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Stock Markets Plunge; Congress Agrees to Deal to Put FAA Workers Back to Work and Paid; Down Closes Down 500-Plus Points
Aired August 04, 2011 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
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BROOKE BALDWIN, CNN ANCHOR: You can see the people standing up there applauding. I imagine a lot of people looking at these numbers at home not applauding at all.
Do we still have Teddy on the phone?
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: You do.
BALDWIN: Teddy, explain why it's going to take a little while for these numbers to settle. Or has it settled on 511, on -- no, it's moving. Why is it still moving?
TED WEISBERG, PRESIDENT, SEAPORT SECURITIES CORPORATION: Well, because the tape is probably slightly delayed, so not all the final trades are calculated yet. But they will be within a matter of seconds.
So I would say that this 512 number is probably it down on the Dow and 1366.69 on the S&P 500 are probably pretty good numbers.
BALDWIN: OK. So we were at, what, about 11383. The last time we closed below 400, Teddy, it was 2008. And remind us about that bleak time in 2008.
WEISBERG: Well, 2008 and 2009 were very bleak. We were down 38 percent give or take a few percentage points on the popular averages in 2008. And we tacked on another 12 percent or 14 percent in the first two months of the Obama administration in 2009. I think it would be a mistake to connect the dots and say that we are basically looking at another 2008 and 2009 again.
VELSHI: Right.
WEISBERG: And simply because of what Ali has pointed out a couple OF times, that there's a couple of big differences.
Yes, there are clearly some huge issues. We have huge issues in this country, no economic leadership, and we don't have time to go into all that. And certainly there are major issues in the Eurozone, but corporations, at least in America, corporations have never been in better shape. Balance sheets have never been more flush.
And so corporate America is in good shape. At the end of the day the, yes, the market could still sell off, but I think at some point the compelling values will float to the surface like cream floats to the top and that will bring the buyers back. We don't know where those levels are, but clearly we have to be either at those levels now or we must be getting close.
BALDWIN: Teddy, I like that hint of positivity.
Ali Velshi, it's a heck of a lot of red on the screen. You have one final thought?
VELSHI: Yes, and that is ultimately the stock market is a combination of the value of the stocks of the companies listed on it. The way you price is a stock is based on what that company earns and what it is likely to earn.
If you do that math, this Dow doesn't make sense, which means it seems irrational, it seems emotionally driven, and as Ted says, these days many times these trades are done automatically. They're trigger points triggered by momentum. This may not be a true reflection of what's going on out there. To everybody I have spoken to this afternoon about this, this seems a little weird and out of place.
BALDWIN: Teddy Weisberg, I appreciate you for hopping on the line, 43 years there on the floor of the New York Stock Exchange.
Do we have Dan Lothian? I would like to go to Dan. Do we have Dan Lothian?
DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Yes, I'm here. .
BALDWIN: There we go. Let's go to Dan Lothian at the White House.
And, Dan, as we have been talking about, huge, huge, hugely anticipated jobs report coming out in just a couple of hours for the last month.
LOTHIAN: That's right.
And I think everyone will be watching very closely. One of the things I think that a lot of people perhaps were a little too high on the optimism scale was that if in fact they were to reach a deal on the debt ceiling, then it would prevent this kind of sell-off that we have seen here.
But it just shows it's another sign that there are a lot of negative points on the overall U.S. economy. The White House not commenting specifically on the stock market numbers. White House spokesman Jay Carney saying earlier today that they don't comment on something that they can't control.
But they have been pointing to a lot of negative pressure that's been on the economy, including what happened in Japan, other headwinds, oil prices and so forth, that have been putting pressure on the overall economy, and say that this just shows that there's still a long way to go. The issue for the president now, as we have been talking about over the last couple of days, is how to come up with any kind of solution to inject some momentum into the economy. The president planning over the next week-and-a-half or so to hit the road, to start pushing jobs and the economy.
But the big question is, what more can this White House do to create jobs, to turn the economy around? And I think White House spokesman Jay Carney had a bit of a hard time today trying to explain, beyond the usual, which is talking to members of Congress, getting them to move forward on these trade deals, nothing else out of the box that this White House, at least as far as we know, has in its back pocket in order to inject some life into the economy.
So, I think, look, nobody here is looking at what's happening and saying this is all great. I think everyone here is saying that there is a long way to go and this is part of that painful process.
BALDWIN: I guess initial numbers coming in will indicate for the month of July the economy created 75,000. I think Poppy Harlow -- thanks, Dan.
I think, Poppy Harlow, to you, you were saying that the anticipated number is somewhere in the 70,000 to 80,000 ballpark. And also to your point earlier in terms of blue-chip stocks, all of the Dow 30 blue-chip stocks, all of them down today.
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POPPY HARLOW, CNNMONEY.COM: Absolutely. It doesn't matter what company we're talking about, Brooke, here. The reason you care about the sell-off is because you probably own these companies somewhere in your retirement savings somewhere.
But, yes, across the board, technology, manufacturing, wherever you look there's red and we bled right into the close, as you see, down 512 points. Yes. And this comes at a very, very bad time, ahead of that critical jobs report. Remember, for the June jobs report, we got only 18,000 jobs added in the entire month. That was significantly worse than what economists expected.
So, yes, heading into tomorrow morning's report, we expect to see about 75,000 jobs created. It could be better than that. It could also be worse. What investors are telling you with this selling today is they think it will be worse than expected. I would not be surprised to see some revisions of those numbers heading into tomorrow morning.
I think there's a real problem when you look at these companies. And Ali said it. Teddy said it. There's a disconnect between how companies are doing. Their profits are pretty good right now -- 70 percent of the companies that have reported have beat Wall Street expectations, and they're growing and they're selling because they're selling to people overseas, they're selling to emerging economies that are doing so much better than we are. If you take the proverbial Main Street and you take these companies' earnings, they're on two different pages. The question is how long can these companies keep pushing out these earnings, keep doing well, when you don't have strength at home? And you don't have strength at home when you have jobs numbers like this. When you have unemployment over 9 percent for a very, very long time. It doesn't look like it's moving anywhere.
At some point you have to revitalize the American economy, revitalize the power of the American consumer to buy things, to buy homes, to buy cars, in order to really prop up this economy to get jobs. And that has not happened yet.
Brooke, as I told you earlier, one Wall Street expert telling me today what he doesn't see is any growth plan at this point from the administration, from Washington at all. And without that growth plan, there is no strong base overall for the U.S. economy. So you're seeing a reflection of the fear on Main Street played out on Wall Street.
Ali made a very good point. This doesn't look rational. This is a sell-off like we haven't seen since November of 2008. So heading into 8:00 tonight, when Asia opens, a few hours after that Europe opens, then our market opens tomorrow morning, we will see if this is just irrationality for one day of trading or if this is substantial.
Remember, for the last 10 days, we have only had one day where the market has closed higher. For nine of those 10 days --
(CROSSTALK)
HARLOW: -- it's closed significantly lower.
BALDWIN: It was just about this time yesterday
HARLOW: Exactly.
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BALDWIN: I think it was up, what, 28 points or so this time yesterday.
And it is amazing to see 24 hours later, and it's still settling, but 512 points down, Poppy Harlow. And also to your point, at 8:00 Eastern, so in four hours from now, you mentioned when markets open for both Japan and Australia. That's the early indicating factor, right? How those numbers look could also affect or foreshadow I should say our numbers there at the exchange.
HARLOW: Absolutely.
I mean, as Ali said earlier, this is a global economy. This is not about how the U.S. is performing. This is not about how Asia is performing. This is not just about Europe's sovereign debt problems. Those problems bleed over here. The intervention of central banks in Asia and in Europe bleed over here. This is an interconnected global economy. And there's not a lot of strength out there. Yes, you see China growing at a very rapid clip. You also see their government trying to slow down that growth.
And you see this country barely growing. Brooke, it was last Friday, but it has to be noted that when we got the GDP report that showed us how our economy was growing in the first and second quarter, it was abysmal. It was so much worse than we expected. We were revised down to just 0.4 percent growth in the first three months of this year.
So those are the fundamentals we have to be looking at. And, again, you have to ask the question, how long can the economies that are reflected in the numbers there on your screen in the stock market, how long can they do very well if there is not a solid base for them here in the United States and elsewhere?
You do have a lot of weakness in Europe. And that is playing out here. The fundamentals of how our economy is doing, from manufacturing to housing, to just consumer confidence, which is nil right now, it does not support a strong stock market. So we are potentially seeing the divide between a market that had been doing pretty well and the reality of a very sour note on Main Street playing out right now.
BALDWIN: Poppy Harlow, I appreciate you helping putting this in perspective, CNNMoney.com. Thank you. Thanks to Dan Lothian, Ali Velshi, Teddy Weisberg.
Got to get a quick break here. We will have one final check from the New York Stock Exchange, Alison Kosik, after the break. Stay right here.
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BALDWIN: Well, 4:12 on the East coast, the closing bell about 12 minutes ago, you see the numbers and you see a lot of red on your screen, very much so in the red, the Dow down 512 points.
We have now officially closed at 11383 on this Thursday afternoon.
Let's go to Alison Kosik on the floor of the New York Stock Exchange for me.
And, Alison, putting this in perspective, we have not seen these numbers this low on the Dow since 2008. And that was 400.
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Exactly. And what you're seeing is basic uncertainty and fear from investors about where this economy is headed. We saw that play out all day on the screen in bright, bright red.
Yes, the Dow down -- settling 512 points at 11383. We're in correction territory for the Dow, for the S&P, all of the major averages wiping out their gains for the year. Now, we talk about companies, about corporations, they're flush with cash, so then you think, OK, there's a disconnect here. Why all this selling?
Well, why all this selling, because this is a reflection of what investors feel, so you're seeing a lot of emotion played out here today and also a lot of momentum. Teddy Weisberg talked about that as well, because of the electronic trading. But it's that's emotion, that feeling of fear that really drove the market today. And it's why we're down 512 points.
BALDWIN: It's a global story. You talk about what happened with Japan and the yen today, you talk about European Central, and also what Teddy Weisberg was talking about this -- his words, you know, failed leadership when it comes to the economy and this whole debt deal, this debt mess that we have been watching. It's sort of the amalgamation of all of the above that triggered what we saw today.
KOSIK: It is. It is. And you know what? It's a realization now sort of the dust has settled with the debt ceiling debacle. The dust has settled on that. So now you know what? The focus is turning back to the realities, the harsh realities of our economy, of the economies in the Eurozone.
If you just focus on our economy, we have got enough problems of our own. Our economy is not moving fast enough to even grow jobs. And so you're seeing that fear today, a day before that jobs number comes out tomorrow, knowing that GDP only grew at four-tenths of 1 percent in the first quarter, 1.3 percent in the second quarter.
BALDWIN: Yes.
KOSIK: There's a big worry that the economy is not moving -- not moving forward enough just to create enough jobs. Remember, we have got millions of people who are out of work, Brooke.
BALDWIN: Alison Kosik, we know that all too well. Alison, thank you very much.
I want to bring Gloria Borger back in.
Gloria Borger, we know Alison mentioned it. We have also been talking about tomorrow's much-anticipated monthly unemployment report. We have also been hearing a lot from the president the J-word, jobs. What are they watching for in Washington?
GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Well, they would like to see a good jobs number, I think that's obvious, but they're bracing for the worst. You haven't had a lot of good news. The anemic growth of the second quarter, consumer spending, everything points in the wrong direction.
I think what's interesting about the situation in Washington, Brooke, is that everybody here was so focused on raising the debt ceiling and there seemed to be a presumption that if you got a deal that it would calm everybody, that it would calm the markets. And instead of looking at the debt ceiling, I think the markets had sort of said, we just presume they're going to -- they're going to raise this debt ceiling. But the market was looking at the other economic indicators that you have been talking about, and, you could say, panicking, but the market has been looking at it and saying, you know, things aren't going well.
So we sort of had one fight going on in Washington and the market was thinking about something else, not what we thought they were thinking about, to tell you the truth.
BALDWIN: Also, quickly, just to put this in perspective, as we stare at this number, 512.76 down on the Dow, according to our folks with CNNMoney, that preliminary loss, that is the ninth biggest loss ever, ever for the Dow Industrials.
I do want to talk with you quickly, Gloria, because you are breaking news, we appreciate it, with regard to this FAA impasse. We know the president, we know Senator Reid, we know Speaker Boehner have been talking. Talk to me a little bit more about this FAA deal.
BORGER: Well, they haven't resolved the issues, but the resolved to put the tough issues off until the fall so that people can go to work. And so, you're going to have a deal where they're essentially bypassing the tough issues on collective bargaining and those rural airports, going to get what's called a unanimous consent request in the Senate where senators don't have to return to do it.
And again it's putting off the tough decisions, but it at least means that FAA workers and construction workers on airports will not by furloughed for the entire summer. So that's a bit of good news out of Washington.
BALDWIN: That's some good news, Gloria. Thank you for bringing us some good news on this Thursday afternoon, I appreciate it.
I do want to read this statement, this is what we've gotten from Transportation Secretary Ray LaHood about this whole impending FAA funding agreement reached between the Dems and Republicans on the Hill.
It reads, quote, "This is a tremendous victory for American workers everywhere. From construction workers to our FAA employees, they will have the security of knowing they are going to go back to work and get a paycheck, and that's what we've got fighting for."
He continues on, "We have the best aviation system in the world and we intend to keep it that way."
That coming in from Ray LaHood. And, Gloria Borger, again, my thanks to you. Let's continue on here, more breaking news from Wall Street.
Quick break, be back in a moment.
(COMMERCIAL BREAK) BALDWIN: This is such a stunning number, we just wanted to pop it back up on the screen. The closing bell just about 20 minutes ago there on the New York Stock Exchange ending incredibly, incredibly low, in the red there, down 512 points. The Dow now sitting at 11,383, S&P down, Nasdaq down as well, all three indices in the negative territory.
Want to bring in senior business correspondent, morning anchor, guy who doesn't get a lot of sleep lately, good enough to stay up for my show.
Ali Velshi, quickly here, your reaction to these numbers as they look to be now settled.
VELSHI: Well, it's a lot of fear about the global economy. You know, when certain economies are doing badly, we have such a global economy that if there are consumers in Japan or consumers the United States, you know Europe depends on the fact that that will hold them up.
What we've got is we've got problems in Europe, across Europe getting worse in Italy and Spain. We have real uncertainty in the U.S. about where the economy is going, and that sort of came together to cause investors to say I'm not sure where my money should be. Normally, you move it around between piles, whether it's commodities like oil or gold, and stocks and bonds, but today something unusual happened in big numbers -- and this started, by the way, well before we woke up here in the United States, it started in Asia and Europe. Investors started to stay, I'm just going to take it in cash and hang on to it until I know specifically what is likely to perform well.
So it's fear that pulled money out of the market. I don't know that it's well-founded fear, but the markets are not based on having to prove what you're fearful about, just that you're fearful, and that's what's happened. We didn't see this money that was pulled out of international markets going somewhere else. Clearly, gold was sort of flat, oil was down.
This is a case where people have taken their money out and they're waiting to see what happens, which means they could put it back into the market at some point at different parts of the market. This is not an indication of the performance of the companies that are in the stock market. Those have actually been doing quite well. This is fear that caused people to sell off.
BALDWIN: This is the ninth biggest loss ever, point loss on the Dow. In fact, the second to last time it was down this low, it was actually down 514 points, that was back in October 22nd, 2008 --
VELSHI: Those were bad times.
BALDWIN: -- and we know exactly what was happening in those times.
Ali, stand by, I also want you to just join me in this interview.
Jay Leupp is on the phone, he's a mutual fund manager with Grubb & Ellis.
Jay, gosh, the obvious question is -- oh, there he is -- what do you make of the numbers, and what do you tell folks who have a lot of money in the stock market right now?
JAY LEUPP, TRADER, GRUBB & ELLIS AGA MUTUAL FUNDS: Well, I'd say hang on. And if you have cash available, now is the time to be buying your best ideas. As good long-term investors who are focused on fundamentals and values, these are the best days to buy stocks.
So you should have some extra cash in your portfolio, and if you do, it's days like today, especially lat in the day when the panic is at its utmost, that's which you want to step in and buy.
So be good long-term investors, don't panic and sell your best investments. And if you have cash, put it to work in your best ideas on days like today when the rest of the world is panicking.
BALDWIN: But, Jay, I mean, it could be worse before it gets better. You think people should invest -- should buy up stocks now while they're cheaper, or hang tight?
LEUPP: Well, I think that if you're an existing investor that is fully invested, I would hang tight. I would not sell on this kind of weakness.
If you're an investor that has cash available, I would have started a position today, or I would start one tomorrow. Don't use all your cash, and wait for additional weakness to add to your positions.
But I would not be a panic seller in a market like this. I think that, fundamentally, the economy will continue to grow. It will grow slowly, but it will grow. And the profit outlook for U.S. corporations is very good.
So again, do your research, pick your best ideas and put your money to work on days like today.
BALDWIN: Jay Leupp, I appreciate your calm, non-panic-stricken voice after the plunge we've seen. I think a lot of people probably like to hear what you're saying.
Ali Velshi, you have a question for Jay?
VELSHI: Yes, look, here, Jay, this is the issue, there are a lot of people, you know, even on my Twitter board there are people saying this is about the U.S. economy, this is about the debt deal, this is about the government's inability to deal with that. I mean, I think a message that people don't necessarily know about is that most of the revenue of most of the companies that are traded in that building on Wall Street are not from the United States, they're from other parts of the world. So when the other parts of the world get shaky, like Europe, it affects those companies.
But there's a lot of the world that we don't think about that these companies like Coca Cola, like General Electric, like Microsoft, like Apple, there are a lot of places they're doing very well irrespective of what happens here.
LEUPP: That's exactly right, and it's an excellent point. It's most of the companies in the S&P 500, revenues are globally diversified. That is, they generate revenues from all over the world.
And yes, there are concerns about what's going on in Europe. We just returned from a two-week research trip there and there are concerns about Italy and Spain, but those aren't the dominant forms in the European economy. And Asia is relatively very healthy, Latin- American is healthy. We're coming back in the United States, Canada is healthy. It's a good time to be buying stocks on days like today.
BALDWIN: And, Jay, stand by for me; Ali, stand by. And of course, being the global network that we are, we have a correspondent overseas in Asia, as we look to Asia futures, we'll get to that person here momentarily as well, take a look ahead as we know those markets open at 8:00 Eastern time.
I want to pause and just go to Poppy Harlow. I know Poppy has had close eye on some of those blue-chip stocks, all 30 of those stocks down today.
And specifically, people are sitting there, they have the Apple stock, they've got Google. How did they fare today?
HARLOW: You know, not well at all. Let's look at three stocks you very likely might be invested in through your retirement account someway, somehow.
General Electric, right, a multination and very global company, down 5.7 percent.
Let's look at Exxon Mobile, big oil company, world's biggest oil company, down 5 percent.
Let's take a look at Google, you know the company well, down almost 4 percent.
And I want to point something else out. Alcoa, you may not know this company by name, but you use its products, huge aluminum maker, biggest loser on the Dow, 9.2 percent decline. Brooke, this is a company that tells you about the global economy. You use aluminum to make everything from airplanes to soda cans. If the demand is not there, a company like this is going to fall. This is a demand picture.
But I want to bring Jay in if we can for his take on where, if any, the safe havens are right. Cause if you are a buyer of gold looking for a safe place there, you saw a decline in gold prices today. If you were buying silver looking for safety, you saw a decline of 5 percent. If you were putting your money in oil, guess what? Oil futures dropped 6 percent, gasoline prices dropped 6 percent. The question, where is the safety? Treasury yields they dropped as well. So the big question, Brooke, now for a lot of people is where do I put money to work. Jay made a very important point, this is not a time to go out and sell your investments. You stay in this market if you already in it.
However, if you want to put some money to work, this might be the time. But the real thing that people are looking for is where is some safety right now, and they obviously don't think it's in the stock market.
But again, just to reiterate the point, there is a huge disconnect here between corporate America and the profits, some record profits we're seeing from these companies and the reality of the U.S. economy, the reality of our jobs picture, which we'll get a much better look at tomorrow morning. Let's not forget this, not good numbers into that jobs report coming at 8:30 tomorrow morning at all.
I want point folks to CNNMoney.com, full analysis here. We're on top of it 24/7. We'll be here all night looking at Asian markets, looking at European markets. You're going to want to come here to see why this matters, how this is going to affect your portfolio, your retirement savings.
BALDWIN: And also, speaking of looking ahead, right, what if you have a 401(k)? What are you supposed to think now? What should you do? We're going to address those questions after the break.
Poppy Harlow, I thank you so much. And again, let's direct all of you, CNNMoney.com. It's actually what I've got popped open right here at my desk in Atlanta.
Ali Velshi, I thank you.
And Jay Leupp with Grubb & Ellis, mutual fund manager, thank you.
We're going to talk 401(k)s right after this break.
(COMMERCIAL BREAK)
BALDWIN: Huge, huge tremendous loss by the Dow today. Down 512 points. Last time it was this low, October 2008. You know how bad things were at that point in time.
I want to bring Ali Velshi back in. And Ali, I want to talk about the why, but first let's talk 401(k)s. I mean, so many people have invested money through the years, and they're thinking about their 401(k)s now and probably having a half-heart attack. Should they be worried?
VELSHI: No. No. Look, I can't say you can't be worried. That's a big number, 4.3 percent to lose in a day, more than 10 percent in the last days or so. That's worrisome. There's no question about it.
But your 401(k), first of all, it should be diversified. I know everybody's isn't, but it should be. At the very least, you may have a mutual fund or two in there that looks like the Dow or looks like the S&P 500. I want to remind you that the performance of these markets have, since sort of the crashes of 2008, been phenomenal. 2009 was one of the best years ever. The last 12 months on the stock market has actually been pretty good.
You're flat for the year now. We've wiped out the gains of this year, but we don't invest on that basis. So, if you're a long-term investor, you're not down. If you stayed invested after the market crashed in 2008, you're probably evening out right about now.
So, as much as we've had heard everybody say stick to your netting, be diversified. I know it sounds like motherhood and apple pie, but the fact is it's true and it does work. If you weren't out of the market already, getting out of it now doesn't really help. In fact, I've made a lot of phone calls today to professional investors who have been trying to get into this market because it doesn't make sense. So, there are some good buys there.
The market is a combination of rational and scientific. Mostly psychological. And what happened is the psychological took over today. But at some point, even when the psychological wins, there's a who bunch of rational people saying, you know what? The psychological sold out, I'm going to buy in. So, I do not think this is an opportunity to sell your holdings.
BALDWIN: Speaking of diversification, though, let's say you have a 401(k) and you have a bunch of risky stocks, should you take this moment to say, hang on a second, let me back up and channel some of those risky stocks into the non-risky stocks?
VELSHI: Well, again, if you think -- the decision is always exactly the same, right? So, if I look at a stock and say I think it will go up, I should buy it, that's the same decision you make when you decide to sell a stock. If you think it's going to go up, don't sell it. If you think you're overextended, sell it.
Now, typically you can do the math on that and say, hey, I think Apple will sell more products or I think GM will sell more cars. What happened today is a sense that we're uncertain about where the global economy is going, so you have to make decisions on the companies or industries or geographies or mutual funds that you own to say is how are these companies likely to react to these global forces? The uncertainly is always a tough time, but the uncertainty is what makes investors who have the stomach for it and who stick to their knitting, it makes them some money.
So, again, I know it's very tempting to look at this and sell out. And I know it's very tempting to say, when you hear people who say stick to it to say that they're shills for the stock market or industry or somehow trying to channel things.
I'm the same as everybody else. I've got a 401(k) that dips like everybody else's and goes up like everyone else. This to me looks more like an opportunity than a time to panic.
BALDWIN: An opportunity. And then to the point you've made before but I think people are popping in and out. And I just want to explain get the why. When we see this number so, so in the negative territory at 512. Just to -- I think this one particular tweet, let me just read it. And I think this probably echoes some of your tweets you're getting from Andre. I hope you don't mind me picking on you, Andre.
He says, "These are reverberations of the debt deal no doubt. Got off lucky keeping our AAA reading, but the markets had to respond." Not so fast, Andre. It's not necessarily this hangover from this debt deal and all this bickering over the past months and weeks and days. But it's also Japan, it's also European Central trying to intervene to save their currencies.
VELSHI: Markets are worth trillions of dollars. They are highly efficient. They don't take four days to react to a deal. This isn't the effect -- I mean, when that deal went through on Sunday, by Monday morning, we knew it was going to cost, that's the time for the markets to react. As much as everyone would like this to be about Democrats and Republicans and government, it's just not.
Two things happened that were catalysts today. The Japanese government, the Japanese central bank bought yen to try and shore up its currency. And the European Central Bank issued bonds to -- or bought bonds to put more money into the economy to try to shore up Italy and Spain. Both of those, instead of assuring investors, caused panic. And that's what you're seeing here. By the time it settled in, the U.S. market was the only market left to trade on. European markets were already down. That's not about the U.S. debt ceiling. So, what happened is you're seeing global money, because it trades all over the world now, get a little panicked and say I don't know what to do with my money. That's what happened.
Neither here nor there, but these are global forces; this isn't actually about U.S. politics right now.
BALDWIN: Well, global forces, as we're a global network, we have a correspondent in Tokyo, Ali Velshi. You know Kyung Lah. We've got her standing by.
Let's get a quick break in. We're going to take a look at Asia futures as those markets open in less than four hours from now. We'll get a break in. Kyung Lah up live in Tokyo after this.
(COMMERCIAL BREAK)
BALDWIN: 4:40 p.m. here on the East Coast, 5:40 in the morning in Japan. That's where we find Kyung Lah, our correspondent there, up and at 'em early. Reading into this story as a result of what we've just seen, the Dow plummeting 512 points on the New York Stock Exchange.
And Kyung, just do me a favor. Tell us how - Asia futures, by the way, open 8:00 Eastern, so we're still a couple hours away from that. How has this week fared with regard to Asia futures and also the Nikkei Index? KYUNG LAH, CNN INTERNATIONAL CORRESPONDENT (on the phone): Right now, it's very difficult to tell exactly what's going to happen. We have to really wait until we get a little bit closer to the opening. And the reason why I say that is just yesterday, Asia time, Japan took this extraordinary measure of intervening. So it's very, very difficult right now to read what the futures are going be, what this all means --
BALDWIN: Let me jump in. Explain what happened with the yen.
LAH: I'm sorry, go ahead?
BALDWIN: Explain what happened with the yen.
LAH: What the Japanese government did is because of what we have seen with the uncertainty in the global markets over the debt deal, what we have seen is the Asia stocks dropping, especially in Japan, which is on this side of the planet, second largest. So, what we've seen is, because of all that uncertainty, markets have fallen. Japan is saying, hey, this is a threat to our economy.
The U.S. dollar sinking means that Japanese companies are losing billions of dollars on their sheets. And so what they did was they bought up U.S. dollars, they sold off the yen in an effort to try to drive down the yen, which is seen as a safe haven, versus the --
BALDWIN: Did we lose her? Kyung, are you with me?
Oh, she's gone -
LAH: -- Here's the reason why it's so difficult to read. Because if Wall Street falls, it's almost certain that Japan will fall as well. So this all may have been done in vain.
BALDWIN: So, what you're telling me is as we see the Dow down as far as it is, it could be foreshadowing to how we see the Asia futures opening mere hours from now.
Let me bring in Teddy Weisberg, joining me live outside the New York Stock Exchange. Been trading on the floor of the New York Stock Exchange, he told me for 43 years.
And Teddy, just sort of spring boarding off of Kyung's point with regard to Asia futures, Japan's Nikkei index, if it was a bad day on Wall Street, will it be a bad day overseas?
TEDDY WEISBERG, WALL STREET TRADER: Well, you know, everything seems to be interconnected, so clearly that is a possibility. We don't know what comes first, the chicken or egg. So, you know, it starts in Asia, then it goes to Europe, then it comes here. The question is will that negative circle continue? I guess only time will tell. So, we're not quite sure where it begins or where it ends, but there is no question that whether we like it or not, we're all connected.
BALDWIN: Want to hit on a point you made earlier, and that is what I think a lot of people on this country are saying. Look, let's blame Washington. Let's blame the Republicans and the Democrats and this mess that the finally sort of resolved this past week with regard to the debt ceiling deal.
But it's not just Washington. As Kyung was just explaining with what Japan did with the yen, also with European Central trying to save some of their -- shore up some of their currency, it's all interconnected there as well.
WEISBERG: Yes, well absolutely. But clearly, we can't blame -- I think it would be a little short-sighted to blame all our problems on the events that are happening off our shores. I mean, that whole debt ceiling process was so toxic, it sent such a negative message to the rest of the world, that clearly I think it tended to make us look sort of inept, dysfunctional, and not terribly serious about dealing with our own economic problems. And yet we're always quick to point our fingers to folks in the Euro zone or in Asia when they have problems when we clearly have our own huge problems right here.
And it just seems all we continue to do is kick the can down the road. It's not that sell off is entirely the result of that, but certainly it has something to do with it.
BALDWIN: Teddy, you, as we mentioned, you've been around there in that building behind you for quite a while, 43 years. Just what were those final moments of the closing day like? How does that compare to what we saw in those horrific times in the recession in 2008?
WEISBERG: Well, certainly I think it would be a mistake to connect with what took place today and the last five, six trading days with 2008 and 2009. I'd like to remind the viewers that in 2008, we were down 38 percent over 12 months and ten another 12 percent or 14 percent in the early part of 2009.
But if we just isolate today's performance to other selloffs that I've seen in the past, certainly nothing, nothing compares with the sell-off of October 1987, when the Dow was down in one day 22 percent. So down 5 percent is certainly hurtful and there's a lot of economic and portfolio pain, but it doesn't compare to what we saw in the crash of '87.
And even I guess, if you will, on a momentary notice, with the flash crash of May of 2009, when the Dow was down almost 11 percent at one point but did rally during the day. But certainly down 5 percent is down 5 percent and yes, it is painful.
BALDWIN: I like to hear what you're saying. The only reason I think we're connecting it is we haven't seen numbers this low since 2008, but when you look the VIX, the fear index we know it's right around 30 today and at its worst during recession. I know the figure was around 90 numbers.
So at least we're fairing much better when it comes to fear, but we know that can change. Teddy, do me a favor standby, we've got to get a break in. We'll be right back with CNN NEWSROOM. (COMMERCIAL BREAK)
BALDWIN: If you are just joining us, breaking news there. Take a look at the numbers here, in the red. New York Stock Exchange down 512 points.
Here's a note I have just giving a little bit of perspective. The preliminary loss here actually now we know the numbers have settled. It is now officially 512.76 that is the ninth biggest loss ever for the Dow Industrials.
So keep that in mind as we continue forward. The Asian markets, also Australia, they open 8:00 Eastern so we'll be looking to see what happens there, as an indicator to what could happen on Wall Street come tomorrow.
I have Teddy Weisberg standing by. He's been trading stocks on the floor there in New York for 43 years. Teddy, let's talk about jobs. We've been hearing a lot about jobs, jobs, creating jobs.
Right now that the debt deal is deal, we've been hearing this refrain from the president. That of course, is what Americans want to hear, but tomorrow we have a huge number coming out. It's the monthly job report for the month of July.
We know that unemployment steadily rising. Most recent number 9.2 percent and that number that we get at 8:30 tomorrow morning Eastern will absolutely affect the numbers we will see on the big board.
WEISBERG: Well, I think so. Well, what we would all look to see, not so much because it helps the stock market, but simply because it helps the folks that need jobs.
We would like to see a positive job number and positive number that basically comes in well above guest estimates, if you will. Unfortunately nobody has a crystal ball, and we'll just have to wait and see.
I mean, we had an ADP number earlier in the week that showed relatively positive gains, but there's not necessarily a connection between the ADP number and the number that comes out of Washington.
The big risk is that the number comes in below expectations, if not dramatically below expectations. That clearly will add, at least for the beginning of the trading day, should add some negative fuel to the fire that we experienced today.
BALDWIN: Ted, are you a father? Do you have children?
WEISBERG: I sure do and I have grandchildren. Both my --
BALDWIN: And grandchildren as well. So what do you tell, you know, when your son or daughter calls you up and says, dad, what do I do with my investments and my stocks? I want you to give me the advice you would give your children. WEISBERG: They don't have to call me because they work with me. We all work and see for our securities both my son and daughter. But I still get the questions, but they don't really have to ask. All I have to do is look at their faces, and I feel their pain, but then again they have to look at my face and they can feel my pain.
I mean, the reality is for us in the business is this is just part of the business. Clearly, we suffer along with our clients. It's not what we like to experience and we feel our clients' pain as well as our own pain.
But, you know, we've been here before. You know, Wall Street is the only business in the world that when they hold a fire sale, nobody seems to want to come. The fact is for those folks who do their homework, these kind of sell offs, as painful and as dramatic as they are.
When you feel the pain in the pit of your stomach, perhaps the proper thing to do is not to sell, but put actually to put toe in the water and start to put some money to work. Because over a period of time, most folks that have that ability to be a contrarian usually end up the winners.
BALDWIN: Teddy Weisberg, the voice of calm. We should listen to him. He knows a thing or two having worked there for 43 years. Teddy, I thank you so much. Nice to meet you here live on television.
And let's go now to Wolf Blitzer, who certainly has been watching the numbers today as well.
What a day?
WOLF BLITZER, HOST, "THE SITUATION ROOM": Yes, a huge day and we're going to be all over the story for the next two hours. We're not leaving the breaking news, Brooke. Fareed Zakaria, he's really smart on these kinds of issues, he's with us. Our newest anchor, Erin Burnett, she spent a lot of time watching Wall Street. She's going to be joining us.
We also have a lot of news on the other breaking news that we're following, an apparent deal on the FAA work stoppage, if you will. Ray LaHood, the transportation secretary is going to be here in "THE SITUATION ROOM." We'll talk about that. We'll talk about all the news going on in the world.
But this 500-plus point drop in the stock market, that's a huge story. It affects so many people out there. Remember, this is not just today. It's been going on, what, for eight of the last nine sessions on Wall Street, dropped more than 1,000 points, 10 percent, that's huge.
BALDWIN: Yesterday this time, up just about 30 points and now quite the opposite down 512. Wolf Blitzer, we will be watching as you continue the momentum in this breaking news. We'll see you in a couple minutes.
In the meantime, I've got two more people I want to talk to, we've got to get a break in. Don't move. We'll be right back.
(COMMERCIAL BREAK)
BALDWIN: Just about an hour ago now, the Dow took a nose dive, closing at 512 points. If you have cnnmoney.com open, here's the headline -- worst day since the financial crisis.
Let's go to Poppy Harlow.
Poppy, I know you have kept an eye on the blue chip stocks a lot of people have, you know, Apple, GE and Exxon.
But before we do that, government bonds, that's where a lot of people put their money. They think it's the safe bet. How did they fare today?
HARLOW: It's so interesting. If you look at Treasuries, it's one of our top stories. The price of government bonds, what you basically pay the government to hold your money, because you think it's a safe place to hold your money, they shot up.
You see it on your screen there. The price shot up. What's interesting here, Brooke is that the yield, what they pay out, fell significantly. Just to give you a sense here of how much it fell.
If you look at a 10-year yield, bond, long-term savings, 2.45 percent, down significantly in the last two weeks. Today, you saw the two-year Treasury bond, the two-year note fall to a record low. Returns of just about 0.27 percent, a quarter of a percent returns.
This is what's so fascinating. If you look at the demand for quick money, if you look at the demand -- the payoff on a short-term bond on a one-month Treasury bill, it was actually negative, negative 0.01 percent effectively meaning investors were willing to pay the government money to hold their money.
That's very interesting. This is called a flight to safety on Wall Street. People were jumping into whatever they thought was safe, not yielding a lot of money, as investors jumped out of the stock market, as it played out all day on Wall Street in the red from the opening bell to the closing bell, accelerating in the close.
People were jumping into those government savings bonds. That was very interesting. You brought up a very good point, which was how did the blue-chip companies do? I think we can pull some up on your screen. The reason you care about these, these are the big companies that in your pension plans or your 401(k)s --
BALDWIN: Yes, a lot of people own Apple, Google, Exxon, GE, how did they do?
HARLOW: If they're lucky, not lucky on a day like today. Let's start with GE, General Electric down 5.7 percent for the day. Let's look at the world's biggest oil company, Exxon Mobil down 5 percent for the day. Look at Google, technology leader, down 4 percent for the day. And if you look at Alcoa, the biggest losers on the Dow Industrials, this is a huge aluminum company down 9.2 percent, again the biggest loser for the Dow 30 today, a company that really spans the gamut.
You make aluminum to use in flames and soda cans. You use it across the board. It's a good indicator of overall demand and how the economy is doing. No matter where your money was today in the stock market, you lost money.
Now, do not go and sell those stocks. If you've been sitting in them, do not make any major actions. This is not the time to jump out for fear. The market may fall tomorrow, Brooke, as you know, we have that big jobs report, but this is an investor panic, now it's not the time to jump out.
In fact, as traders have been telling me and you all day and telling me, this maybe a time to put some of your money to work in companies you believe in. You may want to put some of that money to work.
But, again, Brooke, it is Thursday, it is not Friday. Unfortunately, we are not heading into weekend. We are heading into a critical day, the most critical day of the month for this market could likely be tomorrow.
We get the July jobs report at 8:30 in the morning. The opening bell sounds in Wall Street at 9:30. So that will determine the direction. Foreign markets in Europe down across the board significantly about 4 percent.
Whether you're talking about the U.K. or broader Europe, stocks closing flat in Asia, but in just three hours from now, those markets will open.
BALDWIN: Let's just remind everyone, that big screen and I have my computer open to it, cnnmoney.com. Let me repeat cnnmoney.com. Fantastic resource for all things economic and money news. Poppy Harlow, my thanks to you.
And finally here as we close up this show, one minute to go. Alison Kosik, final thoughts here as we look at this day and the Dow so far in the red.
KOSIK: And we take a big sigh of relief that the day is over, right. Let me leave you with maybe a positive note. If we get an upside surprise on that jobs number, we could see stocks rally back. I'll leave you with that thought, Brooke.
BALDWIN: You will leave us with that thought. We want to leave with something positive. But again, you know, Teddy Weisberg was trying to say, look, we don't want to connect these to the recession. We don't want to connect this to the numbers we saw in 2008, but the facts are the last time we saw numbers this low was October 2008.
KOSIK: Yes, I mean, a lot of what you saw today was fear that really grip investors and they wouldn't let go of it. You know, it's this fear that we could be turning into a new global recession.
It's these fears about the European debt crisis. It's that fear and the momentum of electronic trading that had a hand in it as well. You know, but that's what really drove the selloff we saw today, Brooke.
BALDWIN: Global fears most definitely. Alison Kosik, thank you so much. Thank you for watching. Folks, this story is still continuing to develop. Let's go to Wolf Blitzer continuing the breaking news. "THE SITUATION ROOM" is now.
