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Quest Means Business
Recession Fears Drive US Stocks Toward June Lows; UK Government Bets Heavily On Tax Cuts And Borrowing; Hungary Tests European Unity On Russian Sanctions; Army Issues Warning As Iranians Protest Women's Death; Fiona Intensifies As It Barrels Towards Canada; Hong Kong Ends Quarantine Requirement For International Travelers. Aired 3-4p ET
Aired September 23, 2022 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:00:24]
PAULA NEWTON, CNN INTERNATIONAL HOST: Not a pretty picture we have for you today, a volatile day on Wall Street. The Dow now below 30,000, you see it
there, amid fears about rising rates and inflation.
A reminder: We are now touching the lows, we have seen the lowest levels we've seen throughout the day. Those are the markets and these are the main
events.
The British pound savaged after the new government announced historic tax cuts. Prime Minister Liz Truss defended her plan to CNN.
The Hungarian Foreign Minister tells Richard Quest why Budapest wants to lift sanctions on Russia.
And voting is underway in a sham referenda in Russian occupied areas of Ukraine.
Live from the CNN Center in Atlanta. It is Friday, September 23rd. I'm Paula Newton. She was not Liz Truss, she was Liz Truss, and I too, mean
business.
So tonight, US stocks are flirting with, as I was telling you, new bear market lows. Yes, new bear market lows as the Wall Street sell off just
deepens. There was nothing that could really lift this market, it seems today. Those recession fears have put the Dow on track to close below
30,000 points for the first time since June 17th, and it is down as you can see now nearly 800 points. As I was saying, we are touching those session
lows.
The S&P 500 and NASDAQ also deep in the red. The markets turned on Wednesday after the US Federal Reserve raised interest rates by three
quarters of a percent and warned that monetary policy was only likely to get tighter.
Matt Egan is at the New York Stock Exchange for us. A difficult Friday, glad you are there for us, a bruising day, right, by any measure? It seems
to me that, you know people are only beginning to take on board what Jay Powell said earlier in the week, it's starting to sink in, right?
Now, besides perhaps a likely recession already priced in, what is weighing on investors?
MATT EGAN, CNN REPORTER: Well, Paula, this really is all about the Federal Reserve's war on inflation. You know, this summer, there were hopes that
maybe there could be some sort of a truce here, that perhaps inflation would calm down enough to allow the Fed to stop lobbying these massive
interest rate hikes that are hitting the economy and the market and those hopes, they drove stock prices sharply higher throughout much of the
summer.
Now, of course, that turned out to be wishful thinking the Fed has made clear, including this week, that they are nowhere near ready to declare
victory on inflation. In fact, they are picking up the pace of these interest rate hikes and that is obviously not sitting well with investors.
It's a big negative for two reasons. One, this is driving up Treasury rates and that is stealing some thunder from the stock market right. I mean,
these soaring Treasury rates, that tends to depress the valuation of the stock market. And the other issue, of course, is the one that impacts all
of us is a potential recession.
The concern is the Fed is going to overdo this and either accidentally took the economy into recession or do it on purpose, because that is what is
required to get inflation under control. Either way, of course, it wouldn't be a good outcome, all of this explains why the Dow is down almost 800
points and on track to join the S&P 500 and the NASDAQ in a bear market.
NEWTON: You know, Matt, September is never a good month on the markets. And yet, perhaps many people had said that investors were far too optimistic in
the summertime, but how they've now priced in too much doom and gloom.
EGAN: Maybe, you know, in talking to some of the traders here on the floor, they are pretty somber right now. One trader told me, you know, there is
just nowhere to hide and another one looked at the red on his screen and was just sort of at a loss for words for the wealth destruction here. But
yes, maybe there is too much pessimism here.
I mean, market sentiment tends to go too much in one direction, which is what happened this summer and then maybe too much in another direction. I
mean, there is still a chance that the Fed can pull this off, that maybe they can get inflation under control without taming inflation, and that
chance is not zero.
But I do think that even the Fed is starting to acknowledge that the window to get this right without causing a recession, that that window is getting
smaller.
NEWTON: Yes, and still inflation remains job one and they will get that down, no matter what they have to do.
Matt Egan for us. Glad to have you at the New York Stock Exchange as we continue to watch that market going into its closing hour.
[15:05:05]
Now, the UK's new government is betting that massive tax cuts and borrowing will jumpstart the British economy -- and get this -- investors, they don't
like the odds of success there. The pound plunged more than three percent against the dollar. Look at that level, the exchange rate is now at its
lowest since 1985. This is just eyewatering, folks.
The FTSE is down almost two percent and so are the markets in Frankfurt and Paris, all in reaction to the controversial what they're calling mini-
budget unveiled by Parliament and by the Finance Minister.
The new Finance Minister, Kwasi Kwarteng. Now, it favors the UK's highest earners. It scraps a corporate tax increase and slashes a cap on bankers'
bonuses. Now, before the announcement, Liz Truss, defended her economic direction to our own Jake Tapper.
(BEGIN VIDEO CLIP)
JAKE TAPPER, CNN ANCHOR: Your government just unveiled a new tax proposal this week, that would reverse plans that to raise the corporate tax rate.
You've also proposed lifting the cap on bonuses for bank executives.
In the US, President Biden is taking a very different approach, and obviously, he has a different view on economic measures such as the one
you're proposing. He tweeted this week: "I am sick and tired of trickle- down economics, it has never worked. We're building an economy from the bottom up and middle out."
And so President Biden is in essence, saying that he thinks your approach doesn't work. The opposition in Parliament says you're running recklessly
running up the deficit and turning your back on so-called compassionate conservatism.
LIZ TRUSS, BRITISH PRIME MINISTER: I don't. I don't really accept the premise of -- premise of the question at all. The UK has one of the lowest
levels of debt in the G7, but we have one of the highest levels of taxes.
Currently, we have a 70-year high in our tax rates. What I am determined to do as Prime Minister and what the Chancellor is determined to do is make
sure we are incentivizing businesses to invest and we are also helping ordinary people with their taxes. And that's why I don't feel it's right to
have higher national insurance and higher corporation tax, because that will make it harder for us to attract the investment we need in the UK, it
will be harder to generate those new jobs.
And I want the US economy to be successful as well. I want the European economy to be successful as well. I want free, freedom-loving democracies
to succeed and one of the things that we're doing here in the UK is moving forward on our infrastructure programs, road building, broadband, mobile
telephones.
And I know, that is what the administration in the US is doing as well. But of course, we all need to decide what the tax rates are in our own country.
But my view is we absolutely needs to be incentivizing growth at what is a very, very difficult time for the global economy.
And we've also put in place a package of measures to support consumers with energy prices to make sure that nobody is having to pay more than 2,500
pounds on their bills, which is very important as well.
(END VIDEO CLIP)
NEWTON: Okay, you can see Jake Tapper's full interview with Prime Minister Liz Truss this Sunday on "State of the Union." But in the meantime, Anna
Stewart joins me from London.
Anna, I'm going to confess to you I have not recovered from waking up this morning and seeing the value of that pound against the US dollar. How did
we get there? This was supposed to be a much needed subsidy for households dealing with soaring heating bills. It now seems like some kind of economic
experiment that really hasn't been attempted for decades.
ANNA STEWART, CNN REPORTER: Aren't you pleased you don't live in the UK any more, Paula? Yes. Is it an experiment? I like to call this one a gamble
because this is what the UK government calls a fiscal statement as opposed to a budget because normally when we have a budget that goes through the
independent body, the Office of Budget Responsibility so they can assess what the impact would be on the economy. This one hasn't done that.
So, it's actually really hard to be able to assess and tell you whether this will work and what this impact will have. Will it do what the UK
government wants? Which is essentially to generate growth.
Let's bring up some of the highlights from the budget. It went on and on. You'll see a lot of tax cuts there. A cap on bankers' bonuses, it is going
to be abolished, and you'll also see energy bills being subsidized. The cost of all of that is huge.
So, the Treasury estimates that the tax cuts will cost 45 billion pounds by 2027. The energy freeze will cost 60 billion pounds over the next six
months and that's of course, depending rather a lot on what wholesale energy prices will do.
Now, of course the plan has come under a huge amount of fire, not least in Parliament with the opposition party because so many, particularly of the
tax cuts are really aimed at the highest earners in the UK and they're not the only ones.
[15:10:10]
We actually had a tweet from the Institute of Fiscal Studies, an independent economic body, and they said, today's measures mean that the
richest tenth of households who are set to lose around five and a half thousands pounds a year on average, by 2025-2026, under the last government
will now gain around 700 pounds a year, on average.
As you say, this new government was very much in place saying that they were going to bring down energy bills, I'm not sure anyone quite realized
the impact their plan would have on the highest earners -- Paula.
NEWTON: Yes. And that's not going to sit well, because this isn't being paid for, of course, with spending cuts, which is how you would normally
expect a Conservative government to do this.
So, one former adviser to the Bank of England today said, it seems like the UK economy is for the first time in decades being driven by a drunk driver.
I know that's very harsh, but have you heard more about what the odds are that this will actually, you know have growth thrive in the UK, which is
what Liz Truss believes?
STEWART: It has actually been hard to find at least an economist who would see this necessarily working. I think they are all waiting to have a proper
assessment by the Office of Budget Responsibility. This is the go for growth strategy or go for broke strategy. This is trying to get GDP growth
at two-and-a-half percent on average. It is currently flatlining.
The government plans, essentially to generate growth and hope that businesses will be able to invest more, hire more people and that will drag
the UK out of a recession. Lots of people don't really agree with that.
I'd say some of the comments I've seen today have been pretty alarming, and some of them have been quite funny. But look at the UK gilts. This is the
UK government bond, the 10-year, this week, it has risen by over half a percentage point.
Let's look at the pound again, because who doesn't want to see the bloodletting on this one, another multi-decade low today. And of course, we
have been hitting fresh lows almost every week of recent weeks.
Listen, a higher yield, weaker currency, one economist pointed out, this is what you see for an emerging market. You know, he said, actually, which is
also quite funny if it weren't such a grave situation and the fact that I'm a Brit, but he also said, if this were an emerging market, you would be
reading it, it's last rites.
So, investors may no longer like the look of the UK and what does that do to this huge plan for borrowing? Potentially, it makes it completely
unsustainable -- Paula.
NEWTON: Yes, no shortage of British wit today now, Anna. I have a good weekend, but just hang on here because I'm going to give you a history
lesson because I know you don't know any of this history. You might know it. You just weren't alive for it.
The Truss tax cuts hearken back to a fiscal policy that emerged in the 1980s, Blondie and David Bowie, two of my favorites were dominating the
radio. Hairstyles were big, yes, bigger than I have right now, and global inflation was even bigger as those economies struggled.
Now Margaret Thatcher, the era's Conservative Prime Minister tried a risky economic experiment. Does this sound familiar right now? She leaned on
deregulation and tax cuts to try and spur growth, much like we're seeing Truss now.
Now, it is called trickle-down economics. The idea is to flood the top earners of the market with extra capital. The theory, those top earners
will heat up the economy with more spending and more investment thus creating more jobs.
Sonali Punhani is the chief UK economist at Credit Suisse, and she joins me now from London. Quite a day to be in your role, and I just want you to
weigh in here; What do you think will and can this work? Can it stimulate growth?
SONALI PUNHANI, CHIEF UK ECONOMIST, CREDIT SUISSE: Yes, I think it's quite a risky strategy for the UK government to engage in this.
I mean, I think the one part of the plan, which is to freeze energy bills, you know, is sensible in the sense that it does reduce the real income
shock for consumers, which they would face over the winter if these bills were not frozen.
But on the other side, the other plank of this plan, which is tax cuts, I mean, you know, we've discussed that how they are more targeted towards the
high-income individuals. Tax cuts usually have much lower multipliers than, you know, spending increases. And so, it basically means that a lot of the
tax cuts could potentially be saved by high-income individuals and not really be, you know, earned and spent by them.
And the other important thing is that, you know, this plan actually ends up adding to inflationary pressures in the medium term, which would basically
put a lot of pressure on the Bank of England to hike rates aggressively.
So, even if there is a small growth boost from this, I think that's going to be, you know, neutralized by the Bank of England, because they have --
you know, they have a target -- a target inflation at two percent and that's what they need to achieve.
NEWTON: Yes. And, Sonali, you just answered my next question, because as an economic student, I know what this means in terms of inflationary pressure,
but I also want to get to the point of that pound, right? It sold off heavily today.
How concerning is it and how much more pressure could that put on the Bank of England? You know, we've had a lot of discussion on this side of the
pond about that strong dollar, which in any case right now, we do not want to see a currency crisis and yet now, we have the pound that you know
scratching, well, $1.08 against the US dollar.
[15:15:10]
PUNHANI: Yes. No, definitely, I think the lower pound puts more pressure on the Bank of England as well. I mean, you know, firstly, you know, a lower
pound would mean higher inflation itself, because cost of imports would increase as a result of the lower pound. Secondly, I mean, it's just a
question of credibility, right? Because I think now markets are questioning that the fact that the UK now has a massive current account deficit, now
the fiscal deficit is going to go up. So, the overall twin deficits of the UK are continuing to rise.
And in the past, we've had, you know, external capital come into the country to fund this kind of deficit, and now, the markets are testing that
assumption and are demanding a higher premium and higher yields in order to get, to actually fund this huge deficit.
So, I think this puts a lot of pressure on the Bank of England. I mean, we expecting them to turn hawkish in November with a 75 basis points rate
hike, we are expecting rates to go to four percent potentially. You know, the risks are even to the upside.
So I think it really puts them in a difficult spot, because you have both the government and the Bank of England having to work in opposite
directions.
NEWTON: Yes. It could not have been good news when they actually saw that, and as we pointed out, this was supposed to be helped, right, for those who
are in an energy crisis in their own homes of their own energy bills.
Kwasi Kwarteng, who is the new Chancellor of the Exchequer, I will point out everyone now, has a PhD in Economic History. He could school us on
trickle-down economics, absolutely.
What is different about this, though, in this economic environment? Is there -- I mean, I guess I'm asking you, what are we missing? Is there a
chance that this could work?
PUNHANI: I mean, I'm struggling to figure out what that is, that could make it work, unfortunately. I mean, you know, I think some of the some of the
reasoning given is that, you know, if you create -- reduce regulation and increase incentives for businesses to invest, you know, that could increase
business investment as well.
But, you know, we've seen in the last few years that UK business investment has really underperformed, despite even some of the super allowances by the
previous Chancellor. And people just find the UK an uncertain place to invest given the policies.
So, I'm not particularly sure exactly what path, you know, and how we actually generate, especially in a two-and-a-half percent trend growth
that's been the projection or has been the sort of agenda of the government to achieve.
NEWTON: And we will leave it there for now. It has been an exhausting Friday for so many and still going strong here on this side of the pond to
see how those markets end up.
Have a great weekend and I appreciate your analysis on this.
Now, tensions between the European Union and Hungary continue to grow, Richard Quest talks to Hungary's Minister of Foreign Affairs. You'll want
to hear what he has to say, next.
(COMMERCIAL BREAK)
[15:20:35]
NEWTON: Hungary is testing Europe's unity by pushing back on sanctions against Russia. Now, while EU Ministers have been calling for tougher
measures, Hungary argues the existing ones just aren't working.
Now tensions between Hungary and the EU have been growing for years now, the European Parliament said Hungary can no longer be considered a
democracy. Brussels has threatened to cut billions of dollars in funding over alleged corruption as the divide between Budapest and Brussels
deepens.
Richard Quest spoke to Hungary's Minister of Foreign Affairs. He asked Peter Szijjarto, why sanctions should be lifted.
(BEGIN VIDEO CLIP)
PETER SZIJJARTO, HUNGARY MINISTER OF FOREIGN AFFAIRS: Look, I think we are speaking about facts. If you impose sanctions against someone, then it
should be more harmful on the targeted entity and not on yourself. And unfortunately, the sanction policy of the European Union in this regard has
failed, because those sanctions, which were introduced against Russia are more harmful and more painful to Europe than to the Russian Federation.
That's a fact, unfortunately.
And you know, the European economy is moving towards recession. That has not been the case for a very, very long time. The safe supply of energy is
just a kind of memory for us in Europe. Inflation is skyrocketing. The prices of food and commodities have been increasing, utility costs are in
the skies.
So, we definitely need a solution because the European people are not responsible for this war. So, that's why we should not force the European
people to pay the price of this war. When it comes to Hungary --
RICHARD QUEST, CNN INTERNATIONAL HOST.": Okay, but if -- if sanctions were to be lifted, and there will be those who do disagree with you, by the way,
that it is not hurting Russia more than the EU at the moment. So, there will be -- because there are others who will say you're wrong on that
point.
But for the purposes for moving forward, what would you have done instead then? Because there seems to be a view that Hungary is more on the side of
Russia than on the side of the EU and its partners.
SZIJJARTO: But you know, this accusation must be rejected -- rejected very, very harshly, because, we, Hungarians have condemned the war from the very
beginning and we have not vetoed any sanction regime so far.
So, all seven sanction regimes, which have been in place have been voted by unanimous decision in the European Union. So, had we not supported these
packages of sanctions, they would not have been introduced and would not be enforced currently.
We have made it very clear, though, that we are not ready to put our safe supply of energy at risk, no way. You know, the energy supply in Europe,
especially in Central Europe, is being determined by geography and by infrastructure. And currently, currently, physically, it's impossible to
supply our country safely via oil and gas if we phase out the Russian sources of energy.
QUEST: So what would you do? So what would you do to bring the necessary force such as it is, you're not supplying weapons, you're not allowing
transshipment through Hungary. You are now calling for a reduction or an elimination of sanctions. What would you do as Hungary to help prosecute
against Russia in the case of Ukraine?
SZIJJARTO: You know, first I want to say -- I would like to say two things. First, I regret that the list was not continued, because in the meantime,
we have been carrying out the largest ever humanitarian action of the country and we have received one-and-a-half million refugees from Ukraine
already.
And for all those who are entering the territory of our country, we are giving all kinds of assistance and help including jobs and similar equal
access to schooling and the healthcare like to our own citizens. This is number one.
Number two, what should have been done? Look, I think more much more efforts should have been done in order to create peace finally, because if
you ask me, what is the ultimate solution for all the problems we have to be faced with because of the war and because of the sanctions, then the
solution is one word, it is peace.
[15:25:15]
And here we are in New York, the United Nations --
QUEST: Minister, Minister -- that's no -- hang on a second. That's easy to say, Minister, the solution is peace. But you had the means to agreement.
You had the various talks. You even had Emmanuel Macron and the UN Secretary-General going to Moscow and to Kyiv. In the real world, do you
support Ukraine in its territorial integrity?
SZIJJARTO: Obviously, territorial integrity and sovereignty must be the basic principles of international politics and international law. There is
no compromise. We definitely stand by Ukraine, we stand by their territorial integrity and sovereignty, but peace is needed.
So, that's why from the very, very beginning of this war, we have been advocating for immediate ceasefire and launching the peace talks. We have
even offered, Hungary, as a location. A safe, fair location, ensuring level playing fields for all participants and stakeholders, but negotiations
should be started.
And you know, here we are in New York, General Assembly is on. What would be the most appropriate? What would be the widest platform where such kind
of negotiations could take place, if not the UN?
The UN was created, in order to ensure the possibility of discussion and dialogue between those countries and actors who are hostile to each other.
So, why do not we enter into negotiations? Why do not we promote more the peace? And why do not we make more efforts in order to create peace
finally? That could prevent thousands and tens of thousands or hundreds of thousands people from suffering and escaping from their homes.
It is heartbreaking to see those torn apart families who are entering Hungary, mother with the children without fathers. It's heartbreaking.
QUEST: Were you horrified by President Putin's comments yesterday, essentially threatening a nuclear option?
SZIJJARTO: Well, of course, I mean, all kinds of -- all kinds of decisions, all kinds of statements, which are going towards the escalation of this war
constitute bad news. So you know, and that's why we say that we are in the 25th hour, so this statement that was made yesterday put us in the 25th
hour --
QUEST: Hang on. You're not exactly -- Minister -- I have heard --
SZIJJARTO: And we have to finally, finally solve this crisis.
QUEST: I've had other Ministers, Foreign Ministers, the UK, US, et cetera roundly condemning the comments of President Putin as being a gross
escalation. You're talking about it as being bad news. Like he's just giving you the bad weather forecast?
SZIJJARTO: Well, if you want me to say anyone -- anyone threatening with nuclear war, we definitely do condemn, no question. So, a nuclear war is
something that we never want to experience and we want this planet to be preserved for our successors. No one would like to destroy that.
So, of course, threatening with nuclear war -- coming -- this threat from any side must be condemned in the harshest way.
(END VIDEO CLIP)
NEWTON: Okay, ahead for us. Sham referenda are underway in occupied regions of Ukraine, and NATO is warning Moscow, it could use the votes as a pretext
to escalate the war.
(COMMERCIAL BREAK)
[15:30:00]
NEWTON: Hello. I'm Paula Newton. And there's more QUEST MEANS BUSINESS in a moment when we'll discuss the sham referenda on whether to join Russia in
Russian-occupied Ukraine and we'll speak to the CEO of toy company MGA and how they're getting ready for that all important holiday season. But before
that, this is CNN and on this network the facts come first.
On state media aired video of pro-government marches Friday, with protests spreading right across the country. The army now says it's ready to
"confront enemies" in order to maintain security. Now thousands of people have taken to the streets against the government since a young woman's
death in police custody.
Hurricane Fiona has strengthened into a category four storm as it heads toward Canada's Atlantic coast. Nova Scotia Emergency Management Office
says it will be a historic weather event. And it's telling residents to brace for damaging winds and storm surge. Starting Monday, Hong Kong will
no longer make international travelers quarantine upon arrival. However, travelers will have to self monitor for three days and take a regular PCR
test. Quarantine measures had been in place since the pandemic began 2-1/2 years ago.
Stage referenda are underway in occupied regions of Ukraine at this hour. The question of whether to join Russia. Now the votes are taking place in
Donetsk and Luhansk and in Russian-controlled parts of Kherson in Zaporizhzhia in the South. Now the process dismissed by Kyiv and the West
as a sham could pave the way for Russia to actually annex those areas. NATO Secretary General Jens Stoltenberg told our CNN's Julia Chatterley that the
West shouldn't be prepared for Moscow to use the votes as a pretext to escalate the war.
(BEGIN VIDEO CLIP)
JENS STOLTENBERG, NATO SECRETARY GENERAL: It is this combination of the votes in four regions of Ukraine combined with a partial mobilization that
represents a serious escalation of the conflict. But these votes have no legitimacy. And of course, they don't change anything. This continues to be
a war of aggression by Russia against the Ukraine.
(END VIDEO CLIP)
NEWTON: Nick Paton Walsh is in the city of Kramatorsk in the northern part of Donetsk, you know, these are stage votes. We've been saying it for days,
they continue. And of course, we can already guess the outcome. I guess the issue is what would be the strategy. We just heard the NATO secretary
general there, we had the map up of that Eastern region, but strategically on the ground, what will it allow Russia to claim?
NICK PATON WALSH, CNN INTERNATIONAL SECURITY EDITOR: Well, it's possible that they will use this to say that these areas are effectively part of
Russian territory, and therefore subject to the same rights of defense that what we now call Russia is subject to. And that may allow on the lower
level perhaps Russia to send conscripts into this area to defend them or fight in this war. I have to say after the partial mobilization, they
appear to have chucked out the window, or the previous rules for who they'll send where.
[15:35:01]
So it's really the higher end that I think concern people more which is does these areas being considered in Moscow's mind as being part of Russia,
enable them to potentially use nuclear weapons or other weapons of mass destruction in their arsenal? Terrifying is that simply as an idea. Well,
some officials below Putin have suggested that, in his speech, he sort of steered slightly away from that.
He didn't say it explicitly, while he said that freshly mobilized troops would be sent to defend these occupied areas. He didn't specify that when
he referred to what nuclear weapons might be used to defend. So, that is still potentially something to be defined, but the threat and the
possibility is certainly there. So, I think what it does do is enable Russia to claim an extra level of ownership of these areas.
That it's basically invaded and occupied by force and some degree bombard and intensely reduced to ruin in the months ahead, and then possibly
escalate or increased pressure on Ukraine's Western allies to perhaps seek a political solution. Paula?
NEWTON: Yes. At this point, Russia doing all it can to make sure that it keeps maintains that hold on the occupied regions that it does hold. Nick
Paton Walsh for us and Ukraine. Appreciate it. Now, despite the fighting in Ukraine, the country's largest poultry company intends to be operating at
full capacity by the end of the year, full capacity. MHP says it's navigating the complex disruptions and its words caused by Russia's
invasion, and it's managed to develop alternate export routes.
The company also continues to supply hundreds of tons of chicken every day to Ukrainians in need.
John Rich is the Executive Chairman of MHP. And he joins me now from Istanbul. And it's good to see you again. It's been several months since
we've spoken. And given the turmoil of the last few months just give us a snapshot. Where are we now in terms of production? And what are some of the
challenges you're still facing? Because they -- that number must be quite high right now still.
JOHN RICH, EXECUTIVE CHAIRMAN, MHP: Look, Paula, it's been a challenge. It's all been about logistics. And yes, it's been a few months since we've
spoken. But frankly, things are far better now than they were when we last spoke. I think the key issue now with the opening of the grain corridor
where approximately 4.3 million tons of grain of meat through this system since it happened and brokered by the Turks.
But I think it present of that around about half of its corn and about 30 percent approximately when it's moving out. And we expect probably two,
maybe three million tons will go through this route. Whereas before when we lost back, it was just slowly dribbling across the borders. So a very, very
big improvement.
NEWTON: Yes. No, slowly dripping, but also deep concern on your part. And this really was catastrophic for a little while until they did broker that
Black Sea Initiative. You know, Russia has been -- I'll say little bit cagey about whether or not they want that initiative continue. What would
it do to a company like yours, if that suddenly fell apart overnight?
RICH: Well, look, I think at present, we have not really exported much to that route. We have stored our grain, and all our oil has been basically
moving across the E.U. border, as with other grains and poultry. So we're still using maybe 95 percent of our products are going across the E.U.
border in present. So not -- wouldn't affect us greatly. However, in the future, when we need to export more grain and more oil towards the end of
the year, it could have a major impact.
NEWTON: You know, at the beginning of the war, you were doing your best not only to keep your business going but crucially to get food, right? To get
food to Ukrainians. Has that crisis abated? I mean, have you been able to get those supply lines in the country? So that, you know, Ukrainians do
have the food that they need?
RICH: Yes, definitely. There's been a huge improvement in the logistics across the country at a time of war. And right now, there's only small
amounts of Probono poultry going through into the into the areas that are really needed. So, a very big difference compared to when we spoke last
were up to -- we were supplying, you know, enormous amounts of poultry every day to people. But right now, it's much better position than it was
before.
NEWTON: Good to hear. But look forward for us, if you will. Many of us hoped that, of course, we wouldn't go through another winter of war, it
looks highly unlikely. What are your biggest concerns when you look forward to the next few months?
RICH: Well, I think that the biggest concern, again, is a further escalation of the war. I was particularly worried about what was happening
in the south and any major military escalation in that area will close the ports again. So it's very, very tenuous at present where -- we've been in a
sweet spot where we haven't had a lot of military activity down there in the areas where We have to run the grind through the corridor.
[15:40:03]
But again, as you're well aware if there are major strikes on infrastructure electricity, water, et cetera that will have a major impact
on Ukraine's economy and the ability of the companies within it to be able to export products out of the country.
NEWTON: Yes. And I guess as you said, although things have gotten better now, that is the unsettling worry that so many people have that will
continue to escalate. John Rich again for us. Good to hear you and hear your insights about what's going on there. Appreciate it.
RICH: Thank you again, Paula. Good to talk.
NEWTON: Up next for us, toy stories. What's in stock and what's not for the holiday season. We speak to the CEO of MGA Entertainment.
(COMMERCIAL BREAK)
NEWTON: Throughout this week Call to Earth is looking at how to protect and conserve our planet by listening to it. Just listening. Today we have the
story of our guests editor Michel Andre, a biologist who chose the theme of our coverage and his pioneering research uses sound as a scientific tool.
And it's setting the tone for the future of conservation.
(BEGIN VIDEOTAPE)
UNIDENTIFIED MALE: There is a well-known proverb that states no one is as deaf as the man who will not listen. Rolex Awards Laureate Michel Andre is
more certainly not that man.
MICHEL ANDRE, FRENCH BIOACOUSTICS SCIENTIST: I would encourage everyone to start to listen. The sounds of nature can tell us so much about the health
of the planet.
UNIDENTIFIED MALE: A professor of bioacoustics at the Technical University of Catalonia Barcelona Tech. He would know. He's been relying on his ears
for over 30 years.
ANDRE: I believe that transmission of information through sound is key for the conservation of the planet.
UNIDENTIFIED MALE: As Michel describes it bioacoustics is the science of the sound of life. The study of which has revealed previously invisible
ways humans are affected the natural balance.
ANDRE: We have made actions that are destroying the habitat.
[15:45:00]
This loss of biodiversity is a consequence of our lack of an understanding on how nature works. And nature works through sounds.
So this is a live connection to the Amazon at the moment where we have lots of birds and insects.
UNIDENTIFIED MALE: Here at the Laboratory of applied bioacoustics, also known as the LAB, Michel is quite literally tapped into the soundscape of
the world.
ANDRE: We can go to the Amazon and we can go to India to the Arctic and to listen to what is going on.
UNIDENTIFIED MALE: In 2007, they launched LIDO, short for listen to the deep environment. And the project intended to monitor the impact of manmade
noise on marine life has evolved into this. A network with more than 150 acoustic observatories from all over the world. Many in hard to reach
locations, from the deepest waters in the ocean, to the most remote to forest canopies.
ANDRE: What we're doing with this technology and all these network of sensors is providing the data in the way to manage nature through sounds
and to help us to cohabitate with it.
UNIDENTIFIED MALE: Innovative and non-invasive. The system is powered by advanced artificial intelligence techniques that continuously analyze
natural habitats in real time to detect potential threats like poaching and illegal logging.
ANDRE: They tell us about the identity of the different sources. They tell us about these interactions between human noises and biological sounds. We
alert governments, we alert the operators about a specific issue that we can have. But we not only do that, we bring solutions.
But LIDO is just one and a vast and varied portfolio of projects. The biotechnology engineer has spent his career building.
The catalysts for it all was a 1992 assignment in the Canary Islands, where Michel was working on preventing fatal collisions between ships and sperm
whales.
ANDRE: This was a turning point in the research that we were conducting. Because we started to focus on how noise pollution could affect the marine
mammals.
UNIDENTIFIED MALE: He developed the whale anti-collision system. First of its kind technology designed to alert ships of a whale's presence, instead
of trying to deter the animal to move out of the way. The creation of the LAB in 2003 was a direct response to this newfound impact of noise
pollution on so many ocean habitats. And it continues to be a place where pioneering technology is developed, tested and spun out for real world
application.
ANDRE: In these band, the only thing that we don't know if the invertebrates will be sensitive to this very low frequency.
So we know that human actions and activity will always have an effect on the environment. The responsibility we have as scientists and as a society
is to limit this effect to a minimum and this is how this terminology enters into action.
(END VIDEOTAPE)
NEWTON: Gorgeous shots there. Let us know what you're doing to answer the call with the #CallToEarth. And we will be right back with more news.
(COMMERCIAL BREAK)
[15:51:00]
NEWTON: U.S. business activity fell for a third straight month in September. The S&P's PMI index showed the pace of decline slowed as global
supply chains began to improve. Now toy and entertainment company MGA is gearing up for the holiday season and that's despite the challenges and of
course, what we believe will be slower spending. It's all -- it's ready in fact to sell new ranges of its most popular brands.
Some of you know them including Little Tikes cars and the Bratz doll. And yes, it is even launching a new movie. Joining me now is Isaac Larian. He
is the chief executive of MGA Entertainment. And it's good to see you and talk to you. And we have Christmas front and center, right? Please tell me
what is going on with inventories? What are your sales expectations? And more broadly, what are you seeing in terms of demand from consumers?
ISAAC LARIAN, CHIEF EXECUTIVE, MGA: Thank you. Thank you, Paula for having me. You know, toy business, I've been doing it for 43 years. So it is
pretty much recession proof because families take from the -- their own leisurely expand and make sure they take care of the children. Whether the
gift givers, parents, grandparents, et cetera. So, I think toy business is going to be fine.
There is the for sure some inventory at retail that slowly clearing up, but the business is about new and surprises. So, everybody loves a surprise.
Adults like surprise, kids like surprise. And we have a lot of them. So these LOL mini sweet surprise, which is brand new just coming out to the
market right now. And is selling incredibly well because we have partnered with Tez and other companies to do these. So we have a great product --
(CROSSTALK)
NEWTON: Yes. Innovation is a great thing. And I know -- I know you need it. I do want to -- I do want to talk about the supply train -- supply chain
crunch though. Is it easing? Have you seen it ease? And what risk --
(CROSSTALK)
LARIAN: Yes. It has --
NEWTON: Go ahead.
LARIAN: Yes. So the supply chain definitely compared to last year. It has ease a lot because there is less imports coming to the USA ports of L.A. or
Long Beach. Not necessarily toys, but other products. So the cost of containers have come down drastically last year. This time we were paying
$22,000 container. This year is already down to about 4500. So supply chain is getting a lot better than before.
The inflation is hurting us a little bit. But we will grow. I think 2022 is going to be a transition year for the consumer goods industry. And
especially for toys at 23 driven by innovation is going to really take it to the next level.
NEWTON: Wow. That is startling, though when you give us the price differential on certainly those containers and yet you say that you are
still seeing some challenges there with supply chains or with inventories and inflation. Why inflation in particular? What is it in the supply chain
that is still a challenge?
LARIAN: Yes, because you know, for example, this toy here, it's used to be at eight or $9.00, now is 11. And when the price goes up, you know, less
people can afford it especially with the gas prices going through the roof and there is no more free money coming to the household. So, it's a
challenge so when the pricing -- when inflation hits the pricing, the demand absolutely goes down.
NEWTON: Even though margins might continue to be healthy. I want to talk to you about this new movie, right? LOL Surprise! Winter Fashion Show. So it
will be on Netflix.
[15:55:00]
Do you absolutely have to have that kind of a franchise attached to new toy concepts in order to be successful these days? I mean, this is quite you
know branching out. This is quite ambitious when you're getting to a movie.
LARIAN: Yes, it is -- it is different. This is the seventh year of the launch of the franchise LOL Surprise! is one of the fastest growing toy
brands out there. And kids like to be entertained. The LOL Surprise! winter movies that they have done in Netflix during the past two years, this is
the third one. They have always been a top five overall on Netflix. There is definitely the demand for the children to watch this movie.
This movie is going to be the best of the best out of them. And we're very excited about it. It's launching on Netflix on October 22nd.
NEWTON: And obviously, it must drive demand for more of those toys. But I want to ask you about the competition with other screens. Just the way you
see it as someone who's been in the business so long. Is there increased competition between, you know, the screens that kids are on all the time in
whatever fashion they're on and the actual tactile toys that they have in front of them?
LARIAN: Yes, absolutely. There is a correlation. Definitely we see that and a quality of the content is very important. Yes. As you mentioned, there is
a lot of content available for kids to watch on YouTube, Netflix and T.V. et cetera. But the quality of the entertainment, it's like the movie
business. If you have a great movie, it will become a blockbuster and we think that's LOL Surprise! Winter Fashion Show will be a blockbuster.
But it's again, it's about the content and the quality that you have and of course that will also drive sales.
NEWTON: OK. We will leave it there for now. You've really given us some insights into what's going on with, you know, obviously not just the toy
industry but in general with supply chains as we continue to grapple with this. Thanks so much. Really appreciate your time.
LARIAN: Thank you for having me, Paula. Thank you so much.
NEWTON: And we will be right back with a final look at those closing markets.
(COMMERCIAL BREAK)
NEWTON: Alright. So we do have some buying action here. Some traders diving in to check out those session lows. We are now clawing our way back though.
The Dow recovered and it's still set to close though and this is key lower than 30,000. You see it there for the first time since mid-June. Now, all
three indices though are down. They really did have a brutal week still down
better than 1-1/2 percent for all of them.
[16:00:11]
And that does for us and for this week. "THE LEAD WITH JAKE TAPPER" starts now.
END
