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First Move with Julia Chatterley
Russia Strikes Ukraine after West approves Tank Deliveries; Goldman Economist: Debt Ceiling Crisis could Spark Recession; Johnson: Tesla is not even Selling Half of Existing Capacity; U.S. Stocks Higher as Q4 GDP Beats Expectations; Diageo Shares Dip as U.S. Sales Growth Slows; CNET Issues Corrections after Using AI to Write Articles. Aired 9-10a ET
Aired January 26, 2023 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
(COMMERCIAL BREAK)
RAHEL SOLOMON, CNN HOST: A warm welcome to "First Move", I'm Rahel Solomon in today for Julia Chatterley. Great to have you with us! And just ahead
this hour Russia's fury people in Kyiv take shelter as Moscow unleashes fresh rocket attacks a warning to Western nations perhaps after their
landmark decision to send tanks. We will live report from Ukraine just ahead.
Plus, Tesla top shares of the Evie giant accelerating pre market. Musk and company report a record profits also ambitious delivery goals despite
economic headwinds, but is it too bullish at target? We will discuss with Tesla bear Gordon Johnson of GLJ Research. Also GDP decree the U.S.
reporting just minutes ago that the economy grew at a stronger than expected 2.9 percent annual rates in the fourth quarter.
Also a big jump in durable goods orders as well. And another drop in new jobless claims all of this pointing to a resilient U.S. economy. Let's take
a look at the market reaction Wall Street well look at those green arrows across the board Wall Street on track for a higher open after a mix session
on Wednesday.
Tech really set to outperform here but take a look Europe also higher as well. After a busy day for tech earnings there, shows up Nokia rallying
after earnings beat. But German software giant SAP missing Q4 forecasts it's also cutting almost 3000 jobs and more tech pain in the U.S. IBM
getting rid of almost 4000 positions or about 1.5 percent of its global workforce.
Lots to get to this hour but let's begin with the latest in Ukraine tanks promised from the west while missiles rain down from Moscow. One person has
died and at least two more injured after Russia launched a new wave of strikes against Ukraine early on Thursday.
The attack came after Germany and the U.S. announced that they would supply modern battle tanks to Ukraine a move that the Kremlin is calling "a direct
involvement in the conflict". Sam Kiley with us now he is live in Kyiv. So Sam, you are on the ground there. What are you seeing?
SAM KILEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, Rahel, once again, we've seen one of these wave attacks using two different types of weapon by
the Russians to go after the civilian infrastructure, particularly the energy infrastructure here in Ukraine.
We've been seeing this now for months on almost a weekly basis what the Russians have been doing once again in sending Shahed low level, low grade
drones to absorb a lot of the air defenses and then follow that up with most sophisticated much more powerful cruise missiles.
Now over the capitol city here in Kyiv local authorities are saying they shot down all 20 cruise missiles that were aimed at the Capital. One was
shot down the debris from that killed a local resident in his 50s and fell fairly close to a significant energy generating facility which was clearly
being targeted by the Russians.
Now elsewhere in the country, the Ukrainians have preempted this strike because they had intelligence that it was likely to be coming by dialing
down the amount of energy they were producing so that the results of any successful strike against them could be minimized. That seems to have been
effective here in Kyiv, most of the emergency services, the supplies of power to hospitals and other critical infrastructure is backup same,
reportedly out of Odesa.
So they have once again weathered one of these storms. But this has taken none of the shine of their pleasure and delight, I should say Rahel,
received here in in in this country over the reports that the festival Germans are going to be sending Leopard tanks along with their other
allies. Some 80 or so Leopard tanks are expected in the next few months.
30 Abrams tanks probably going to take a bit longer 14 challenger tanks from the United Kingdom that may be here in a matter of weeks these are not
strategic weapons, but they are strategically symbolic in because they show the enormous amount of unity now in the West at a time when the Russians
might have been hoping for some fragmentation about what the strategy should be for Ukraine in the West.
Now they are Full Square behind the Ukrainian strategy, which is to continue to prosecute this war until the Russians can be driven out. And
there is hope here in the Ukrainian administration, that these tanks will be the precursor to more and more strategic weapons, particularly air
defenses, particularly long range missile strike capability, but above all air defenses and potentially aircraft attack aircraft, which is something
they've been asking for from before day one of this conflict, Rahel.
SOLOMON: Sam Kiley, for us live there in Kyiv, thank you, Sam.
[09:05:00]
SOLOMON: We want to now turn into the fight for a key Eastern city as Ukraine grows even fiercer. The Ukrainian military says that Russia has
been pounding Bakhmut. CNN's Frederik Pleitgen has the details.
(BEGIN VIDEOTAPE)
FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice over): The Russian army claims its overwhelming firepower is decimating Ukrainian
defenses on the most brutal front in this war around the town Bakhmut. 15 men just ran into this house. Yes, target hit, they managed to collapse the
middle of the building.
Ukraine has now acknowledged losing its last foothold in the small town Soledar, North of Bakhmut Russians there mostly mercenaries from the Wagner
private military company judging by their own claim.
UNIDENTIFIED MALE: We first select the target charge up and hit it. We hit it precisely we hit the building right in the place where the ATGM was
located.
PLEITGEN (voice over): But despite sources telling CNN, the U.S. has advised Ukraine to withdraw from Bakhmut. Even Wagner Commanders admit key
as forces are fighting back.
UNIDENTIFIED MALE: The enemy puts up fierce resistance to our fighters. The enemy is holding on and is getting additional reserves and military
supplies.
PLEITGEN (voice over): And the Ukrainians continue probing in other areas far from Bakhmut. The military releasing this video of a daring raid across
the Dnipro River in South Ukraine, taking out a Russian command facility there but to go on the offensive, Ukraine needs hundreds of main battle
tanks so far western partners have pledged about 100.
Moscow has vowed to hit those tanks when they enter Ukraine and is conducting a show of force of its own. Sending the frigate Admiral Gorshkov
Moscow says carries hypersonic missiles to ocean drills with the Chinese and South African Navies. But for now, Bakhmut is the epicenter of this
conflict and Ukrainian soldiers here say they will fight for every inch.
UNIDENTIFIED MALE: One day their artillery works and the next day the infantry of assaults. It is a difficult time now, but our boys keep
standing their ground.
PLEITGEN (on camera): Ukrainian soldiers fighting on the front lines in and around Bakhmut, who were contacted by CNN say they are absolutely elated to
hear that Western main battle tanks could be coming to Ukraine in the not too distant future. They say that tanks are a huge part of the equation
here and have been helping the frontline troops a lot.
Of course they understand it's going to be a while before any Western main battle tanks get here. But right now the Ukrainians say they need all the
help they can get as the Russians are making a big push to try and go to towards the West and take Bakhmut. Fred Pleitgen CNN Kramatorsk, Ukraine.
(END VIDEOTAPE)
SOLOMON: And we'll have more "First Move" after this.
(COMMERCIAL BREAK)
[09:10:00]
SOLOMON: Welcome back, the U.S. economy maintaining a solid pace of growth fourth quarter GDP expanding at an annual rate of 2.9 percent. Matt Egan
joins us now with the details. So Matt, where are you seeing the strength in this report? Because when I look, I have the report here. It looks
pretty broad where we're seeing these increases from consumer spending to government spending. What else are you seeing?
MATT EGAN, CNN REPORTER: Well, Rahel, this is really across the board strength, very good news. The only negative side of this GDP report is
housing. And we knew that was going to be a negative the fact that mortgage rates have spiked has driven down home construction. It's also hurt
commissions for real estate agents.
So that's been a negative, but otherwise consumers are spending, businesses are spending, government is spending and all of that is contributing to
what is stronger than expected GDP. I mean, this is essentially a report card for the U.S. economy. And in the first half of last year, the economy
was kind of getting failing or near failing grades right there were back to back quarters of negative growth.
It was kind of puzzling, set off a lot of concerns that maybe the economy was already in a recession. But ending the year clearly on a very strong
note we had above 3 percent growth in the third quarter and now almost 3 percent growth in the fourth quarter. Throw that on top of some other
really good economic news we are getting this morning, jobless claims unexpectedly fell in the latest week.
They're actually lower than they were a year ago. Remember, this is a proxy for layoffs. So even though we keep hearing about major companies,
including IBM and SAP and DOW all of them cutting jobs, if you look at it, look at the broader economy, we're seeing that unemployment remains very
low in the jobs market remains pretty solid here, Rahel.
SOLOMON: Matt, I think that's a great point. Jobless claims, which are a proxy for unemployment, as you said, coming in at their lowest level since
April so that is certainly something that's going to raise some eyebrows and in a positive way this time. Matt, you know when we get these GDP
reports, certainly in this environment, we're looking for any signs of a recession and this was better than expected, as you pointed out.
One thing however, that's providing a bit more concern is this debt ceiling crisis, this is debt ceiling debate. And as I understand it, you spoke to
the top Economists at Goldman Sachs about the real damage that that could cause the closer we get to that X date, whatever that date is, essentially,
when the Treasury Department can't use a creative accounting measures. What else did he tell you?
EGAN: Yes, Jan Hatzius is the top Economist over Goldman Sachs. He did sound concerned about the debt ceilings, this $31 trillion borrowing limit
in this. A lot of the detentions in Congress are raising concerns that lawmakers are going to have trouble, raising the debt ceiling before the
U.S. government runs out of money.
And the Goldman Sachs Economist, he told me, look, if they don't act in time, there's going to be really negative side effects in financial
markets. People are going to start to be worried about the safety of U.S. government debt. And I asked him I was like, well; could this cause a
recession if there's a default or even a near default?
And he said, Yes, he thinks though, that's not going to happen. He thinks that eventually they're going to get a deal done. Now, bigger picture
Rahel, Goldman Sachs is actually very optimistic on the economy. They're calling for a soft landing. And today's GDP report actually supports that
argument. Listen to what Jan Hatzius has had to tell me about why he's optimistic on the economy.
(BEGIN VIDEO CLIP)
JAN HATZIUS, CHIEF ECONOMIST OF GOLDMAN SACHS: No, we don't expect a recession. Our expectation is that we'll see still positive GDP numbers.
We're saying, estimating a 35 percent probability that it will be a recession.
(END VIDEO CLIP)
EGAN: So Rahel, we've heard so much gloom and doom from Wall Street banks, about the risk of a recession. But here you have Goldman Sachs, the most
influential bank on Wall Street, coming out and saying, listen, let's chill out with the recession talk here. We could still get a soft landing.
Inflation is cooling off and you got to wonder whether or not today's GDP report combined with the unemployment numbers that are out durable claim,
durable goods orders all of this upbeat economic news. And you got to wonder if more economists are going to shift from the recession camp to the
soft landing camp.
[09:15:00]
SOLOMON: It's an interesting point, Matt; you know last week I spoke to Mark Zandi an Economist you and I both know very well we both talk to a lot
for our stories. He is also in the soft landing camp but I should say Matt, that much like Yan, he told me that the closer we get to a debt ceiling X
date where the Treasury Department as I said it can't use those creative measures, the closer we get to a recession. So on this area; it seems that
there is some debate. Matt Egan, good to have you thank you.
EGAN: Thanks.
SOLOMON: Well, Meta says that it will reinstate Former U.S. President Donald Trump's accounts on Facebook and Instagram. It's just over two years
since they were suspended in the wake of the January 6 Capitol attack. Elon Musk restored Mr. Trump's Twitter account two months ago. Donie O'Sullivan
joins us with more. Donie, we expected that this might happen is medicine, anything about how they came to this decision?
DONIE O'SULLIVAN, CNN CORRESPONDENT: Yes, so Rahel, people might remember two years ago, right after the Capitol attack. That is when Facebook and of
course other platforms too banned Trump. They said at the time, it was dangerous to have him on their platform, that he might incite further
violence and that there was a direct risk of imminent harm.
Facebook Meta now says that risk has receded and that it is now OK for Trump to go back on the platform. It is a bit wishy washy of you know,
really they tried to I guess get the mood of the country on this kind of subjective issue. But right now, they're saying he will be able to go back
on and posts within the coming weeks.
SOLOMON: And no question of whether he will actually take up their offer because as I understand it, he is still not on Twitter. And you could argue
Donie, that appeared to be his favorite platform or his preferred platform, we'll see.
O'SULLIVAN: Yes, that's right. So right now Trump is posting on his own social media platform, which is true social, there's reporting we have is
that he does have an exclusivity agreement with that platform, or yes, post there first, and he can post a few hours later on other platforms. But it
is broadly expected that he might be able to get his way out of that agreement.
Look, he uses Twitter and Facebook very differently. Twitter is where he can stay in the news and the conversation. Facebook is where the Trump
campaign and both 2016 and 2020 really effectively use the targeted advertising and the last election cycle in 2020. They spent hundreds of
millions of dollars on Facebook, also because they can use it as a fundraising tool that investment they're getting campaign donations,
through that?
Look, this is obviously a very big political issue here in the U.S. many people saying that Trump should not be allowed back on that really the
conditions in the country have not changed that much. And Trump is continuing to sprouts election lies that could they argue inside further
violence? On the other side of this, there are people saying including, by the way, the ACLU and I think we have the ACLU statement, that it is a good
decision that Facebook made yesterday.
That a company like Facebook should not be allowed to silence or censor, a Former President and now a candidate for office in 2024. The ACLU saying
this is the right call, like or not, President Trump is one of the country's leading political figures and the public has a strong interest in
hearing his speech. So look, we'll see how long it's going to take if Trump goes back on the platform? How long it might take for him to break the
rules or for them to ban him again or to take action against him?
SOLOMON: Lots more to watch Donie O'Sullivan, thank you. Well call it a charge of Tesla shares of the electric car giant set to rally almost 10
percent after the firm posted record profits and Q4 revenue beat a positive outlook as well from CEO Elon Musk; Musk raising the possibility that the
firm could deliver a stronger than expected 2 million vehicles this year.
He says recent price cuts have fueled demand even as he warns that we could see a "pretty difficult recession" later this year. Shares of Tesla which
tumbled more than 60 percent in 2022 are now up more than 20 percent so far in January. Tesla Analyst Dan Ives a frequent guest on this program you
might remember we talked to him on yesterday's program says Tesla's Q4 bulls well for the year ahead, listen.
(BEGIN VIDEO CLIP)
DAN IVES, MANAGING DIRECTOR OF WEDBUSH SECURITIES: Look, it's just Tesla Super Bowl in terms of what's been a dark few months for Musk as well as
Tessa, a major bright spot. I think demand story in 2023 pretty upbeat. China coming back push those price cuts and they made a poker move in terms
of cutting prices seems like it's paying off significantly. Bulls are going to like this.
(END VIDEO CLIP)
SOLOMON: Dan Ives sorry to say, Gordon Johnson just not buying it. He is the CEO and Founder of GLJ Research. He is also a longtime Tesla bear and
joins us now. Gordon, good to have you on the program!
GORDON JOHNSON, GLJ RESEARCH: Rahel, thanks for having me.
[09:20:00]
SOLOMON: So as I said, you are admittedly not a Tesla bull. Help me understand you have a price target of 24, 33 which is a pretty substantial
drop from where we are currently what's your top line reaction to the result and perhaps more importantly, the guidance looking ahead?
JOHNSON: Yes, I just want to correct you on the guidance, their guidance is 1.8 million cars sold. He said there's a possibility they'll get that too.
1.8 million cars sold on the 4Q runway are growth of just 11 percent on all of last year is growth of just 37 percent. They've said they're going to
grow 50 percent. That's how the stock is valued.
OK, so just with respect to the results, we thought the results were very bad. I know that the stocks reacting positively, but let me run through it.
So their auto gross margin fell 390 basis points, quarter over quarter. Keep in mind, in the fourth quarter, the price cut was just one point,
roughly $5,000 across their suite of cars.
In the first quarter, which is what's really important? Their price cut is about $5,000 across their suite of cars. So their gross margins fell 390
basis points with the price cut in Q4. Let's take a look at some other Q4 items. Their inventory in Q4 is up 120 percent year over year. That's a big
problem with despite to write downs.
And addition to that Elon Musk clarified yesterday that they're guided 1.8 million of sells this year is not supply constrained. What that means is
there's just not demand for their cars. And given that he also confirmed that their price cuts equated to just one month of orders. That means
you're probably going to have to cut prices to get it 2Q. So we can get into some more stuff, but I think this was a bad quarter.
SOLOMON: So I take your point that their margins are definitely being squeezed in the midst of these price cuts. But some would argue that
they're making a longer term play, right? They're taking they're sacrificing their margins now; at least this is what some of the bulls
would say, so that they can get the volume in the future. Do you not buy that?
JOHNSON: It's not that how about it, let's run through some numbers, right? So the profit, their net profit, which includes all their services, ups
their regulatory credits and their FSB revenue. Their net profit in Q4 was about 3.7 billion over 405,000 cars sold, that works out to a profit per
car of about $9,000, right?
Their price cut on average in Q1 is $5,000. So assume they get another $1,000 of cost savings, and you get a price cut of $4,000. You take that
$9,000, subtract 4000, you get $5,000 per car, that's profit, right? Net profit, you multiply that by their 1.8 million of guidance, and you get a
number divided by their shares outstanding of about $2.69 per share in earnings.
The street is currently at $4 and $2.69 per share based on where the price is today, is a 55 times multiple. That means that the street is saying
they're going to grow 55 percent for the next 10 years, where they're guiding you to basically 11 percent growth this year. So it's not that I
don't buy it, it's just that the valuation doesn't even match their numbers. So anybody who's buying the stock at these prices today, I think
is going to be hurt pretty badly.
SOLOMON: I want to pull, we can pull up sort of where volume has been over the last few years, Gordon, because I think that's the point you're trying
to make, right? Essentially, if you look at sort of the last few years 1.8 it's still strong growth, but not necessarily what the multiple would
imply.
A production target appears not so realistic, according to you. There does seem to be some debate, though, about whether Tesla does in fact have a
demand problem? I know you think that they have a demand problem. Elon Musk addressed us on the call yesterday essentially saying he wants to put the
issue to rest saying they have one of the strongest Januarys in terms of sales. Why do you think Tesla has a demand problem?
JOHNSON: That's a great question. So the reason why we think they have a demand problem is very simple. BYD has increased prices in China two times
as far. VW is increasing prices in China; Tesla is aggressively cutting prices, not just in China, but the U.S. and Europe. Currently, Tesla's run
rate demand is about 1.75 million cars per year, their capacity right now is roughly double that.
So they're not even selling half of their existing capacity. That is the quite essential definition of a demand problem, a company cutting prices
that can't sell its existing capacity. And with respect to it, when people say Elon said, believe in what Elon says is the equivalent in our view of
believing that kid at elementary who said his dad beat Michael Jordan and again, well one on one, you know, it's very risky.
What do I mean? Elon Musk, we now know that he directed that video in 2016, the painted black video that was basically a complete false. We know that
Elon Musk's job solar panels to justify the acquisition of solar city that were fake; we know Elon Musk have 13G versus a 13D and associated with
Twitter. So we know that by the way, they just pushed out the Cyber truck. Another year, the Cyber truck is now 2024, right? That was supposed to
happen in 2021.
[09:25:00]
JOHNSON: So believe in what Elon Musk says you know, does it your own caution, but if you look at the numbers. The numbers do not paint a good
picture and that's why the auto industry trades in six times earnings not 55 times earnings, which is what Tesla is currently trading at. Even Morgan
Stanley, one of our competitors said the numbers probably going to come in at $3 this year and their note this morning.
If that is indeed the case, this stock is going to come down a lot, look; I know it's up a lot today. I think it's due to a lot of misunderstandings,
misreading, but these were not good numbers. And the guidance, the applied guides for Q1 suggests a number of like 76 cents when the streets at $1. So
I think you're going to have more earnings revisions, be careful on this stock.
SOLOMON: Gordon Johnson, unfortunately, we have to leave it here. But look, I appreciate the enthusiasm and the passion. And we'll have to see what
happens with Tesla's stock because look, as we pointed out last year was a rough year but so far this year, certainly starting off strong. Gordon
Johnson, thank you.
JOHNSON: Thank you.
SOLOMON: Well, Southwest Airlines and that service meltdown over the holidays has costed far more than thousands of frustrated customers. The
airline had to cancel remember this more than 16,700 flights and late December, leaving it $226 million in the red in the fourth quarter, with
more losses expected this quarter. Well, now Southwest says that it is cooperating with an investigation by the U.S. government.
The Department of Transportation is examining whether Southwest is scheduling more flights, and it can actually operate. Now, despite a host
of service problems, travelers are still taking to the skies. But Scott Kirby, the CEO of United says that the system is stressed to the max and
that airlines cannot run the way they did before the pandemic.
CNN Chief Business Correspondent Christine Romans spoke to him and she joins me now. Christine, I watched the interview, it was wide ranging, and
you covered a lot of topics from demand to recession. What else really stuck out to you?
CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: You know that it just doesn't take very much to break the back of the system right now. And these
airlines are trying to find creative ways is united in case in point, creative ways to sort of break through this bottleneck. And one of the
problems is this shortage of pilots of airline pilots.
And it's a pipeline that is aging, it is predominantly white male and this is an airline. Now United that has actually started its own flight school
owns its own flight school. So they can try to tap new pipelines of talent. So that it can fix this labor shortage, which is part of course, of overall
long term challenges for airlines, listen.
SCOTT KIRBY, CEO OF UNITED AIRLINES: Our first graduating class 70 percent of the students are women or people of color just been big barriers to
entry. And there are obviously great careers for people. You can't run an airline like it's 2019, the reason is because the system is stressed to the
max. There's strange everywhere, whether it's security or FAA staffing or systems, or having enough pilots.
And when something happens, the straws are much more likely to break the camel's back. And you've seen it over and over again with other airlines
having, you know either bad operational issues or sometimes, you know, going all the way into meltdowns. And so the only thing we can do it and
we've done it united is run with more resources. I suspect the rest of the industry is going to have to go to that kind of approach as well or they'll
continue to fail.
ROMANS: It has been remarkable Scott to watch your business, in particular, the airline business come out of what I call the COVID crouch where all the
sudden, people want to fly up even with higher air fares overall up 28 percent year over year, people still want to travel?
KIRBY: We see incredibly strong demand. You know, and I think this hybrid work makes every weekend a holiday is the new normal. It's not pent up
demand. It's because people work hybrid, they now have the flexibility with their time that they can leave on a Wednesday or Thursday make a long
weekend. But I can also see it in our data. That is the way consumers are behaving, because they were constrained by time before it wasn't money that
constrain their ability to travel it was time.
ROMANS: Is business travel showing any of those concerns the recession, dark clouds of 2023, are people pulling back on business travel expenses?
KIRBY: Small and medium sized businesses are back and they're traveling actually more than they did pre pandemic. But there are a lot of companies,
you know, to get the tech companies that are behaving like they would in a recession. But that's to be expected.
I mean, if you're laying off tens of thousands employees, you're not going to have a big travel budget. We see what I would describe as recession,
nearly, like behavior, but it's being overcome by the strength in other parts of the economy and leisure which is leading to really good results at
United ended other airlines, frankly.
ROMANS: And what keeps you up at night in terms of the outlook for the U.S. economy?
KIRBY: Well, I'm a solid sleep I sleep about 8.5 hours at night. Our base case is really pretty strong results actually getting back to above 2019
levels in terms of profitability for us even if there is a recession, but there's a lot of risk in the world. I would put Ukraine you know in some
kind of escalation that Ukraine high on that list, fuel prices high on that list.
[09:30:00]
KIRBY: The debt shutdown my guess is the recent history - and the drama around it, but ultimately, it's not going to side-track the U.S. economy
for the long term even though there might not be a short-term issue. And there's always the black swans that we haven't thought about or don't even
know about. But we're set up you know, I think we've set the company up. We've certainly tried to set United Airlines up that we can ride through;
you know those ups and downs.
ROMANS: Rahel, I sure hope he's right about histrionics for the debt ceiling and then it gets worked out. But I think the headline the takeaway
breaking news from an interview is it Scott Kirby sleeps eight hours a night. I'd like to know more about what the trick is to that.
SOLOMON: Oh, the eight and a half hours of sleep. I'm sorry. I was hearing two things in my ear at once. Yes, I got that got my attention. Two and a
half hours I can barely get six on a good night Christine Romans great interview and good to have you on the program.
ROMANS: Thanks, Rahel.
SOLOMON: Well, still to come, CNN's Selina Wang travels to a hospital in China to investigate the country's COVID battle. And she's not alone. We'll
be right back.
(COMMERCIAL BREAK)
SOLOMON: Welcome back to "First Move". U.S. stocks up and running on a busy day for earnings and U.S. economic data. Wall Street beginning the session
higher looks at the S&P up about three quarters of 1 percent. The NASDAQ up 1.3 percent and the Dow up let's call it three tenths of a percent.
The Dow on track for fifth day of gains after a positive read on economic growth. U.S. GDP rising at a 2.9 percent annual rate and Q4 slower than Q3
but faster than expected all of this due to robust spending by government businesses and consumers. The consumer outlook backed up by new comments
from MasterCard the credit card giant seeing "A remarkably resilient U.S. consumer".
[09:35:00]
SOLOMON: Stocks in the news today include oil giant Chevron it shares is higher after announcing a $75 billion stock buyback program and also a
dividend hike. Investors tend to like that. IBM shares are pulling back a bit they are down 4 percent. The tech giant met profit estimates and posted
better than expected sales.
But it is warning of weak demand for its consulting services. It's also laying off almost 4000 workers. And Tesla is soaring after it's better than
expected Q4 results, Tesla up almost 10 percent. Meantime, China reporting its biggest drop in visits to fever clinics since it scrapped its zero
COVID policy full extent of the country's current COVID battle is unclear.
But health experts are warning that travel over the Lunar New Year holiday will result in a huge uptick of cases and rural areas. CNN's Selina Wang
visited a village in southern China that's closely followed by government officials.
(BEGIN VIDEOTAPE)
SELINA WANG, CNN CORRESPONDENT (voice over): This is how people celebrate the Lunar New Year Dali Village. This year celebration is particularly
special. The adults around this table all work in factories in the cities. This is the only time when many of them can see their children.
The man next to me says we got to go wherever we can make money and China's zero COVID policy over the last three years has made it all even harder. He
says the policy prevented them from going home. But now that the country is open, they can all be together.
We came to this place in China Southern Guizhou Province to see how a part of rural China is celebrating the Lunar New Year without pandemic
restrictions. We visited villager's home. Sandya (ph) greets us with a treat and alcohol, both made from rice from the paddy fields nearby.
Drinking is a big part of celebrating here.
WANG (on camera): About 1000 people live in this village and for hundreds of years they've lived in these traditional wooden houses and you can hear
the chickens crowing and there are these docks as well that they raised for food.
WANG (voice over): In many ways this place is like a time capsule. Its physical isolation has preserved their way of life for centuries. They're
China's don't ethnic minority. They have their own language, tradition and culture, but they can't escape the economic realities of modernity.
Normally, this village is full of the elderly and young kids with most of the working age adults gone, working in faraway factories sending money
home. This couple works in a factory 500 miles away in Guangdong Province, making circuit boards.
She tells me she hasn't seen his kids for a year. Last time he left his son couldn't even walk. He says it's emotional to see them grow so much. For
the first time in three years, millions of Chinese migrant families are finally able to reunite without the fear of COVID mock downs.
Almost everyone I speak to on camera says no one around them has gotten COVID like this elderly woman who makes traditional crafts. She says she
has not been wearing a mask and points to her shoulder saying she had the vaccine shots. But we run into another group of young people who say
otherwise.
The man in the brown jacket with his back turned is a doctor at a hospital in a nearby city. He says almost all of the villagers have been infected. I
asked him if they just don't realize they have COVID. In response he says they've never been tested. But clearly, they had COVID symptoms.
WANG (on camera): So, we've got the three government minders following us.
WANG (voice over): It's common for local officials to keep a close eye on foreign journalists in their jurisdictions. But they were especially
persistent in this village and following our every move. So, we drive out of the village to visit a public hospital in a neighboring county about two
hours away, hoping these government minders won't follow us, so people will feel more comfortable speaking freely. We walk inside the fever clinic.
WANG (on camera): It's almost entirely empty.
WANG (voice over): In the main hospital area there are more people but it's not packed. It's a stark contrast to the images of overflowing hospitals in
major cities across China from weeks before. I asked a nurse on another floor of the hospital if it was packed with patients a few weeks ago. She
says it's always packed and busy here.
We try to ask why it looks empty here. But another doctor interrupts ending our interview. We find one woman a patient's family member who is willing
to speak to us. She says everyone around her has already gotten COVID and recovered. Soon after we've realized we're being followed apparently by a
whole different crew.
WANG (on camera): There are at least two three government minders. They're still following us all the way here. It's very obvious.
WANG (voice over): They follow us to hospital after hospital preventing anyone from speaking to us. I try confronting them. I asked them why
they're following us everywhere and he ignores me.
[09:40:00]
WANG (on camera): He's walking away.
WANG (voice over): So, I tried this official she refuses to even acknowledge my question. And what happens next during my interview with
this girl shocks us.
WANG (on camera): OK, so I was interviewing the girl and then the miners literally took her away from us.
WANG (voice over): The man pushes the girl and her family away than leader leaves them alone. But her interviews in the marketplace are over. China's
CDC says the COVID peak across the country has passed. But in rural areas like this, experts say there's likely far more silent suffering.
People who died at home because they couldn't afford to go to the hospital or were unable to get there on time back in the village were greeted by the
sounds of squealing pigs getting ready to be slaughtered. It's a Lunar New Year tradition. Decades ago, for most countryside families, this was the
only time of the year when they could afford to eat meat.
WANG (on camera): So, this is a whole family of relatives are all getting together for the Lunar New Year enjoying freshly killed pig meat.
WANG (voice over): Sandya shows me the fabric she made herself. Sewing just a thin strip of this cloth takes her more than a day. Whether it's in the
village or in faraway factories, they're hardworking people. They'll do whatever it takes to give their kids a better life, even if it means long
bouts of separation from them, making reunions like these all the more meaningful.
(END VIDEOTAPE)
WANG: Now China's health officials say that the COVID peak in the country has already passed. The spread has been so fast and China experts say
because China's population had almost no underlying immunity before reopening. So, it appears that one massive wave ended up sweeping over the
whole country hitting the urban and rural areas almost simultaneously.
But people in the countryside there are a lot of poor and there are a lot less resources. So, in rural areas like this, experts say there's likely
far more silent suffering, people who died at home because they couldn't afford to go to the hospital or were unable to get there on time. Selina
Wang, CNN, Beijing.
(END VIDEOTAPE)
SOLOMON: And still to come inflationary times are consumers still raising a glass of their favorite spirit? We'll discuss with the CEO of Diageo after
the break.
(COMMERCIAL BREAK)
[09:45:00]
SOLOMON: Welcome back. Diageo make some of the world's most iconic drink brands including Johnnie Walker, Guinness and Smirnoff. Consumers around
the world with a premium drinks flow over the past six months, but spirits weren't as bright in the U.S.
Diageo's half yearly sales came in higher than analysts expected, while growth slowed and it's key in North American market rising prices and
global geopolitical uncertainty among the challenges, but Diageo says that it has confidence in its consumers and its business. Joining me now is
Diageo's CEO, Ivan Menezes; I've been wonderful to have you on the program today.
IVAN MENEZES, CEO, DIAGEO: Thank you. Good to be here.
SOLOMON: So, let's start there. So, half yearly sales came in better than expected also what caught my attention high end brands rose even faster.
And we're responsible for two thirds of sales growth.
MENEZES: Absolutely, our business grew 9 percent worldwide, every region of the world and growth. We expanded margins while investing in the business.
EPS is up 15 percent. This is very strong performance. Our scotch whisky business, Diageo's largest category grew 19 percent.
Tequila continues to be on a roll it was up 28 percent Casamigos. And Don Julio continued to do really well. The Guinness brand, one of our big
brands grew 17 percent. So, what are really encouraging are two trends. One is spirits is still very strong and desired by consumers, the cocktail
culture is alive. It's well established in America, it's spreading elsewhere.
And people are drinking better, the second trend. And as you pointed out the top end of our portfolio, which is about 28 percent of our business,
our reserve business, grew double digit in every region of the world. So we're feeling very good about the consumer and very good about our
business.
SOLOMON: Always encouraging to hear good news about the consumer. What about North America, you started to touch on geography there? Are you
concerned at all that it appears that sales are starting to slow in North America, which as I understand that is a huge part of profits a huge part
of the business?
MENEZES: No, I'm not concerned at all North America is our most attractive market. And the consumer, if you look, even in the last six months, the
trends in North America have stayed very positive. This market is growing mid-single digit. It grew faster through COVID.
But we've always said it will come back to mid-single digit growth and it has spirits is growing, taking share from beer and wine. And the premium
end of the business is growing faster. You know, Americans, one in three Americans are buying bottles of spirits over $50 a bottle. If you went back
a year, it was one in four.
So, you're seeing more people move to more premium brands. Because as is an affordable luxury, the average American household spends $1 a day on
spirits at home, you only buy a few bottles of kettle one vodka or Don Julio a year. So, your willingness to buy better brands and to pay for
better quality is high. And we see that trend continues.
So, I'm very optimistic and confident about the future of our business in North America. And we have you know, our business since COVID in the U.S.,
our U.S. spirits business has grown 45 percent. This is a substantially bigger business. And it's a lot more premium.
SOLOMON: As a nation I can attest we certainly do love our spirits here in the U.S. Ivan I have a lot more ground, I want to cover and we
unfortunately don't have a lot more time. So, let's turn to China. We're in the midst of the reopening there. We're in the midst, of course of the
Lunar New Year. What are you seeing in that market?
MENEZES: Well, its early days, we were very confident about the reopening and the consumer response to it. And we expect we have two - main
businesses there, high-end Scotch whiskey business single-malts, Johnnie Walker, Blue Label, and Chinese white spirits business Baijiu business.
Both these businesses have been growing strong double digits for many years. They did slow down with a COVID lock downs, but we're confident
they're going to come back. I believe I remain very confident about the reopening and the consumer recovery in China. And we're certainly playing
for that to happen in the next few quarters.
SOLOMON: Ivan, what areas are you seeing that are perhaps a bit more concerning? You mentioned that you're not concerned about North America.
You're saying that China's coming back, but what area is you seeing that, that does give you pause?
[09:50:00]
MENEZES: I think it's really continuing to work through the volatility in the world. So, inflation hasn't gotten away, we've got geopolitics at play,
you've got economy is growing at different speeds, you've got the threat of recession. And one of the things is teams that the company does very well
as we've navigated this volatility really well.
So, it requires being extremely sharp, very close to the consumer spotting trends early and responding. And you also in this day and age, you need to
drive a lot of productivity and efficiency in the business to offset the impacts of inflation that are coming through.
And so, I worry about making sure our teams right across the world have their pulse on the consumer, are agile in responding fast, because the
fundamentals are strong. And we are fortunate to be in a category where consumers coming out of COVID want to socialize, want to celebrate, want to
make those moments special, those moments actually count for more.
And our brands play a tremendous role in them. So, we're fortunate, we're on the side of the ledger, when consumers come under spending pressure.
This is where consumers actually do want to spend more; they may cut back in other areas. And that's helping the growth in the business.
SOLOMON: It's a great point. I mean, the desire to spend is certainly there. The question is, you know, how much capacity do you have to spend in
the midst of this high inflation environment? Ivan Menezes, we'll have to leave it here. Thank you. He is the CEO of Diageo. And we'll have more
"First Move" after this.
(COMMERCIAL BREAK)
SOLOMON: Welcome back, math, you either love it or hate it. And it turns out artificial intelligence is not taking home a very good report card when
it comes to calculating interest. CNET, a news outlet has been forced to issue a series of corrections some of them substantial to articles that
were written using AI tools, including the story that gave some wildly inaccurate financial advice.
CNN's Anna Stewart who I am sure was top of her class and Matt is with me now. Anna, look, I'm not going to ask you to do math problems here on air.
But I do want to know, how did this happen?
ANNA STEWART, CNN REPORTER: I'm disappointed. I am a business reporter. I'm a nerd. I'm ready for your math quiz. But you know, CMAT one of their
articles did show how AI doesn't always get it right. No Goldstar for math, or at least I would actually say Rahel, it's math on compound interest was
poor, but actually maybe wasn't wrong as perhaps the language used to explain it, that was actually not quite right.
As a result, as you said, seeing it habit through some of the AI written articles in fact, all of them I think they don't afford it. They pointed
out there were some inaccuracies that editors miss. There were some vague language cases there was even a little bit of plagiarism, which is no huge
surprise given AI does draw upon existing information. And I think perhaps this is a really good example of AI is so good at some things.
[09:55:00]
STEWART: Sometimes it needs human intelligence working alongside it, which is great because we still have jobs, Rahel, you'll be pleased to know. It
is being used though, and it has been used for some time by other news outlets like news wire services, Reuters Associated Press. And it's often
used for data driven articles.
For instance, financial earnings reports often these are articles that are incredibly formulaic and AI can really speed things up, it often needs to
be checked by a human journalist as well. And more often than not, you will see sometimes at the bottom of articles that this was written with the help
or entirely with the use of artificial intelligence.
There is a use case, it doesn't mean that journalists are being replaced, which I am thrilled to hear. It means that journalists actually can just
add more contexts. So, while AI can spew out the data driven articles, journalists can dig into those earnings give it context, why does it matter
and ask all the right questions Rahel?
SOLOMON: So, Anna, what you're saying is our jobs are safe at least for now.
STEWART: --for now.
SOLOMON: Thank you. Good to have you, Anna, thank you. And that is it for the show. I'm Rahel Solomon. "Connect the World" is coming up next.
(COMMERCIAL BREAK)
[10:00:00]
END
