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First Move with Julia Chatterley

President Attempting Once Again To Get The Final Word On The Russia Probe; Stock Market Bouncing After Two Days Of Sharp Losses; Some Big Firms Are Hitting Back Against The British Spy Agency, GCHQ. Aired: 9:30-10aET

Aired May 30, 2019 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

[09:30:00] JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: A warm welcome to a slightly abbreviated version of FIRST MOVE this morning. We

are live at the Stock Exchange here in New York. And I am Julia Chatterley.

What you were just listening to there was analysis on the President Trump's comments this morning before heading out to Colorado. The President

responded to special prosecutor Robert Mueller's presser yesterday saying that Mueller should never have been chosen to lead the Russian

investigation into interference into the 2016 election and called him quote, "totally conflicted."

Robert Mueller, of course, said yesterday that if he'd have had confidence that the President didn't commit a crime, he would have said so. But he

also emphasized that in the end here, Russia did interfere in the 2016 elections, and all Americans should care about that.

Let me give you a look at what we're seeing for now for U.S. stock markets this Thursday. A higher open, it was expected. Bouncing this morning

after two days of sharp losses. We've also got bond yields that are slightly higher in the session so far, too.

We've also just received a second look at first quarter U.S. growth numbers, too. It's a touch lower. The revision at 3.1 percent annualized,

but better than expected, actually, it may have been led by a reduction in net exports and an inventory bill, but you can't escape it.

In terms of magnitude, that Q1 growth number was strong. Let's get some analysis now in what we're seeing. Nathan Sheets is chief economist and

Head of Global Macroeconomic Research at PGIM Fixed Income and joins us now. Nathan, fantastic to have you on FIRST MOVE.

NATHAN SHEETS, CHIEF ECONOMIST AND HEAD OF GLOBAL MACROECONOMICS RESEARCH, PGIM FIXED INCOME: Nice to be here. Thank you.

CHATTERLEY: You've said you were pretty confident about the U.S. economy's ability to weather the trade war storm here. Talk me through why?

SHEETS: It is certainly a storm. But there's a lot of momentum, the labor market is very strong. Even this morning, we got some claims data that

we're looking very good. And I think underneath it, the consumer is in a good place.

Recent readings on consumer sentiment are high. They're enjoying gradually rising wages. And as I said, the employment picture is solid. And the

consumer, after all, is about two thirds of the U.S. economy.

CHATTERLEY: Someone recently said to me, okay, fine. We've got consumer confidence at 15-year highs here in the United States. But we tend to be

like that at the peak of the cycle. We tend to be over exuberant. Is there any truth to that fact? And is there a reason perhaps for alarm

bells there, too?

SHEETS: So I think it's a very fair question as to whether we are, you know, seeing lagging indicators, still showing strength. My feeling is

that underneath that, still the corporate sector is strong. You know, there's still momentum in the system.

And then the question is, is there enough momentum to withstand the force associated with the trade war? I think the answer is yes. But also it

will depend on what the President does with the trade war.

CHATTERLEY: I mean, that's an open question for all of us right now. What's the message that the bond market is sending at this moment, because

we've had people like Morgan Stanley, JPMorgan, saying they expect second quarter growth to be around the 1 percent level, pointing at what we call

the inversion of the yield curve, where we see back end rates lower than front end rates and saying, there's recession warnings here perhaps. Right

or wrong?

SHEETS: The bond market is increasingly worried about what's happening. And I think the bond market has been worried about inflation for a while.

Now, it's also worried about possible recessionary effects associated with the trade war. When we see the 10-year Treasury yield at around two and a

quarter percent, that's a very strong message that the bond market is sending a signal to us that there are a lot of risks out there to be

worried about.

CHATTERLEY: Too fearful when you compare it to the fundamentals right now because even if we look at the pullback that we've seen in stock markets,

what five to seven percent from recent highs here, that doesn't equate to the rally, the strength that we've seen in bond prices here, so who is

getting it right?

[09:35:24] SHEETS: So if I could choose the number based on the fundamentals as I see them, I think I would choose a somewhat higher

number, maybe by, you know, maybe 250 or 260.

But the bond market has been somewhat more restrained and somewhat more cautious for quite a while. And quite frankly, in many respects that

outlook has been has been correct.

CHATTERLEY: Do you think the Federal Reserve cuts rates this year? I mean, we're starting to look at pricing in the possibility of two rate cuts

in in 2019. Is that too alarmist, too, based on what you said?

SHEETS: The Fed is patient. They are waiting. They are happy with where they are. It would take a sizable shock to the economy. A big negative

impact likely from trade to convince the Fed to move.

But if the trade war does heat up, the Fed is going to see that as a contractionary shock and will respond accordingly and that could include a

rate cut. Getting to two rate cuts this year really seems to me to be a stretch.

CHATTERLEY: What do you think tariffs on the rest of the $300 billion worth of imports that comes in from China? Would that be enough of a

shock? Particularly, we saw a further 5 percent, maybe even more pullback in stock markets? Would that be enough for the Fed to go, "Okay, we need

to move here."

SHEETS: So I think once we see if it happens, that additional effect for more tariffs, it's going to hit the consumer harder, people are going to

see it and feel it. The macroeconomic effects of the trade war are going to be much larger.

And at that point, I don't know whether that would be enough or not, but the Fed would have to be seriously considering how to respond.

CHATTERLEY: The probabilities are high.

SHEETS: Yes.

CHATTERLEY: Nathan, fantastic to have you on the show. Nathan Sheets.

SHEETS: Thank you so much for that. Chief economist and Head of Global Macroeconomics Research at PGM Fixed Income.

All right, let's move on now because at Disney, in terms of the stock market, well and truly front and center.

Welcome to Planet Batuu. Disney has brought the outer galaxy to California. The new Star Wars Land. "Galaxy Edge" opens tomorrow. Frank

Pallotta is there, and he has got a sneak preview.

Frank, so excited to have you on the show. I believe you could take a ride on the Millennium Falcon. You can also create your own lightsaber. Does

it get better than that? No, it doesn't.

FRANK PALLOTTA, CNN MEDIA REPORTER: It really doesn't get better than that. You can see it right behind me is the Millennium Falcon itself.

What's really crazy about this is, I remember talking to Scott Trowbridge, who was the Imagineer who kind of created, the creative force behind this

land and he said he wanted people to really discover new things.

So I was walking around the land last night, and I just ran into RT2D2, this little lovable droid. Chewbacca was walking around. It feels like a

world. For a moment, obviously, I'm in Anaheim, California. But you really do believe you're on this planet of Batuu and that is what Disney

and its Parks Division really want for guests.

CHATTERLEY: We've got the upcoming film as well, "The Rise of Luke Skywalker" or the "Rise of Skywalker," what do we think? And did you get

any hints about what that might look like as a result of wandering around this theme park?

PALLOTTA: We didn't get a lot of hints about what the next film would be like. But I think that's kind of the point. They want this land to stand

on its own. They wanted to open up multiple years, 50 years for new generations, to be a new entry point instead of these movies.

It's going to have movies. It's going to have Disney Plus, but the theme parks is going to be another extension of the "Star Wars" story. And so

that you come here and you connect everything inside of that Disney -- I hate to use this punt -- universe.

CHATTERLEY: Yes, we're going to be careful to use the word park, are we, it's a land. We have to be very clear about defining this. And I think

what we can't escape here for Disney is it is accessible as the content creation has been for Disney. The theme park is a huge chunk and

unprofitable part of the business, too.

PALLOTTA: Yes, so one of the biggest moneymakers of the company is its media networks. You know, ESPN, ABC since 2015 when it kind of hit a high,

it's been declining around 15 percent.

In that same time period, the parks have gone up nearly 50 percent. This is a huge, huge rock solid part of the Disney business. And this is a

major investment in that business and they're doing this around the world.

They're doing this in Shanghai, Disneyland. They're doing this in California Adventure which is right near this park with a new Marvel themed

land -- Marvel themed area I should say. And let me be honest, if you don't know about Marvel, Marvel is kind of as popular as "Star Wars," so

it'll be interesting to see how bigger this world gets for this unit.

[09:40:05] CHATTERLEY: How much longer are you there for, Frank? Very quickly.

PALLOTTA: I hope I'm here for the rest of my life, Julia. I am not going to lie to you.

CHATTERLEY: Yes, truth always. Frank Pallotta, have fun. Thank you so much for that. All right, let's move on now because some big firms are

hitting back against the British spy agency GCHQ over fears of a quote, "ghost proposal." It would allow it to eavesdrop on encrypted messages.

Anna Stewart joins us on this story.

Anna, it's all in the name here. I think ghosting and a ghost proposal here. Talk me through why some of the tech companies and others of course

have written a letter saying this is a bad idea.

ANNA STEWART, CNN REPORTER: Yes, it's an interesting one. This is a proposal that was made last year by DCHQ. And what it does is recommends

that messaging services like WhatsApp, effectively CC a third party, the government into encrypted messages.

So if this were implemented, you and I could be having a nice chat on WhatsApp and we wouldn't know that we were actually part of a group chat

with the government.

But of course, that's not what it's designed for. The government probably doesn't care much about what we have to say. But they do want it for

exceptional circumstances, so they can perhaps, you know, help prevent a terror attack. As you would expect, this is what they've always wanted.

They think this is better than the backdoor method where you effectively create a backdoor to an app. But that you know, represents more security

risks in many ways because it could get hijacked by bad actors.

However, this proposal has come under a lot of opposition, huge open letter today signed by all sorts of people. They say it violates human rights and

you've got a thing, you know, this is named after that "Mission Impossible" movie, I think "Ghost Protocol" and you wonder whether this is "Mission

Impossible"? Can you give a government the tools it needs to protect people and not violate the public's rights?

CHATTERLEY: Now, when I first read this story, I actually thought it said "Ghost Protocol." I was like, "Wow, they called it that." I mean, that

tells you everything, quite frankly. I have strong view on this though. I think if it's for security purposes and it's to protect our friends, our

families, then you know what, you want to tap into my phone? You go for it, my friends, but I know it's where you draw the line here. That's the

big question and the worry here, too.

STEWART: It is and it's interesting that who signed the letter -- there are so many people. It is cyber security experts, advocacy groups, and

also obviously the big tech giants -- Apple, Facebook, WhatsApp, Microsoft -- and you know, it really doesn't come as a surprise.

You remember 2015-2016 when Apple was approached by the FBI, they wanted the iPhone access of the San Bernardino shooter and Apple wouldn't give it

to them because they don't ever want to create a precedent on this.

So yes, big hot topic. Not sure there's ever really going to be a middle ground there though.

CHATTERLEY: No and I agree. The risk is that you introduce back doors that make you vulnerable to hacking, so where does it stop? Anna Stewart,

great job. Thank you for that.

All right, we're going to take a quick break here on FIRST MOVE. But up next, speed bumps on Wall Street. Uber reporting for the first time since

it's -- let's call it rocky -- IPO. Can it reassure investors? We will have some analysis, next.

(COMMERCIAL BREAK)

[09:46:11] CHATTERLEY: Welcome back to move. Uber is reporting earnings after the close. It will be the ride-hailing/transportation firm's first

earnings since going public.

Remember, it warned back then that it might never make a profit. The stock is down almost 4 percent since it floated. Our next guest says Uber is

worth the investment, not perhaps for what it is now, but for what it will be worth in a future. For more why he feels like that, I am joined by

Bradley Tusk, founder, Tusk Ventures, an early investor and an Uber adviser. Always a pleasure to have you on the show.

BRADLEY TUSK, FOUNDER AND CEO, TUSK VENTURES: Thanks for having me back on.

CHATTERLEY: I mean, to be fair, we've seen these numbers, the unaudited version of these numbers pre-IPO. You've said the future has to be about

more innovation.

TUSK: Yes, I mean, if you're betting on Uber, let's say you buy Uber shares today. It's a company that's losing roughly a billion dollars a

quarter. If you believe that they can take this way to get everything and everyone from point A to point B whether it's a truck, a person or a

burrito and do it in a profitable way, the way that Amazon did with goods and services, then it's a great investment.

But you have to believe in the future of Uber and the promise of Uber and I think one of the challenges has been when they put in new management, they

professionalized things and that was great, but they did so at the expense of people who had a real focus on innovation.

And while that calmed down the media firestorm a couple years ago, the markets clearly are not happy.

CHATTERLEY: I mean, you've been really punching an op-ed. You basically have said that Dara Khosrowshahi, he was the right guy at a difficult time,

as you said to introduce stability. But unfortunately, if you want to see growth here, you needs to get rid of him.

TUSK: Yes, I mean -- or he has to do something different. But you know, the Board saw for the immediate problem of they were all being personally

criticized by the media and named by the media, it made them very uncomfortable. And they said, "We want a guy who can calm everything down

really well and really quickly." And they got that.

And you know, Dara would be a great Chancellor of the University of California or Secretary of Commerce or CEO of Johnson & Johnson or whatever

it is, but this is not a stability play. This is a growth play. This is a future vision play and you need someone that has some of the innovation

skills of Travis Kalanick and some of the management skills of Dara, and it is incumbent on the Board to find that person.

CHATTERLEY: You know, it's interesting, what we saw with both Uber and Lyft, I think is raising questions about whether all the values taken in

the private markets and by the time you get to being public, actually, there's nothing left for shareholders there. And actually, you waited too

long. Was that the mistake in Uber's case?

TUSK: I think so. Yes, I mean, I think there's no reason that in 2016, we couldn't have gone public. It would have been probably the same way, the

higher valuation that we're at right now. And also, it would have been more of a honeymoon.

When you take so long to do it and you keep taking so much money, literally, in this case, billions and billions of dollars from the private

market. By the time you go public, people are like, well, the growth has already kind of happened and I'm not willing to give these guys the benefit

of the doubt.

And so a lot of the characteristics that make a new public company a little exciting don't necessarily exist when these tech companies stay private for

so long.

CHATTERLEY: Yes, there's an argument that the private providers of financing don't have a good gauge of value, they get crazy earlier on.

TUSK: I think that they just get really caught up in the excitement and the hype and everyone else is doing and the other problem is people raise

funds that are so, so big that in order to deploy the money, you have to write these giant checks, right?

And so as a result, there's this weird pressure that the tail is wagging the dog, oh, I just raised a $20 billion fund or $50 billion fund or

whatever it is, it's fine if we work and it is valued at $47 billion because I've got to deploy some capital.

CHATTERLEY: We had some news this weekend as well, or this week that Uber was going to kick you off if you have a bad rating.

TUSK: Mine is fine by the way.

CHATTERLEY: In terms of vision -- as is mine. But I'm working on it, too. In terms of great vision, innovation --

TUSK: It's very nice. It is incremental. Fundamentally, if I am today, evaluating whether or not to buy Uber, the fact that someone with a rating

of less than 4.6 won't be allowed to use a platform, this has no impact on it either way.

[09:50:05] TUSK: It make drivers a little happier, it might reduce the number of passengers a bit. It's probably awash from an economic

standpoint. But I don't think that's what the market is asking for.

The market is asking for, show me how you're going to deliver on this vision.

CHATTERLEY: You are still an Uber shareholders.

TUSK: Sure.

CHATTERLEY: You're stuck with it as well, for a while. Would you tell people to get involved? Because you believe that --

TUSK: I do long term, yes, I do. But at the same time and Uber is I'm sure not thrilled that I've been talking about this on CNN and writing the

FT about this, but someone needs to call them out.

CHATTERLEY: Of course.

TUSK: And someone needs to put some pressure on them to say, look, what you have here is still truly amazing. It has incredible potential. But

you've got to really demonstrate it a lot better than you are today. And so I didn't see anyone else doing it, and that's why I did it.

CHATTERLEY: There's something that connect the dots here, which is Elon Musk, Travis Kalanick with what he did with Uber as well, Mark Zuckerberg

as well. Great innovators. Are they good leaders? And what can we learn from this?

TUSK: Yes, I mean, it's interesting, right? So on the one hand, you could say, okay, someone goes from zero to one like those three people did, only

they could do it. And at a certain point when you're going from six to nine, or wherever cliche we want to use, the people.

On the flip side, though, that's what Uber did. Right? It's okay, Travis got us from zero to one. Let's have Dara take us from six to nine and get

that's not really working either. So there's a balance where you still really need an intense focus on innovation and change and get more

professional management at the same time and I think you're seeing challenges where Kalanick or Musk or Zuckerberg are really, really good on

growth and innovation, but they struggle on the management side.

But then the professional managers being brought in are really good at calming things down, but they don't inspire the confidence of the market.

CHATTERLEY: It's all about timing as well.

TUSK: Yes.

CHATTERLEY: Bradley Tusk, always a pleasure to have you on the show. Thank you.

TUSK: Thank you for having me.

CHATTERLEY: All right. Speaking of Facebook, frustrated with Facebook, U.S. House Speaker Nancy Pelosi slams the Social Network for not deleting a

doctored video of her. All the details on what she said. It was a pretty punchy, next.

(COMMERCIAL BREAK)

CHATTERLEY: Welcome back to FIRST MOVE. Facebook has no friend in U.S. Speaker of the House Nancy Pelosi. She berated the company for its refusal

to remove an altered video. She also suggested that Facebook enabled election meddling.

This comes as CEO Mark Zuckerberg faces shareholders at their annual general meeting today. Brian Stelter joins me now.

Brian, great to have you with us. I mean, Nancy was really punchy, she said, look, this -- and their refusal to take this video down convinced her

that they enabled the Russians to interfere in the 2016 elections. I mean, that's not pulling your punches.

BRIAN STELTER, CNN CHIEF MEDIA CORRESPONDENT: Yes, she is saying that Facebook does not have basic standards about accurate content that's shared

on the website.

Well, Facebook says something doesn't have to be true in order to be shared on Facebook. Its policy is, if something is proven to be false, then it is

greatly diminished in the newsfeed, but not removed all together. That is a current stance by Facebook. It's a very controversial stance, because

lot of what we see every day on Facebook, like we saw Pelosi last week, they're dumb fakes.

These aren't even deep fakes made with artificial intelligence. They're just really dumb, basic edited videos. If people can't figure those out

and solve for those, then that's a problem. That's much bigger than Nancy Pelosi, but it's a unique to see a prominent U.S. politician speak out

against the company so strongly.

CHATTERLEY: Yes, YouTube took it down, guys. YouTube took it down. More importantly, and obviously filters into what we're seeing with the AGM

today, some shareholders saying Mark Zuckerberg here is too powerful. The problem is, in order to change that level of power, Mark Zuckerberg has to

give his approval. Big problem.

STELTER: I have to agree, that's right. There are eight different proposals on the table today at the shareholders meeting. These are eight

of the thousand different points of pressure that Facebook is under.

The company is doing it from all directions, from the Nancy Pelosi's of the world and from individual shareholders. One of the proposals is to dilute

Zuckerberg's shares to make him less powerful. Another proposal is to have an independent Board Chairman, but as you said Zuckerberg would have to be

on board for this. He has got control of the company through those B shares. It is unlikely we're going to see any changes today.

[09:55:06] STELTER: But it's always interesting to see at these shareholder meetings, how much anger, how much dissatisfaction there is

with a company like Facebook. Two straight years of scandals, and yet look at the stock.

You know, the stock -- by the look of that chart, you wouldn't have guessed how many struggles the company has been feeling for the last two years.

CHATTERLEY: Yes. Investors don't care. Advertisers don't care. Users don't care. Brian, why should Facebook change? I'm on my soapbox. This

could take us through the next hour. I have to say thank you because we have to wrap up the show.

STELTER: Thank you.

CHATTERLEY: Brian Stelter, thank you as always. All right. Let me give you a quick look at the markets right now. We are seeing a more positive

start for the session. We will be back in a couple of hours' time with "The Express." Can we hang on to this right now after a few tough

sessions? This week so far, a bit of a bounce perhaps. Is that timely right now? Five tenths of a percent higher for the NASDAQ as you can see.

That wraps it up for FIRST MOVE today. I'm Julia Chatterley, you've been watching FIRST MOVE. Time to go make yours. I'll see you tomorrow.

(COMMERCIAL BREAK)

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