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First Move with Julia Chatterley
The White House Considering Fresh Tax Cuts To Support The Economy, But As Far As Payroll Tax Cuts Are Concerned, Not An Option; The Italian Prime Minister Set To Resign Or Face A Confidence Votes In Congress; Facebook And Twitter Have Said They've Deleted Accounts Targeting Hong Kong's Protesters. Aired 9-10a ET
Aired August 20, 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. Contingency planning. The White House considering fresh tax cuts to support the economy, but as far as payroll tax cuts are
concerned, not an option. Conte's Crisis: The Italian Prime Minister set to resign or face a confidence votes in Congress. And China's covert
campaign. Facebook and Twitter have said they've deleted accounts targeting Hong Kong's protesters. It's Tuesday. Let's make a move.
A warm welcome once again to FIRST MOVE and welcome to another stimulating and stimulus filled hour of news and analysis. Let me talk you through
what we're seeing right now for U.S. markets at premarket right now. We're seeing a modestly higher start following three straight sessions of gains
for the Dow and for the S&P 500.
We've all but reclaimed last Wednesday's three percent sell off which came amid the recession warnings, of course from the bond market. I think, we
can perhaps thank trade related headlines for that in Monday's session.
The majors added some one percent plus helped along by a rise, a stabilization let's call it in bond yields. The 30-year bond though took
the biggest daily jump since October in yesterday's session.
What about in Europe, too? Well, Germany's stocks have been volatile. But we're giving back some of yesterday's stimulus hopes driven gains. I think
our skepticism there was well placed. Germany apparently going to wait for an economic crisis to hit before taking any new fiscal measures.
Over in China, some stealth stimulus may have kicked in overnight, too. China replacing its benchmark interest rate with a more market driven rate
system that Beijing hopes will increase corporate borrowing, too. They are not alone of course. As I've already mentioned, in considering fresh
support, the White House pushing back, though, on reports that it's considering a payroll tax cut to support consumers. There's also reports
that they may roll back some tariffs on Chinese imports.
Yes, these all the tariffs that the White House insists China is paying -- mystifying. Consumer spending though is the key to the U.S. economic
outlook. And of course, that's also going to be key to the 2020 election. So let's talk this through and get to the drivers.
Matt Egan joins us now. Matt, welcome to stimulus central here. Let's talk about what the White House could potentially do and what they're
saying they're not going to do here and then we'll discuss the benefits.
MATT EGAN, CNN BUSINESS LEAD WRITER: Julia, if the Trump administration isn't worried about a recession, they sure have a funny way of showing it
because over the weekend, Trump officials went out on television. They did a full court press to express optimism in the economy.
And then yesterday, President Trump went on Twitter and he urged the Federal Reserve to lower interest rates by a full percentage point and
relaunch quantitative easing. Really steps that are very extreme and only reserved for an economic emergency, not an economic boom.
And now they have floated this idea of more tax cuts to boost the economy. "The Washington Post" reported late yesterday that White House officials
are discussing whether or not to push for a payroll tax cut to avert an economic slowdown. Now, the White House is pushing back on this idea.
A senior White House official told CNN that more tax cuts for the American people are certainly on the table, but cutting payroll taxes is not
something under consideration at this time. Now, just to remind everyone, payroll taxes are paid by Americans making less than $133,000.00 a year and
this goes to fund social safety net programs such as Medicare and Social Security.
Now, it seems like at this point, the odds of a payroll tax cut are low. That's because it would require a divided Congress to support it. COWEN's
Chris Krueger said over -- said last night that he thinks that there are low odds for this to happen, but he expects President Trump to throw the
policy kitchen sink at recession risk.
And Julia, I think just the fact that we're even talking about this shows that you know, behind the scenes, the White House is worried about whether
or not the longest economic expansion in American history will last through the 2020 election.
CHATTERLEY: Absolutely. It's always worth having those contingency plans in place. Some might argue, though, that the best stimulus that the U.S.
economy could have is the removal of tariffs that U.S. companies pay in order to import Chinese goods here in the United States. But hey, that's a
novel idea here.
[09:05:10] CHATTERLEY: It's quite fascinating though, in light of the tweet yesterday from the President saying that he wanted the Federal
Reserve to cut rates by a full percentage point here. I'm just thinking when Jay Powell speaks later, if they are anticipating fiscal stimulus tax
cuts coming in the not too distant future, doesn't that make them less likely to cut rates here? Donald Trump is fighting himself here perhaps?
EGAN: Right. Absolutely. I mean, why would the Fed need to lower rates if the White House and Congress are going to cut taxes and if the Trump
administration backs off the tariff threats? But one thing that continues to be an issue is uncertainty, right?
I mean, the trade war is on again and off, again, seemingly on a day by day basis, which makes it so difficult for businesses to invest in the future,
and that can hurt and already has hurt business spending. It's also creating volatility in the stock market, which has already caused consumer
sentiment to take a hit earlier this month.
So I think that all of these are going to be risks that the Federal Reserve has to weigh when Jerome Powell speaks on Friday at Jackson Hole.
CHATTERLEY: Yes, much anticipation as we await that speech. Matt Egan, thank you so much for that. All right, so let's move on to our next
driver. And over in Italy now, Prime Minister Giuseppe Conte will address Parliament after the far right League Party pulled out of the coalition
government, two weeks of a political turmoil ensued. Barbie Nadeau has been following this for us. All sorts of speculation about what the Prime
Minister might say here, what should we expect? Talk us through it.
BARBIE NADEAU, CNN CONTRIBUTOR: Well, it is going to be really interesting. Giuseppe Conte has two options. He can either resign right
now in the coming moments when he addresses Parliament or he cannot resign. If he doesn't resign that will cause a confidence vote. Now that
confidence vote, if it happens, is really going to be telling for Matteo Salvini. He has so much popularity outside on the streets.
We've seen opinion polls that have doubled his popularity since the last elections. But his battle is inside the arena. And that is the Italian
Parliament where his party doesn't have as much power. So we're seeing a whole lot of power plays going on, a lot of little parties that could be
deal breakers and kingmakers really going forward.
But it's really all in the hands of Giuseppe Conti, and right now we're seeing him take the stage. He is going to make that crucial speech to
Parliament. And really at this point, Julia, anything goes. We really don't know what's going to happen except that it's going to be the end of
the Italian government as we know it right now -- Julia.
CHATTERLEY: Yes, let's just pay out some of the scenarios here. Let's say that Conte does resign here. He then sort of passes the baton over to
President Mattarella who then has to have conversations to try and understand if a fresh coalition can be made here. What's the risk that
Matteo Salvini is outmaneuvered here, when we see a tie up between the center-left that the PD Party here with the Five Star Movement that he was
originally obviously in this coalition with?
NADEAU: That's right. Well, you know, Mattarella, this isn't the first time he has tried to put these pieces of the puzzle together. This is
exactly the same makeup he had when elections were held when there was no clear majority 14 months ago or a 16 months ago. Fourteen months ago, this
is what the best case scenario was. These two opposite polar opposite parties, the League which really rose from the ashes of the separatists
Northern League Party, and the Five Star anti-establishment party.
Now, those are the pieces of the puzzle that are together right now. And Mattarella really doesn't have a lot more to work with. He could try to
bring in the left. But the last 14 months have been spent by all of these parties saying how they would never work with the left and the left being
an opposition.
So it's hard to see who is going to have to swallow their pride if there were to be some sort of new coalition government that could be put in
place. The more likely scenario though is really eventually to call the snap elections, which is what Salvini wants. He took a calculated risk.
And this is a man that has got a lot of popularity, a lot of power on the streets and a lot of people behind him based on his hardline anti-
immigration policies and things like that.
And so if he could get to the vote, that's going to work for him. It is just whether or not someone is going to try to stop him and put someone
else in place before he gets to the polls -- Julia.
CHATTERLEY: Worse timing for the economy as well. Barbie, fantastic to have you with us and we will watch that speech avidly, of course, and bring
that news to the moment we get it.
All right, let's move on to our next driver now. Hong Kong Chief Executive, Carrie Lam reaching out to protesters saying she will establish
a quote "platform for dialogue" here and has been calling for mutual understanding and respect.
The question of course, for protesters is, is that enough at this stage? At the same time, China has defended content removed by Twitter and
Facebook. They removed content supposedly sponsored by the Chinese state media and there are a few saying it was sowing discord. Donie O'Sullivan
it joins us now. Donie, talk to me about this because we're 11 weeks in now to these protests. What exactly are Facebook and Twitter saying that
they found and therefore deleted?
DONIE O'SULLIVAN, CNN BUSINESS REPORTER: Yes, Julia, Facebook and Twitter both saying yesterday that they found sort of the covert activity on social
media that we saw Russia running in the United States in the lead up to the 2016 election.
Both Facebook and Twitter allege that China was running these covert accounts that were designed to look like independent news outlets,
independent individuals, but were actually trying to undermine the protests. They were comparing them to cockroaches and even to Islamic
state terrorists.
CHATTERLEY: Okay, so let me just understand this. We're in a situation where we're 11 weeks in with these protests, are we getting better at
spotting nation states trying to sow discourse here? I'm comparing back to the 2016 elections here. Are social media companies getting better at
spotting these things and therefore banning them quickly? Because it feels very pivotal as we head into 2020, in particular.
O'SULLIVAN: Absolutely. I mean, they certainly have gotten a lot better since 2016. But I mean, in 2016, they also had, basically -- they were
doing zero of this in looking at actions on their platforms in this way.
It is a pretty incredible situation, when you think about these public companies, Twitter, and Facebook, you know, really jumping into the
geopolitical arena, and attributing quite significant cyber actions on the part of nation states to countries like China, like Russia, like Iran. It
is something that you know, previously only governments or some of the top cyber security companies would do.
But now Twitter and Facebook have both found themselves in this position. Notably, absent from the announcement yesterday was Google. We have not
heard anything from Google about whether their platform, like YouTube, was used in any way.
Of course, Facebook, and Twitter and Google all banned in China at the moment. But some would say that Google is probably the only company with a
realistic or possible room to market there.
CHATTERLEY: Yes, and you make a great point as well, I think that they're coordinating. They're working together. Facebook warning Twitter, and
vice versa. And of course, working with the security forces as well to try and understand what's going on.
So to circle back to your point, it does feel like we're not on top of this, but we are tackling it far better than we have in the past.
O'SULLIVAN: That's right. And I mean, I think you know, particularly here in the United States, there is enormous pressure on these companies to
prevent a repeat of what happened to in 2016 where they were caught totally blindsided where there was accounts with millions of followers, organizing
protests on the streets of the U.S., but actually the organizing happening from St. Petersburg in Russia.
Facebook and Twitter do not want that to happen. In Facebook's case, they've even actually hired people from the Intelligence Community.
They've hired former Pentagon officials to help them dig in and find this type of actions that are happening.
In this week's case, it was Twitter who discovered what was going on and Twitter then shared those details with Facebook and Facebook were able to
use that information for instance, they might have shared IP addresses or different information like that to identify a network of accounts on their
platform as well.
CHATTERLEY: Yes, we should make the point again that China obviously defending itself with these accusations here. But at the government level,
conversations clearly need to be had. Donie, fantastic to have you with us today. Donie O'Sullivan there on that story.
All right. Let's move on and talk about Apple now. Apple joining the streaming wars. The new TV-plus service set to be released in November.
"The Financial Times" is reporting that Apple is set to spend some $6 billion on content luring stars, the likes of Reese Witherspoon and
Jennifer Aniston.
Hadas Gold joins us on this story. When I saw that $6 billion. I was like, "Now we're talking." When we're comparing to the likes of Disney and
Netflix, although they dwarf them. But there's been a lot of cold water poured on this even this amount of money. Talk us through it.
HADAS GOLD, CNN BUSINESS REPORTER: Julia, that's right. We have now seen some competing reports this morning that it might not actually be that six
billion number. But even before that six billion number was reported, Apple was reportedly spending at least a billion per year on original
content for their new streaming service that's expected to come out soon.
But you're right, I mean, if you compare it to something like a Netflix or Disney, Netflix apparently had to spend something like $15 billion on its
original series per year that just goes to show you the rising trend we're seeing and the amount of money being spent on a lot of these new streaming
services on a lot of these original content.
Just to compare, for example, a broadcast show in say a CBS or ABC might be around something like $4 million per episode.
[09:15:08] GOLD: That morning show that new show on Apple that you were referencing with Jennifer Aniston and Reese Witherspoon, there are reports
that it's about $15 million per episode. That's about the same if not more than "Game of Thrones" costs with all of its special effects. This is a
show about TV. What we're doing here right now.
I do want to put up and sort of just to help people understand the comparison between some of the new streaming services coming up because
just this week, we're getting a lot of news not only about Apple, but also Disney.
So there on the screen, you can see Disney's, we have some more concrete information. It is debuting on November 12. $6.99 per month. It will
launch internationally over the next two years.
But think about the content library they have. They've got Disney, Marvel, Star Wars and they're planning bundles with Hulu and ESPN Plus.
With Apple, they said it's going to be in the fall. We see reports that it is going to be in November, possibly around $9.99 per month. It will be
available probably in more countries more immediately than Disney, but when you think about the number of shows they're going to have, they are not
necessarily going to have on their own streaming service the amount of library that something like Disney or Netflix has.
Now these original series, you have to keep in mind, they're all about drawing people to Apple. Apple, I don't think necessarily is trying to
become the next Netflix because they want to sell. They want to get their phones into your hands. They want to get their other services like Apple
Music into your hands.
So that's part of their goal to double their service revenues to $50 billion by 2021. So you have to think about the Apple Streaming Services
as part of sort of a larger whole package versus a Netflix or a Disney where that is a lot of their business right there --Julia.
CHATTERLEY: Yes. You're comparing apples and oranges if you're comparing these two ecosystem. Apple has already been built here, but hey, more
expensive than "Game of Thrones." I'm going to put in for a pay rise. These morning shows clearly very lucrative. Hadas Gold, thank you so much
for that.
All right. Let me bring you up to speed now with some of the other stories that we are following around the world. Donald Tusk has fired back at the
U.K. Prime Minister Boris Johnson over his Brexit deal suggestions.
The European Council President telling Prime Minister Johnson that the E.U. will not drop the Irish backstop unless there's an alternative. The fiery
response comes after the British leader sent a letter to Mr. Tusk damning the backstop arrangement, calling it anti-democratic.
Both the E.U. and Britain are trying to move beyond this impasse as the October 31st Brexit deadline approaches.
Fresh CNN polling numbers are out. Former Vice President Joe Biden regained a double digit lead over his nearest rivals from the Democratic
presidential nomination, Bernie Sanders and Elizabeth Warren.
Kamala Harris dropped down in the polls. Harris has now lost the gain she won following the first televised debate back in June when she attacked
Biden over his record on race related issues.
All right, we're going to take a quick break here on FIRST MOVE, but coming right up, the going gets tough. Home Depot sending a warning on sales as
the trade war hits the consumer. And a helping hand, the CEO of Handshake tells us how he is getting students from campus to Korea the right career.
Stay with CNN.
(COMMERCIAL BREAK)
[09:21:13] CHATTERLEY: Welcome back to FIRST MOVE live from the floor of the New York Stock Exchange this morning. Pretty flat for the U.S. futures
at this moment consolidating after the one percent gains plus that we saw yesterday. We're awaiting clarity, both on the outlook for rates here and
of course government stimulus around the world.
We've got the minutes of the Federal Reserve's last meeting released tomorrow. And of course, Fed Chair Jay Powell speaking on Friday. Alan
Ruskin, the Chief International Strategist at Deutsche Bank joins us now. Alan, good morning.
ALAN RUSKIN, CHIEF INTERNATIONAL STRATEGIST, DEUTSCHE BANK: Good morning.
CHATTERLEY: What on Earth can Jay Powell say about the current environment? Potential stimulus coming from the U.S. government right now,
a request from the President for 100 basis point cut. I mean, there's a lot of noise.
RUSKIN: Yes. The pressure is on Jay Powell at this point in time. I think he can say that the door is wide open to further easing. I don't
think he is going to want to signal anything much more than a 25 basis point cut is almost certain for the September meeting. But I think beyond
that, I think he's going to still suggest that we could get easing in say, October or December as well.
CHATTERLEY: So he is not going to push back too much on what the market right now is pricing or asking for because they are arguably saying they
want to see more.
RUSKIN: Yes, the market is now pricing in 20 percent probability of 50 basis points in September. That looks like a real stretch. Market is
pricing is 75 basis points by January next year. So that's also a lot really in a way. So he is going to have a hard time really keeping up with
the market. But the market has been more right than the Fed of late.
CHATTERLEY: Yes. It's interesting PIMCO was saying overnight that they're going to pare some of their bond holdings at this stage because the key
risk for them as they say is we do see some kind of trade deal, even if it's just a nominal trade deal signed here and they see then a selloff in
bonds and rates lift higher. I mean, that's the complication hereto, is that if the U.S. President decides actually, we just need a trade deal here
to prevent weakening in the U.S. economy, all bets are off again.
RUSKIN: Yes. There's a lot of uncertainties, a lot of uncertainties in terms of U.S.-China trade negotiations. China's currency policy.
CHATTERLEY: Right.
RUSKIN: What's going on in Hong Kong, Brexit. There's a whole lot of things coming up, particularly for the end of October, which is, I think,
going to be a quite a meaningful moment for the market.
CHATTERLEY: Crunch time.
RUSKIN: Crunch time.
CHATTERLEY: So you wrote a great article this week talking about gold, and you said, look, it's kind of caught in the crossfire or caught between two
themes, which is a race to the bottom in cutting rates, but also a race here, as well to weaken currencies and support individual economies. Talk
me through this.
RUSKIN: Yes, I mean, these are two of the big themes that are out there. Really, these are multi-themes. You can get little hiccups where markets
move in the other direction. But the market is really focusing on the idea that the Fed hasn't got all that much room to cut and eventually then, they
get to zero in this cycle that rates are negative in much of the developed world already, that the U.S. is moving in that direction.
And therefore, there is a general push in terms of rates towards zero in the developed world. That's very good for gold. Gold is a zero yielding
asset. But it's actually looking like a high yielding asset in this world. It is a very strange place, indeed.
CHATTERLEY: And governments looking to own it as well. I mean, the benefit of gold and the price of gold going higher when you make this point
is that it doesn't hurt anybody.
RUSKIN: Correct. That's right. And then we are seeing particularly some signs that for example, China is looking to shift some of its reserve
assets into gold. Gold is a small market, so it can't really take three trillion assets and put it into gold. But they can put some of it and it
can move the market quite substantially.
CHATTERLEY: What does this all mean for the U.S. dollar as well at this stage? Because in a battle of the relative uglies, and I'd argue that the
United States economy isn't even an ugly at this stage, we are seeing this flood into U.S. bonds, into U.S. assets as well, and that's supporting the
U.S. dollar.
[09:25:05] RUSKIN: Yes. So we're seeing the U.S. dollar strong versus some currencies, so strong versus the emerging market currency, strong
versus commodity currencies, not so strong versus things that are associated with the risk off environment. So the yen and the Swiss here,
really. But in a general sense, tending to edge high, so it's still holding its own.
CHATTERLEY: And that's where I was going to go. So if you have to choose between the likes of gold as a safe asset or yen, or the Swiss here, the
Swiss franc, which one wins in this environment?
RUSKIN: I think gold wins in the end, because what you're seeing is the currency side, it matters from a real economy standpoint. Japan cares if
its currency is appreciating. Switzerland cares, in fact, it has been intervening to stop its currency appreciating. No one really cares if gold
goes up. In fact, many Central Banks quite like it.
CHATTERLEY: They like it.
RUSKIN: Indeed, yes.
CHATTERLEY: And that was the point. No one actually hurts it. How closely should we be watching the signal flash that we got from the bond
market in the United States? Because we've spent hours talking about the possible recessionary risks in the United States. How important is that
for you?
RUSKIN: It is important. The yield curve flattening has been a very good signal. It's typically a longer signal so it typically says something
about where the economy is going to be in 18 months. But I think people are missing one point, which is the bond market is enacting a huge amount
of stimulus when the economy as well, and the housing market is going to hold its own. I think the consumer will pretty much hang in there. So the
immediate recession risks, I think, are fairly limited.
CHATTERLEY: And do not interpret the benefit of seeing what we're seeing in the bond market right now, too. That's a great point. Alan Ruskin,
fantastic to have you with us.
RUSKIN: Thank you.
CHATTERLEY: Chief International Strategist at Deutsche Bank there. All right. We're counting down to the market open this Tuesday morning, a
modestly flat start. Plenty more to come today. Stay with us. You're with FIRST MOVE.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange and the opening bell in Tuesday's session, a modest start
for stocks following three straight sessions of gains here for the U.S. majors. Investors obviously have got a lot to mull over today.
Reports from Washington that we may get some further stimulus coming from the White House here possible, even seeing some reversal of the tariffs
that have hit. Chipmakers also are going to be in focus today. They were among the best performing sectors on Monday after the U.S. allowed
companies to continue to be restricted, but at least some business with China's Huawei, too.
All right, let me walk you through the global movers today. Beyond Meat in focus. JPMorgan, upgrading it to overweight from neutral saying that the
selloff that we've seen in the stock has gone on long enough and it sees potential for the plant-based food maker to add fresh customers.
Beyond Meat up some seven percent in the session so far this morning. We're also keeping an eye on both Home Depot and Kohl's -- both retailers
moving higher after posting and earnings beat. Let's get more on that from Clare Sebastian who joins us now. Clare, great to have you with us. Talk
to me about Home Depot to start off with because a forecast downgrade here, some sensitivities around what the consumer behavior will look like going
forward in light of the tariffs on the U.S. consumer or U.S. tax on consumers here.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, absolutely, Julia. This was you know, a mixed set of results overall, not too bad. But a lot of
focus as you say on that guidance going forward. They are trimming it for the year they say primarily because of lumber price deflation, but also
factoring in some of the potential costs of the trade war.
It was interesting the phrasing from the CEO here. He said potential impacts to the U.S. consumer are rising from recently announced tariffs.
He is not saying this is about tariffs impacting directly in terms of cost, they are saying that in terms of how they're going to go on an item by item
basis, it's not necessarily going to translate directly to the consumer, but they're worried about the broader impact how this is going to impact
consumer confidence, how this could hurt spending power overall, if say other retailers start to pass on prices.
And I think it's interesting to compare this to say with Walmart last week which actually raised their guidance citing the health of the U.S.
consumer. Home Depot, perhaps a little different because these are bigger ticket items. This is more discretionary. And I think therefore, it's
more vulnerable to the broader macro impact and the potential drop in confidence that we're seeing.
CHATTERLEY: Yes, it's such a great point. I think they are just being conservative here. The line I pulled out, the current health of the U.S.
consumer and the stable housing environment continue to support our business, so you've got to be very calibrated in the way that you read
this. You make such a great point here.
Talk to me about Kohl's, back school business helping, as well that tie up with Amazon here as well fueling the business.
SEBASTIAN: Yes, Kohl's have been pretty proactive, Julia, in terms of you know, taking on this, if you can't beat them, join them policy in terms of
Amazon and all of that. They have this initiative with Amazon where you can drop off your returns in store, clearly, that's helping drive traffic.
People who are dropping off their returns, stay in store and pick up some items while they are there.
They've also partnered with Facebook it was recently announced to help them bring in kind of new trendy brands. Still, they're struggling a little
bit. Comparable sales were down 2.9 percent. But they did say they saw demand accelerate in the last six weeks of the quarter perhaps that was
Kohl's also held some of their own sales around Amazon Prime Day at the beginning of July, a big back to school time, so that contributed to some
positivity there. They had a rough quarter last time. This was a little bit better.
CHATTERLEY: Yes, it's quite fascinating, isn't it? If we are trying to build a picture of what's going on with the U.S. consumer, we keep
reiterating how important this is to the U.S. economy, consumer or service related to the consumer, two thirds of the economy here.
If I'm just looking at the sort of noises, the signs that we're getting from these, including Walmart last week, pretty solid, Clare, would you
agree?
SEBASTIAN: Yes. I think overall, the picture that we're getting is the consumer is still healthy. Walmart is definitely the best bellwether for
that. It is the biggest retailer by far. Five thousand stores in the U.S.
I think the other thing to bear in mind though is this is still a very difficult time for the traditional, the department stores, the mall exposed
retailer. I think we can show you some of the year-to-date performances for those. Many of them still really struggling as the big competitors.
The likes of Amazon and Walmart, keep getting bigger, just like Macy's down 46 percent. Even Nordstrom, which has been seen as another kind of
proactive, you know, adapt to this climate down 44 percent. They're still really struggling to win over Wall Street with their transformation
efforts.
CHATTERLEY: Yes, it's a calibrated story, though, to your point about specific retailers versus the U.S. consumer in general. Clare Sebastian.
Thank you so much for that. It's great to have your wisdom.
All right. Up next. The Fed under pressure as President Trump demands more -- much more from the Central Bank, we will get the insider's take
from the former President of the Minneapolis Fed. That's up next. Stay with us.
(COMMERCIAL BREAK)
[09:38:17] CHATTERLEY: Welcome back to FIRST MOVE. A mid-cycle adjustment to policy, that's how Federal Reserve Chair Jerome Powell described last
month's rate cut. For those seeking more detail on what exactly that means, this week perhaps could offer some clues. Let's get some context.
Joining me now is Narayana Kocherlakota. He is a former President of the Federal Reserve Bank of Minneapolis, and now Professor of Economics at the
University of Rochester. Sir, fantastic to have you here on the show. Plenty for Jay Powell to digest down at the Federal Reserve this week.
The President included tweeting that he'd like to see the Federal Reserve, perhaps add more QE again, also cut rates by a hundred basis points, so one
percentage point. If this weren't the President asking for this, does he have a point?
NARAYANA KOCHERLAKOTA, FORMER PRESIDENT, FEDERAL RESERVE BANK OF MINNEAPOLIS: Yes, thanks for having me on. I think that just on the basis
of the economics alone, I think there is an argument for more easing. You know, I'm not sure of the President's exact number of a hundred basis
points, but you know, given how low inflation is, given how low inflation expectations are relative to the Fed's desired rate of two percent per
year, and given the recession risks that I think we see being priced in by markets, there is an argument for more easing.
I believe the Fed will likely ease more by cutting rates more over the course of 2019. But you raised I think -- hinted at the big issue here,
which is, this is not just a Professor of Economics talking, it's the President of the United States who is saying this, and that I think that
introduces a lot of risks to Fed credibility, Fed independence, when a President is being as vocal as he has been about his desires for monetary
policy.
[09:40:06] CHATTERLEY: Do you think those risks accelerate? To your point, we don't really have a problem with inflation right now. So the
Federal Reserve arguably has room to lower rates. If we have an inflation problem or higher inflation in the future, then presidential pressure like
this becomes an accelerated problem. Would you agree with that?
KOCHERLAKOTA: I agree, that's really well put. You know, right now, I don't think that the President's commentary is posing much of an economic
issue. The premise that he has broken tradition, as he has in many areas, and that break with tradition could lead future Presidents including
himself to be critical to the Fed when inflationary pressures do develop.
And then that's when we would face a risk to actually the Fed's ability to achieve its desired outcomes. We have overly high inflationary pressures,
and people doubting the Fed's ability to tamp down those pressures.
CHATTERLEY: You've long said that the Federal Reserve has been too restrictive here. Could we also argue, actually, that the best stimulus
here for the economy, perhaps isn't rate cuts? It isn't tax cuts? It isn't seeing some kind of cuts from the Federal Reserve. It's actually the
removal of the tariffs that have been placed on imports coming in from China and the impact that has on the real economy here.
KOCHERLAKOTA: I don't know if the tariffs themselves are having that much effect on the U.S. economy as much of the uncertainty that the President's
tariff policy and trade policies engendering among businesses. You know, that uncertainty means they're not sure should we invest or not? And that
that's what slowing down, I think the U.S. economy.
But this is happening in many spheres of life, not just with respect to tariffs. I think the President is a big source of uncertainty for the
economy, and that's a big drag that the Fed is going to have a hard time fighting against.
CHATTERLEY: You know, it's not just having a drag on the U.S. economy, the uncertainty. It is also having a weakening effect around the world --
China, Germany, big exporters, Singapore -- we can name a whole host of them. Is actually the slowing of the global economy, perhaps a bigger
problem for the Federal Reserve to tackle here than what's going on in the domestic economy? Because they can't ignore it.
KOCHERLAKOTA: Right, no, the Fed is certainly watching global events with great interest. And you're absolutely right. I think countries that were
trade matters more that like Germany, are being more influenced by the President's policy and policy uncertainty than the United States.
But I think in general, you know, certainly a global recession would pose downside risk for the United States. But I think that the Fed is well
positioned to be able to manage those risks by being able to cut interest rates.
CHATTERLEY: What do you make of the moves that we saw in the bond market last week and the focus of the potential recessionary signal it sends in
the coming 12 to 18 months to two years based on past history? Should we be focusing on that very closely here? And would the Fed?
KOCHERLAKOTA: Well, I think that the signals of the bond market, they're very interesting to me, really not just in the short run, but over the
longer run. You look out 10 years, 20 years, 30 years, and you see a very low interest rates, which would correspond to low growth expectations among
bond investors.
Where is that coming from? Well, I think part of that is that I think the bond markets are pricing in the inability of Central Banks to have
responses to big, big shocks, the kind that we had in 2007 and 2009, not garden variety recessions, but big recessions would be very difficult now,
for Central Banks to be able to around the world to offset.
And I think that's what you're seeing priced into bond markets that those fears are leading to demand for safe assets, downward pressure on yields
and upward pressure on prices.
CHATTERLEY: I think there's a growing assumption here that where Europe and where Japan has legs, the United States will have to follow. Do you
agree that the U.S. could end up cutting rates back to near zero, if not zero here, and perhaps we even see a resumption of QE of bond buying, too,
how high is that risk?
KOCHERLAKOTA: Well, that's a tough question. I think that the Fed's goal is to cut rates now in the hope that that will forestall the kinds of risk
you're talking about.
But yes, if we had a recessionary shock, which, to be clear, I view is pretty unlikely, if we had a recessionary shock of the magnitude of that
2007-2009, the Fed just lacks a policy tools, policy capacity to be able to forestall that and actually Central Banks around the world such as the
European Central Bank, really even have less policy capacity than the Fed.
[09:45:29] KOCHERLAKOTA: So I think what the Fed is hoping is by cutting now over the course of the remainder of this year, as well, a small number
of cuts now will actually forestall and help shear off that recessionary risk.
CHATTERLEY: So insurance here is essential -- insurance cuts, insurance stimulus is essential.
KOCHERLAKOTA: That's what the Fed is hoping, is by taking out insurance now, we won't have those risks materialize, you know, and so there's good -
- I think good thinking behind that that when you're as close to the policy, the zero lower bound as the Fed is so that you limit your policy
capacity, you want to make sure the economy is as healthy as you possibly can. And that I think argues in favor of what the Fed is doing, and doing
even more of it, cutting interest rates.
CHATTERLEY: Yes, so it is a big worry as far as I am concerned. Narayana Kocherlakota, thank you, sir, so much for joining us on FIRST MOVE this
morning. We'll get you back here soon.
All right, we're going to take a quick break here, but up next, how do you make your mark in the job market before you have any professional
experience? Well, Handshake says it's got the answer. We will be talking to their CEO. Stay with us. We're back in two.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to the show. And we're in the "Chatt Room" with a professional networking company for people who haven't got any
professional experience as yet. Like LinkedIn, Handshake brings job seekers together with employers. The difference is that it focuses on the
students. It says it works with over 400,000 employers including every Fortune 500 company. Joining us now is the CEO, Garrett Lord. Great to
have you with us.
GARRETT LORD, CEO, HANDSHAKE: Thank you so much.
CHATTERLEY: Fascinating company. So in your own words, talk to me about what Handshake does here. What difference it makes?
LORD: Totally. Handshake is the number one core site the students are finding internships and jobs in the country on. When we bring together a
trusted network of over 800 universities, 14 million students and 400,000 companies all connecting and helping students find their first internship
or first job.
CHATTERLEY: It's like a dating site for companies and for students, but the key here is unlike LinkedIn where you seem to need professional
experience, this says it's okay. This is early start and we'll put you with the right company and basically match based on skills. Is that the
key?
LORD: Yes, we like to say that we're a no network required site, so students don't have a lot of experience and when they build a profile on
Handshake, they can list out their extracurricular activities, any work experience they have, their interests, and we then connect those student
profiles with over 400,000 companies.
There's actually a hundred percent of the Fortune 500 actively using the platform to connect with students, and they can also learn from one
another. So we have features that help students learn what's turning in their major, what's happening in their college, and really helping in a
more personalized way help students launch their career.
[09:50:27] CHATTERLEY: So it's important for companies, too because companies tackle the best universities, the Ivy League as they're known in
the United States, it's tough even for them to get around to some of the other universities. So they might miss great students and great graduates
simply because they're not looking in the right places.
LORD: The process was so broken before. I mean, historically, it was very challenging to manage your college recruitment at scale. And so you had to
limit the number of universities you were connecting with.
Today, of course, you can go on with a couple of clicks, they can connect with over 800 universities. We have 120 minority serving institutions
using Handshake. And there's actually a really cool story of a student named Danny, who went to Delaware State, a historically black college and
university where he built his first profile on Handshake. And we connected him to three Fortune 500 companies that he sort of could would have never
connected with on that campus.
CHATTERLEY: Yes. This is statistic though, that you use, which is quite mind blowing here, and it's the almost 43 percent of people who graduate,
underemployed in the job that they're doing.
They're simply not doing a job that's matching their skills. They're too qualified, and it's persistent. It stays with them for years and years and
years.
LORD: Absolutely. I mean, so much about finding your first job or career is relying on the socio economic status of your family and what school you
go to. And we're really trying to, you know, reduce the information asymmetry problem that most students have, and understanding where they fit
in this world of work, and connecting with companies and other students and young alumni who are on different career paths to help them have
information and access to companies across the country.
CHATTERLEY: How do you make money?
LORD: We make money in two ways. Universities pay for our product, to help match their students and employers on campus. And we have amazing
partnerships with them. And then we also make money from employers who are really focused on trying to find top talent at all schools around the
country, brand themselves more effectively, and really measure the efforts of their college recruitment.
CHATTERLEY: Are you profitable yet?
LORD: One of the benefits of being a privately held company is we keep that quite private.
CHATTERLEY: I knew you were going to say that.
LORD: But we grew revenue by 5X last year. We're on track to grow revenue by 3X this year. Needless to say, our investors and teammates are really
excited about where we sit.
CHATTERLEY: Talk to me about potential expansion into other countries as well, because the United States is huge, but Europe, also has exactly the
same problem. I know this. Are you talking about European expansion?
LORD: We're laser focusing, I'd say today, but we just did open an office in the U.K. and we see a very similar promise you described with employers
trying to connect with top talent. But the difficulty in doing it at scale is really challenging.
CHATTERLEY: Do you think we are overestimating the skills gap? Let's bring it back to the United States here. Because often employers talk
about the skills gap. They can't find the right workers. Do you think we're overestimating it? What does your data suggest if you just match the
right people and take out that information asymmetry?
LORD: Yes.
CHATTERLEY: So we can fix the problem.
LORD: I think we're going to make a big impact on the 43 percent of students that are graduating, working a job that didn't require a college
degree and then as it relates to how employers think about it, employers kind of fall in two buckets, one of which they think about up-skilling the
students like they're just looking for adaptable college grads, and they view their role as up-skilling the students and other employers that want
the students that have the skills they want. So we see both types of companies on the network.
CHATTERLEY: Yes, it's huge for student debt as well as if 43 percent are racking up debt, so they're not doing a job that actually is matched to the
skills that they just earned over three or four years.
It was great to chat to you. We're going to get you back. I can see big things. Garrett Lord, thank you so much for that.
LORD: Thank you so much.
CHATTERLEY: All right. Let me bring you up to speed now with today's "Boardroom Brief." Baidu share price is surging after second quarter
earnings weren't as bad as expected. Investors were bracing for the worst and the search engine admitted profits slumped by 62 percent. But revenue
unexpectedly rose. Tighter regulation from Beijing and slower economic growth combined to squeeze their income.
All right, let's move on because Germany's Bayer is selling its veterinary drug unit to American rival, Elanco for $7.6 billion. The deal will make
Elanco the second largest animal health business as part of Bayer's larger plan to spin off assets as it looks to slash debt levels.
President Trump is going after Google again, this time tweeting that it manipulated votes in favor of Hillary Clinton back in the 2016 election.
He claims that if it weren't for that, his margin of victory would have been even bigger.
There's no evidence to back up that claim. The President's theory is based on a disputed claim made by a psychologist during congressional testimony
last month. He argued that Google search results were biased to Clinton during the campaign, but he did not allege vote manipulation. Google has
denied both accusations.
[09:55:08] CHATTERLEY: And finally, ever imagined what it would actually be like if President Trump bought Greenland? Remember, this was a story we
were discussing earlier this week. Well, imagine no more.
Donald Trump tweeted a picture of Trump Tower towering over Greenland, but promising he'd never do it. The Danish Prime Minister stresses Greenland
is not for sale calling President Trump's interest quote, "absurd." Serious issue, bonkers tweet. That's all I can say.
Now Italian Prime Minister Giuseppe Conte is addressing the Senate. He has attacked the resigning Deputy Prime Minister Matteo Salvini over his call
for a no confidence vote. Prime Minister Conte accused Salvini of putting his own personal and party interest ahead of the country's.
We will continue to watch that. Remember, we were discussing earlier on the show all sorts of speculation about what his next move will be. We can
give you a quick look at the FTSE MIB over in Italy, down some one percent right now.
That just about wraps up the show. We'll be back in a couple of hours with "The Express," but for now, you've been watching FIRST MOVE, time to make
yours. Have a great Tuesday.
(COMMERCIAL BREAK)
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