment rate needs to drift up. And it's going to be very interesting to see if the
Fed finally writes that down in terms of their forecast.
CHATTERLEY: That's uncomfortable politically, going into midterm elections. I mean, surely that must be a conversation that's being had between the
Federal Reserve and the White House, they've got to aggressively tighten rates. They need an unemployment rate that's higher. I mean its multiple
ouches.
DUDLEY: Right. But the inflation problem is a big problem for the Biden Administration as well. I mean, the reason why consumer confidence is so
depressed, it's all about higher inflation. So I think, you know, if you have a slightly higher unemployment rate, and that bring it and that's
consistent with lower inflation, it's not clear that a bad thing from the Biden Administration.
And the Biden Administration essentially washed their hands a little bit of inflation. They said we're going to let the Fed take care of this. It's the
Feds job. We're going to treat the Fed as an independent institution. So the Biden Administration is basically kicked the ball into the Fed's court.
CHATTERLEY: They can't unfortunately kick their political blowback or and voter sentiment if they're leaving it to them to deal with. I know you've
long been saying that recessions going to be hard to avoid, in light of what we've seen in the last 24 hours, 48 hours then we can include the data
on Friday is it a given now?
[09:25:00]
DUDLEY: Well, let's put this way, the odds were always high. Now they're higher, because the Federal Reserve is going to be more aggressive in terms
of monetary policy, and they're going to push the unemployment rate up.
I think the key reason why I'm so convinced that there's going to be a hard landing is because every time the unemployment rate has risen by more than
a half a percent in the U.S. we've had a full blown recession.
I don't think the recession is going to happen tomorrow, I think the economy actually still has considerable forward momentum. So I think it's
really more of a 2023, 2024 story, not a 2022 story, so hard landing, highly likely, but not quite yet.
CHATTERLEY: It was still coming up there a V-shaped recovery after the pandemic as well and part of the story here is the sheer quantity of
stimulus and money sloshing around in the economy anyway.
What I'm worried about most is the bottom quartile of people that live paycheck to paycheck that are most damaged by rising fuel prices and food
prices, actually, wherever you are in the world, but obviously, we're talking about the United States here. How concerning in light of what we're
discussing Bill is it for them, for the next 18 months to two years?
DUDLEY: You hit the nail on the head. It's going to fall disproportionately on them, because fuel and energy is a bigger proportion of their
consumption basket, because they don't have as much financial resources to deal with higher inflation.
Because they're probably less, you know, well attached to the labor force and being employed. So I think the burden is going to fall
disproportionately on them. And that's really one of the mistakes, I think that was made.
If we could have had a little bit more preemptive monetary policy, the Fed wouldn't have to stand on the brakes as hard. And that would have probably
made a lot of us to not cause this damage to low income households.
CHATTERLEY: Yes, cushioned the people that need it most. Bill -
DUDLEY: The fed's heir was in the right place. Fed's heir it was in the right place. They wanted to basically get these people employed, which I
think is really admirable. But you know, too much of anything is a bad thing. And what happened here is we had too much monetary policy stimulus
for too long, and when labor market got to its degree of tightness that's not really consistent with 2 percent inflation over time.
CHATTERLEY: And then a war in Ukraine.
DUDLEY: Yes, that was bad luck. I mean, because that's a whole nether set of shocks. And the U.S. is fairly well insulated from those shocks from a
from a growth perspective. Because the U.S. produces a lot of grain and they produce a lot of energy. So you know the burden on the growth side is
going to fall disproportionately on low income countries and on Europe.
CHATTERLEY: Yes, and we'll keep talking about it. Bill, great to have you with us and thank you for your wisdom as always!
DUDLEY: Thank you.
CHATTERLEY: Bill Dudley, the Former President of the New York Federal Reserve. OK, coming up here on "First Move", crypto crunch Bitfury Group
CEO Brian Brooks joins us with his insight as investors continue to shed risky assets. Stay with us we're back after to this.
(COMMERCIAL BREAK)
[09:30:00]
CHATTERLEY: Welcome back to "First Move". And from the miserable Monday to a tentative Tuesday on Wall Street U.S. stocks are higher in early trade
after Monday's sharp pullback that saw the S&P 500 close in bear market territory.
So that's down 20 percent from recent highs all this as the Federal Reserve begins its two day policy meeting in Washington an aggressive three
quarters of a percent rate hike is now seen likely tomorrow as you heard from, William Dudley just a moment ago too.
Powell and company getting another crucial piece of inflation data over the past hour as well U.S. producer prices in May up 10.8 percent from a year
ago due in large part to soaring energy prices. That's actually down a touch from April's levels but still sitting near record highs.
And continued pressure in digital assets like Crypto, Bitcoin falling below $23,000 after plunging 15 percent on Monday it was the biggest single day
drop since March of 2020.
Aetherium trading under $1,300 it's lost around 75 percent of its value since November. Another Litecoin has dropped 70 percent so far this year.
Also under pressure crypto exchanges Coinbase says it will have 18 percent of its workforce, as the company shares hit an all-time low.
And so called Crypto Lending Platform Celsius temporarily suspending withdrawals and transfers the company manages more than $11 billion in
assets. Meanwhile, shares of MicroStrategy which is significant Bitcoin holding sliding once again after plunging 25 percent on Monday, the company
said earlier it would face a margin call if Bitcoin drops to $21,000.
What on earth is going on? Joining us now with his wisdom and insight Brian Brooks, the CEO of Bitfury Group, he's also the Former CEO of Binance U.S.
Brian, thank goodness we have you on to explain what's going on. It does feel a little bit like a watershed Bitcoin below $23,000. How far might
this fall?
BRAIN BROOKS, CEO, BITFURY: Yes Julia, as you were going through your litany of the overnight movements. I was just thinking can she please make
it stop? You know, it's hard to overestimate how ugly the situation is right now?
And the problem, I believe, is that the situation we're in, doesn't have an obvious bottom to it. And it isn't because digital assets don't have a ton
of value in them but it is because a perfect storm of factors has happened.
You had two major projects blow up in the last three weeks, which has caused people to question the whole sector. And then you have everything
that your previous guest talked about the macro environment being insanely ugly.
Labor force participation, masking an artificially low unemployment rate, strong energy price rises, which makes it very hard to mine Bitcoin
profitably at cetera. So there's a lot going on here and it's not clear where the bottom is.
CHATTERLEY: It also gives ammunition to the skeptics to your point, when you see a Stablecoin not being stable. You've got a shakedown going on in
an exchange that saying, look, I can't cope with the level of volumes that we're seeing, suddenly everybody looks at this sector and goes, there was
never any value there in the first place. Let's head for the exits.
BROOKS: Yes, there's no question about it. There was a famous headline from I want to say the year was 1998, or 1999, talking about how the internet
was over because millions of people were cutting their AOL subscriptions in the middle of that particular recession?
And you know, what those of us who remember those days know is there's fundamental long term technology being built here that will rewire the
global financial system without question. But right now that people who are the late adopters and the people who are the day traders and the easy money
people, they're abandoning ship, and that creates the sense of panic.
In the end, the people who hang in will be the people who build the next generations' Amazon and Google, but that's going to be a couple years out
at this point.
CHATTERLEY: Yes, I mean go to the comparison you made with but - a lot of things did blow up for good reason at that point and great things were
created at the same time in the future?
[09:35:00]
BROOKS: Absolutely. It's like in forest management is the analogy I think about at some point the undergrowth has to burn in order for the tall trees
to have space to grow. And that is a little bit of what's going on here.
CHATTERLEY: There's also an argument you've made that this was an asset class that thrived on Central Bank irresponsibility, government
overspending. And so there's perhaps no surprise that it suffers in an environment where you start to see some degree of greater fiscal
responsibility and a Central Bank that goes OK, we really have to be aggressive now to contain price pressures, like inflation that we're
seeing.
BROOKS: Yes, I think that's right. And I think this is one of the areas where Bitcoin in particular has this inflationary role that people don't
understand very well. You know, the way that Bitcoin really works is, it's a signal of future inflation expectations.
And so over the last two years, when Bitcoin had its 5X rate of return going from 4000, to 20,000, and then to almost 70,000, it was doing that in
an environment where easy money policies were prevailing right?
It was fiscal stimulus and zero interest rates on the monetary side. And that expectation of super low interest rates and high inflation, as it was
building drove Bitcoin to highs. Now that we're talking about 75 basis point rate increases and that's on the heel of the last several rate
increases, the first we've seen in a decade.
It's not surprising that Bitcoin reacts negatively to that. It is a forecast of future inflation. And now it's forecasting there will be
aggressive monetary policy. So that's might be good for the world. It's bad for Bitcoin.
CHATTERLEY: I know I can hear the skeptics are yelling at the television and saying that it rose in a period of extreme froth and speculation. We
can debate that point till the cows come home.
I want to move on and talk about the behavior of some of the exchanges here. And what that says about the sheer size of this market, the scale of
this market, and for whatever reason, and you can throw in a lot of things, be it lack of regulatory clarity, lack of big market the markets too big
for the infrastructure that at the moment houses it.
BROOKS: Yes, that is for sure. And you've seen this before. I mean, back in 2017 and 2018 in the last major bull market, you saw the very same thing,
which is, as prices were rapidly rising, the exchanges froze because they didn't have the technology capacity to handle that many trades that
quickly.
And you see the same things on the way down volumes are very, very high. And the companies that are leading the space which are terrific companies
filled with very, very smart people, nonetheless, don't have industrial grade risk management. They don't have systems that are designed to handle
millions and millions of transactions an hour, which is what they're seeing?
This is one of the reasons when you mentioned regulatory clarity, why I've believed ever since I was the Comptroller of the Currency, that it's
imperative that we create a better connection between the traditional banking and broker dealer system and crypto, those kinds of companies do
have the infrastructure to handle this level of volume, because they've been doing it for 100 years.
But as long as we insist on keeping crypto separate from banks, outside of the regulatory perimeter, it's much more likely you will have these rapid a
synchronicity sort of moments where the system can't handle the trading.
CHATTERLEY: Yes, because you've got the biggest market makers in the world, these citadels of the world, JP Morgan's are saying, look, give us some
regulatory guidelines and clarity here when we'll be involved. But they can't do that without it they're too big, quite frankly, for that, and have
too much responsibility?
BROOKS: No, you're absolutely right. On the other hand, you've mentioned JP Morgan. And that's an example of why those of us who've been in this for a
long time are so optimistic about the future because for all of the lack of regulatory clarity.
Just last week, JP Morgan said that it was engaged in tokenizing trillions of dollars of real assets to bring them on Blockchain. What that tells me
is when the leaders in the traditional sector start embracing innovation it makes it much more likely that the regulators have to listen because
regulators always listen to their incumbents more than the challengers. And so that's a long term good sign, even amidst all this carnage.
CHATTERLEY: Speaking of carnage Celsius Brian in my introduction there, I mentioned that they manage money and to a keen ears and one should be going
hang on a second. What do you mean managing money? Is this a hedge fund? What's the deal here, particularly when they're providing astonishing
returns what is --?
BROOKS: Yes, and if there's one thing we learned from past controversies, you know, the Bernie Madoff controversy and things like that, when people
promise you astonishing returns, you will be astonished when they're delivered, right?
And so the problem with Celsius, like the disaster at Terra Luna just a couple of weeks ago, is you had two projects that were masquerading as
decentralized finance projects, which really weren't decentralized at all there really was a management team that was taking your money was turning
around and trading your money in hopes of achieving insanely high returns.
And then promising they would share some of that with you in the form of something that they called interest. But here's the news flash, if in this
environment you think you can get 18 percent interest you know that's when it's time to call the top that's like when you know in the depression
people said that they were getting stock tips from their shoeshine guy.
[09:40:00]
BROOKS: That's a very bad sign. Celsius was not a decentralized finance project. It was a group of people who borrowed your tokens, traded them in
the hopes of achieving high returns and promised they'd pay you back.
When they couldn't get those returns, the withdrawals showed up and the project blew up. That's, again, why centralized projects need to be
regulated, those companies are no different from hedge funds.
CHATTERLEY: Well, I mean, you use the term Bernie Madoff, so I'm going to push you even further and say, Ponzi Scheme.
BROOKS: Yes. I mean, it's hard to know if it's exactly a Ponzi Scheme but what it certainly is something that, you know, acts as though it's a
perpetual motion machine. And at the end of the day, when redemption started out, stripping new money, they fall to zero.
CHATTERLEY: Yes.
BROOKS: So again, point of Crypto's decentralization and when you see these projects that are actually managed by central management teams, people
deserve disclosure, risk management has to exist this is why we have regulation. We shouldn't throw out the decentralization project because of
the failure of Celsius. But in the early days, people are going to paint the whole industry with the Celsius brush.
CHATTERLEY: And therein lay the key, because I'll use the term Ponzi it can be my word, not your word. But it sort of taints the entire sector. And it
goes to the point of what we saw from Coinbase today, they're lying off 80 percent of their workforce, there's this sort of chill wind effect. I think
there's been - whole sector not a separation between the underlying technology and the tokens themselves, Brian, and I guess the fear is that
Crypto goes into a winter --?
BROOKS: Yes look, I think that's a real possibility. I mean, there are people who talk about the idea that a Crypto bear market has three parts,
and we're late in part two, right? Part one is when you have a small price correction of 10, or 20, people is basically positive.
And they say this is good. Now these are more sustainable prices.
Part two is you have some big external event like a Celsius disaster, and that causes a massive blow up. And what happens then is you have big price
falls with a few small, you know, bumps along the way going up, but people are selling into the bump not buying into the bump. And that's when things
slide into a winter environment.
So I think many of us are buckling down for an 18 month difficult period. But again, remember, in the Dotcom bust, many people said that because
pets.com failed, the entire project of the internet was a scam. We know that wasn't true. But enough people believed at the time that internet
stocks stayed very low for a couple of years. And that's likely to happen here too.
CHATTERLEY: Brian there is good news in all of this, and that is the 50 employees that you had in Ukraine that you pulled out and sent to other
countries. Talk to me about providing them with financial support and how you did it?
BROOKS: Yes. You know, it's I think outside of tech, it's not well known that Ukraine had a very, very strong, robust and innovative software
engineering culture. Many of the best software engineers in Europe were located in Ukraine. And our company had, you know, several different
business units with people there.
When the war came, obviously, it was up to them and us to figure out ways out. And in the early going, you know, we put together traditional
financial packages to help relocate them to places like Poland, or to our office in Amsterdam, or to Georgia, or other places in the region.
And that worked for a while we had a number of people who successfully relocated there. But as the war intensified, some of the people that didn't
take the offer early on found them trapped by an inability to access traditional payment systems.
Because that part of the world was basically cut off, either in the case of Russia by the west or in the case of Ukraine by the war. And the question
is how can we deliver value to these folks to get them to, you know, peaceful locations where they could be safe with their families and to do
their work?
And the answer was Bitcoin was a way that we could send value to unsanctioned people who worked for us and get them to safety in places like
Turkey, or Dubai, or other places in the region. And without Bitcoin, you know, it's not clear that we could have helped those people feed their
families.
And so the thing I'd ask people to remember is in a time of price volatility, the purpose of Bitcoin among others is to create a financial
ecosystem that isn't governed by prevailing political winds by war and geopolitics and those kinds of things to create a financial system that is
independent and controlled by users. And we were awfully glad we could use that to get some of our people out of the war zone.
CHATTERLEY: Brian, thank you for what you did for your people. Great to chat to you and we'll speak again soon.
BROOKS: Thanks so much.
CHATTERLEY: Brain Brooks the CEO of Bitfury we'll speak soon. We're back after this stay with CNN.
(COMEMRCIAL BREAK)
[09:45:00]
CHATTERLEY: Welcome back to "First Move". Mass COVID testing underway in Beijing after what officials called a "Ferocious Outbreak". More than 250
cases have been linked to a bar in Beijing's most populous district. Selina Wang joins us on this story.
Selina, heaven supermarket buy you're going to have to define what kind of an establishment that is. But I read that 10,000 of the bars' patrons have
been identified and now their buildings have been put under lockdown. And maybe that's a reason to stay home I don't know what it took us through
this?
SELINA WANG, CNN CORRESPONDENT: Well, Julia just to emphasize how seriously the government is taking this outbreak? China's Vice Premier went and
visited the bar said that COVID measures need to be strengthened. This is according to state media. And a criminal investigation has also been
launched into this bar cluster to see if there was a potential breach of COVID protocols?
So as a result of this bar cluster, they have found 250 COVID cases since Monday. And linked to the bar they found 8000 close contacts and although a
residential neighborhood have been put under lockdown, this just shows how easy it is for loosening restrictions to take a U-turn in zero COVID China.
Right when residents in Beijing thought the worst was behind them. Well, we are seeing COVID restrictions get strengthened once again. Beijing's
largest district Chaoyang last week, again, closed down all large entertainment venues just days after they allowed them to reopen. Most
schools are delaying their reopening and hundreds of restaurants have closed down.
Chaoyang Beijing's largest district is also rolling out three days of mass testing. So across all major cities in China, you've got to have a 72 hour
at least a COVID test within 72 hours to enter any public venue.
And during these periods of mass testing, you've got to get a COVID test every single day. So I'm in Chaoyang, I've been doing that in the lines,
they are long, I've often been waiting an hour or more.
And what's important to remember in China is that even if you yourself never test positive for COVID there is always the risk that you could be
isolated at home or sent to government quarantine because, just one positive COVID case can send an entire community to government isolation
facilities and the neighboring communities even all into home locked down for two weeks or potentially more, Julia.
CHATTERLEY: Yes, there is anxiety inducing. I think just watching people in your apartment building going out you'd be wondering whether they're going
to catch it when they get out there and you'll end up in quarantine of some form? It's pretty scary, I think Selina hang in there, please. Selina Wang
thank you for the update! Stay with CNN we're back after this.
[09:50:00]
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move"! U.S. investors getting used to a new era of higher inflation, higher rates and slower growth the S&P 500 is
in a bear market and a new rate hike from the Fed is looming.
Christine Romans joins me now Christine, and it's a bigger Fed rate hike than we were thinking even what 48 hours ago, they have got some real work
to do? And none of its easy and none of it are easy for consumers in either way?
CHRISTINE ROMANS, CNN CHIEF BUSINESS CORREPSONDENT: It's all a really scary little mess here, quite frankly. And I think 75 basis points Julia is what
the consensus is. The Fed Chief has been very clear over the past month or so that they were expecting to see some peaking or moderating in these
inflation numbers.
And if they didn't, if the data was not showing that, you know, things were starting to slow that they would be able to move more aggressively. He had
said about a month ago, they would be nimble, if the incoming economic data you know was showing that inflation was still too hot.
And I think that the consensus is that's where we are, it's still too hot. This PPI number of 10.8 percent this morning, the CPI number on Friday,
which was just really sort of, paints a picture of the pain of the grocery store in the gas station and in writing the rent checks the American people
are going through.
All of that is just too hot and the Fed likely to have to start aggressively raising interest rates if they do 75 basis points will be the
first time since 1994. And I think what's interesting here, it's not easy. There's no easy answer here.
I mean, to cure the illness of inflation, which is something that people are the American consumer is sick with at the moment, you have to jack up
interest rates, which also feels bad to the American consumer who happens to be a borrower too.
We've already seen mortgage rates double from 3 percent, earlier this year to 6 percent. So you're seeing the market actually respond the market rates
even ahead of where the Fed is here right now.
CHATTERELY: It's funny; we were just talking to the Former New York Fed Governor William Dudley as well. And he said, among many things, they
should have acted sooner.
ROMANS: Yes.
CHATTERLEY: And their heart was in the right place in that they were trying to add the absolute last few workers that they could get into the labor
market and that's why they held out so long.
But even now, wage pressure is so out of control that they're actually going to have to get the unemployment rate up in order to stabilize that so
job insecurity is going to rise and for the bottom quartile of people in this country that live paycheck to paycheck, it's pain on all sides?
ROMANS: And that's what I'm really worried about is that the bottom earners and here's why they don't have the home equity built in. We are at record
home prices in the United States right now that's part of that era of cheap and easy money for all those years right?
And all that money sloshing around in the system and they don't have the 401K balances that are still I mean, look they're down dramatically this
year, but you're going back to January 2021 level.
[09:55:00]
ROMANAS: So you still had an amazing run in the stock market if you're a long term investor since the last crisis in 08 or 09 that's why so many
people have been able to drop out of the labor market right, because they do have these cushions but not for the lower income workers and that's what
I think is going to be a real political problem here in the United States, as well. There just no playbook for this too.
I mean, Julia right - I feel like every time there's a crisis or a mistake, we fight the last one that we had, you know, we take the lessons from the
last crisis and try to apply it to the new one. This one is COVID lockdowns in China.
A heartland war in Europe, an energy crisis and remaking the energy map and coming out of a COVID global health crisis on top of maybe at the margin
stimulus spending, they could have added some heat to the inflation numbers. Any one of those headlines is destabilized it I just named six.
CHATTERLEY: I know. And unlike the financial crisis there was ballast there because it was in the Western Asia was relatively OK. Here it's the entire
world that's involved.
ROMANS: Yes.
CHATTERLEY: So there's no balance. Christine Romans thank you for that. Now I was thoroughly depressed. If you missed any of our interviews today there
will be on my Twitter and Instagram pages search @jchatterleycnn. "Connect the World" with Becky Anderson is up next.
(COMMERCIAL BREAK)
END
