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Quest Means Business
Stocks Lower to End the Week; Saudi Aramco May Go Public; Obama Talks Gun Control; El Chapo Recaptured; Mexico's President Speaks; Strong Jobs Report. Aired 4-5p ET
Aired January 08, 2016 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN HOST: How appropriate. The New York Boat Show is ringing the closing bell on a day when the Dow is sinking just about
without trace. A robust gavel aiming to bring trading to a close on January the (18th). Tonight a rotten end to a terrible week, stocks once
again in New York are sharply lower. Also tonight Saudi Arabia plans what could be the largest IPO in history, and a jobs report that sparkles but
was unable to cheer the market.
I'm Richard Quest, how appropriate on this terrible week we're at the New York Stock Exchange, where, yes, I mean business.
(INTRODUCTION MUSIC)
Now look at that, the Dow Jones industrials. Good evening. Dow Jones is off 170 points, had been off nearly 200 points. We'll get to our business
agenda in just a moment.
I need to also tell you at the start of this program that we're expecting to go to Mexico City for a press conference that's likely to be held by the
President of Mexico in connection with the capture of "El Chapo," the drug lord who, as you remember, escaped from a Mexican prison, but who has now
been recaptured in a very violent fight. We'll have the details from that as the, as the program moves forward.
Let's move on to the market. What a day! Not even a strong U.S. jobs report could give any cheer to the stock market. Come and have a look and
I'll show you what happened. There's the way the Dow Jones traded throughout the course of the session. Off 169 points, but it was (down).
And you can see, having started the day reasonably encouraging, reasonably encouraging, the, the gains just evaporated and after lunch it was just
being down. And this is the way the, the week looked so far. If you take a look, you'll see down 276 on Monday, 254 on Wednesday, one 392 on
Thursday, and today we're off 168 points.
What does that mean in reality? In reality it's the worst first week of January in history, and seemingly there's no end in sight. Joining me to
talk about this, Tim Anderson. Good to see you, sir. Anthony Chan. Anthony, we'll come to you in just one second. What happened in the last
hour of trading?
TIM ANDERSON, MANAGING DIRECTOR, TJM INVESTMENTS: Clearly a lot of people were looking to close out some positions they had or finish selling some
orders they had on their desk at the end of the day. There weren't a tremendous amount of bids. We've broken some important support levels.
QUEST: So what happens to those people who were trying to sell at the close if there were no buyers? What happened to those stocks?
ANDERSON: Well, those stocks will go a little bit later until they find buyers. Many times buyers will show up at a price, and then (usually) they
make a snap decision as to, you know, how low you really want to go.
QUEST: So it always pairs off at the end?
ANDERSON: It always pairs off at the end.
QUEST: How damaging is this, Anthony, what we're seeing in the markets and the wider economy. Because we had a very good jobs number today, which
should actually have rallied the market.
ANTHONY CHAN, CHIEF ECONOMIST, JP MORGAN CHASE: The jobs report was very healthy, but some people were concerned that demographically it wasn't as
diversified. A lot of the jobs are more focused on the younger generation, younger people, and they also focused on other things like wages were not
rising as rapidly. So I totally agree with you. I think you're spot on.
QUEST: Two hundred and ninety-odd thousand. It doesn't get much better than that.
CHAN: But when you look at the number of people that got jobs, they were not Main Street, America, and Main Street in terms of population.
QUEST: What, what are you...? All week I've been talking to you and others, but I still can't get to the grip of it. What is it you're really
worried about at the moment? Is it Saudi and Iran? Is it North Korea? Is it the U.S. economy? What is it?
ANDERSON: Well, in a, in - for next week, I think we're most concerned about fourth quarter earnings, which will start to come out on Tuesday, and
then we'll have the banks at the end of the week. And the banks have not been acting that well. And it will probably be a fourth consecutive
quarter of declining revenues for the S&P 500.
QUEST: Economically the United States has what? Your forecast for this 2016 is?
CHAN: We're looking for two percent growth. But the markets aren't concerned about what's going on in China. There are rumors that some major
announcement is going to be made over the weekend, so that increased the uncertainty in the financial markets, given all the turbulence that we saw
in the first couple days.
QUEST: Macro economically, Anthony, what needs to be done now? Because Mohamed El-Erian was on the program yesterday talking about how there needs
to be structural reforms, how economies need to get on and do the, the good work. But you know and I know that's a 10-year project.
CHAN: Well, I think that a lot of countries like China realizing that 10 years is way too long, and that's one of the reasons why they continue to
change the structure of their reforms. You saw them putting in the circuit breakers, taking them off, relaxing the ability of insiders to sell, then
maybe taking that back. So they are really changing the level of reforms and the things to basically stabilize the market. And they're moving as
aggressively as they can.
QUEST: Are we now in this for the long haul? Is this what we can look forward to for the next two, three, four weeks, months?
ANDERSON: We're certainly looking at a, at a correction. Maybe a correction that goes on longer in time than what we saw in October of 2014
and in August and September of last year.
QUEST: But is this the delayed full-scale correction that never got out of the gate last August because whatever happened we all sort of managed to
rescues ourselves?
ANDERSON: A lot of that's been going on behind the scenes. The Russell 2000 has closed below the lows of last August this week. And many people
feel that let's just get this down and dirty and over with as soon as possible so we can get to a level where stocks look attractive, and then we
have the whole year to work on our performance.
QUEST: Economically, give me the economic data as we look forward. I mean if you've got a jobs number and an unemployment rate of five percent,
Europe is still somewhat of a basket case, China is still a big worry, what is for you the biggest worry?
CHAN: The biggest worry is to see that Europe doesn't get off the ground, even though I do think that next year Europe is going to grow somewhere in
the neighborhood of one and a half percent. And the big concern is that policy makers in China won't get their act together. I think they are
moving in that direction. They've cut interest rates, they're doing everything they can to stabilize the (inaudible).
QUEST: And they still can't do anything.
CHAN: But I think they're moving in the right direction. They still don't have it all completely set, but they're, they're doing their best.
QUEST: Right. What I know the viewer needs to understand tonight, at least I believe so, is whether - and this is a question for each of you -
whether what we have seen this week is worrying.
ANDERSON: It will certainly be worrying when people start looking at their investment portfolios and realize that one week into the year we're down
six, six and a half percent. Now we've also had sharp declines in January, each of the last couple of years. In 2014 the S&P was down 10 percent in
January, and finished the year up about 10 percent.
CHAN: I think it is a great concern because one of the things the financial markets are coming to the conclusion is monetary policy has its
limits, and we are finding that out in the U.S., we're finding it out in Europe, and now we're finding it out in China.
QUEST: Gentlemen, have a good weekend. Thank you for taking the time out and coming to talk to us and making sense of what has been an extremely
difficult week. So to the European markets. Well, needless to say, even though Wall Street had started well, it wasn't enough to reverse the trend
for the Euro (bosses) and, as you can see, all the, the - Europe was the worst. That's not easy to say, this on a Friday afternoon and I haven't
even had a drop over lunch.
As we continue our look at the markets and the financial world tonight in our nightly conversation, Saudi Aramco. Now it's a company you know of
because of the oil situation, but what about if an IPO's on the market. It would be the largest IPO in history. We're going to talk about why Saudi
Arabia is thinking of floating Aramco. "Quest Means Business, " we are live tonight for you at the heart of capitalism, the New York Stock
Exchange.
(COMMERCIAL BREAK)
QUEST: Welcome back. "Quest Means Business." We're at the New York Stock Exchange, very appropriately to be here tonight after the sort of week.
Before the program ends, I will show you once again just how this has been a week of triple-digit losses for the Dow Jones Industrials. Also in this
program, we'll be going to (Nieto), where we're going to be hearing the press conference following the week of the capture of "El Chapo," the drug
lord who escaped from a prison in Mexico, was recaptured today after a violent gun battle between federal forces and his gang. He is now back in
custody and has already been transferred.
So what is the most valuable company in the world? I don't often do this sort of thing. You might say Google, and you might say Apple, and I'd say
wrong! Saudi Aramco, the Saudi Arabian government-owned petroleum company. And Saudi Aramco may go public. The country is considering listing the
giant state-owned oil company that pumps 12 percent of all crude oil. Aramco has 10 times more oil than Exxon.
Exxon's worth $314 billion on the back of its proven reserves. Saudi says Aramco is worth trillions of dollars. It's a highly secretive company.
It's a conservative estimate, two and a half trillion. And that dwarfs Apple. Apple's worth a mere $549 billion, maybe not that much after the
way the shock -- the stock has tanked 20 percent in the last couple of months. Because in all the stocks on the Saudi market combined, worth $570
billion, why should Saudi sell Aramco?
Joining me now, Nic Robertson, who is in Riyadh. I should imagine, Nic, the mere mention of selling Aramco had people talking in Riyadh.
NIC ROBERTSON, INTERNATIONAL DIPLOMATIC EDITOR, CNN: Oh, of course it did. Saudi Arabia has 16 percent of the global oil reserves. That 268 billion
barrels, so that's proven a significant amount. You know, here in Saudi Arabia a lot of people have been talking about the small changes that have
been going on, although they're not small for some of them. It's not - the country isn't just talking about the potential privatization, or part
privatization, of Aramco, it's about Saudi Airlines as well, it's power- generating companies, telecom companies, some of the big national companies here. The reason for this everyone knows is very clear. You know, 90
percent of Saudi revenue comes from oil. The price of oil, as we all know, has plummeted over 70 percent in the past year or so. That's affecting
the, the reserves here. About $650 billion in reserved, $100 billion of that spent off last year. About 15 percent of GD - deficit is running
about 15 percent of GDP. These, these are deep and big concerns. And the heir apparent, if you will, at the moment, the Deputy Crown Prince, the
King's son, is taking a leading role in looking at the economy here and deciding how best he can prepare this country for the future. You know,
about 70 percent of the population here are under 30. By 2030 the work force is expected to double here. Two-thirds of the people are employed by
the government. There, there is a big weight lying on this government's shoulders about what to do about - in the price - what to do because of the
price of oil falling, how they're going to handle it. And Aramco clearly, as you've said, the biggest asset, and they need to get the most and best
out of it, Richard.
QUEST: But, Nic, the - obviously with you, you know, the potential for instability in a country where frankly the government has been a provider
and a subsidizer, how far are people openly concerned that this budgetry difficulty because of oil will eventually lead to instability? Or there
still a view that they'll make the cuts, whatever is necessary?
ROBERTSON: Richard - I don't know if you can hear, Richard, there are motorbikes screaming up the main King Fahd Highway here. It's about four
lanes on each side, and you hear high-performance engines racing up and down there all the time. You would think that people don't care the fact
that the price of oil here has been put up 50 percent this week for people that buy gas at the pumps here. It's heavily subsidized. It did cost 60
cents a gallon. It's just gone up to about a litre (sic) a gallon.
The gas, their fuel bills at home are going to go up. The utility bills, the electricity, water is going to go up. Housing here is subsidized. And
this hurts a lot of people in the pocket here and it means a big difference to them. You can't jump on the number two bus here to go to work. There
is no public transport network. That's in the process of being built. So when you, when hike the price of gasoline, everyone's going to pay for that
just in getting to work. And for people on lower incomes here, that's a concern, and it's going to be a political concern going forward.
They're talking over the next five years of, of beginning a five percent VAT charge here. This will concern people and it will concern the
government too because they'll know if they're getting more money out of their population, the population gets less largesse from its leaders,
they're going to want more accountability, Richard. And this is something the leaders in this country haven't really had to do and be held to account
to in the past.
QUEST: Nic Robertson, who is in Riyadh on the day that Saudi suggests it may float Aramco. Fahad Al-Turki is the Chief Investment - Chief
Economisst at Jadwa Investment, has been looking at Saudi Arabia's less - has been looking at Saudi Arabia's next moves.
FAHAD AL-TURKI, CHIEF ECONOMIST, JADWA INVESTMENTS: The policy maker will have three considerations to look at when they are moving the giant oil
company to, to the IPO. The first consideration is whether there is a capacity in the local market to observe such, such move. And, and as well
whether that will be good for the local economy. The second consideration is for the company itself, whether they will be more efficiency gained by,
by such move. And the third consideration, I think, that is going to be a global perspective whether the company as IPO or being more into the
private side of the, of the economy, whether maintain its role as a reliable source of oil for the global, for the global economy.
QUEST: Joining me now in Riyadh to talk more about this extraordinary revelation and possibility, I'm joined by John Sfakianakis, the emerging
markets investment group, Ashmore, in Riyadh. John, when you heard that Aramco might be sold off, or at least part of it - we hear the number of 20
percent could be floated off - is this realistic, or is this just somebody, pardon the phrase, floating a balloon?
JOHN SFAKIANAKIS, MIDDLE EAST ANALYST AND ECONOMIST: Well 20 percent from the beginning might be a little bit hard. It will be a gradualist
approach, so it could be five to 10 percent. It will mostly likely be (downs turn) industry, and then slowly moving up to other industries, most
likely also to upstream. Upstream is more complicated because it involves the reserve, it involves the actual extraction capacity of Saudi Arabia.
So I think a bit 20 percent is off the mark, but five to 10 could be a possibility.
QUEST: Right, but who's going to invest now? OK, to be sure, Aramco has trillions of dollars' worth of proven reserves, but it's a trans - but it's
not a, a watch word for transparency and, as companies go, is it in a fixed state, if you like, for the public scrutiny of the public market?
SFAKIANAKIS: Well, there'll have to be more transparent and, if this is exactly the vision of Prince Mohammad Bin Salman, the Deputy Crown Prince
who's spearheading all this, and this is very important for the country, he understands that. This is the time to be diversifying away from oil,
generate new revenues from oil, to be invested in the non-oil sector. And this is the time to be transparent, to be more governance oriented. This
is what Saudi Arabia needs to do to move ahead into the 21st century.
QUEST: When they - we had the economy minister on "Quest Means Business" and he made the point about the requirement for more transparency and
diversification. But I always wonder where Saudi is concerned, how realistic is diversification when the oil sector is still the best part of
a third, if not more, of the economy.
SFAKIANAKIS: You're right that there are concerns. And in the interview of Prince Mohammad Bin Salman, he did indicate that opening up that sector,
Saudi Aramco, is a way to enhance governance and transparency. And in the past there were concerns, and I think now Saudi Arabia is very much
committed, committed to that. Over the last 11 months, we have seen (epocal), really cataclysmic in a positive way changes that we haven't seen
in the last 40, 50 years. And this is a positive thing.
QUEST: OK, finally, to the wider question on the budget. We've seen the measures being taken. We know that subsidies are being reduced. There's
going to be cutbacks. But planning for an oil price between 30 and 50, has enough been done? Is there more cutting still to come?
SFAKIANAKIS: I think that the - on the fiscal side you will see more that will come out of it, in terms of government announcements, to show that
there macro fiscal planning on the medium term. There is prudence and, of course, that is mindful of the social needs of the country. And I think
that the, the budget has been a document that has never been created before, basically because of its transparency. And I think, moving
forward, it's going to be a positive step.
QUEST: Sir, thank you joining us from Riyadh. It is a story we will watch very closely as the prospects of an Aramco IPO get ever closer. "Quest
Means Business" at the New York Stock Exchange tonight after a pretty dreadful week on the markets.
When we return, we're going to show you how a church just around the corner has managed to take on major retailers when it comes to selling high-
capacity guns. "Quest Means Business." Good evening.
(COMMERCIAL BREAK)
QUEST: Welcome back to "Quest Means Business" at the New York Stock Exchange. Very quickly show you what's happened to the market. That's
what you're looking at, the Dow Jones Industrials off 167 points. That's the way the trading day moved. A strong start, a middling midday, and a
fairly dreadful close with more than a billion stocks on the mismatch at the end.
We're also waiting for the press conference that takes place in Nieto in Mexico for the capture of the, the - the press conference is in Mexico City
for the capture of "El Chapo," who of course escaped from Mexico's prison in a very public way by digging a tunnel which even had a railway put in
underneath. Well, he's now back behind bars. The issues there will be about whether he will extradited to the United States.
The National Rifle Association, the NRA, has called the U.S. President's town hall on gun control a PR stunt. As the debate - Barack Obama answered
questions from a variety of supporters, as well as critics. The NRA refused to take part in the debate. Michelle Kosinski reports.
(BEGIN VIDEOTAPE)
MICHELLE KOSINSKI, CNN WHITE HOUSE CORRESPONDENT, CNN: President Obama addressed a crowd split on the issue with a surprising story from his time
on the campaign trail, going through rural Iowa. He says the First Lady brought up the subject of guns for protection.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: At one point Michelle turned to me and she said, you know, if I was living in a farm house where the
Sheriff's Department's pretty far away, and somebody can just turn off the highway and come up to the farm, I want to have a shotgun or a rifle to
make sure I was protected and my family was protected. And she was absolutely right.
KOSINSKI: He faced tough questions from familiar faces,Taya Kyle, wife of murdered American sniper, Chris Kyle; Mark Kelly, husband of former
Congresswoman; and shooting victim, Gabby Giffords. Kimberly Corban is a rape victim and NRA supporter.
KIMBERLY CORBAN, COLLEGE RAPE SURVIVOR: I have been unspeakably victimized once already, and I refuse to let that happen again to myself or my kids.
So why can't your administration see that these restrictions that you're putting to make it harder for me to own a gun or harder for me to take that
where I need to be is actually just making my kids and I less safe.
OBAMA: There's nothing that we've proposed that would make it harder for you to purchase a firearm.
KOSINSKI: A conspicuous no-show here, the NRA itself.
OBAMA: If you listen to the rhetoric, it is so over the top and so overheated, I'm happy to talk to them. But the conversation has to be
based on facts and truth and what we're actually proposing. Not some, you know, imaginary fiction in which Obama's trying to take away your guns.
KOSINSKI: It was the Sandy Hook shooting that made President Obama uncharacteristically emotional this week. Now he watched himself make that
speech.
ANDERSON COOPER, ANCHOR OF "ANDERSON COOPER 360o," CNN: I think a lot of people were surprised by that moment.
OBAMA: I was too actually. You know I visited Newtown two days after what happened, so it was still very raw. It's the only time I've ever seen
Secret Service cry on duty. It continues to haunt me. It was one of the worst days of my presidency.
KOSINSKI: And as Republican presidential candidate Ted Cruz now campaigns with this image of the President alongside the words, Obama wants your
guns, many conservatives were riled, offended, by his calling that kind of rhetoric a conspiracy, which he somewhat testily defended.
COOPER: Is it fair to call it a conspiracy? I mean, well, yeah, a lot of people believe this deeply that they just don't, they just don't trust you.
OBAMA: No, no. I'm sorry, Cooper. Yes, it is fair to call it a conspiracy. What, what, what are you saying? Are you suggesting that the
notion that we are creating a plot to take everybody's guns away...
COOPER: Not everybody's. But there certainly is a (inaudible).
OBAMA: ...so that we can impose martial law is a conspiracy? Yes, that is a conspiracy. I would hope that you would agree with that. Is that
controversial?
(END VIDEOTAPE)
QUEST: Michelle Kosinski reporting there. Now, whilst the President has been talking about gun control, sales of guns in the United States have
been soaring since the President took office. Smith & Wesson stock has jumped nearly three percent this year, this week basically - same
difference - despite the wider sell off. Here on Wall Street there is a particular church, a wealthy, well to do church, that has made it its
business to try and stamp out, or at least restrict, as much of gun sales and the gun culture as they possibly can. CNN's Clare Sebastican has been
to church.
(BEGIN VIDEO CLIP)
CLARE SEBASTIAN, SENIOR PRODUCER, CNN INTERNATIONAL: Tucked away in the heart of New York's financial district, this three century old parish
church is an activist investor.
WILLIAM LUPFER, RECTOR, TRINITY CHURCH, WALL STREET, NEW YORK: It came from the disaster at Sandy Hook. My predecessor and other leaders at
Trinity had a broad-based agonized conversation about where we are invested and how we might use investment as part of a conversation towards the
common good.
SEBASTIAN: Trinity Wall Street has a large investment portfolio from a 300-year-old land grant that includes 3,500 shares in Walmart.
LUPFER: We wanted them to stop selling the high-capacity guns, so the magazine holding eight or more bullets. Because that's where most of the
massacres happen in the U.S.
SEBASTIAN: Trinity took Walmart to court last year, calling for a shareholder vote on the issue. They lost on appeal. Then in August
Walmart voluntarily stopped selling what it calls military-style rifles. The company told me it was because of a lack of customer demand. Trinity
turned to another company, Cabela's, a sporting goods store where it owns...
(END VIDEO CLIP)
ENRIQUE PENA NIETO, PRESIDENT OF MEXICO: (Immigranates) de las instituciones de seguridad...
QUEST: This is President Nieto in Mexico City on the "El Chapo" arrest and capture.
PENA NIETO (THROUGH TRANSLATOR): Joaquin (inaudible) was taken following his capture as a result of (inaudible) (process) of the intelligence
organizations, security, and prosecution of the Mexican state. This is an achievement that (favored) the rule of law. The result of a (measure) of
our enforcement, the Mexican army, and Mexican (navy) - the federal police and the attorney general's office of the Republic and the security and
investigation center of the nation.
[16:30:00] This action against the impunity is a result of the permanent work of the various elements of our institutions which for days and nights
dedicated themselves to perform the mission that I ordered them to perform, to recaptured this criminal and turn him over to justice.
To all and each one of them, I express my recognition (inaudible) both institutional as well as personal. I express the recognition of all of
Mexico and pride to our nation. This arrest as promised had to happen. For months (inaudible) careful intelligence and investigative work was
(made) carried out which allowed us to identify, disarm (inaudible) the network of this criminal. Today Mexico confirms that its institution has
the (has the necessary) capacity to face and overcome anyone who threatens the tranquility of Mexican families.
Our (inaudible) demonstrates that when Mexicans work together, there is no adversity that cannot be overcome. Every objective can be reached, every
trust (inaudible), and the solidity and the strength of our institutions. With this operation there are 98 out of 122 of the most sought-after
criminals who no longer represent a threat to Mexican society. These are criminals who for years have been harming our country. We will continue to
face with intelligence systems, coordination, strength, and efficiency - we will face up to organized crime. We will continue to do this, performing
our duties (inaudible) with the support of millions of Mexican who want to live in a country under the rule of law and liberties. Because of that,
today's arrest is extremely important for the security (inaudible) of the government and its republic. Our institutions had demonstrated one more
time that its citizens can trust them, and our institutions are at the level needed to have the strength and the determination to perform any
mission that is granted to them. Faced with great national challenges Mexican can have a government that is (excited) and is determined to build
a better country.
Today once again we have proved this that there is no greater strength than the strength of Mexicans working together. Once again here, in front of
the National Palace, I reiterate my strongest congratulations and recognition to all the personnel, to all the elements, all the institutions
of security of our country who participated in the recapture of this criminal that we have been looking for. Thank you very much and the
commands of the institutions they are here. I ask them to be (for me) to transfer my congratulations and recognition to those who participated in
this operation. Mexico feels very proud of all of them. Thank you very much. Good afternoon.
QUEST: The President of Mexico thanking those who were involved in the capture of "El Chapo." And, besides talking about justice and the
necessity of ensuring justice, obviously there in his statement, also very keen to point out that the government is in control, and that the
government is strong enough to deal with these sorts of challenges, a clear reference of course to questions about whether or not the drug lords have
managed to infiltrate and the level of corruption within official Mexico. We'll talk more about what the President said, the significance of the
capture, and consider whether or not "El Chapo" is headed for the United States.
It's "Quest Means Business." I'm Richard Quest at the New York Stock Exchange.
(COMMERCIAL BREAK)
QUEST: Welcome back to "Quest Means Business." We're live at the New York Stock Exchange. The end of a tumultuous, some would say torrid, trading
week which saw multiple triple-digit losses for the main index - the Dow Jones Industrials.
People may talk about the S&P 500 as being more representative, but it's the Dow that still gets you right in the stomach.
And now of course, what comes next? As the traders go home and investors look at their 401(k)s well you need to consider just how much damage was
done. CNN's Clare Sebastian reviews the week.
(BEGIN VIDEOCLIP)
QUEST: It's a very unhappy New Year for the markets.
PATRICK CHOVANEC, CHIEF STRATEGIST, SILVERCREST ASSET MANAGEMENT: This reminds me of what happened in August when the same thing happened -
markets spooked by China.
QUEST: The U.S. markets struggle to recover a day after a brutal start.
KEN ROGOFF, FORMER CHIEF ECONOMIST, IMF: Well it doesn't inspire confidence that they're using these heavy-handed interventions.
QUEST: We are only three days into the trading year. Is this a portend of what is to come?
JEREMY SIEGEL, PROFESSOR, WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA: What's going on in the yuan, the Chinese currency, -- that sharp
devaluation is very bad because it signals that the Chinese economy is probably weaker than we think.
QUEST: The Dow is now in a correction territory.
ESWAR PRASAD, SENIOR FELLOW, BROOKINGS INSTITUTION: The recent move in the currencies are just desperation rather than a real attempt to stoke
economic growth.
ALAN VALDES, DME SECURITIES: I think in the long run, this market's a little weak and it's probably going to trend down.
(END VIDEOCLIP)
QUEST: The views of the market as seen during the course of this week, all of which seems perhaps somewhat perverse when you look at what's actually
happening in the U.S. economy at the moment. The U.S. economy is looking strong at its core even amid this market
madness. U.S. jobs growth surged in December. There were 292,000 jobs added to the
so-called non-farm payrolls smashed expectations. The unemployment rate remained unchanged at 5 percent. All in all, in
2015, the United States added 2.6 million jobs, the second best year since 1999.
That's the headline number but of course it is the quality not just the quantity of jobs that is actually an issue. There were some downsides to
the numbers. Wages stayed flat and there were perhaps (ph) the number of hours worked.
Maggie Lake spoke to the U.S. Labor Secretary. She asked him about the concerns that he now had over the new jobs that have been created.
(BEGIN VIDEOCLIP)
THOMAS PEREZ, U.S. LABOR SECRETARY: When you look at the quality of the jobs, these are solid quality jobs. You look at the sectors that are the
biggest growth sectors - business and professional services - over the last years, has been the best-performing sector.
[16:40:02] And these are by and large very solid middle class and above jobs. You look at the health sector had almost half a million jobs last
year alone. Again, a very solid sector. Construction did very well last year. And with the transportation infrastructure bill, I'm confident we can sustain that momentum.
Sales of newly-constructed homes were up 15 percent last year. That means people have money in their pockets, they're bullish about spending, and as
a result, these good construction jobs are being created. So it's not only a quantity story, it's a quality story about the job creation that we're seeing.
MAGGIE LAKE, CNN INTERNATIONAL BUSINESS ANCHOR AND CORRESPONDENT: And we know jobs is one of the most important sort of building blocks -
PEREZ: Absolutely.
LAKE: -- when you're talking about people's economic confidence about the future.
PEREZ: Sure.
LAKE: If the jobs are of high quality, why do we see that wage component remain so stubbornly flat?
PEREZ: Well, last year was the best year for wage growth seen since the beginning of the recovery. Having said that, I agree with you that we need
to do more. This has been a really a phenomenon since the late 70s where productivity growth and wage growth which used to go hand in hand, have been delinked.
The American workers which, you know, who have helped bake this pie of prosperity for America, are no longer sharing fairly in that prosperity.
And that's why you - we - see all too many people working 50 hours who haven't gotten a raise.
That's why we're working so hard on increasing the minimum wage, that's why we're working so hard on an overtime proposal, because if you work extra
you should be paid extra.
(END VIDEOCLIP)
QUEST: That's the U.S. labor secretary on the question of equality of jobs.
Oil prices gave up their early gains on Friday and are now losing ground for a fifth day in a row. Just look at the numbers on the benchmarks.
W - West Texas was down about half a percent, Brent down three quarters. They're both trading at around $33 a barrel.
The market's hurt by oversupply and the strong dollar. It's at 12-year's lows. Chris Faulkner is with me from Breitling Energy. Good to see you,
sir.
CHRIS FAULKNER, CEO, BREITLING ENERGY: Richard, how are you?
QUEST: The frack master.
FAULKNER: OK.
QUEST: That name will stick with you forever.
FAULKNER: Forever I believe, yes.
QUEST: Absolutely.
FAULKNER: Can't get rid of it.
QUEST: So now, oil - what is the driving factor in this falling price? Is it the oversupply because Iran's coming on? Is it China with dwindling
demand?
FAULKNER: You know, Richard, I think that there is actually rebalancing occurring in the markets already. So the reality is that the global
economy now is the only thing the market cares about. We saw rig count coming down 20, we saw the supply coming offline a half a
million barrels this year (AUDIO GAP) half a million barrels by April. But they don't care about what's coming down the pike. They care about the
global economy. This veil has sort of wrapped itself around -
QUEST: So how much of a mismatch in supply and demand is there? What's the glut - ?
FAULKNER: The overhang?
QUEST: -- the overhang on a daily basis do you think (inaudible)?
FAULKNER: We think it's about 750,000 barrels. So it's come down significantly, so if Iran is not materializing, one thing that we haven't
discussed a lot about is that at this price of oil, these stripper wells - these very marginal where they produce two or three barrels a day - they
can produce over half a million barrels of oil. And they'll be shut down soon (ph) as the price of oil remains at this level which means they could wipe out the entire glut. So today's glut
could be tomorrow's deficit.
QUEST: But isn't it interesting that the Saudi/Iran dispute and the bellicosity within the region -
FAULKNER: Sure.
QUEST: -- that has risen - has not had a - has not pushed prices up as you and I might have expected ten years ago.
FAULKNER: I think ten years ago it would have, but today the Iran/Saudi Arabia conflict I think it makes it known that Saudi now has their guns set
on Iran and they're going to do whatever they have to do to make sure Iran's economy is penalized.
Which means now OPEC has essentially done their fighting and there's not going to be any consensus to reduce the amount of production. And this
further I think makes my argument to that effect.
QUEST: Do you - are you - still impressed and amazed? Because you're talking about these wells that keep going that the frackers can keep
producing - well they produce obviously because they've drilled -
FAULKNER: Sure.
QUEST: But they can keep drilling and it's still profitable to keep drilling at these lower prices. Or are the banks out there who are
hurting?
FAULKNER: You know, I can tell you as a fracking company you're going to have to borrow more money to continue because there is a delta now.
We're going to be under water in most of these areas. It's not economical to drill and frack at $33 a barrel. Now bringing incremental oil out of
the ground at this price from wells already producing? Yes. New drilling/new oil? You're going to be under water which means more
borrowing.
QUEST: So, right. But how much? How much will be stripped out of supply do you think as a result of this in the next six months?
FAULKNER: I think by April there'll be a half a million barrels offline, but in that year another half a million barrels. So a million barrels a
day will come off -
QUEST: Off the U.S. side.
FAULKNER: -- off the U.S. side by the end of this year. Which means we could be rebalanced by the end of 2016 and - but - in the near term, we're
going to see oil prices potentially go to a two handle.
[16:45:10] QUEST: I'm sorry?
FAULKNER: Under $30 bucks.
QUEST: I see a two-handle, a 2. I see, right. That was my last question - that was going to be my last question. You - so we could be going to $30
- under $30?
FAULKNER: You know, I think we -
QUEST: That's all everybody cares about.
FAULKNER: I hear you. It's a - well it's a psychological thing. If we had gotten oil prices back to close at $35 sort of at the end of this - the
trading day today, I don't think it would go down to a $29, but I think we're going to see next week it bounce around low 30s/high 20s.
And that's a big psychological number. When you see a 2 in there, I think people are going to have to take notice. Great seeing you.
QUEST: We take notice of you every time you come to us.
FAULKNER: (LAUGHTER).
QUEST: Thank you, sir --
FAULKNER: Thanks, Richard.
QUEST: -- for joining us. As we continue tonight, "Quest Means Business" at the New York Stock Exchange. (RINGS BELL).
(COMMERCIAL BREAK)
QUEST: Welcome back. "Quest Means Business." A short while ago you heard President Nieto of Mexico talking about the capture of "El Chapo" in the
very violent, bloody assault and which left several people dead. Nick Parker is with me. What did you make, Nick, of what the president said?
NICK PARKER, CNN CORRESPONDENT: It was an extremely interesting scene, Richard. Clearly a moment of immense personal satisfaction for Enrique
Pena Nieto I think. To put it in context, to the best of my knowledge, he has never held a press conference directly after the capture of a leading cartel figure.
He has sought to seek a different path to his predecessor and try and announce these things in a low profile way.
This time he announced it on his personal Twitter account, and he did this press conference not in any particular place within the presidency or
within a usual kind of place where he might hold a press conference. He did this is Palacio Nacional. This is the seat of the Mexican government flanked by his senior military and civilian officials.
So clearly a moment of immense personal satisfaction for him because I think the escape that took place last July was such a moment of deep
personal humiliation for him in a lot of ways. The U.S. authorities had been concerned that he would escape, and the
Mexican president had ignored calls to extradite him to the United States. He was sensitive about Mexican sovereignty, he wanted him tried for crimes in Mexico. And to have him escape right under his nose like that, was
certainly a moment of humiliation for him. So, today announcing this capture is somewhat unprecedented for him and a shift in tone particularly I think, Richard.
QUEST: It's significant but now they have to decide what do. Obviously he goes back to prison. Is there any question that he could be extradited to
the United States?
PARKER: Well you really wouldn't want to bet either way. But I think this time compared to last time, it actually is quite likely that he might be.
The attorney generals have changed from one to the other, and in recent months the attorney general's office in Mexico has indicated that the legal
requirements that the United States needs to meet to have their citizens extradited are met in the case of "El Chapo." They made that statement in
August. And just in September for the first time, the new attorney general indicted 13 narco suspects to the United States, including one known as "La Barbie."
He was a U.S.-born suspected capo who just this week pled guilty to narcotrafficking offenses in Atlanta, Richard.
[16:50:09] QUEST: Nick Parker who has studied the situation and is a former Mexico City correspondent at CNN.
The U.S. government says it's forming a new taskforce to counter violent extremism, and they are looking to the Silicon Valley to help in doing so.
It comes as the big tech companies are meeting with Whitehouse officials discussing how to stop terrorists from using social media to inspire and
recruit attackers. So who was invited? Apple was there, Facebook, Twitter, Google, Microsoft,
Linked In - all the usual suspects. Laurie Segall, our tech correspondent, joins me now.
What was the goal of this? I mean, what does the White House hope to gain from the tech companies that they haven't already got from them?
LAURIE SEGALL, CNNMONEY TECHNOLOGY CORRESPONDENT: Richard, the long story short, the White House needs to have a better relationship with Silicon
Valley. We heard President Obama say that about a month ago. He said, you know, the initiative is to form a better relationship. And also you have terrorists who are getting so smart about recruitment and
violence incited online. So it's really trying to bridge that gap. Now, I actually obtained the agenda for today's meeting So I want to read you a little bit about what they spoke about at today's meeting.
First and foremost, using encryption. You know, this is a very, very big sticking point. Also, stopping online recruit, preventing radicalization
and identifying terrorists online -- finding out how law enforcement can actually make it a little bit easier for them to find these guys and do
something before they actually - they actually - attack. I also, Richard, obtained documents that they received right before the meeting. And one really interesting point they were talking about was they
were wondering is there a way to measure radicalization online? Are there tools you could build to do that?
And this is specifically in the briefing - can you do that without violating First Amendment rights? That's a really interesting question.
And one other point I think we're going to hear more and more about this, they mentioned in this briefing, was are there ways to counter that
propaganda? To get really good folks to come and put online positive messaging to counter it.
They've tried to do this in the past, they haven't really had some - had success with it. But are there ways to build technology to help with this
messaging and to help measure if it's effective or not. Those are all apparently what they spoke about today. And I'll say one other interesting thing that - I spoke to a source who works at a company
that attended the meeting. What he says was there weren't many CEOs at this meeting.
That should tell you something. Tim Cook from Apple was one of the few CEOs that attended. You had high-level executives, but you didn't have the
CEOs in the room today, Richard.
QUEST: Laurie, so where does it move forward? Because at the end of the day, you know, the best platitudes in the world there are First Amendment
rights, there are civil liberty rights. Everybody says they'd like to do some deal, but the truth is the consumers
like the idea of security but they don't want the breach of privacy.
SEGALL: Yes, I think this is question we keep asking ourselves more and more. And any time something happens, we resurface the debate on
encryption, right? Encryption is wonderful and it protects our privacy, but it also helps
terrorists plan these attacks. So, you know, we need to have these conversations but we also need to have them out in the open.
One big problem - when the Snowden revelations happened, a lot of folks were pretty disturbed about of government oversight and believed that the
government had a back door into Silicon Valley and tech companies. So you saw tech companies build out encryption and build out these tools to prevent that from happening. Because they didn't want to seem like they
weren't protecting their customer data. So, you know, this is a conversation that continues to resurface because
it's only getting worse and terrorists are only getting smarter. And every other day there's a new app that offers new types of encryption
and new ways to protect yourself. So you have to see that relationship get better with Silicon Valley and Washington.
I think this a first step, but this is just a first step. There's a long way to go, Richard.
QUEST: All right, Laurie. All right, Laurie, thank you. Laurie Segall joining me there.
Before we take a short break, let me remind you of exactly what a horrible week this was on the market -- the worst week in history in terms of losses
for the first week of the year. Monday down - it was down more than 200 points. Wednesday it was down 250 points. On Thursday down almost 400 points. And if you look at today's
losses for the Dow of 165 points. Put it all together and, yes, the Dow is now in a correction from its all- time high and probably quite close to a correction from its 52-week high. [16:55:06] Also of course the Dow Jones Industrials now has to face next week when who knows what happens after that.
"Profitable Moment" is after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's "Profitable Moment." It was fascinating in the last five minutes of trading here at the New York Stock Exchange when they suddenly
realized a billion dollars' worth of shares, not a billion shares as I might have said at the beginning of the program.
A billion dollars' worth of shares was mismatched at the close or at least was up for sale at the close.
As things came on forward and now we look forward to next week, the issues haven't gone away. They remain the same. There are worries over China,
there are worries over emerging market economies, there are worries over the s strength of the dollar and of course now there are also worries over
the strength of the U.S. economy as well. Throw in the geopolitical issues of North Korea with a potential hydrogen bomb, add in Saudi and Iran and the rows going on in the Middle East.
And you start to see an oil price down at under 30 as somebody suggests. Well it does make you rather glad it's Friday and at least until Monday,
there's no more financial damage that can be done. And that's "Quest Means Business" for tonight. I'm Richard Quest at the New York Stock Exchange. Whatever you're up to in the hours ahead, (RINGS
BELL) I hope it's profitable. I'll see you on Monday.
END
