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Quest Means Business
Global Stocks Extend Losses, Volatility Spikes; Oil Prices Plunging; Airline Industry Is Suffering Due To Coronavirus Fears; Trump Heads To CDC Amid U.S. Coronavirus Outbreak; U.S. Stocks Extend Losses, Volatility Spikes; Greek P.M. Criticizes Turkey Over Migrant Dispute; Companies Brace For Coronavirus Impact. Aired 3-4p ET
Aired March 06, 2020 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:00:17]
RICHARD QUEST, CNN BUSINESS HOST: With an hour to go, it is a familiar refrain. We are off 800, which is off the lows of the day. The lows of the
day was in the morning, when we were down the best of 900 points, but red all right the way, occasional moments when it turned -- all the other
indices, by the way, are heavily lower as well.
The markets are down, you really understand the reasons why. It is $9 trillion across nine sessions. That's so far the market cost for the global
stock market as they keep -- as they keep falling.
One of the world's biggest airlines, Lufthansa is cutting its flight schedule by up to 50 percent.
And Greece is grappling with two crises, the coronavirus crisis and the migrant crisis on the Turkish border. An exclusive interview tonight with
the country's Prime Minister.
We are live in the world's financial capital. Oh dear. That is Friday. It was cheerful earlier, but that's what Friday looks like today. Never mind.
It is still March the 6th, Friday, March the 6th. I'm Richard Quest, and yes. I mean, business.
Good evening. Tonight, Wall Street is in extreme fear as the markets compound their losses that we've seen over the past few weeks, every single
Dow sector is down.
Energy shares are the worst of the day. That's after OPEC members failed to agree on production cuts and the volatility is extreme.
If all of that wasn't bad enough, your bond yields set new lows and the President is calling on the Fed to cut rates further to help the economy.
We are looking as we have been throughout the course of this, we have bracketed it all into these areas that we will follow through -- the
markets, travel economics, and health -- all of these make up, if you like, the effects that the coronavirus is having on everyday life.
So let's begin with the markets and the damage on stocks around the world is adding up to $9 trillion over the past two weeks. It's been a bumpy ride
on Wall Street we've seen throughout the course of the session -- the magnitude of the moves.
And if you look at what we've got, you've got basically how do you -- how does one make sense of losses like this? A thousand -- this is over the
last 10 days or so. There you have, one, two, three, four, five down, one up, one down, one up. And we are lower yesterday than it is today.
Now, we're less than an hour from the close of trade. The trend is there. Alison Kosik is at the New York Stock Exchange. Alison, as we head towards
this last hour, what's the mood?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: The mood is the same as the mood has been today, as it's been since, you know, two weeks ago -- fear and
uncertainty about the coronavirus.
It seems like these moves have hundreds of points or more, it's really the new norm on Wall Street, at least until investors believe that U.S.
government officials have a handle on the coronavirus crisis.
You know, all of these mixed messages about preparedness are undercutting confidence here. Even the President today signing an $8 billion coronavirus
response package, it didn't do anything to lift stocks off their lows.
You know, so I think that what we're seeing now is until we see the number of cases of coronavirus start to subside, I don't we're going to see a
sustained rally in the stock market.
QUEST: Alison, thank you. Please come back the moment it looks like things are getting worse between now and the closing bell.
President Trump is calling for the Fed to cut rates. This is only three days after the biggest cuts since 2008. This is what the President said.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We have a Fed that is not exactly proactive. I'm being very nice when I say that.
QUESTION: No fiscal stimulus.
TRUMP: I think what happens is the Fed should cut and the Fed should stimulate and they should do that because other countries are doing it, and
it puts us in a competitive disadvantage.
(END VIDEO CLIP)
QUEST: And markets agreed that the Fed should cut rates. Investors are pricing at least a 50-basis point cut in March.
Michelle Meyer the Head of U.S. Economics at the Bank of America. Good to see you. Thank you.
MICHELLE MEYER, HEAD OF U.S. ECONOMICS, BANK OF AMERICA: Yes, thanks, Richard.
QUEST: Let's just start with your latest forecasts, which I think you've revised for the U.S. economy.
MEYER: That's right. Yes. So no, for our overall GDP growth, we're looking for about one and a half percent growth this year, which is below trend,
which is below its capacity.
But I think that the trajectory matters a lot. We're assuming that the economy really softens into the second quarter with growth of only one
percent, potentially lower, and it really depends on how the consumer responds.
[15:05:18]
MEYER: We're starting to see some signs of behavioral shifts. We're starting to see certainly some signs towards more precautionary behavior
spending on necessary items.
QUEST: I saw an economist headline that basically says, "Recession unlikely, but not impossible."
MEYER: Sure. Yes. Well, I mean, recession in theory is always --
QUEST: But you know what I mean.
MEYER: Possible, but it is not the baseline. It's not the modal forecast at this point, but it is the case --
QUEST: How close are you to it becoming the baseline?
MEYER: Yes, I think was so a quite a while away from that, because, you know, the economy was really quite resilient heading into this big shock.
Look at the jobs report this morning, exceptional amounts of job creation. We were seeing strong confidence levels --
QUEST: Was there a jobs report this morning?
MEYER: I know, the markets didn't seem today moved by this.
QUEST: Yes, I noticed.
MEYER: But I think the fundamentals of economy are okay, they're sound. This is a big shock. This can be the stabilizing, but by itself, I don't
think at this point the baseline should be a recession.
QUEST: Okay. So, the call for the Fed to cut further. Now, the 50 basis points was quite extraordinary to begin with.
MEYER: It was.
QUEST: First of all, they did an intra-meeting or an inter-meeting, move; and secondly, of such a magnitude.
MEYER: Yes.
QUEST: Is it your view that there should or will be another cut?
MEYER: So should and would is somewhat --
QUEST: Exactly.
MEYER: But yes, I do think there will be another cut and I think they will cut another 50 basis points at the upcoming meeting.
QUEST: That brings us to zero.
MEYER: Well, it is a hundred basis points cumulatively, not quite as zero, but you're very -- you're getting uncomfortably close to that zero lower
bound, yes.
QUEST: You're almost there. De facto you're there.
MEYER: Well, it's also a question what the market will be pricing in thereafter, right? So if they do deliver that 50-basis point cut in March,
the risk and the concern is that, markets gets then pushed for more and start to basically price in that zero bound very quickly.
QUEST: The bonds, the 10-year is down at 0.6. What's the effect of that? I mean, I can say until the cows come home that look at it, it is down 23
percent. It's down 200 basis points -- 0.7, but what's the real effect of that?
MEYER: Yes, yes. So you know, clearly low rates help to support, you know, leverage. So those that have debt right now have the ability to borrow more
cheaply, they can refinance into low mortgage rates.
So when you have such sharply lower interest rates, it does provide a stimulus in a sense of helping those that can service their debt. That
said, you have to consider why are interest rates at such low levels?
And I think the why is really important because it's signaling that market participants are quite concerned about the prospects for economic growth
over the near term.
QUEST: But we've got an inversion at the very, very short end at the moment.
MEYER: Yes.
QUEST: Is the market saying we think there's going to be a recession?
MEYER: The market, I would argue is saying there's a high probability of recession. But I think, again, you have to be careful when making the
recession call based off of market signals, because you know, markets -- market participants right now are trying to think about the distribution of
risks and what they're saying is that there's asymmetric risks.
QUEST: What do you now wish to see on the economic front, either from the administration or from the Fed? What's it going -- I mean, I understand
that there's no silver bullet that's going to suddenly make everything better for people in this, but what do you wish to see?
MEYER: So I think policy response matters. I mean, the Fed can do something, but they can't do everything. And Powell alluded to that as
well. They can maybe try to stem market panic.
But if it gets the point where you're seeing behaviors change, and consumer spending weaken, businesses change behavior, you probably need a more
targeted fiscal response.
And I think that if you start see a move in that direction, markets will see that favorable.
QUEST: Finally, the President said -- you would have seen his comments here. Other countries are -- as far as I can see there, the countries
haven't.
MEYER: Well, that is correct.
QUEST: I mean, I was looking around to see what was he referring to? The ECB is not meeting until next week. We've not seen as far as I can see, a
stimulus package from Germany or anybody else. But the G7 did -- final thought for Friday, and I don't want to leave too much on a negative note.
We are going into the weekend.
MEYER: Yes.
QUEST: But just how concerned are you of what we're seeing? It's not 2008. The banking system is strong.
MEYER: It is much more sound. Sure. Sure.
QUEST: It is sound.
MEYER: Yes.
QUEST: But what -- how worried are you?
MEYER: Well, you know, I think it's just -- it's impossible to predict how the virus might end up playing out the spread of it. And it's impossible to
predict how consumers react to it and how confidence changes. Animal spirits are really important.
So I think you want to monitor all of the indications around survey data and how consumers are reacting, how businesses are reacting. But you're
right, we shouldn't be too negative in that, you know, I do continue to think that there is another side of this and that once the panic stems and
once you did get to see the brighter light out there, there will be a recovery ahead.
[15:10:13]
QUEST: Thank you so much.
MEYER: Sure.
QUEST: Have a good weekend.
MEYER: You, as well.
QUEST: Thank you. Now, oil prices are plunging as producers clash over cutting out. The Brent crude fell as much as nine percent. They're off more
than 30 percent since the start of the year.
OPEC and Russia failed to agree on emergency cuts of one and a half million barrels. Combined with existing cuts, that's 3.6 million a day.
Russia is refusing to back the plan, saying it's too early to predict the virus's impact on global demand.
John Defterios is live in Vienna, at OPEC. This was a shock that they didn't reach agreement and I'm wondering, we'll talk about fundamentals in
the markets in a second. But I'm wondering who bears the blame for the failure to reach agreement. Saudi asking for a year or Russia for not
agreeing to it?
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Well, I think it's the first, Richard. Saudi Arabia put a big bet on the table here, and this
was -- let's put it in the right words, a very messy affair that spilled out right into the open.
You could say that the coronavirus took down another victim -- that is OPEC Plus collaboration.
It's been rock solid for three years. So what did the Saudis do? They said, not only do you want to cut an additional 1.5 million barrels a day, but it
has to last until the end of 2020. That happened right after we came off the air last night, Richard.
This left very little room for the Russians to negotiate because it was in the public. So the Russian Minister basically left the table.
The Minister of Energy told me and get this, he said look, OPEC Plus collaboration will continue. But come April 1st, each country can make
their own decision.
We caught up with him after he left the headquarters here at OPEC.
(BEGIN VIDEO CLIP)
ALEXANDER NOVAK, RUSSIAN PRIME MINISTER (through translator): We have the Charter of Cooperation signed with all countries participating in OPEC. We
will continue working in this format.
DEFTERIOS: Does it mean that we have the rollover of 2.1 million barrels a day or we just stop?
NOVAK (through translator): We will see how countries position themselves on the market and we will be assessing the situation.
(END VIDEO CLIP)
DEFTERIOS: Assessing the situation, Richard, in OPEC language means we're going to go our own way. Basically, the Russians told me at 3.6 million
barrels, they're giving way too much space to the Americans who are now producing over 13 million barrels and it was Vladimir Putin's call and he
said, no, not at this time.
QUEST: Okay, so John, how much is the price today -- this fall today reflects that the market had priced in that that oil was going to be taken
out of supply?
DEFTERIOS: Well look at the response, Richard. We are down nearly 10 percent on the session for WTI and we're down better than 30 percent since
the start of 2020.
And here at OPEC Headquarters, they are talking about hitting $30.00 a barrel again, and that's where we last saw this in 2016 in the first
quarter.
Now the OPEC Secretary General was trying to put on a brave face. He says OPEC Plus will continue. We have our offer still on the table. Maybe we'll
get a deal by the end of the month.
But listen to this, Richard, he says, we're not going to do it alone. Let's take a listen to his answer.
(BEGIN VIDEO CLIP)
MOHAMMED BARKINDO, SECRETARY GENERAL, OPEC: We do not make unilateral decisions. Since the Declaration of Cooperation, we agreed among ourselves
to walk together and we have proven that and there is no need for us to break the tradition.
(END VIDEO CLIP)
QUEST: So John, the U.S. produces. These prices, A, are they still making money? And B, even if OPEC cuts, will they just make up that shortfall?
Because they are still making money and not bound by obviously OPEC's agreements.
DEFTERIOS: Well, the shale game is changing. We had a wash out of about 200 companies that went bankrupt in the basins and had debt of $100 billion.
But I say it's changing because the majors have come in, Richard, and they have deep pockets. They can make money at $35.00 to $40.00 a barrel.
They're expected to level up by the end of 2020.
But this move by Russia completely changes the game. They're trying to get prices down so they can force the shale producers to either fold or double
down themselves. It's going to get pretty messy.
And in fact, a source told me inside that the Saudi Minister Abdulaziz bin Salman told his Russian counterpart, you will regret this decision by June.
You're going to ask for more cuts because it's not going to work as we go down close to $30.00 a barrel. Really, nasty stuff.
QUEST: John, you'll watch it. You're our expert and no one knows OPEC better than Johnny D in Vienna tonight.
Thank you, sir. Good to have you with us. Thank you.
Now Lufthansa -- the Lufthansa Group is making a very difficult decision. Demand continues to fall, and the carrier is cutting capacity by up to 50
percent.
The airline industry is suffering. I'm going to speak to the CEO of the World Travel and Tourism Council. Gloria is warning, blanket travel bans
are ineffective at best.
It is QUEST MEANS BUSINESS. I am live from New York.
(COMMERCIAL BREAK)
[15:17:51]
QUEST: So to the coronavirus outbreak, and as we've looked at the markets already, let's look at travel now and the outsized impact that this is
happening.
Today's major event is Germany's Lufthansa Group has slashed its capacity by up to 50 percent, and that could include temporarily grounding their 14
A380 super jumbo jets, which they said in their statement they were considering.
Now, the carrier shares have been falling over the past month. The company says the move comes after a drastic, drastic drop in bookings and numerous
flight cancellations because of the virus fear.
Fred Pleitgen is with us. Fred, this is extraordinary. I mean, the U.S. carriers cut international travel by 20 percent, United and 12 percent for
domestic flying, but Lufthansa -- I got the impression reading the statement, you know, they're going to go up to 50 and they're going to do
it quickly.
FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: They're going to do it quickly and they said there might be more to come. You're absolutely
right, Richard.
I think that we've seen -- I'm not sure how you feel about it -- I think that we've seen Lufthansa as this coronavirus crisis really in the airline
industry has been unfolding, Lufthansa has been very, very quick to stop its routes to China, stop its routes to Iran and already announced that it
was scaling back some capacities a couple of days ago.
But this move was really big. They are now saying they're cutting their capacity by up to 50 percent, and I think one of the things that we need to
point out is that it's not just the airline, Lufthansa itself, but they say all airlines of the Lufthansa Group, and that's a pretty big group.
You're talking about Austrian Airlines. You're talking about Swiss Air. You're talking about SN Brussels. I'm standing in Brussels right now.
So this is a massive scaling back and they're already saying that that might not be enough. They might have to introduce one of the measures that
Germans very often introduce when they're in an economic crisis, short labor, meaning that people will work about half the time they normally work
and the airline will pay less.
They're talking about unpaid leave. They're not talking about laying people off just yet. They said they want to try to avoid that. But they also say
they're not sure how bad this crisis is going to be for their bottom line - - Richard.
QUEST: We can arguably say that if Lufthansa is experiencing this drastic cut off, then IAG which owns British Airways, Iberia and others, and the
Air France KLM Group.
Look, this is getting worse. What is Europe and the commission going to do about it? Bearing in mind, it's really up to national governments.
[15:20:25]
PLEITGEN: It really is very much up to national governments. It was one of the interesting things as I was following the proceedings today of the
European Commission, mostly the Health Ministers are talking about how to tackle coronavirus. But of course, one of the things that they were talking
about was the economic impact of all this.
Italy, of course, hit very hard. Italy, a country that has a lot of tourism, hit very hard. There's going to be national projects to try and
help the economies of these countries financially.
But in the end, it does already seem as though the European Union and Europe is going to have to do something as well --Richard.
QUEST: Fred Pleitgen who will watch events for us in Brussels. Fred, thank you.
So you see when it comes to the coronavirus, governments are responding. And in many cases, it is dramatic, the measures they're taking.
So we're seeing the depth of the reaction and its rippling effects, not only with travel, with economics, for example.
I want you to look at Israel. Israel, small country, less than 10 million in terms of population and within Israel at the moment, they have just 21
cases. In a moment, this will eventually do what it's supposed to do, but it's not planning to do it at the moment.
So they have 21 -- now, they've barred foreigners from 12 countries. That includes France, Germany, Spain, and Austria.
Not only have they done that, but they have also put in a mandatory quarantine for Israeli citizens coming home. So for example, and along with
the Palestinian Authority, they have closed Bethlehem.
In terms of flights itself, they have been canceled en mass. Lufthansa has cut all flights to Israel long with Swiss and others. El Al is cutting
staff and executive salaries. What effect does this have?
Well, conferences are canceled. Sites are shuttered. Tourism and business travels are reduced. Hotels lose bookings. Remember it is Passover next
month, and hotels would normally be full for the Passover festival.
Finally, restaurant, bars and services will be fewer people and all because they've got 21 cases of the virus. You see the chain very clearly in a
small country from the virus, to the flights, to the tourism to the hotels, to the industry.
Gloria Guevara is the President and CEO of the World Travel and Tourism Council. She joins me now from London. I hope I've exemplified the issues,
but what our company's supposed to do when you've got like a Lufthansa that's just slashed routes.
GLORIA GUEVARA, PRESIDENT AND CEO, WORLD TRAVEL AND TOURISM COUNCIL: That's unfortunate, Richard and I couldn't agree more with you. Ninety percent of
the impact of these outbreaks, according to W.H.O. is not related with the virus, it is related with the overreaction and the panic, unfortunately.
If we look at the past experiences, for instance, in the case of H1N1 or the case of SARS, where we lost like $50 billion because of that outbreak,
90 percent was because of the panic and the overreaction.
But what we can do here, that partnership between governments and private sector is crucial, but we need to make sure that governments are stepping
up and not overreacting and they need to understand that one in 10 jobs -- one in 10 jobs in the world depend on travel and tourism.
QUEST: Right. So accepting that you can't force people on a plane and you can't sort of -- so getting the message across, a lack of panic is not
really something that you have much control over. What do you want governments to do? For instance, when you have somebody like Israel making
such extreme measures that that are draconian.
GUEVARA: Right. The government needs to communicate, I understand that their priority is to contain the spread, but they also need to communicate
their initiatives, the protocols. They should be prepared for these type of situations. This is not the first time that we have an outbreak.
And what we ask the governments is to step up because not only they need to assign some resources, and in the future to help us with their recovery,
but I think that they can help us to reduce the impact.
The longer that we go to with these measurements, these major travel bans that by the way, they are not recommended by W.H.O., the longer there is
going to be for the recovery and, of course, the greatest the impact.
QUEST: How worried are you for some of your members, which are the private sector? Some of the hotels, well, I assume be shutting floors, airlines are
canceling flights, the industry -- the industry is in crisis.
[15:25:13]
GUEVARA: Yes, we are in crisis. It is not the first one. We're going to recover. But we need a lot of help here from the governments and from
everyone to understand that we need to make decisions based in what we know.
There are a lot of things that we don't know about this virus. But there are a lot of things that we know. And we should base decisions based on
facts and based in science, and basically what we know.
And what we know is that there's a group that is a vulnerable group that we need to protect and we need to take care of that vulnerable group.
But at the same time, we know what to do. This is not the first time that we have outbreaks. We have analyzed 11 outbreaks before and we should learn
from the past and I'm not sure that the government, some of them are listening and some of them are stepping up and helping us.
So this is a problem that needs a solution from everyone, not only the private sector because travel and tourism is impacting millions of people.
QUEST: Once that's done, I mean this -- one of the other big problems has been the sheer wholesale cancellation of major events. ITB went. Mobile
World Congress went.
And I mean, you know, there are news, you have a conference yourself coming up in in a few months' time. The decision on whether to cancel an event is
a difficult one. And what advice would you give to people making that decision?
GUEVARA: Well, the advice that I gave them is based in the experience that I had, for instance, H1N1 in Mexico and what we have learned from past
experiences.
The case of the events that they are cancelling, they need to look at the facts. They need to look at where the people are coming from, and don't
rush to cancel or make decisions that later will have a domino effect.
Our Summit, for instance, this is still on. It is planned to be as you know, end of April. It is too soon to make a decision. We're monitoring
what is going on, and we're looking at what is happening in the rest of the world.
But we're hoping to host that Summit to start the recovery in April.
But here, as I say, we need to make sure that we don't overreact because as the W.H.O. has said multiple times, 90 percent of the impact is based on
that.
QUEST: And when your conference goes ahead, be it at the end of April or whenever, I will be there. Looking forward to it. Thank you very much
indeed.
Gloria joining me from London tonight.
The coronavirus outbreak has hit some companies particularly hard. We will look at what happens when a company's share price is cut by half.
(COMMERCIAL BREAK)
[15:30:00]
QUEST: Hello, I'm Richard Quest. A lot more QUEST MEANS BUSINESS in just a moment. I'll be speaking exclusively to the Prime Minister of Greece about
the mounting tensions with Turkey of the migrant crisis along the border. And share prices for major travel and energy companies have been cut in
half. We'll explore what that means for the company's future. This is CNN, and here, the news and facts always come first.
Number of coronavirus cases around the world has now more than 100,000. There are more than 3,400 deaths being reported. Mostly so far are still in
China, Mainland China, but new infections are spreading farther into Europe, Asia, and the U.S. Italy, for instance, has reported 49 new deaths
on Friday. In the U.S., there are 265 cases of coronavirus. President Trump is on his way to Atlanta, where he'll visit the Centers for Disease
Control, the CDC, which is on the frontlines of the U.S. response and stopped in Nashville along the way where he surveyed tornado damage.
A crisis meeting about the coronavirus involving E.U. health ministers finished a short while ago. The European Commissioner for health and food
safety says we can't expect all member states to take the same measures, since they're not all facing the same situation. Coronavirus fears are an
evidence in the markets again. All three indices have spent the day in correction and on track to close on a down note, about a half an hour to
go. You can see the numbers.
The President is calling on the Fed to reduce rates even more to help the economy. A ceasefire is in effect in the embattled Idlib region of Syria.
It was reached by Russian President Putin and Turkish President Erdogan in Moscow on Thursday. President Putin calls the deal a good basis to stop the
fighting and suffering of civilians, as several previous deals have fallen apart.
So the coronavirus outbreak, which of course, dominates all aspects of the business world at the moment. The Dow is off the lows of the day, all of
the (INAUDIBLE) stocks around the world suffered about $9 trillion worth of losses in two weeks. Now, some sectors have been much worse hit than
others. For example, oil, the cruise line industry. Now, we know the cruise line industry, just -- here we have the Carnival Cruises, which is down
some 53 percent.
Now, you've got the cruise industry down, you've got American Airlines down 54 percent, you've got Sabre, which is a booking engine involved in this,
down some 60 percent, and you have ExxonMobil down 42 percent. Now, that of course, is on the back of the oil price, but that's related to coronavirus.
You hear -- now, don't forget, of course, American benefits from that, as Carnival benefit from the falling oil price, which may -- excuse me --
which makes this even more serious.
But just pause for a second and think about it. These are vast companies, employing hundreds of thousands of people in the case of American and
ExxonMobil. And all of a sudden, the share price has fallen through the floor, literally. Paul La Monica is here to tell me. So, I'm the CEO. And I
see these sharp falls in prices. What effect does it have on the company and my ability to -- the treasury and all that sort of stuff?
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, I think the big impact if you are a publicly-traded company, and you've seen your stock price got -- get
cut in half. It clearly is a reflection that the market is anticipating really bad numbers to come. We all know that the market does a pretty good
job of predicting things that are coming in the next couple of weeks, months, and quarters.
[15:35:02]
So, the problem, if you have a stock that has plunged 40, 50 percent, odds are you're going to be reporting very poor quarterly results, revenues that
are likely to go down, earnings are likely to go down. Some companies probably will even report quarterly losses because of the coronavirus. And
that's the big problem. It's not so much -- I mean, the stock price is kind of a symptom of the underlying illness, which is that your results are just
terrible.
QUEST: Besides from the results, for the CFO, who has to see a destruction of shareholder value, and thereby, the company is worth less, because of
course, you just multiply the share price by the number. So what effect does that have?
LA MONICA: Yes, your market value is going down. If you are in --
QUEST: But what effect does a -- what effect does a falling market value have on a company?
LA MONICA: Yes, I think you -- there's a couple of things. One, you may have employees who become suddenly a lot more anxious, particularly if
they're being paid some of their compensation in stock. Obviously, no one really gets up in the morning and looks at CNN Business or other financial
Web sites and says, Hey, yay, the company I work for shares are down 50 percent in the last five months. That's not obviously great for confidence.
But also, if you're a CFO, if you need to raise money, you're not going to be doing it through an equity offering anytime soon. You can hope that
because the Fed has cut rates and are probably going to continue doing so, that you can get decent loans, but are banks going to be willing to lend in
an environment where everyone's nervous about the big unknown, that is a biological threat and epidemiological threat, not a financial threat. This
is a lot different than the 2008 credit crisis or even, you know, the end of 2018 whenever I was worried that maybe the Fed was raising rates too
aggressively.
QUEST: Extreme fear on our market. Is that the worse you've seen it?
LA MONICA: It actually is not. Amazingly enough, do you remember the big Christmas Eve stock selloff that we had in December 2018?
QUEST: Of course.
LA MONICA: I was at home cooking my Seven Fishes Italian dinner and not having to worry about it. But we were at extreme fear of two on that day,
December 24th, 2018.
QUEST: Still got time to go.
LA MONICA: We do.
QUEST: Good to see you, sir. Have a good weekend. Greece is facing a crisis at its border. An exclusive interview with Greece's Prime Minister in a
moment.
(COMMERCIAL BREAK)
[15:40:01]
QUEST: The Prime Minister of Greece has told me his country is not responsible for the crisis on its border. Greece is facing an influx of
thousands of migrants from Turkey, which has slammed Europe's response to the issue. Turkey has called the Greek response inhumane. There being
reports that migrants suffered bullet wounds at the hands of the Greek security officers. Now, the Greek government has told CNN, no excessive
violence had been used. In an exclusive interview from the Prime Minister's Office, Kyriakos Mitsotakis told me where he thinks the real problem lies.
(BEGIN VIDEOTAPE)
KYRIAKOS MITSOTAKIS, PRIME MINISTER OF GREECE: What we're dealing with is not really a migration or a refugee problem. It's a conscious attempt by
Turkey to use migrants and refugees as geopolitical pawns to promote its own interests. The people who try to cross into Greece are not people who
come from Syria, they don't come from Idlib, they've been living in Turkey for a long period of time. Most of them talk Turkish fluently. They've been
fully supported by the Turkish government in terms of the Dutch government providing transport for them to get to the border. And of course, Greece is
doing what any sovereign state has the right to do to protect its border for any illegal crossings. This is what we have been doing. This is what we
will continue to do.
Now, obviously, we have seen over the past hours, increased tension on the borders, there have been attempts to actually burn down the fence that we
have. There have been numerous attempts to throw tear gases on our troops. So, I'm afraid this is a constant and verse systematic provocation on
Turkey's behalf, which has nothing to do with the plight of these -- of these people. They're being used by Turkey. And this is a -- you know, the
result is the scenes that you will probably see on the Greek-Turkish border.
QUEST: It may be -- they may be that may be the cause as seen, but there is -- the result is that you are the ones getting, to some extent, the blame
and the bad reaction when we see the sort of pictures that we saw last week, where it is your forces of one sort or another, who are engaged in
stopping them, and it creates ugly scenes, and you get the blame.
MITSOTAKIS: Well, I don't see why we should be getting any blame for something we've publicly stated we will do. We have every right, Richard,
to protect our borders. And this is exactly what we -- what we do. We were not the ones who initiated this crisis. We weren't the ones who encouraged
people to cross into Greece, illegally. And frankly, you know, something, this is a country that has, over the past the years, accepted hundreds of
thousands of migrants and refugees. We've opened up our homes, we've opened up our hearts. And it is totally, totally unacceptable as a prime minister
of this country, to be accused of not properly treating these people in times of great need.
I mean, Greece has demonstrated this humanism throughout this crisis, but what we're not willing to do is we're not willing to engage in a process by
which another country systematically uses and abuses these people to try to send them across the border. Now, in terms of the methodology and the
methods that we use, we have not used any sort of excessive force and we're always reacting, we're never initiating in terms of responding to the
provocations that have taken place on the border.
QUEST: Do you see the events of the last week as either endangering or revoking, in a practical sense, the E.U.-Turkey agreement following on from
2016?
MITSOTAKIS: Richard, right now, let's be honest, the agreement is dead. And it's dead because Turkey has decided to completely violate the agreement
because of what happened in Syria. Turkey has an obligation to stop people reaching the coastlines and it has an obligation to do whatever it can to
contain the illegal smugglers, and prohibit people from illegally crossing into Greece. This is exactly what the agreement says. And Turkey has been
doing the exact opposite. They have assisted, systematically assisted both at land and at sea, people in their effort to cross in to Greece.
So, on the other hand, I've been public about acknowledging the fact that Turkey has also borne a big burden by hosting the millions of refugees. And
I've always been willing to support Turkey in this effort, but this is not going to happen, Richard, under a situation of blackmail. Europe is not
going to be blackmailed over this problem by Turkey.
Mr. Erdogan needs to recognize that. Mr. Erdogan needs to stop being the instigator of fake news. People apparently, according to the Turkish
minister, hundreds of thousands of people have already crossed into Greece. There are completely false accusations in terms of what's happening at the
border. So, we're not the ones escalating this conflict but we have every right, Richard, and I will continue to do so, to protect our sovereign
borders. We've succeeded in doing so and we'll continue to succeed doing so in the future.
[15:45:10]
QUEST: Prime Minister, will you indulge me and just answer one or two questions, if I may, on coronavirus and the seriousness of this situation?
And what Prime Minister you might wish to see happen at a European level, it seems, seems as if this is on the verge of becoming a pandemic.
MITSOTAKIS: Okay. This is a -- you know, obviously a very serious issue, and we need a coordinated European response. I think we've done whatever we
can within our capacity to contain this problem as much as possible. We haven't had a single death yet in Greece from coronavirus, but we know that
this is a problem that is going to -- is going to spread. Obviously, coordination at the European level would be most welcome. But this is also
a question with speed, and every member state needs to assess its own peculiarities and address the problem speedily, and by taking the necessary
measures.
Where I think we need more European response is in mitigating the economic consequences of this outbreak. It is very clear. Richard, we've discussed
this before that, you know, even before the coronavirus hit us, monetary policy has reached its limits. And this is a time to take a hard look at
how fiscal policy can help us alleviate the pressures on growth that will inevitably occur as a result of this outbreak. So, where I expect more,
European coordination is clearly on the financial on the economic side, where I do hope that the next Euro group is going to be more proactive in
terms of containing the economic damage, which inevitably will occur as a result of this outbreak.
(END VIDEOTAPE)
QEUST: On the first part of our interview concerning the migrants crossing from Turkey, we've received this response from Turkey's communications
director who has responded. And I'll read it in full. "We categorically reject Prime Minister Mitsotakis' allegations, and we are deeply concerned
about the ill treatment of, and use of lethal force against refugees by his country's law enforcement and border security agents. Turkey hosts more
refugees than any other country, and it's just been a bulwark against irregular migration from a Syria and elsewhere. The European Union has
failed to keep its promises, including financial aid and voluntary humanitarian admission, under the 2016 agreement. As a result, Turkey had
to divert its resources away from stopping the refugee flow to Europe, and instead prepare for potential influx from Idlib. Instead of playing the
blame game, we urge Greece and the rest of the international community to address the root cause of irregular migration, namely the ongoing civil war
in Syria."
(INAUDIBLE) coronavirus continues to spread, many companies are not prepared for this kind of crisis. We'll discuss the ways they can cope with
prolonged disruption, in just a moment.
(COMMERCIAL BREAK)
[15:50:00]
QUEST: Both Facebook and Google are asking their San Francisco employees to work from home. The latest tech giants to take such action as the spread of
the virus continues and gathers pace. At CNN's special Coronavirus Town Hall last night, the pandemic expert, Nathan Wolfe, warned many firms
simply aren't equipped to deal with disruption and the virus.
(BEGIN VIDEO CLIP)
NATHAN WOLFE, AUTHOR, THE VIRAL STORM: And the worst absolute scenario is 99 percent of the people on this planet are going to live. And many of
those people will be devastated financially, whether it's loss of a breadwinner, whether it's absenteeism, whether the impact of corporations
going down in this, and we've had huge, huge changes with hurricanes and earthquakes. Where now there is insurance, there's mechanisms for
understanding risk. This has not happened at all with regards to epidemics. We're about 10 years behind, and when I think about the next 10 years,
that's one of the areas that I think we really are deficient in.
(END VIDEO CLIP)
QUEST: Yasunobu Kyogoku is the founding partner at Innovation Global Capital, and the former chief operating officer of the Japanese retailer
Uniqlo. He joins me now. Good to see you, sir. Thank you.
YASUNOBU KYOGOKU, FOUNDING PARTNER, INNOVATION GLOBAL CAPITAL: Good to see you.
QUEST: You've had experience of a virus and how it affects the corporation when it hits hard. So, what did you learn?
KYOGOKU: Well, I think it reinforces the first lesson, which is contingency planning. So, even though nothing may be happening, we need to be provide -
- prepared for those situations that might arise. Number two, is think about the potential downside on revenue. What we can do to try and mitigate
those. Fortunately now, you have the internet, you have e-commerce, other forms of distribution other than physical stores. So, that's certainly a
big help. And number three, is on the expense side. What can we do both in the short-term and long-term, particularly Capex, for example, but other
discretionary expenses that we can control.
QUEST: OK. So, we've certainly seen -- we've certainly seen companies, the airlines, particularly --
KYOGOKU: Yes.
QUEST: -- cutting back on staff, they're cutting back on roots, they're doing what they can.
KYOGOKU: Yes.
QUEST: But as opposed -- you know, is it enough if that was the answer?
KYOGOKU: Well, these -- no one can predict these exogenous events, but the best thing that people can do is try and manage that situation, right? And
perhaps with the airlines --
QUEST: But if you -- but if you spot your sales have collapsed --
KYOGOKU: Yes.
QUEST: -- and you know, your fixed expenses of your hotel, you still got the building and things like that, all your supply lines, because you must
have had this at Uniqlo during SARS, you must have seen your supply lines compromised quite badly. What do you do then?
KYOGOKU: Well, in the case of Uniqlo, for example, they do have sufficient long lead times that they had enough inventory in stock to survive, you
know, quarter or possibly been two quarters of a blip. Nowadays, many companies don't have as much of a leeway. So, the honest truth is they're
going to have to manage through what might be a difficult quarter or two.
QUEST: So, what would you say to a CEO -- when you sat down, you said, you need to prepare for a virus?
KYOGOKU: Yes.
QUEST: Or, some form of health-related event that could close down your factory, reduce your -- and the CEO says, oh, for goodness sake. That's the
last thing that's going to happen, or Yes, it's possible, but it's so unlikely. I don't need to worry about it. What would you say?
KYOGOKU: Well, I have had this conversation. For a number of weeks, we've been speaking to our portfolio companies about how we should be prepared
about the potential for disruption in (INAUDIBLE)
QUEST: Right. Now, when -- how many companies have you --
KYOGOKU 16.
QUEST: So, the 16 companies of which you are invested --
KYOGOKU: Correct.
QUEST: -- when you said this to them, how many of the CEOs or senior management said you're barking mad?
(LAUGHTER)
QUEST: Let's face it. But they politely nodded, having no intention of doing anything about it?
KYOGOKU: Well, I think the majority of them thought it was a very important point, but they were a minority who thought, well, it hasn't quite hit the
United States yet. And this was three, four weeks ago, right? They certainly have changed their tune now. The reality is, again, we don't know
the extent to which this will affect consumer sentiment, right? There are certain industries like travel that are hit immediately, but if it begins
to be influenced how people purchase suits, for example, or denim, that begins to be a larger issue or eating out.
QUEST: Look at it. We're in extreme fear at the moment. Now, I don't know the range of the companies that you are invested in. But of those
companies, there must be some to talk -- I know there will be many that your consumer facing yes and will be you -- as the joint venture and
venture capital, you will be the one saying, get this right.
KYOGOKU: Yes. Well, the good news is the majority of our companies are actually profitable on the EBITDA basis. So for them, it's a question of
how can we manage our expenses a little bit better, right, on the expense size and trying to hedge. Fortunately, these days, you have something
called the internet and e-commerce which actually has not been affected, right as much as physical store --
(CROSSTALK)
QUEST: And you're going to get them more leeway before they have to become profitable so you can IPO. That's another thing you got to worry about. You
want to get rid of some of these things, and there's a destruction of shareholder value.
KYOGOKU: Well, that's a very good point. Fortunately for us, our firm was founded on the assumption and the critical key point being, you have to
make a profit. So from day one, we believe in profitability. Hence, this is actually a tailwind for us.
QUEST: What a novel thought, profitability.
KYOGOKU: What a novel though.
QUEST: Novel. Have a good weekend, sir.
KYOGOKU: Thank you. We will take a "PROFITABLE MOMENT" after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's "PROFITABLE MOMENT," I have no hesitation in saying to you, I don't really understand these markets. Just look at the way we've
come from 700, 800 points down in the course of this hour to where we're now just off 181-3/4 percent. All the markets have come back. In fact, I
said to my colleagues here, I'll buy everybody dinner if it goes positive before the end of the show, well, that's not going to happen. So, that's
some money saved for the weekend. The reality is, though, this volatility is the name of the game, it's going to happen, and it's going to continue.
There are technical reasons why we've had a late rally not based on fundamentals, and next week, they'll be more of the same and similar. I
looked at my pension fund this morning. It was not a pretty sight, but like you, I'll remain calm, I'll take no precipitant decisions. When I look to -
- look at some dips that are worth buying. But as long as the economic fundamentals are good, and as long as policymakers have a handle, and
central banks seem to know where they're going, this is not -- this is not 2008 all over again. The banks are strong. The resilience is there, and
that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in New York. Whatever you're up to over the weekend, I hope it's profitable. Have a good
weekend. Right, we're down, but there's the Dow.
END
