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Quest Means Business
Dow Tumbles After Bond Market Flashes a Recession Warning; Police and Protesters Face Off Again in Hong Kong; Genoa Marks Anniversary of Deadly Bridge Collapse. Aired 3-4p ET
Aired August 14, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ZAIN ASHER, CNN INTERNATIONAL HOST: Well, will you look at that? We have given up all our major gains since yesterday. The Dow is down 700 points
as the bond market is signaling fears of a recession. We'll talk about what an inverted yield curve actually means a little bit later on the show.
The Dow is actually near the lows of the day. We are off nearly three percent or so. Every single sector is in the red. Let me show you what
investors are watching.
The yield curve turns turtle, investors worry the economy could follow. And Germany's golden decade is over. Europe's biggest economy shrinks.
And flights resume in Hong Kong. The threat from Beijing remains and businesses are counting the costs of the protests.
Live coming to you from the world's financial capital here in New York City, it is Wednesday, August 14th, I'm Zain Asher in for my colleague,
Richard Quest, and this is QUEST MEANS BUSINESS.
All right, welcome everybody. I'm Zain Asher, tonight, recession fears grip Wall Street. All 30 stocks are down, every single sector is in the
red. You see the Dow there near the lows of the day, down 750 points or so, volatility is spiking. It comes after the main yield curve inverted
for the first time since the Great Recession.
Investors are fleeing stocks and heading for bonds because the German economy is shrinking, China's industrial production is slowing and Donald
Trump's trade war is still looming. The signs are pointing to a global economy that is sputtering.
Cristina Alesci is live for us at the New York Stock Exchange. So, Cristina, we are down to 750 points. I mean, it seems as though volatility
is really the name of the game right now.
CRISTINA ALESCI, CNN BUSINESS POLITICS AND BUSINESS CORRESPONDENT: That's right. Fears selling for sure, volatility has been back. We've seen it
come back. But these swings today are just pretty much incredible.
Let me just put some context around this. Three years ago, Donald Trump said only he could save the economy. Today, recession fears are spiking
because of his ill-planned trade war that is making the rest of the world very uneasy. And now he wants the Federal Reserve to bail him out.
Well, investors are bailing out on him, it would seem. The stocks have been selling throughout the day, and let's not forget, the unrest that's
going on in the rest of the world, the geopolitics that are playing into this, the unrest in Hong Kong, for example.
And plus, investors now realized today that they may have been a little over optimistic yesterday when the administration announced that it would
delay the tariffs implementation until December. Today, they realized, well, that doesn't necessarily mean an end is in sight for the trade war.
And by the way, there are still about $100 billion worth of products that do face tariffs that are coming into the U.S. from China.
So all of that weighing very heavily on investors, including that signal that you mentioned in the introduction, the inverted bond yield -- very
simply put. That means that it costs more to borrow over a shorter period of time than a longer period of time. That is not the natural state of
affairs, and that is sending a very strong signal of a recession.
Some on the floor here today say it's overblown that we need to see this inversion for a sustained period of time for it to be a real indicator.
But let's remind viewers that every time we've seen this kind of inversion, recession has followed, Zain.
ASHER: All right, Cristina Alesci live for us there. Thank you so much. So what is an inversion? And why does it matter? Cristina, she was just
touching on this. In plain terms, during an inversion, investors get paid better to lend money for shorter period of time than a longer one. That is
not natural. That is not normal.
In this case, if you lend for example, for two years or 10 years, the rate of return is about 1.6 percent. All the reasons we just mentioned,
investors are nervous about the state of the economy.
Throughout the year, they've been plowing into government bonds as a flight to safety because unlike stocks, the returns aren't guaranteed. The more
they buy, the lower the yield goes. Investors are now seeking safety in bonds, even though they're getting back a minute amount in terms of a rate
return.
The 30-year rate is now at a record low. Here is the larger concern and why it's causing a selloff on the market. The last five times it's been in
an inversion like this one, an average of 17 months later, there has been a recession.
Jay Bryson is the Managing Director and acting Chief Economist for Wells Fargo Securities. He joins us live now in Charlotte, North Carolina.
[15:05:10] ASHER: So Jay, thank you so much for being with us. So overall, are fears of a recession right now justified?
JAY BRYSON, MANAGING DIRECTOR AND ACTING CHIEF ECONOMIST, WELLS FARGO SECURITIES: Well, you know, the only thing that you're looking at that's a
potential recession signal right now is that slight inversion of the yield curve that you just mentioned. I mean, other than that, when you look at
the underlying fundamentals of the U.S. economy today, they remain generally pretty strong.
You look at balance sheets of households, balance sheets of businesses, of the financial sector, and they are all in reasonably good shape. And so,
you know, again, this is the only sort of signal that we're getting right now that would say, maybe trouble is ahead.
ASHER: And also, yes, obviously, an inverted yield curve might be a reliable indicator of recession. But it doesn't always precede a
recession, does it?
BRYSON: Well, it's had a pretty good track record in the last few decades, right? But what I would point out here is, I don't want to be one of those
economists to say, well, this time, it's different. Okay.
But there is a little bit of difference. And that is, and you had just mentioned this, when people buy more bonds it causes the yield to go down.
Well, a big buyer of bonds over the last decade was the Federal Reserve, it was part of this quantitative easing sort of program, and it was intended
to bring yields down.
And so the question is, if the Fed hadn't done this quantitative easing, and keep in mind, there's still $2 trillion worth of government bonds on
their books. How much higher would those long term yields be right now? Would the yield curve, in fact, be inverted or not? And that's a very good
question.
And as I said earlier, it's really the only signal that we're getting right now that maybe there's some trouble ahead.
ASHER: You bring up a good point that the Fed obviously plays a role in all of this, but just walk us through how long the yield curve has to stay
inverted for, for it to really signal a recession, do you think?
BRYSON: Yes, it's usually, typically a number of months before you get that and this morning, the 10-year was about one basis point lower than the
two-year, just the last time I checked, it had flipped back the other way.
So it's essentially flat right now. And generally, you want to see it more like, you know, negative 20, negative 30, or even 40 basis points before it
really becomes a reliable sort of signal. So it's something very interesting to keep an eye on at this point. It's an interesting telltale
of what the market is thinking.
But at this point, just because we inverted today, only slightly, I wouldn't say it's necessarily foolproof, either.
ASHER: And do you think the Fed should be cutting interest rates more aggressively, given the warning signals we are seeing?
BRYSON: Well, I do believe that the Fed should definitely be cutting at this point, and you know, whether or not more aggressively, I mean, do they
need to cut 50 basis points at the next meeting? I mean, we'll see. There's still a number of weeks between that and the next meeting.
The only reason I believe that the Fed should probably be cutting at this point is there's just no inflation in the economy. And so if you have an
economy that potentially could be facing some difficulty going forward without any inflation, then what's the risk right now of cutting? It
doesn't -- there isn't much of a risk. They can always reverse it later on if they need to be. So --
ASHER: Right, it is not permanent.
BRYSON: You know -- right -- so the Fed clearly will be cutting rates.
ASHER: All right, Jay Bryson live for us there. Thank you so much. Appreciate it.
BRYSON: Thank you.
ASHER: The golden decade of economic growth in Germany may have come to an end. The largest economy in Europe shrank by a 10th of one percent in the
second quarter, and that's down from growth of 0.4 percent in the first quarter, adding to fears that it could sink into a recession. Analysts say
the country was hit by a perfect storm -- the trade war between the U.S. and China, weak car sales and uncertainty surrounding Brexit -- all to the
toll on GDP.
Chief Economist at ING Germany, Carsten Brzeski joins us live now from Frankfurt. So Carsten, did these numbers from Germany come as a surprise
to you or anyone?
CARSTEN BRZESKI, CHIEF ECONOMIST, ING GERMANY (via Skype): No, not really. Because all the data ahead of this were already bad, so it wasn't (AUDIO
ISSUES) contraction. What's even worse is that monthly data do not give (AUDIO ISSUES) right now. (AUDIO ISSUES).
ASHER: And just explain to us in detail how the U.S. trade war China is having an impact on Germany.
BRZESKI: Now there different impacts. First one, you have a couple of German actors actually producing (AUDIO ISSUES) that's one, that's a small
one. Then we have the (AUDIO ISSUES). And then there's the bigger impact which is (AUDIO ISSUES), the slowdown in global trade plus global
uncertainty has now (AUDIO ISSUES) so much angst in German companies to make investment decisions, also consumers are delaying decision (AUDIO
ISSUES) so that this uncertainly certainly brought down the economic (AUDIO ISSUES).
ASHER: Carsten, you know what we are having some issues with your audio. We can't actually hear you properly, so we're going to have to cut our
conversation short, but thank you so much for being with us hopefully next time. Appreciate it. Okay.
European starts closed sharply lower on Wednesday amid global recession fears. The DAX is actually down on word that GDP contraction in Germany
and the yield curve inversion added to fears of a global economic slowdown, dragging down markets across the board.
The U.S. House Speaker Nancy Pelosi has threatened to torpedo any trade deal with Britain if an open Irish border is jeopardized after Brexit. The
Prime Minister Boris Johnson has promised to negotiate a new deal without the backstop arrangement which locks the U.K. in a trading relationship
with Europe until the border issue can be resolved.
Britain's place in the trade deal queue has been rather erratic over recent years. This week, the National Security adviser, John Bolton said the U.K.
would be front of the queue for a new trade deal after Brexit.
Back in 2016, then President Obama warned Britain would be at the back of the queue if people voted to leave. Now, Nancy Pelosi says there'll be no
trade deal if Britain undermines the so-called Good Friday Agreement which brought peace to Northern Ireland, so that means no place at all in the
queue.
One former U.K. Finance Minister said today, a no-deal Brexit can be stopped. Philip Hammond said leaving without a deal would be a betrayal of
the referendum. He suggested Downing Street advisers have no plans to agree on a new deal, and he said Parliament will block a new deal Brexit
pushed through by unelected people.
Stephen Welton joins us live now from London. He is the CEO and Founder of the Business Growth Fund. He is the former Managing Director Barclays
Private Equity. Stephen, thank you so much for being with us. Just explain to us how much the uncertainty surrounding Brexit has really hurt
business confidence?
STEPHEN WELTON, CEO AND FOUNDER, BUSINESS GROWTH FUND: Well, it's clearly providing a negative backdrop because nobody knows exactly what's going to
happen at the end of October. That's having a long term impact in terms of investment from foreign corporates into the U.K. and in terms of major
structural investment in things like infrastructure.
But for businesses at the smaller and growth end of the spectrum, they don't have the luxury of waiting. They have to make decisions now. So,
we're seeing a bit of a divergence between day to day activity and some of the longer term structural investment requirements the economy has.
ASHER: So what do you want from Boris Johnson?
WELTON: I think what we all want is an end to this uncertainty. There was clearly an anticipation in March of an exit, and they were stockpiling.
We've seen in the second quarter that's reversed effectively. We can't keep going on from quarter to quarter, potentially having a deal or not
having a deal and the uncertainty is going to be crippling in terms of the ability to make longer term decisions.
So fundamentally, we need to actually understand how the politicians are going to resolve these discussions in the way the business people would
have a commercial negotiation to get over the hump of the impasse we're in, because business has to be able to plan and at the moment that is
incredibly difficult.
ASHER: So beyond Brexit, beyond what happens in October, how does the country go about really trying to unleash the power of small businesses?
WELTON: Well, actually, I think that's the good news story. There is a lot of innovation in the United Kingdom. We have some world leading
universities. We have a lot of new industries.
You look at things like autonomous vehicles, AI, Life Sciences. So the future for the British economy is very much going to be driven by the
knowledge based economy and we are well placed to do that. There is a lot of capital to invest.
And I think what we want to do is to move towards an agenda that's not driven by a few months, but it's driven by five to 10 years, and to make
sure the U.K. as well placed domestically and critically, internationally, to play to its strengths. And that's why this uncertainty is very
unhelpful. It's a distraction from what most business people and entrepreneurs want to do, which is to get on with running their businesses.
ASHER: Philip Hammond said that if Boris Johnson tries to push through a no deal Brexit, there is likely going to be a second referendum. What's
your take on that? A lot of people say that's unlikely.
But do the people of the U.K. really have the appetite to go back to the polls again, and what will that mean for uncertainty?
WELTON: Well, I mean, appetite is a hard thing to measure. I think people are tired of this ongoing saga, and they want clarity so they can plan.
Businesses are good at adapting.
[15:15:10] WELTON: It's certainly true that now, in the run up to October, there is a real focus on what that could mean. And a very practical
approach. Looking at the businesses we talked to, that comes down to cash.
If there's going to be a disruption to supply chains, if there's going to be a delay and getting orders through, that will all translate into less
cash available, you need more working capital.
So the practical thing for a business is to make sure you have enough headroom, and there will be some turbulence, get through that turbulence
and then be able to plan again for hopefully business as usual.
So I think the clear imperative for everybody in business in the U.K., whether they're in favor of staying in the E.U. or not, is to get beyond
this particular situation now, which is very circular. There doesn't appear to be a resolution that is not good for the U.K., and I don't think
it's good for the E.U. either.
ASHER: All right, Stephen Welton, thank you so much for being with us. Time for a quick break here. In Hong Kong flights resume, but the economic
turbulence caused by weeks of protest has the business community concerned.
And more bad news to Beijing as China's manufacturing data comes in at its lowest level in 17 years.
(COMMERCIAL BREAK)
ASHER: After Tuesday night's chaos at the Hong Kong Airport, some protesters apologized for the disruption, while China called it terrorism.
Just a few hours ago, another standoff, the police fired tear gas at the protesters in the city. At the airport, flights resumed, an injunction ban
protesters from certain areas. Fears of escalation remain as images of Chinese paramilitary units on the Mainland China and Hong Kong border in
Shenzhen emerge. Matt rivers is in Shenzhen, China. So Matt, just set the scene for us there today.
MATT RIVERS, CNN INTERNATIONAL CORRESPONDENT: Yes, so Zain, just to give you an idea of where we are, we're on the Mainland Chinese side of the
border. Right across that bridge behind me on the other side of it, that's Hong Kong and where we filmed these paramilitary units that have come here
to Shenzhen is just a couple of miles away from where we are right now, and that is a new development.
[15:20:00] RIVERS: This are members of the People's Armed Police Force. It's a paramilitary units, some 1.5 million members throughout all of
China. And it's the group of people which are -- they are part of the Central Military Commission. They answer to China's Military High Command,
Zain.
These are the kind of people that are deployed across China to quell protest, to quell riots, to combat terrorism. And it's very interesting
that we are seeing these forces on the ground here next to the border with Hong Kong.
We saw several troop carriers. We saw armored personnel carriers. And we saw uniformed paramilitary members who were carrying riot shields, helmets
and batons in some cases.
And there has been a lot of speculation over the past two months, at what point just Beijing decide to send military forces over bridges like this
one behind me into the City of Hong Kong to quell these protests?
To be clear, we did not see any indications that the people we saw tonight were ready to jump into trucks and come across this bridge and go in there
because that would be a massive escalation, Zain.
There would be incredibly negative impacts, most experts agree, diplomatically, economically for China, it would be a huge decision for
Beijing to have to make. And I don't think that these protests in Hong Kong have gotten to that point yet where Beijing would make that
calculation.
But the fact that these paramilitary forces our here, just a few miles from the border, we saw them ourselves. That is a new development. It is a
significant development. And it shows you how seriously, Beijing is taking these protests that are ongoing in Hong Kong.
CHATTERLEY: How embarrassing has it been for Chinese authorities, for Xi Jinping that the images we saw yesterday at the Hong Kong Airport were
playing out around the world and they weren't able to quell those protests?
RIVERS: You know, I think for Beijing, it's really a pro-con kind of approach here. I think they're certainly not happy about the fact that
these are -- these images are coming out of a Chinese city. Yes, it's a city that is semi-autonomous. It is not like every other Chinese city like
Beijing or Shanghai. It's certainly not something that Beijing is thrilled about.
But to get these protests to go away definitively, you know, if the only way to do that in Beijing's calculation is to send troops across the
border, I don't know that they're there yet. Is the political cost of this for Beijing really high enough for them to make the calculation of sending
troops into Hong Kong? That would devastate the Hong Kong economy. It would absolutely cut off one of the key foreign direct investment hubs.
You know, this is where -- right across that water is where a lot of the foreign capital that comes into China makes its first stop. That would
essentially disappear and the list goes on. There's a myriad number of reasons why Beijing sending troops into Hong Kong could end disastrously
for Beijing.
So on the one hand, they're not thrilled about these images; on the other hand, they are kind of saying, "You know what? It's the Hong Kong
government's problem." And I think Beijing is not willing to incur the political cost of getting more involved than they already have.
ASHER: All right, Matt Rivers live for us there. Thank you so much. Hong Kong's economy is reeling under the impact after months protest. The Hang
Seng Property Index has actually plunged more than 19 percent since April. Businesses conferences disrupted, a Black Fox Asia Media Forum has been
postponed to February and the overall economic outlook looks uncertain. The Hong Kong economy grew by just 0.6 percent in the second quarter.
Hong Kong based Cathay Pacific says it has fired two pilots. Sources tell CNN that they were terminated for protest-related activities. One of the
pilots has also been charged for rioting. CNN's Andrew Stevens looks at how Hong Kong's iconic brand is caught between pro-democracy activists and
Beijing.
(BEGIN VIDEOTAPE)
ANDREW STEVENS, CNN ASIA PACIFIC EDITOR (voice over): Tempers were fraying at Hong Kong International Airport as weary travelers tried to pass through
a cordon of protesters to get to their flights this week.
It wasn't just travelers who suffered. Airlines, too, were hit as Hong Kong Airport was forced to close two days in a row. The hardest hit, one
of Hong Kong's best known international brands, Cathay Pacific.
STEVENS (on camera): Cathay is still counting the cost of the 272 flights canceled over the past 48 hours. But that's just a temporary headwind.
These demonstrations have thrown up a much more significant problem. How does Cathay keep its biggest and most important customer happy -- that's
China -- while still maintaining the support of its own Hong Kong staff?
STEVENS (voice over): Many Cathay employees support the protests and that doesn't wash with Beijing. Cathay was forced to make a hard U-turn after
the company said it would not stop employees joining the Hong Kong protests.
(BEGIN VIDEO CLIP)
JOSH SLOSAR, CHAIRMAN, CATHAY PACIFIC AIRWAYS: We certainly wouldn't dream of telling them, but they have to think about something.
(END VIDEO CLIP)
[15:25:00] STEVENS (voice over): It sparked a huge backlash in China, pushed hard by state media. The Communist Party mouthpiece, "People's
Daily" ran the headline, "The Four Sins of Cathay." Actions by the carrier and staff it claimed supported the pro-democracy movement.
A social media campaign with the hashtag #BoycottCathayPacific racked up 44 million views. Within days, Cathay's CEO, Rupert Hogg reversed course
telling employees there was zero tolerance for any staff joining illegal demonstrations and Cathay has also fired two pilots. A company source told
CNN the dismissals were linked to the protests. Behind Cathay's change of heart is an economic imperative.
(BEGIN VIDEO CLIP)
ELEANOR OLCOTT, CHINA POLICY ANALYST, TS LOMBARD: What the Cathay example shows us is that essentially for this company that is a Hong Kong legacy
brand, the Mainland audience, the Mainland consumer is just too important.
(END VIDEO CLIP)
STEVENS (voice over): About 15 percent of all seats on Cathay and its sister airline, Cathay Dragon are sold to Mainland Chinese customers.
Between them, they serve 22 Chinese cities.
For Cathay staff, many of whom joined the general strike and supported demonstrations recently, it's a new reality. Carol Ng represents about
15,000 Cathay cabin crew.
(BEGIN VIDEO CLIP)
CAROL NG, CHAIRPERSON, HONG KONG CONFEDERATION OF TRADE UNIONS: I don't think any carriers, including Cathay, they are able to find the right
approach how to respond completely, but not upset the Chinese government.
(END VIDEO CLIP)
STEVENS (voice over): But she says, many Hong Kong based crews are frustrated. Despite bouncing back to profits in the first half of the
year, business conditions remain tough. The disruptions at the airport helping Cathay share price plunge to a 10-year low.
The last thing Cathay can afford is to turn its biggest passenger market against it. Andrew Stevens, CNN, Hong Kong.
(END VIDEOTAPE)
ASHER: President Trump eases off in the trade war with China, but for how long? A key U.S. business group is calling for both sides to return to the
negotiating table. We will hear from them, next.
(COMMERCIAL BREAK)
[15:30:00] ASHER: Hello, everyone, I'm Zain Asher, there's more QUEST MEANS BUSINESS in a moment when China reports troubling economic numbers,
economists expect more pain to come.
And WeWork files for an IPO, this despite losing nearly $2 billion last year. Before that, though, these are the headlines at this hour. Wall
Street is in a midst of a large, very large sell-off. Every sector is lower and volatility is spiking. It comes after the bond market flashed a
warning signal that often predicts recessions. The main yields curve inverted for the first time since the 2008 financial crisis.
And new unrest in Hong Kong today, police fired tear gas to disperse protesters near a police station in a residential area. It comes just as
operations at Hong Kong's International Airport are getting back to normal after violent clashes there between protesters and police.
And the "New York Times" is reporting a major breach in security protocol at the New York jail where sex offender Jeffrey Epstein was being held. It
says the two prison staffers who were guarding his unit failed to check on him for three hours on the night he apparently committed suicide.
And an American rapper who gained the support of President Trump has been convicted of assault charges in Sweden. ASAP Rocky was given two years
probation and asked to pay a fine, will not serve jail time. The rapper and two members of his entourage were involved in a street brawl, they said
they were acting in self-defense.
A service has been held in the Italian city of Genoa to mark a year since 43 people died when a bridge collapsed. Mourners observed a minute of
silence after the name of every victim was read out loud. The Morandi bridge which was built in the 1960s came down during a torrential
rainstorm.
Today's sell-off on the markets is driven by fear. Fear that today's yield curve inversion could lead to something very serious. And fear that now
we've seen the inversion, stocks will peak a few months from now, and then a few months on from that, a recession will hit.
Donald Trump has just tweeted, calling the inversion crazy, saying the Fed Chairman Jay Powell is clueless. Mohamad El-Erian who is the chief
economic adviser at Allianz told Julia Chatterley that he's worried about talking the economy down.
(BEGIN VIDEO CLIP)
MOHAMAD EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ: Two elements, one is we sort of be concerned about what's pushing yields down. And that is, like
you said, very weak economic data out of China, out of Germany. Yesterday was about Singapore and the list keeps on going. So, that is real, the
global economy is weakening.
But on the other hand, we've got to be careful not to over interpret what's coming in on the yield curve signals about the U.S. economy because this
curve is distorted. It's distorted by what central banks have been doing, and it's distorted by the influence of Europe.
So, yes, we should worry about the international economy, but don't extrapolate too quickly about the U.S. economy, otherwise, we risk getting
ourselves in a self-fulfilling negative expectation loop.
JULIA CHATTERLEY, CNN: So, what you're saying is, and many analysts are also saying this, look, for all the concerns, the international concerns,
even the trade war concerns, the U.S. economy is still on solid footing, the consumer is also on solid footing at this stage, and we have to
remember that.
EL-ERIAN: That's absolutely right. The labor market remains strong, the U.S. economy continues to create jobs well above the pace that you would
expect at this late stage of the cycle. Wages are going up, so the household sector isn't in a good place. And the business sector is
suffering from what's happening outside, but its balance sheet is in pretty good shape.
So, you can -- the only way you can end up in a recession in the U.S. is if either a self-fulfilling negative expectation or we get a policy mistake or
market accident. But the economy itself is still doing relatively well.
(END VIDEO CLIP)
ASHER: There are worrying signs for China in the midst of its trade war with the United States. The country has posted its weakest industrial
output data in 17 years, coming in much lower than expected in July. Chinese retail sales growth also missed expectations as well.
News of the U.S. administration will be delaying placing tariffs on some Chinese goods has been welcomed by the U.S. Chamber of Commerce. Myron
Brilliant is their executive vice president and head of International Affairs, he joins us live now from Washington.
[15:35:00] So, Myron, thank you so much for being with us. So, this delay in tariffs on certain goods obviously provides both sides with some
breathing room. But there is still so much uncertainty when it comes to this trade war.
MYRON BRILLIANT, EXECUTIVE VICE PRESIDENT, U.S. CHAMBER OF COMMERCE: Zain, that's right, first of all, we welcome the news. It was a good step in the
right direction. But there are -- we have to remind ourselves, there are still $250 billion worth of goods subject to tariffs. Plus, what's
happened with China in terms of its retaliation. So, there is a conflict here that has to be resolved.
So, while it was a step in the right direction to delay, taking further action on tariffs with respect to consumer goods that would hit consumers
during the Christmas season, we welcome that news, it's only the first step. We need to get these talks back on track.
I'm taking a group of CEOs of American companies to China in the first two weeks of September to meet with the Chinese leadership because the goal at
the end of the day is to see these two sides work on a big deal that will be systemic, sustainable and bigger enough for both sides to have
confidence and for the global economy to have confidence that the two governments can work together.
ASHER: We know that a Chinese delegation is coming to Washington next month.
BRILLIANT: That's right.
ASHER: Are you -- I mean, are you optimistic at all that anything concrete is going to come out of it?
BRILLIANT: I think it's positive that the two sides are going to resume the negotiations. There's been talks already between the two sides, but we
need concrete confidence-building steps. Certainly, I hope the Chinese listen to the administration closely when they talk about AG purchases.
I think it's very important for the Chinese to signal to the administration and to the president their seriousness on this. This is an issue that
President Trump took up with President Xi Jinping directly in Osaka in June, but more needs to be done. There are serious issues that have been
raised by the U.S. administration, intellectual property theft, dealing with forced technology issues, concerns about how data is being managed and
treated in China, that affect cross-border data transactions of banks and services providers.
So, we have a lot of big issues that still have not been addressed fully in these negotiations. We got close in May, but we now have tension in the
relationship and we need to work back towards finding common ground, finding compromise and having the two governments really re-engage in
serious negotiations.
ASHER: OK, so, obviously, a trade war, and you don't believe that a trade war or tariffs is the right way to go about it. But what is the correct
way to get the Chinese to change their policies when it comes to intellectual property rights, for example?
BRILLIANT: Well, the tariffs are a hit on American consumers' businesses and farmers. But we can't look at what happened, we've got to look
forward. And what we need to do is find a way for these two governments to find a path forward that builds confidence. And like I said, one of those
things that could be done is some down payments to get these talks in a serious place.
Agricultural purchases is one way to do that. There are other things that we're talking to the administration about, and we'll also convey some views
to the Chinese directly. But at the end of the day, there has to be the political will. And there are geopolitical challenges in the relationship
right now, and it's going to require the two presidents to make the investment, to talk together, to encourage their teams and be back at the
table.
Escalating tensions on technology issues or in other areas is going to be counter-productive to the two governments working together to address
serious challenges that we have with their unfair trade practices.
ASHER: All right, Myron Brilliant live for us there, thank you so much. All right --
BRILLIANT: Thank you --
ASHER: Macy's shares tumbled today, they are down double digits on the heels of its Spring quarter earnings report. Profits fell some 48 percent
and the store also lowered its expectations for the rest of the year. Let's talk more about this with Paul La Monica, who knows as well as anyone
that this is a challenging environment for major retailers. What went wrong specifically with Macy's, Paul?
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, I think Macy's had a combination of things that went wrong for them. First and foremost, they
blamed, you know, a fashion mishap. They really just didn't have the right merchandise, particularly for women's apparel, that was a big problem.
But also, what's going on with global economic uncertainty is hurting Macy's as well. They cited fewer tourists coming to some of the flagship
stores like the one at Herald Square in New York. That's obviously a big problem for Macy's, but you know, let's be honest, Zain, a lot of retailers
are still doing well.
We're going to get Wal-Mart's reporting results tomorrow, they could be decent, Alibaba is going to be re-reporting its results, and their top
rival JD in China just had great numbers. So, Chinese consumers still are shopping and so are American shoppers, they're just not doing it at
department stores anymore.
ASHER: So, is this -- does that mean that this problem is specific to Macy's? That they have a bit of a greater challenge than just the retail
sector as a whole?
[15:40:00] I think they do. I mean, there's a big challenge facing many of the department store chains, Nordstrom is suffering a lot, Kohl's has
been trying, experimenting with partnerships with Amazon to try and rejuvenate its sales. And then obviously, there's Sears which has
already gone bankrupt and JCPenney, which is sadly a penny stock that's in dire straits as well.
So, there are retailers that are not doing well, and they're doing extremely poorly. But then you have the likes of Wal-Mart and Target and
Amazon that are all really still clicking -- pardon the pun -- because digital shopping is what consumers want to be doing these days and Wal-Mart
and Target to their credit have adapted and have added more e-commerce options, whereas Macy's, it still just kind of plodding along.
ASHER: Is there anything really that Macy's can do? I mean, obviously, they talk about various strategies in terms of competing with the other big
box retailers, but is there anything really they can do at this point?
LA MONICA: Yes, I mean, sadly, one -- a lot of the things that analysts point to in looking at Macy's that might be a strength is they do have a
lot of real estate. They possibly could try and downsize the footprint, if you will, and maybe just get rid of even more underperforming stores, focus
on the ones that are really doing well and make sure that they have the right merchandise.
But I think it's going to be a long slog. Macy's has been struggling for some time now, and it doesn't look like things are getting any better any
time soon, especially with tariffs possibly, again, we're in a period right now where maybe we hold off until December, but it's possible that those
consumer tariffs could still hit after that December 15th deadline. And that would be very bad in 2020 for them if that happens.
ASHER: Certainly so, Paul La Monica live for us there, thank you so much, appreciate it. The first lawsuit against Jeffrey Epstein's estate has been
unveiled, why a New York law could open the floodgates, next.
(COMMERCIAL BREAK)
ASHER: As investigators probe the circumstances of Jeffrey Epstein's suicide, one thing is clear, his accusers are not giving up. On Wednesday,
a lawsuit was filed in New York against Epstein's estate and his associates including socialite Ghislaine Maxwell, lawyers for Maxwell did not
immediately respond to requests for comments.
And it's the start of what will likely be a wave of lawsuits under New York state's Child Victims Act, which goes into effect today. Victims can sue
over alleged sexual abuse, regardless of the statue of limitations. The New York law could open organizations like the Catholic Church and the boy
scouts to a swarm of legal actions.
[15:45:00] Jeff Herman is an attorney specializing in child's sex or rather just sexual abuse cases, he's represented victims of Jeffrey Epstein
in the past and is currently working on abuse cases against the Catholic Church and others here in New York, he joins us live now.
So, Jeff, thank you so much for being with us. So, how optimistic are victims of Jeffrey Epstein that they will have justice on their side?
JEFF HERMAN, SEX ABUSE ATTORNEY: Well, Jeffrey Epstein's death should only silence Jeffrey Epstein and not his victims, and because of this new law in
New York, which goes into effect today, victims of Jeffrey Epstein and victims all over the state of New York of childhood sexual abuse now have a
voice, they now have a right to bring a civil lawsuit without the statute of limitations. So, that's a one-year window that starts today.
ASHER: And we're going to see the floodgates really open, not just in terms of Epstein's victims, but also as I mentioned, victims of the
Catholic Church, of priests who allegedly did horrendous things to young children, and also the boy scouts as well.
HERMAN: Absolutely. I filed dozens of lawsuits today across the state of New York, mostly against the Catholic Church because that's where we're
seeing most of the victims come from, but against boy scouts, against public schools, private schools, day cares. I mean, unfortunately, child
sexual abuse knows no bounds.
Wherever there's children, that's where we're finding predators. But for decades in New York, these victims have been silenced because of the
statute of limitations.
ASHER: Right, so, the window is one year. Why is that?
HERMAN: OK, so, the way it works is that the deadline to file a lawsuit for victims in New York used to be 23 years old. This new law changes
that to 55 going forward. But the new law also has this window, which is really important, and in this window, anyone who has missed the Statute of
Limitations --
ASHER: Right --
HERMAN: Because they are over 23, now has one year to file their civil lawsuit and the Statute of Limitations doesn't apply. Could it be longer?
Yes. But let me tell you, after all of these years of struggling --
ASHER: Right --
HERMAN: To get this into effect, we're very happy that at least victims now have a choice and have a say.
ASHER: Do you think New York could lead changes in the rest of the country as well?
HERMAN: Yes, New York has. I mean, I would say, today, New York is leading the country in protecting children. In other states, since this
legislation passed, have now filed suit. We saw New Jersey just passed it. So, we're seeing this effect now across the country, many states are
passing their own versions of laws to allow victims of sex abuse to bring their claims.
ASHER: And what can we do as a society to be better at protecting children in the first place?
HERMAN: Right, so, good point. Well, a start is, you know, one of the best ways to protect kids is to expose predators and institutions that
enable them. Unfortunately, the only language I think that institutions speak, particularly the Catholic Church is money. And so by holding them
financially accountable, we are seeing change now.
This change is a long-time coming, but we're forcing organizations like the boy scouts, the church, even schools who you think would always know to do
the right thing, they almost have to be forced --
ASHER: Right --
HERMAN: In the pocketbook to be more readily able to recognize red flag behavior. Most victims are abused by somebody they know --
ASHER: Right --
HERMAN: And before they're abused, there's usually red flags, what we call grooming behaviors, where the predator is seducing the child. Well, when
organizations see these red flags, they need to respond immediately and err on the side of protecting kids.
ASHER: This is so difficult to talk about. But just in terms of knowing - - I mean, it's important to mention that this only affects people who want to file civil lawsuits, it's got nothing to do with the criminal aspect of
it.
HERMAN: That's correct. This is only a civil remedy, unfortunately for victims, you know, we can't take away what happened. What we can do is
give them a voice through a civil lawsuit. It's money, but at the end of the day, it's not about the money because the money becomes symbolic. It's
a measure of justice and it validates for the victim in our society, that something bad happened and it's not their fault. Most victims feel
responsible. This shows --
ASHER: Right, same as the guilt, yes.
HERMAN: Right, and at the end of the day, and I know, I've done I think over 2,000 childhood sexual abuse cases now. I know that at the end of the
day, when that settlement comes in and there's money for the victim, it's a symbolic representation --
ASHER: It wasn't their fault.
HERMAN: And they were believed.
ASHER: OK, thank you, Jeff, appreciate you being on this show.
HERMAN: Thank you.
ASHER: Thank you. WeWork is one step closer to its initial public offering. It will be the latest company that loses a lot of money to go
public. That's next.
[15:50:00] (COMMERCIAL BREAK)
ASHER: WeWork is gearing up for its IPO. It filed to go public Wednesday after losing $1.9 billion last year. It follows several other big money-
losing companies like Uber and Lyft that have also gone public this year as well. The filings reveal some lofty goals, it says its mission is to
elevate the world's consciousness. Clare Sebastian joins us live now.
We'll get to that in a second. But just talk to us about the losses because that is what --
CLARE SEBASTIAN, CNN BUSINESS REPORTER: Right --
ASHER: Investors are going to care about. What is their path to profitability?
SEBASTIAN: It's very unclear at this point, Zain, they say it themselves in their IPO filing. They say that "we have a history of losses and
especially if we continue to grow in accelerated rate, we may be unable to achieve profitability", they say for the foreseeable future.
So, there's really no outlined path to profitability in that, but what they're saying is, we've got all of these locations, there are locations
now in 111 cities and 29 countries, their growth is impressive, they say they've been growing their membership at more than a 100 percent a year
since 2014, they now have 527,000 members, 38 percent of the global fortune 500 now are involved in WeWork.
But the problem is that only 30 percent of their open locations or what they described as mature, meaning they're generating stable revenue. So,
that has been a big problem. Plus, the fact that they have all of these leases on all of these buildings that are 15-year plus in the U.S., the
leases in their obligations, they far exceed the time limit of their memberships.
So, you've got lease obligations of $47 billion, and they've got backlog of revenue from members is only $4 billion. So, I think, that is a -- that is
a key issue with the business model that investors are really going to be focused on.
ASHER: But one thing that's interesting is that they're expanding beyond just leasing out office spaces --
SEBASTIAN: Yes --
ASHER: They're involved in schools, they're going to be --
SEBASTIAN: Yes --
ASHER: Involved in a whole host of other things. Is that what they mean by evaluating the public consciousness?
SEBASTIAN: This is the word that they like to use is community --
ASHER: OK --
SEBASTIAN: This underpins all of their ventures, obviously with WeWork, I know, you have those different companies working in the same facilities,
they share, you know, kitchens and meeting spaces and things like that. And they're applying the same principles, for example, to apartment-slash-
hotel models.
So, they've got these two locations that are called WeLive, where people can rent out apartment spaces for short or long-term, they do things like
share kitchens, they have bars, the whole point is to build community feel, and they have a school as well for kids that's called WeGrow, it's in New
York City, it's got those kinds of -- it's got a conscious entrepreneurial school.
It's kind of the more Montessori approach that aims to -- for kids to kind of discover their own potential. So, this is all part of this kind of
lofty community-based mission. There's also WeRise, which is not really mentioned in the prospectus but it's kind of more wellness focused.
[15:55:00] ASHER: And just talk to us about the economic environment for a company like WeWork going public right now. I mean, if you look at what
the Dow is doing, it's down 700 points, we're in the middle of a trade war with China. What kind of an environment is this --
SEBASTIAN: That's tricky --
ASHER: For an IPO?
SEBASTIAN: I mean, it hasn't stopped a lot of companies from going public this year, the likes of Uber, but they've had trouble since going public
because these valuations are so huge --
ASHER: Uber's first day trade was --
SEBASTIAN: Right --
ASHER: Rocky --
SEBASTIAN: It was rocky, I mean, that did also coincide with a kind of a gloomy moment --
ASHER: Right --
SEBASTIAN: She will say in the trade war. So, there is that risk that based on the timing of their IPO, that could impact their success. But I
think there is more skepticism now given the broader macro environment on Wall Street for these money-losing companies. I think it's going to take
extra faith to give them the kind of returns that they're looking for.
ASHER: All right, Clare Sebastian live for us there, thank you. There are just moments left to trade on Wall Street, we'll have the final numbers and
the closing bell right after this.
(COMMERCIAL BREAK)
ASHER: There are just moments left to trade on Wall Street, stocks in the U.S. are in the midst of a large sell-off, every sector is lower and
volatility is really spiking. It comes after the bond market flashed a warning signal that often predicts recessions. The main yield curve
inverted for the first time since the 2008 financial crisis.
So, let's look at the Dow's individual component, there you see it, red across the board, not one -- not one company there is in green, all 30
stocks lower, the Dow is worst -- Dow rather -- is the Dow chemical is the worst performer followed by Walgreens, investors are fleeing stocks and
heading for bonds after weak data around the world suggests the global economy is sputtering. And that is QUEST MEANS BUSINESS, I am Zain Asher
in New York, "THE LEAD" with Jake Tapper starts right now.
END
