Return to Transcripts main page
Quest Means Business
Top Economists Say A Recession Is Coming Within Two Years; The Bundesbank Is Now Warning That Europe's Largest Economy Will Probably Slip Into Recession ; Huawei Got Some Relief From The U.S. Government. Aired 3- 4p ET
Aired August 19, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL HOST, QUEST MEANS BUSINESS: Sixty minutes left of trading. An hour to go and the markets are strong. They've been
hot throughout the course of the day, all three major indices are showing gains of at least one percent. And those other markets, these are the
reasons why.
Top economists say a recession is coming within two years. The Trump administration has different ideas and the market seems to believe whatever
happens, they're going to win. Germany's Central Bank, the Bundesbank warns a recession may already be here. And tech stocks are rallying as
Huawei gets new relief from the U.S. government.
We are live in the world's financial capital, New York City, what a blisteringly good view. It is Monday, it's August the 19th. I'm Richard
Quest. I mean business.
Good evening. Recession or no recession. That is the question. Economists may be sounding the alarm, investors though around the world are
signaling, there's plenty of time to buy. The Dow marches higher as Donald Trump tweets that the U.S. and China are talking. The market took that as
a positive sign for the trade war, complete reversal from last week's fortunes and bond yields are finally on the rise.
The wild ride we've seen on the broader market, the S&P 500 is now more than one and a half percent over the last week despite the intense
volatility.
Matt Egan is here, over the course of the program, Matt will be going into all the recession, not recession and the different views. What's the
market focusing on tonight to give us these numbers?
MATT EGAN, CNN BUSINESS LEAD WRITER: This is all about easy money. Right? Investors love the idea that Central Banks around the world are signaling
that they are going to come to the rescue and try -- emphasis on try -- to save the world from a recession.
We saw China announce plans overnight to make things easier as far as companies borrowing. It was effectively a rate cut. The ECB talk last
week about their own policy response and Fed Chief Jerome Powell is speaking on Friday in Jackson Hole, and he may detail more plans for rate
cuts as well.
QUEST: Why does easy money boost the market? How do you -- how does it get from the Central Banks to the consumers to the market?
EGAN: Well, it's basically like a short term sugar high, right? By lowering rates, the Fed is making the stock market look more attractive
than boring bonds, right? Because if Treasury yields are high, and Treasuries are considered the safest asset in the world, then investors may
say, "Well, let's just take a quick yield from the Treasury market."
QUEST: But the Treasury yields have been down two to three percent for some time. The yield on the market has been over 10, 12 to 14 percent for
a long time, too.
EGAN: Right. But the 10-year Treasury has been cut in half. It was at 3.2 percent. It went down to 1.6 percent or so. I mean, that's a pretty
dramatic move. And it is all being pulled lower by the Central Bank moves.
But I think that the bigger question here is, why is the -- why are the Central Banks coming to the rescue? And that's not a good thing, right?
They are lowering interest rates and talking about stimulus because they're worried about global growth weakening, and that's not good for the stock
market. The other question is, is how much ammo do Central Banks have left?
QUEST: Well, let's just -- just on that. I saw in "The Times" this morning, one economist suggesting that in a normal garden variety
recession, the Fed would cut maybe between four and five percent? But they don't have that to cut.
EGAN: No, they don't have that at all. They're not even close to that. Right? They have less than half of that. And so that raises the question
of what will they do? Because we've seen Europe and Japan go to negative rates, but that has some really significant side effects where the banking
system which was just getting crushed, especially in the Eurozone.
And then it raises the possibility of quantitative easing, right? Where the Central Banks buy assets. And I think that maybe perhaps President
Trump saw that "New York Times" story as well, because he tweeted just today, and he said he thinks that the Fed should perhaps consider doing
quantitative easing.
QUEST: Surely -- and we'll talk to Ken Rogoff about this in just a moment. Surely, there's no justification for the Fed to forestall a garden variety
recession with QE?
EGAN: Well, it matters who you ask, right? I mean, if you listen to some of the bears like Jeff Gundlach, he sees a 75 percent chance of a recession
in the United States before the 2020 election, but the Trump officials themselves, they were out on television this weekend, talking about how the
U.S. economy is roaring and how it's doing so well.
So we can't really make sense of that. Why do you need rate cuts if the economy is so strong?
[15:05:14] QUEST: We'll talk about that. Thank you, sir. There is one key question, as Matt has just put. It lurks around the global markets.
Politicians and economists alike are all wanting to know if the world's biggest economies are indeed heading for a recession.
In Germany, the Bundesbank is now warning that Europe's largest economy will probably slip into recession. In the United States, a new survey
shows that most economists believe a recession will come within the next two years.
At the same time, the White House is engaged in an all-out media blitz, tamping down the fears. Donald Trump and his team insist the economy is in
great shape.
(BEGIN VIDEO CLIP)
DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: We're having a recession -- we're doing tremendously well. Our consumers are rich. I gave a
tremendous tax cut, and they're loaded up with money.
LARRY KUDLOW, U.S. NATIONAL ECONOMIC COUNCIL ADVISER: I sure don't see a recession. We're doing pretty darn well in my judgment. Let's not be
afraid of optimism.
PETER NAVARRO, WHITE HOUSE TRADE ADVISER: And what I can tell you with certainty is that we're going to have a strong economy through 2020 and
beyond.
WILBUR ROSS, U.S. COMMERCE SECRETARY: Eventually, there'll be a recession. But this inversion is not as reliable in my view, as people think.
NAVARRO: Technically, we did not have a yield curve inversion.
KELLYANNE CONWAY, COUNSEL TO PRESIDENT TRUMP: You don't have a magic wand to say and now we're in a recession. The fact is, the fundamentals of our
economy are very strong, and you know it.
(END VIDEO CLIP)
QUEST: Now, who do you believe? Join the conversation. Get out your digital devices or whatever it might be, and go to cnn.com/join. The
question is, who do you trust to predict to the next recession? Economists or the Trump administration officials like Kudlow, Navarro, Conway -- that
you've just heard on the program, or maybe it's no one. Well, cnn.com/join, and you can vote and see the results on your screen.
I'm guessing Ken Rogoff, who served as the IMF Chief Economist, and is now a Professor of Economics at Harvard would firmly plump for economists to
predict the next recession over the administration.
But Ken, on this question, do you see a recession in the next two years?
KEN ROGOFF, FORMER IMF CHIEF ECONOMIST: I think it's a little less than 50/50. I mean, let's remember Richard, in a normal two-year period,
there's probably like a one in three chance that you might enter a recession at some point. We have one every seven years, and they're higher
now. We've had a long period without one.
I think the trade war is really the thing which is pushing China down. It's pushing Germany into a recession. And the idea that it couldn't
boomerang on the U.S. is nonsense.
But yes, the fundamentals of the U.S. economy are really pretty good, except for the trade war.
QUEST: Right. So, this idea of the inversion of the curve. Now, what the -- I mean, you heard Peter Navarro say it is not a technical inversion,
others are describing it as a flattening of the curve.
I suspect, since there isn't a full scale inversion, they might be right. Is this just semantics between a flattening of the curve and an inversion?
ROGOFF: You know, there's no magic formula to predict a recession. It is true, sometimes investors worry about it before the Fed. So the Fed has
got the interest rate up here and investors are saying it is coming down.
So longer rates might move down below shorter rates, which is unusual, because there's more risk at the long end. But there's been a downward
trend in interest rates for 15 years now. So it doesn't mean what it used to.
That said, the collapse of the 30-year rate that we saw last week, going down something like half a percent before you could blink, I can't think of
seeing anything that outside of a global -- big global recession or some kind of panic, but I don't think it's necessarily a signal. The bond
markets could be wrong.
QUEST: But you see the problem -- except, of course, the bond markets could be wrong, but the bond market does tend to have its finger in every
pie in the sense that, you know, whatever the economic activity, there is a bond market element to it. It is arguably the most sensitive of weather
vanes for economic growth.
ROGOFF: It is and what is sort of confusing here is the trade war, I think is having huge effects on uncertainty. The weakest thing in the U.S.
economy is business investment has not picked up.
If the economy is so wonderful, it seems to be doing well. Unemployment is slow. Growth has been solid. If it is doing so well, why aren't
businesses investing? I think they're nervous. They don't know what's coming next. There's uncertainty.
[15:10:09] QUEST: All right, so --
ROGOFF: And I think it really -- President Trump needs to relieve that uncertainty.
QUEST: Right, but --
ROGOFF: If he is able to.
QUEST: But do you believe that, frankly, if the Fed cuts another couple of points, or half a percent or whatever, they haven't got that much to cut?
Do you believe that it makes any difference? Would you be suggesting in the current economic environment that restarting QE should be on the
agenda?
ROGOFF: Well, I think QE is smoke and mirrors. It worked for a while after the financial crisis, because people thought it would work. It
worked because people believed that.
But look at Japan, look at Europe. I mean, it really has its limits of what you can do. No, but the Fed has room to cut, and I don't think it
would be such a problem if they cut a little. But recessions happen no matter what the Fed does. There's a limit to how much they can do it.
And if they cut rates too much, the problem -- the immediate problem is not inflation, but that they put the seeds of the next financial crisis.
There's already a lot of debt. I think they're more nervous about that than they are about inflation than they should be.
QUEST: All right, Ken, the National Association of Business Economics survey of economist says 74 percent are predicting recession over the next
two years; 38 percent see it this year. Knowing that the NEBR and the way that the organization does it, it's always ex post facto, they tell us a
year later that we'd been in recession for the previous six months. Is it possible that we're in a recession now?
ROGOFF: I mean, that growth data is so hard to call. Technically, it could be, but unemployment is 3.7 percent. It's the best it's been in
decades. That is not a recession. That's a lagging indicator, maybe, but things aren't terrible right now.
I don't -- we are not in a recession now. But we could start one. It could happen in the next few months. China is slowing down. It's pulling
everyone down with it. It could boomerang on the U.S. and as I said, the confidence is really weak at the moment. I'm thinking that's what
President Trump and his advisers are upset about.
But the reason confidence is weak is everyone is nervous about what's going to get tweeted out of the White House tomorrow.
QUEST: Ken, good to see you, as always, sir. Thank you. Ken Rogoff joining us from Harvard. And of course, those of you voting at
cnn.com/join, most of you comfortably trust the economists rather than the Trump administration officials. What is it? It's 80 percent, nine percent
-- five percent for the Trump administration. And 15 percent of you think neither stand any chance.
We will keep the voting -- we will keep it open for the rest of the program, so that you can see if those votes change.
Huawei got some relief from the U.S. government. The American companies have been given another 90 days to do limited business with the Chinese
giant.
At the same time, the U.S. has also added 46 companies affiliated with Huawei, to the export blacklist. Clare is with me. Why has the government
given them another 90 days?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Well, they say this is a reprieve not for Huawei, Richard. But for U.S. businesses. People like
Micron and Intel who want to sell their chips to Huawei, and Google wants to provide updates to the Android operating system.
And then there's the one that Wilbur Ross, the Commerce Secretary singled out which is the rural carriers who rely heavily on Huawei equipment for
their networks. They are given another three months to try to minimize the disruptions to try to find alternatives.
Although, I think in the case of the rural carriers when the costs are so much lower for Huawei equipment, that's a bit of a tall order --
QUEST: But we've had one extension already. Now, there's this second one. The real core question is whether the appetite for action against Huawei
still exists by the administration. It's been one of those cards that the administration keeps in its back pocket to use in the trade war.
SEBASTIAN: It does. And it was interesting the way this was done today. It doesn't look like they're trying to kind of give an olive branch and
also put a sting in the tail at the same time to say, you know, to Huawei, we are still very worried about national security concerns to say to China,
"We're still willing to get tough by adding another 46 Huawei affiliates to the entity list."
But at the same time, giving the reprieve that does look a bit like an olive branch. We've got -- don't forget -- another reprieve that comes to
a head in December with those tariffs that have kind of pushed that down the road as well.
Perhaps that these both taken together are a way of bringing a chance to the table again if those talks do happen in September, more in the mood to
compromise perhaps.
QUEST: But The difference here is, what I was saying earlier and the whole question of slowing economies. And suddenly the reality that the "R" word
is on your doorstep.
SEBASTIAN: I mean, I think that's a real kind of part of the backdrop here, Richard the trade wars as Ken Rogoff was saying is really the thing
that's dragging everything down. And I don't think this really changes that, neither does the delay to the tariffs really. It happened last week.
[15:15:08] SEBASTIAN: These companies are still facing the same kinds of uncertainty.
QUEST: Absolutely. That is the problem isn't it, Ken Rogoff was just --
SEBASTIAN: Uncertainty far worse right now than any of the actual definite direct impacts of this trade war.
QUEST: Good to see you. Thank you. Coming up, the British government responded to a leaked report, which makes dire predictions about what could
happen in the event of a no deal Brexit.
Germany Central Bank is warning of a recession. The country considers a multibillion dollar stimulus package to counter an economic crisis. It is
QUEST MEANS BUSINESS live from New York.
(COMMERCIAL BREAK)
QUEST: The British Prime Minister Boris Johnson says the U.K. will be ready to come out of the European Union by the end of October with or
without a deal.
Now, this comment despite the leaked report in "The Sunday Times" over the weekend that warns of dire shortages if it crashes out without a deal.
The government is calling the report "Operation: Yellow Hammer." Why? Well, the yellow hammer is a small songbird, apparently. The name was
picked at random by the Treasury. But what may be true about this songbird? It is singing the siren of warning.
It is warning of the unavailability of fresh food. It will be reduced and that will cause prices to rise. There is the potential for fuel shortages.
Medical supplies from Europe. Now, these could be vulnerable because of regulatory difficulties along with supply chain and logistics because
ultimately, well you've got delays at the ports and the borders from Dover and Calais.
And the introduction -- reintroduction of that hard border between Ireland and Northern Ireland. Operation: Yellow Hammer paints a dire picture. But
the Government Minister responsible, Michael Gove tweeted saying, "It was the worst case scenario and that very significant steps have been taken
over the last three years to accelerate Brexit planning."
There are 75 days until Brexit. Simon Cullen looks at Yellow Hammer and the aftermath.
[15:20:06] (BEGIN VIDEOTAPE)
SIMON CULLEN, CNN PRODUCER (voice over): Visiting a hospital in southwest England. The Prime Minister Boris Johnson got a taste of life on the front
lines. It's a sentiment that could just as well have been said during a Brexit briefing after "The Sunday Times" newspaper revealed just how
unprepared the U.K. is for no deal withdrawal.
According to the report, Operation: Yellow Hammer, the government's code name for preparing for no deal Brexit warns that medical supplies will be
vulnerable to severe extended delays. The availability of fresh food will be reduced and prices will rise and delays at the border could affect fuel
supplies.
(BEGIN VIDEO CLIP)
BORIS JOHNSON, BRITISH PRIME MINISTER: There may well be bumps in the road, but we will be ready at a command on October 31st, deal or no deal.
JEREMY CORBYN, BRITISH MEMBER OF PARLIAMENT, LABOUR PARTY: We will do everything necessary to stop a disastrous no deal for which this government
has no mandate.
(END VIDEO CLIP)
CULLEN (voice over): Labour's solution is for a general election, something the government has ruled out happening before the Brexit
deadline.
CULLEN (on camera): Boris Johnson's immediate challenge is French President Emmanuel Macron and German Chancellor Angela Merkel, both of him
he'll meet this wee
His message will be a familiar one. He wants Europe to make further changes to the proposed withdrawal deal.
(BEGIN VIDEO CLIP)
JOHNSON: They have seen that the U.K. Parliament has three times rejected the withdrawal agreement, the backstop -- it just doesn't work. It's not
democratic. I hope that they will see fit to compromise.
(END VIDEO CLIP)
CULLEN (voice over): But Europe's response is equally familiar. No.
(BEGIN VIDEO CLIP)
NATASHA BERTAUD, E.U. DEPUTY CHIEF SPOKESPERSON: President Juncker himself said in an interview a few weeks ago on the 10th of August that if it comes
to a hard Brexit -- and this is in no one's interest -- it is the British that will unfortunately be the big losers. This is now situation.
(END VIDEO CLIP)
CULLEN (voice over): With less than two and a half months to go until the October 31st Brexit deadline, neither side is willing to move, both
preparing for the ever increasing likelihood that Britain will crash out of the E.U. without a deal. Simon Cullen, CNN, London.
(END VIDEOTAPE)
QUEST: Two developments also to talk about with Nina de Santos, our Europe Editor joins me from London. The first is that Boris Johnson has spoken to
Leo Varadkar, the Taoiseach -- the Prime Minister of Ireland and he has written to Donald Tusk saying that the backstop has to go.
The problem Nina is that these are just well-rehearsed arguments and both sides know where they stand.
NINA DOS SANTOS, CNN EUROPE EDITOR: That's right, neither one is willing to budge for the moment. It is a really expensive game of chicken that yet
again is coming down to the wire here.
The two sets of correspondence that we know about over just the last couple of hours that you referred to there, Richard, the one-hour long
conversation with the Irish Taoiseach. That's a lot of time here for two Prime Ministers to be on the telephone for, to not make a huge amount of
headway.
And the letter to Donald Tusk, which was four pages long, and that again is a rather long letter from a British Prime Minister to the head of the
European Council.
And in the second one of these sets of correspondence, so Donald Tusk, that's a really interesting bit because Boris Johnson is specifically
referring to alternative arrangements that the U.K. and the E.U. had originally agreed on, in very sort of nondescript manner early on.
And he said, the E.U. and the U.K. have already agreed that alternative arrangements could be part of a non-backstop solution. I won't be able to
get the backstop through Parliament, as you heard there in Simon's piece, the backstop has been rejected three times. So we should focus on
something else. This is a new Prime Minister saying we play by different rules.
QUEST: Doesn't he have a point, Boris Johnson? I mean, the sort of -- a lot of the reporting and a lot of the views are that, you know, this man
has taken over as a maverick, but he does have a very strong point in that E.U. rule require a ratification by National Parliament of Treaties and
Agreements. He can't get this through Parliament.
DOS SANTOS: Yes, you're absolutely right, Richard. He is using the real democratization or perhaps some Brexiteers might say over democratization
of the E.U.'s system, effectively against them.
Remember, he has only got a working majority of one. It would be difficult he is saying here for any Prime Minister with a more sizable majority to
get this through Parliament, largely because of the unpopularity of this arrangement over the Irish border, an arrangement which according to this
leaked document over the course of the weekend, may not hold either way.
So you're right in that sense. He is using the system against them.
QUEST: Let me just interrupt, right, because having done -- covered this with you since sort of year dot and through all the problems of mud, who
blinks first? That's really now the question. As we come out of the summer, and there will be a long weekend in the U.K. coming up, who blinks
first?
[15:25:11] DOS SANTOS: That's the -- that's the key thing. And one indication we got so far that was interesting about Boris Johnson's
strategy was the second thing that I was going to say before is that one thing he is able to use is the money that the U.K. still has to pay the
divorce bill, if you like.
And the other thing is the fate of the three million E.U. citizens that call the U.K. their home. Now interestingly enough, what we saw today was
the Home Office starting to brief that freedom of movement would end abruptly for those E.U. citizens come October 31st if there were to be a no
deal.
So you're already starting to see Boris Johnson trying to play hardball with the fate of those E.U. citizens. And we know in the past that he has
talked about playing hardball with the money when it comes to the divorce settlement.
We'll get an indication of just who is willing to blink first, when he starts going to the European capitals like Berlin and Paris later this
week.
QUEST: I just need to clarify with you because that story of the day has gone on, this freedom of movement, restriction or a banning is only for new
people, isn't it? All governments -- all governments have accepted that citizens of both sides who are already in place in country will be
grandfathered in. Am I right?
DOS SANTOS: That appears to be the case. And in fact, Downing Street had to clarify earlier on today after the Home Secretary, Priti Patel had been
quoted in one newspaper article -- one press outlet, I believe -- had claimed at one point that that freedom of movement would end for everybody.
But it just goes to illustrate the lack of clarity, and also the sort of gray areas in which the different sides can operate to apply those
political levers.
In the meantime, though, you're still talking about the faith of around 60 million people in the U.K., and a huge important economy that's on the
line, not to mention another 300 to 320 other European citizens, Richard.
But obviously, as I was pointing out, this is a key week for Boris Johnson because for the first time during his Premiership, which has lasted less
than a month, he will finally be heading over to Brussels to finally have talks -- well not Brussels -- Berlin and Paris for a start to have talks
with Merkel and Macron, and then also you'll have talks at the G-7 where there will be Canada and the U.S. around the table, two non-E.U. countries
that he is keen to try and do a trade deal with. Perhaps he can play one side of against the other -- Richard.
QUEST: Nina, thank you. Nina is in London. Thank you. Coming up next, welcome relief for European stocks. The DAX made solid grounds after the
German Finance Minister made a promise to unleash the full force of stimulus. It's exactly what they wanted to hear. Let's face it, it's only
because there's a recession on the way. QUEST MEANS BUSINESS live from New York.
(COMMERCIAL BREAK)
[15:30:00] QUEST: Hello, I'm Richard Quest, there is more QUEST MEANS BUSINESS in just a moment. The Winklevoss twins tell us why they could see
themselves teaming up with Facebook on cryptocurrency. And it's the tech teenager that dominates Wall Street, will mark 15 years since Google went
public on the Nasdaq. As you and I continue tonight, this is CNN and on this network, the facts always come first.
The top U.S. law enforcement official has removed the Bureau of Prisons chief after the suicide of convicted sex offender Jeffrey Epstein. Epstein
was found dead in his jail cell early this month. Authorities have cited serious irregularities at that facility and acknowledged Epstein was not
guarded for the hours in the night he died.
Meanwhile, Buckingham Palace says Prince Andrew is appalled by the sex abuse claims against Epstein. That new statement comes after a video
surfaced over the weekend that appears to show the Duke of York inside Epstein's New York mansion in 2010. Epstein was registered as a sex
offender at that time.
Twitter says it's identified nearly a thousand accounts from China that were deliberately attempting to sow political discord in Hong Kong.
Twitter says the accounts now suspended, coordinated to amplify messages related to Hong Kong protests. Twitter is blocked in China, but says the
accounts accessed the social media network using VPNs, virtual networks.
A dictator who ruled Sudan for three decades is now on trial for corruption. Former President Omar al-Bashir was toppled in April after
months of protests. A state investigator told the court that Bashir received $25 million from the Saudi Crown Prince Mohammad Bin Salman to
spend in their words donations and gifts for the poor.
A New York police officer accused of fatally choking Eric Garner in 2014 has been dismissed and will not receive his pension, the police
commissioner says. Officer Daniel Pantaleo was found guilty in a disciplinary trial of using a choke-hold on Garner. Pantaleo is not facing
criminal charges in the case.
We already talked about the Bundesbank's warning of a recession. Now Germany's finance minister suggesting the government could do something
it's resisted for decades, spend tens of billions of dollars in stimulus. Christian Schulz is the chief Germany economist for Citi, he joins me now
from Frankfurt, good to have you as always.
And the decision by the finance minister to basically tell everybody to get ready for stimulus -- that's new, that's a different way of looking at
things for Germany.
CHRISTIAN SCHULZ, CHIEF GERMANY ECONOMIST, CITI: Yes, in the speech itself, he probably didn't really say very much. He just said that ten
years ago during the financial crisis, Germany did about 50 billion worth of stimulus, and it could do the same again if things get really bad. So,
he hasn't actually promised anything.
But I'm sure he was aware of how these words and the current context would be perceived in the markets. So, it is a shift in Berlin which is
gradually emerging -- where there's smoke, there must be a fire somewhere.
QUEST: Right, but if there's a smoke and there's a fire, and then the Bundesbank appears to be the one that's called the fire brigade.
SCHULZ: Indeed. The numbers in Germany don't look great, we've had negative growth in the second quarter of this year, all the leading
indicators point to further weakness ahead, and particular of course in the manufacturing sector which is exposed to what I call the unholy trinity of
China's rebalancing U.S. trade wars.
[15:35:00] And Brexit, there are also some structural problems -- the domestic economy is holding up well so far, private to consumption is still
strong, but it probably --
QUEST: But --
SCHULZ: Won't last if the manufacturing crisis doesn't end.
QUEST: But the one thing of course that Germany, the government doesn't have is the ability to influence interest rates in a direct way. But one
assumes as Germany is the largest economy in Europe, the ECB will be taking great note.
SCHULZ: Well, the ECB is at its lower bound, it really can't do very much anymore, it would try probably in September, but can't do much many more in
this. It's been saying for months -- for years, indeed, that it's time for the fiscal side for tax cuts and for spending increases to share the burden
of stabilizing the economy.
So, they would be quite happy if Germany moves -- Germany itself is probably actually too small to get the whole Eurozone going. But if
Germany moves, the idea is that perhaps the rest of Europe will do its share as well.
QUEST: We're talking a lot on this program tonight about recession. And I mean, first of all, you know, is there an almost certainty that Germany
will go into recession in your view?
And secondly, related to that, if it does -- well, Europe is woefully unprepared with Italian banks, Spanish deficits and governmental problems
and French unrest to deal with the recession.
SCHULZ: Well, I think Europe is in a much better position now through Mario Draghi at the ECB's policies than it was at the end of the euro
crisis. We've had a long period of growth, unemployment is much lower, but there are some stabilization in the banking system, government debt isn't
quite as high anymore as it was.
So, there have been some improvement. But now this strength -- the locomotive of the Eurozone, Germany is nearing recession and it really is a
question of definition of what a recession is. Germany may not have two consecutive quarters of negative growth, but it is close to recession
already anyway.
So, it is time to do something and the longer you leave it, the more expensive it gets. So, the idea is that if you move early, if you move
big, you surprise perhaps markets, you generate some confidence in the economy. In the end, it becomes cheaper.
QUEST: Briefly, does Germany have the mindset to do it? If I think back to Schobler(ph) and all the other time after time after time, he would bang
the table and say we're doing enough. Has that mindset changed?
SCHULZ: Well, Germany has built a lot of credibility over the years by bringing down the debt, and now is the time to use that credibility.
QUEST: Good to see you, sir, as always, thank you. U.S. stocks is surging --
SCHULZ: Thank you --
QUEST: After last week's wild ride. There is hope in the air, investors are glad for a grim of good trade news, although whether it's real or
illusion, we don't really know. But the Dow is up, it's been up all day and it is holding those gains with 22 minutes left to trade.
[15:40:00] (COMMERCIAL BREAK)
QUEST: Twenty minutes to go until the closing bell and there will be many -- we'll be grateful to hear it today, the gratitude because the stocks are
rallying. The Dow is soaring on encouraging comments from the U.S. president on trade talks that follows a week of dreadfully wild week.
Incredible mood swing, look at that, down 450, up 370, down 800 up -- I mean, just awful in terms of managing -- trying to manage a portfolio.
Steven Englander is global head of G10 FX Strategy at Standard Chartered, here's here with me in the studio.
We're just discussing whether or not, you know, you see a recession in the United States. It will be a close-run thing, but it doesn't really matter
if you're up .1 or down .1. It feels pretty awful.
STEVEN ENGLANDER, GLOBAL HEAD, G10 FX STRATEGY, STANDARD CHARTERED: Well, sentiment is pretty awful, and certainly the discussion in the markets has
been all recession all day long. The U.S. economic data are not terrible, labor markets are not terrible, people can find jobs -- you know, even
groups that historically have had trouble getting on the job ladder can find jobs --
QUEST: But if you're talking technically about the bond yields and say, for example, the currency, you're talking about the Japanification. What
does that mean?
ENGLANDER: Well, it means that you never get as happy as you hope to be. That you don't get the inflation targets, inflation is slowly falling, the
interest rates are coming down. You never quite get to that feeling that you're at full capacity. It doesn't mean that it's a recession, but it
means that things as you said before kind of feel that they're draggy.
QUEST: Right, but the -- if we take Japan, the inability to escape deflation for many years coupled with running vast deficits so to the
point now where the government debt to GDP is one of the highest on the planet. I mean, is that the outlook for the United States?
ENGLANDER: Eventually, yes, things will drift -- we think that things will drift down. That the -- we don't feel that the inflation impulse is very
strong. There's technological progress innovation that's pushing downward pressure on prices, some of it coming from abroad that a lot of it
domestic.
It's not the worst thing in the world unless there is a really bad negative shock that hits you.
QUEST: OK, but if you take Japanification and we take Japan, I mean, have they suffered because of all of this? You know, they still seem to have a
very good stone-way of life, and yes, I mean, let's forget the -- you know, the fact that the aging of the population. But if you just look at the
economic numbers, have they suffered because of their malaise?
ENGLANDER: And that exactly is the reason central bankers get up in the morning and say zero-bound on interest rates, that's all they talk about.
Because if you go to Japan, people are happy, the stores are full, restaurants are full, there's no sense that they're coming to the end of
the world.
However, because rates are essentially zero and the negative rates haven't done them match good, if you got a really bad shock, they would, sir, throw
up their hands -- and central bank would throw up its hands and say what are we going to do now?
QUEST: Negative rates remind us how they work because essentially negative rates work on the basis that the banks then get the central bank -- and
they get, you know, they basically pay the central bank to take -- to look after their money.
ENGLANDER: The idea would be that you put a hundred in the bank today, you get back 99 a year from now. That gives you an incentive to spend the
money. And what they're hoping is that by making it expensive to actually save and hold cash, they would generate spending.
The evidence is very mixed, you know, rates are minus 65 in Europe, none of our clients releasing that, cutting it -- you know, cutting rates further
is going to really generate much growth in Europe.
QUEST: What's the answer?
ENGLANDER: Well, it's going to be fiscal. You know, they can borrow cheaply, the central bank is willing to buy back the debt, essentially,
that means canceling out the debt. You do too much of it, you end up like Argentina, but you can do some of it.
QUEST: What an outlook, Japanification or Argentina, good to see you, sir --
ENGLANDER: Thank you --
QUEST: Thank you very much indeed. QUEST MEANS BUSINESS, as we continue our conversation tonight, a blast from the past for Google, the company
celebrate 15 years since going public. What's changed since it was welcomed on to Wall Street? In a moment.
[15:45:00] (COMMERCIAL BREAK)
QUEST: So 15 years ago today, the iPod mini was all the rage, yes, I had one, eBay was the most valuable internet company, I still -- and Google
came to Wall Street and we all really wondered just how you pronounce it and what was it. The company began trading on the Nasdaq in 2004, the
shares opened at $100 each and closed 34 cents higher unlike today's IPOs.
Now, this offering was an auction with the listing price influenced by bidders. The sort of thing we've seen since. Fast-forward to 2019 and
Google has become a verb, I Googled it, and a tech behemoth, the acquisitions are extraordinary. Android, of course, is the most popular
phone -- operating system in the world, open source.
YouTube, I mean, from funny cats to important moments in history, it's probably on YouTube. Motorola is still a major force in specialized
communication for emergency services and the like. Nest keeps your lights on and your heating, and Waze gets you there at the same time. It's a vast
company, but is it too big?
Shelly Palmer is with me now. We were trying to work out $100 invested in Google at the beginning and what it's worth. But there are so many stock
splits and changes, it's almost impossible, would be wealthy.
SHELLY PALMER, ADVERTISING, MARKETING & TECHNOLOGY CONSULTANT: No, you'd do OK. You would do all right. Around -- in 2016, I think I worked it out
at about $1,800 for an original single share, but I don't know what it would be today -- more.
QUEST: Right --
PALMER: More --
QUEST: But the company itself, what does it look like?
PALMER: Look, Alphabet is -- it's funny to talk about is Google too big? Well, Google isn't Google anymore? It's Alphabet and it's a holding company
and they've kind of broken themselves up, and they've got different divisions. We think of Google, we think of search immediately, right?
That's kind of what you think of.
And you mentioned YouTube and Nest, Android is the most popular operating system for smartphones around the world. The issue isn't are they too big
from a financial point of view? It's the data that they own that is making them the most of the -- data elite of the most data elite. If there's a
data-ocracy(ph) in our world, Richard, if there's wealth inequality, there's data inequality --
[15:50:00] QUEST: Do they know how to use that data?
PALMER: I don't think anybody knows how to use it, they definitely know how to use it to translate the value of your intention into wealth, you
don't intend to go to Google, you intend to go somewhere else and they translate that into wealth and the search money that they make is amazing
and they do a great job with it.
But the data they collect across the vast areas that Google touches in our lives from where we drive, so they have our location data, Google Earth,
Google Maps, they know what you're mailing through G-mail and what you're writing through Google Office Suite. It is unbelievable how much Google --
and by the way, Facebook and Amazon and Netflix know about as --
QUEST: Google is way above --
PALMER: Google is, you know, in a unique position because they just know everything.
QUEST: Right, but it's the ability to use that information --
PALMER: Yes --
QUEST: That's -- I mean, for example, they constantly remind us that they are the search, the purity and integrity of search has not changed, that is
absolutely --
PALMER: That is a total lie, first of all, that's a total lie. Google is not a search engine, you have to stop that right now. Google is a very
highly optimized advertising delivery system and searches the bait, right? It only has to be as good, they have no competition, it only has to be good
enough so the government doesn't break them up, and you will go there to search.
And once you go there to search, they put stuff in front of you that you will click on, and it's optimized for you to click on stuff they make money
from, nothing else.
QUEST: But the first one is on the search list below the adverts -- you're saying --
PALMER: It only has to be good enough for you to go back there and go back there and go back there. It is optimized for you to click on stuff they
make money from. Anybody who tells you anything else doesn't understand how Google shareholders get value. It's an advertising agency --
QUEST: Do you see an existential threat to them?
PALMER: No, they can't -- they are way too big --
QUEST: From the government? From --
PALMER: That's it, I mean, only the government -- and by the way, what is the government going to break up? They're going to break up search?
Alphabet is already broken up into units, so what will the government break up? I've asked everyone, how would you break up Google? Now, you might
regulate the data usage. You might turn around and say, look, you are part of the data elite, you are a data rich organization that has so much
control that we have to regulate how you use the data. But breaking up search, that doesn't even make sense, what you're saying out loud.
QUEST: You have a grudging respect that borders on admiration and also contempt, it's interesting --
PALMER: No contempt, just abject fear.
QUEST: Fear, got the word, got the word. Fear, I should have got that word myself, thank you. After the famous battle over who invented
Facebook, now of course, we're talking about the Winklevoss brothers. They -- the stars may align for the Winklevoss twins and Mark Zuckerberg. The
bitcoin billionaire as some call him say crytocurrency exchange Gemini is open to partnering with Facebook's libra association.
They spoke to CNN's Poppy Harlow.
(BEGIN VIDEO CLIP)
POPPY HARLOW, CNN ANCHOR: Warren Buffett, as you know, famously has called bitcoin "rat poison squared". Should the average American bet their
retirement on bitcoin, on crypto? My friend's parents in Minnesota or that laid off GM worker in Ohio. Is it safe enough for them?
TYLER WINKLEVOSS, CO-FOUNDER & CHIEF EXECUTIVE OFFICER, GEMINI: You have to make your own decision, but I think if you start looking at it and
digging deep --
HARLOW: Yes --
WINKLEVOSS: There's some really exciting stuff coming on. And unlike the internet which you couldn't buy a piece of, you can actually buy a piece of
this new internet of money. So, it's been a retail-driven market from day one, it still is. And a lot of people have, you know, done really well and
Wall Street has been asleep at the wheel.
HARLOW: Wall Street's been asleep at the wheel?
WINKLEVOSS: Totally.
HARLOW: Do you think though it is as safe as U.S. treasuries as well as bonds?
CAMERON WINKLEVOSS, CO-FOUNDER & PRESIDENT, GEMINI: It's a different type of investment. I mean, an investment in bitcoin is like an investment in
gold --
HARLOW: It's more like -- OK --
WINKLEVOSS: Like a new store of value in gold, but this is a new asset class, it's the future, it is volatile. There's been ups and down, but we
think directionally, it's moving in the right direction and you know, we had to invest because we were afraid of being like of missing out. Like we
couldn't miss out on this -- on this future.
HARLOW: Does it make the world a safer place? Let me read you some of the concern. The Treasury Secretary Stephen Mnuchin was talking about libra
recently and talked about his concern that it could be used by, quote, "money launderers and terrorist financiers", he recently called this a
national security argument.
We know drug dealers, we know trolls at the Kremlin, the IRA, right? The Russian internet research agency that interfered in the 2016 election, used
bitcoin to finance that campaign. Fed Chair Jerome Powell says libra raises many concerns regarding privacy, money laundering, consumer
protection and financial stability. Do you guys share those concerns or do you think they just don't get it?
WINKLEVOSS: We totally share those concerns, and every all those requirements under the Bank Secrecy Act and FinCEN registration and
reporting obligations we do and we've done since day one. It's the DNA of our business, you know, and so we totally agree.
WINKLEVOSS: But these concerns aren't unique to libra. Terrorists use e- mail, they use cars, they use U.S. dollars -- libra is not even launched, so no one is using it for anything bad. Of course, it could be used just
like anything else.
[15:55:00] HARLOW: But bitcoin as I mentioned was used by the internet research agency.
WINKLEVOSS: Sure, bitcoin has been used by some bad actors, but a lot of those people are in jail now. Silk Road is in jail, the DEA agency, Fed
actually busted Silk Road and embezzled some of the bitcoin. They're in jail. Smart criminals haven't been using bitcoin because it's actually
very traceable.
There's tools and blockchain forensics analysis, so it's actually not that anonymous. I don't think it's a unique problem to bitcoin or crypto
because it's a new thing. People like -- oh, all this stuff that like, again, I'll go back to the U.S. dollar has committed more crimes or more
criminals have used that dollar than anything else.
(END VIDEO CLIP)
QUEST: I was thinking during the last few minutes of trade on Wall Street, I think we're just off the top of the day, we're not far off the top of the
day, there we are at 272 and across the board, really good, some strong gains, Boeing is up 1 percent, Donald Trump has tweeted that there could be
more talks with China and that is enough grounds for the optimism upon which we are seeing.
United Health Group is the only one that is down, that will be on specific factors relating to them, otherwise strong session for consumers like Home
Depot, Cisco is the best of the day. Profitable moment after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment, with all this talk about will it later be obsession or not, is somewhat furious because in the real world upon
which you and I live, it doesn't make a great deal of difference and the economy is growing by a tenth of a percent versus minus point-1, plus,
point-2, minus point-2.
I promise you, it feels exactly the same. It feels miserable. The economy feels slow, it feels sluggish, people lose their jobs, there's a lack of
investment, all these things happen. So, as we talk about the economies and recessions over the next few weeks, just keep in mind that the longer-
term trend, if these sort of levels is pretty gloomy any which way you look at it.
Which is why the focus of attention comes on what needs to be done about it. And that's QUEST MEANS BUSINESS for tonight, I am Richard Quest in New
York, whatever you're up to in the hours ahead, I hope it is profitable.
(BELL RINGING)
Great day on the market! The bell is ringing, the Dow is up, the day is done.
END
