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Quest Means Business
European Nations Recognize Guaido as Venezuela's President; An Unidentified Body Has Been Found During Search for Emiliano Sala; Pope Francis Calls for End to All Wars on Historic Trip to UAE; Calls Intensify for Virginia Governor's Resignation; Super Bowl Ratings Dropped 5 Percent from Last Year; Senators Schumer and Sanders Attack Share Buybacks; Sony Shares Sink as Video Game Business Slows; Facebook Turns 15 Years Old; Tech Stocks Rise Ahead of Alphabet Earnings. Aired 3-4p ET
Aired February 04, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, ANCHOR, CNN: We are an hour from the closing bell on Wall Street. What an interesting hour it promises to be.
The Dow Jones shows the way the day has gone. Losses in the morning, at around 11:30, goes positive, and then whoosh, straight up like already in
the afternoon, a gain of half a percent. The best games of the day, though, are actually seen in the NASDAQ, which is up 1%, but all three of
the major indices are higher, and this is what has been moving the markets today.
Alphabet's earnings are about to be released and on the back of that, FAANG stocks are waiting around. It's the FAANGS that are dragging the market
higher. Oil prices all clawing their way back and they are taking energy shares with them. Not surprisingly. And Slack sends a message to the
markets. We are going public.
We are live in the world's financial capital, New York City on Monday. It's the fourth of February. I am Richard Quest. I mean business.
Good evening. We begin tonight with one car factory in the British industrial heartland that is showing the Brexit strain felt by companies
across the United Kingdom. New details on how the British government tried and failed to persuade Nissan to stick things out until after Brexit. Soon
after 2016's referendum, Westminster offered the Japanese car giant more than $100 million to keep its production in Britain, that wasn't enough.
Over the weekend, Nissan scrapped plans to build its new X-Trail 4x4 in Sunderland. It's an area which voted to leave the E.U. by 61% majority.
Britain's business Secretary Greg Clark called it a significant blow.
And today, Theresa May met with business leaders hoping to rally companies to help push her Brexit deal through. It was the European companies that
she had a conference call with to make the case that they should be pressuring their governments.
Anna Stewart is in London, we'll get to the core with the lead CEOs in a moment. Firstly, the Nissan deal and this was a surprise. I was in London
this morning and I saw the London papers. This was a surprise and the body blow.
ANNA STEWART, REPORTER, CNN: Yes, the fact that Nissan has scrapped its plans to build the X-Trail, that new model in Sunderland, which everyone
was expecting. I remember this coming shortly after the Brexit vote, Richard, the excitement that they would still commit to making this model
in addition to the cash pile in the U.K. and what we had from the government at the time, which was an assurance that Nissan would stay here.
But they wouldn't go into the details and this is what we got today, a letter from the Business Secretary from 2016 essentially promising a sort
of financial sweetener of over $100 million, but that now seems in jeopardy.
QUEST: Right, was this model, was it doomed from the start? I mean, was it always intended to be -- they said they were going to build it there,
but are there are other reasons, for example, such as the dwindling of diesel?
STEWART: Absolutely. There are so many factors here, I have to say, there is a hot bed of problems for car companies across Europe, across the world,
frankly. Chinese slow down, diesels sales are in dismal decline and, Richard, the E.U.-Japanese free trade agreement which came into force just
last week, that makes it much less necessary to have a plant within the E.U. anyway.
So all of that at play, but the company did site Brexit uncertainty as another reason why it's very hard to plan a future in the U.K.
QUEST: Okay, this call with Theresa May. "The Financial Times" late this afternoon has details of what they say is the call that Theresa May had
with this group of CEOs in Europe.
STEWART: Yes, I'm finding this fascinating. So we knew from Downing Street that Theresa May was having a call with European business leaders
today. They were very tight lipped. We didn't get more information from them on that, but the "FT" as said is reporting that 15 members of the
European body, the European Roundtable of industrialists were on the call, and it's interesting as European business leaders because frequently, the
Prime Minister speaks to British business leaders.
This included the likes of the leaders of Volvo, Kalamata, AstraZeneca and so on, And the crux of it from the "FT" is that not only did Theresa May
assure them that she would deliver an agreement by the end of March, but she seems to be pleading for their help in negotiating with policymakers in
Europe.
QUEST: Just remind us where we stand at the moment. The PM has to go back to the House and by the middle of February.
STEWART: Yes, we have the next big vote, February the 14th, Valentine's Day to discuss a divorce agreement frankly, and it doesn't look too good at
the moment.
[15:05:08]
STEWART: She has promised Parliament that she's going to try and secure some sort of compromise on the Irish backstop. The E.U. doesn't want to
give it. We're stuck in quagmire still.
QUEST: All right, Anna Stewart is in London. Now, with the March deadline quickly approaching and you've heard how serious it is. Three key surveys
show how business confidence in the British economy is falling.
A reminder, it is just 53 days, two hours and -- 53 days. Think about it - before they actually leave and they're still arguing over the crucial
withdrawal agreement.
Let's look at the numbers that were relevant. Construction, the PMI producer index. Producers Managed Index. The construction PMI, the
momentum is slowing. It showed a slowing momentum across the U.K., particularly for U.K. house builders. And then you've got a survey from
the Institute of Chartered Accountants that found business confidence is now at its lowest level for nearly a decade and if all that wasn't bad
enough, Deloitte Survey of CFOs -- chief financials -- show executives adopting their most defensive strategy, I was going to say depressing
strategy, but the same thing really in nine years.
On "First Move" earlier, Deloitte's chief economist tell Julia what is making CFOs so nervous.
(BEGIN VIDEO CLIP)
IAN STEWART, CFO, DELOITTE: Of course the downside risk is that, actually there isn't a deal, uncertainty persists. And we remain at these very,
very low levels, but I mean, some of these indicators can't get any lower in terms of risk appetite.
We are close to the lowest level since the failure of Lehman, which is 1% of CFOs planning to take risk.
(END VIDEO CLIP)
QUEST: So putting that together, joining me from London, Mike Cherry is the National Chairman of Britain's Federation of Small Businesses. How bad
is it?
MIKE CHERRY, NATIONAL CHAIRMAN, BRITAIN'S FEDERATION OF SMALL BUSINESSES: It's pretty bad, Richard. Our survey, our recent index showed that
confidence was at its lowest level since 2011. We're finding that a lot of the domestic issues are not being able to be dealt with. For instance,
cost increases that our members are facing and other issues around administrative burdens because of everything that's going on around Brexit.
And of course, as you've highlighted, we are 53 days away. We very clearly stated to the government that we are needing at least two months for our
members even to prepare for those who are going to be affected, if there were to be no-deal, and of course, at the moment we have a perfect quagmire
with the politicians here in Westminster and the E.U. suggesting that they won't budge.
QUEST: I am not sure you can see, but I am standing in front of the clock of the Brexit countdown showing it is 53 days, but answer me this, if
Theresa May can get the U.K. over the hurdle of March 29th with some sort of arrangement, whatever that may be, and therefore into the all-important
implementation or transition period of two years of negotiations on free trade, your members would be happier.
CHERRY: We would be very happy because for a long time now, ever since the Lancaster House speech last March 2018, we have been instrumental in
calling for there to be this two, maybe three-year transition period. We know it's going to end at the end of 2021.
And so quite frankly, that is a good outcome if we can just get over March the 29th, but equally what we've been also calling for alongside all of
this has been clarity. We were expecting a deal to be announced come the end of November-December last year, and at the moment, we haven't got
anywhere.
QUEST: Put Brexit to one side. That's difficult, since it is the all- consuming issue in the U.K. at the moment, but if you absent Brexit, what are your members feeling about the underlying strengths in the U.K. economy
or can we simply not say because of Brexit.
CHERRY: I think the underlying strengths are good. As I mentioned, confidence is at the lowest since 2011, which seems counterintuitive, but
we have the highest employment rates that we have had in many, many a year.
We have a lot of uncertainty around Brexit, obviously, and lack of clarity and lack of Parliamentary time to deal with some of the domestic issues,
which are around cost increases, around property rates, business rates, around national living wage increases of around 5%, of around increases in
pension costs and other areas that are affecting our members. And of course the uncertainty is having an effect on Sterling as well.
QUEST: Good to see you. Thank you, sir. We'll talk -- we've got 53 days ...
[15:15:10]
QUEST: ... for us to continue talking about this, but thank you for joining us. A quick check of Europe's markets and stocks across the
continent mixed on Monday. The FTSE closed out the day with some modest gains, and that's despite a route in mining stocks brought on by JPMorgan
downgrade.
The budget carrier RyanAir fell after reporting disappointing results. The carrier also issued a stark warning about the impact of Brexit and you can
arguably say -- I mean, the fact that the FTSE, only actually rose on a day when there were three of these three bad reports on Brexit makes you
wonder.
Now the German government is pledging 5 million euros in aid of Venezuela. It follows its recognition - Germany's recognition of Venezuela's
opposition leader, Juan Guaido as the country's interim President.
Germany joined several European nations in legitimizing the second President if you're like. That's after President Nicolas Maduro blew
through the Sunday deadline to set for fresh elections. He was never going to follow that through.
The lengthening list of support for Guaido could make further humanitarian aid more likely. Mr. Maduro has refused systems saying it is an
international effort to undermine his government.
So CNN's Isa Soarez is in Colombia's capital, Bogota, she joins me now. Good to see you. How significant is it? I mean, obviously the U.S.
recognizing him was significant. How significant is it that the European nations one by one are signing on to?
ISA SOAREZ, CORRESPONDENT, CNN: Well, in incredibly important for Guaido, Richard, because at this moment, as you well know, he has no territorial
control of Venezuela. He's simply and simply put, a man with a microphone and a phone still having that diplomatic support. That support from the
20-plus countries is a huge boost. And the thought is that perhaps that support for Guaido would put extra pressure on Maduro to step aside.
But so far, Richard, as you were saying he hasn't in fact, he has been digging in his heels showing power and force throughout the week, going for
runs with the troops, visiting Army barracks and telling national television no interference, I don't take to ultimatums. And if there is
any interference by the United States that Donald Trump risks having his hands bloodied or another Vietnam.
So fighting talk from Maduo who seems so far to at least have the support of his top generals. Richard.
QUEST: And the idea that Guaido is introducing these humanitarian assistance reservations or basis, I mean, how realistic is all of this?
Where is the stuff supposed to go? Or is this just a plan in waiting for if he takes power?
SOAREZ: Very good question. It is a plan that it is kind of starting its emotion. I've been speaking on and off throughout the day to the Colombian
government to try and get a sense of exactly what's going to happen to that aid. We know from Guaido there are three points where aid will be
collected.
One is in the border between Colombia and Venezuela. One is in Brazil location TBD, and another one in Caribbean island. But then that begs the
question, what happens, Richard, once that aid gets into those locations. The aim obviously is to take it into Venezuela to those people who need it
most, who are in dire need of medication and food.
But there is a fear, of course, that the Army, Maduro's troops won't let it in. There is a fear they will be siphoned off, but in the last 20 minutes
or so, we have heard from Guaido, I want to bring a tweet up to viewers' attention. This is what he says appealing to the soldiers of Venezuela.
Guaido is saying, "Everything is ready." He tweets. "Here is the question for the military soldier. Are you going to deny your family humanitarian
aid? I appeal once more to your conscience. This help is to save lives."
So really a message directly to the military which was what we've had before to see whether they let the aid move into Venezuela.
QUEST: Hard question for you here, Isa, is that your - is it feeling on the ground in Colombia and you're feeling, you've been there before that
this is it? This is the moment of denouement.
SOAREZ: We've been here so many times, Richard, but this seems - it looks like he does, Guaido, has the momentum. But then the problem then is, what
happens to the aid? There doesn't seem to be a plan, a strategy just yet.
So the international support is here. The aid is coming. But the big question is, what is next? If Maduro is not going to budge, there must be
a Plan B Richard.
QUEST: Isa, thank you in Bogota, appreciate it. The so-called bond king is retiring to spend more time with his money and charity, the so-called
family office, we will look back at the legacy that Bill Gross is leaving behind.
[15:15:06]
QUEST: And gamers hit the pause button, Sony and Nintendo, both warning that demand for video game consoles is slowing.
(COMMERCIAL BREAK)
QUEST: No other the fund manager made more money for people than Bill Gross. That's what Morningstar had to say about the so-called bond king
back in 2010.
Now, Bill Gross is done making money for other people. He's retiring or at least, he is going to be running the family office as it's known. Gross is
known for building investment giant, PIMCO go into the world's biggest bond manager.
At one particular point, it fund had nearly $300 billion under management in assets. That came to an end, in 2014, when Gross was pushed out of
PIMCO and joined Janus Funds instead.
(BEGIN VIDEO CLIP)
BILL GROSS, PORTFOLIO MANAGER, JANUS HENDERSON: It's much more flexible, and we're just - Janus is just two blocks away from the old PIMCO building,
so it's the same drive in for me, and the same work day, but in a much smaller environment, which allows for flexibility and liquidity as opposed
to managing a $2 trillion company.
(END VIDEO CLIP)
QUEST: So that was 2015. Well, the fund has suffered in recent years, investors have pulled their money and Bill Gross himself admits performance
has been disappointing.
Gillian Tett is the U.S. managing editor of the "Financial Times," and joins me. Bills Gross is one of those names that when he speaks, everyone
- I was to say, used to listen and particularly on the question of bonds and is it fair to say he's going of his own will, but before he was shown
the door.
GILLIAN TETT, U.S. MANAGING EDITOR, FINANCIAL TIMES: Well, it's not entirely clear whether he's going over on his own will before he's shown
the door. The reality was or the writing has been on the wall for quite a while. His funds have shrunk to below $1 billion, quite a lot of that is
his own money. He's returned to them pretty poor and frankly, he doesn't command the respect he used to do.
It's a very sad end to a career because certainly, I'm of the generation as you probably are, too, Richard where when I was a young rookie reporter
covering the financial markets know Bill Gross was a godsend to us because not only was he fantastically successful, but he also had these wonderfully
colorful phrases which became instant headlines, almost every time he spoke.
[15:20:04]
QUEST: And the whole PIMCO fiasco, I think it's fair to call, I mean, you heard Mohammed El-Erian first leaving then over his disagreements with
Gross, then Gross himself walking out. But how much of this is the markets turned. It became it became much more difficult to make money in fixed
income when equities were roaring ahead on the back of QE?
TETT: Well that's a great point, Richard, because the reality as you know, we care so much about this in the "FT." That was actually our front page
lead story and we have an entire page inside analyzing this.
And the point is becoming quite clear, it's really two things. One is that although people like me, the journalist, Bill Gross was this legendary lone
wolf, brilliant investor. The reality is that actually, he was operating as part of a tightly knit team who were very supportive.
Many people are say now is maybe one reason he faltered when he went to Janus was because he didn't have this incredibly brilliant band of brothers
around him. It's a bit like saying that Brady was a genius of the Patriots at the Super Bowl, but actually there are a lot of people around him like
Edelman that set him up. Maybe that's one thing that went wrong.
Of course, the other thing, Richard, that you point to is that Bill Gross rode the bull market in bonds, a very long three-decade long bull market in
bonds. The reality is that trading in the bull market has become a lot harder in the last few years post QE.
And so again, maybe part of his success's genius was actually just being in the right place in the right time as so o often in business.
QUEST: Running the family offices is that lovely quaint phrase, isn't it?
TETT: It's a bit like retiring to spend more time with your children these days, but that's what the billionaire say, isn't it?
QUEST: Yes, I'm going to run the family office which usually means just managing the family's wealth.
TETT: Well, that is actually the reality and we had a big piece in the "FT" the other day, saying that this is the new trend for a lot of these
billionaire hedge fund managers and investors, particularly as the hedge fund industry becomes a lot less exciting.
I mean, he's not the only person who was in the limelight a few years ago who's now at the family office. And that raises a very interesting
question, which is it when journalists like myself, like you, look at where money is going in the world these days, and try and track what asset
managers and big sovereign wealth funds and hedge funds are doing.
Maybe it's time for us to spend more time looking at family offices because family offices and endowments and foundations are controlling more and more
money inside the financial system and what they do matters.
QUEST: And indeed, my question was somewhat disingenuous, because my - I had read about the family offices in your excellent newspaper.
TETT: Thank you.
QUEST: And that's exactly where I got the whole point in the first place.
TETT: We were ahead of the curve, we were about a week before he actually came out and said he's going to do this.
QUEST: Good to see you, Gillian. As always, thank you.
TETT: Thank you.
QUEST: Joining me now over in the "Quest Means Business" trading post.
Oh it's just sad - well, it's a happy day when you've got Dow, S&P and NASDAQ -- so three greens, it means it's green on the markets, but no
record. Just think of it. We got about 15 in January last year, something like that, 11 to 15. We came right to January and no record, none on the
FTSE in the European markets.
This is all rather, it's a bit sad in the sense, but at least good gains in the last hour with the NASDAQ showing the best of the day, up 1%. The rest
following on behind.
And it's the best day for tech in some time. All the more so since we are a-watching and awaiting the Google results. Alphabet, we must call it.
PAUL LA MONICA, CORRESPONDENT, CNN: Yes, sir.
QUEST: I am old fashioned. Good to see how are you, sir?
LA MONICA: Good to see you.
QUEST: How are you?
LA MONICA: Good, thank you.
QUEST: All right, so the markets as we look at them today. Best January since 80's, '87?
LA MONICA: Yes, '87 or '89 depending on whether or not you're looking at the Dow and the S&P.
QUEST: Yes.
LA MONICA: Great January and I think there's still some optimism and enthusiasm that corporate earnings even though they are likely to slow and
even fall in the first quarter that they'll rebound by the end of the year. I think there are hopes that maybe we'll have a China trade deal eventually
and that could juice profits as well.
QUEST: So Q4 is done.
LA MONICA: Q4 is done.
QUEST: We're pretty much --
LA MONICA: I mean, we still have a lot of companies reporting. Google after the close today.
QUEST: But the trend is clear.
LA MONICA: But I think the trend is pretty clear.
QUEST: And if you look at the Dow today, Apple is still the best. Boeing is up and that usually means, if -- Caterpillar is there as well and we've
got the triumvirate of --Caterpillar is down of the China related stocks.
Gillian Tett, I am not sure you could hear was talking about the volatility in the bond market or the bond market is that much more difficult to trade
in today? Why is that?
LA MONICA: Yes, I think that there are still some concerns about the direction of interest rates.
[15:25:02]
LA MONICA: The Fed clearly seems to be indicating that they want to keep rates steady. Jerome Powell firmly stating you know, that the Fed is going
to be patient, but I think that there are still questions.
We had a very strong ISM manufacturing number last week that showed the U.S. economy remains healthy. If the U.S. economy keeps chugging along at
this type of pace for the next couple of quarters. Just because Powell said he's going to be patient doesn't mean that the Fed still can't raise
interest rates in the future if the economic data justifies it.
The big wild card is obviously what's happening in China and Europe, which is a much different story than here.
QUEST: Turning to Slack, I don't use it myself. But you --
LA MONICA: You're the only person at CNN I think that doesn't.
QUEST: That was my point. But you're always using it.
LA MONICA: I kind of have to, I think my bosses would not be pleased with me if I didn't. To be perfectly honest, I'm very curious to see what kind
of profitability Slack has. This is a company with a $7 billion valuation.
T. Rowe Price has invested in it. Wellington has invested in it. It is a very good productivity tool. But I sometimes wonder if this isn't just AOL
Instant Messenger on steroids. And eventually it winds up going the same way.
QUEST: How do you monetize it?
LA MONICA: That's the big question - a lot of it is going to be subscription revenue.
QUEST: Right. And the IPO, what do we know? It's a placement.
LA MONICA: It's a confidential IPO. So all we know right now is that they have filed with the SEC. There's nothing about how much they want to
raise? What potential price range there is? And as I mentioned, the last private round of financing value met more than $7 billion. That doesn't
mean that that's what they're going to be valued at once they actually go public of course.
QUEST: But it's not an IPO in the traditional sense, is it? It is going to be placing as opposed to a listing.
LA MONICA: Well, we'll have to wait and see on that. I mean, all we know right now is that they have filed confidential paperwork with the SEC, so
it may still wind up trading in a normal way. And this could be a big year for IPOs. We've got Uber and Lyft waiting in the wings as well. And if
the government stays open, then --
QUEST: You think they're going to do it this year?
LA MONICA: I think if the government stays open, I think that's the bigger wild card than market conditions at this point because the SEC can stay
open if they can do a deal that keeps the government going beyond this few weeks.
QUEST: Good to see you.
LA MONICA: Yes, sir.
QUEST: Good to see you as always. Thank you. Alphabet was -- the investors are waiting for Alphabet's earnings. It was one of the companies
that used cash to buy back shares in 2018.
Two U.S. senators want Alphabet and others to spend their money somewhere else first. No more spending on buying your own shares back. In a moment.
(COMMERCIAL BREAK)
[15:30:00]
[15:30:00] RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Hello, I'm Richard Quest, there's a lot more QUEST MEANS BUSINESS in a moment. When we
scroll back on Facebook's own timeline, 15 years after it launched in Mark Zuckerberg's dorm room, who would have thought?
And it's all work and no PlayStation, Sony shares have their worst day in years. We'll tell you why as we continue, this is Cnn, and here on this
network, the facts always come first.
One-by-one, European nations have stepped forward today to recognize the self-declared President Juan Guaido as the leader of Venezuela. The EU
called on President Nicolas Maduro to step down after he refused to hold new elections.
Mr. Maduro reached out to Pope Francis, asking for help in arranging peace talks. A body has been seen in the wreckage of the plane carrying the
missing footballer Emiliano Sala. Sala and pilot David Ibbotson were flying in a single-turbine aircraft from Northern France to Wales when they
disappeared on January the 21st. Investigators said only one occupant was visible in the wreckage.
Pope Francis is calling for an end to wars across the Middle East on his historic trip to the United Arab Emirates. He visited the presidential
palace in Abu Dhabi and the city's grand mosque before addressing any inter-faith conference. Francis is the first pope ever to step foot on the
Arabian Peninsula.
The governor of Virginia says he needs more time to decide his path forward. So far Ralph Northam is ignoring calls and to resign over a
racist photo found in his medical school yearbook page which features a man in a blackface and another in a Ku Klux Klan robe. Northam is adamant
he is not in the photo, although initially, he said he was.
Super Bowl LIII was a slow night with a 5 percent drop in ratings from last year. All told the game will likely come in just under a 100 million
viewers. Sunday's relatively soft ratings contrast a strong season overall for the NFL viewership, it's up 5 percent compared to last.
U.S. Senators Bernie Sanders and Chuck Schumer want American companies to put workers over shareholders. They're planning a legislation that would
force companies to guarantee pay and benefits before instituting buying back their own shares.
The senators want the law to spur investment in a way that Trump tax cut fail to do so. Look at the numbers, share buybacks surged to a record $1
trillion last year. The senators say many of the companies who are buying shares with one hand were laying off with the other.
This is what they wrote in the "New York Times". "Whichever way a corporation chooses to invest in its workers, what's clear to the vast
majority of Americans is that companies should devote resources to workers and communities before buying back stock."
President Trump's economic adviser calls the proposals "economically illiterate". Cristina Alesci is here. First of all, why do companies buy
back their stock?
CRISTINA ALESCI, CNN POLITICS & BUSINESS CORRESPONDENT: Oh, they do it as a form of financial engineering. They try and reduce the number of shares
outstanding so that their, you know, earnings per share look better and hopefully the stock price goes up, and as a result the CEO and the rest of
the executive team is rewarded handsomely because their conversation is tied to stock performance --
QUEST: But --
ALESCI: And meeting certain matrix.
QUEST: But this has ballooned, mushroomed --
ALESCI: Yes --
QUEST: At the epidemic proportions in the last two or three years, why?
ALESCI: Well, it's easy, it's a way to get growth for these companies that have all been troubled by a slowing global economy. And it is a way for
them to meet their numbers and meet the expectations on the street which don't slow down, they only increase.
So this law would essentially require companies to invest in what's called long-term strength in workers before they start a buyback program.
QUEST: Because the company makes -- the article makes clear in the case of some of these buybacks. The companies saying -- it says here, using a
fraction of the amount in buybacks, because they're usually in the tens of billions.
[15:35:00] Using a fraction of that amount, companies -- Wal-Mart could have raised hourly wages of every employee to $15.
ALESCI: Wal-Mart isn't the only company they mentioned. They mentioned Harley Davidson, they mentioned Wells Fargo, and they're making an argument
that appeals to a lot of voters. So this is a politicization of an issue that's been talked about in financial circles for a long time.
The question is why are these politicians doing this now, and what constructive way does this add to the debate? Because this is ultimately
politics at play. The Democrats see growing calls for Democrats and Democratic voters to adjust the income inequality that exists in our system
when the top, you know, 10 percent of Americans --
QUEST: So --
ALESCI: Are so far away from everyone else when it comes to wealth and income.
QUEST: If this was a straightforward redistribution of income -- of company income --
ALESCI: Yes --
QUEST: Why not use dividends instead? I mean, Chuck Schumer says in the article by the way that if they did turn to dividends, they would have to
look at taxing dividends instead.
ALESCI: Dividends would do something different to the stock, right? It wouldn't boost the stock price in the same way that the buybacks do. So
it's just another form of, you know, rewarding shareholders. But at the end of the day, this is important because it's political.
And it's not just the Democrats, increasingly, voters are saying on both sides of the aisle that something needs to be done to address the growing
gap between the very wealthy and everyone else in America. And this is a message that resonates, that's why you have Bernie Sanders and Chuck
Schumer --
QUEST: Yes --
ALESCI: And talking about this, Elizabeth Warren is talking about taxing wealth, you have AOC, Alexandria Ocasio-Cortez talking about, you know,
taxing 70 -- a tax of 70 percent on income above $10 million. So this is a common theme among Democrats right now, and I bet your bottom dollar, it's
going to be a common theme among Republicans, too because I don't think it only applies to the Democratic class right now.
QUEST: Excess is always going to get attention. But I wonder -- I wonder, fundamentally though, Americans want a fair tax system, has been my
experience. But they don't like the idea of the taxation system being penal.
ALESCI: Right, that is fundamental American --
QUEST: Because the American --
ALESCI: That separates us from --
QUEST: Right --
ALESCI: The Europeans --
QUEST: Right --
ALESCI: In any way, so --
QUEST: And also because Americans believe, as I have lived here many years, believe you know, the American dream says I can make it, and once
I've made it, I pay some of it back, but I keep a good part of it.
ALESCI: You're right, 100 percent. That is like fundamental to the American dream. But there is a growing sense that there needs to be some
kind of redistribution. In fact, an asset manager for JPMorgan has written in a report, there is a deep well spring in terms of perception of
unfairness to the economy that's been tapped into here that didn't exist five years ago. So this is a shift perhaps in the American dream --
QUEST: Hang on --
ALESCI: Because --
QUEST: Hang on --
ALESCI: Because people feel like they can't participate in it.
QUEST: Right, but then you've got the bank CEOs in the last week earning season getting 4 percent, 5 percent, 6 percent pay increases --
ALESCI: Right --
QUEST: On $10 million, plus salaries, and their workers getting 2 percent or 3 percent.
ALESCI: Exactly, and that's been a long trending part of the recovery is that we've had wage --
QUEST: Right --
ALESCI: Stagnation, wages have not kept up, at this point in the recovery, there should be more in terms of wage growth for the average worker.
QUEST: You are politically astute, Miss Alesci, is this attempt to legislate going anywhere?
ALESCI: I don't think that this particular proposal is going to go anywhere, but this is about -- but this is about getting people like us to
talk about it.
QUEST: On the agenda.
ALESCI: Exactly.
QUEST: Good to see you.
ALESCI: Good to see you, too.
QUEST: As we continue, when we return, the console world becomes a battle of attrition. Fierce competitors Sony and Nintendo both now seeing demand
for their games consoles slowing down. In a moment.
[15:40:00] (COMMERCIAL BREAK)
QUEST: While it's not quite game over, Sony's stock has just had its worst day in years. And it's all to do with video games. The shares fell down -
- thank you, 8 percent lower in Tokyo after it reported earnings over the weekend. And it is the games' consoles -- oh, you better believe it, the
games consoles that see the worst, investors are worried.
Profits from PlayStation 4 have slowed. And remember PlayStation 4 has been around the best part of six years. And although certain profits are
increasing on the purchase of software that goes with it, the actual units themselves, that's been falling.
And Nintendo shares also fell last week after it casts forecast for the switch. Now, of course, Sony is not just a video game, it's as well as a
mobile and electronics businesses. You also have Sony Pictures over there, which includes Columbia and Tri Star.
You've got the musical, you've got the financial arm, the inter-actual arm. So it's quite a large array of all of this. Joining me from London, Guy
Cocker is global brand director of "Stuff Magazine", and a former editor at "Gamespot". Before we talk about what's gone wrong in the gaming area,
just how big and how important a part is gaming for Sony, vis-a-vis these other parts of a company?
GUY COCKER, GLOBAL BRAND DIRECTOR, STUFF MAGAZINE & FORMER EDITOR, GAMESPOT: Well, it's a big part of it, Richard, but it's more important
that it's a growing part of it, it's a growing part of the business alongside its electronics division, which makes the camera modules, the
phones like the iPhone. So the fact that the console sales, this quarter have gone down to 8.1 million compared to 9 million this time last year is
what's sending investors a little bit worried.
QUEST: Now, why are they down? And is it -- I mean, you can only sell so many consoles without bringing out a new console until everybody has got a
console, that slightly to want to buy a console. I mean, it's not -- it's the iPhone mentality.
COCKER: Yes, well, this is the big question. It's actually surprising for me who is in the industry that it has actually gone down because you would
expect console sales to at least stay the same or increase at this point in the life cycle. As you said at the intro, this been on sale for about six
years now.
Usually at this stage, these consoles are heavily-discounted, they're bundled with lots of games. And actually, 2018 from a gamer's perspective
was one of the best years on record. It had games like "Red Dead Redemption" coming out, "Spider-Man", "God of War", these are massive huge
titles for Sony that were both well received critically and sold very well.
But the consoles have actually slowed down. Well, I think what is symptomatic of is, we're in an attention economy now where PlayStation is
up against Netflix and Spotify.
There's lots of attention that's been diverted elsewhere, and I think it's very indicative and I'd love to bring it up, it's the game that everyone
talks about both Fortnite, a free to play game is the most popular game in the world right now, it's free, you can play it on any device.
And this is the problem that premium console manufacturers like Sony and Microsoft and Nintendo have. Is that people can play games on numerous
different devices as well as watch TV shows and movies. And it's -- they're struggling to catch their attention.
[15:45:00] QUEST: So when the streamers say that Fortnite is the real opposition, that, that is the one that they're looking at. And then you
add in Netflix and the number of streaming, and soon there will be a Disney and Warner Media, our own company will be bringing out one as well.
The Sonys of this world have to play in all those different markets. Can they do that?
COCKER: Yes, obviously, you mentioned they've got a movie division, they've got a music division as well. The interesting thing with the
streaming in general is like you said, Disney is launching its own platforms soon, Netflix is growing from strength to strength.
I think Sony probably does need to play in that space especially because Sony makes the camera modules for the likes of iPhone as I said. But that
market is also suffering a little bit. You know, sales in China, of late of iPhone haven't been that great --
QUEST: Yes --
COCKER: You had Apple doing its earnings call last week, and saying that they have been struggling. So when they're affected by other markets like
the iPhone has been, Sony also struggles in that area as well.
QUEST: Next time in London, sir, let's get together face-to-face, and you can actually show me how to use one of these things.
COCKER: Thank you.
QUEST: It will be like your father, you know, disco dancing. Right, actually no idea to -- all right, good to see you, thank you. As we
continue now, Facebook turns 15. The social media giant marks a decade and a half of making friends and a few pretty powerful enemies. In a moment.
(COMMERCIAL BREAK)
QUEST: It began in Mark Zuckerberg's dorm room and became one of the most powerful tech companies in the world. The history is well known, but to
understand it fully is to understand the way Facebook has changed the way we share information. We keep in contact.
And these days, more and more get the news. At the same time, it's also sparked concerns over use of privacy and data collection. The social
media giant turns 15 today. So we gave Facebook its own year in review.
[15:50:00] And with all that in mind, I want you to get your iPhones, please, and cnn.com-slash-join. Now, think carefully. Think back to the
first time you used Facebook. Tonight, we're asking you how much are you using Facebook compared to when you started? Cnn.com-slash-join. Are you
using it more? Using it less? Roughly about the same.
Or have you abandoned it altogether? Cnn.com-slash-join, and you will see the results, you will see how you're affecting the results, you can only
vote once by the way. It's a question that Laurie Segall I'm sure gets asked all the time joining me now. This question of Facebook and its
relationship. Good to see you.
LAURIE SEGALL, CNN SENIOR TECHNOLOGY CORRESPONDENT: Good to see you.
QUEST: So how -- Facebook is 15.
SEGALL: Facebook is 15, and I know a lot of complicated questions that come along with Facebook at 15. And I think, you know, it's what's good
for business good for society, and what is the cost of connecting the world? But Richard, to answer all of these complicated questions, you have
to look at Mark Zuckerberg.
And I had the opportunity to speak to Mark Zuckerberg's sister Randi, and she talked quite a bit about what it was like growing up at the Zuckerberg
home and also, she responded to the criticism that Facebook is getting. Take a listen.
(BEGIN VIDEO CLIP)
RANDI ZUCKERBERG, SISTER OF MARK ZUCKERBERG: Mark, I mean, he was always talented at a lot of things. I think he really developed a passion for
computers and for writing code really early on. He always was building games and building little things, testing things out.
So, you know, you could -- you could definitely tell really early on that he was definitely going to be some kind of a creative inventing genius.
One of the funniest memories that I have with Mark and I growing up is our mom was really nervous about Y2K.
You know, everyone thought that the world was going to end and computers, we're going to -- yes, somehow explode. So at the countdown to new year's
eve that year, we snuck into the back of the house and cut the circuit breaker at midnight, which was so mean, but so awesome. And we were super
grounded.
SEGALL: How do you feel as his sister, as one who cares deeply about technology, about people genuinely questioning the impact of his creation
and whether it's good for humanity?
ZUCKERBERG: He has always just been an incredible trailblazer of pushing the boundaries, you know, of what he sees, where he sees the world should
go. And, you know, he has pushed a lot of us to think of the world in a bigger more connected way than we ever thought it would be.
And you know, he has never been fazed by what other people think of him. I have to say thank goodness for that because I think if he was the kind of
person who cared, you know, how other people reacted, we wouldn't even have half of the amazing contributions that Facebook has made to the world.
So you know, for better or worse, Mark is not the kind of person who is swayed by what you or I or anyone thinks of him. And because of that, I
think we're going to get a lot more amazing things out of him in the years to come.
(END VIDEO CLIP)
QUEST: Laurie, you've met Mark Zuckerberg on more than a few occasions. What sort of person is he? Is he the sort of person who you hope is going
to pop around for dinner?
SEGALL: Oh, what a question. Yes, but they're going to be -- it's going to be an interesting dinner table conversation, I would say if he's there.
He's very analytical. I mean, from spending a little bit of time in his orbit, and I think -- I think he's very calculating and he's very
analytical.
And I think part of why he's trying to get out of his own filter bubble and talk a little bit more publicly is a lot of these issues aren't really ones
and zero issues that Facebook is facing.
QUEST: Does he recognize now his greater responsibility? I mean, you know, if you look at the sharing economy has spent a lot of time, whether it
would be Uber, Airbnb --
SEGALL: Yes --
QUEST: All telling us no, we're not really a hospitality, no, we're not really --
SEGALL: Right --
QUEST: A car company, we're just a sharing economy, we're just a peer-to- peer. Does he recognize that, that no longer holds water?
SEGALL: I think not only Mark Zuckerberg and the whole tech community after the last couple of years are no longer allowed to say what you were
just talking about, allowed to say we're just the pipes. I've heard Mark Zuckerberg say this.
I remember listening to it and thinking, this is a very big deal. He said it in his congressional testimony, he said "we are responsible for the
content on our platform." Tech founders for as long as I've been covering technology, which is a good amount of time, have really kind of shied away
from that.
And now is this new, you know, this new admission, and I think what Facebook is trying to do, and one of their biggest challenges will be
bursting their own filter bubble and trying to get outside help in this.
QUEST: Are you surprised -- look at the results. So let's not take individually. Let's aggregate less and not at all, 40 percent, 50 percent
-- 77 percent of people who are voting purely on our survey says -- say that they're using it less or not at all.
[15:55:00] So diminishing usage is by far and away the winning answer.
SEGALL: Yes, I'm not surprised, but I'll tell you this, you know, I think Mark Zuckerberg was very smart, and when you talk about foresight and
seeing ahead, maybe he didn't see ahead and some of these bad issues have happened, but he did see ahead, and that he bought Instagram and he bought
WhatsApp. And these are, you know, and these are products that are growing, you know --
QUEST: I still question whether they will ever make the $21 billion --
SEGALL: Right --
QUEST: That they spent on it. That's a -- that's an issue for another day.
SEGALL: Yes, good to see you.
QUEST: Yes, good to see you as always. We need to update you on what's happening -- oh, look at the markets by jingle(ph). Turn your back on the
markets, and look what happens. ExxonMobil is down at the bottom, obviously, oil prices, you've seen what's happening in the oil markets and
you'll probably find the others.
But Microsoft, Apple, Boeing, all three biggies right at the top there with strong and good gains leading the Dow. Google's parent Alphabet is to
announce earnings in the left -- in the left, in the next hour. Otherwise, you have a majority of gainers on the day. The Nasdaq is still showing the
best things of the day.
And we have barely seconds to go. Look at the Dow, that really tells the day, down morning, lunch-time turnaround, strong afternoon. We'll have our
profitable moment after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment, for much of the last century and above, buying back your own shares was not allowed for companies except in
exceptional circumstances. That changed in the 1980s. And it's been a love-hate relationship ever since.
But the buying back of your own shares went on to steroids after the tax cuts and those corporate profitability increased. It was a great way of
giving back money to shareholders, but also massaging your numbers so they looked good for meeting performance targets.
Inherently, there's something seemingly wrong with a company's ability to buy back its own shares, boost up the price, pay off the money to
shareholders, and leaving the workers behind. And it's not surprising that nowadays there is this call for there to be restrictions on buybacks, not
because they're a bad idea, but because of excess of too much, too soon.
And that's why one can expect to see some changes in the years ahead. And that is QUEST MEANS BUSINESS for tonight, I am Richard Quest in New York --
(BELL RINGING)
Whatever you're up to in the hours ahead -- oh, dear, hear that, I hope it is profitable. The bell -- the bell is ringing, the Dow is up.--
END
