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First Move with Julia Chatterley
Jay Powell Cuts Rates, But Creates Confusion Over The Why And The What-Next; The Bank Of England Slashing Its Growth Forecasts But Holding Rates Steady; The London Stock Exchange Buying Refinitiv For $27 Billion. Aired 9-10a ET
Aired August 01, 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.
Pleasing no one. Jay Powell cuts rates, but creates confusion over the why and the what-next. Carney cuts: The Bank of England slashing its growth
forecasts but holding rates steady. And diving into the data. The London Stock Exchange buying Refinitiv for $27 billion. It's Thursday. Let's
make a move.
Welcome once again to FIRST MOVE where we're still recovering a little bit, I think from some Jay Powell induced mini pandemonium on Wall Street.
Yesterday, if you remember, we argued he would have a tough job pleasing everyone. Well, it kind of feels like when you look at the market
reaction, he was left pleasing no one.
There's good news though. Take a look at futures right now. We have lost a bit of ground over the last 30 minutes or so, but we are relatively
unchanged at this stage. Some calm being restored after what was a fairly interesting and turbulent session yesterday. Stocks plunged after the Fed
Chair Jay Powell said that July rate cut did not signal the start of a more prolonged rate cutting cycle.
So, as you can imagine investors suddenly assumed he meant this was a one- and-done as far as cuts were concerned. Stocks then recovered a bit, and you could see that later on after Powell tried to rescue the situation, but
I have to say some key questions remain.
What does a quote "mid-cycle adjustment" actually mean from the Federal Reserve at this moment? And I feel for him to some degree, how do you
justify cutting rates without scaring people about the outlook right now and your concerns about the economy? Powell clearly didn't want to tip his
hand on future policy or fuel expectations for further rate cuts down the line.
But I have to say, the execution yesterday was quite messy. The result of all this, of course, stocks falling. The U.S. dollar counter-intuitively
actually strengthened to two-year highs and the so-called recession signals that we've been talking about coming from the bond market actually
worsened, too.
I think my takeaway was the perhaps we should consider canceling the press conferences here and just stick to the statement quite frankly.
Let's get to the drivers because Christine Romans joins me now. Christine, I think we should just stick with data dependent and say nothing more.
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: Maybe. But look, what I think is so interesting is that a lot was made with the
market's reaction yesterday, down 333 points for the Dow by the end of the day, that's not very much. That's 1.2 percent.
If the market was really banking on something bigger, you know, I think that it wasn't really that much of a negative reaction overall. You could
also make the argument if the Fed had come out there strongly with more than 25 basis points or definitively signal that there would be a
succession of rate cuts; that could have spooked the markets a lot.
What is going on when the data looks like it's still relatively strong and hanging in there, but you're moving into the kind of mode you last saw when
we had a huge, great recession?
So, I think it's kind of a fascinating moment here, and like so many things in the Trump presidency, it is just unprecedented. You know, you've got a
President who is saying that they should have done more, that the markets are disappointed, the markets wanting more. You have a President of the
United States who is saying the markets are his barometer here. That's what he is trying to please. I've never -- I've never seen that before.
CHATTERLEY: Yes, I mean, he has got a really challenging job, and we've said this all the way along. And to your point as well, this was the first
cut in more than a decade. So calibrating that, trying to say, "Look, we're not cutting because we see a recession at some point in the in the
near future," particularly when the bond market signals suggest that is a fine line to walk here at this stage.
Do you think some part of the messaging though yesterday was a signal to those that perhaps would like to see rates lower and keep piling the
pressure on to say, "Look, we are simply going to do as we see fit based on the economic data right now," this is about the fundamentals, and not about
the market or about political pressure, nothing else.
ROMANS: What I thought was interesting is that he talked about how solid and strong the economy is. And look, I mean, I'm showing you right there
the market since the Trump inauguration. Look at this. I mean, we're cutting interest rates at a time when the S&P 500 is up, you know, 30
percent over the past couple of years, and, and GDP growth is still 2.1 percent and the unemployment rate is 3.7 percent.
Now, I know some of those indicators are lagging indicators, of course, and you can -- you know, you can't just look at the unemployment rate and not
know if a recession is coming, but no one is talking about a recession coming right now.
So, I think that the President and his rhetoric, I mean, the Fed Chief yesterday said that the President and his demands and threats did not
affect what they do.
[09:05:01] ROMANS: But I do think it has to be background noise, right? It has -- they have to know that there's a very fine line to walk here
between, you know, potentially have the President trying to make moves to remove him or demote him and continuing to move along this path of what's
best for the overall economy.
What I think is fascinating was just not even a year ago, nine months ago, we were talking about how long will be until we got to normalized rates.
CHATTERLEY: Right.
ROMANS: We are so far away from that. And we don't have room. I mean, you've got eight 25 basis point cuts. It is all of the ammunition the Fed
has right now.
CHATTERLEY: Yes, absolutely. But they've got far more than any other Central Bank. And actually, I think my final takeaways, if you didn't have
the cut yesterday, and everything that he said, you'd again be arguing why they are even cutting rates in the first place.
They're not cutting them to support the U.S. economy. They're cutting them in defense of everything else going on which --
ROMANS: And two members voted against it, remember. So it was not a unanimous decision.
CHATTERLEY: Yes. Absolutely. Christine Romans, always great to have you on. Thank you for that.
ROMANS: You're welcome.
CHATTERLEY: Let's move across the Atlantic right now because the Fed's counterpart held rates steady, but they did cut their forecast. The Bank
of England citing risks including a no deal Brexit and the broader global slowdown. Anna Stewart joins me now.
There are similarities with the Fed here and that you've got a Central Bank there that arguably disagrees or is not in line with at least what
investors think is going on, either domestically or more broadly right now, and that's the challenge.
ANNA STEWART, CNN REPORTER: That was the most interesting part about the whole press conference, frankly, is the fact that the Bank of England feel
so out of step with the markets and actually Mark Carney, the Governor in the Q&A that followed the opening remarks seem to agree with that.
Essentially, the market is pricing in here a greater chance of a new deal Brexit. They are also pricing in general economic uncertainty, and they
are thinking that there will be a rate cut in the months and months to come.
However, the Bank of England still sees a smooth transition, a smooth Brexit. They still advise that they expect to gradually raise rates to
curb inflation and even when it comes to the possibility of a no deal Brexit, even then it's not as simple as they would cut rates. Listen to
what Carney said.
(BEGIN VIDEO CLIP)
MARK CARNEY, GOVERNOR, BANK OF ENGLAND: No deal would very unusually for an economic shock, be an instantaneous shock not just to demand which is
what everybody is used to seeing, but a shock to supply.
(END VIDEO CLIP)
STEWART: So, essentially rates could go either way there. You can see the bind he is in. Two completely different alternatives if the U.K. leaves
with a deal and without a deal, and then all the different variations of it.
Also very interesting I think what businesses think, I always find this interesting with the inflation report, they survey business leaders. Now
back in April, straight after that first Brexit deadline failed to be met. Forty percent of businesses thought that Brexit problems and uncertainty
will be resolved by the end of the year. That has now fallen, Julia to 20 percent. It has halved. That is a sharp fall in business sentiment.
CHATTERLEY: Yes, and it makes sense and I was about to say, one other disagreement out there between the Bank of England and others is with the
U.K. Government, of course.
If the Bank of England is suggesting their base case here is still a soft Brexit, the government is going well and truly the opposite way ramping up
spending to prepare for a no deal here and even talking about an emergency budget just weeks before that October 31st deadline. Talk us through that.
STEWART: Yes, so we got the details of the turbocharged spending plans to prepare for a no deal Brexit, and essentially the new Chancellor, Sajid
Javid is doubling down on funding for this year taking it to two and a half billion dollars.
Overall Brexit planning has taken us to $7.6 billion over the last few years. This money will be focused on border officials, on stockpiling more
medical supplies, again. We did that of course before the last deadline in March, supporting business, a public information campaign.
Julia, I expected the opposition Labour Party to slam this as a waste of money, but I thought it was really interesting that the Institute of Fiscal
Studies, the head said, "It seems particularly perverse to make a whole lot of economic choices just before we know what sort of Brexit we will have.
So, lots of disagreement there.
CHATTERLEY: Yes, and we still don't know. Anna Stewart, thank you so much for that.
All right, let's move on and talk deals now because the London Stock Exchange has agreed to buy Bloomberg's biggest rival, the data provider
Refinitiv in a $27 billion all share deal. Paul La Monica joins me now.
Paul, you said it on Twitter. Watch out Bloomberg. It tells you everything when a company like the London Stock Exchange makes a purchase
of some $27 billion and their share price soars rather than falls.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, I think, Julia that people like this move because it really is all about financial data, which is of
course, Bloomberg's main selling point for a lot of institutional investors. So, that is one of the reasons why the LLC is probably up on
this and you know, this is a win for Thomson Reuters which recently spun off Refinitiv and also Blackstone, which has a stake in the company as
well.
[09:10:06] CHATTERLEY: Yes, and known LSE shares as well. It's a very interesting a smart move here in particular. What about antitrust issues?
Because this feels very important to me. And the signaling as well on this deal suggests that they think they're going to have some fun and games in
getting this approved.
LA MONICA: Yes, I would imagine that the LSE and Refinitiv may have to sell off some assets to satisfy antitrust regulators in the U.K.,
potentially in the U.S. and elsewhere. But this doesn't sound at first blush as if it's going to be a deal breaker.
I think that they will find the right assets to potentially trim to get the deal done. And, you know, it's going to create another financial data
powerhouse. Everyone is talking about Bloomberg. and I think rightfully so. You've got Bloomberg and the LSE really going toe to toe in financial
data now if this deal goes through.
CHATTERLEY: I mean, Bloomberg have such a monopoly in this space with the terminal. Reuters and Eikon never really compared in terms of product.
Are they really capable of making something that is a viable alternative to Bloomberg here? What's your gut feel on this?
LA MONICA: Yes, that's a great question. I think it does remains to be seen, Julia, if the combined entity with the financial muscle now of the
LSE, can rival Bloomberg, you know, full disclosure, we here at CNN Business use the Refinitiv Eikon product, not Bloomberg.
But I know a lot of people who work at Bloomberg and work on Wall Street that, dare I say, are addicted to those Bloomberg terminals. So, it might
be difficult to get institutional investors to either sign on to the Refinitiv product in addition to Bloomberg or cut the Bloomberg cord and go
for Refinitiv instead.
So, I think LSE has to invest in the service, make it even better so that they can really go at Bloomberg head to head and be a more formidable
challenger.
CHATTERLEY: I bet there's lots of banks out there that have got a real vested interest in making this a success because they'd love to pay less
for something that maybe not even equivalent. It's going to be fascinating to watch. Paul La Monica, thank you so much for that.
All Right, let me bring you up to speed now with some of the headlines that we're tracking from around the world.
Former U.S. Vice President Joe Biden had a target on his back during CNN's Democratic presidential debate Wednesday and he took attacks from just
about every other candidate on stage with bruising hits on his record and healthcare plan. But unlike the last debate, Biden was ready.
(BEGIN VIDEO CLIP)
JOE BIDEN (D), PRESIDENTIAL CANDIDATE: I have guts enough to say his plan doesn't make sense. It is going to be very blunt and it is going to be
very straightforward. You can't beat President Trump with double talk on this plan.
This idea is a bunch of malarkey, what we're talking about here.
(END VIDEO CLIP)
CHATTERLEY: Right now, Biden has a strong lead in the polls, but we'll soon see if his debate performance helps or hurts those numbers.
A U.S. official has told CNN they believe Osama bin Laden's son Hamza bin Laden is dead. That source says the U.S. had a role in his death, but did
not provide details. Earlier this year, the U.S. State Department called Hamza bin Laden an emerging leader in the terror group Al Qaeda and offered
a million dollar reward for information leading to his capture.
Iran's President says Washington has resorted to quote, "childish actions." On Wednesday, the U.S. followed through on weeks' old threat, imposing new
sanctions on Iran's Foreign Minister Javad Zarif.
President Hassan Rouhani said the U.S. government is afraid of Zarif's interviews apparently referring to a string of TV appearances he made in
New York recently, because he says they're afraid of his quote, "logic and his art of negotiations."
All right, we're going to take a quick break on the FIRST MOVE, but coming up bad news for bullion, good news for Bitcoin. As Powell takes the shine
off gold, we will discuss all the Fed call out and some alternative assets.
And with backpacks, the new bank heist. Is your bank as secure as your deposits? We'll discuss a cybersecurity risk with the Chair of the FDIC.
Stay with us. That's all coming up.
(COMMERCIAL BREAK)
[09:17:29] CHATTERLEY: Welcome back to FIRST MOVE live from the floor at the New York Stock Exchange as we countdown to what looks like a pretty
muted open for stocks. We had a bit of volatility yesterday, as we've mentioned, a one percent drop overall for the U.S. majors on concerns about
what the outlook is here for Jay Powell and the Federal Reserve and future rate cuts.
It was in fact the worst day on Wall Street for some two months. Jay Powell yesterday saying that the cut was just a quote, "mid-cycle
adjustment and not necessarily the start of a cutting cycle." He was just leaving himself some optionality, but it wasn't the first time his
statements had an impact on the markets in the past year.
If you remember back in October -- on October 30, he said rates were a long way from neutral. He then pivoted to a patient rate stance in January.
Then in June, he said the Fed would act as appropriate to help the economy paving the way for yesterday's cut and a bit of a pullback as we've
discussed.
Let's get some context here. Alicia Levine is the Chief Strategist at BNY Mellon and joins us now. Great to have you with us.
ALICIA LEVINE, CHIEF STRATEGIST, BNY MELLON: Thanks for having me back.
CHATTERLEY: Fantastic. What did you make of yesterday?
LEVINE: So yesterday was an interesting day because 25 basis points was baked into the market.
CHATTERLEY: Right.
LEVINE: We actually thought that the Fed should have done 50. And the reason we think that is not because the U.S. economy is so bad, but the
reason that the Fed was concerned -- that the Fed did this, overseas slowing, manufacturing slowing globally and other Central Banks easing are
good enough reasons. And there's a game going on with the market.
So right now the Fed is catching up to the market expectations. We thought it would have been a good idea if the Fed had just said 50. This is why
we're doing it. And now we're done.
CHATTERLEY: Would have been more sensible? When you look at in context that he gave on the U.S. economy. He said, look, we don't see a recession
coming up anytime soon. The economy is in good health. The trade tensions have turned now to a simmer. We're not making this big cut because we see
trouble here. It's about everywhere else in the world. It's about insurance.
LEVINE: That's right. So look, the reasons we're global, in a sense, it sounds a little bit like a third mandate, because it's very rare for the
Fed actually to talk about overseas trouble.
CHATTERLEY: And yet, they've done it a lot. It is the third mandate.
LEVINE: It is the third mandate, in a sense, our Central Bank is really trapped by what's going on with other Central Banks globally. So, there's
an easing cycle going on. And it's very hard to be the one Central Bank that has a tighter policy.
We see what happens with the dollar and in the end, in the U.S. because Trump or dollar doesn't hit mainstream, but it does hit the corporate
sector and ultimately that will hit the markets and so the Fed has to be sensitive to that.
[09:25:04] CHATTERLEY: You know, it's interesting, I mean, the argument that we make here is, look, they're not trying to please the market. The
Fed has to assume that it knows what's going on and has access to more data than the market does right now.
But for the market to reprice yesterday to suggest that actually, the probability of a recession here is now higher, as a result of what the Fed
did yesterday. It is a bit counterintuitive.
LEVINE: It is counterintuitive. And that's why we thought the Fed should have really taken over the conversation.
CHATTERLEY: Right. Got ahead of it.
LEVINE: Got ahead of it. What happened in January is that the market started leading the conversation and the Fed very rightly realized that it
probably hiked one too many times in December.
But having followed the market, it's now trapped by that. We would like to see the Fed take back the conversation, lead the conversation, explain why
it is cutting and then be done with it. Because the economy is fine here.
CHATTERLEY: You know, it's interesting. He was also asked very bluntly by one journalist, what good will this rate cut do? And he kind of struggled
to answer.
LEVINE: I think, look, it really is a great point. Twenty five basis points in a sea of liquidity, in a time of easy money, when financial
conditions are already so easy here in the U.S., is not actually going to do a lot to stimulate the economy.
What it will do is send a signal globally that the Fed will not be tight, while other Central Banks are easy. And that's really what the message is.
CHATTERLEY: It is trying to provide confidence and support, isn't it, ultimately? So, to your point, you didn't get the half a percentage point
that you were expecting. What do we think about the rest of the year now? Do we think the Fed still comes back and probably cuts again in September?
LEVINE: I think that there probably is another 25 basis point cut to come. And again, there will be excitement in the market. There will be
overpricing of cuts.
But at some point, the Fed needs to say, "Look, we need to keep ammunition here for when there's a downturn in the U.S." And we don't have a downturn
in the U.S. The consumer numbers as you've seen have been extraordinary.
So, we're really -- our labor market is strong. The consumer is strong. We're doing fine here.
CHATTERLEY: What's the risk that if you would have cut half a percentage point, he would have frightened everybody, and actually, we could have seen
a more negative reaction yesterday, because people would have been like, "Whoa, what does the Fed see that perhaps we don't?"
Because I do feel sorry. I do feel a bit sorry for the way we've been trying to calibrate that message.
LEVINE: I hear what you're saying about feeling sorry. My thought last night was that I kind of wish that they weren't doing press conferences at
every single meeting, because in a funny way, you over share, you know, the Fed over shares.
And it really should not be that way because if the Fed is data dependent. I do not think 50 basis points would have scared people. The market was
already pricing in a dovish path for 2019. What we would have liked to see is the Fed take that over, take the conversation over and said to the
market, "You know, stop pricing in hundred basis point cuts by the end of 2020," which is what is going on.
CHATTERLEY: Very quickly, what should investors be doing it then stage?
LEVINE: So, although the market is up extraordinarily high this year -- U.S., Europe, even emerging markets -- the truth is when you're in a sea of
liquidity and interest rates are low, and inflation is so low, you're driven to equities. And so we do not think the market is overpriced, but
we do think there are conditions in place for a bubble.
So you know, we don't see stocks as overpriced. We think the fixed income market on the other hand, every -- all global flows have come to the U.S.
sovereign debt market. So to that extent, the risk is really on the other side of that trade. But we do think the equity market is probably okay
here.
CHATTERLEY: Yes, and not overvalued. Alicia, great to get some context here.
LEVINE: Thanks, Julia.
CHATTERLEY: Trying to understand some of the confusion that was created yesterday. Alicia Levine there, Chief Strategist at BNY Mellon and again,
we coordinated on outfits. We love this. It was all meant.
A quick look before the market opens this morning. Plenty more to come on the show, including some discussion of alternative assets. Oh, actually
no, market open is next.
We're going to talk GM actually before we go there. GM rallying premarket, up over three percent, Q2 earnings beating expectations despite a massive
60 percent income drop in China compared to a year ago.
Peter Valdes-Dapena joins us now. Peter, I almost forgot you. I apologize. Strong sales in America -- in North America leading the way
here. Talk us through these results.
PETER VALDES-DAPENA, CNN BUSINESS SENIOR AUTO WRITER: Yes, well, not just strong sales in North America; particularly strong sales of pickup trucks,
highly profitable pickup trucks, and SUVs, which are products over at GM, dropped a number of car models, it turns out wisely from its lineup and has
moved more production towards these pickup trucks and SUVs. We saw this yesterday with Fiat Chrysler earnings as well.
These big pickup trucks said that Fiat Chrysler, Ford and GM make and sell in the U.S. market are big profit drivers. They sell them in huge numbers
and a lot of customers these days like to option them up with leather seats, big engines and nice stairs, and things like that. So they're very,
very profitable.
CHATTERLEY: And also if we look at the transformation that's going on right now for GM, I mean, they've said look, we have to cut staff. We have
to move to the things that customers want right now and they are pick up. They are SUVs.
[09:25:09] VALDES-DAPENA: Yes.
CHATTERLEY: It kind of argues when you look at these results that everything that they've been criticized for on a high level is the right
way to move here.
VALDES-DAPENA: Yes, I mean, they've taken some heat politically for cutting jobs, certainly in the U.S. -- not cutting jobs, I should say, but
moving them around, they fitted workers to plants where they're building more profitable products.
They've disrupted some communities like Lordstown, Ohio by shutting down factories there. But it turns out -- guess what -- that was a smart move.
Save money and shifted production towards where the customers want it.
CHATTERLEY: And Peter, what do we think on China here? We know it's troubled. We know that there's significant challenges but the company also
said look, electric vehicles and autonomous vehicles are the future here and China is the biggest opportunity in that vein. What do we think of
what's going on there?
VALDES-DAPENA: Well, obviously everyone, GM included is struggling there. But the good thing as you mentioned, everyone is saying that electric
vehicles are the future. The trouble is making money with them.
Now, China is providing an opportunity for that by incentivizing electric vehicles very heavily last year. I think half of all global EV sales were
in China.
So, you know, they're providing a help for the industry in that sense even though things are down because companies like GM do need to prepare for
that electric future, and China is moving there more quickly than others.
CHATTERLEY: Yes, I look at the next one, too, and then five years for where the demand is going to be. Peter Valdes-Dapena, thank you so much
for bringing us up to speed on those earnings.
And right, now we're heading to the market open. Plenty more to come on the show, including a look at some alternative assets for the time of low
yields, and more and more money. What about Bitcoin? What about gold? That's coming up. Stay with FIRST MOVE.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE. That was the opening bell for the fourth session this week. Relatively unchanged right now and
wow the shouting and excitement continues here.
We are beginning a fresh month in trading of course, too. Investors still weighing Fed Chair Jay Powell's comments yesterday dampening expectation
for continuation of rate cuts this year.
Yesterday's one percent Fed-induced drop took a bite out of July's market returns. The NASDAQ was the best performer though rising just over two
percent, so still solid gains key for the Fed going forward, of course, is going to be economic data -- data dependency. We are well and truly back
in data dependency mode and we get an important reading on U.S. factory activity, one and a half hours from now.
And tomorrow, of course, that all important to non-farm payrolls is number two, so we'll be bringing you that tomorrow.
But for now, what about some alternative assets right now? Gold continuing to slip after yesterday's rate cut by the Fed. It is currently down some
1.6 percent. The gold prices though did hit a six-year high in July. And the World Gold Council says, demand is also at a three-year high with
Central Banks adding to their gold reserves.
Les Male is CEO of Dubai Gold & Commodities Exchange, and he joins us now. Les, fantastic to have you on the show. I could list a whole host of
reasons why we've seen a pickup in demand and the price rallying so far this year in particular, whether it is Central Bank easing or the Federal
Reserve uncertainty out there on the economic outlook, never mind tensions in places around the world, including in the Middle East.
What do investors from your perspective focusing on most at this moment?
LES MALE, CEO, DUBAI GOLD & COMMODITIES EXCHANGE: Good morning, Julia. I think what investors are looking for is a signal in the market. You
mentioned there about uncertainty. We are living in ongoing levels -- embedded levels -- of uncertainty.
Now, typically the market and market participants, they're well used to that. They thrive on uncertainty, but this ongoing nature that we seem to
be living in, whether it be the U.S.-China, prospects of a trade war, whether it be the U.K. exit from the E.U. and the Brexit debate, there
never seems to be an end game.
And the market is for want of a better word, kind of freewheeling whilst it's waiting for a signal and yesterday's rate cut, as you've been talking
about this morning on your program that was well telegraphed in advance and the comments from the Fed didn't really give an indication which way or
another as to where the rates will go, they've left all options open.
And why wouldn't they? Until as you say, they get the hard data month after month. So, there may well be another cut in September time, let's
say. Let's wait and see.
But the market are in that freewheel zone, and I think that's why we've seen the level of gold price rise as we have done over the last couple of
months, as it reversed to its classic kind of safe haven asset class.
CHATTERLEY: Yes, I know many of those things. A clarity or some kind of resolution to the issues is not necessarily going to come anytime soon.
So, you have to therefore assume that the volatility will continue. Who are you seeing buying here? And in what guise? Because there are many
ways to play this, whether it's the physical, whether it's options, whether it's gold futures here? Who is buying and for what purpose?
MALE: Yes, I think we're seeing that the classic -- the classic players, whether it be for the demand on the jewelry side, whether it be the hedges
or the speculators, but what's been more telling just recently has been the role of the Central Banks, as they've kind of come in and bought some of
the activity that we've seen over the last couple of months. We've seen a huge volume rise on the gold futures on the DGCX up to 200 percent year-on-
year. The prices that you're talking about, over $1,400.00 an ounce now.
It cooled off a little bit yesterday, but I think those losses will be recovered before the end of the month, let alone the end of the week.
So that demand is still there. The uncertainty pressures are still there. And I although we won't comment on price forecast, I don't see the rise in
gold price abating anytime soon.
CHATTERLEY: No, the momentum you're basically saying has been sort of continually rising this year.
MALE: Yes, and there's no -- there isn't an end game. You know, whether it's one and done on the Fed rate cut, whether the U.K. will exit Brexit or
won't exit Brexit, who would be a sterling trader at the moment? Therefore the traders are looking to the supply-demand fundamentals on regulated
exchanges and coming to the safety and the surety of gold.
[09:35:09] MALE: There's the lack of an end point, as I say, whether it be an end of March, end of October exit for the E.U. -- for the U.K. from the
E.U., whether the U.S.-China rhetoric will escalate.
So, there isn't that level of daylight at the end of the tunnel. And in that kind of maelstrom of activity, then the market tends to revert back to
an asset class it knows and it trusts and that's gold.
CHATTERLEY: If any normal commodity, we'd be talking about supply and demand, we'd be talking about production in particular. Gold is always
very interesting on this front for me, too. How correlated is production here with price?
MALE: Yes, I think the levels of production haven't necessarily changed an awful lot. We've seen the regents of production change for sure from South
Africa in the 1970s and 80s, from the predominance now of China and Russia and Dubai has excellently played in that crossroads, that hub for trade.
For production levels, would typically as you say, in more fundamental commodity sets that would drive price rise. But gold is an emotional
product here. It's driven by sentiment. It is driven by those geopolitical uncertainties.
And so it will react to statements from the Fed or statements from Prime Ministers or Presidents as it as it might be. And those levels of
uncertainty, that volatility, I didn't see an end to that anytime soon, and most market observers aren't either.
So production demand, yes, we can have a look at that. But it is really the emotional and sentimental nature of gold, which is driving the price,
particularly in the last couple of months for sure. It's been over $1,000.00 an ounce for 10 years or so now, but it's been really rising in
the last two months on the back of a price correction, you might argue in the last 10 months.
CHATTERLEY: Yes, an emotional asset. It's fascinating. Les Male, fantastic to have you on the show. The CEO of the Dubai Gold & Commodities
Exchange. Great to have you with us.
All right, we're going to take a quick break here on FIRST MOVE, but coming up banking on Bitcoin, amid negative bond yields and Central Bank easing,
could the cryptocurrency provide the kind of returns investors are looking for and be a viable alternative. Stay with us, we will discuss.
(COMMERCIAL BREAK)
[09:40:35] CHATTERLEY: Welcome back to FIRST MOVE where we've entered a topsy-turvy investment world, we've been there for a while, where negative
interest rates are increasingly the norm. Some 43 percent of global bonds outside the U.S. now support negative yields amid growing concerns for
slowing global growth and stimulus, of course.
Take a look at this. German sovereign bonds have been trading in negative territory for some time now. Dutch yields went negative for the first time
since 2017 last month. Danish and Swiss bond yields are negative now across the whole yield curve.
Also more than 40 percent of European investment grade corporate debt have negative yields. That is some one and a half trillion dollars' worth of
debt, you get it?
The big question is, where do investors go when you're looking to try and make some returns here? Many are looking at alternatives like Bitcoin.
Anthony Pompliano is the co-founder and partner at Morgan Creek Digital Assets, and he joins us now. Great to have you with us.
ANTHONY POMPLIANO, CO-FOUNDER AND PARTNER, MORGAN CREEK DIGITAL ASSETS: Absolutely. Thanks so much for having me.
CHATTERLEY: Great to have you with us, too. Now, you say the easy money, not just here in the United States, but we did see the Fed cutting rates is
the rocket fuel that will fuel the rise of Bitcoin. Explain what you mean.
POMPLIANO: So look, whenever we get to recessive periods or kind of slowing growth, Central Banks have two tools, right? They can cut interest
rates, which they just did yesterday, and it could print money -- quantitative easing.
And so when they do both of those things, it usually takes anywhere between six to 18 months to actually feel the effect of those tools, and what it is
going to do is it is going to coincide with the Bitcoin halving, which we can get into what that is.
So, we think that cutting rates, printing more money, and then this systematic structure of Bitcoin is going to lead to a higher price for
Bitcoin over a long period time.
CHATTERLEY: Okay, so there's plenty of money already sloshing around in the global economy. But to your point, as Central Banks, including the
Federal Reserve ease, there would be more and more money in the system.
POMPLIANO: Yes.
CHATTERLEY: So explain the other piece of the jigsaw, halving. What does that mean?
POMPLIANO: Yes, so Bitcoin is a -- it's a fixed supply asset. There's 21 million of them, and if you think about it, the code was created, and
there's 21 million Bitcoins that are going to be distributed over time. And it is distributed to people who run the software.
And so an easy way to think about it is, every 10 minutes, 50 Bitcoins were given out in the beginning to people who are running the software, the
miners.
CHATTERLEY: Yes.
POMPLIANO: That went on for four years, and then after four years, that reward got cut in half. So it went from 50 to 25. Four years later, it
got cut in half again to 12 and a half, and in May 2020, it will get cut half again, 6.25.
CHATTERLEY: So, what you're saying is, the rewards for mining Bitcoin are reducing. Why was that decision made?
POMPLIANO: Yes. So when you have a deflationary asset, right, it has a disinflationary monetary schedule, meaning that there's some inflation in
the beginning, but it gets lower and lower over time. It's very similar to like stop the flow ratio of gold, right?
So, there's existing supply, and you go ahead, and you're just continuing to add to it. The difference is between Bitcoin and gold, with Bitcoin, we
know exactly how many is getting created. So 1,800 Bitcoins are going to get created today.
And the second thing is, we know the total supply available was 21 million. So it's not, "Hey, I wonder how much is in the ground," we know exactly
what it is. And we can actually go in and audit or verify the software code of the system.
CHATTERLEY: So how do you go from reducing the rewards that accrues to the miners for harvesting Bitcoin here, and effectively restricting the supply
out there, which is key? So on the one hand, you've got cash in the system, the ordinary, the fiat currency system, increasing at the same time
as you've got effective supply of Bitcoin reducing. You're arguing here that that will mean the price rises?
POMPLIANO: Look at gold, right? So since we got off the gold standard, the United States gold has gone up about 40X, right? So there's the
argument that gold actually appreciated in valued. The other argument is that actually the dollar has depreciated against gold, right? So there's a
debasing of the currency that happens.
And so as we cut interest rates and print more money, we're debasing our currency. So, when we do that, fixed supply assets, or low -- scarce
assets, like Bitcoin, should continue to appreciate in value as long as demand increases and the dollar devalues against it.
CHATTERLEY: Okay, but your price target is $100,000.00 over two to two and a half years. That's a long way off.
POMPLIANO: Yes, well look, in 2017, Bitcoin went up 20X, right? So it's a hyper volatile asset. We've seen it go up 20, 30, 50 X at times, we've
also seen it draw down over 80 percent now three times.
And in August, we said, "Look, it was trading around $7,500.00 to $7,000.00, then it dropped to 3K, it ended up doing that, right around
December of last year, and then it was going to recover back $10,000.00 and it did that.
And so we think now from about $10,000.00 where it sits today, it's a pretty conservative estimate to see it hit $100,000.00 in the next two and
a half years.
[09:45:10] CHATTERLEY: Okay, so you've also talked about countries adopting Bitcoin. What do you mean by that? Do you mean the idea that
they perhaps have to replace their own currency? Or run something like a Bitcoin or crypto alongside it? Or simply just accept that this is
something that is coming and you can't fight it?
POMPLIANO: Yes, so no one controls Bitcoin, right? In a sense that a country can't print more, they can't manipulate it, they can't do anything.
And so the way that you interact with Bitcoin is whether you regulate it out of your country --
CHATTERLEY: Yes, you restrict it.
POMPLIANO: Or you incentivize people to come there. And so there's some countries like India, who are proposing bans on cryptocurrencies, Bitcoin,
et cetera. But at the same time, they're thinking about wanting their own digital currency. So kind of digitizing their fiat currency.
I think that the first countries to go ahead and actually use regulation as an incentive to encourage entrepreneurs, encourage the innovation,
encourage the disruptive technology into their borders, and to actually try not to stifle the innovation, they're going to be better off over a long
period of time.
And so I think it's really, really important the regulatory conversation going on in the U.S. right now.
CHATTERLEY: Why? Why are they going to be beneficiaries? Why is it important to foster this technology? Because a lot of the feedback that we
got on social media was just explain what the benefits are, and that this is a viable currency.
POMPLIANO: For sure. So look, business has been built on a dual accounting system for pretty much the entire life of you and I, and so what
that means is there is a debit and credit system between two people, but that system is governed by centralized third party. So its banks and other
organizations.
They say, "Hey, $100.00 left my account. It went to your account." We trust that they're doing the right thing. What we're seeing now is the
invention of a triple entry accounting system, right, which is a blockchain. This is simply you and I have debits and credits dual entry.
And that third ledger is no longer controlled by a centralized authority. It's controlled by the network.
You and I get to actually look at it. Very similar to the game of Monopoly, right? When all of us are sitting at the table, and I can see
into my bank account and all of your bank accounts, I trust that you're doing the right thing because we actually have transparency into it.
That's important, because it's not just about money, right, the blockchain actually is anything that has transactions between two parties has the
opportunity to be disrupted by a triple entry accounting system.
CHATTERLEY: So, do you see Facebook's announcement of Libra as a positive thing for you? Because this could ultimately be two billion users using
some form of cryptocurrency? Or do you see it perhaps as a risk that it's a Facebook controlled cryptocurrency and that has its own problems? Is it
good for you and your discussion right now? Or is it bad?
POMPLIANO: So, I think there's two components to this. One is Facebook entering the space is a huge benefit just in the validation, right, in the
sense of Facebook is a multi-hundred billion dollar company, right? A friend of mine said, "Look, there's some people who might not like Mark
Zuckerberg, but nobody thinks he is dumb," right?
So when they put their time, resources, energy into doing this, obviously, it's important. The second component is something that I call the crypto-
density theory, right, which is essentially similar to an intersection with restaurants on it.
When there's one restaurant, they get whatever traffic they get. When a restaurant moves in across the street, rather than competing, actually,
what you see is the foot traffic to that intersection increases.
Add a third, a fourth, a fifth restaurant, all of a sudden the foot traffic of everybody rises. Same thing with cryptocurrencies. When you have just
one alternative to a fiat currency, it's interesting, when you add two, three, five or 10 of them, then what happens is people actually have
multiple options there.
I still believe that Bitcoin will end up being the dominant player in that alternative currency space. But I think that the more players that are at
the table, especially coming from large, well-respected organizations, it just legitimizes the space. People get in and it is the gateway drug to
ultimately Bitcoin.
CHATTERLEY: Because we heard that Iran is going to rename its currency, lough off a few zeros off. Do you think -- and how long does it take do
you think for a country to go, you know what, actually we are going to adopt this? Or does it matter if that never happens?
POMPLIANO: Yes, so Iran actually just made a bunch of changes to some regulation to legalize the mining process. So again, going back to who
runs the software, is really important, because now all the economic sanctions, right? The U.S. dollar is a global reserve currency, the U.S.
levies these sanctions on countries like Iran.
But now what they can do is actually, they can turn on computers, and they can run software and they can get an economic benefit from it. They're no
longer dependent for that revenue stream on the economic system or the global economic system.
And so I think that we just have to understand that there are aspects of the world that are changing, that's okay. It's not a bad thing. But
rather than fight it and say, you know, "Hey, let's bet on it not occurring." I think that we should get ahead of it and say, "This is most
likely to happen. Let's figure out how we can incentivize it. Be at the forefront, be a leader and benefit for ourselves."
CHATTERLEY: Most of the fear is about lack of understanding. We just need to understand more.
POMPLIANO: Absolutely.
CHATTERLEY: Anthony, great to have you on. Thank you so much, Anthony Pompliano there. All right. We'll continue this discussion, no doubt, but
up next from heist to hacks. Bank robbers may be moving with the times, but are bank regulators? We talk to the head of the FDIC about the risks
from cyber criminals. Very well connected to the discussion we just had, too. Stay with us. That's after this.
(COMMERCIAL BREAK)
[09:51:58] CHATTERLEY: Welcome back to FIRST MOVE. Robbing a bank used to involve guns, hostages and bags of cash. These days, it is more about
computer codes, loopholes and data. The U.S. bank Capital One announced this week that a hack attack had compromised the details of more than 100
million customers. So how are banks and their regulators handling the cybersecurity threats?
Well, Matt Egan put that question to the head of the U.S. Federal Deposit Insurance Corporation -- the FDIC. Listen in.
(BEGIN VIDEOTAPE)
JELENA MCWILLIAMS, CHAIR, FEDERAL DEPOSIT INSURANCE CORPORATION: Protecting the banks and protecting consumer data is prohibitively
expensive. If you take a look, some of the banks have spent billions of dollars in IT space. And most of that goes to cybersecurity and anti-money
laundering efforts. And not a lot of banks have that much money to invest.
So it's something that we're monitoring, making sure that the risk profile of the bank is measured to how much money they're spending, and how good
their defenses are.
MATT EGAN, CNN BUSINESS LEAD WRITER: The FTC recently fined Facebook $5 billion dollars. Would you be in favor of fining an FDIC regulated bank
that suffers a major breach if you find that the cyber defenses were weak?
MCWILLIAMS: So frankly, we would have to take a look. The way we would approach this is we will take a look at their cybersecurity and the
structure during the exam. If we find deficiencies in the exam, we will note that the bank. We issue anything from the matters requesting --
requiring board attention to matters requiring attention. We will give them a list of those issues to fix.
And then we would monitor progress to make sure that they have fixed them between that exam and the next exam. And we may do like a spontaneous exam
in the meantime, just to make sure we understand how they're doing on progress.
EGAN: But if a bank did not fix those deficiencies that you found and then suffered a breach, would you be in favor of the FDIC fining?
MCWILLIAMS: We could certainly have an enforcement action against that banking.
EGAN: Including a fine?
MCWILLIAMS: Including a fine. Yes. And their management rating and their CAMELS ratings would go down, because they are not continually working on
complying with our requests. And it's something we take very seriously.
EGAN: Is cyber the biggest risk facing banks right now?
MCWILLIAMS: It depends on what banks you're looking at. For the large banks and the banking ecosystem as a whole, yes, I would say that's the
largest risk.
(END VIDEOTAPE)
CHATTERLEY: Matt Egan joins us now. Great interview, Matt. The industry spends on average $2,300.00 per person in order to try and tackle this. It
is just not enough, clearly.
EGAN: That's right, Julia. I mean, consider this a warning. Regulators are clearly cracking down on banks with weak cyber security and as they
should, right?
I mean, banks hold vast amounts of our sensitive information and hackers are constantly trying to break in. Now, clearly that Capital One hack that
we've just recently learned about that impacted a hundred million people was a real wake-up call.
Now, the FDIC Chairman, she said, listen, banks need to constantly update their firewalls and their protections and she said that hackers are not
going to change what they're doing so banks need to really be ready for all of these attacks.
[09:55:04] EGAN: Now, Julia bigger picture, I did ask about the overall health of the banking system, and she was very, very positive. She said
that really this is the best of times right now. But she warned we should not expect this to continue forever.
You know, things will happen along the way. One area in particular that I asked her about was the leverage lending boom. FDIC, the former chairman,
Sheila Bair of the FDIC, she recently warned that a bust in the leverage lending space that it could actually hit the economy faster than the
subprime crisis did a decade ago.
And so I asked the current Chair about this, and she said, "Yes, the FDIC is concerned about this." And she said that if there is a recession, if
there's a downturn, we're going to have a number of problems on our hands and this will be one of them.
CHATTERLEY: Yes, well, the good news is at least we're talking about it this time around so the hope is that we can catch it early enough. Matt
Egan, great job. Thank you so much that interview and thanks for joining us on the show.
Right. That that just about wraps it up. I'm Julia Chatterley. You can listen to our podcast, cnn.com/podcast. You've been watching FIRST MOVE.
Time to go make yours.
(COMMERCIAL BREAK)
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