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Quest Means Business
Dow Drops as Bank Stocks Suffer; Hong Kong Airport Work to Resume Flights After Protests; Saudi Aramco Profit Drops 12 Percent on Lower Oil Prices. Aired 3-4p ET
Aired August 12, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA NEWTON, CNN INTERNATIONAL HOST: You had the big ugly out there in the last hour of trade on Wall Street. As you can see nowhere to hide.
The geopolitical fears are rising. The Dow now near the lows of the day, shares of industrial companies, banks, retailers all down, and this is
what's moving the markets.
Protest paralyze Hong Kong's airport. Cathay Pacific is caught up in the unrest and fashion companies find themselves targeted by Beijing.
Goldman Sachs warns fears of a recession are rising as that trade war picks up. You'll hear exclusively from Goldman's CEO this hour.
And an election surprise in Argentina is causing pain for the peso. Stocks selloff.
Live from the world's financial capital, New York City. It's Monday, August 12th. I'm Paula Newton, in for Richard Quest, and this is QUEST
MEANS BUSINESS.
Okay, and let's get straight to those markets. The Dow is at the lows of the day. All major indices are off by about one and a half percent. Every
single sector is down and that is key.
Bank stocks are suffering the worst. Our Claire Sebastian has been following all the activity, especially in the last hour. We've certainly
seen the selloff, continue apace. Why?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Well, I think it coincided with a drop or further drop. We've already seen them falling in the past
week or so in bond yields. I think we can pull up the 10-year yield, but that dipped below 1.7 percent today.
Those are very, very low levels that we are seeing, Paula, and this is a measure of the worries out there about the strength of the global economy,
but in particular, the focus today is on trade. Multiple gloomy forecasts.
Goldman Sachs saying that this is really starting to hit that base case scenario now for those next tranche of tariffs on $300 billion in Chinese
goods that come in to force. That will eat into growth in the fourth quarter.
Morgan Stanley coming out just today saying that the next round of tariffs is going to cut into muscle. It's really starting to get very real and
people are lowering their growth forecast. We've got a lot of data coming out this week, and I think people are just piling out the stocks.
I think it's really telling when you see every sector is lower, because people are not rotating. They're getting out and a lot of them are going
into treasuries.
NEWTON: And that's the issue there. Right? It is that -- as I said, this is not a sector rotation, people are running and hiding. They're taking
money off the table. Very quickly, in terms of what the Fed does, there's been so much discussion about where they go with something like this.
SEBASTIAN: You know, I don't think the question is so much whether they're going to cut rates. Again, the market is pricing in another -- at least
another rate cut --
NEWTON: This quarter.
SEBASTIAN: If not, if not more than that this year. I think the question is are they really equipped to deal with this? The Fed -- you know, James
Bullard was speaking last week, he said, they're not really equipped to deal with the day-to-day threats and language and rhetoric around this
trade war.
The risk is because there's a lag when the Fed implements policy, they have to wait and see if it works. If they act too fast, they could make a
mistake.
NEWTON: Yes, it will be interesting to see especially the way those trade numbers as you said, impact global growth. Clare Sebastian will continue
to watch the last hour of trade for us. Appreciate it.
And we want to turn out Hong Kong. The city of expired teargas. That's according to thousands of prodemocracy protesters in Hong Kong, now enraged
by alleged police brutality, currently paralyzing the city's airport.
Now, 10 weeks on -- yes, 10. It's a clear display of the movements of power choking off one of the world's most vital transportation hubs and
bringing Asia's financial epicenter to a grinding halt.
Now, all departing flights -- think about that -- and more than 70 arriving flights were canceled Monday. This is of course a disaster for Cathay
Pacific, which serves 200 cities out of Hong Kong, shares as you can imagine, closed down and severely nearly five percent.
Cathay is also caught between the demonstrations and the demands from Mainland China. Now, the airline has outlined what they say is a Zero
Tolerance Policy for its employees warning staff they could be fired for supporting the protest.
Meantime, Beijing is sending a very clear message. China's state news agency released the video of the People's Liberation Army amassing across
the border in Shenzhen. Ivan Watson has more for us now from Hong Kong.
IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: Paula, Hong Kong's protesters have succeeded in a serious escalation in their campaign of
civil disobedience, effectively bringing the city's international airport to a complete halt.
That was the arrivals terminal over there, and up here, this is the departure terminal for an airport that handled some 74 million passengers
last year. It's one of the busiest in the world.
And now the departures terminal is virtually empty. There were hundreds of flights canceled when there were thousands and thousands of protesters here
that forced the airport authority to close effectively most of the flights out of this airport.
[15:05:07] WATSON: And now the walls of a place that was once a symbol of efficiency for Hong Kong, wallpapered with the slogans of the demonstrators
alleging excessive use of police force. Graffiti as well, allegations that somebody lost an eye -- a woman in clashes between protesters and police.
And then, of course, the passengers who have been left stranded now, and some of whom, in kind of scenes I've never seen before are camping out
behind the check-in counters on the luggage racks right now, as everybody here tries to wait and see when this airport will begin resuming operations
once again.
And this has been going on. The cycle of confrontation in Hong Kong for more than 10 weeks with no end in sight, and a new tactic on the part of
the protesters that will cost the city companies and passengers an incalculable amount -- Paula.
NEWTON: And thank you for that, Ivan. Now, earlier on Monday, as crowds began to descend on the airport, Chinese officials called for the
authorities in Hong Kong to exercise a quote, "iron fist."
(BEGIN VIDEO CLIP)
YANG GUANG, CHINSE GOVERNMENT SPOKESMAN FOR HONG KONG (through translator): For days, the radical protesters in Hong Kong have frequently used
extremely dangerous tools to assault the police officers. Their deeds constituted severe violent crimes and showed the tendency of turning to
terrorism.
It is a blatant violation of Hong Kong's rule of law and social order, a severe threat to the safety of Hong Kong residents and a formidable
challenge to Hong Kong's stability and prosperity. We must firmly tackle such violent crimes with a tough stance and no mercy.
(END VIDEO CLIP)
NEWTON: Violent crimes and they should show no mercy. Jamie Metzl is a Senior Fellow at the Atlantic Council. His book is "Hacking Darwin," among
other things that explores the U.S.-China rivalry over science and technology and a lot to talk about in that book as well. We're going to go
to the issue at hand right now, which is Hong Kong, Jamie, and we've all been watching just to see where it's going to go.
You know, you made the point to me the other week that you know, in Hong Kong, these protesters, it's an existential crisis, right? Politically,
where are they going? And yet, right now, the economic implications are starting to bite as well.
JAMIE METZL, SENIOR FELLOW, ATLANTIC COUNCIL: Well, this is huge, not just for Hong Kong, but for all of China. Hong Kong is a little corner of China
where the rule of law applies, where you can have contracts, where there are courts that are legit, where there's some level of popular involvement
in governance.
And what's happening in Hong Kong has big obvious implications for Hong Kong, but also reverberations for China. For those of us who are imagining
that someday China could be a country where rule of law exists, we should all care a great deal about what's happening in in Hong Kong.
So for sure, this is going to hurt the Hong Kong economy, but Hong Kong is part of this Greater China and greater Asia ecosystem, and we all really
need to care a lot about what happens there.
NEWTON: And in terms of what happens there, you've argued that it also has implications, wider implications for places like Taiwan.
METZL: Absolutely. So, China promised Hong Kong, this one country two systems model, not just Hong Kong, they promised that to Britain. They
signed an international agreement. And that's the foundation for peace, security and stability in Hong Kong. And it's very clear now that China is
working in many ways to renege on its commitments, as it limits the space for Hong Kong's autonomy.
And for people in Taiwan, where China is saying Taiwan is part of China, and maybe they can have one country two system model. If you're in Taiwan,
and you're looking at how China is treating Hong Kong, how could you possibly imagine that there's a good model for a closer relationship
between Taiwan and China?
So really, what's at stake is the future of China and the model of how China is going to relate to everybody else, and the signs are certainly
ominous.
NEWTON: And isn't this ominous as some of the language obviously, coming from China. You know, we just played that clip where we're talking about
an iron fist. They've been called -- they've been calling the protesters terrorists, and yet, I can't get a straight answer even from pro-Beijing
legislators in Hong Kong.
They continue to tell me, "Look, there's no way the Chinese government is stepping into Hong Kong." Others are skeptical. My question to you is,
even if they do that, there is no easy answer there for the Chinese government either, is there? Even in trying to take that?
METZL: Well, China is in a tough position because if they do nothing, this push for greater autonomy and for the democracy that the people of Hong
Kong were promised is going to grow because the people of Hong Kong have a legitimate gripe.
They were promised things and China has reneged on those commitments. China now as you reported, they are massing riot troops. I mean, they call
them riot police, but they are essentially paramilitary and they look like military. They're in big in --
[15:10:11] NEWTON: That's the way they've been trained, which is key.
METZL: And that's way they've been trained, and so they are right on the border. Are they going to go in today or tomorrow? I would say almost
certainly not.
But China is delivering a message, not just to the people of Hong Kong, but to the leaders of Hong Kong, which is, you better get a handle on this, or
we're going to move in. And that's why the international community needs to be absolutely crystal clear that we stand with the people of Hong Kong.
We stand for democracy, we stand for rule of law.
Are there troublemakers among the Hong Kong protesters? I'm sure there are some. It's been -- by and large, they've been very well behaved. But
there are, I'm sure there are a few troublemakers here and there.
But we need to be clear about what this is about. And it's about standing up for rule of law, standing up for international agreements that China
itself has signed and laying a foundation for an Asia-Pacific region and a China that plays by these standards and international norms that will help
everybody and ideally, including China.
NEWTON: You know, which plays a lot into the trade negotiations that are going on right now. At what point, in terms of what's going on in Hong
Kong begins to have been, in fact, the things that are going on in trade relations, and I say this knowing that the Trump administration has been
very careful to back away from saying anything about Hong Kong, really?
METZL: Well, the Trump administration is mixed. On one hand, President Trump has said, "Well, what happens in Hong Kong is China's business." On
the other hand, Secretary Pompeo and Majority Leader McConnell, they've actually been very strong in their statement saying, "Look, Beijing, we
have our eyes on Hong Kong. We support the autonomy that was promised to the people of Hong Kong and we're not going to stand back."
If China thinks they can just march into Hong Kong with whatever you want to call them, paramilitary forces, and there's not going to be a cost.
They are wrong, there will be a massive cost to China.
And yes, this relationship is incredibly complex. And there's all kinds of things that are happening in the context of the trade war, and Hong Kong
will play into that.
NEWTON: Yes, and certainly, these are the beginnings. Who could have predicted that we would be here especially after in 2014, the Umbrella
Protest kind of petered out?
The book is "Hacking Darwin." Jamie Metzl. Thanks so much. Really appreciate it.
METZL: My pleasure.
NEWTON: Now, a backlash of another kind, luxury brands -- Coach, Versace, and Givenchy apologized to their Chinese consumers for seemingly referring
to Hong Kong and Taiwan, as independent from China.
Now, you can see it here a Coach shirt, their references caused an uproar on Chinese social media. Hadas Gold joins me now from London. Hadas, this
is really interesting. And I pointed out to you before that it's not just the Chinese government that has their so-called red lines, right? I mean,
the Chinese consumers were loud and clear with these brands.
HADAS GOLD, CNN BUSINESS REPORTER: Oh, Paula, definitely. They were very loud and clear on social media. In fact, Coach was the most searched for
term on the Chinese site, Weibo, sort of their version of Twitter on Monday. And it was how these t-shirts were portrayed that got these brands
into a lot of hot water.
As you showed on screen, they sort of look like tour t-shirts with different cities on the back. But then users were pointing out as you can
see there with the underline that certain cities were marked differently and not as part of China even though China treats them as they are a part
of China, calling it part of the One China policy.
It wasn't just social media users that were calling this out. A lot of these brands lost some of their big brand ambassadors. These are well
known actors, boy band members, singers, who all cut their ties as brand ambassadors for these brands, all because of how they listed these cities
on the t-shirts.
It shows you just how sensitive the situation is, right now in China, especially around places like Hong Kong, and how seriously these things are
taken by the Chinese people and by Chinese celebrities.
Now, all of the brands came out almost immediately apologizing for the shirt saying they had either already pulled them, we're destroying them or
they were old designs. Givenchy said that they had always respected China's sovereignty and firmly adhere to the One China principle.
And actually Donatella Versace went so far as to post on her own personal Instagram saying that she never wanted to disrespect China's national
sovereignty, and that this is why she wanted to personally apologize.
Now, how quickly they acted not only goes to show you about how sensitive the situation is there, but also how important the Chinese market is for
the luxury brand market. If you think about Chinese shoppers, they are responsible for a third of the global luxury sales.
And according to McKinsey, that could be about $7 billion a year. Clearly, they don't want to do anything to upset their customer base there. That's
so important for them, especially as many of these brands are looking to expand even further in the Asian market -- Paula.
NEWTON: Yes, it's certainly a market that they cannot ignore. Quickly, Hadas. What I don't understand here is how these mistakes continue to be
made by these kinds of corporate giants?
GOLD: And that's what a lot of these companies said that they will try to make sure in the future that they won't run into this before, but it's not
just actually clothing brands who have run into this with China specifically.
We've seen airlines run into this. We've seen other brands run into this with China specifically. It goes to show you that now with everything sort
of globalized, everything blowing up on social media. How important it is to cross your T's and dot your I's on anything that's even so simple as a
t-shirt that list some cities on the back, it can completely blow up and could potentially really harm a company's brand.
[15:15:18] NEWTON: Yes, and how important diversity in that management structure would be going forward, so you can point those mistakes out.
GOLD: Exactly.
NEWTON: Hadas, thanks so much. Appreciate it. Now, Goldman Sachs says fears of a recession are growing, an exclusive interview with CEO David
Solomon. That is next.
(COMMERCIAL BREAK)
NEWTON: Goldman Sachs says fears that the U.S.-China trade war will trigger a recession are growing. In fact, analysts at the bank expect that
President Trump's tariffs on $300 billion worth of Chinese goods will go into effect.
Now the bank also details how the trade war will hit the U.S. economy. And for that reason, it lowered its forecast for fourth quarter growth to a
rate of 1.8 percent.
Now although Goldman says fears of a recession are growing, its CEO says chances are still relatively low. CNN's Christine Romans sat down with
David Solomon for an exclusive interview.
(BEGIN VIDEOTAPE)
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: Ten years into an economic recovery, the longest expansion in history. Things seem
really solid to me. They always say that, you know, expansions don't die of old age, they die from policy mistakes. What do you see out there?
DAVID SOLOMON, CEO, GOLDMAN SACHS: Well, you know, first I just want to echo that I think when you look at the base economy, the base economy is
chugging along okay. And while it has been a long cycle, it was a very deep recession the last time and it was a gradual slow climb out. So it's
not surprising that maybe this has gone on for a longer period of time.
I'd also say that monetary policy all over the world has definitely played a role in stimulating asset price inflation and growth around the world. I
think the economy is doing fine.
There are things that are getting added to the equation, in particular the trade war with China that is having an impact. It's having an impact on
growth. I don't think that impact is significant yet. But we're watching that very, very carefully. And I think those are the kinds of things
what's going on with monetary policy, what's going on with trade, how that's all linked, that has the potential to slow down growth if it's not
handled correctly over time.
ROMANS: You've got the President who is really embarking on a tough trade war with China, and then he is at the same time saying that the Fed should
be the one to mitigate the damage from his trade war.
So in a way, he paints the Fed into a corner of it, doesn't he?
[15:20:08] SOLOMON: Well, you know, I think is very, very important that we have an independent Fed, but I would observe and this is not just the
U.S. observation, when you look around the world, then I think this is the result of the fact that the world has, in some way got used to the very,
very significant, you know, easy money monetary policy that's a result of the crisis.
Monetary policy to me seems a little bit more attached to markets at the moment and also the politics.
ROMANS: Is that healthy?
SOLOMON: That's something to watch carefully. I don't think that is healthy, and I think that's something to watch carefully. And you're
right, when you put trade policies into place, they do have an impact, you know, on the economy, and we have to live with that impact.
At the moment, I think the real impact of tariffs has been small. But we have to watch that carefully, and those are the kinds of things that can
change confidence.
I think the administration is appropriate in pushing, but I think we also have to understand that if we want to change this relationship, it's not
something that we might get a quick answer to. And we have to be prepared for the consequences of pushing the fist for a period of time, and I do
think it will be a period of time.
ROMANS: American business leaders for years have complained about Chinese trade practices, and many say the President is doing the right thing, but
maybe in the wrong way, you know, and that's what they're concerned about. That maybe tariffs aren't the right way to do it. Is there a better way to
do it?
SOLOMON: I think that's a complicated equation. I'm not a fan of tariffs. But, you know, we need to find a way to push. You know, personally, I
think we've got to be candid and honest about the fact that this is something that's going to be hard, it's going to be hard for all of us, as
Americans. There will be some friction for all of us as Americans for pushing at this relationship, because we're very economically entwined, but
we have to do it.
And we have to be prepared to see it through and get to a better place because it hasn't been fair. And so there's a lot of noise. I think at
the end of the day, the underlying economy, as we discussed, is still doing okay. I think the chance of a recession in the near term is still
relatively low. But we have to watch what's going on with tariffs. We have to watch the U.S.-China relationship. We have to watch some of the
other geopolitical noise that's going on and confidence can, you know, have an impact on growth.
I don't see it now having this dramatic an impact as the markets might be signaling at this moment, but I think you've got to look at that carefully.
(END VIDEOTAPE)
NEWTON: All right. And on the heels of that, we can all see that the trade war is certainly having an impact in those markets. It's also
causing foreign investment, American companies, and real estate to fall.
Mark Zandi calls President Trump the biggest existential threat to the U.S. economic expansion. He is the Chief Economist at Moody's and joins us now
from Westchester, Pennsylvania.
Okay, Mark, it's always good to have you. I want you to be able to parse what's happening right now in the markets. I would argue that this is a
more rational approach to anecdotally what might be going on with this trade war, right? There is a little bit of risk there. If you're looking
forward, you're going to get lower growth rate. Are you arguing that something more severe structurally, will be going on in the future if this
continues?
MARK ZANDI, CHIEF ECONOMIST, MOODY'S: Yes, I think the trade war is a real threat to the economic expansion. It's already causing near recession like
conditions in Europe. Asia's economy is slowing very sharply. We saw that last week when Central Banks there cut interest rates very aggressively,
and growth here is slowing also, quite significantly. We can see that in the GDP numbers, the job numbers.
If it slows much more, unemployment will begin to rise and if unemployment rises, then that's the putter for a recession. So, I think recession risks
are high and rising, and you can connect the dots right back to the trade war.
NEWTON: And some argue that what we're doing is we're talking ourselves into a recession, that it's not as bad as some people will portray. What
have you seen that tells you otherwise? Is it the lack of capital investment? Is that the lack of productivity? What is it specifically?
ZANDI: Well, the most significant effect so far had been on business investment. So the uncertain created by the trade where makes businesses
sit on their hands, they don't -- is it a 10 percent tariff? Is at 25 percent? What goods will the tariff be on? Which countries? How long
will it last?
I mean, these are questions they can't answer. When they can't answer those questions, they can't invest. And you're also seeing it in exports.
Exports -- U.S. exports are actually declining because the global economy is struggling. The dollar is strong, and now we're starting to see it in
the job numbers. Job growth has started to slow. Hiring has pulled back, and that is where the recession risks become very significant.
Because if businesses pull any further back on their hiring, and then that unemployment rate starts to rise and then we have a recession, but the
fingerprints of the trade war are all over the economy, and the trade war will strangle the economy if this continues.
NEWTON: Wow, the trade war will strangle the economy. I want to talk to you about something else though that may be strangling the economy. Just
out right now, deficit in the United States for July, up 27 percent.
Let's not even discuss what the burden of the future debt will be on future generations. I feel like I'm the only one, Mark, who says that this is
even a problem. Am I alone?
[15:25:07] ZANDI: No, I'm with you.
NEWTON: I don't know what that says about you and I, Mark. I mean, why is no one else noticing this and saying that it is a fundamental structural
risk going forward?
ZANDI: Well, I think you know, it's interesting. I do think people are starting to pay attention. I mean, a few years ago, I'd give speeches and
talks, no one brought up deficits and debt. And now every speech or talk I give, that's a question. So I think people are getting nervous.
I mean, we're on track for a trillion dollar budget deficit, you know, five percent of GDP, and this is the time when we have a 3.7 percent
unemployment. So can you imagine if we actually do experience a recession?
So I think this is a significant issue. Now, here's the problem. The problem is it is not -- it is not an issue for the economy today, maybe not
next week, not next month, maybe not even next year, it's a problem for the longer run, and because it's a problem for the long run, policymakers just
can't get around to addressing it.
It's almost like climate change. We all know, it's a problem. We know if we don't change something, it is going to be a huge problem. But we can't
get ourselves to solve it because it's not a problem right here for us today.
NEWTON: Yes. And it means that the future generations are handcuffed by this. They don't have those policy options in front of them. Right?
And I want to get to that discussion as well, when we talk about the Fed. Look, if you're at the Fed right now, Jay Powell, you're sitting there
thinking everyone is looking at you to be a superhero.
There is an argument out there that the Fed really can't do much in this slowing environment. What do you think?
ZANDI: Well, I mean, they can, and they're going to work really hard to try to avoid this recession. I mean, they cut rate once a couple of weeks
ago. They'll cut rates two or three more times before the year is out.
But you know, it's going to be tricky for them. I mean, they don't have a whole lot of room to maneuver. I mean, in a typical recession since World
War II, the Fed has cut interest rates by five percentage points.
Right now the Federal funds rate, the target rate that they control is two percent. So they don't have a lot of room. Now, they'll use those two
percent, and hopefully it works, but that's another reason to be nervous about, you know where this economy is headed?
NEWTON: Yes, that's not a lot of runway there. Mark, always good to talk to you. Really appreciate it. Thank you.
Now the peso is plummeting in Argentina, Mauricio Macri walloped in primary elections. Now, it's a sign the market friendly President may not get
another term.
(COMMERCIAL BREAK)
[15:30:00] NEWTON: Hello, I'm Paula Newton, there's more QUEST MEANS BUSINESS in a moment. When Saudi Aramco releases its first-ever half-year
report as interest in the company's IPO picks up. And are racial biases causing investors to miss opportunities? A new study says yes, but before
that, the headlines this hour.
The Dow is off by about 400 points as you see there in the final hour of trading. Investors are reacting to warnings that the trade war could
trigger a recession. Now, all sectors are in the red, bank stocks are suffering the worse though. Airlines are working to resume flights out of
Hong Kong in the coming hours, flights grounded Monday after protesters swarmed the city's airport, one of the world's busiest. Now, they called
the sit-in to denounce police violence over the weekend.
The apparent suicide of a child offender Jeffrey Epstein is under investigation. U.S. Attorney General William Barr says he's learned of,
quote, "serious irregularities at the New York jail where Epstein was being held until trial. Epstein had been taken off suicide watch and was not
being regularly monitored.
U.S. National Security adviser John Bolton brought a reassuring message to the new British Prime Minister Boris Johnson. We are with you on Brexit
during a meeting in London. Bolton said if the U.K. ends up leaving the EU without a deal, the Trump administration will support that decision
enthusiastically.
OK, lower oil prices are hitting Saudi Arabia's state oil producers. Saudi Aramco profits dropped 12 percent, now, it's the oil producers first-ever
half-year report, there's renewed interest in the company's IPO which was postponed last year. John Defterios is in London for us. And you know,
John, you covered this really so closely.
They are trying to get to a different place in terms of their reporting, right? And this was completely different in terms of what they had done
before, right?
JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: It is different in terms of the openness and transparency, Paula, you are absolutely correct. The
numbers did match up to what we saw last year in the first half of 2018 down 12 percent, but $47 billion is nothing to sneeze at, particularly if
you look at the peer group.
For example, ExxonMobil, Aramco beat it by a factor of 10, Royal Dutch Shell, beat it by a factor of 5, Royal Dutch Shell made $9 billion in the
first half of the year. Then you have to look at the underlying fundamentals here, even though the oil market is rather weak. They said on
268 billion barrels of crude, the number one in the world, and it produces about an average of $4 a barrel, that is spectacular.
But this is playing into a wider narrative, if you will, Paula, and you alluded to that in the question. It wants to show Wall Street and the city
of London they can play with the likes of the biggest, publicly traded companies in the world, not just the energy majors, but the likes of Apple
as well.
So, the first official first-half results on the table, an open and transparent teleconference, they even allowed the journalists like me to
listen in, and if that wasn't enough, almost an insurance policy here, they put a 20 percent stake on the table with Mukesh Ambani; the
multibillionaire in India and the reliance group, they picked the oil and gas refining business to show is part of the game longer term to be in
India which is a very fast-growing market.
NEWTON: And like you and I have discussed before, this company expert are playing that long game, that long game of course does include that IPO,
you've covered every step of this. How much closer are we to that potential IPO?
DEFTERIOS: Well, I think it is a few challenges along the way, Paula, number one is valuation. They're looking in the range of about a trillion
dollars, the highest expectation I've seen is about $125 trillion. Mohammad bin Salman who is the Crown Prince of Saudi Arabia had that magic
number of $2 trillion of evaluation, 5 percent going out for a $100 billion.
That is a stretch if oil remains below $60 a barrel, and in the previous conversations, you had about the slowdown in the United States and
potentially in the globe. That would be difficult in 2020 as well. Second key factor, the tensions with Iran, if Aramco puts an IPO on the table, you
can bet your last dollar that Iran is going to keep the pressure on Saudi facilities and refining capabilities and even tankers going out of the
Strait of Hormuz.
And finally, we cannot overlook the damage from the murder of Jamal Khashoggi last October in terms of confidence and the lack of clarity in
the wider Saudi inc., even going back to the Saudi billionaires who were taken to the Ritz-Calton in November of 2017.
[15:35:00] This undermined foreign direct investment. So, my last point on this, I think, is Paula, if you're going to play the lead horse here
that clearly is Aramco, because it generates so much cash, offers the transparency and consistency, you better play it well because they've had
two false starts, and the market conditions may not support the aspirations of the Crown Prince going forward.
NEWTON: Yes, which means they may still be a bit skittish about taking this to market any time soon. John Defterios for us in London, appreciate
it. Now, across the world now to Argentina, a currency sell-off is under way and how, the dollar has jumped 17 percent against the peso on Monday,
trading, above all, index in Buenos Aires is off more than 36 percent.
That is absolutely eye watering. Argentina President Mauricio Macri suffered a disappointing performance in primary elections on Sunday, it is
a sign that our market-friendly president might not be re-elected in October. Christopher Sabatini is a professor at Columbia University and
senior fellow at Chatham House.
This was a stunning loss. I mean, they thought he might not do well, but you're talking about two of 24 districts, you got a third of the vote.
CHRISTOPHER SABATINI, PROFESSOR, COLUMBIA UNIVERSITY: Yes, first, the story here is how badly the survey firms got it. They had him between 5
percent to 8 percent, he lost by 15.5 percent to these primaries. So, first of all, clearly something is wrong with the temperature taking in
Argentina according to those surveys.
But also, I mean, this was going to be an even matchup supposedly, and you know, they were to choose between going back to the past, Cristina
Fernandez de Kirchner, the woman who had led with her husband as well the country since 2003, and basically during the boom commodity years that it
led to currency controls and subsidies and really profitably get spending.
Mauricio Macri comes in, inflation is at 20 percent, and the economy is beginning to contract and he implements a series of austerity measures, re-
integrates the economy into the markets, but he can't actually deliver the goods, the economy continues to contract and inflation is now up to 55
percent.
NEWTON: And that's why they kind of want to go back to the future as Argentineans. But I mean, Kirchner is not -- she's not the woman who is
leading this at this point in time. In terms of the opposition leader who is, Alberto Fernandez, can he be a good cop here and come in and calm
markets and saying, look, our approach will be different than the last time if we win.
SABATINI: Well, so far in his acceptance speech or in his victory speech, he really rolled out a lot of the usual sort of populous rhetoric about
subsidies and the good times and so on. But if there is a silver-lining to all of this, hopefully the market turmoil will send a very strong signal to
him, he is supposedly more moderate than his vice presidential candidate Cristina Fernandez de Kirchner; the former president.
That maybe this will demonstrate to him that he needs to come out with a much more responsible centrist economic plan. Because the truth is, if
this continues or the sell-off that we're seeing today continues, by the time the actual elections are held on October 27th, he could very well
inherit an economic basket case that would really start him off in the back foot.
NEWTON: You know, economic basket case is a description that Argentina is very used to and its citizens long-suffering I would say, so much potential
in that economy and yet, you know, we started this by saying that the pollsters got it wrong. But they probably got it wrong because the people
they were interviewing weren't telling them the truth about --
SABATINI: Yes --
NEWTON: How their intention is to vote. So, what is it? What is it about that economy in Argentina that makes it seem as if whether you're an
investor, whether you're a bond holder that you cannot trust the economic environment there to really pan out the way you need it to.
SABATINI: Not to wax too academic here. But part of this is --
NEWTON: Really wax --
SABATINI: It really goes the -- is the Peronist Party. The Peronist Party came to power under Juan Peron really re-organized a nationalized -- and
it's really Argentine politics have been since then you know, really bipolar between more market-oriented forces including one briefly -- point
briefly, the Peronist Party itself, two more leftist populist policies, and it just lurches from one side to the next, it never can actually develop
the macro-economic fundamentals to keep its currency stable, and also to be able to accumulate capital within the country, so it doesn't have to go to
international capital markets.
And yes, it does have so many riches in terms of agriculture, in terms of talent. I mean, Microsoft's regional office, Google's regional office is
based in Argentina --
NEWTON: Yes --
SABATINI: It's got a very highly-educated population, but they simply cannot seem to steer a centrist course.
NEWTON: Yes, and I can tell you, an educated population that left and wants to go back home and right now doesn't see any opportunity --
SABATINI: Yes --
NEWTON: To do that. Christopher Sabatini, thanks so much for coming off vacation for us --
SABATINI: Thanks a lot, Paula, appreciate it, yes --
NEWTON: Good to have you back, unfortunately, we'll be talking about Argentina more. Some news just in to CNN. The Hong Kong International
Airport will resume flights in and out of the airport starting at 6:00 a.m. local time, that is a little bit less than two and a half hours from now.
A spokesperson tells CNN that some of the flights will be canceled and some will be delayed.
But it looks like some will end up getting off the ground there. Some news there from Hong Kong airport. And an earnings report that literally
glittered, profits jumped at Barrick Gold, we'll have more on that when we come back.
[15:40:00] (COMMERCIAL BREAK)
NEWTON: Profits are up, but Barrick Gold shares are mixed after the earnings report, adding to what has been though, a glittering run over the
last year. Gold prices have been on the rise as investors of course look for safety amid that trade war. Barrick President and CEO Mark Bristow
joins me now from Toronto.
Rather impressive results and yet the reaction has been mixed. I think people in your shoes are always saying, OK, what's the next challenge here
even though, you know, this quarter has been pretty good.
MARK BRISTOW, CHIEF EXECUTIVE OFFICER, BARRICK: Yes, Paula, I think, you know, as we discussed before, it's a long-term game, and great results,
good place to be mid-year, and already, we haven't seen the benefit of these big gold prices in this state of results, they're still coming. So,
you know, I think we're very comfortable with the results and very excited about what the future holds for Barrick.
NEWTON: And it's interesting that you say, you know, you haven't seen that price there. You know, I don't have to remind you, right? You're in a very
tough industry just when you combine the kind of environments you have to work in and the capital intensity of a lot of what you're doing. Has it
really been the acquisitions at this point in time that you believe turned around in terms of efficiencies?
BRISTOW: No, there were no acquisitions, per se, remember it was at market transaction to combine --
NEWTON: Pardon me --
(CROSSTALK)
Yes, go for it --
BRISTOW: And Barrick --
NEWTON: Yes.
BRISTOW: And also the Nevada JV --
NEWTON: Right --
BRISTOW: Was a joint venture, we combined assets, so it didn't pay anything out. The benefits of putting those companies together and those
assets and unlocking the synergies are still going to come, but we've seen the first round of that. As we ship in this business, focused on high-
quality assets and in a market, as you say, is very tough market.
When you dominate the quality portfolio of assets as we do in the industry, and you combined it with great people, you're going to get industry leader
in your result.
NEWTON: And I want to talk about the price for a second, when we talk about what's to come, we know that like you said in the third and fourth
quarter, you might see some of the benefit, and yet you'll see some substantial lows sometimes in that gold sector. How do you mitigate for
those price shocks one way or the other?
[15:45:00] BRISTOW: Sorry, just exactly what I said at the opening shot, it's a long-term game, we've always -- you know, in Iran, gold days and now
with the Barrick vision, we focus on long-term value, we use a long term lower gold price which allows us to participate in exact legality of the
gold price.
And we focus on high-quality assets which are profitable, and so in that bay -- on that way, we will always be better than our peer group, and
that's the objective here.
NEWTON: I want to ask you, though, there has been some discussion in the market about bitcoin challenging gold as a reserve of value. Do you have
an opinion on that one way or the other?
BRISTOW: Yes, I mean, it's just the baseless suggestion. I mean, gold is a real value, it's tangible, you can't print it, you can't create it, and
as it's proved, it's always been a store of wealth and it's a reliable alternate to, you know, paper money as we've seen. And you know, over the
last while, we've seen all the currencies depreciate against gold.
And also gold is in short supply, and it's going to continue to decline as far as new gold mine goes. And so, it's a good place to be with tier 1
assets and an outlook that counters that or goes against that range.
NEWTON: OK, we'll see, we'll see if the people who believe that bitcoin is also good to carry around as well as the gold, we'll see -- we'll see what
your predictions --
BRISTOW: We will see that --
NEWTON: We will --
BRISTOW: For sure --
NEWTON: And we'll continue -- we'll continue to check in with you because the next couple of quarters will be really interesting in that gold market
--
BRISTOW: Thank you for that --
NEWTON: Mark, appreciate it, thanks.
BRISTOW: OK.
NEWTON: Now, a heat wave scorched Europe this Summer, breaking temperature records while scientists and governments try to figure out how to address
climate change. Architects in Malaysia are using green design to insulate homes and buildings from that rising heat. John Defterios reports.
(BEGIN VIDEOTAPE)
DEFTERIOS (voice-over): From jungle forests to skyscraper skylines. At Kuala Lumpur center, 1 million residents, here business thrives. On the
periphery, 7 million others.
Worldwide, more than a third of all energy is consumed by buildings and construction and, often overlooked fact.
(on camera): This is the first green building with a platinum rating in this town, 40 kilometers outside of Kuala Lumpur which is now serving as a
blueprint for others to follow.
(voice-over): Its principles were first supplied by the architect Tan Loke Mun to his home.
TAN LOKE MUN, ARCHITECT: By putting the air-conditioning from the floor up, it saves the building about 30 percent to 50 percent. We were so busy
in Malaysia, building the nation that it never hit us that we needed to also look after the environment. Two-thousand-and-nine when we launched
green building index was the year when everyone realized there was another way to look at things, and it also helped the bottom line. You know, cost
of operation went totally down.
DEFTERIOS: Old energy elevated this city, future success may be more grounded. The shadow of the Petronas Towers, a bamboo structure by award-
winning architect Eleena Jamil. We meet at this month's festival of architecture.
ELEENA JAMIL, ARCHITECT: We are slowly moving towards making natural, sustainable materials like bamboo to become a standard building material to
be used in buildings, in housing, in tall buildings, in skyscrapers. Responding to the climate is very important in a hot and humid climate like
Malaysia.
Can you see that in the architectural education, you see students designing sensitive buildings which responds to the climate which makes a connection
with the local culture and local lifestyle.
DEFTERIOS: You're training the next generation of architects. Do they see the world differently than you did in your early days of study.
MUN: The new generation might save the world. They understand that heat gained through a house predominantly through the roof, and all these have
now gone into the curriculum. I have good hope that new generations, they'll do the right thing.
DEFTERIOS: John Defterios, CNN, Kuala Lumpur.
(END VIDEOTAPE)
[15:50:00] (COMMERCIAL BREAK)
NEWTON: As investors look outward to the global economy in a trade war to make their decisions, a new study says they should look inward to their own
biases as well. And now researchers at Stanford found evidence of racial bias and the investment decisions of institutional investors. Now, the
study authors say, quote, "racial bias could potentially result not only in the unfair treatment of fund managers of color, but also in leaving
significant financial opportunities on the table.
Now the study's author at Stanford psychology professor Jennifer Eberhardt joins me now from Stanford, California. So good to have you here on this
issue. And I was fascinated to learn that you had just told me that a study like this has never been done. Why do you think that is and what
surprised you most about the results?
JENNIFER EBERHARDT, PROFESSOR OF PSYCHOLOGY, STANFORD UNIVERSITY: You know, I think what surprised us most was that you had, you know, these
venture capital teams and a black-led venture capital teams that were identical, you know, to the white-led teams.
But for race and we found, you know, that, you know, the asset allocators just -- you know, evaluated them differently. They evaluated the black-led
teams as, you know, in the more negative way in terms of their track record and experience in terms of their ability to execute on strategy. So, all
of these sort of major indicators here of value.
Even though they were looking at the identical -- you know, identical information about both sets of teams.
NEWTON: You know, unfortunately, I mean, systemic racism that many people of color feel in a society at large can actually be defined in a micro-
sense even to things like this kind of -- these kinds of investments. Was there a real reason why to be had in the results, why that was happening?
EBERHARDT: Well, this is the, you know, sort of initial study on this. There isn't much actual data on this, right? You can look at the -- like
low wage labor markets, and you find lots of evidence there over decades for racial bias and discrimination, but there isn't much systematic
investigation of looking at this kind of issue, looking at bias or discrimination in the investment industry.
And so that's why we wanted to do the study, but it's one of the first studies to actually look at this.
NEWTON: And if we take it as a platform then, what was also interesting was there's money left on the table through this racism, really.
EBERHARDT: Yes, that's right, I mean, I think that people, you know, potentially, when they see -- you know, so this -- one of the things I
should say is just that the -- if you look at the investment industry, it's nearly all white and male. So, if you look at say fund managers, I think
only about 1.3 percent are people of color or women.
[15:55:00] And so, there's a huge lack of diversity in this world, in this industry at a time where lots of other industries are diversifying if you
look at corporations, if you look at universities. And so, here is an institution that's not really diversifying, and so, we were interested as
researchers and why that was and what's preventing that?
NEWTON: And so Jennifer, where do we go from here, then? And it is something that is clearly a problem, but also, you know, it's going to
obviously benefit people if they look at this a different way, it's going to benefit people financially as well.
EBERHARDT: Yes, I mean, one issue and we -- again, this was the initial study, so, we don't know this, we'd like to do a follow-up studies on this
issue, but one possibility is just how they -- how people read diversity, and so, if you look at this space, that's you know, nearly all white and
male.
You could, you know, feel like, OK, well, these are the people who are here who are good, who are the best, who deserve to be here and so forth. So,
the racial disparities and the space actually signal, you know, something about who is valued and who is experienced and who has the expertise and so
forth.
So, even if you are a woman or even if you're African-American say, and you have that expertise, you have that experience, there's a nervousness, you
know, about you because you know, you -- you know, you don't kind of fit like the others in a way, and so we want to look at that, sort of people's
mindsets about diversity and how they think about it, how it could be associated with risk and so forth, despite the fact that if you look at
research, you know, diversity is actually -- you know, often times, it's a good thing. People make --
NEWTON: Right --
EBERHARDT: Better decisions and diverse groups are more creative, you know, they make fewer errors. So, there's a lot of benefit to diversity,
but I don't know that -- and we as researchers don't know that people actually really have that mindset of diversity as a good thing.
NEWTON: And that will be what we'll have to change because you've certainly seen a change for the better in other industries. Jennifer,
thanks so much, really appreciate your time. Yes --
EBERHARDT: Oh, thank you, appreciate it.
NEWTON: Now, there are moments left to trade on Wall Street, we'll have those final numbers and the closing bell right after this.
(COMMERCIAL BREAK)
NEWTON: And there are just moments to trade there, we're down about 1.5 percent, that is off the session lows though, trade fears exacerbated by of
course those protests in Hong Kong, and those slipping bond yields are driving this selloff. The major indices are all off by about 1 percent or
more.
We want to have a look at those Dow components though as well, you can see, wow, pretty red, trade war is bringing down Boeing down about 1.5 percent,
Caterpillar off another 2.5 percent, it is having a terrible month. Every single sector is down, bank stocks, though, remain the worst.
And another key one to look at, Goldman now down 3 percent. We will continue to watch these markets, it will be another wild week, I can assure
you, that is QUEST MEANS BUSINESS, I am Paula Newton in New York, the news continues right here on CNN.
(BELL RINGING)
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