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First Move with Julia Chatterley
Fed Chair Jay Powell Basically Says He'll Do His Job, Stock Investors Love It; President Trump Reiterate His Mexican Tariff Threats; World Leaders And Veterans Come Together To Commemorate 75 Years Since The D-Day Landings. Aired: 9-10a ET
Aired June 05, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE. And here's
your need to know.
From pivot to pirouette. Fed Chair Jay Powell basically says he'll do his job, stock investors love it. No bluffing. President Trump reiterate his
Mexican tariff threats. And paying tribute. World leaders and veterans come together to commemorate 75 years since the D-Day landings. It's
Wednesday. Let's make a move.
Welcome to FIRST MOVE once again, guys, it does feel like the policy doves have been let loose.
Once again, the market is behaving, or at least investors are like they've got a Jay Powell policy pivot mark two. I am asking and will be continuing
to ask where the two pivots effectively make pirouette as you heard there.
Well, I can tell you, I do worry though that Jay Powell only really reiterated what his job is at this stage. If growth weakens, the Federal
act. Don't we already know that? Perhaps, the market is just saying this time, unlike what we saw in December and January, perhaps they buy it.
But that was all the markets needed to launch the second best day of the year for stocks. All the majors gaining some 2 percent plus. We're up
again premarket. We are off the highs. Just for comparison. The best day of 2019 was January the 4th, when Jay Powell made it clear he was ending
his rate hike cycle and would be patient going forward.
So the thinking here, I think, is that the Fed could in the end make an insurance policy rate cut to mitigate any potential fallout from the trade
war at this stage.
The logic of course if I use firefighting terms here is it's a bit too late to buy insurance once the fire has actually started here. Plenty of
reasons to suggest that fire may have already started.
Let me walk you through some of the signals that we've seen. The World Bank lowering its global growth forecast once again today.
We've had U.S. manufacturing activity, weakening to the lowest level of the Trump presidency. Oil prices approaching bear market territory on demand.
We've got key inventory data to watch for this morning, too, and on the corporate side, Tiffany providing a tariff-related sales warning yesterday;
while overnight, just to add to it, Beijing said it will fine car maker, Ford's China subsidiary over a pricing dispute. Uniquely, interesting
timing says the skeptic in me.
In just the past hour, we've also received what could be troubling news from the jobs market, too. ADP saying only 27,000 private sector jobs were
added to the U.S. economy last month. That is way below expectations. It's also the weakest month for growth since 2010.
We will get the official payrolls numbers on Friday, too, that, if any is a signal, I think to President Trump, perhaps a warning here about the impact
of concerns about a broader trade war.
We've also got, though the Global Central Bank is acting here as a potential backstop and front and center, Jay Powell, of course, if the Fed
cuts rates, it will join a whole wave of global easing. Australia cutting rates this week. India might cut rates tomorrow and watch what the
European Central Bank says on Thursday of this week, too.
Interesting. All right. Speaking of a wave of nations coming together, let's get to the drivers.
World leaders coming together in Portsmouth in the south of England to commemorate 75 years since the D-Day landings. President Trump, German
Chancellor Angela Merkel, French President Emmanuel Macron, the British Prime Minister, of course, Theresa May and the Queen -- all in attendance
marking the 75 years since the Allied invasion of Normandy, a decisive battle that led to the liberation of Europe from Nazi Germany.
Phil Black is in Portsmouth for us. As I mentioned, world leaders, Phil, but this is about commemorating those that fought, those that lost their
lives 75 years ago in what was such a pivotal moment in World War II.
PHIL BLACK, CNN INTERNATIONAL CORRESPONDENT: Yes, that's right, Julia. Yes, so 15 world leaders from countries that took part in the D-Day
landings traveled to be here today. But the event itself, the focus of this ceremony, which has unfolded here this afternoon has really been about
those who stormed the beaches, who jumped from the planes, who provided the logistical and air and sea support that made this operation, this
extraordinary military operation possible 75 years ago.
It was to honor their courage, sacrifice, and of course their loss as well.
[09:05:01] BLACK: The 130,000 plus soldiers who actually stormed the beaches, who ran towards the fortified German positions along the sands of
Normandy, and of course, ultimately, the consequence of that extraordinary bravery, extraordinary organization, the turning of the tide of the war,
ultimately contributing to the outcome, which was allied victory over Nazi Germany.
All of that was what we saw unfold here today in a very slick, poignant, and yet at times, upbeat production. We heard testimony, accounts,
correspondence, firsthand tellings of what it was like, at that time from soldiers and so forth.
And at the same time, we heard really rousing performances from a military band of popular culture and music, from around that time, as well.
And then to draw it all to a close, there was the Queen who simply said, "On behalf of the free world, we thank you." And so it was that really
strong gesture of gratitude to the men who went on and through their bravery went on to essentially change the course of history 75 years ago
here -- Julia.
CHATTERLEY: We've just seen images and we've got pictures for you. President Trump, of course, his third day of the State Visit in the U.K.,
saying goodbye to the Queen, of course, before they then head back home after a few more meetings here.
To your point, Phil, incredibly pivotal moment, I think more broadly for what we're seeing broader tensions in the world and the comparison of the
time so long ago, where the Allies all came together here to work together, poignant, I think at this moment in time.
BLACK: Indeed, true and really taps into what I think has been one of the dominant themes of President Trump's State Visit here, particularly from
the British side, repeatedly stressed really, and that is that what matters here is the relationship, the shared history, the shared values, the things
that have been accomplished together now over such a long stretch of time who happens to be leading each country right now isn't really as important.
It is about what has been achieved and what can continue to be achieved through both the British and American Alliance and in terms of today's D-
Day commemoration, in a broader sense, international cooperation, as well through multilateralism, through these alliances and close coordination
essentially.
It is all about what can be done. That has been the overall theme that has what has really mattered, I think, from the British side, in particular,
President Trump's State Visit, which as you say is now formally drawing to a close as the President says goodbye to the Queen, and moves on to the
Ireland --Julia.
CHATTERLEY: Phil Black there, the power of unity, I think. Thank you so much for that. All right. Let's move on to our next driver, and now back
to the markets and the apparent soothing words of the Fed Chief, Jay Powell resulting in the second best day of the year for U.S. stock markets.
Listen in to what he had to say yesterday.
(BEGIN VIDEO CLIP)
JEROME POWELL, FEDERAL RESERVE CHAIRMAN: We are closely monitoring the implications of these developments for the U.S. economic outlook, and as
always, we will act as appropriate to sustain the expansion with a strong labor market and inflation near our symmetric 2 percent objective.
(END VIDEO CLIP)
CHATTERLEY: Christine Romans joins us now. Christine, that's all it took -- the magic words. I mean, in my mind, all he said was that we're going
to do our job as we've always done, no promises. And yet the market was like, well, we believe you, Jay, you're going to be there.
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: "I promise to do my job," and the stock market rallies. Look, it also gives the
President cover to continue his trade wars. His trade wars now on multiple fronts. And this is a market that is perceiving those Powell comments to
me that, "Look, whereas a few months ago, we were we will wait and see, we don't know what we're going to do. We could raise we could cut. Now the
next move would be a cut."
And that is how the markets are perceiving it a cut because the President's trade wars could be damaging to the global economy and to the U.S. economy
and you will need the stabilizer, the shock absorber, if you will, of the Fed actually doing its job.
It's interesting because in political circles, there are those who are scratching their heads saying, "This is a man, the Fed chief who has been
criticized roundly by this President," who has said he regretted -- privately said he had regretted appointing him to the Fed Chief. He wanted
rates to be cut because he thought that he deserved to have low rates because President Obama had low rates, and that helped the economy under
him.
And now Jay Powell, in effect, because of the President's trade wars has to deal with the President who has been complaining about it all along.
CHATTERLEY: Yes, I ask myself, who is in charge here? Is it the markets? Is it the Federal Reserve or is it President Trump?
ROMANS: Right.
CHATTERLEY: Because everyone is chasing everyone else's tails here, I think. Risks for me here, one, what happens if we do see a conclusion to
the trade battles that are going on simply because the President does know how important the economy is to 2020 here, but even to bring it to the
absolute short term, those ADP numbers today for me, Christine are warning, I think, particularly from small businesses that if they're unsure, they're
going to cut spending, and they do it fast.
ROMANS: Yes. So let's remind your viewers what those ADP numbers were, it was the weakest job growth in the private sector, according to this ADP
payroll survey in nine years, and a really quick weakening there.
I mean, the dramatic reversal of how especially small and midsize businesses just put on the brakes, is something that I think is really
important to watch.
Now, you don't always see the ADP perfectly reflect what happens in the jobs report. That jobs report comes out on Friday, but sometimes,
sometimes they do. And that is definitely a warning signal here.
The other thing is, look if the President ends his trade wars overnight, what kinds of uncertainties are already baked in? What kind of -- as you
pointed out earlier in your lead, what kind of fire is already starting to burn? Who knows where in the economy that could be a problem going
forward?
So I think this is kind of a very tricky time here right now, especially for stock market investors. The other thing I would point out is that
sometimes what's best for the economy isn't necessarily what's best for the stock market.
So right now, the stock market thinks that Jay Powell is going to be acting in its best interest all along. Well, I mean, at some point, you know, Jay
Powell has got to do what's best for employment or what's best for inflation.
I think the resilience that we're showing you on the screen here, Julia, because I wanted to sort of remind viewers that the stock market has been
very resilient this year, even with the threats of trade wars, and I think one of the reasons is because many investors have just never thought that
the Fed would let -- wouldn't be there as a backstop if the President were to somehow wreck the American economy.
CHATTERLEY: Yes, so many great points in there, Christine. Don't conflate the stock market with the economy. But if you look at small caps, the
underperformance there, perhaps more closely tied to what we're seeing in the domestic economy. Christine Romans, thank you so much for that.
All right, we need to a cue that Queen song, "Don't Stop Me Now," because the President Trump doubling down on his threats to Mexico.
Yesterday, he said that the threat of tariffs is no bluff. Mexican officials, of course in Washington to try and find a solution here. Paula
Newton is in Mexico City for us, too.
Paula, great to have you with us. It is interesting, because I saw the comments from the Mexican Foreign Minister yesterday giving an 80 percent
probability that a resolution would be found here. It's a marked contrast with the threats that we continue to get from President Trump here.
PAULA NEWTON, CNN INTERNATIONAL CORRESPONDENT: He sounds like a gambler, doesn't he, Julia? I mean, 80 percent, I can tell you from what I know
from negotiators going into the Oval Office, they haven't given 80 percent to anything in terms of the President going through with what he has
already been determined to do.
So this is great confidence from the Mexican government. I can tell you why, Julia. They, today will present not just to Mr. Lighthizer, the Trade
Representative, but also to the Vice President Mike Pence. They will continue to present figures, new figures that CNN just got, which says that
Mexico has been deporting migrants at a much increased rate, 2.5 times the rate that they had been late last year.
And they say they're doing all they can. Julia, the strategy here is to try and significantly delink the issue of tariffs to the issue of
migration.
Mexico is trying to show that look, we are doing all they can. Work with us. Work was with us to try and work with those Central American countries
to get people to stop going north through Mexico and to the U.S. border and we'll have a lot more luck in terms of trying to stem the significant
numbers that we continue to see crossing that border from Mexico into the United States.
Julia, the issue is here. What will it take? And even Republican senators in the United States who have been very vocal in opposing these tariffs
have said, "What is it going to take? What do we have to show the President so that he'll be satisfied that Mexico is doing all it can?"
CHATTERLEY: Yes, and that was going to be my follow up because there is a stark contrast here in the United States how Congress is acting towards the
situation with Mexico versus China.
Congress, seemingly the Democrats and the Republicans on board with being firmer with China here, but alarm particularly from senior Republicans like
Senator Grassley, John Kennedy all going, "This is the wrong move here and it's going to compromise the NAFTA mark two deal, hereto."
NEWTON: And that's the issue. Remember that in trying to hold the line, to try and get China to change its behavior when it comes to trade, to deal
with things like intellectual property, they thought great, we have that USMCA, that new trade deal -- Canada, the U.S. and Mexico -- it was on its
way, Julia there with implementation and legislation.
In fact, Mike Pence was on Capitol Hill this week to talk about the USMCA not to try and get some kind of concessions from Mexico and everything
else. And when you talk about those Republicans in their own constituencies, they want that trade deal with Mexico and Canada, and they
do not want those tariffs and that's what the Trump administration will be hearing loud and clear.
CHATTERLEY: Yes, we'll see what comes of those talks. Paula Newton, thank you so much for that.
[09:15:08] CHATTERLEY: All right. Let me bring you up to speed now with some of the other stories that we are following around the world.
Police have caught the suspect behind a mass shooting in Darwin, Australia. Four people were killed when a gunman opened fire at several locations on
Tuesday night. Local media reports say the 45-year-old suspect was on parole at the time of the shooting.
Cardinal George Pell's appeal hearing at an Australian court has wrapped up for the day. Pell is appealing his six-year prison sentence for molesting
two choir boys. His lawyers argued the form of Vatican Treasurer didn't get a fair trial. If judges overturn his conviction, he could walk free.
The hearing will continue on Thursday.
The U.S. clamping down on Cuba. You're looking at pictures of one of the last American cruise ships to leave Havana harbor as new travel
restrictions come into force to include blocking access for organized tour groups and banning U.S. cruise ships from docking in the island.
Patrick Oppmann joins us now from Havana, Cuba. Patrick, what are people in Havana saying at this moment? And can you quantify the impact because I
believe American tourists is second only to the Canadians actually visiting Cuba right now.
PATRICK OPPMANN, CNN CORRESPONDENT: That's absolutely correct, and it's something that's grown very quickly over the last few years, thanks in part
to cruise ships.
And behind me is actually the last cruise ship in Havana. Royal Caribbean says that their ship, The Empress of the Seas is scheduled to depart this
afternoon and starting midnight tonight that will no longer be allowed, that American cruise ships are now banned from coming into Cuba.
They've only been doing this kind of travel for the last few years, but it has grown exponentially. It has brought a lot of money to the Cuban
government and that is why the Trump administration says that they're clamping down. They feel the Cuban government aid to the Maduro regime in
Venezuela has kept Nicolas Maduro in power.
And that they feel by denying the Cuban government tourism dollars, that that will have some kind of impact for Savannah to change their behavior.
Of course, by doing that, by getting rid of the largest legal category that allows Americans to come here, the so-called people to people travel,
they're also denying the Cuban people a lot of money.
And you know, I live here and over the last several years, everywhere you look, Cubans are fixing up their apartments or homes to either rent out or
turn into restaurants to deal with the increased demand, really amazing growth of U.S. tourism, U.S. visitors to the island that is going to wind
down starting today.
You'll still have U.S. airlines coming here, but we expect many less passengers because while there are other categories of legal travel, the
people to people travel was the largest one that allowed large groups like the groups that come aboard cruise ships to come here.
Cuban officials were hoping to have as many as a million U.S. visitors this year. It would have been about a quarter of the market. They're building
hotels all over the city and you just have to wonder what is going to happen to them now. All the same, though, despite the demands from the
Trump administration for the Cuban government to change their policies across the region, the Cuban government says that they've endured U.S.
sanctions for 60 years and nothing is going to change.
CHATTERLEY: Yes, the question is will it? Patrick Oppmann, thank you so much for joining us there from Havana Cuba.
All right, we're going to take a quick break here on FIRST MOVE, but coming up, how about adding a living wage to your shopping list? Bernie Sanders
is taking on Walmart and certainly, will try.
And the tricks of the trade, venture capitalist Scott Kupor shares his pearls of wisdom. That's coming up. Stay with CNN.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE, live from the floor of the New York Stock Exchange still looking like a solid higher open for U.S. stocks
to add to the gains that we saw in yesterday's session, the second best session of the year, of course.
But we have seen the shine taken off by those payrolls numbers. The private payrolls from ADP this morning, only 27,000 U.S. jobs created last
month, significantly weaker than expected. Some alarm it seems from some of the smaller businesses here in the United States.
Let's talk quickly what we're seeing right now. Julian Emanuel is the Chief Equity and Derivatives Strategist at BTIG and joins us now. Always a
pleasure to have you on the show.
JULIAN EMANUEL, CHIEF EQUITY AND DERIVATIVES STRATEGIST, BTIG: Great to be here.
CHATTERLEY: Now the last time you were here, you were way out of consensus talking about two rate cuts from the Federal Reserve. And now you're among
the most optimistic.
EMANUEL: Well, and in fact, over the last several days, particularly given the Feds term in Chicago in their conference, we may be a bit conservative,
as you mentioned. And the data that we saw this morning would lead us to believe that there are rate cuts coming.
CHATTERLEY: I am going there next. Talk about the data and those jobs numbers from ADP in particular. But to your point about Jay Powell, I'm a
bit confused. I made the point earlier on the show with the Christine Romans, didn't Jay Powell make no promises, only promised to do what his
job is, which is if we see an impact on the U.S. economy, react. Why is the Fed so up -- the market here is so optimistic?
EMANUEL: Well, if you go back to the end of last year, and the turmoil in the markets, and the seeming lack of understanding of the market response
from the part of Jay Powell, he pivoted very, very quickly to where there was no more hikes, you know, literally two weeks later. And that gave the
markets confidence.
Obviously, we've seen that in the stock rally year-to-date. The market believes that the Fed is learning as it goes along and the Fed understands
that the downside risks need to be mitigated here.
CHATTERLEY: Okay. So to your point on the jobs numbers this morning, if Federal Reserve is learning that it needs to signal, look, we get it, we
understand the risks here. We're on top of this. What about the U.S. President learning that perhaps tariff threats have consequences and the
small businesses in particular, when they're concerned about the upcoming risks, they cut spending, they cut hiring because that's kind of what we're
seeing in these numbers.
EMANUEL: It's definitely a risk and if you look at the bigger picture macro over the last several months, obviously, inflation breakeven have
been coming down, commodity prices have been coming down.
All of that tells you the trade war is not inflationary, it is disinflationary. And from that perspective, the jobs number really
reinforces the fact that we probably need to find some sort of workable solution to our trade woes.
CHATTERLEY: I'm glad you mentioned commodity prices here, too. I mean, oil prices have come right down in the last month. We've got inventory
data to watch, too.
Talk to me about your energy sector call here because this is interesting for investors looking at a situation where there's unknown risks on trade.
We've got the Federal Reserve indicating they may cut rates this year. Energy for me is an interesting one to be looking at. For you?
[09:25:00] EMANUEL: Yes, indeed. So it is predicated on the fact that between the Fed and reconciling trade wars, the economic recovery is going
to continue. We're in a slowdown, absolutely. But we do think that growth will continue.
And from that perspective, this late in the cycle, energy tends to work well, particularly into Fed rate cuts. And we have to remember, there's
been a lot of corporate activity in the sector, there's a lot of cash, and the stocks have not followed the oil price to the highs.
They've obviously moved down and tandem, but they still look relatively attractive and right for consolidation.
CHATTERLEY: So there is catch up to be done in the stocks even now relative to oil prices.
EMANUEL: That's right.
CHATTERLEY: Okay, what about for financials here, then to, particularly if we go from a situation where we're concerned about an inverted yield curve,
do the Fed back to cutting rates again, that's got to be kind of nice for financials here as well.
EMANUEL Yes. And paradoxically, it's a little difficult to understand given the fact that rates have come in so much over the last several weeks.
But the message this morning is that the slope of the yield curve is steepening.
The Fed is on watch. The Fed is going to cut. That's actually going to backstop the longer day to deals. Financials love a steepening yield
curve.
CHATTERLEY: And very quickly, you said slowdown, but no recession. So despite a lot of the big banks this week going, we could see a recession
even in the next nine months to 12 months if we see an escalation of the trade war. You're saying, at this stage, no recession.
EMANUEL: Well, look, if we got a 25 percent tariffs worldwide on just about everything, all bets are off. But the assumption is that there is
going to be some sort of workaround, and the fact is, even with this morning's weak payrolls data, the economy is still on good footing.
CHATTERLEY: Julian, always a pleasure to have you on the show. Julian Emanuel there of BTIG. We've got the market open coming up after this.
Stay with us. You're watching FIRST MOVE.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE, I'm Julia Chatterley live from the New York Stock Exchange this Wednesday morning.
We were anticipating a higher open for the U.S. stock markets adding to yesterday's proper gains and it looks like that's what we've got, despite,
as we've mentioned already a couple of times now on the show that weaker than expected payrolls -- private payrolls numbers from ADP, just 27,000
jobs added last month.
Yes, it's still gains, but it was significantly weaker than expected. In fact, small cap firms slashed 52,000 jobs in May. That says to me there's
some deep level of uncertainty in the smaller firms in the United States, an interesting morning there.
Also, the 10-year bond yields still moving lower down below 2.1 percent. Again, we did bounce off 20-month lows yesterday, but I think just
reconfirming what we got from Jay Powell yesterday or the perception of what we got, which is if necessary, rates will come down.
All right, so let me walk you through some of our global movers. Stocks in focus in this session. Tesla in focus, the electric car maker, in fact,
having its best day of 2019 yesterday, closing up more than 8 percent, it has added more than $2 billion to its market cap as a result.
Morgan Stanley also reiterating that equal weight rating and a $230.00 price target, so just for perspective, that's 20 percent higher than where
the shares are trading today.
They're still down some 40 percent so far this year. The question is, as some investors are arguing, they now look a little bit over sold. Right
now, what we are seeing, Tesla higher in the session so far.
Campbell Soup, also in focus, the quarterly earnings and revenues beating expectations. The soup maker also raised its full-year outlook. Sales
jumping more than 12 percent. It boosted by high demand for it snack brands like Pepperidge Farm, and Goldfish.
Walmart also in focus. The CEO vows to keep prices as low as possible. It says the company wants to be a quote "champion of the customer." The
retailer warned last month that the U.S. trade wall will result in higher prices.
Those comments of course, ahead of the company's shareholder meetings today and will be looking to see if they say anything more on the prospect of
higher prices right now.
But that's not the only thing in focus, because there's also going to be some pretty high profile attendees, including Democratic presidential
candidate, Bernie Sanders. Some fiery tweets ahead of this meeting, too.
Coming into this meeting, he said, "Walmart pays his employees so little that many are forced to go to Medicaid and food stamps to survive. Next
week, I'm going to Bentonville, Arkansas to tell the Walton family of Walmart, the wealthiest family in America, 'Get off welfare, pay your
workers a living wage.'"
Ryan Nobles joins us now because he is there. Ryan, some really punchy words from Bernie Sanders though we've heard this time and time again, he
simply wants them to raise the minimum wage here.
RYAN NOBLES, CNN CORRESPONDENT: Yes, that's right, Julia. And you know, this is not out of the ordinary for Bernie Sanders. The Walton family,
which has the controlling interest in Walmart is a regular target for Bernie Sanders on the campaign trail.
What is different here today is that he is actually going to be in front of the CEO, in front of their Board of Directors and he is going to get the
opportunity to speak for three minutes during their shareholders meeting today.
And we do expect him to talk a lot about paying their workers more, but the principal reason he is here to speak is because he has been given the
opportunity, handed over this designation by a former associate who is asking for the Walmart Board of Directors to put a seat on their Board for
their associates to allow employees to have a voice at the table.
And so what Sanders is going want to argue is that Walmart needs to listen to its employees more, and the best way to do that is by having someone
sitting at the table. If that happens, and perhaps a working environment is better for these employees, they'll get paid more and in general, their
lives will be better.
Of course, surely, Walmart pushing back on this in a big way saying that their associates are one of their top priorities. This is of course, is a
big week of celebration for Walmart associates, which ends in really what is essentially a big party where they bring in around 5,000 different
employees from all around the world here to Northwest Arkansas.
So this is a big showdown, Julia, and I think essentially what Bernie Sanders is attempting to show Democratic primary voters here in the United
States is that this is the type of President he will be, not afraid to go face to face with corporate CEOs and demand that they do more for their
workers -- Julia.
CHATTERLEY: Yes, it's such a great point, well and truly on the campaign trail, but to Walmart's point, though, here, they are facing increasing
competition from the likes of Amazon who are raising the minimum wage. So it will be an interesting one to see the broader reaction, the reception
that they get.
Ryan Nobles, you have a busy day ahead. Thank you for joining us.
[09:35:03] CHATTERLEY: All right, as politics and business, of course go hand in hand at Walmart, Washington has found a common enemy, it seems in
the form big tech.
Yesterday, on "Quest Means Business," I spoke to a former acting head of the Federal Trade Commission, Maureen Ohlhausen and she said it's too early
to be calling for more regulation. Take a listen.
(BEGIN VIDEO CLIP)
MAUREEN K. OHLHAUSEN, FORMER ACTING HEAD OF THE FEDERAL TRADE COMMISSION: I disagree that we necessarily need more regulation. I think the question
is, is there any competitive conduct happening in the markets today? Do the agencies have the right level of enforcement and the right tools to
challenge it?
And then if there is a decision that there's any competitive conduct, and somehow it can't be reached. I think at that point is where the discussion
is necessary to say, do the antitrust laws need to do something different?
(END VIDEO CLIP)
CHATTERLEY: She was arguing, quite frankly, right now, she doesn't really see it. But she also agreed that if we do see more regulation, it could
take years to come.
(BEGIN VIDEO CLIP)
OHLHAUSEN: If there is an enforcement action, if any of these changes or signals lead to any kind of investigations, then complaints, then
litigation through the courts, it will take several years.
Now Congress is considering -- some members of Congress, Mr. Cicilline in particular mentioned this, they are considering whether the antitrust law
should be changed. I think that also would take several years.
(END VIDEO CLIP)
CHATTERLEY: Matt Egan joins us now. Matt, that didn't stop investors wiping out what? $130 billion worth of wealth in this session when we got
that news, was it two days ago? Even if we don't see immediate regulation, it doesn't mean that these big guys get away unscathed. Talk me through
this.
MATT EGAN, CNN BUSINESS LEAD WRITER: Julia, these are alarming developments for investors and not just ones who own shares in big tech,
you know, Facebook, Alphabet, Apple, Amazon -- these really are the stocks that represent the heart of the bull market.
If you look at their combined values, they represent 11 percent of the S&P 500. So that means really, whatever happens here has broad implications
for all investors. And so I think that the problem right now is no one really knows what's going to happen right now. This has just sort of
opened up Pandora's Box for investors.
I mean, no one knows if this means that regulators are in fact going to try to break up some of these dominant companies. Does that mean that Congress
is going to write tough new laws or maybe just mediocre or weaker ones? We don't know if maybe this will just all go away with a slap on the wrist
such as a fine.
So I think that this does mean that the uncertainty will create an overhang on these stocks that might not go away for years. That means volatility,
it means that earnings multiples are going to come down, even if earnings estimates don't.
But I do think it's important not to panic here, you know, these companies have amassed just an enormous amount of money. If you look at just
Facebook and Alphabet. Alphabet alone, those are the two companies that maybe are at most risk here, they have a combined $150 billion in cash.
That's money that they could use to pay, you know, even the biggest fines. They can use that money to buy the best legal defense that money can buy.
And, you know, some of the analysts that I spoke to, they're a little bit skeptical that regulators can prove an antitrust case, particularly around
the issue of consumer harm. And one professor, even joked that, you know, rather than shorting big tech, right now, the best move for investors is to
go long into law firms that have antitrust experience.
CHATTERLEY: And that's exactly what my view was having had that conversation with Maureen Ohlhausen yesterday, it was, when we see $130
billion wiped out from the share prices, there is no way in our wildest dreams that any kind of fine will be that big. It is a buying opportunity.
Bigger question for me though here is about innovation. Listen to what Tim Cook had to say yesterday about whether or not Apple has monopoly power
here. Listen in.
(BEGIN VIDEO CLIP)
TIM COOK, CEO, APPLE: At this size, I think scrutiny is fair. I think we should be scrutinized. I don't think anybody reasonable is going to come
to the conclusion that Apple is a monopoly.
Our share is much more modest. We don't have a dominant position in any market.
(END VIDEO CLIP)
CHATTERLEY: The challenge here, I think, for greater regulation going forward is it has got to be a balance between making sure they're not too
powerful, but also not stemming innovation.
EGAN: Right. No, I think that's a great point. You know, when you look at these big four tech companies, they've all invested huge sums of money
in artificial intelligence and quantum computing and machine learning. Next generation technologies that could fuel the economy of the United
States for the decades to come.
So Washington needs to be careful here. If they crack down too much, if they come down too hard on big tech, you know, they risk stifling
innovation, and that would come at a time when really the tech Cold War with China is escalating.
[09:40:10] EGAN: So we'll have to see whether or not regulators are able to find that balance between, you know, enforcing the laws and making sure
that no one is too dominant but also not stifling innovation.
CHATTERLEY: Fascinating to watch. Matt Egan, thank you so much for that. Now, speaking of innovation, how about getting the financing for some
bright ideas. Coming up, we're going to be speaking to Andreessen Horowitz veteran spilling some at least of Silicon Valley's investment secrets.
Stay with us, that's coming up.
(COMMERCIAL BREAK)
[09:43:46] CHATTERLEY: Welcome back to FIRST MOVE and we are in the "Chatt Room." Can't get my words out.
What Wall Street is to big finance, Sand Hill Road is to Silicon Valley, the whole Americas venture capital scene and joining us now is a veteran of
that world. And importantly, a man willing to at least give some of his pearls of wisdom in "The Chatt Room," Scott Kupor, author of "Secrets of
Sand Hill Road: Venture Capital, and How to Get it." And of course, managing partner at Andreessen Horowitz. Fantastic to have you here.
SCOTT KUPOR, MANAGING PARTNER, ANDREESSEN HOROWITZ: Thank you for having me.
CHATTERLEY: Talk to me about the premise of the book, because it's -- from my understanding from reading it, I thought it was a great book, just
pearls of wisdom about how best to go about raising money.
KUPOR: Right. Yes, you know, it's funny. I've been in the tech business for about 25 years now and we've been doing venture for 10. And I was
amazed at -- I kept getting the same questions from entrepreneurs over time, you know, should I take venture capital money? What does it mean to
do so? How do I work with them?
And you know, in some cases, how do I make sure I don't get taken advantage of? And so I felt like it was just time to kind of, you know, eliminate a
lot of the information barriers that happen in this industry and hopefully, maybe that encourages more entrepreneurship, too.
CHATTERLEY: What do you want to see from someone that they come into -- in the book you are saying, tell a great story, convince me that you deserve
my money.
KUPOR: Yes, well, storytelling is a really big component, right? Because you can imagine, you're competing for talent, you're competing our
customers. And, you know, by the way, storytelling in the good way, of course not you know, hoodwinking people but you know, really having a
vision, you know, getting -- saying something that forces people to kind of want to line up behind you, and in some cases, it might not be rational for
them to do so.
[09:45:12] CHATTERLEY: But when you look at a company or someone, a founder of a company that comes in, do you go, "Look, is this a company
that I can see going public one day? Can this have a three, four, five billion dollar valuation?" Do you make that kind of assessment early?
KUPOR: Yes. When we're doing early stuff, we like to think of the question as it's kind of what if, right? Imagine if this is successful,
what could it be? And you're absolutely right, we have to at least believe that it could be a standalone public company and that probably these days
doesn't mean it has got to be a multibillion dollar company, because we know that the small cap IPO market just doesn't exist anymore.
CHATTERLEY: Why?
KUPOR: Yes, it's a long -- it's a long story, longer than we have. But I think what's happened is a lot of the changes that happen in the markets
over the years were geared towards efficiency and efficiency is great, you know, kind of people pay lower costs than they've ever paid before.
But for stocks that are small volume, and don't trade as much, a lot of that efficiency is a problem. So most of the investors, most of the
research analysts have all moved upstream.
And so if you're a small cap company, you probably don't have research, you probably don't have market makers, you probably don't have people like
yourselves covering them, it's just a hard place to be.
CHATTERLEY: You know, it's interesting what we've seen just in the last few weeks, with Uber going public, with Lyft, to some degree as well.
Asking big questions about whether or not there's a valuation problem in the private markets.
You're giving these companies too much money, they stay private longer and then when they try and go public, in the end, there's a sort of valuation
mismatch between what the private market is willing to give them versus how the public perceives them. Is there a problem in the private markets right
now in judging value?
KUPOR: I don't think so, and I think it is very company specific. And by the way, we are Lyft investors, so in full disclosure, so I think if you
really look at kind of the IPOs we've had in tech, there's kind of, you know, traditional enterprise software IPOs.
So something like a Zoom, which is also -- it's not a company of ours, but you know, something like that is trading incredibly well. Beyond Meats has
traded very well.
And so I think companies that are growing at reasonable rates, but also have near-term visibility towards cash generation, the market is really
treating favorably.
I think when you have a backdrop of lots of the macro uncertainty that we have and you have companies like Uber and Lyft, where you know, the
profitability is still deferred for a period of time, I think you should expect there probably will be more volatility there.
CHATTERLEY: Is there a timing question here to like don't leave it too long. Is that the big takeaway here, too?
KUPOR: I think that's right. If you look, again, we're not Uber investors. But if you look at Uber, the core ride hailing business is
actually not growing that well, right? Most of the growth is coming from Uber Eats and some of their ancillary businesses.
And so I think you're right, you're kind of -- if you're going to go public, you have to be at the right point of your product cycle, where you
still have growth that's actually really attractive to the public markets.
CHATTERLEY: Antitrust. Talk to me about action. Do you think it comes? Does it take years? And is it necessary in your mind?
KUPOR: I think it will take years probably. I do think there's a broader question, which is, I think, in the technology industry, we have not done a
good job of kind of appreciating kind of the impact of technology, you know, in many areas.
You know, I live in Silicon Valley, and mostly what we see is just the benefits of technology, but you know, those benefits are perceived
differently elsewhere.
And so I think as an industry, we have an obligation to spend more time to D.C., really spend time with regulators and quite frankly, better
understand how we can get regulation that makes sense, and also kind of economic growth and entrepreneurship in a way that helps everybody.
CHATTERLEY: How does Silicon Valley look at Facebook right now? Because that's a company that has had huge challenges. But advertisers aren't
doing anything differently. Customers aren't switching off, users aren't switching off. But it has some challenges.
KUPOR: No doubt. Yes.
CHATTERLEY: Is this just teething issues? Will they be fine in the end? Or do you look at this and go, actually, this is one where government is
needed?
KUPOR: Yes, So my partner, Marc Andreessen is on the Board, so just in full disclosure. Yes, look, I think the Silicon Valley still has just
tremendous respect and admiration for what they've built. I mean, it's amazing when you think about it, right?
It's basically a 14-year-old company or so. And, you know, they have what, two plus billion users, you know, incredible market cap? Yes, look, I
think what they need to do is I think they have to also -- it goes back to the prior point, they just have to recognize and realize that look, all the
wonderful things they've accomplished, you know, in all cases, maybe people do worry about, you know, things like privacy and other stuff that's out
there.
And so, I think it will be a renewed call for a conversation between D.C. and Silicon Valley.
CHATTERLEY: And final question, because this ties very much to the book as well. Seventy five percent of venture capital money focuses on three
specific places -- California, New York, Massachusetts. That to me is crazy. How do we change that?
KUPOR: Yes, it is a real problem. And I totally agree with it. And one of the things that I hope the book will do is partly just educate more
people about the system. And hopefully we get entrepreneurship that's more broadly distributed across the U.S.
We're already seeing it internationally. So you know, venture capital used to be almost entirely U.S., but 90 percent of venture capital dollars 20
years ago, was in the U.S. Now, that's about 50 percent.
So we are seeing international expansion. It'll be great to see kind of broader domestic expansion in the U.S., too.
CHATTERLEY: Do you need to get more planes?
KUPOR: Exactly right. But that's a perfectly fine thing.
CHATTERLEY: More e-mails. It's a great book.
KUPOR: Yes, well, thank you so much. I appreciate you having me.
CHATTERLEY: I really enjoyed it. Thank you, Scott Kupor, speaking there. All right. We're going to take a quick break from Russia with love. That
is question as China's leaders visit his bosom friend, Vladimir Putin. We take a closer look at the trade ties that bind them. That's after this.
Stay with us.
(COMMERCIAL BREAK)
[09:52:22] CHATTERLEY: Welcome back to FIRST MOVE. China has hit Ford with a $24 million fine. The country's regulators say the car giant's main
Chinese joint venture broke antitrust laws by setting minimum resale prices on some of its cars. That fine is just one of the latest measures that
China has taken against U.S. companies in recent days.
On Tuesday, Beijing issued a travel advisory for Chinese citizens and companies planning to visit the United States. That came just after the
Chinese government said it was investigating FedEx over a dispute the company has with Huawei.
And there have also been noises about Beijing preparing a blacklist of foreign companies and of course, using rare earth in its trade war with
Washington, too.
Now Xi Jinping is meeting with a Russian leader Vladimir Putin, the man who China's leader recently called his quote, "best and bosom friend." The
pair are expected to cement their economic ties.
Fred Pleitgen joins us now from Moscow. Fred, great to have you with us. Talk to me about this relationship because these men have met many, many
times over the years, but perhaps never more important than today with both countries under severe pressure from the United States and the tensions
within that relationship for each.
FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT (via phone): Yes, I think you're absolutely right, Julia. And one of the things that
the two men pointed out when they started their meeting, there was a short opportunity to see both of them. They said that yes indeed, the
relationship they believe works almost better than ever before between Russia and China.
And you're absolutely right that Xi Jinping called Vladimir Putin one of his best friends. And what they really want to do is they want to keep in
those economic ties obviously, if you can have those political ties as well.
This is the 29th time that the two of them are meeting and the Russians were saying that last year, 2018 trade between Russia and China for the
first time exceeded over $100 billion.
Now, of course, that is a lot, especially for the Russian economy and China is by far Russia's largest trading partner.
For the Chinese, it's a little bit different. They obviously export still a lot more to the U.S. and to Europe as well. But of course with those
very difficult relations with the U.S. really deteriorating for the Chinese, they're feeling some of the pressure that the Russians have been
feeling for a very long time.
Of course, the Russians have been under U.S. and European sanctions for a while now. They've been making that pivot to the east for the past couple
of years. It's part of Vladimir Putin's strategic economic plan. And now the Chinese looking to have better relations with the Russians as well.
Of course, they know that the Russians are not going to be able to make up for some of the losses that they might have because of that trade war with
the United States.
[09:55:10] PLEITGEN: You can certainly see that the two of them are looking to further deepen those economic and political relations as well.
They say they want to sign some 30 contracts here when a two men meet.
A lot of that is commodities. We've been talking about this in the past. A lot of what Russia exports to China, things like, oil, coal, gas becoming
a major factor now as well. But the Chinese now really wanting those relations, of course sending a clear signal to Washington as well -- Julia.
CHATTERLEY: Absolutely. And of course the head of the Saint Petersburg International Economic Forum over the next few days and the United States
not present of course.
Fred, fantastic to have you joining us there. Fred Pleitgen over in Moscow for us.
All right, so we're wrapping up the show, but let me just give you a look of what we're seeing right now for the U.S. markets. Continuing to add to
the gains that we saw yesterday of course.
The best or the second best day for the U.S. market this year in light of words from Jay Powell power adding to those gains, but a bit of
cautiousness as a result of that jobs number this morning, too.
Plenty to come throughout the day. We will keep you posted. But for now, you've been watching FIRST MOVE, time go to make yours.
(COMMERCIAL BREAK)
[10:00:00]
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