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Quest Means Business
Gold on the Rise; How China Slowdown Affects South America; America Elections Examined. Aired 6-5p ET
Aired January 07, 2016 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[16:00:00]
RICHARD QUEST, HOST: Dreadful day on Wall Street. Dreadful day on the rest of the global market. The Dow Jones closing this evening off 2 1/3%. You'll
understand why as we go through the program. Oh, that's what you want, a robust gavel on a dreadful day, it's Thursday, the 7th of January.
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QUEST: Now this is what you call a sell-off. Wall Street tumbles and is now a smidgen way from a correction. In fact looking at the numbers it's
already there. China scraps circuit breakers as Beijing battles the downturn. And the oil market mayhem continues. It is pluming the lowest
levels in the decade. We have an hour that we must not miss together. I'm Richard Quest and I mean business.
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QUEST: Good evening. I feel that I should start this program off tonight by saying viewers of a nervous disposition when it comes to their wealth
should perhaps look elsewhere. Because chaos on the markets, particularly in China, has engulfed stock markets around the world and 2016's brutal
opening run gets worse.
You of faint heart, join me at the super screens, and you'll see exactly what I'm talking about. This level, the Dow jones, off 2.3% tonight, a loss
of 392 points. Off the worse of the day but the Dow is now in the correction territory, that's 10% down from the all-time high. It's about 6%
to 7% down from the most recent high set in November. But the all-time high was back in May of 2015. So a 10% correction from the all-time high.
It's the worst four-day start to a year on record. And to understand how the Dow and indeed how the other U.S. markets manage to get into such a
dreadful state with the Nasdaq also in the correction, the S&P and I'll tell you more, we really have to go around the world, and we need to start
in Asia, particularly of course in China.
Going to China and you will see the markets are down very sharp. The Nikkei, the Kospi, but the real problem of course was the Shanghai
composite where the market fell 7%. If I show you the intraday of the Shanghai, you'll see exactly how all this transpired. The market opens, it
falls 5%. There's a trading halt, the circuit breaker kicks in. 15 minutes of waiting, trading resumes and within seconds, it's down 7% and the line
shows that trading closed for the rest of the day.
That's the way it starts, that's the way it was seen in Asia. But selling continued. From Asia, it went right on into Europe. Big losses across all
the major markets. The industrials and mining stocks were hammered. The Dax is now below 10,000 for the first time since October and if you look, if I
show you the Dax, intraday, you can see the sharp fall on the back of Asia, choppiness during the day, the attempt a recovery in the afternoon which
peters out as they see what happens on Wall street when New York opened.
Similar question of course for the FTSE but this time, I want you to look at the FTSE over a six-month period. The FTSE is down 4.6% this week alone.
And look at this choppiness of a range from 5.8 up to 6.6 over six months. The London FTSE is on track for the worst start to the year since 2000.
And so, Asia has traded, Europe has traded, and the globe turns and we move on to the Americas. Where the NASDAQ is now in correction territory. Latin
American markets fell as well of around 2%. You've got the idea. This was a global route.
Mohamed El-Erian is the Chief Economic Adviser at Allianz, he joins me from Irvine, California. I have done the grizzly bit just there, Mohamed. I was
reading your interesting piece in The Financial Times. And what's gone wrong here?
MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ: So two things have gone wrong. The immediate problem is as you pointed out, China. And that retail
investors there are very nervous about the weakening of the economy and they also realize that the market is bubbling. So they are all looking to
get out and they immediately trigger the circuit breaker which makes people even more nervous.
[16:05:10]
EL-ERIAN: Longer term however there's a bigger issue. And to understand where we are we come from and we've come from a period that has been
incredible in the extent to which central banks have repressed financial volatility. And now, they are both less able and less willing to do so. So
we are catching up, we are paying back for the returns we have borrowed from the future.
QUEST: But I read your article and you talk about the need for governments to sort of play the proper discipline in macro-economic affairs. But what
policies do you want to see? I mean nothing's going to change anything in the next month or six months. But stretching out, what policies are you
talking about?
EL-ERIAN: So these are policies that would allow fundamentals to improve and to validate asset prices rather than wait for the asset prices to come
down. And they fall into four categories. One, are structural reforms, including infrastructure, two is matching on the demand side, the
willingness and ability to spend. Three is dealing with over-indebtedness and four is completing the regional architecture in Europe. Governments can
do this. Economists agree on what needs to be done but the longer they delay, the great the risk the financial assets will come down towards the
fundamentals.
QUEST: The absence of the sort of major reforms, yes, they've done some, but the sort of root and (inaudible) that you're talking about -- I mean,
you're a realist. The fundamentals are not going to rise to the valuations. This is going to be the other way around. So because what's happening now
Mohamed, is it's all happening in midst of a crisis.
EL-ELRIAN: Yes. If you ask me what's the probability, I will tell you it's more likely that they will not be able to move. Why? Because the
political systems are polarized. But I think we need to continue to tell people, there's nothing predestined about this. Investors however should
hope for the best but plan on a lot more volatility.
QUEST: Now one of the fascinating parts about this is what - this idea that we are seeing the tail risk of the quantitative easing that people said was
going to happen. That all this money, not only because of risk but also how central banks get out of it and who -- how much money there is and
liquidity in the system. This is what you were talking about four, five years ago, isn't it?
EL-ELRIAN: Yes, and I have a book coming out in a couple of weeks that's called "The Only Game in Town", that speaks to the collateral damage and
unintended consequences of relying too much on central banks. Now to be fair it central banks, they didn't want to be in that position but with
nobody else stepping up to the plate, they felt obliged to use imperfect instruments and now we are seeing consequences of that.
QUEST: Mohamed we will talk more about this and we will certainly talk about your book. A signed copy, please, which I shall pay for, thank you
very much when it comes out. Excellent.
Less than a week, China has scrapped new rules intended to avoid wild swings on the stock market. The circuit breaker, you heard Mohamed talking
about there, were meant to act as an emergency break when the trading got out of hand. In the event, though of course, stopping trading at 5% down
for 15 minutes and all day at 7 %, these were not so much preventing, they were feeding massive losses instead of preventing them.
In Shanghai, until tonight, 5% fall meant suspended of trading for 15 minutes. 7% ended the trading day for the year. The New York stock exchange
has circuit breakers as well. But their band is much, much wider. Trading stops for 15 minutes after a 7% and then for another 15 minutes after 13%.
Only when you hit 20% does trading end for the day. It's much more complicated in Frankfurt than London and we really don't need to worry too
much about how they stopped trading briefly on those sorts of things. Put it all together and you start to see that what happened in Asia, no wonder
the problem in China as traders were taking advantage of the pauses to sell.
(UNIDENTIFIED MALE) As translator: This circuit breaker, does harm rather than good to ordinary stock holders. Information is not disclosed to the
public with something not transparent.
QUEST: Joining me from the stock exchange, Alan Valdez, the Director of Floor Trading at DME Securities. Alan, I'm a child of the market of the
late '80s when the circuit breakers came in. The arguments against circuit breakers then are exactly the same as now.
[16:10:10]
ALAN VALDEZ, DIRECTOR OF FLOOR TRADING, DME SECURITIES: Correct. But you know what? Times are different now. Back in the '80s,you know they really
came in `87 after the '87 crash. You had brokers here. You know I was meant to take a - everybody take a breath, let's see what's going on, some people
would step back. You saw the stock that you are trading for months or years. You knew the break point. You would back away saying you know it's
got to rebound. Now it is all Algo trading. And Algos just - you program the Algos, they work off the programs and that's it. They don't step back.
They may stop trading. But the minute you press that go button they are back dumping the stock. And the same is what's going on in China. All those
Algos are trying to get out at the same time. They know that at 7% they are going to stop. So they are rushing to the door. And that's the difference.
These Algos are really potentially tearing it down.
QUEST: Now hang on a second, hang on. Because if you're right, then either humans have to get back involved to take control of the Algos at the moment
of 7% fall or you have to get rid of the circuit breakers. But you know why those circuit breakers are there. They are to prevent a market mayhem from
becoming a crash, from destroying an economy.
VALDEZ: Correct. But you know, the big - the big houses, Goldman, Merrill, JP Morgan, they've all invested trillions probably in these programs. And
the real fact is we don't have humans down here or in any market around the world. So there is no way you can get rid of the Algos, they're here to
stay.
QUEST: So in that scenario give me a -- let's push it forward to tomorrow. An ugly night in Asia overnight you think? Or are we looking at this
continuing to feed itself into tomorrow?
VALDEZ: Well eventually, the Algos will say hey you know what, OK, say hypothetically, Apple selling at $80, let's start buying it. So all you
need is one or two big Dow stocks to start moving up, again it'll be Algo tradings, not humans, and they'll move the market back up and that will put
a little ease to it. But I think in the long run, this market is a little weak and it's probably going to trend down.
QUEST: Alan, might see you at the exchange there tomorrow. Thank you sir, thank you for joining us.
VALDEZ: Thank you, Richard.
QUEST: It began with half an hour of chaos and then China's market turmoil triggered a major global sell-off, we're talking about it throughout the
program. We are going to break down what exactly happened in Shanghai next. It is one of those days that you really do need to be with "Quest Means
Business."
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QUEST: It was over in less than 30 minutes. But we do need to get to grips and to understand Thursday's trading session in Shanghai, which sparked the
global turmoil that lasted for the last 18 hours.
It was a swift countdown to the eventual melt down. Even before the markets open, China had let its currency, the Yuan, move sharply lower. The Central
Bank set the Yuan's value at its weakest level since 2011. The object here of course was to try and stimulate exports by devaluing the currency. So
much that that is the architecture that you begin with.
[16:15:00]
And then the market opens at 9:30 and stocks immediately fall. You've seen the intraday graph. You saw how heavy that fall was. 12 minutes later, and
just the limit has reached the first one. The Shanghai Composite hits the 5%. Authorities halt trading for 15 minutes. And then, just before 10:00
p.m., -- 10:00 a.m., I beg your pardon, trade 9:57, trading resumes. But within seconds, of course, it all happens. The index crashes to the 7%
limit. Trading day is called off. And then late into the evening, the regulators announce the circuit breakers are suspended on Friday. It's only
been seven days since those circuit breakers came into effect.
Eswar Prasad is A Senior Fellow at the Brookings Institution, Professor of Trade Policy at Cornell University joins me from Washington. The decision
to -- we have talked about the circuit breakers and we've talked about the Chinese economy. But this decision to devalue the currency, even by a small
amount on the top of last year's devaluation, what's their gain?
ESWAR PRASAD, PROFESSOR OF TRADE POLICY, CORNELL UNIVERSITY: The game is actually well intentioned Richard, it is to let the currency market
(inaudible) determined by market forces. This is what they said they wanted to do and the markets are pushing the value of the currency down because
there are concerns about the Chinese economy.
The problem is this this is happening in an environment where there is great concern about whether the economy is doing well. Because there is
still a lot of opacity in Chinese data and there are concerns about whether the Chinese policy makers are willing and able to do what is necessary to
support the economy. So in that context, the recent move in the currency suggests desperation, rather than a real attempt to stunt economic growth.
That's how the markets determined it and that's why we see market turmoil.
QUEST: All right, so taking what you've just said, now I need to you interpret for me the Chinese economic thinking. Because they are doing
several things at once. The People's Bank, Central Bank of China is pumping money into the money markets by the tens of billions. At the same time, as
they are devaluing the currency, at the same time they've now suspended the circuit breakers. Does all this make sense to you?
PRASAD: Individually it might make sense. The problem is that the markets don't see sense because there is no good context or strategy that
government has laid out. If you take the currency for instance, there have been these moves since August 11th when the government announced it was
going to let currency float more freely. But since then, there was a communication problem right off the bat when they started with the 2%
devaluation without telling markets what they were trying to do. That caused markets to the panic and now its markets guiding currency down. But
there is a sense of the government may again be acting out of desperation.
So I think the real necessity right now is for a strategy of both macroeconomic policies to support the economy and this is both monetary and
fiscal policy. Plus some reforms to generate confidence that economy is going in the right direction. And we haven't seen any real site reforms in
the last few months. So in addition to the bad economic data, I think this has everybody panicked.
QUEST: I suppose some might say this is a rather disrespectful question, but I'll ask it anyway. Do you get the impression that the Chinese are
making it up as they go along?
PRASAD: At some level I guess most policy makers do make it up as they do go along because it's very hard to figure out exactly what policies will
work and what won't. And in an economy like China, where there are a huge number of distortions, doing one of the right things can actually
potentially make things somewhat worse off. So the Chinese have always proceeded along this track of trying to feel their way around, trying to
see if policies work at a small level and then try to expand the policy. The problem is that if you don't articulate a clear strategy of where you
are trying to go then the small movements get completely misinterpreted and can create unnecessary turmoil and that's what they are experiencing right
now.
QUEST: Good to see you, sir. Thank you.
Ericsson has been in the Chinese market since the late 1800s. Earlier I spoke to the Telco's Chief Executive Hans Vestberg who was at the consumer
electronics show in Las Vegas and I asked him how this turmoil is impacting his company in China.
HANS VESTBERG, CHIEF EXECUTIVE ERICSSON: We came to China in 1881, so of course yes we have been here a long time and of course that means also
we've seen ups and downs in any of the 180 countries we are in to.
As far as up to the third quarter and what we are seeing, we are not seeing any changes in the market. We still believe that 4g for example is
enormously important in China and that they're rolling out a lot. So, so far I cannot have any other comment than that. So we have our (inaudible)
but so far technology is so important in the world so that is rolling out.
[16:20:14]
QUEST: On this technology question, I saw you announce a deal just at the end of last year. Ericsson and China Mobile launching a 5g collaboration.
So you are doing lots of different deals and you and I talked recently on the program of another deal that you had done. What's the - what's the
focus, Hans? What's the strategy behind these individual deals?
VESTBERG: I think that when it comes to 4g we are in sort of the phase when you do test beds for 5g all around the world. We have more than 10
different test beds. We operate those with different industries that are looking into how 5g can help them to do industrial transformation. So
that's natural for a global leader that we need to get insights from all around the world to take the right decision and the right development and
spend the money right and see that we are going to have a commercial 5g by 2020. Probably we are going to have some pre-commercial 5gs already in 2018
in Korea, et cetera. So as a role, as a leader, we need to work with markets, all different stake holders, to understand how we are going to
spend the money right and get the right standard for 5g.
QUEST: How much of what you are seeing at CES, how much of it relies to some extent, obviously on current LTE, but on 5g of the future? Because the
people in the booths behind you are building the games, the gadgets, the gizmos. If you like the end-user bit but you have to get the thing to work.
VESTBERG: Yes. I would say that amazing enough, I mean I've been here the last six years. Six years ago, no-body -- why do you need infrastructure
and technology. I think any device here is connected. The majority they need 3g and 4g.
The things that need 5g is of course the cars that need to be autonomous and driven. Secondly, the virtual realities in the future when you are
going to do remote steering using that, that will need 5g as well.
And I think also that we're going to see a lot of T.V. and media consumption in future will use 5g. Because we are running our test bed
right now on 10 gigabyte per second. Which means that if you distribute that, you could have hundreds of households having a 4k T.V. to their home.
So we see a lot of the new stuff coming out that are going to need 5g. But the majority today here, they need 4g and 3g and connectivity.
QUEST: 10 giga-thingy-majigs per watchit second which sounds very fast indeed.
As "Quest Means Business" continues this Thursday for you, French tech start-ups are gathering en-mass at CES. Leading the charge is France's
Economy Minister. We will talk to him next.
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QUEST: "Quest Means Business." Now we are getting new information about man who tried to attack a police station in Paris.
It is on the first anniversary of the Charlie Hebdo killings. The Paris prosecutor says the man was brandishing a meat cleaver and wearing what
appeared to be an explosives vest, one that later turned out to be fake. The attacker was also said to be carrying a piece of paper printed with the
ISIS flag and a claim of responsibility.
[16:25:11]
QUEST: Joining me now is France's Economy Minister, Emmanuel Macron. He is at the consumer electronics show in Las Vegas. Minister, do not fret. We
will discuss consumer electronics and France's role there in just one second. But obviously it would be remiss of me not to just get your
thoughts, one year after "Charlie Hebdo" an attack and the requirement of economic reform in France sir?
EMMANUEL MACRON, FRANCE ECONOMY MINISTER: Hello, happy to be here to be with you. And I want to thank you and thank American people for all the
messages we got reciting after "Charlie Hebdo" event one year ago and after the 13 November attack a few months ago. And definitely we were attacked
by terrorists, we were attacked by ISIS.
We have to be very careful about the event of this morning because we don't have clear evidence and my colleague in charge of domestic affairs is
working with the services on that. But definitely France was attacked several times last year. And now, our priority is the duty to protect
people and to reinforce the series of flows and commitment and services. But at the same time, we have to modernize a country and we are reforming
and modernizing the economy very fast and very aggressively because that's our mission and that's our duty and at same time, providing more
opportunities to people is one of the answer to the situation.
QUEST: Now if we take your presence or the French presence at CES, you are the second largest presence after the United States. It led me to say, who
knew that France was so big in terms of, you know, the consumer electronics. Is this a priority for the government?
MACRON: Yes. That's one of the top priority. Because we are creative and an innovative country. But we fail in the past to convert this innovation into
business, job creation, startup creation and so on, and it's changing.
Entrepreneur is a French word, Richard, never forget that. And now you have a new generation, much more committed to this jobs creation, to the start-
up creation, much more global. That's why you have such -- I mean, an amazing presence here. And such a number of start-ups created every year.
QUEST: So you know, what does the you know, the creativity is there and the presence is there. Now you've just got to get government out of the way or
what does the government in Paris, what do you need to do to facilitate this even greater?
MACRON: We have -- we need two things. First, keep reducing the cost of failure - I mean it's absolutely critical. When you are an entrepreneur,
you want to be allowed to fail and to restart and to succeed. Which means keeping the reforms on (inaudible) markets, reforming the service of
different markets and helping, I mean precisely this (inaudible) to go faster and stronger.
And the second point, is the reform of the financing system. Because we are very good in terms of debt financing but we are definitely not at the U.S.
level in terms of equity financing. So we want to develop now an eco- system adapted precisely to large tickets and this finance requirements for
startups.
QUEST: OK, but President Hollande perhaps and certainly the French establishment has never been seen as being particularly pro capitalist in
the Anglo American sense of the word. Are you trying to change that?
MACRON: Yes, definitely. I think being pro market doesn't mean being an (inaudible) -- in France. Definitely not. Why? First because it is
efficient. These start-ups create jobs everyday in France. They create jobs in manufacturing as well. And they help the country to innovate more
rapidly to be part of the construction.
And secondly, because it is fair, and i think being pro market when have you rules, is good for people in my country because it provides more
opportunity to outsiders. That's what i want to explain. And that's why i do believe that being pro market, being capitalists makes a lot of sense
with your rules even when you are seen as left winger because it is fair, it is good for outsiders, it's good for reforming the country.
[16:30:00] QUEST: Very interesting. Thank you very much for joining us from the heart of, if you like, capitalism and entrepreneurism at Las
Vegas. Put something on the Roulette wheel for me. We will continue our discussion on what happened - why did the markets fall out of bed on an
average Thursday at the beginning of January. Look at that and weep. (RINGS BELL)
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. There's more "Quest Means Business" in just a moment when the chief executive of Blackberry tells us his company
will be profitable in 2016, and yes, I still have one. And Donald Trump threatens to pull a billion dollars out of the U.K. economy. Before all of that, this is CNN and on this network the news
always comes first. At least 50 people have been killed in Western Libya after a truck bomb ripped through a police training center. Most of the dead are policemen or
trainees. It's not known yet who is responsible. The United States called on Libyan leaders to implement a peace deal brokered by the U.N. in order to stop the
violence. In Paris today a man was shot and killed after trying to attack a police
station. Prosecutors say he shouted "Allahu Akbar". Today marks the one- year anniversary of the attacks on the satirical magazine Charlie Hebdo. Speaking to me a few moments ago on "Quest Means Business," the French economy minister said he thanked the world for standing by his country.
Earlier in Paris the French interior minister praised the actions of the local police.
(BEGIN VIDEOCLIP)
BERNARD CAZENEUVE, FRENCH INTERIOR MINISTER: In a country where the threat level is extremely high, the police and gendarmerie are on the front line
as the president of (French Republic) has said and so I'd like to thank them for their very great courage and this pez test me from their
commitment to protect the French people. And the site for which I'd like to speak about - speaking about - these particular circumstances express my solidarity, my gratitude for their
remarkable work. )
(END VIDEOCLIP)
QUEST: As the Saudi-led coalition continues airstrikes in Yemen, Iran says its embassy in the capital was hit, injuring several of its personnel.
Iran claims the building was deliberately targeted. The Saudi military spokesman says there will be an investigation, but he questions the
credibility of Iran's claims. The Dow Jones Industrials has closed down 392 points. It's now a correction from its all-time intraday high in May of last year.
[16:35:01] The plunge on the New York Stock Exchange followed a global selloff that started in China. Trading there was halted less than 30
minutes after circuit breakers kicked in. The Chinese markets later announced the breaker system could no longer be used.
Michael Platini says he will no longer run to be the next president of FIFA. The UEFA president is currently suspended from football's governing
body over allegations of corruption. He denies all wrongdoing. Platini told the Associated Press he has pulled out because he is not being given a chance to, in his words, "play the
game." And so to our top story this evening -- the chaos across the global markets. The Dow was off nearly 400 points, and if you look here, very
interestingly, major companies bore the brunt of the losses. Boeing, big seller of course, both in China and GE makes the engines and
the turbines. Even Apple which has had so many problems in connection with China and China sales, off 4 percent, and not surprisingly the oil
companies also taking a bit of a beating. Only Walmart managed to buck the trend, and that's an impressive trend to buck because Walmart obviously perceived to do well in more difficult
times. Walmart is up 2.3 percent. The big issue of course was one of the questions was when China decided to devalue its currency, the yuan.
The Chinese stock market first of all having witnessed that the currency was now at the weakest level since 2011, then the Chinese stock market went
down 7 percent. A combination of these two aspects took their toll and set the tone for the
rest of the global markets. But it wasn't just currencies that caused problems. Crude oil too has continued its nosedive. It tumbled to $32 per barrel today.
Now it recovered just a smidgeon. But at $32 a barrel, that's the lowest level since 2003. Investors not surprisingly are well and truly rattled.
If investors are rattled, consumers are happy. That's Paul La Monica who we will be talking to. Paul stay just there. Do not move a muscle.
The uncertainty between currencies and oil has sent gold soaring. It jumped 1.5 percent on Thursday. It's up 4 percent for the year overall.
You know the reason of course - when times are tough, people go into gold. Paul La Monica -
PAUL LA MONICA, CNN MONEY DIGITAL CORRESPONDENT: Yes, sir.
QUEST: -- is the "Quest Means Business" guru.
LA MONICA: That's very kind.
QUEST: Make sense of it all for me.
LA MONICA: It is difficult to make sense of this chaos right now. Obviously when you see the Chinese stock markets open and then close within
a half hour, that is very, very nerve rattling. And that explains, I think, why investors were on a - basically a shoot
first and ask questions later type of mentality -
QUEST: So -
LA MONICA: -- they're just selling first.
QUEST: I want to go through this at fast speed so that we can cover a lot of ground. The decision on the circuit breakers - bad decision that put
them there in the first place or just bad - poor - execution?
LA MONICA: I think poor execution. There were circuit breakers in the U.S. and other markets that seemed to work. I'm - I don't know why China
didn't mimic some of these other circuit breakers that do a good job.
QUEST: They've got bigger bands, 19, 20 bigger bands. OK, so China devaluation of the currency. They're trained to make it Mohammad Delarian
(ph) said on this program, more reflective of market conditions. But a cack-handed way of doing it.
LA MONICA: Exactly. They really look more as if they're still manipulating the currency even though they are saying that it's just market
forces. And obviously any time the yuan goes down even further, you're going to get those concerns about a possible currency war.
QUEST: We are about to start the earnings season here in the United States. There were suggestions this could be a recession in the earnings
season - two quarters back to back of lower earnings reports.
LA MONICA: It looks like that's going to be the case. It is going to be very difficult for companies to report profit increases in the wake of all
the volatility that obviously didn't just start when the calendar hit January 1st.
We had this leading into the (AUDIO GAP) at the end of last year as well. And the dollar strengthening hurts a lot of (inaudible).
QUEST: All right, but if the - let's just go straight to good old- fashioned economics 101. If the results aren't there on the P.E. ratio basis, which is already looking elevated, --
LA MONICA: Yes, definitely a bit stretched.
QUEST: -- I can't remember what the average P.E. is now on the S&P, but I mean, I'm sure somebody'll tweet me and tell me. But the only thing, if
the earnings aren't there, then the price must come down.
[16:40:08] LA MONICA: It has to happen at some point, and obviously that I think is taking place already. When you look at Apple, Apple has been just
crushed because no one believes that iPhone demand is as strong as it once was.
If that's the case, it will be impossible for Apple to report results that live up to Wall Street's considerable hype.
QUEST: Finally, Walmart - bucked the trend.
LA MONICA: Walmart's been up all week, it really is astonishing.
QUEST: What's happening?
LA MONICA: People I spoke to said that no fundamental changes have taken place for the better -
QUEST: Come on there, Paul, --
LA MONICA: -- for Walmart.
QUEST: -- I mean look, 2.3 -
LA MONICA: No, it's up about - it's up about 6 percent this week when the Dow's down 5 percent.
The reason is that Walmart, as you mentioned earlier, definitely people will probably be more prone to shop there in times of global stress,
economic concerns but also the stock was down almost 30 percent last hear. Almost every major traditional retailer plunged because of Amazon fears.
They're not the only retailer bouncing back this week. Macy's is up, the Gap is up, --
QUEST: And well they lost (inaudible) yesterday.
(CROSS TALK)
LA MONICA: -- (inaudible), Macy's lost (inaudible) closing shares but investors seemed to be bargain hunting for retailers because, guess what,
Amazon's not going to kill them all.
QUEST: Our guru.
LA MONICA: Thank you.
QUEST: Thank you, sir. Paul La Monica making sense of it all as he always does on "Quest Means Business." (RINGS BELL).
Emerging markets were hit particularly hard by the China slowdown. The Brazilian stocks closed more than 2 percent off, already down more than 5
percent this week. Shasta Darlington is in Rio de Janeiro. It may be summer there, but there are these very nasty clouds. Look, Shasta, these, I mean, Brazil, to some
extent Argentina, certainly Chile, Peru - these are the emerging markets that won't be able to withstand a China slowdown.
SHASTA DARLINGTON, CNN CORRESPONDENT: That's right, Richard. I mean, we're seeing these huge problems in Brazil for many months now and it
really started with the slowdown in China. China is Brazil's biggest export market. So they're not going to be immune
to the problem there. You mentioned what happened in stocks. The currency here was trading at 4.05 at the end of the day. It really seems like just yesterday it was two to one.
So this is -- the currency has just been completely eroded and yet I think we should also point out that if China isn't Brazil's only problem, they
really created a lot of their own problems with the massive corruption scandal here that's brought down a string of top business leaders and
politicians. But these two things combined - a recession largely on the back of a slowdown of commodity sales to China and all of these missteps in politics
and economy - have led to calls for the impeachment of the president. So completely unknown when you're looking forward as an investor. Do you
want to put your money in Brazil? The answer tends to be no. There's just too much uncertainty here.
QUEST: Shasta -
DARLINGTON: And we're seeing it, we're expecting more bad numbers just moving forward, Richard.
QUEST: Right, OK but Brazil clearly is in the deepest doo-doo in the sense of political, business and in economic crisis, but let's take Argentina
with its new government, with its new economic policies and crucially of course doing this at a time when emerging markets are under threat.
DARLINGTON: Argentina has an uphill climb ahead but I think they're also coming from such a low spot, they've been isolated from global markets for
long, and with the new President Macri coming in and promising to really implement all of these market-friendly policies, it's looking interesting
to companies. I think a lot of investors are looking at Argentina that haven't looked at it for a long time. So even though they of course are also big in
commodities, they rely on China - because of their relative isolation, the prospect of opening up the new government that is more market friendly
makes Argentina in many ways more interesting than Brazil which there's just no light at the end of the tunnel here, Richard.
QUEST: Right. Shasta Darlington in Rio. I mean, it looks very pleasant on a summer's evening in Rio, but I take your point that there's no
economic light at the end of the tunnel. Shasta, good to see you. Now regular viewers of "Quest Means Business" - and I hope you are and if
you're not why not? - were well familiar with my love affair with the Blackberry.
I won't be parted from it. Well when we come back, the chief executive of Blackberry tells us are they going to survive and what's going to be next.
(COMMERCIAL BREAK)
[16:46:10] QUEST: Blackberry's chief executive insists the company will be profitable in 2016 even as the shares in the company fell more than 8
percent during the course of the session. Blackberry announced plans to build software that will eventually drive self-driving cars - autonomous vehicles as is the posh way and the
politically correct way to describe them. Now, the vehicles are made by some of the biggest rivals like Apple and Google. John Chen told Maggie Lake demand for this type of technology is
strong.
(BEGIN VIDEOCLIP)
JOHN CHEN, CEO, BLACKBERRY: We want to make very sure that we stay cross platform and opened and this is why it works with the Apple CarPlay, it
works at a Google automotive initiative, it works at the Ford SDL, and so we're adopting all the standard interfaces.
Again, you know, the layer of this code and the product that we provide, everybody needs. Whether you're a car manufacturer or even a tier 1 like
Harmon (ph) or Danso (ph) that help put the dashboard together or, you know, the Google or the Apple of the world. They all need the resources
I'm providing. So we're not really competing but we really our position in the - in a new world here.
MAGGIE LAKE, CNN INTERNATIONAL BUSINESS ANCHOR AND CORRESPONDENT: So talk to me about what your goal is for 2016 when you're there.
Before we - when we've talked personally - you've had to explain to people that no, we're still in business. What's the conversation like now?
What's the goal for 2016?
CHEN: Very good. Conversations is much better. The people are now starting to believe that we're here, we're to stay. Company had make
positive cash flow for the last six quarters. I think it's since we met - I think that maybe we met about a year ago or less than that. So we've been continue making - generating - cash from
operation. We've also been investing. We bought five different companies, the biggest of which was Good Technology which happened to be the biggest acquisition
the company had made in history. So you could see that we're not only generating cash and make ourselves really, really strong balance sheets and viable financially, we are also
investing heavily into the future. So the customer loves it and because of the acquisition we also have newer or repeat customers or a customer who have left us and came back.
So, you know, the conversation a lot healthier, a lot easier for myself running around the world doing it and for my team.
So, I mean, I'm hopeful. I do note - I will say one thing - Blackberry's definitely safe now as a company. I don't have any problem with that
financially, balance sheet-wise, income statement-wise. Now it's up to us to execute the growth and that's what you will hopefully
see on 2016 our two major milestones. One is the growth - the continued growth - of our software business and a car will be part of that, messaging
is also part of that. And then, you know, in store a lot more growth engine around for future.
And the second thing is we're going to turn profitable sometime in 2016 and I hope that once we turn profitable, we'll stay there and we'll never look
back. So those are the two milestones that I'm working toward for the next four months.
(END VIDEOCLIP)
QUEST: John Chen of Blackberry saying that Blackberry is safe. One billion dollars - that's how much investment money Donald Trump says he'll withhold from the U.S.
First, a highlight from Make, Create, Innovate.
(COMMERCIAL BREAK)
[16:51:14] QUEST: Donald Trump is threatening to withhold more than $1 billion from the United Kingdom if he's banned from the country.
His organization Idea (ph) marked the money for improvements to golf resorts. He now says it would cancel the investment if there's any attempt
to prevent Trump from traveling. More than 500,000 Britons signed a petition calling on the U.K. government to keep him after the Republican candidate called for a temporary ban on
Muslims entering the United States last month. That petition will be debated by lawmakers later this month. I have to say, the debate is by no means binding on the government and certainly it's my understanding that it's not.
The Trump organization said in a statement "Westminster will create a dangerous precedent and send a terrible message."
Let's join now Jeff Zeleny who is our senior Washington correspondent with the Trump campaign in Burlington, Vermont.
The U.K. billion row is a sideshow. What is he going to be telling us - or what is he going to be telling the people in Vermont tonight?
JEFF ZELENY, CNN SENIOR WASHINGTON CORRESPONDENT: Richard, there are a lot of sideshows with this campaign as you've seen. Certainly it's drawn
attention here in the United States and across the world. But here in the U.S. in Vermont, his - Donald Trump is more focused on his
sort of new fight with Ted Cruz. Ted Cruz, that freshman senator from Texas, a tea party darling, is really coming on strong in some respects.
So Donald Trump all of a sudden is questioning Ted Cruz's citizenship. He was born in Canada but his mother was a U.S. citizen.
Suddenly Donald Trump is saying that, you know, Ted Cruz may not be eligible to be president. So he said that in an interview yesterday with
our own Wolf Blitzer. We'll see if he says it again here tonight to a crowd of his own supporters.
QUEST: The - does Donald Trump have any sort of no-go areas where he won't attack, do you think?
ZELENY: (LAUGHTER). If he does, we haven't seen them yet I guess. I mean, it's difficult to sort of answer no, a negative, but so far
everything seems pretty much fair game. He's also, you know, on one hand he is drawing distinctions with Ted Cruz, raising questions about his citizenship at the same time as he is pointing
out all of these scandals from the, you know, from days gone by from the Clinton administration, saying those are fair game.
So, certainly he is keeping a lot of issues up in the air. And quite frankly, Richard, his supporters love it. They love it he's taking on the
establishment on both sides and he's shaking things up here. So, so far I have not seen many things that're off limits, at least in the mind of Trump or his campaign.
QUEST: Now, I know you may have to dash off, Jeff, so feel free to dash off if you need to or don't answer my last question. The one question as I
travel the world is people keep asking me is the realistic possibility of Donald Trump getting the nomination.
ZELENY: Well Richard, it certainly is - looks like much more of a possibility than anyone ever would have imagined - than even Mr. Trump
likely would have imagined. He has kept his lead for months and months and months. But now the hard part begins. The voting is, you know, scheduled to begin in just about
four weeks' time here so he's in a stronger position than absolutely anyone else but, you know, it is difficult to predict here.
QUEST: Yes.
ZELENY: A lot of the Republican establishment still believes he will not be the nominee. But, boy, I can tell you there's no exit ramp here, you
know, for him to sort of fall off. He has so much support. So at this point, it's just as likely to be him as anyone else, perhaps more likely to be him more than anyone else.
But the voting has yet to begin here so we'll just have to stay tuned and follow this exciting, chaotic race, Richard.
QUEST: Jeff, thank you and thank you to the men who didn't pull the plug just in time for us to say - to hear you all the way through.
[16:55:02] Now, in just a few hours from now, CNN will have a look at guns in America and it'll be with President Barack Obama.
Anderson Cooper hosts a live and exclusive town hall event with the U.S. president. It's in three hours from now - that's 1 a.m. on Friday in
London and it will be replayed on Friday evening at 7. So you get two chances to see it.
Now, some news just in to you - my boss is staying. Jeff Bewkes - well my big boss - well, the one who's way up there.
That Jeff Bewkes has - the announcement from Time Warner, parent company of this network, announced it's agreed with the chairman and CEO Bewkes to
extend the term of his employment agreement another three years through 2020.
I'm not saying a word (RINGS BELL).
(COMMERCIAL BREAK)
QUEST: Tonight's "Profitable Moment." It's easy to dismiss what's happening in China and the spillover effects to the rest of the world and,
to be fair, it is way too soon to say that this is a bear market or it's something deep and fundamental for the global economy.
But the reality is that China faces such extraordinary problems and there is such a level of disorganization and economic cooperation/coordination
that one must be worried. And that is what is now transmitting itself around the world.
And to those of you who say it's a bear market, not yet. And that's "Quest Means Business" for tonight. I'm Richard Quest in New York.
Whatever you're up to in the hours ahead, (RINGS BELL) I hope it's profitable or at least try to be profitable tomorrow and I'll see you
tomorrow.
END
