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Quest Means Business

Volatile Week Pushes Wall Street Towards Bear Market; Mus Says $44 Billion Twitter Bid Is Temporarily On Hold; Powell: Soft Landing Maybe Out Of Control; Israel Police Beat Mourners Carrying Journalist's Casket; United Arab Emirates President Sheikh Khalifa Dead At Age 73; Erdogan Not Looking At Finland And Sweden Joining NATO Positively. Aired 3-4p ET

Aired May 13, 2022 - 15:00   ET



RICHARD QUEST, CNN BUSINESS ANCHOR: With an hour to go before the end of trading on Wall Street, there is a rally underway, quite a powerful one. It

doesn't sort of erase the losses on what has been an exhausting week on Wall Street. So much so that these are the markets and the events that

we'll be talking about tonight.

Living with the bears. The world's top economic minds are with me tonight to explain the stock market turmoil and how perhaps we should react.

A good example of what we're talking about, the stark reality from Jerome Powell. The process of bringing down inflation will be painful, says the

Fed Chair.

And tonight, the billionaire investor, Ray Dalio, on why the current geopolitical situation scares him.


RAY DALIO, INVESTOR: It is very, very dangerous. So I'm worried.


QUEST: Maybe he should be.

It's Friday, May the 13th. Friday the 13th. Well, we are still live in New York. I'm still Richard Quest, and I still mean business.

Good evening. It is a horrible week for investors with a bit of cheer at the end of it, but the reality is, extended losses have left U.S. stocks on

the brink of a bear market. It's the problems facing the global economy that just keep piling up -- soaring inflation, rising interest rates to

cure it, slowing growth as a result, and turmoil across the global supply chain because of China.

These issues are deep seated, and the solutions are neither quick nor easy, which is why tonight living with the bears, and we'll speak to some of the

greatest minds, investing minds, and economic thinkers making sense of it all.

We will ask how the world can weather this bear market, this coming bear market.

Ray Dalio, Mohamed El-Erian, Gary Cohn, and Jason Furman will all give us insight and guidance, perhaps a suggestion or two over the way forward.

But as to today, on Wall Street, a much needed reprieve from the heavy selling. Well, sharply up on the NASDAQ, up over three and a half percent.

The S&P is up two and something percent, the Dow is up one percent or so, but we will still be down sharply for the week.

The markets are heading for their sixth straight week of declines, and many investors are indeed concerned that a bear market -- so what is this bear

market? It is where stocks fall 20 percent or more from recent highs, and it has got to be a sustained fall. So really, we don't count the pandemic

for example, it has to be a sustained fall.

The S&P 500 is only four percent away. After peaking in January, the S&P is off -- oh, you can see that about 16 percent so far. The NASDAQ is already

comfortably in a bear market.

Gary Cohn is the Vice Chair of IBM. He was an economic adviser to the former President Trump and President and COO at Goldman Sachs. If he

doesn't know what's happening, or at least give us some insight, we are in deep trouble. Gary is with me now.

Gary, first of all, let us just get the recession question out of the way. Do you believe that the U.S. will skirt or fall into a recession?

GARY COHN, VICE CHAIR, IBM: Richard, thanks for having me. Look, you're asking the question that everyone is pondering, everyone is debating.

There's a big debate here. Can the Fed maneuver what they would call a soft landing? Meaning can they raise interest rates enough? Can they slow down

demand in the U.S. economy in order to slow down the economy enough to ease the pains we're having, but not go too far and put us into recession?

That's going to be very difficult. Even the Chairman of the Federal Reserve yesterday admitted how difficult it is to maneuver a soft landing. That

said, you know, if you look at where we are, we've got some pretty good fundamentals standing behind us. We've got a consumer in relatively good

shape. We've got corporate balance sheets in great shape. We've got people out spending money.

To the extent we happen to go into a recession, I, along with most people think that will be very shallow and relatively short if we do go into


QUEST: So we turn to this extraordinary dislocation in the markets where we're now in an environment that many youngers won't have seen in their



And, you know, let's say we just take the NASDAQ, the growth stocks, if you will. Go back to the 90s, it took 15 years for it to recover. I'm not

suggesting that would be the same again, but you have to ask this repricing of risk, what do you make of it?

COHN: Look, we almost had to reprice risk. If you think of how we got here. We were in the last few years, especially during the pandemic, the

Central Banks around the world made money available at virtually no cost. Not only were they making interest rates low and making the cost of money

cheap, they were actually buying securities to make sure that everything traded as cheaply as possible.

Meaning that the risk free rates of return around the world, we are paying investors very small returns, and in some places, no returns and negative

returns. That almost forced investors who wanted to have a return on their money into riskier assets.

So many people bought stocks, and they bought the stock market, and they tended to buy growth companies, companies that were growing. Those growth

companies went up in value, meaning that their earnings weren't growing, but the multiple that people were willing to pay for those earnings

expanded. So we had a huge multiple expansion.

Now, the Fed is doing -- the Fed and other Central Banks are doing the exact opposite. They're taking money out of the system. They are going from

buying securities to selling securities. They're going from lowering interest rates or having interest rates at zero to raising interest rates.

So everything that forced people into risky assets, we are now doing the opposite and telling people, get out of risky assets and get into the

assets that don't have as much risk in them.

QUEST: So, what do you do? What does the ordinary investor base -- I mean, who is on the wrong side of this, who has sort of now seen the losses

-- has got the losses and is wondering what on Earth do I do now?

COHN: Well, as you pointed out, look the NASDAQ has already had a 20- plus percent correction, the S&P is close, you know, the question is, is the damage done or is there a lot more damage to be done?

If you look at the fundamentals of companies, and remember, the stock market is a market of stocks. So we're now to the point where you have to

look at individual companies, many companies today are probably priced for a much slower economic growth and not priced for expanded earnings.

So they may be actually decent value to good value, and you wouldn't want to be selling those stocks. So you have to look at the companies that have

repriced and repriced dramatically. There are stocks that are down 50, 60, 70 percent. Those may not be the companies you want to sell.

On the other hand, if there are companies that are down 70 percent, and they have no growth prospects and they're not earning any revenue, you may

want to get rid of them. You have to literally evaluate where you are, and if you get out of stock market, the question is, where do you go?

Because buying bonds right now, when you think interest rates are going higher, bonds will go down as well. So, it's one of those real investment

conundrums. When you're shifting policy, it's tough to decide where to go.

QUEST: And that is -- and that conundrum goes to the heart of what every 401 (k) has, in a sense, because you were told, remember, shift from stocks

to bonds as you get older, so you're more secure. Well, now you've got both going down.

COHN: Yes, and you probably will have bonds going down for the foreseeable future. You know, the Federal Reserve here in the United States

has telegraphed what they're going to do for the remainder of the year. In fact, they almost reaffirmed explicitly that they're going to raise

interest rates 50 basis points in the next two monthly meetings.

So we're going to see interest rates continue to go up in the United States, and we're going to see bond prices go down. So at this point, you

probably don't want to rush into bonds. Cash may be a good place to hide for a small period of time.

But we know in an inflationary world, you lose purchasing power by holding cash.

QUEST: Damned if you do, damned if you don't. But what I love about you, Gary, you always manage to sound whatever the underlying economic optics,

you always manage to sound relatively optimistic about it all.

COHN: Well, look, this is a great country. We've got a great fundamental basis to work from. We keep creating new companies, we keep

solving problems, like I look at the problem today, we've got a labor shortage in the world today. We've got waged price inflation.

So people are now turning to technology solutions to solve their wage problem. So we're going to see a lot more investment in technology. We will

solve these problems. If you're willing to look in a long-time horizon, a long frame, we will do a good job as a global economy figuring our way

through this.

Markets don't go straight up, they shouldn't go straight up. Things tend to get overvalued at the top and they equally get undervalued at the bottom

and you've just got to have a longer term horizon.

QUEST: Gary, good to have you sir. Thank you very much for coming in this evening. I appreciate your time. Thank you.

COHN: Thank you very much.


QUEST: And so to the never-ending saga of Twitter and Elon Musk, who now says its $44 billion bid for Twitter is on hold. Twitter shares are down

nine percent, but let's not worry. Remember, it's down nine percent or 10 percent in an upmarket. Musk said he is doing due diligence on a number of

actual users and tweeted, "Twitter deal temporarily on hold pending details supporting calculation, that spam/fake accounts do indeed represent less

than five percent of users."

A short while later, he said, "Still committed to acquisition."

Brian Stelter is with me.

Brian, I know what he is saying here, but this is due diligence and people normally do due diligence in the privacy of their advisers, their lawyers,

their bankers, they don't tweet about it.

BRIAN STELTER, CNN CHIEF MEDIA CORRESPONDENT: Yes, I hope you're not expecting me to have answers to this riddle, because I am in short supply

today. This is an amazing situation with Elon Musk, who, of course has done this before. He has been known to strike a deal and walk away or dance

around it. But it is incredible he is doing this about Twitter, on Twitter, not even bothering to file with the S.E.C.

And we see the carnage as a result. Tesla actually up today, because it's been partly because of this, but Twitter down substantially. Twitter now

trending down toward where it was before Musk began to buy up shares months ago.

Remember, he was doing that in secret for a while, then finally disclosed it and then made his takeover play. He says he is putting it on pause now

or hold. There is no normal rule for that. And he's linking to an 11-day old Reuters' story about the existence of spam bots and fake accounts on


So he is not even linking to any breaking news or brand new information. Like you said, he is belatedly claiming he is doing due diligence, but this

seems to be all about the money -- Richard.

QUEST: What that he hasn't got it? I mean, the cash? Well, he's got his external investors, which is part of it and he's got his own obviously,

dwindling reserves, I don't know, relatively, from his Tesla stock. And I just can't gauge whether this is going to happen or not.

STELTER: He was offering 54 bucks, the stock is now at 40. He may just want a lower price. He may just be trying to knock $10 billion off the final

deal price and he is doing it in typical chaotic Elon Musk fashion.


STELTER: That may be what this is all about. But nobody knows, none of us knows. And in the meantime, if I'm an S.E.C. regulator, I've got some hard

issues to deal with here, the richest man in the world moving the stock in this way, claiming he is maybe rethinking his buy, but then tweeting that

he is still committed to the deal. What does it really mean for Elon Musk to be committed to anything?

QUEST: Brian Stelter, that's a lovely question.

STELTER: I told you, no answers, but only questions.

QUEST: A philosophical question, absolutely. Thank you, sir. I appreciate it. Have a good weekend.

STELTER: You too.

QUEST: Now, in a moment, we've got the war in Ukraine, of course; China's lockdown. It's all about the global economy and steady, but look at


After the break, think of what's happening at the moment. Bear in mind what Gary said, and think about this. It's a bit like Jenga. Policymakers are

trying to keep the tower from tipping over and into recession, but they have to deal with various issues at the same time.

You'll see us play down Jenga with the economy after the break.



QUEST: Welcome back.

Well, stocks are up today, which offsets the heavy losses of the past few weeks. The underlying anxiety of investors is deep, because the global

economy is shaky. Whatever -- wherever we look, there are issues, and you really do fear that the whole thing is a bit too wobbly, and could fall


In other words, you may want to think of the global economy and what they're doing about it a bit like Jenga.


QUEST: This is the famous game Jenga. You know how it's played, you have a tower of wooden blocks and you remove one at a time, trying not to knock

the whole thing over.

Well, we can think of this as the global economy, which grew by more than 30 percent in the decade before the pandemic. And although there were some

wobbles on the way, essentially, it was all looking pretty good after the global financial crisis.

And then all this came along. You've got the pandemic, the pandemic caused all sorts of problems, and then you have the results of the pandemic and

all this monetary stimulus and government spending. That's more serious. You've got to start removing that, so you start taking it out.

But things are going much worse than we thought because now you've got the war in Ukraine and that's going to have a wide spread effect.

As the interest rates bite harder, and the situation appears to be worse. So you see, we're having to now deal with some of these very deep, very

deep problems of debt and imbalances, but we're still holding.

And this is now the situation where we are, ultimately, they're going to have to deal with the really big issues, debt, war, lockdowns in China

because eventually, we know what's going to happen, something is going to be removed.

And that will be that.

There's one other lesson from Jenga, when it all falls down, it takes ages to build it back up again.


QUEST: So Jerome Powell, and the Fed are trying to keep the economy upright, the so-called soft landing whilst addressing those serious threats

at the same time of market turmoil.

The facts: Inflation is at eight percent, comfortably well over the Fed's two percent target. Fact, major geopolitical issues are making the

situation worse. In an interview on Thursday, Powell told the marketplace, the Fed is trying to calm rising prices, and it won't be easy, it could be



JEROME POWELL, CHAIRMAN, U.S. FEDERAL RESERVE: What we can control is demand, we can't really affect supply with our policies, and supply is a

big part of the story here.

But more than that, there are huge events, geopolitical events going on around the world that are going to play a very important role in the

economy in the next year, so the question whether we can execute a soft landing or not, it may actually depend on factors that we don't control.


QUEST: Jason Furman was head of the Council of Economic Advisers under President Obama, now Professor at Harvard University. He is with me now.

I'll ask you the question I asked Gary Cohn, do you think that they will -- not can they -- do you think they will affect a soft landing?

JASON FURMAN, FORMER CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS: Yes, you know, with President Obama, we used to always go in there and play Jenga

together. It was very exciting.

In terms of a soft landing, I don't know. I'm not that worried about the rate increases they're doing this year. They are just getting to neutral.

There is still a lot of stimulus in the pipeline.


It's more of a question of how much higher do they need to go next year, and what are the consequences of that.

QUEST: And although the Chair said, you know, issues outside his control, let's take China. If China remains locked down until the Party

Congress in October, November or beyond, or at least never gets back to full productivity that will have a massive effect over here.

FURMAN: Absolutely. I think that last year, there was a little bit too much complaining about global events, and not enough looking at what the United

States was doing in terms of its policy to cause the inflation here.

This year, there are a lot of legitimate global events. I think a lot of those events are transitory. The problem is transitory things can take a

year to work their way out of the system, and even when they're out of the system, there is still a lot of other inflation underlying.

QUEST: So many people just don't remember the days of inflation, and how corrosive that is, how it hits everybody in some shape or form, Jason.

FURMAN: Yes, absolutely. I mean --

QUEST: Sorry, can you hear me?

FURMAN: I experienced inflation as a child, I still remember it to this day. It was one of the reasons I was nervous about inflation coming back.

Everyone hates it, and it's a hard message to deliver right now.

But part of the message has to be that it is going to take some patience and some time. This is not -- this will come down, but it won't come down

all the way to two percent very quickly.

QUEST: Right. And arguably, as they bring it down, the stock market continues this indigestion. Gary Cohn who second ago, just basically saying

in a repricing of risk. But where's the end? And as it continues to fall, the wealth effect takes its toll upon people's confidence.

FURMAN: Yes, absolutely. And, you know, that is actually one of the channels through which monetary policy operates.

QE raised stock prices that increased confidence and increased consumption, and now that we're going to quantitative tightening, QT, it's doing the

opposite. The Fed isn't exactly saying that, but I don't think they necessarily mind on the sliding stock market, they are certainly not going

to act as insurance to stop that slide.

QUEST: Do you think the Biden stimulus plan passed in the first days was a mistake? It was unnecessary fuel on the fire.

FURMAN: I think it was too large. I think it was poorly designed. And I think it brought us a lot more inflation than it did in terms of economic


Something was needed. Not everything is terrible in the economy. We have a 3.6 percent unemployment rate. We're creating jobs at a rapid clip. There's

a lot of good things, too that are in part due to that, but I think we got the balance wrong.

QUEST: Energy costs and the way Europe is responding within this. Now, we'll be reporting in just a moment the way Russia is sort of turning down

the electricity or the energy to Finland, and this, that, and the other.

How significant is -- in terms of the global economy, how significant are the events in Europe at the moment? And if you have to sort of balance them

off between, say, for example, the Chinese lockdown and the Russian war in Ukraine, how do you view those two events?

FURMAN: Yes, the Chinese lockdown may be a bigger deal for the United States, which is a big producer of oil, and is relatively insulated from

what is going on with natural gas. For Europe, it's the opposite, the Russian events are a massive shock that could easily push the continent

into a recession.

QUEST: Sir, thank you, Jason Furman, good to see you. I'm grateful that you joined us this afternoon. Thank you.

Now the bear market that we've been talking about, how long it might last or how deep it might be, we can only look to past bears for some clues.

The S&P 500 has had six bear markets over the last 50 years. Some took place during longer lasting downturns. For example, 1998 and 2006.

Rahel Solomon is here with the bears and a history in bear market, well, how to invest in a bear market?

RAHEL SOLOMON, CNN BUSINESS CORRESPONDENT: Well, Richard, we know they all have different causes, but they do have some similarities. They do look

alike, so to speak.

So they tend on average to last about nine months. If that is to be believed, then we are only sadly at the very beginning of this bear market.

Stocks tend to lose about 36 percent on average and importantly, as we all try to game out and figure out if we are in store for a recession, they

don't always mean a recession.


They're not always followed by a recession, but we do know, Richard, you just talked about the wealth effect, we do know that psychologically, it

takes a toll on folks at home, who are, of course, seeing right across the screen on financial news, and also looking at their 401 (k), it takes a

toll psychologically on folks at home, consumers like yourself and me, Richard, but also on the investment community.


JONATHAN CORPINA, MERIDIAN EQUITY PARTNERS: It's tough coming in and seeing red on the screens all day long, and then we go home, and it's on

the news all night long and then it's just a cycle all over again.

PETER TUCHMAN, TRADER, TRADEMAS: You feel like you're trying to do the best you can for your customer. That is quite challenging in a market that

you're only as good as your last execution.

And when the market is going down, and you want to participate there because you think it may be going down, and then suddenly, for whatever

reason happens, the whole thing reverses and goes up like crazy.


QUEST: So, I mean, there will be lots of people who will say it's not a bear market and you know, these definitions of 20 percent et cetera, et

cetera. You know, the S&P, what -- we are off 17 -- sixteen percent on the S&P 500. I suppose it's a moot question whether you actually get to the 20

percent mythical number?

SOLOMON: Well, I mean, I think it is semantics, right? Yes, to your point, the S&P is off about 16 percent, but to be clear, the NASDAQ is firmly in

bear territory. The NASDAQ is down 25 percent year-to-date. So for those high growth tech names, we are firmly in bear market territory.

So look, the semantics don't quite matter as much, and even the rally that we're seeing on days like today don't matter. In fact, Richard, we have

seen some of the best days in the market -- in the history of the markets in bear market territory.

So we are clearly entrenched in bear market territory, and the question remains to be seen that no one has the answer to right now is, for how

long? We do know again, on average, they last about nine months.

QUEST: Rahel, thank you. Have a good weekend. Thank you.


Russia says it's cutting power to Finland. Moscow claims Helsinki hasn't paid its electricity bills.

We will be in Finland, live, after the break.



QUEST: Well, I'm Richard Quest. A lot more QUEST MEANS BUSINESS tonight. Russia is cutting off electricity supplies to Finland and the country

signals it's ready to join NATO will be in Helsinki. And last year, Mohamed El-Erian was amongst the first to warn that inflation may be here to stay.

We'll ask him what comes next. But only after we've had the news headlines because here on CNN, the news always comes first.

In Jerusalem, Israeli police beat a group of mourners during a funeral procession for the Al Jazeera journalists killed earlier in the week.

Pallbearers were pushed back and almost dropped the coffin carrying the body of Shireen Abu Akleh. A prominent Palestinian-American reporter.

Authority said they charged towards the crowd because they say some people were throwing stones. Abu Akleh was fatally shot while reporting on an

Israeli military operation in the West Bank.

United Arab Emirates President Sheikh Khalifa has died at the age of 73. Khalifa succeeded his father in 2004 and turn the UAE into a regional

power. Israel became largely ceremonial after a stroke in 2014. His brother Sheikh Mohammed bin Zayed took over the UAE day-to-day leadership.

The Turkish President Recep Erdogan is throwing Finland and Sweden's potential NATO membership into doubt. Finland's leaders have announced

support for joining NATO and Sweden is expected to follow suit. But the Turkish president claims both countries are home to Kurdish groups that he

calls terrorist organizations. NATO entry requires a consensus from all existing members.

Ukraine's defense minister says his troops are making progress against Russia, but warns that the war is entering a new protracted phase. Those

fears facing underway in the east, and Russia is battling control for the Donbas and it's pushed Ukrainian forces back from the city of Rubizhne. In

Kharkiv, three bridges that are key to Ukraine's counter offensive were destroyed as Russian troops retreated.

Russia says it will cut electricity to Finland, less than three hours from now. The Russian utility says Finland's not paying its bills, Finland's

grid. Operator says Russia has provided a 10th of its electricity in recent years. There is no risk, however, of a power shortage. Nic Robertson is

with me in Helsinki. Nick, so the lights are going to stay on. This is obviously a brazen response to Finland's prime ministers and president

basically saying, yes, we'd like to join NATO.

NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: Or is it? Or is it just a technical response because Finland, as with all E.U. countries, has

refused to do what Russia has demanded which is pay for energy in rubles. That could be the answer here. But then you would have to look across the

spectrum and say, well, Russia hasn't done this to everyone. And they're doing it to Finland today.

Well, in a few hours, as you say, and we know that President Putin today met with his national security chiefs and this Finland joining NATO, Sweden

joining NATO was part of the discussion. So, could it be? You know, that's the question on everyone's minds, and that's probably where the Kremlin

would like it.

QUEST: Nic, you are international diplomatic editor. So, fair game to you. President Erdogan the possibility that he could veto Finland and Sweden, on

the grounds, those countries are home to Kurdish, what he calls terrorists. Is this a real threat towards this grandstanding?

ROBERTSON: It feels like a wrinkle. It's not a roadblock yet. We know President Erdogan likes to do business by trying to get something in

exchange for something else. Shopping at the bizarre, you might call it. So this statement is signaling here and this statement that he's unhappy that

Sweden is a home to some Kurdish separatist leaders. Now, is he signaling here that he'd like Sweden to do something about that?

Is he signaling to NATO that there's something else a quid pro quo that he wants? Is he signaling to President Putin that he still wants to somehow

sort of have this middle position despite the fact that has been supporting Ukraine and military equipment, this middle position to be in a position to

be -- negotiate the sort of intermediary here for negotiations between Russia and Ukraine?


It's not clear. The Swedish Foreign Minister however says look I have not heard this directly from Turkish officials. And she along with the Finnish

Foreign Minister will be in Berlin at the weekend when NATO foreign ministers will meet for an informal meeting. So, the chance to meet on the

sidelines there with the Turkish foreign minister. So, right now a wrinkle, not a roadblock.

The question is, what is President Erdogan angling for precisely here and I figured NATO will be working on that precisely.

QUEST: Nic Robertson, thank you. Coming up. China's zero-COVID policy has spurred anger in Shanghai. And then anxiety across stock market.


QUEST: China has imposed a de facto travel ban on its citizens as it doubles down on its controversial zero-COVID policy. Shanghai has been in

lockdown for weeks and has reversed some of the efforts to ease restrictions. This is Beijing is pressurizing local officials to stamp out

the virus at all costs. Selina Wang who has been in quarantine as you're well aware has sent us this dispatch.


SELINA WANG, CNN INTERNATIONAL CORRESPONDENT (voice over): Clouds of disinfectant sprayed over every surface. This is what's happening to the

homes of people who test positive for COVID in Shanghai. The metropolis has been under the world's strictest lockdown for more than a month. But the

rules are only getting more extreme. Before, only positive COVID cases and close contacts were sent to quarantine facilities like leads.

Thousands of beds cramped together or just camping on the floor. But now entire apartment blocks are being forced out of their homes over just one

positive COVID case. Sent to prison-like facilities like these. This video shows Shanghai residents arguing with police officers who showed up to take

them to quarantine after someone on the floor tested positive. The officer says while spraying disinfectant "It's not that you can do whatever you

want, unless you are in America. This is China. Don't ask us why.

Residents who've tested negative and are vaccinated and boosted are terrified of being rounded up.

UNIDENTIFIED FEMALE: Our neighbors do not want to go, none of us want to go.



UNIDENTIFIED FEMALE: Because we don't want to get COVID.

UNIDENTIFIED FEMALE: Because it's safe.

UNIDENTIFIED FEMALE: You are putting us in danger. It's you're endangering us.



UNIDENTIFIED FEMALE: Your CDC does not know how to run a country If you want us to (BLEEP) die in China to get COVID and die because you think this

is the right way to make us go with other sick people.

WANG: CNN cannot verify the identity of the speakers or authenticity of this call that went viral on Chinese social media.

Police have even kicked people's doors to pieces to take them away to quarantine. Some buildings are banned from placing any online orders, even

food. Chaos and fighting outside of this Shanghai apartment. Residents claimed they weren't given enough food, some of the COVID workers beating

the residents to the ground. As outrage grows over new restrictions that crushed the last bit of freedom people had left, China Supreme Leader Xi

Jinping has vowed to double down on its zero-COVID strategy and punish anyone who doubts it.

TEDROS ADHANOM GHEBREYESUS FORMER MINISTER OF FOREIGN AFFAIRS OF ETHIOPIA: When we talk about the zero-COVID strategy, we don't think that it's


WANG: The World Health Organization chief's comments were swiftly censored in China. Along with the desperation people have shared online. In China,

zero COVID has turned into an ideological campaign to show loyalty to the Communist Party. At least 31 cities in China are under full or partial

lockdown, impacting up to 214 billion people. Turning cities into virtual prisons all in the name of zero-COVID. Selina Wang, CNN, Qinling, China.


QUEST: In total, there are 400 million people across 45 cities full partial lockdown. And together, they represent 40 percent of China's annual GDP.

The IMF's cut its growth forecast for China to 4.4 percent. It expanded twice that last year. Mohamed El Erian is with me. He is advisor at Allianz

and the president of Queens College Cambridge is in New York. It's good to see you, sir.

The -- it's bizarre, I mean, this zero-COVID policy that China is implementing, we can discuss whether, you know, the political, if you like,

but the economic effect as long as this productive engine is either stalled or in reverse, what's the effect for the rest of us?

MOHAMED EL-ERIAN, ADVISER, ALLIANZ: So, it has two effects. Demand effect and a supply effect. The demand effect means that the Chinese are buying

less. And as a driver of global demand, it is a much weaker engine. Then there's a supply side that's probably more problematic which is it is

disrupting supply chains. So, for the rest of the world, it results in that awful phenomenon of stagflation, lower growth and higher inflation.

QUEST: If this is the case, do you believe that the U.S. will skirt a recession? And I guess that, you know, the two negative quarters or

whatever. Do you think they'll manage to do the soft landing at the Fed?

EL-ERIAN: So, two different questions. Do I think we can skirt a recession? I think we can. Because the labor market is so strong. Do I think the Fed

can soft land, the economy? Meaning it can bring down inflation in a very orderly way. No, I don't. I think that the Fed is going to struggle. Where

we get into a recession is in one of two situations. If the Fed not just struggles, but ends up making a major policy mistake and is already has

made a few of them. Or alternatively, if we get a massive market accident, so keep your eye on both these things. But in general, the recession is a

risk scenario, not the baseline.

QUEST: Right. But when you talk about a market accident, with so many investors, having plowed their 401(k)s, their pension funds all around the

world into growth stocks. Now seeing sharp volatility and losses. That in itself has its effects. So, I wonder, what does one do? What does the

investor do at the moment?

EL-ERIAN: So, it's very tricky for the investor because we are coming from a situation where markets are incredibly distorted. You know, when the Fed

balloons its balance sheet to nine trillion in the process of doing so, it distorts markets. Now, in the good old days, both the bond prices and stock

prices were going up at the same time. So, no one really cared. But now that they both go down at the same time as the fed with gross liquidity you

cannot hide.

And the most unsettling element of today's market is that there was nowhere to hide. And that is making people really nervous.


QUEST: Because not unreasonably those people who are told, look, invest in bonds as you get older because, you know, that's for your safety and

security, the 45, 65 becoming 50, 50. But reversing in the -- in the ratio. It doesn't make any difference.

EL-ERIAN: It doesn't. I mean, remember, bonds, government bonds are known to be risk free.

QUEST: Right.

EL-ERIAN: You're supposed to do well when the stock market does badly. But when you start from a situation where the Fed has bought so many bonds,

that it artificially pushed the price so high up, there's only one way to go down. And that's what investors have experienced. And it's a pretty

horrible feeling because there's no safe havens.

QUEST: So, what -- if we look at the interest rates, now neutrality say 2- 1/2, two, three quarters, three -- do you think that the Fed is going to have to go beyond neutrality? And if that's the case, then we are talking

about interest rate rises, well, until well into next year, on beyond.

EL-ERIAN: So, let me distinguish between what they should do and what I'd like you to do.

QUEST: Good idea.

EL-ERIAN: What they should do is yes, they should go beyond neutral. And they should make sure that this inflation problem doesn't become embedded

in the economy and last well into 2023 and undermine growth and undermine - - and worsen inequality. That's what they should do. But I suspect what the Fed will do is a stop-go, it will hit the brakes, and then it will get

nervous, it will ease off the brakes too early.

And I suspect that what we're going to get is not getting to -- not getting beyond neutral, and ending up with an inflation problem that persists next

year. That's my big worry right now, Richard.

QUEST: When we talk right at the beginning of this -- but early last year, you said that the inflation wasn't transitory. You're one of the first

people who came out and said that. If you could see that, why couldn't the Fed?

EL-ERIAN: Simple reason. The Fed wasn't looking in the right place. If you listen to company's earnings call one after the other starting in May were

saying we don't think this is transitory. We don't think our supply chains get fixed that quickly. We don't think transportation gets fixed. We don't

think the labor market. We're having in difficulty. If you had just listened to what company after company was saying, they were saying -- they

were basically telling us don't get stuck on this transitory inflation narrative because it may not be the case.

QUEST: Right. You said I can learn a lot about Jenga and about strategy and about the way investors think about things. What can I learn?

EL-ERIAN: So, there are two types of players. There is the one who just wants to make it through that round. So, they do the same thing. And

there's the one who looks forward to two or three rounds and tries to undermine the other player and takes a lot more risk. I think right now, if

you're an investor, do the first one. Just get through these markets, because they're still tricky. Don't try to take too much risk. Not yet.

QUEST: Mohamed, good to see you, sir. I promise you we'll be -- we'll be at your college with QUEST MEANS BUSINESS before too long. Thank you, sir.

EL-ERIAN: Thank you. We look forward to hosting you.

QUEST: The volatile market has set investors on edge and that includes the billionaire Ray Dalio. The Bridgewater founder has seen it all. He joined

me in the C-suite in the sky (INAUDIBLE)



QUEST: Welcome back. Ray Dalio is no stranger to economic volatility. He started Bridgewater Associates at the end of the 1970's bear market. Then

he dealt with the dot-com boom and bust and the 2008 financial crisis. His firm managers around $150 billion. He's also the author of a new book

Principles for Dealing with the Changing World Order. Ray joined me in the C-suite in the sky and asked whether this week's volatility is here to



RAY DALIO, FOUNDER AND CO-CHAIRMAN, BRIDGEWATER ASSOCIATES: Get used to it. I mean, it's like, even that question is almost like you haven't been in a

good bear market before, or you haven't been in and I mean --

QUEST: Most people haven't.

DALIO: OK. Well, history, understanding the history and the mechanics of what it's like. Understanding when you produce a lot of money in debt, then

how do you produce -- then you have tighter money. Understanding what does it mean tighter money, understand the consequences of these things. You

have to have a historical perspective either.

QUEST: If somebody said to you, OK, well, clearly moving into a bear market, how long do you think it will last?

DALIO: I think that the fed's tradeoff between inflation and growth, it always tricks to see a balance. And there are some times when conditions

are good, usually when there's not much debt that trade off is not difficult to run. We're entering a period of time where there's an

inflationary -- great inflationary pressure due to the fact that you produce so much money. And at the same time, they're trying to strike that

balance of the tightening of monetary policy.

So, it looks to me like an environment like a stagflation kind of environment where both will be a particular challenge. So, individuals have

got to know what does that mean. For example, interest rates and debt, instruments that they're holding will not have a real return. They have --

that's adequate. In other words, not enough earnings to make compensate for inflation. Last year, we had an inflation rate of about eight percent.

There's a zero earning.

So, if people start to think in terms of buying power, and realize that cash instruments and debt instruments are going to be a challenge and try

to diversify their portfolios. Those would be the main headlines that I'd convey in terms of, don't just look at up and down in bull markets and bear

markets, look at diversification and be very particularly worried about whether the real returns that you're going to get on your cash or your


I think too many people are not worried about that kind of environment. If you're -- if you even study the 70s or other periods of time like that,

that would be helpful.

QUEST: The China continues with its lockdown, even the WHO now says, this is not sustainable, but they continue with it. And that has effects hugely

beyond the Chinese borders.

DALIO: Of course.

QUEST: Is that a concern for you?

DALIO: Of course, of course. We -- the United States imports 22 percent of its imports of manufactured goods come from China. That's a lot. I mean,

there's a big dependence. And so, it's -- and it's part of the world economy. The war in the Ukraine with Russia. These things are, again, they

repeat in history. You see them happen in history. But each one of them and then the expenses that we're going to have, the cost of the environment.

There's, you know, there's two sides. The cost of not fixing it and the cost wants to fixing it, you know, they're both expensive.

QUEST: Where do you stand?


DALIO: Well, you have to the cost of not dealing with this is catastrophic.

QUEST: Finally, when Christine Lagarde said to me, at the IMF last month, she said, we are witnessing basically not as the new global order, but the

unwinding of globalization. We are witnessing a (INAUDIBLE) new study of which we do not know what it looks like yet. But would you agree with her

and how risky --

DALIO: Yes. If you studied the 1930 to '45 period, and you study a number of periods before that, that all happen when these three things align. You

know, there's a lot of in debt, not enough money, there's internal conflict. What does that mean for our elections and how we're going to be

with each other? There's the external conflict. It's very, very classic, for example, to have -- when you have a war like environment, particularly

right before the wars to be that way with each other.

And so it's -- it shows in history, yes, you're going to have a different environment in which the ideologies are going to be in or, and the

ideologies are going to drive, how the -- what -- who gets what.

QUEST: Does it have a happy ending?

DALIO: The likely -- let me give you the -- and -- the short term and the long term. We have the capacity to have the best living standards that we

have had if we can work well with each other. The world is richer than it is it's been more inventive, life expectancy is greater, and so on, the

capacity to be inventive and if we can be harmonious, if we can work well together, there's a great capacity to do things. What is the likelihood of

this? That's the question.


DALIO: I think unfortunately, it's not -- if you read history, and you look at what's happening, it's going to be more difficult before it gets better.

You go through these periods, these periods last a number of years, a few years, they -- sometimes five years, sometimes longer, but they -- and you

go through them and then man gets past it and then like after a war, but it is very, very dangerous. So I'm worried.


QUEST: Ray Dalio worried and dangerous. Profitable moment after the break.


QUEST: Tonight's profitable moment. Two of our top guests tonight use the word stagflation. Others talked about the most difficult investing times

and what you should do and what you shouldn't. We decided that we would do this program tonight about bear markets, whether we get to a technical bear

on the S&P or the FTSE or any of the others is irrelevant. At the end of the day, whatever investments you've got, you're going to have to rethink

your strategy.

And as you heard again and again tonight, that means looking at what's next and not bemoaning what's just gone before. Making your strategy one for the

future, not just about correcting the mistakes of the past. And we'll be here throughout. I'm off next week. I'm filming in Dublin. QUEST MEANS

BUSINESS comes from Ireland and then it's Davos after that. That is QUEST MEANS BUSINESS for tonight. I'm Richard Quest.