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Quest Means Business
Looking at Stocks Today; Discussion of Merck Ebola Vaccine; Oil Price Examined; Ruble Exchange Rate; Pope Pushes for Good Jobs for All; Looking at Latest China Growth Numbers. Aired 4-5p ET
Aired January 20, 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, CNNI: Closing bell is ringing on Wall Street. Trading comes to an end. The end of what has been a dreadful day. Hit the gavel. Bring
everything to a close. With a loss of more than 200 points on Wednesday, it's the 20th of January.
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QUEST: Tonight, recovering from the rout. The market collapse that came back. A brutal time for oil CEO of BP, Bob Dudley is on tonight's program.
And China's top regulator warns, get used to volatility. I'm Richard Quest live at the World Economic Forum. We had a close shave today and of course,
we mean business.
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QUEST: Good evening, an extraordinary comeback on Wall Street on a day that was remarkable.
(BEGIN VIDEO CLIP)
QUEST: 4:00 o'clock in New York and the Dow has closed off some 247 points. It had been much, much worse off. 566 points. But as you can see, as the
day progressed the Dow never went positive. The NASDAQ actually did go up towards the end of the session. It was all about oil. Oil prices plunged.
In Europe, there was no bounce. The major indexes all seeing what had happened in Asia in the earlier session and knowing that New York was about
to open down horribly, Europe ended off 3%. Look at that, 3.4 on the FTSE, the Paris CAC 3.5, Zurich all horrible. Horrible. Horrible.
It was enough to put the U.K. FTSE 100 into a bear market. In Japan, the Nikkei also ended a bear market. Stocks in Australia closed at their lowest
levels since 2013.
(END VIDEO CLIP)
QUEST: Over the course of the next hour we need to unpack this volatility and we're going to do so with the biggest names in business and economics.
You are going to hear the market turmoil, what was it about.
(BEGIN VIDEO CLIP)
QUEST: The Chief Executive of Cantor Fitzgerald, Howard Lutnick will make sense of all of this. You will hear from the Chief Executive of BP who
describes the sell-off in oil as brutal. You will hear from one of China's top regulators who admits the government got it wrong. And a top Russian
banker will also be on this program to make sure we understand how Russia plays into this. We need to put perspective into all of it.
(END VIDEO CLIP)
QUEST: The New York stock exchange is where the scene of the crime took place. Alan Valdes is the director of floor trading at DME Securities. Alan
in a few sentences, what on earth happened?
ALAN VALDES, DIRECTOR FLOOR TRADING, DME SECURITIES: Well, Richard, good evening. And you know you're 100% right, it was brutal down here today and
this was the scene of the crime.
(BEGIN VIDEO CLIP)
VALDES: There were a lot of murders going on. But mainly, it's about oil. I mean, that slide in oil is telling us that you know there's a worldwide
slow-down coming. And that's what has traders upset and nervous down here. So that was the big factor going on down here today. All about oil. And
then we did get that nice little bounce. You know we still never went positive. But that was short covering. It was just technical. Nothing has
changed from this morning when we opened in the oils. The oils closed down. So I expect this market to capitulate more tomorrow. This uncertainty is
going to stay with us.
QUEST: Thank you very much. Alan Valdes, with a very frightening prospect that tomorrow could be as bad if not worse. There's no reason to go any
other way. Look at the difference in Brent.
Brent falls 2%. West Texas falls nearly 7%. Howard Lutnick, is the Chief Executive of Cantor Fitzgerald. What a day.
(END VIDEO CLIP)
HOWARD LUTNICK, CHIEF EXECUTIVE, CANTOR FITZGERALD: What a day.
What happened? Tell us -- explain. The viewer needs to know why the Dow should fall 3% and then recover in a day.
LUTNICK: Because it's confused. It started the day down 300 because oil is down. But America is going to like in the end cheaper oil.
QUEST: Not if cheaper oil is a portend of the slower growth in the rest of the world and America can't sell.
LUTNICK: You know I just don't buy it. It's a tax cut to us. It's a tax cut. Everything about America is getting cheaper except for the oil
establishment.
(BEGIN VIDEO CLIP)
LUTNICK: So the oil establishment is going to have a terrible day. You're going to see red names everywhere in the oil industry. But the fact is
airlines love it, consumers love it, shipping is cheaper.
(END VIDEO CLIP)
[16:05:04]
LUTNICK: The fundamentals of the U.S. 2% economy are getting better. You are going to see the stock market -- there's no capitulation, no-one's
diving in, this isn't the bottom. It's going to creep lower and then the second half of the year, cheap oil is going to have us come roaring back.
And then next year --
QUEST: Come on you're being --
LUTNICK: -- we are going to be where we are today. It's going to be an unchanged world.
(CROSS-TALK)
QUEST: This is rose colored spectacles.
LUTNICK: This is $26 oil. You would rather have OPEC and $100 oil? If oil was up 7% today, the stock market would have been up 500 points, how stupid
is that?
QUEST: But you've still got a dollar that is heavily valued. And that's going to take a toll on U.S. exports.
LUTNICK: We have the only economy in the world that's still reasonably growing. Our employment is going to drop below 5%. You have a reasonable
economy in America. We buy stuff from China. We don't sell China stuff. Therefore, China's economy being weaker and them trying to buy all the
natural resources in the world to make it more expensive for us is good for us. It's good for us. I'm American.
QUEST: Well, I didn't doubt that for a moment. I mean, thank you very much for confirming the fact. But listen Howard, look, in this market, I can
hear again the dear viewer who joins us each night for this conversation saying, well what do I do in this scenario? I mean some will say buy on the
dips. Certainly you don't sell into a market that's falling.
LUTNICK: So today's institutional volume was weak.
(BEGIN VIDEO CLIP)
LUTNICK: Which means the big companies, the big money managers, bit pension funds, they weren't selling. It doesn't mean there wasn't a lot of volume
on the exchange from the high frequency guys banging it around. But the fact is, institutions are not selling. They're watching --
QUEST: So you're saying it's not a crisis today?
LUTNICK: It is not. It is ugly but it's not a crisis.
(END VIDEO CLIP)
QUEST: Join me at the worry wall. Right, first of all, you do get to pick what color pen. Do you want red, black, green, blue?
LUTNICK: You know, my company BGC Partners which is public loves volatility and it loves volume so we're definitely in the black.
QUEST: All right, you're in the black. That is you're not very - that's your optimistic everything is fine. This is I'm really very worried.
Worried. This is about worry, Howard.
LUTNICK: All right. I am not -- for the year 2016 --
QUEST: 2016.
LUTNICK: I am not worried. It's go going a lousy first half and super second half.
QUEST: Thank you, sir. Good to see you. Have a good (inaudible).
LUTNICK: Nice to see you. Thank you.
QUEST: We continue putting the pieces of this jigsaw together. You've heard the Wall Street view from the trading floor, from the floor of the
exchange. Now the investment banker's view.
Jacob Frenkel has been to every World Economic Forum for 30 years. He is the chairman of JP Morgan International. He says it's time to stop getting
hung up on these wild market swings.
(BEGIN VIDEO CLIP)
JACOB FRENKEL, CHAIRMAN JP MORGAN INTERNATIONAL: I'm concerned about us getting an assessment about the world economy exclusively through the
narrow prism of financial markets. Markets are very volatile. They have had good reasons to be volatile. Wherever you look at there are shocks. Most of
them are non-economic shocks, whether it is Ukraine, whether it is refugees. You name it. Terrorism. Yes, there is a lot of volatility. It
shows it in financial markets. Some of them are economic reasons. China, some of them are winding out of the extraordinary QEs--
(END VIDEO CLIP)
QUEST: But they become even the non-economic become economic. I've give you an example. The Paris attacks. You suddenly start to see the numbers of you
know profits for airlines are down. So they do transmit themselves into the real economy.
FRENKEL: Absolutely. And there is no doubt that there are economic consequences. But they are, by the nature, short-term. We have had many
examples in the past that the world looked like going down the drain and only to see it recovered.
What is important is to realize that a solution to these issues do not rest by and large in central banks. We are always talking about what will the
Fed do, what will the ECB do. They are the only game in town. That's the problem. I was in Russia a few days ago. They are in a terrible shape,
growth is negative, recession, salaries are going down. It's not the Central Bank of Russia. But reforms are essential.
QUEST: But are they doing those reforms? Because as long as I can remember people have talked about -- the IMF has talked about structural reforms
being a pre-requisite (inaudible) of growth. It never happens.
FRENKEL: Well, it never happens in the countries that have not implemented them. And it does happen in countries that have implemented them. One of
the reasons why Germany is doing so much better than most of the other European countries is that during the time, they did do structural reforms.
Yes, the pay offs are coming down the road. Most politicians would not see in their own lifetime. So if you have leaders rather than politicians who
are short sighted, you will see the outcome.
[16:10:18]
QUEST: What a - what a day. And the views you are going to hear tonight will make you better informed. Well at least you will understand what's
happening. Snow is falling as indeed are oil prices. This is continuing and oil prices in free fall. We will talk about the oil price, not the snow,
with the Chief Executive of BP.
(BEGIN VIDEO CLIP)
QUEST: The falling oil helped send stocks tumbling. Just look at the Dow off 1.5%. It pulled back from the route to finish almost 250 points lower.
At one point it was off 500 points plus. It's "Quest Means Business" and we're in Davos.
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QUEST: Davos is always at its best when the snow falls. I think we call it flurries tonight. It's certainly not as cold as it has been over the last
few days. It's almost balmy. Don't even need gloves.
Ever cheaper oil is casting a black shroud over the markets.
(BEGIN VIDEO CLIP)
QUEST: Falling oil is the driving force that pushed the markets down. Even with the late comeback the Dow was off 250 points. Oil prices dropped on
Wednesday. Brent was off 1 1/2%. West Texas for other technical reasons was down nearly 7%. Shell says profits fell 50% in the last quarter of last
year and now plans to cut 10,000 jobs by the end of the year. Once its merger with BG Group is complete.
The Chief Executive of BP tells me the sell-off in oil is brutal. Bob Dudley says he hasn't seen anything like this in decades.
(BEGIN VIDEO CLIP)
BOB DUDLEY, CHIEF EXECUTIVE, BP: Well I think the industry hasn't seen this since the mid '80s. This is truly an oversupply situation. It is a
commodity, it goes through these cycles. But this is a really brutal one, it could go on for a while. And any industry that sees their revenues go
from in this case $115 a barrel to $28 a barrel this morning as we talk, I mean these are huge structural changes that have consequences with
countries and companies as well.
QUEST: For BP's point of view, how are you managing? You are having to get rid of projects and staff of course.
DUDLEY: Yes, of course. That's the most painful part of it. But we've had our own special circumstances as you know after the accident in the Gulf of
Mexico. We've sold $50 billion over the last five years to meet the obligations. I think that would be a difficult thing to do today. Our
balance sheet is strong. We have lots of projects under way. It's like a horse crossing a river. You don't stop those projects when they're halfway
through. But we are deferring and cutting down on new investments. And we will weather the storm.
QUEST: What's driving this? In the sense of oversupply, we talk about oversupply, 1.5 million barrels a day more than demand. But is it as simple
a just OPCE continuing to pump to gain market share?
DUDLEY: There's a couple of big changes that happened. OPEC has continued to pump. And I think when you talk to the OPEC leaders, they're very clear.
They say, why should we shut in our lowest cost production to subsidize high cost production? That's pretty simple supply and demand fundamentals.
So they've gone through continuing new projects. And the United States is the wild card that no-one saw five to 10 years ago, 10 million barrels a
day today it's really doubled its production in a short period of time. That's what's different but that's coming down now.
[16:15:18]
QUEST: Iran is a wild card.
DUDLEY: It is a wild card. With the lifting of the sanctions, I know that there's storage and ships there ready to go out in the markets fairly soon.
And that's why I think this first quarter, maybe second quarter, we will see our low point.
QUEST: Let's talk about that, low point. You believe that there is light at the end of the tunnel or have we still got a few more curves to go?
DUDLEY: Oh I think there's curves, it's a curving tunnel. But I think the price can still step down. There's a lot of factors. It's pretty darn low
now.
April, the summer driving season starts. You start gearing up refineries to pull down crude stocks to create the driving season. That will begin to
moderate the growth. We do see on a daily basis global supply and demand probably coming into balance the third or fourth quarter. Now, by that
time, you have the stocks -- tanks filled, swimming pools filled with oil you begin the process of drawing it down, and that's going to take a lot of
time. Somewhere in there the sentiment will shift, the investments that are being stopped today, there will be a knock on effect of that down the road
when the world is going to need its oil.
(END VIDEO CLIP)
QUEST: How worried about you about how 2016 goes?
DUDLEY: Well, I won't jump off of a building. But I am worried. I'm worried about commodity prices and the unintended consequences geo-politically.
QUEST: Bob Dudley very worried at nine on the worry wall.
Emerging markets are being battered by the falling oil prices and the market volatility.
(BEGIN VIDEO CLIP)
QUEST: If you look at the markets in Brazil, they were up 1%. Argentina was steeper. But then they have their own individual economic problems more
than 4. The Sensex was off nearly 2, and Russia's Micex was down just shy of 1%.
(END VIDEO CLIP)
QUEST: To give you an idea of the range, the depth and if you like the seriousness of what's out there, the Chief Executive of Nigeria's stock
exchange says emerging markets all over the world are being hurt by the falling oil price and volatility.
(BEGIN VIDEO CLIP)
OSCAR ONYEMA, CEO NIGERIAN STOCK EXCHANGE: I'm worried at these levels. And I think what is driving my worry is the impact that it has on my market.
The index lost 17% last year and this year so far has lost about 21%. And we're not (while) -- they are changes around the world struggling from bear
market, or low - or market index reduction. It seems to be exacerbated by commodity produce in countries.
(END VIDEO CLIP)
QUEST: Everywhere you look, there's a sign of amber or red flashing. The Russian ruble is another casualty of low oil prices. It fell to an all-time
low against the U.S. dollar on Wednesday.
The dollar has been steadily rising against the ruble for the past month. The dollar obviously rises as the oil price falls. Now the Russian currency
is at a record depth not seen since it crashed in December two years ago.
(BEGIN VIDEO CLIP)
QUEST: Joining me Andrey Kostin, the President and Chairman of VTB Bank, Russia's second largest bank.
(END VIDEO CLIP)
QUEST: I wish we had something cheerful to talk about but it's all a bit grim. So tell me, how serious is the economic situation in Russia when you
have oil down at $27 a barrel now?
ANDREY KOSTIN,PRESIDENT AND CHAIRMAN, VTB BANK: Well it is serious, of course. Though last year, we're learning how to live with oil price of $50.
Now we have to learn how to live with oil prize of whatever, $25, $30. And it's difficult for Russian budget particularly. But the Russian government
is now trying to cope with this problem.
QUEST: The finance minister in Russia says that basically having done the numbers at $50, he's now got to do them at $25, $27. The president has
basically said to the people, get ready for more pain.
KOSTIN: Well that's true. That's true. I mean, you know, Russian economy is very much dependent on oil and other commodities. So we're not talking
about only oil. But I think what we have to accept is the fact for time being the oil prices and other commodity prices will be low and we have to
deal with this by cutting down expenses of the budget and just improving our performance in other areas.
QUEST: For the bank - which you've - I mean you've already got some problems as a result of sanctions because of Crimea. And now you've got a
Russian ruble that is falling out of bed. And you've got a slowing economy. You know, I don't want to paint too bleak a picture. But there's not a lot
to be cheerful about.
KOSTIN: No. But you mentioned falling rubles not once. I think to a certain extent it helps. It helps exporters. Because it brings down their cost.
(BEGIN VIDEO CLIP)
KOSTIN: And it helps the budget to fill in, because the related ruble but still the budget is ruble.
(END VIDEO CLIP)
[16:20:11]
QUEST: Right but in terms of -- in terms of what the bank is doing, what VTB is doing, where are you lending? Are you finding that there's a capital
crunch? Or are you still able in these difficult circumstances to make solid loans?
KOSTIN: Yes, we do. I mean first of all, we do have liquidity by the (inaudible). We do have capital now with the support of the government. And
we do have clients. Those clients are in more difficult position. But we just have to be more selective. We just reduce the risk and try to keep low
risk profiles.
QUEST: And keeping your eye on the prospect of NPLs, non-performing loans.
KOSTIN: Well at the moment, we don't see very big risk for drastic increase in NPL. But we shall see of course, it depends on the development
situation.
QUEST: The worry wall awaits you Andrey. So What color would you like?
KOSTIN: Red, of course.
QUEST: Red, that's a silly question. A red.
KOSTIN: (inaudible) Seven yes?
QUEST: Yes, that's about seven. So you're seven and you're worried.
KOSTIN: I'm worried, yes.
QUEST: You are worried.
KOSTIN: I am worried. But now today much more than December last year for example.
QUEST: Thank you very much. I saw you back in December, thank you very much indeed.
KOSTIN: Thank you - thank you.
QUEST: Good to see you. As we continue our evening digest on what's happening, a deal announced today could help bring an Ebola vaccine to the
market within the next two years.
(BEGIN VIDEO CLIP)
QUEST: In a sea of dismal gloom tonight, this might be a bright spot to talk about. It's "Quest Means Business" in Davos.
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(END VIDEO CLIP)
(COMMERCIAL BREAK)
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QUEST So Davos is officially under way. The World Economic Forum sessions have begun,
(BEGIN VIDEO CLIP)
QUEST: They're talking about everything you can possibly imagine except maybe flower arranging.
On Wednesday at Davos, there were some very serious issues. Iran's foreign minister told CNN his country is willing to cooperate with Saudi Arabia.
And he said collaboration between the nations would benefit the region.
JAVAD ZARIF, IRANIAN FOREIGN MINISTER: Iran and Saudi Arabia can be two important players who can accommodate each other, who can complement each
other in the region. We don't expect or we're not interested even in pushing Saudi Arabia out of this region, because Saudi Arabia is an
important player in this region.
QUEST: Pope Francis sent a message to the world leaders gathered on the mountain top. Don't forget the poor. The pope told the business community
it has a responsibility to create jobs and to tackle inequality.
And a deal announced here at Davos will help the drug maker, Merck push an experimental Ebola vaccine through clinical trials.
The Global Alliance for Vaccines signed a $5 million advance purchase commitment if the drug is approved. A big if.
(END VIDEO CLIP)
QUEST: Ngozi Okonjo-Iweala is the chair of the GAVI Alliance and former Nigerian Finance Minister. Ngozi is with me.
NGOZI OKONJO-IWEALA, CHAIR GAVI ALLIANCE: Good to see you.
QUEST: So what is the hope of this vaccine and what GAVI Alliance are doing with it?
OKONJO-IWEALA : I think it's very hopeful, Richard. And I think it's one of the bright spots at this meeting as you noted. There's a lot of doom and
gloom around the place. But what it is is that they've actually done some human trials. As you know during the Ebola epidemic this vaccine was tried
4,000 to 6,000 people in one instance up to a total of more than 10,000. And it's been very efficacious, almost 100%.
[16:25:18]
QUEST: Now it's a vaccine in advance of infection, not post-infection?
OKONJO-IWEALA: It's a vaccine, yes. Vaccines are usually in advance of infection. But it's also been administered to people who had you know who
had gotten the Ebola.
QUEST: So is this the sort of vaccine - because I'm not terribly familiar with this particular - I mean I remember covering the story. But is it the
sort of vaccine that one does a mass vaccination of an entire country in the absence of an outbreak? You literally do everybody?
OKONJO-IWEALA: Well we have to wait first. Because remember that the vaccine is still being worked on. It still has to be licensed. And that is
why it's important for this advance purchase commitment that was given allows Merck to spend resources to get it to that point and also to stock
300,000 doses of the vaccine in case there's an outbreak and then we have something we can use. Before we get to the mass vaccination, I think we
should you know wait until drug is fully licensed.
QUEST: And when we look at -- this week we had once again an Oxfam report you would have seen on income inequality. Now I know obviously this is a
subject very close to your heart. Here at Davos do they seem to be getting to grips with this at all or is it just the same people making the same
promises that never get fulfilled?
OKONJO-IWEALA: No, I think the way the world is now, Richard, and see there is so much gloom, there is so much that is happening with the falling
commodity prices, with, you know the volatility in the markets, that a lot of people I talk to are worried. They are simply worried that well things
are getting worse. When things are getting worse, you know inequality in many countries, you know, maybe getting worse. And then you have masses of
youth in particular who are unemployed. And so people are really thinking about how do we get to grips with this.
QUEST: The worry wall. You take me nicely. Come over here. Now what color would you like? You can have any color there. We have a range of them,
black, red, blue, green.
OKONJO-IWEALA: I think red promotes worry right?
QUEST: Well that's right. So that is little worry. That is very worried. Where are you in 2016 at the worry wall?
OKONJO-IWEALA: I think I'm at eight. I'm not quite at ten. And I'll tell you why I'm here; eight.
QUEST: Please come back. Yes. why are you at eight?
OKONJO-IWEALA: I'm at eight because there's a slim chance, a very good chance that countries that are being battered by the falling commodity
prices will seize the opportunity to actually restructure their economies and begin the long road of diversification. They will get rid of all the
things that don't work like subsidies, energy subsidies.
QUEST: You tried. You tried. You didn't succeed.
OKONJO-IWEALA: No, we did actually.
QUEST: You started.
OKONJO-IWEALA: We went 50% you know, and this is the time to --
QUEST: You tried.
OKONJO-IWEALA: We tried. We were on the right direction. So this is the time to do it all.
QUEST: Good to see you as always.
OKONJO-IWEALA: Thank you. All right Richard, thank you.
QUEST:Ngozia Okonjo-Iweala joining me when of course she was finance minister of Nigeria.
Now I need to bring you this news. The Brazilian (inaudible) Samarco says it's chief executive and head of operations will step down temporarily.
(BEGIN VIDEO CLIP)
QUEST: At least 13 people died when a dam holding back a waste from an iron ore burst. Waste from the tailings pond engulfed a village and then
traveled down river, caused tremendous environmental distress and damage eventually reaching the ocean. And now it appears that the chief executive
seemed to be absent in most of the case is now stepping down temporarily.
(END VIDEO CLIP)
QUEST: Wall Street saw a late day comeback.
(BEGIN VIDEO CLIP)
QUEST: The rest of the world was not so lucky. Quite simply, the bears are now on the prowl after the break.
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(END VIDEO CLIP)
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[16:31:02] RICHARD QUEST, CNN INTERNATIONAL ANCHOR AND REPORTER HOST OF "QUEST MEANS BUSINESS" SHOW: Hello, I'm Richard Quest. There's more
"Quest Means Business" in just a moment when Europe's economics commissioner tells me it'll take spirit and guts to get Europe's economy
moving. And the head of the International Labor Organization joins me - the ILO as the Pope calls for "dignified work" for all.
Before that, this is CNN and on this network the news always comes first. Crude oil prices tumbled 7 percent on Wednesday and fell below $27 a
barrel, for the first time since 2003. The drop sent global stocks into a nosedive. The Dow clawed back after being more than 500 points in the red. When all was said and done, it was
249 points off. A short time ago, the chief executive of Cantor Fitzgerald told me cheap oil will benefit the U.S. economy and stocks will bounce back.
(BEGIN VIDEOCLIP)
HOWARD LUTNICK, CEO, CANTOR FITZGERALD: The fundamentals of the U.S. 2 percent economy are getting better, you are going to see the stock market.
There's no capitulation, no one's diving in, this isn't the bottom. It's going to creep lower for the first half of the year and then the
second half of the year cheap oil is going to have us come roaring back -
QUEST: Howard, come on, you're being --
LUTNICK: -- next year you're going to be where we are today.
(END VIDEOCLIP)
QUEST: At least 19 people were killed when gunmen opened fire inside a university campus in Pakistan. The assault was timed to coincide with a
ceremony at the school to ensure maximum casualties. It only ended after a three-hour gun battle with security forces.
Government officials say all four attackers were killed. It happened in Charsadda not far from a similar attack last year by the Pakistani Taliban. In that attack 145 people died.
Iran's foreign minister has given his first interview since Western sanctions were raised. On his nation's economy, Javad Zarif told CNN but
as Iran begins to reenter the global marketplace, it is not looking to push Saudi Arabia out.
He said collaboration within the nations would benefit the region. We return to our stop story and the extraordinary volatility of exchanges around the world. On Wall Street the Dow fell 566 points during the day
and then bounced back. Not all the way - it closed off 249. As for the rest of the world, the bears are roaming free. Look at the
mountains. The Shanghai and the DAX are already in bear market land. Falls of more than 20 percent or more from recent peaks. The bears entered
Japan and Britain. Nikkei and the FTSE fell below that threshold. Japan like Germany's dependent on exports to China. The oils and miners were hard hit.
The Dow is up 13 percent from its recent peak. That is a correction. It is not yet a bear that's roaming the U.S. markets.
Get ready for more volatility. That's the message from one of China's top regulators.
The Chinese economy's in the midst of a profound transition. GDP growth has been at its worst level in a quarter of a century.
[16:35:02] I spoke to the vice chairman of China's Securities Regulatory Commission and asked him to respond. The general view in the market is
that China's GDP slowdown is a disaster.
(BEGIN VIDEOCLIP)
FANG XINGHAI, VICE CHAIRMAN, CHINA SECURITIES REGULATORY COMMISSION: My response is that you can say so that China is growing at the slowest rate
in a quarter century essentially for a few years down the road (LAUGHTER) because you continue to slow down. But 6.9 percent is not slow at all for,
you know, an economy the size of China's.
QUEST: The problem of course is the world is used to a China at 7, 8, 9 and beyond -
XINGHAI: Yes.
QUEST: And the ripple effects on commodity countries and other emerging markets is very destabilizing.
XINGHAI: That's perhaps true, but, you know, China is in the midst of a transition. We are transitting (ph) from a investment and export-led
economy to more domestic consumption-led economy. Now that transition ought to be good for the rest of the world. In terms of oil -- I'll give you a number. Last year China imported more - 7
percent more - oil than a year earlier. So if you blame China for the oil price, that's hiding from the truth.
QUEST: This transformation that's taking place -
XINGHAI: Yes?
QUEST: -- how long is it going to take? Are we there yet?
XINGHAI: I think we're going to take perhaps three or five more years for the transition to finish.
It's hard. I mean, to transit such a large economy from an investment-led to a consumption-led economy is difficult.
And so the rest of the world has to get used to volatilities coming out of China.
QUEST: Now we need to talk about regulation.
XINGHAI: Yes.
QUEST: And the markets.
XINGHAI: Yes.
QUEST: And how -
XINGHAI: OK.
QUEST: -- the regulator handled this volatility.
XINGHAI: Yes, but there's some misperception about, you know, that the government's intervention in the stock market last summer, right? A lot of
people thought that the government was there to try to prop up the index. Now that was not the case. The government was there to provide liquidity to the market.
QUEST: But we've never seen anything like this before. You don't suddenly see in Europe or in the United States people - companies - being ordered to
buy shares or not to buy shares.
XINGHAI: I agree. You know, some of the measures were a little bit too much and we are in a process of, you know, sort of getting rid of these
measures at this point.
QUEST: The circuit breakers.
XINGHAI: Ah, (LAUGHTER).
QUEST: How did you get them so wrong?
XINGHAI: Well we learned a trick from the Western markets. Circuit breakers was a standard practice in a lot of Western markets so we thought
that perhaps could work in China as well. But of course, you know, in our market it was dominated by small investors
and a couple of the West's, you know, the depreciation of the currency, of the downward performance of a lot of the emerging markets in the world.
So that's a lot of pressure for (inaudible) greater. You cannot stop the liquidity, again they stopped the liquidity.
QUEST: So was it a question that the circuit breaker was a bad idea or that you just thought the parameters were?
XINGHAI: It was not an appropriate policy for China and the regulators admitted it. And we should give the regulators, you know, credit for
admitting a mistake.
QUEST: The Worry Wall. Where are you? Come join me over here, sir.
XINGHAI: Can I put it here?
QUEST: Of course.
XINGHAI: OK.
QUEST: And what is your main worry?
XINGHAI: Financial risks.
QUEST: Risks.
XINGHAI: Financial risks in largely the developing countries.
(END VIDEOCLIP)
QUEST: Angel Gurriais the secretary-general of the OECD. Good to see you, Secretary-General.
ANGEL GURRIAIS, SECRETARY-GENERAL, OECD: How do you do?
QUEST: Hans Vestberg is the chief executive of Ericsson. Good to see you.
HANS VESTBERG, CEO, ERICSSON: Good to see you.
QUEST: We're going to talk bigger issues in a moment. I need to start with how serious. Hans, what do you think - economics, market volatility -
you're running a billion dollar plus company. How difficult is it in these situations?
VESTBERG: I think that in general if you're around a couple of courses, you see a volatility in the financial market. But you need to have a long-
term strategy and you need to execute on that. I mean, you cannot act on this volatility on a financial market, Iranian company turning over almost $35 billion U.S. dollars with $115,000 in brees
(ph) and you have customers all around the world. You need to have a long-term strategy.
GURRIAIS: Absolutely, you can't run economic policy on the oscillations of one stock market in particular, even if it's China - this is very important
- it denotes that there's some underlying immaturity perhaps in the regulatory system but that's not the fundamentals.
The fundamentals are the medium and long-term -
QUEST: The fundamentals are weak at the moment in China.
GURRIAIS: Yes, some macroeconomics, but you know, I'm in a business also where there's a decoupling in between the investment and ICT which can
actually prosper a country. So I think that in my case I saw also the possibilities in these times where technology would play a vital role.
QUEST: OK, --
GURRIAIS: And weak at 6.9 - I mean they can cry on my other shoulder, there's been (inaudible) for heaven's sake, you know. Six and a half
perhaps? Is that a big deceleration? [16:40:07] Everybody would be fighting down that kind of growth. It's just
that we were addicted to the 11 percents of three or four years ago.
QUEST: But you've got a dollar that is way up there. That's hurting exports -
GURRIAIS: Yes.
QUEST: -- from the United States. You've got a Europe that won't grow and you've got a United States about to go into a presidential election.
GURRIAIS: Well, we've got very low prices of oil and we also have a weak euro which should be helping. And we also have very low interest rates
which should be helping. So those are the current prevailing issues.
QUEST: So let's talk about the fourth industrial revolution that Klaus wants us all to be talking about. This is the idea as UBS put it in their
briefing notes, of extreme robotics, connectivity.
MALE: Yes.
QUEST: How are we - how close are we to this fourth revolution? And is it going to swamp us, Hans?
VESTBERG: We are probably some five, ten years away from it. What we're seeing right now is technology rolling out device and getting connected.
Then you're going to put those connected devices to a system and then you do processes and from that you do efficiency.
And that's going to take a couple of years more but definitely the platform on technology mobility, broadband and cloud, that is rolling out in all the
world to have inclusion for people in industries.
QUEST: We've got to the right two speakers here because you're the technology man and you're the economics man.
How dangerous economically is this fourth industrial revolution?
GURRIAIS: It's going to be bad if we don't take opportunity, but turn it around into opportunity. Reskill, upskill the people so that they can have
the proper abilities, they can have the proper competencies and then you turn that into an opportunity.
You turn the labor force with greater mobility and productivity will increase very dramatically.
(CROSS TALK)
QUEST: -- the price at the expense of jobs.
VESTBERG: No, I don't think so. I mean, I think that they clearly see that we can have economic end growth combined with sustainable growth using
ICT which is unheard of. Because these platforms are all enough and that's going to prosper more people, you're going to access to education,
healthcare for people that never had it.
GURRIAIS: Every time there was a big breakthrough in technology, --
VESTBERG: Absolutely.
GURRIAIS: -- every time we invented the steam engine or we invented the telephone or whatever, they said this is going to have devastating effects
on -
QUEST: But is this fact that -
GURRIAIS: -- and it got bigger and bigger and bigger and we just got more people at work. What we got to do is get them the right skills to match
the market.
QUEST: But as Klaus said and you've agreed tonight, this is happening further and faster -
MALE: Yes.
QUEST: -- than the last industrial revolution.
GURRIAIS: It always does.
QUEST: Since Ben (ph) and Jenny (ph) took 50 years of (inaudible) -
GURRIAIS: -- it always does.
QUEST: -- beforehand.
(CROSS TALK)
GURRIAIS: -- faster and further than we imagined originally, this is happening very fast. But, you know, it's -- it was -- it's predictable and
the question is how fast can we adapt to it.
VESTBERG: I fully agree, I think you're absolutely right. Every technical revolution has its challenges, but this is bringing a lot of prosperity,
positives, inclusion and that's why (inaudible).
QUEST: There are those who --
(CROSS TALK)
QUEST: Well, the Worry Wall. Come join me, gentlemen, a the Worry Wall.
MALE: OK.
QUEST: What color would you like? Black, red, blue or green?
GURRIAIS: I'll do the green, that's the color of hope.
QUEST: All right. Where are you? Are you very worried, not worried? In 2016 where are you on the Worry Wall?
GURRIAIS: I would say right down the middle.
QUEST: Back over there.
GURRIAIS: Yes.
QUEST: What color would you like? Where are you on the wall?
VESTBERG: I'll have a blue one as it's a color of Sweden.
(LAUGHTER)
VESTBERG: So I will have two. I will have one -
QUEST: Oh, you want to be two?
VESTBERG: Absolutely.
QUEST: Double bubble.
VESTBERG: Yes, so this is sort of my emotional - that's a heart, that's pretty low and it's really where I want it to be, --
QUEST: And the mind.
VESTBERG: -- and here's where my mind, I'm probably more here.
GURRIAIS: So the average is what?
VESTBERG: Yes, exactly, it's in the middle.
GURRIAIS: Very good.
QUEST: No, no, no, we're not letting you -
VESTBERG: Right in the middle.
QUEST: So you're basically - you want to be optimistic.
VESTBERG: Yes.
QUEST: But the reality is anything but.
VESTBERG: We need to be tougher, a little bit more difficult.
QUEST: The industrial revolution is upon us, --
GURRIAIS: Absolutely.
QUEST: There are others who'll take different views on this, but thank you for toiling about it.
GURRIAIS: Let's profit from it.
VESTBERG: Yes.
GURRIAIS: Let's profit from it.
QUEST: Well, I suspect that's something we can all agree on.
VESTBERG: Absolutely. (LAUGHTER).
QUEST: Excellent. Right. Well as we continue on our evening conversation on business and economics, Europe is at a crossroads says the European
Economics Commissioner. We're going to talk to him about the guts and the spirit he believes we need to get through.
(COMMERCIAL BREAK)
[16:46:06] QUEST: Nothing like a bit of a jig and a yodel in the middle of the week. Well, you need something to cheer you up because the Dow went
from horrible to just nasty on Wednesday. It was off 249 points, but the worst point, it was down 566. Triple-digit
swings in four out of the past five sessions. Just look at that - absolutely remarkable. Three down, two up. We're going to keep looking at that every day to give you an idea of just how the
sort of market movements have been. Gold is up, bond yields are down, the VIX benchmark is up on volatility of 51 percent so far this year.
Europe's commissioner for economics says the E.U. must have spirit and guts to weather this kind of volatility.
Pierre Moscovici says Europe is at a crossroads.
(BEGIN VIDEOCLIP)
PIERRE MOSCOVICI, EUROPEAN ECONOMICS COMMISSIONER: I think that we need to keep our cool bluff because of course there are warnings, signals that we
must follow such as the state of the Chinese economy or the level of oil prices.
But I think that overall, the conditions for sustainable growth are here. I don't want to comment on the market, but I think that of course they
express concern. But that we have the means to address their own concerns. And as far as Europe is concerned, I will say that we are solid. Our recovery is solid, our situation is now sound. The problem is that we need
more dynamics and this is why in investment is so important for the commissioner representing you.
QUEST: You describe it as solid. The worry of course is that solidity becomes weakened if other areas of the world don't - I mean, for example,
China - or even if the United States slows down - certainly Europe becomes shakier.
MOSCOVICI: I say solid but not enough. Our growth level would be about 2 percent in the years to come. We need to have more if we want to reduce
unemployment and, again, investment and dropping a new economy, creating more united in term of markets. In energy, in digital service and capital
markets. That's the purpose of this commission. So my will and the will of the
Commission is to speed up recovery in Europe so that Europe becomes not only, I would say, a place which is not a worry, but a driving engine for
the world.
QUEST: That's a fascinating prospect. Can you do it?
MOSCOVICI: Hopefully we have all the resources -- human, economic, technological. We are still one of the two largest economy in the world
with the U.S. I think we also need to have the spirit and the guts to do it. And the will to do it.
QUEST: Hang on. You want spirit, guts and will.
MOSCOVICI: Yes.
QUEST: That's quite a lot to ask.
MOSCOVICI: Yes, and I know that we also are in a situation where people are concerned with the refugee crisis, with the migrant crisis, with the
terrorist crisis, with the rise of populism. So agree (ph) we are at a crossroads. Europe is certainly under attack,
but my personal temper is that when you're under attack, you counterattack. And so I call for the pro-Europeans to say we're proud to be Europeans.
We've got the cap (ph) of steam, we've got the means, so let's unite more and let's be more offensive as well in the economy.
People don't seem to feel the values and social cohesion.
QUEST: Let's go and talk to the Worry Wall.
MOSCOVICI: Yes, OK.
QUEST: So, how concerned or how worried are you in 2016?
MOSCOVICI: As I told you, I'm optimistic, not by only temper but by will. So I will be reasonably concerned, I will make that 3.5. Because well of
course there are huge concerns, but I think we're co-vested to find solutions.
QUEST: If there is one worry that you do have, what would it be?
MOSCOVICI: Of course for Europeans it's the refugee crisis and I believe that there we must absolutely work on common solutions.
(END VIDEOCLIP)
[16:50:03] QUEST: The Worry Wall as we continue our evening at this, well -- our next guest is Guy Ryder from the International Labor Organization.
He did a brilliant job about launching himself into our last debate. He will have a word on the fourth industrial revolution after the break.
(COMMERCIAL BREAK)
QUEST: The business community must create dignified work for all. That's the message Pope Francis had for those gathered in Davos.
And the Pontiff urged leaders to tackle inequality and build inclusive societies.
Guy Ryder is the director general of the ILO, the International Labour Organization. You come here to Davos to remind these chief execs that they
mustn't forget the labor force. Do they listen?
GUY RYDER, DIRECTOR GENERAL, INTERNATIONAL LABOUR ORGANIZATION: Oh I think they listen. I think they're very well aware of what we've got out there.
I mean, the news is it's bad and getting worse, and if you add in the prospect of a fourth industrial revolution which is what our minds are on
here Davos, I think you'll see even bigger mountains ahead of us.
QUEST: Right, but the WEF says up to 5 million jobs may go. Philip Jennings (ph) on this program said that they'd been smoking something funny
and it was many more millions than that. What do you think?
RYDER: I think anybody who says new technology will and then puts a very large number behind it is probably sort of misleading us. Nobody knows
those things. There is no way I think to put a big number or a precise number.
What we do know is this technology is going to have a massive impact, a massive displacement and transformation of jobs. That doesn't have to
equate to jobs lost and people unemployed.
QUEST: But you inevitably must do it. Robotics, take the position. And in many cases it will be the skilled labor that lose their jobs or middle
management with more communications, social media, all these other ways of this fourth industrial revolution.
It won't be manual labor and it won't be professional labor.
RYDER: Yes, I think that this - the cognitive - the fact that technology is now taking on cognitive aspects makes us into different parts of the
workforce are going to be impacted. But this is the fourth time `round the carousel, isn't it? This is the
fourth revolution. Have a look back and see what the lessons of the last three were, and you know, creative destruction - we all learned about that
in school. And the long-term showed that the creative got ahead of the destruction and
we came out ahead. I think the big question is, is it different this time?
QUEST: Is it? Answer your own question.
RYDER: Right. Well I think it's different in one sense for sure - the quality of this technology is different. It has the capacity not only to
change the numbers but to change the way that we work and the way that work is organized.
If it were iGo, Uber seems to have got there just before me. And a conversation with a taxi driver and columnist or a journalist goes into
Uberization, the platform economy. And if that is really true, if that is going become the new way we work, all of our labor market institutions, all of us saying that I've taken for
granted for a lifetime, they're going to start moving away into something qualitatively different, and that's different from the creative destruction
equation.
QUEST: In which case the Uberization of worry. Come over here to the Worry Wall. What color would you like?
RYDER: I'm going to take black to be safe.
QUEST: Black. (LAUGHTER). All right, are you very worried, not worried at all for the way 2016 is going to go forward?
RYDER: I'm at the 9.5 only because I'm told never to give 10 out of 10 because you never know where you're going to go next time.
[16:55:04] QUEST: But what are - what are you worried about? What is the worry -
RYDER: What?
QUEST: -- in 2016 that you think's going to happen? Briefly.
RYDER: Firstly there's no good news that I can see out there on any front. And exists the combination of bad news, of geopolitics, refugee crisis,
slowdown in the emerging economy, technology and all of this I think adds up to a lowered capacity but the people should be making decisions to
actually address these things.
QUEST: And we thank you, sir, for coming on a cold evening to talk to us about it.
RYDER: A pleasure.
QUEST: Many thanks indeed. Guy Ryder of the ILO. And we will have a "Profitable Moment" after the break. It's "Quest Means Business" and we
are in Davos.
(COMMERCIAL BREAK)
QUEST: Tonight's "Profitable Moment." The Dow Jones was going to open down and it did, at one point falling more than 560-odd points and closing
off the best part of 250 down. The issue here of course is night after tonight I tell you and our guests tell me and then we all tell each other the new norm in the markets is
volatility. And then we're all extremely surprised when there's volatility. But that
is what we should expect. We heard it tonight from China's top regulator - expect more volatility from China. We know to get more volatility from the
U.S., from Europe -- wherever we look. So maybe you and I need to be a little more careful, a little more resilient, a bit more robust when it all goes horribly wrong.
And that's "Quest Means Business" for tonight. I'm Richard Quest at Davos in Switzerland. Whatever you're up to in the hours ahead, (RINGS BELL) I
hope it's profitable. I'll see you tomorrow.
END
