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Saudi-Russia Oil Feud And Virus Fears Trigger Market Plunge; Dow Attempts Rebound After 2,000-Point Drop' Italians Who Flee Lockdown Risk Jail Time And Fine. Aired 11a-12p ET
Aired March 09, 2020 - 11:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(COMMERCIAL BREAK)
[11:00:51]
JULIA CHATTERLEY, CNN INTERNATIONAL CORRESPONDENT: This hour global stocks are falling fast as oil plummets and coronavirus fears spread. U.S. stocks
falling so far, so fast at One-point trading was halted. It's 11:00 a.m. here at the New York Stock
Exchange. I'm Julia Chatterley.
BECKY ANDERSON, CNN INTERNATIONAL ANCHOR: That is just an hour into the trading day. I'm Becky Anderson in Abu Dhabi for you where it is 7:00 at
night. And this country's next door neighbor, Saudi Arabia going all in on an oil price war with Russia. Sending what has been an incredible
relationship between the two energy super giant up in smoke. Oil prices collapsing overnight down around $30.00 a barrel at some points.
We haven't seen a crisis or a crash in oil prices this bad for 30 years since the first Gulf War. You see prices now down a room just shy of 20
percent. But that is really hurting what are these already fragile stock markets. They've been seeing global losses in the trillions of dollars.
Julia, do help us understand what we are seeing across these stock markets.
CHATTERLEY: Unprecedented moves to your point, Becky. The all markets, the epicenter here but it's just another uncertainty for investors to deal
with. They can't grasp, quantify the impact of the coronavirus and now they're trying to understand what the crash in oil prices means. The result
was instant pressure. The moments the markets opened up. We were down seven percent. Halting was traded for 15 minutes just to give investors a moment
to pause to understand to try and grasp what's going on.
We're holding above that and have done since the markets reopened but fractious nervous markets this stage. And as you can see we're down at this
moment, Becky. Some 6-1/2 percent for the Dow.
ANDERSON: Yes. Absolutely remarkable numbers here. So we are off 1600 odd points, 24,000 just above what is another level that I'm sure many people
are looking at. Look, there's going to be some value in the stock market. Something I think -- I think, to your numbers about 18 percent of their
highs. I mean, there's certainly some value in that. I know that you've got Clare Sebastian who's been watching these markets to chat to you, Julia.
CHATTERLEY: Absolutely. And to your point, Becky, there will be people looking at this situation, looking at these markets and saying, hey, is
this now the time to dip in but as we were discussing earlier in the past hour with Rishi Sharma, he said if we do see that 20 percent pullback from
recent highs, it raises the probability of recession to some 60 percent in the United States.
So that's always the challenge here. I want to bring in Clare Sebastian though on this because right now Clare doesn't feel like really any bottom
picking going on here. It's just pressure across the board.
CLARE SEBASTIAN, CNN INTERNATIONAL CORRESPONDENT: Yes, Julia. The circuit breaker that was triggered within the first five minutes of trading this
morning. It did sort of bring some stabilization. But things are here little fragile. Now, as we head towards lunchtime back down more than 6-1/2 percent as you say but while this feels
like the sort of bottoming process is still going on.
I will say that in the last half hour I've spoken to two market participants, both of them say they are in the mood to buy at these levels.
One of them said to me, I wish I had a million dollars and said he'd be looking out for some of the highest leverage products out there. So people
are definitely looking at all of these steep falls. But overall, yes, we are seeing sort of the Black Swan event of the coronavirus and the negative
headlines that we've had over the weekend around Italy in the various U.S. states bringing in states of emergency.
Add to that the unexpected potential price war that we're seeing between Russia and Saudi Arabia in the oil markets and it is bringing a sense of
shock to these already rattled markets, Julia.
CHATTERLEY: Absolutely. And to your point, I think a lot of people looking at the draconian measures that were implemented in Italy and wondering
whether that's then going to be mapped to other nations including the United States and what the implications therefore are going to be for
businesses, for consumers in this country.
[11:05:07]
CHATTERLEY: And I do think that's also what we're seeing in terms of the pressure here, not only what we've seen in all prices. I'll go back to the
point of recession risks here. If you look at the bond markets in the United States, they're not waiting around the flight to safety that we've
seen there means the bond markets are already saying recessions coming here.
SEBASTIAN: Yes. That is -- there's a serious flight to safety going on, Julia. I just take the 10 year, it's still at about half a percent. So
really, that's sort of the market equivalent of taking your money and hiding it on your mattress, you're guaranteed to get it back but you're not
going to earn much in the process. That is what we're seeing a lot of people doing with their money at the moment.
They just don't know where in equities, they're going to find value. Well, this still shakes out then and that is really sort of an unusual situation
that we're seeing and I will say throughout this entire process, even in the middle of February and we saw the stock markets hitting record highs,
the bond markets was still showing that there was trouble ahead with all of this. And meanwhile, we've got the Fed cutting rates, the emergency cut
last week which feels like many years ago now, given everything that's happened, since that could continue, that is putting pressure on other
parts of the stock market.
The financials are seeing pressure because of that and all of these elements that the drop
in oil prices -- at the drop in mortgage rates because of the drop in Treasury yields and Fed rates, that could have a positive for the consumers
but it is all mitigated, Julia, as you say, by the potential for economic growth as a whole to come down. Recession will put pressure on all parts of
the market and the economy.
CHATTERLEY: Clare Sebastian, great to have you with us. I want to bring in Paul La Monica now too. Paul, Bridgewater's founder Ray Dalio, lots of
people, lots of investors watch what he says. He suggested this morning that coordinated action, whether it's fiscal policy from governments or
monetary policy, more from the central banks here is required. He said it's needed. He doesn't expect it here.
To Clare's point, do we now need to see targeted support here for the airlines sector, potentially for other sectors, the travel sector that's
impacted and been impacted so severely as a result of this?
PAUL LA MONICA, CNN DIGITAL CORRESPONDENT: Yes. I think that would make sense. I wrote an op-ed for CNN business last week on Friday about how the
Fed has taken this threat seriously. And so far, you could argue that Congress and the President despite that small $8 billion plus aid package
that the emergency funding that they approved last week, they have not taken this as seriously.
And that you do need more of a coordinated fiscal stimulus package to help businesses that are going to be struggling, as well as consumers that are
scared and, you know, wondering what's next due to this outbreak. Also to piggyback off of what Clare just said, the Fed meets next week. I'm not
sure if they'll wait until then, to make a move, but as of right now, there's now a 66 percent chance that the Fed is going to cut rates by a
full percentage point and bring them back to zero, which is amazing. We're talking about the levels of the depths of the 2008 financial crisis.
CHATTERLEY: Yes. And then people will be saying and then what? There's no further to go then. Are we going to see negative bond yields in the United
States or elsewhere? The challenge here for central banks. Paul La Monica, great to have you with us.
Just adding a layer of uncertainty here, Becky, on top of the uncertainty with regards coronavirus and the outbreak spread here, the oil markets and
what we saw over the weekend from Saudi Arabia. I think that was the final push here for investors to say, we can't handle this and we're heading for
the exit.
ANDERSON: Yes. Heading for the exits and the mattress, which is as Clare rightly pointed out, when you get to the sort of numbers that we're seeing
on that 10-year bond that's about the safest place your money can be earning. Absolutely nothing but at least it's safe. Julia, thank you.
Let me get back to that massive collapse in oil prices. Not just the money here, there are tremendous geopolitical calculations going on between
Riyadh for example, Washington and indeed Moscow. John Defterios tracking oil prices from London. You're looking at the current prices live there.
And we've also got Sam Kylie here in Abu Dhabi for a deeper dive into the politics behind Saudi Arabia's oil power play.
Hoping for Matthew Chance in the Russian capital shortly. But let me start with you, John. And seemingly at a time when the world economy can least
afford it with the coronavirus creating such instability. The Saudis have launched an oil price war. Why?
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Well, Becky, you know, they don't see eye to eye right now with Russia. They were lobbying
at this OPEC plus meeting where I was covering in Vienna on Thursday and Friday, come along for the ride. Another cut of 1.5 million barrels a day.
If they went ahead with that cut, it was going to take up to 3.6 million barrels off the market in the last year and a half.
[11:10:04]
DEFTERIOS: Now the Russians have been collaborating with Saudi Arabia, the non-OPEC producers that they brought along to the party here. But they're
saying now we're almost three years into this process of cuts, cuts, cuts, it's stabilizing prices. But all the while we see U.S. production surging
to a record 13 million barrels a day. So Russia said we're not going to sign on to the 1.5 million barrels a day cut.
Many thought that Saudi Arabia would regroup with the OPEC players and decide to maybe cut on their own. Nobody thought they would double down,
raise production above 10 million barrels a day and cut prices anywhere from six to $8.00 a barrel to their preferred customers the signal. This is
a price war. We're showing our power. We're a low cost producer. And if you're not going to come along with us, we're going to fight back.
ANDERSON: Yes. Fascinating. I think we've got Matthew Chance with us out of the Russian capital. I think we should bring him in at this point because
lots of questions about why the Russians have chosen now, to play a high stakes poker game with the kingdom after all, relations have been perfectly
good, if not excellent, over the past what, 18 months or so. My sources telling me that Saudi's fill, Matthew, they have led from the front for
some time now causing output to provide support for this oil market only to see others taking advantage of it.
So this, if nothing else, that effort to change the game but it is risky, not just for the Saudis, but indeed, for the Russians here. A high stakes
poker game. I think it's quite fair to say that neither the kingdom nor the Kremlin can really afford to lose at this point.
MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: No, but I think what we saw is a sort of fundamental disagreement between the Russians and
the Saudis and OPEC in general, about how to best approach this drop off in demand, you know, the cutting of supply, the Russians have been sort of bulking at that for
some time now. Saying that all it does is give the American shale producers the opportunity to step in and fill the vacuum.
You know, it's almost like a philosophical disagreement between these two sides. The Russians seem to be saying, look, what we think is that the
world needs a period of low oil prices that will boost economic growth, industrial growth, and therefore sort of create its own demand. And so, I
think that's a really important factor. Definitely, they wanted to get at the shale producers in the United States, wanted to see them go under.
And that might happen, of course, with these lower oil prices, but I think something else as well which is just the tone of voice, that OPEC and Saudi
Arabia in particular was speaking to Russia in when it came to this this demand almost that they were making for Russia to undergo further cuts. You
know, Russia doesn't see itself as a junior partner in that relationship with OPEC, it sees itself as a senior partner, if anything.
And I just don't think it like being so spoken to in a sort of way that said, look, you have to do this. Otherwise there are going to be
consequences. They bolted that.
ANDERSON: Donald Trump, John, just tweeting on this, with -- and I quote here, "Saudi Arabia and Russia are arguing over the price and flow of oil
that and the fake news is the reason for the market drop." Well, I mean, yes, Saudi Arabia and Russia argue over the price and flow of oil has
helped to dent these markets significantly but it's not the only reason. And he's certainly not right to suggest it's fake news out there.
There are a myriad of things upsetting these markets at present. Not least this spat between the Russians and the Saudis.
DEFTERIOS: Yes. For Donald Trump, Becky. This was working swimmingly for the last two years because OPEC plus in this apparatus with Saudi Arabia
and Russia, leading the charge here for Keeping the market very balanced. That's very good for investment for all countries around the world, but
particularly good for the shale producers of the United States where we have some 10 million jobs linked to the boom.
The U.S. has doubled production in less than a decade. It's a record by any stretch of the imagination going back 100 years in the oil business, Becky,
that's the reality. But Donald Trump could ride that wave, if you will, and kind of tout the fact that the U.S. was the number one producer, 30 million
barrels a day. Where this got complicated for the Russians is that the U.S. kept on applying sanctions to some of its oil majors and there's five of
them right now.
So they're suggesting we're pulling production off the market, the U.S. continues to put sanctions and the U.S. independent oil companies are
surging ahead with production. This equation doesn't work with us. And we got complicated in Vienna around the bargaining table and many senior
sources told me the same thing. OPEC originally said 1.5 million barrels a day through the front half of 2020. That was kind of the gentleman's
agreement. The oil minister Russia went back to Moscow to get that signed up by Vladimir Putin.
[11:15:04]
DEFTERIOS: He came back with OPEC doubling down and saying we want 1.5 through all of 2020. So they were just growing further apart within a span
of 24 hours. And then after Russia walked away from the table, and then Becky, I'm telling you literally walked away from the table in anger, the
Saudis came in with this very, very brash strategy of boosting production again, and cutting prices at a record amount.
It was extraordinary. You have to wonder though, the impulsiveness on both sides, both Russia and Saudi Arabia and their leadership wondering why
you're making such a big bet, with demand falling because of the coronavirus. China's demand collapsing around the front line of this
strategy, an oversupply in the market. And now you're going to play games with the oil price, pretty risky stuff all the way around.
ANDERSON: The oil majors taking a hit today on these markets, Saudi Aramco stock listed with such fanfare just before Christmas now of and below its
listing price. Again, you know, for those locals and GCC residents who invested in that stock, there will be significant concerns today.
DEFTERIOS: Well, it's a fantastic point you're bringing up, Becky. And it's delicate on a couple of different issues. Number one, this was kind of the
pride and joy of Saudi Arabia, it will remain so because it's a phenomenal company. There's no doubting that but they did push this IPO and wanted to
make sure it was a success in the local domestic market of Riyadh. So much so, Becky, they gave zero interest rate loans to Saudi citizens to borrow
against it.
I think if I was in Saudi, I'd say look, the government's going to make sure this does extremely well. It's a pretty safe bet to make 10 to 20
percent in the first year. That's what it looked like in the first three months of trading. It has not played out that way. Finally, we have
investment from Kuwait and the UAE by their sovereign funds to support their neighbors here in the Gulf. And that's not playing out too well at
the same time.
I don't think long term that's going to be an issue. It's certainly an issue right now with oil around $30.00 a barrel.
ANDERSON: Sam, there are some significant power plays going on behind the numbers that we are seeing both on the stock markets today, but
particularly on these oil markets, aren't they? What sort of -- just how significant are these calculations do you think on a geopolitical basis?
SAM KILEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, in the short term, you've got the Saudis apparently self-harming in two different directions.
They're hurting the oil market at a time when Imam is off because of the coronavirus that hurts -- that hurts the relationship with the United
States and clearly, they've got themselves in an open Rao with the Russians. Locally though it's also highly problematic.
United Arab Emirates needs oil to be around $70.00 a barrel. It can't afford in terms of its in -- outgoings and incomings to sustain this kind
of squabble, which is I think, really how it's going to be seen. There's nothing really in it that anybody can really discern. And this is I think,
why the markets are so jittery to see what is the strategic aim of this other than peak, other than showing power.
Now, in that respect, it's been a highly effective move by the Saudis to say, right, OK to the Russians. You don't want to play ball with us. This
is what we can do and behave in a completely counterintuitive way flooding the market with oil driving down the price, but it's not sustainable for
the Saudis either. They need to -- need to be over $80.00 a barrel to sustain their economy at a time when they're trying to drive forward a
whole big modernization program and they've got reportedly internal political strife with the reported to wrestle detainment -- detention of
some key members of the royal family.
So, in that context, you've got an unpredictable Saudi Arabia in a dangerous neighborhood. What we haven't mentioned here is Iran, which is
essentially the oil industry that has been crippled anyway. But they need oil prices be around $200 a barrel if it's going to be any serious use to
them. So in that context, all of this regionally is highly destabilizing. And of course, we've got a layer on top of that coronavirus and civil wars
in two different nations.
ANDERSON: Messy stuff is an understatement. Sam Kylie is in the house. The market's plunge in pod fueled by fears over the coronavirus outbreak. CNN
now calling the novel coronavirus crisis a pandemic. Let me explain why. That's because this virus is now spreading across countries and continents
from person to person with a range rate that clearly meets the definition of pandemic.
In fact, this virus has now spread to half of all countries. Now after consulting with the world's top disease experts, we have now shifted our
terminology.
[11:20:07]
ANDERSON: The worst outbreak in Europe is still in Italy. The government there has put more than 16 million people on lockdown. Ben Wedeman and his
team are in Bologna in Italy. And what does that effectively mean? What is the impact, Ben?
BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, effectively, it means that the part of the country that produces three quarters of the GDP
is in theory on lockdown, although it's not altogether clear how stringent the measures are actually going to be enforced. And when they will come
into force yesterday, we drove from Milan to here without anything stopping us.
And therefore, it's not clear how -- it's not going to be like the red zones, those 11 towns where 50,000 people lived and it was very hard for
anybody to get in and out of but I can tell you the situation is looking increasingly grave. As of yesterday evening, Italy had more than 7300
recorded cases of coronavirus, recorded 366 deaths that's 133 extra in a 24-hour period. Now, CNN was able to speak to the coordinator for intensive
care in the Lombardy region where Milan is, and he said that the health system in his words is one step from collapse that they are providing
intensive care in the corridors of hospitals.
And he told us that they are receiving in his words, a tsunami of patients. Now if all this wasn't bad enough, there have been prison riots in the last
24 hours in more than two dozen prisons throughout the country. Six prisoners have been killed. Two of them from breaking into the pharmacies
of the prisons and overdosing on drugs, one from smoke inhalation. There have been mass escapes from a prison in Rome and another one in Puglia in
the southern part of the country.
Why these riots because the prison authorities have imposed restrictions on family visits, keeping in mind also that the Italian prison system is
severely overcrowded and therefore we have sort of one crisis on top of another. Becky?
ANDERSON: Ben Wedeman is in Bologna for you today. Coronavirus fears then there and doing damage once again to invest the appetite for stocks around
the world. Let's show you where we are out on the Dow Jones Industrial Average, 5-3/4 percent lower. That is just shy of 1-1/2 thousand points of.
Julia. is at the New York Stock Exchange, Julia?
CHATTERLEY: Still Ben's phrase there. One crisis on top of another. Investors already dealing with the coronavirus outbreak to your point. Now
of course, dealing with the all market crash and all the implications that you've been discussing, Becky, it would be incredible for me to say that
we've stabilized, we're seeing some stabilization. It's a good thing when we're off somewhat, 5.6 percent.
But earlier, as we've discussed already down seven percent when those circuit breakers kicked in. We're shaping up for another volatile pressured
session. Plenty more coverage from at the CONNECT THE WORLD here on markets and else -- what else is going on in the world. Stay with us. We're back
after this.
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ANDERSON: All right/ Welcome back to what is our coverage of an extraordinary day for global stock and oil markets. We are everywhere that
matters. I'm Becky Anderson in Abu Dhabi, a global oil powerhouse of course, Julia Chatterley is at the New York Stock Exchange watching. What
is, Julia, this startling beginning to the trading week?
CHATTERLEY: Startling is the perfect word. Stocks plunging within moments of the market opening. We were down seven percent. Trading was halted. This
is the picture now since we've read opened and we have bounced off the lows down to 5.6 percent. As you can see, for the Dow at the moment. The perfect
storm for investors though dealing with the ongoing intensification of the coronavirus outbreak then that historic plunge in oil futures brought on by
Saudi Arabia's decision to slash prices and threatened further output in response to Russia's refusal of course, to back a plan to cut output.
Let me bring in Richard Quest here now. The perfect storm for investors, Richard and no degree of uncertainty either on the measures being
implemented to tackle the coronavirus outbreak or if indeed all the players can come together here and shore up all prices. It's a worst case scenario.
RICHARD QUEST, CNN BUSINESS EDITOR-AT-LARGE: Yes, it's almost impossible to see exactly how this can move forward without some direction from
policymakers. In the terms of the Fed, they've already lowered interest rates. We expect another rate cut and also their ability to pump money into
the economy, into the banking system, making it clear to banks that they will not want for liquidity.
Secondly, on top of that, what does the government do? What does the administration do? Well, I've seen the President's tweets this morning,
saying this is good news for consumers, because they've got cheaper gas prices, frankly. And that's really the least of their worries, or the best
of their worries, I should say, lower gas prices. Yes, but you may not have a job because your company's not been able to get raw materials or finished
goods because of supply chain issues as a result of this. We've entered a new and I think extremely damaging phase of this crisis.
CHATTERLEY: Yes, absolutely. And to your point as well, that the positive benefits to consumers potentially swamped drowned out by ultimate recession
fears and I think that's what bond market investors have been telling us now for a while.
QUEST: I don't know what the bond has done this morning, but I'm imagining that, you know, well and truly into uncharted territory on the tenure, the
reality is, look recession or not, we could be talking about a technical number, Europe is going to end up with a recession. It'll be short, it'll
be deep, according to some forecasts. Asia, will it skirt a recession? Doesn't really matter if we get two quarters of negative GDP, Julia.
You're talking about just sclerotic growth to the levels where people feel we're in a recession. And I think the number to watch and I know, I can
hear economists saying, you know, it's a lagging indicator. But let's watch unemployment. Let's watch those numbers and see if they start to tick up as
a result of damage being done.
CHATTERLEY: Yes, the fundamentals and the real economic impact, and we just have to watch for those numbers because we're not going to get those next
yet. Richard Quest, great to have you with us. Thank you so much. for that. We're going to take a break. Coming up, Becky we'll be speaking to the
former finance minister of Lebanon to get their take on the oil price crash that we've seen and the implications for the region and beyond.
[11:30:09]
CHATTERLEY: Stay with us. Plenty more to come.
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CHATTERLEY: Welcome back to CONNECT THE WORD. An extraordinary day for global markets. A dramatic plunge in all prices triggering pressure on
global stock markets including on Wall Street where trading was halted in the first few minutes of trade after a seven percent plunge. This is the
picture right now down some 5.8 percent. Coronavirus fears, yes, but also Becky exactly what we're seeing unprecedented moves in all markets here to
tremoring tremors, fears around the world.
ANDERSON: This is helping the markets off just shy of six percent. As we speak Julia pointing out that this market about now and three quarters ago,
15 minutes into its trading session was halted, halted because it had declined some seven percent. So clawing back to a certain extent and down
just shy of some 1500 points. We've been watching this market all morning now. And we've also been keeping an eye on these oil markets which are
really, really important.
The last time that oil prices set dropped like this in one day was back during the first Gulf War. Saudi Arabia going all in on what is an oil
price war with Russia. And I think it's fair to say that nobody expected what happened at OPEC over the weekend is everything happening today with
oil in one chart.
[11:35:06]
ANDERSON: Prices now about half as much as at the start of the year. Saudi Arabia decided to slash prices after Russia refused to back a plan to cut
production that would have provided as far as the kingdom was concerned. I sort of bottom on these markets. Russia didn't play ball and this is the
result.
My next guest knows this middle east region's economy inside out. Nasser Saidi was once a former finance minister of Lebanon. He's also been a chief
economist and head of External Relations at the Dubai International Financial Center. He joins me now. What do you make, firstly, of what we
are seeing on these oil markets today?
NASSER SAIDI, FORMER LEBANESE FINANCE MINISTER: Well, I mean, just as you've seen the financial markets, this is Black Monday. It's a perfect
storm. You've got coronavirus, you've got the oil markets, you've got the financial markets all happening at the same time. This is bad news. Of
course for this region, which is highly dependent on oil. We haven't really had a big oil price declines since the first Gulf War and since 2015, 2016.
Now the question is, it's not just Russia. This is the end of OPEC plus effectively, but second you -- you're trying to find the shale oil industry
in the United States. The reasons why the Russians wanted to pull out is because they were losing market share. OPEC was losing market share to oil
-- to shale oil. And second, you've got renewable energy also fighting and leading to lower demand. So the fundamentals in terms of initially lower
growth, were already impacting the oil price.
This is what the OPEC meeting was meant to deal with. And that required cuts in production. Russian oil producers were saying, well, why should we
bear the brunt of it? And Saudi Arabia, took it on and punched.
ANDERSON: Yes. Took it on and as described by a number of guests on this show today playing our hands which if it -- were described in poker will be
high risk. This is Mohammed bin Salman, the young 34-year-old crown prince who is in charge of a complete reorganization of not just Saudi's economy,
but Saudi's society at this point, chasing, taking a decision to chase prices lower at this point.
We know that breakeven for the Saudi economy is some -- what? $40.00 higher than oil prices.
(CROSSTALK)
SAIDI: That's the fiscal -- that's the fiscal breakeven.
ANDERSON: Right.
SAIDI: But what is also true is if you look at the breakeven for the shale oil producers, for the best of the Permian Basin and all the rest, you're
talking about 30, $40.00 per barrel, so they will survive. That's the thing. However, you got a number of weak economies, you got Nigeria, we've
got Angola, you got Iraq. Saudi has got the reserves, the financial reserves to bear it out. UAE can probably bear it out.
ANDERSON: For how long, sir? For how long?
SAIDI: Well, the question is, how long can you sustain this? I think probably three to four months. Not more than that before it starts
impacting your demand for debt, you're going to have to finance large budget deficits, particularly for those exposed countries.
ANDERSON: Talking about financing deep debt at this point, Lebanon set to default on its debts for the first time as its foreign currency reserves
plummet to what our critically low levels.
SAIDI: Yes, that's right. Well --
ANDERSON: What's going on?
SAIDI: To be -- to be -- to be fair, this is a restructuring of Lebanon's debt which it has to do. So it's not a matter of justice 1.2 billion which
was maturing today, which will not be paid. The message really to the markets was, we need to deal with the whole $90 billion worth of debt
between domestic Lebanese pound debt and foreign currency debt. So this is a signal really of the government wanting to engage. So I think we need to
take it positively.
Lebanon had no choice, it had to do that. Any other choice would have been an economic and deeply unpopular of course.
ANDERSON: Prime Minister Hassan Diab has only been in the job a couple of months has been talking about the need for banking reform in Lebanon. Let's
have a listen to that. Hold on.
(BEGIN VIDEO CLIP)
HASSAN DIAB, PRIME MINISTER OF LEBANON (through translator): We work on developing the banking sector, the growth of our economy and business
cannot happen without the support of banks. But at the same time, we do not need a banking sector that is four times the size of the economy. That is
why we have to make a plan to restructure the banking sector.
(END VIDEO CLIP)
ANDERSON: I just wonder what this actually means for central to keeping the country financially afloat. And so, you know, let's be very clear here. You
know, just how bad are things in Lebanon?
[11:40:06]
SAIDI: Well, the numbers are staggering. You've got a decline in GDP and real GDP of around 10 percent.
ANDERSON: Ten percent?
SAIDI: Ten percent decline. That's depression days, right? 1930 days. You've got inflation running at 30 percent. You've got a 40 percent
currency depreciation. Poverty levels are staggering. And I think this is where we should look at the numbers. The World Bank estimates 22 percent of
the population is that extreme food poverty level. And 40 percent is that poverty level, I.E. living on less than $5.00 per day.
And that is accelerating upwards because of business closures and all the rest. So what you have to do is you've got to restructure the debt. You've
got to restructure the banking system, because the banks have 70 percent of their assets in sovereign debt and central bank debt. So you have to deal
with that. And third, you've got to restructure the Central Bank because it too, was financing government.
And finally, to address all this, you need an overall package, you're going to have to go to the IMF --
ANDERSON: Cap-in-hand.
SAIDI: -- to go -- cap-in-hand unfortunately to get the foreign funding you need to stabilize the economy and provide liquidity.
ANDERSON: But talking about Lebanon which is a sort of a thread to the story of the Middle East as we speak here in March of 2020, which is quite
frankly, roiling. It's a messy region at the best of times. What has happened with the decision by the Saudis over the weekend is not going to
improve the lot of any single country in this region.
SAIDI: Well, the Middle East is going to go into recession. That's very clear. At a very sensitive point. Remember that you had protests, right?
We've had this beginning of a second Arab Spring, I call it a firestorm. I never called it a spring and this is coming really at the bad time for
that. You're trying to get some recovery in Iraq, that's not going to go anywhere now. They're highly dependent on oil, and so are most of the other
or Arab oil producers. So the impact across the region will be severe.
ANDERSON: I'm going to keep you with me. I'll just got to get back to where the New York Stock Exchange. I do want to bring my colleague Julia
Chatterley in -- who is keeping an eye -- one eye on this Dow Jones Industrial Average shy of -- or just above five percent down. The Do,
Julia, are, attempting to claw its way back into some sort of semblance of respectability after what was an alarming 2000-point drop at the open but
it has a long way to go at this point. Are we seeing any green on the big board at this point?
CHATTERLEY: You know, I think Wal-Mart actually earlier was the only stock that was managing to hold in positive territory, quite frankly, Becky, but
I do think compared to what we saw in the initial minutes of this market opening up, we're actually lucky and I use the word cautiously that we're
only here it, was those circuit breakers that stop trading for 15 minutes that I think actually just allowed us here to take a pause or reflection
and we're now managing to your point to hold what down some five percent.
And actually, it's no worse. This is going to be a long session, Becky. The good news is, we'll be here to keep our viewers abreast of further
developments. Plenty more discussion from Becky from the New York Stock Exchange to come. Stay with us. We'll back after this.
(COMMERCIAL BREAK)
ANDERSON: Our top story this hour, the Saudi U.S. stock markets have plunged to such depths that automatic safeguards actually kicked in at the
beginning of the trading day to prevent further mayhem. A seven percent drop, almost immediately after the opening bell trading -- halted for 15
minutes for investors to call their heads as it were. Now down less than five percent which is a result in terms of this Monday trading day. Julia
is at the New York Stock Exchange. Julia?
CHATTERLEY: Yes. A result, I couldn't agree more with you. We're joined by Alan Valdes, he's the senior partner at Silverbear Capital. To Becky's
point there, we've clawed back what 600 points here since the lows.
ALAN VALDES, SENIOR PARTNER, SILVERBEAR CAPITAL: Nice little rally we're having here. Well, you know, it all depends on where we close. That's the
big thing we're waiting to see. I mean, these intraday rallies, great to see, it's, you know, firming up a little but still, it's a long way away.
CHATTERLEY: We're talking about firming up and we're still down 5-1/2 percent which tells us everything here. I mean, in this hour unprecedented
times the shift, the speed of the downdraft over the last several sessions and just so much to deal with the bond markets, the oil markets and the
coronavirus outbreak.
VALDES: Correct. I've been here quite a few years. I've never seen anything quite like this. We have such a Perfect Storm. So to say. You got the
virus, you got the oil today break in, you got the 10-year below, you know, five percent. Now it's crazy. So .5 percent. So it's really outrageous
right now what's going on.
CHATTERLEY: Do we see investors getting back in here and perhaps looking at these levels and saying there's opportunity to buy at this stage or is it
simply too early? I mean, if I do the math very quick, make sure I must do it. Let me down. We're around 17-1/2 percent now from recent highs. That's
a long way down.
VALDES: No, it definitely is. But like I said, it's the unknown that we're afraid of here on Wall Street and this is really unknown territory. But
that said, I definitely be looking at. It's like going to Macy's and everything's on sale. It's not like going out of business sale, but it is a
good sale that but I'd be cautious. I want to jump in anytime soon. I still think we have another leg to go. I think as far as the virus goes, I think
until they get a vaccine. This thing is going to be on shaky ground.
CHATTERLEY: Yes. Oh, we see stabilization in cases but to your point in final 30 minutes of trade today going to be so important to watch. Do we
see buying at that point or do we see instance selling pressure that we saw two Fridays ago (INAUDIBLE)
VALDES: Well, you know, we don't know for sure. But 11 years ago I was here. And at that time we bought the last half hour. And since then the S&P
500 cumulatively is up over 460 percent.
CHATTERLEY: Eleven, eleven years ago. Alan, fantastic to have you with us. Becky, shaping up for an interesting session. Let's call it that. Back to
you.
ANDERSON: Good luck. It's -- it went -- it went from bad to worse in the first 15 minutes. But as we've been suggesting, being says sort of calming
down somewhat after Wall Street plummeting on the back of not just these fears about coronavirus, and perhaps that's understandable. A collapse in
the oil price though, taking the Dow down about five percent as we speak trying to limit the massive losses. We haven't seen in a day like this.
Since the depths of the financial crisis. Much more after this.
(COMMERCIAL BREAK)
ANDERSON: We are about to close out our hour on CONNECT THE WORLD but before we do, let's take a look at the Dow down five percent and an
extraordinary session. Once again automatic safeguards kicking in -- kicking in. You know, we were -- Julia, my colleague has been talking to
the head of the NYSC earlier on and these whole trade as seven percent drop was in order to encourage some cooler heads but as my guest here with me in
Abu Dhabi has suggested 70 percent of what goes on in the Dow Jones Industrial Average is actually electronic trading.
This is algorithms. Nasser Saidi was once a former finance minister of Lebanon and he is joining me now. And you make a very, very --
(CROSSTALK)
SAIDI: They couldn't care less. On the contrary, they have programmed and they will take that into account. And now you're going to get much more
program. Algorithmic trading as a result of that. You're going to get margin calls. This is where you want to inject liquidity. This is what the
central banks should be doing. Lowering rates on its own does really -- doesn't really help.
ANDERSON: This is what the Fed of course.
SAIDI: Doesn't really help.
ANDERSON: -- in the last week, right?
SAIDI: How does that help you fight coronavirus or the market crashes --
(CROSSTALK)
ANDERSON: So what's the solution here, sir?
SAIDI: What you need is you've got to have more Q.E., you've got to inject liquidity. You got to have regulatory --
(CROSSTALK)
ANDERSON: Quantitative easing, yup.
SAIDI: Quantitative easing regulatory forbearance. That is -- you're going to say to people, don't call in the loans, let it smoothed over, give them
some time, particularly for SMEs and other companies like that which are dependent on demand.
ANDERSON: The problem here is this is not just a sort of financial meltdown that we are seeing for investors on these stock markets and those investing
in oil but you say we've got the kind of the background is coronavirus, and we have no idea that at the moon that is going to affect the global
economy, going --
(CROSSTALK)
SAIDI: Exactly and two things which are important. This is not like SARS. When SARS happened the size of the Chinese economy is only four percent of
the global economy. China today is -- China today is 17 percent of global economy and much more connected. So what we're seeing now across supply
chains is this impact of coronavirus. So the old models don't help you deal with coronavirus.
We're still at the beginning of the contagion and spillover effects into Asia, Europe and elsewhere.
ANDERSON: I'm going to be really transparent here and let our viewers know that I booked you to talk about the Lebanese economy which is in freefall,
and I do find them but you've been extremely generous in giving us your big economies brain to talk about what has been going on today. But before we
leave, I just got a minute or so left. How do you -- how do you fix what is going on in Lebanon in present, sir?
SAIDI: Neither recipe of bank restructuring that restructuring, reviving the economy, which was trying to stabilize it, and then injecting liquidity
and putting in place a social safety net.
ANDERSON: You and I have talked about going cap in hand to the IMF. And that's clearly got to be an option at this point.
SAIDI: Is this the only option?
ANDERSON: Hezbollah is the thorn in any big institution side when it comes to big global institutions. So internally, is that going to be a problem
for the IMF?
SAIDI: Hezbollah is set that it doesn't like the measures the IMF would propose. It said we don't mind the institution but we don't like the
measures. So that he action is really like measures that would apply the net in America. We're very far from that. The answer should be look at
what's happened in Egypt. They've had an IMF program, the IMF came in, imposed reforms and now Egypt is doing very well, thank you very much.
What we need is really more dialogue because for the -- and other parties who are against the IMF, their own constituency is going to suffer the
most. They're the people on low wages that are falling in real terms.
[11:55:08]
ANDERSON: If you were a betting man very briefly, does this Dow Jones Industrial Average have further to go at this point? And do you expect to
see further falls in global stock markets before we find a bottom in all of this?
SAIDI: I think you're going to see further falls in the markets. Yes.
ANDERSON: I asked you --
SAIDI: In the run to safety, that is what's happening in the bond market.
ANDERSON: Fascinating. And that's a very important point, viewers, you know, we've been talking about the oil markets, we've been talking about
the stock markets, but what's going on in the bond markets specifically is incredibly in --
(CROSSTALK)
SAIDI: The junk bond market is going to crash. Companies might go bankrupt as a result of that.
You're going to get these margin calls, potentially driving dealers and investors into bankruptcy.
ANDERSON: Thank you very much indeed for your insight and analysis. Yours is a positioning says the junk bond market will crash. Clearly that's your
position. We hope it doesn't. But all of this is up for play from everywhere that matters. New York to Abu Dhabi that is it from CONNECT THE
WORLD at least. I'm Becky Anderson. Julia up lifts with my friend Richard Quest to take you for a ride on the Quest express.
(COMMERCIAL BREAK)
END
