Return to Transcripts main page
First Move with Julia Chatterley
Jay Powell Set To Cut Rates, But Will He Play The Artful Dodger On Future Cuts?; Saudi Aramco Says It Will Recover Quickly From The Weekend's Attack, India Bans E-Cigarettes Across The Country. Aired 9-10a ET
Aired September 18, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:13]
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE and here is your need
to know. Please, sir, can I have more? Jay Powell set to cut rates, but will he play the artful dodger on future cuts? Back online soon. Saudi
Aramco says it will recover quickly from the weekend's attack. And gone in a poof. India bans e-cigarettes across the country. It's Wednesday.
Let's make a move.
Welcome once again to FIRST MOVE where there's only one move that matters this morning, the hotly anticipated rate cut. We expect the Fed to
announce at 2:00 p.m. Eastern Time today. Investors, I can tell you, well and truly paused for Powell here judging by U.S. stock market.
Futures as you can see, all three majors pretty flat here. In fact, we're relatively flat over the last few sessions, too. The U.S. President has
said he wants to see a big interest rate drop here, a cut, but the consensus is that the Fed will go for a quarter of a point and even that,
not that clear based on market pricing right now.
Far more important though, I think will be the messaging about future rate moves. Watch out for that phrase, mid-cycle adjustment, a phrase that
caused so much market upset last time. The decision of course, also following some pretty interesting data from yesterday's session, too.
U.S. industrial production in August surprised to the upside as did manufacturing production. Now, we've talked endlessly here on FIRST MOVE
about the recessionary feel in the manufacturing data, well Jay Powell has flagged this, too.
So this data caught my eye. Now admittedly, it's just one data point. And that of course, doesn't make a trend, but it is a bounce off the lows here,
so important to watch, I think.
Now the decision from the Fed today comes amid a range of old uncertainties and some brand new ones. The New York Federal Reserve was forced to stage
a late night rescue operation to calm the money markets. Now, this is where banks lent to each other on Tuesday for the first time since the
financial crisis.
The bank pumping over $50 billion into the market after the overnight lending rate hit 10 percent. They're going to inject another $70 plus
billion today. What's going on here? Some mere financial plumbing issues, or something more sinister? Well, we'll be discussing later on in the
show.
But for now, let's get to the drivers because we do begin with the Fed. Claire Sebastian joins us now. Clare, the Federal Reserve has got its
hands full, well and truly right now, but let's talk about the rate decision today.
We are expecting a quarter of a point cut. But as I mentioned there, the forecasts here also, what do they say about the future? It is going to be
vitally important hereto.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia, a very important meeting not just because after the last one, which is the first rate cut in
more than a decade. This will really give investors a sense of whether it was that mid-cycle adjustment, that crucial phrase that sent the markets
tumbling during the last press conference.
If we get another cut, there may be thoughts that this might be a slightly longer cutting cycle, which is of course, what the markets want. But we
have a press conference, we also get economic projections. We get the dot plot, which is where policymakers say that they see the future path of
interest rates.
So there's going to be a lot to chew over in this meeting, a real communication challenge as well, for Jerome Powell, had a little bit of
trouble in the last meeting at justifying why he was doing what he calls an insurance cut to get ahead of potentially impending risks while at the same
time saying that he is data dependent. And as you say, there is a lot of mixed data out there.
We had some really good housing stats this morning. Consumer confidence though dipped a bit in August, but we continue to see record or
generational lows in unemployment, and of course some weakness in manufacturing, but some positive numbers there as well.
So there's a real challenge here in terms of how the Fed sets policy and also how it communicates it to the market. There's a confidence issue out
there.
CHATTERLEY: Yes, it's fantastic, isn't it? I mean, all of that talk, if you go back even just a few weeks of the idea of them doing half a
percentage point seems long gone at this stage and you point out some of the data, retail sales, the manufacturing data, perhaps bouncing hereto.
The problem is the risk that given market pricing right now, he disappoints here if he gives any clear direction over what they are thinking. He
basically needs to say, look, we're data dependent and nothing else.
SEBASTIAN: He needs to have it both ways, Julia. He is dealing not a kind of a split market if you look at the CME Fed Watch tool which gauges market
expectations for a rate cut, there's about a 54 percent probability there that they will cut rates by a quarter percentage point, which is as you
say, has come down a lot in recent weeks.
[09:05:13]
SEBASTIAN: And he is not only dealing with that. He is dealing with a bit of a split on the FOMC, among market participants, a crucial part of the
Fed Chair's job is to build consensus on the committee and come to a decision that most people are happy with.
I think, you know, he has only recently started to see dissent, in I think in the last two meetings to his decisions, so he is going to have to really
work to bring these policymakers together.
And of course, he has the issue when it comes to the money market as well. The Fed stepped in again this morning and injected $75 billion into that
repo market to keep the kind of the plumbing of the financial system going. That again, has jolted confidence.
So we may see at least questions on whether the Fed might do something more long term than these ad hoc cash injections to keep that going, to keep the
plumbing of the financial system taking over -- Julia.
CHATTERLEY: Yes, it's going to be interesting to see what Jay Powell says about that in the press conference as well. Plumbing issues. The Fed has
got to get a handle on this. Clare Sebastian, thank you so much for that.
All right, let's move on to our next driver and some breaking news. Just in to CNN, President Trump just tweeting, quote, "I have just instructed
the Secretary of Treasury to substantially increase sanctions on the country of Iran." No details on what those new sanctions are.
It's certainly tied to the attacks over the weekend on the Saudi oil facilities, though Iran has strongly denied any connection to those
attacks. Oil prices are paring recent gains as Saudi Aramco offers reassuring words about how quickly production will return to normal
following those attacks.
Now, while Brent and WTI are down, as you can see over more than a percent right now, they're still up nearly 70 percent week to date. Now, with a
news conference in Jeddah, Saudi Aramco said it was confident production will be fully restored by the end of the month.
John Defterios was there and joins me now. John, let's talk about that first and just how quickly Saudi Aramco can get production back online, and
then we'll tackle the President's tweets, too.
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: A lot to tackle, but let's cover as you suggested, what we've seen from Aramco. It's still
weeks, not days, Julia into the recovery, but a lot fewer weeks, let's put it that way. Two to three, not four to six. And that is a relief to the
market.
That news was shared by the brain trust there, the Minister of Energy, the Chairman of Aramco and the CEO of Aramco as well saying that we're at 70
percent capacity now. And we will get to a hundred percent capacity by the end of the month.
But this is no simple feat. They were telling me they had 15 concurrent fires to deal with. It was like an inferno, and they're happy that it's
over, and that they can recover from that jolt of 5.7 million barrels a day.
I asked Amin Nasser here, how vulnerable they are going forward because of all the attacks over the last five months, and also this ability to turn
things around so quickly and the IPO. Let's take a listen to what he had to say to CNN Business.
(BEGIN VIDEOTAPE)
AMIN NASSER, CEO, SAUDI ARAMCO: We will be back at our production levels before the attack by the end of this month.
DEFTERIOS: If not earlier?
NASSER: If not earlier, but by the end of the month more comfortably, we will be definitely resumed as before the attack.
DEFTERIOS: Where are we today Mr. Nasser?
NASSER: Almost at 70 percent today because we are picking up $100,000.00 to $200,000.00 in our safety because you know, when you introduce
production, you open wells, and it takes time to shift into the facilities.
DEFTERIOS: Can you realistically go ahead with an IPO when your company, the installations have been under siege for five months? Is it realistic
to say yes, we'll go public and are you more determined than ever to do so?
NASSER: You know, this is still the most reliable company in the world. You know, our reliability -- we are proud of is that our reliability in the
last three years is 99.7, 99.8 and 99.9.
Tell me if any company that is able to continue to maintain MSE and production with attacks on the East West, on Shaybah, on Khurais and on
Abqaiq with 10 fires raging in Abqaiq fields simultaneously, putting all of these fires and hydrocarbon with oil and gas and all of these facility with
tanks bare naked in less than seven hours.
This is the most reliable company in the world. We are able to deliver under the worst scenario.
DEFTERIOS: Would you do something before the end of the year then with the IPO after this major setback to send a message to the perpetrators?
NASSER: The timing of the IPO and the place of where it is to be listed is a government decision. What we are -- for listing anytime the shareholder
asks us to.
DEFTERIOS: You're not shelving the IPO?
NASSER: For sure, the government is not shelving the IPO. They indicated that they are going ahead with the IPO and the company, there's a lot of
preparation that is done to prepare for the IPO and the IPO is on progress.
[09:10:07]
(END VIDEOTAPE)
DEFTERIOS: Amin Nasser, the CEO of Aramco and Julia, it is an interesting narrative shaping up before the arrival of Mike Pompeo, the Secretary of
State. Basically, Saudi Arabia admitting we cannot go it alone. We can recover from the jolt of 5.7 million barrels, but we need to have help here
defending the assets going forward.
And that seems to be the emphasis, along with the sanctions against Iran as opposed to a military strike. That's the tone we're getting here in Jeddah
and Riyadh.
CHATTERLEY: So important as well, as you were talking to him there as well about the IPO of Saudi Aramco, if you're going to IPO, you're going to go
public with these assets, you've got to be able to show you can protect them.
John, I also want to talk about, obviously what we got from the President this morning in this tweet, suggesting that there's going to be further
sanctions on Iran here. We're still waiting to hear formally from the Saudis backed up by evidence of who they believe carried out these attacks,
ultimately, but it seems the President is not hanging around here and well and truly pointing fingers to Iran and taking action with it.
DEFTERIOS: Well, there's two choices they had here, Julia, they backed off of the military strike, at least that's the narrative that we're hearing on
the ground in Saudi Arabia.
So what's the other tool that President Trump likes to use -- the sanctions. But they may fall on deaf ears. I mean, the Iranians are
hurting so badly, economically, I'm not sure if they're going to have the desired effect of getting Iran back to the bargaining table, and there's a
giant elephant in the room that nobody wants to talk about here in Saudi Arabia is the presence of Saudi Arabia in Yemen going forward?
Because the Iranian President Rouhani was suggesting that others should be very careful and learn the lesson of the strikes against Aramco because of
the presence of Saudi Arabia in Yemen. It's a huge issue that nobody has talked about just yet.
CHATTERLEY: Now, a huge issue and we will continue to discuss. John Defterios, thank you so much for joining us from Jeddah there.
All right over to India now and a very topical subject. India's Finance Minister, just announcing a ban on sales, on manufacturing and the storing
of e-cigarettes. Hadas Gold is following the story for us.
This is really fascinating, Hadas, this given the prevalence of traditional tobacco smoking in India, perhaps the opportunity that some of the big
tobacco makers and sellers here saw in India -- no more.
HADAS GOLD, CNN BUSINESS REPORTER: Yes, Julia. This is a total clamp down. It's not just a ban on using e-cigarettes. It's also a ban on even
possessing them, importing them and most importantly, I think for a lot of these companies production and export of e-cigarettes and if you are caught
using an e-cigarette and possessing one, you could face fines. You could face even jail terms in India.
This was just announced. It is an emergency order that they hope to turn into formal parliamentary law within the next year. The government cited
health issues especially how e-cigarettes with all of their flavors like melon and vanilla can appeal to young people. That seemed to be the major,
major thrust behind this.
But as you heard, it is a huge market in India. According to the World Health Organization, India is the world's second largest consumer of
tobacco products, which kills unfortunately, around 900,000 people a year. This would have been a huge market for the e-cigarette companies.
We just got statement from a Juul for example, and they said that they're not in India yet. But you can imagine that that is a market they would
want to get into with all the people who use tobacco there.
However, there's a lot of critics who are saying this might not just be all about health, there could be some sort of economic basis behind this
because India is the third largest producer of tobacco, so there are some critics who are wondering if there's also an economic aspect to all of this
where they want to sort of clamp down on e-cigarette production in order to protect the industry there.
But obviously the health concerns around e-cigarettes and how much we just don't quite know yet about how it affects people, how it affects especially
young people, something that a lot of governments, including the American government is keeping in mind, Donald Trump's administration just announced
that they plan to try to ban the specific flavors of e-cigarettes like those melons and bubble gums that specifically appeal to young people --
Julia.
CHATTERLEY: Yes, but Hadas, you mentioned a really important point there and the political ramifications here, 45 million people domestically in
India relying on the tobacco sector. So a protectionist measure perhaps hereto which is a really fascinating point.
Now, as you mentioned, Juul, one of the big players in this space, not in India, but they are in China, and it seems they're having some trouble
there. Talk us through this story, because this is also an interesting one to watch as well.
GOLD: Yes, Julia, "The Wall Street Journal" is reporting that Juul, after just launching on online stores in China has been pulled off some of the
biggest sites like JD and Alibaba's, one of Alibaba's site called Tmall.
Now, this is their official Juul sort of store on these online websites. We were able to find Juul being sold out by some independent retailers.
It's not quite clear why they are not being sold on there anymore because you can find out other types of e-cigarettes especially e-cigarettes made
by national companies.
[09:15:09]
GOLD: All Juul has said so far in a statement is that they look forward to continuing dialogue with stakeholders so they can make their products
available again -- Julia.
CHATTERLEY: Hadas, fantastic to have you with us. Hadas Gold there on that story. All right, a tough message to deliver now in our next driver.
FedEx share price falling sharply premarket on the back of its earnings report last night. Right now, down nearly 12 percent. Paul La Monica
joins us on this story. Paul, a revision of their guidance going forward and a disappointment on earnings. To what extent was this global macro
trade concerns or the ending of that ground delivery contract with Amazon here?
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, it's a little bit of both, Julia. The company did address ending the contract with Amazon as a
problem for the short term in particular and obviously, Amazon now is a more formidable competitor to FedEx along the lines of UPS and the U.S.
Postal Service, obviously, as well.
But what's really interesting, Julia, is that CEO Fred Smith did not mince words at all about the concerns regarding the trade tension with China, and
the global economic deteriorating conditions that we're seeing right now.
He said that he thinks that there are some people that are whistling past the graveyard in the U.S. by denying that there won't be any potential
economic problems eventually in America because of what's happening in China.
He said specifically, you look at what's happening with Europe. Europe is a big reason why China is struggling now as well because of all those
exports from China to Germany and many other European nations.
So I think it's going to be very difficult for U.S. companies to hold up in the face of a slowdown in China and the E.U. to significantly large global
economies.
CHATTERLEY: Yes, the perfect storm. Global macro headwinds and increasing logistics competition as well in this space. Paul La Monica, thank you so
much for that.
All right. Let me bring you up to speed now for some of the other stories that are making headlines around the world.
Israeli TV exit polls show the Blue and White Party led by Benny Gantz with a slight lead for control of the Knesset. If these numbers hold, Gantz
could be tapped to form a new government. That would end Benjamin Netanyahu's tenure as the longest serving Prime Minister in Israeli
history.
The European Parliament has approved a motion supporting a third Brexit extension if there's a purpose to do so. This as Britain's highest court
is sitting for a second day, weighing whether Boris Johnson's government acted unlawfully when they decided to suspend Parliament for five weeks.
The government's lawyer argues the suspension is not a matter for the courts.
All right, still to come on the show. Adopt the brave's position with Brexit coming, Airbus tells us it is preparing for a hard landing.
Stay with us. There's plenty more to come.
(COMMERCIAL BREAK)
[09:21:10]
CHATTERLEY: Welcome back to FIRST MOVE and we are here with Scott Minerd. He is the Global Chief Investment Officer at Guggenheim Partners, also a
member of the Federal Reserve Bank of New York's Investor Advisory Committee on the Financial Markets. That's a tongue twister. Great to
have you with us.
SCOTT MINERD, GLOBAL CHIEF INVESTMENT OFFICER, GUGGENHEIM PARTNERS: Always great to be here.
CHATTERLEY: So what will the Fed do today and what should the Fed do? There is a difference.
MINERD: Well, that's a great way to put it, Julia. Look, the Fed has totally boxed themselves into a quarter of a point rate cut. Because of
the division in the Committee, which we saw the last meeting where two of the Committee members dissented from reducing rates, it is going to inhibit
Powell's ability to do anything more dramatic.
Of course, there are people like Brainard in St. Louis, who is arguing we should actually be thinking about cutting rates by half a percent and I
tend to agree with him because the markets are already pricing for this to happen.
And if the Federal Reserve wants to get ahead of the recession risks that they seem to be fighting, I think it would be better to just, you know, rip
off the Band-Aid, cut rates by a half a percent and then send a clear signal to the market that they're not going to allow us to have a
recession.
CHATTERLEY: You know, it is interesting, we've talked a lot on this show, particularly in light of the moves that we've seen in the bond markets,
about the likelihood of recession and continue to make the argument that the consumer looks healthy still.
The manufacturing sector looks recessionary. What's your data saying? Because the probability model here for recession now at 58 percent by mid-
2020.
MINERD: Right. Well, you know, our data says that consistent with history. At this point in the game, we have over a 50 percent chance that
we're going to get a recession within the next year. But you know, there have been periods of time in history, where this has registered this level
before, but the Federal Reserve takes aggressive action.
CHATTERLEY: Right.
MINERD: And we've been able to put the recession off. One thing people keep asking me is, can we avoid the recession? And the answer is, no. The
the recession is going to come. It's just a matter of will it come next year? Or will it come in two or three years?
CHATTERLEY: And surely, how deep it is as well. You can make it more shallow perhaps by taking preemptive action and cutting rates.
MINERD: Right, though history does show us that when they do take these preemptive steps, and they stretch out the expansion, that it does allow
excesses to build and so sometimes we can get ourselves into more trouble later. So they're walking a fine line right now.
CHATTERLEY: Does it really make a difference then to that point whether Jay Powell and the Federal Reserve, do half a percentage point today, or
they do a quarter of a percentage point based on those metrics.
Because to your point, it's about looking at history and saying how likely a recession is versus looking at the data today and saying, what's
required?
MINERD: Well, it's interesting because if you look at the data today, nothing is required. I mean, going into the last meeting, the data argued
that they should consider raising rates.
CHATTERLEY: Yes.
MINERD: Today, the data is even stronger. And so, of course, this data dependence that that they've long operated on has suddenly shifted to a
concern about the recession and taking out an insurance policy, and also concerns of the trade policy and things from overseas.
So I think they're going to whether they need to be doing it or not, they're going to continue because they're afraid and they're going to do
what they have to do.
CHATTERLEY: So notes to Jay Powell today, don't use the phrase mid-cycle adjustment emphasized everywhere else and the concerns everywhere else
perhaps, rather than what's going on in the U.S. economy. I mean, it's a little bit ridiculous, but --
MINERD: Well, I would have to say they probably need to drag in the events of Saudi Arabia.
CHATTERLEY: Right.
MINERD: The spike in oil prices could flow through the economy.
[09:25:00]
CHATTERLEY: Inflation.
MINERD: Right. Well, but also, if gasoline prices spike that'll cause the economy to slow. So he has got a number of excuses to continue going.
But I can tell you that I think the committee will be perhaps even more divided at this meeting than it was the last meeting.
CHATTERLEY: Fascinating. What about the funding markets and the interbank lending rate, so-called, the repo rate that we saw a huge spike. How long
should we be by that there? Was it just a product of wacky markets right now?
MINERD: Well, it's interesting. I've long argued that the way that they're operating policy is fundamentally flawed that they had no real way
to stop something like what happened yesterday, and what is continuing on today.
The reason that they don't want to address the problem in a way that would keep this from happening is they'll lose control of the balance sheet. So
they've been promising that they're going to grow the balance sheet at a certain rate.
Every time the Fed has to step in and do what they're doing, which is by securities to put liquidity in the market to get rates down, they increase
the balance sheet. And that was a fundamental problem back in the 1970s.
They kept putting a lid on rates, and not realizing that they were expanding the money supply so fast that in the end, it set off an inflation
spiral. So they're cognizant of that and they don't want to lose control of the balance sheet, because at the end of the day, it is the amount of
money in circulation that ultimately determines inflation.
CHATTERLEY: Wacky markets, I stand by that. I stand by that phrase. What a challenge. Scott, fantastic to have you with us.
MINERD: Always a pleasure.
CHATTERLEY: Scott Minerd there with Guggenheim Partners. The market open is next. 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. Stocks opening pretty much unchanged this
morning ahead of the Federal Reserve rate decision, 2:00 p.m. Eastern Time, of course, is the date. Expectations are for a quarter point cut. So
that's what we're watching for.
But of course, as we've been discussing throughout the show so far today, far more important, I think the messaging about what the prospect is for
future rate news at this moment. We're easing a little bit as you can see here, down around a tenth in a percent for the U.S. majors at this moment.
One of the things of course that we are going to be watching for is what the outlook is from Jay Powell with regards the prospect of recession
hereto. Well, I can tell you America's Chief Financial Officers also on high alert for a recession. A survey has flagged the uncertainty is now
the biggest concern for them.
Matt Egan has all the numbers. Max, rising concern here from CFOs about the prospect of a future recession coming before the 2020 election, I think
and that's also a key here. Talk us through it.
MATT EGAN, CNN BUSINESS LEAD WRITER: So Julia, this is the longest economic expansion in American history, and CFOs are starting to become
more concerned that it may end. They're really worried about this U.S.- China trade war. There's a lot of concern, of course, about the global slowdown, both those things are linked together, and they both cause
uncertainty.
And so that's why we've seen in this Duke CFO survey that U.S. business optimism is now at a three-year low. Just 12 percent of CFOs say they're
more optimistic about the U.S. economy compare that to a year ago when it was 44 percent. That's a really sharp move.
Now what is most interesting is that 53 percent of CEOs now expect the United States to enter a recession prior to the 2020 election, two thirds
of those CFOs expect a recession before the end of 2020, and the other thing that is really interesting is looking at what is concerning these
CFOs the most.
As you mentioned, for the first time in years, the number one concern is now economic uncertainty. Previously, it was attracting and retaining
talent. Now, we watch with CFOs are saying because they really are at the front lines of the economy. They have the best view. They also control
the spending of companies.
So Julia, the risk, of course, is that all of these recession concerns create some sort of a self-fulfilling prophecy. If they fear recession,
they may hunker down, they may cut spending, and that could actually make a recession a reality.
CHATTERLEY: Yes, it's so fascinating, isn't it? Because you know, if I go back to December when we saw all of that volatility and the selloff in the
market, 82 percent of these CFOs we're predicting a recession by the end of 2020. So actually, we've come back from that.
So this idea of perhaps, sort of forecasting based on this volatility, and the noise that we're seeing is a very important one here and talking
ourselves into it. How optimistic though, are they about the prospect of Fed rate cuts? Chinese stimulus? The European Central Bank also providing
stimulus now to ward off or to soften the blow of a potential recession?
EGAN: So Julia, you mentioned that survey from late last year and it was saying 82 percent were expecting a recession. What I do think is
interesting is that this Duke survey has been consistent about 2020 being the year that CFOs are most worried about, but to your point, I mean,
there's no reason to think that a recession has to happen, right.
I mean, there are ways that it can still be averted if the global economy ends up rebounding more quickly than people anticipate. That would
certainly be really helpful, especially to U.S. manufacturing. The U.S. economy could end up being more resilient than people anticipate as well.
And of course, in the background, there is that trade war, the trade negotiations. There are some people who are hoping for some sort of a
breakthrough that would either rollback tariffs or at least prevent new ones from being put on.
But Jeff Gundlach the pretty bearish investor, he spoke last night and he said he does not think there's any chance of a trade agreement with China
before the election. He said that China just does not have any incentive to make an agreement. So if he is right, we probably can't count on trade
as being the positive factor.
CHATTERLEY: Yes, fantastic to have you with us. Matt Egan in New York. Fascinating survey there.
All right, President Trump has just announced his newest National Security Advisor, Robert C. O'Brien is the Special Presidential Envoy for Hostage
Affairs at the State Department. He will take over from John Bolton who President Trump fired last week over disagreements on Iran and other
issues.
I believe this is the person that he sent over to Sweden to free the U.S. rapper recently, too. So as you can see, National Security adviser, Robert
C. O'Brien there.
[09:35:15]
CHATTERLEY: Now, as Matt Egan was just telling us about the CFO story and their concerns about the economy, well after the break, why economists
might be missing a trick here? We will explain. Stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to the show. Donald Trump says some people in America want to talk the country into a recession. Now whether that's true
or not, my next guest would agree that storytelling can make or break economies and most economists just don't get it because they're ignoring
the narratives.
The things that we tell each other about, the market, our mortgages, even Bitcoin perhaps, too. "Narrative Economics: How Stories Go Viral and Drive
Major Economic Events," is the title of a book by the Nobel Prize winning economist Robert Shiller, who joins us now.
Professor Shiller, fantastic to have you on the show. I think we have to start by defining what you mean by Narrative Economics because you
distilled this into two main points for the purpose of the book.
ROBERT SHILLER, NOBEL-PRIZE WINNING ECONOMIST: Well, Narrative Economics is the study of popular narratives. What real people out there -- look at
them, what are they talking about? Well, not just these people.
CHATTERLEY: Everyone.
SHILLER: Everyone.
CHATTERLEY: All of us.
SHILLER: Everyone. And that the stories convey morals and ideas about how the economy works. Economic Narrative is the one I want to focus on that
change the way people decide.
CHATTERLEY: But also the extent that people go to, to make these narratives contagious. Storytelling, but also making them -- the term used
today is viral.
SHILLER: Yes, so there's an inventive process that happened. So just like hit songs or hit plays or novels. You look at them and say what is it
about that that is so good? I can't tell you, but it just brings my emotions up. I don't know why. It's something about creative genius. And
this genius drives our economy, not always in good directions.
[09:40:14]
CHATTERLEY: Yes, you make a great point in the book as well. And you say, actually, if you talk to additional economists, they'll go look, I'm not
interested in in in narratives, you need to talk to the journalism school or you need to talk to the sociology school.
SHILLER: But they don't know economic.
CHATTERLEY: Right. And so there is a gap.
SHILLER: That's the unfortunate part. Our society is divided up into all these different specialists and just like with medicine, you know, you go
to a cancer specialist, and he'll tell you, you have cancer. That's a mistake that sometimes is made.
CHATTERLEY: Yes.
SHILLER: We make it all the time in economics.
CHATTERLEY: So how does understanding Narrative Economics make economists better predictors of events because I think it's never been more important,
perhaps than today when we've seen moves in the bond market, for example, and we're talking about recession fears.
And to the President's point, there is a risk here that we talk ourselves into a recession. So why does it matter? And why write the book today?
SHILLER: I think historically, recessions have been substantially caused by narratives. So yes, just recently, there was all this talk about the
inverted yield curve.
CHATTERLEY: Yes.
SHILLER: But that is a narrative that's been building. Every time the yield curve gets close to inverted, it gets -- that narrative gets
stronger. So it's growing on an interrupted epidemic path. And you could see it how it is growing. It affects the probability that we will actually
go into a recession.
CHATTERLEY: How much? How much does it affect the probability?
SHILLER: Well, I think substantial, but I have to say, I don't quantify it in my book.
CHATTERLEY: I know. I was waiting for that.
SHILLER: I thought one has to start -- you have to start somewhere.
CHATTERLEY: OK. Because I was waiting for that chapter. I was like, we need to quantify this. Chapter One, though, and this was fascinating to
me. You chose to talk about Bitcoin.
SHILLER: Right.
CHATTERLEY: Talk to me about this.
SHILLER: I wanted to talk about that because people today remember it. They've seen it and young people have experienced it. They're experienced
the enthusiasm that some people have for Bitcoin. That is the real story.
I mean, the technology behind Bitcoin is impressive. The smart computer scientists designed it, but there's something about the story that excites
me. I can tell you my -- when I'd lecture to my class on finance, people wake up when I --
CHATTERLEY: When you mentioned it.
SHILLER: When I mentioned Bitcoin. I can see a glimmer in their eyes. I know that they're onto something, and they think that it's really important
and ultimately, it relates to their philosophy of life about we want to -- don't want the government to control everything.
They have this inner resentment and somehow that story ties into that. It has nice mystery story about Satoshi Nakamoto which I could expand on, a
great story. And then it becomes viral and that's -- that made Bitcoin.
It's nothing -- I'm not diminishing this. It's true of so many different economic phenomena.
CHATTERLEY: You're not diminishing it and you don't diminish it in the book. But you also put out there's some really big skeptics out there.
Warren Buffett is a skeptic, for example.
SHILLER: Yes.
CHATTERLEY: But, I mean, we literally on FIRST MOVE last week on this show did a whole week, talking about cryptocurrencies and the excitement that I
see in the community is palpable right now.
SHILLER: Yes.
CHATTERLEY: At what point does a great story, a great narrative becomes something that's incredibly potent? I mean, you use a great comparison
with gold and say, actually, the intrinsic value in gold right now is because people believe there's value in gold.
SHILLER: Yes. So I think we have to have respect for the humanities. Our education is drifting toward being more career oriented and not story
oriented. You have to understand how these stories move.
So the Bitcoin problem has the same problem that the railroads did in the 1840s. There was a big boom in railroad stocks. Charles Darwin and other
famous people got in, and then the whole thing collapsed. You know what the problem was? They forgot that there will be other railroads that will
compete with the ones that are just starting.
The same thing will happen with cryptocurrency. Now there's thousands of cryptocurrencies. So why did everyone think it was Bitcoin? Well, it was
the first move, it was the story. It was the famous one. And so --
CHATTERLEY: I am going to give you some water, just in case.
SHILLER: No, thank you.
CHATTERLEY: Good job. So I mean, right now, Bitcoin is around 70 percent of market share. But even if you have other competitors coming in, do you
think based on what you said in the book, too about the sort of computer programming, the basis the technology behind this, do you see
cryptocurrency in whatever form is here to stay? Because that would set you apart as a Nobel Prize winning economist.
[09:45:04]
SHILLER: Let me first say that the people who designed Bitcoin were smart. They didn't know that it would succeed. There's no way they had. They
don't talk about the narrative as a force behind Bitcoin.
But I don't -- I don't doubt that this technology will have application somewhere. But I think it's a bit of a fad right now. And we tend to
overreact to fads that have some element of truth to them.
CHATTERLEY: All right. Is the fact that we have social media today, the ability to build a narrative bring information to spread so quickly,
actually propagating all the themes that you talk about in this book and whether it's recession risk, whether it's concerned about stock market
valuation? Is today perhaps, and this time -- this time that we're in -- more dangerous than ever for self-fulfilling prophecies?
SHILLER: I'd say that it might be -- and also, I want to emphasize that self-fulfilling prophecies occurred hundreds of years ago.
CHATTERLEY: Yes.
SHILLER: People talk a lot, and look at them all talking down there. And it goes fast. But I think the internet is changing the nature. One thing
it does is it facilitates polarization.
CHATTERLEY: Yes.
SHILLER: That you find people who think alike, and you can become hardened in your views, maybe extremist views. So I think it is dangerous. And
we'll have to combine Narrative Economics with the study of the new technology.
CHATTERLEY: I couldn't agree more. And actually, that's where I was trying to get to. You also have that whole chapter on automation and
artificial intelligence. We don't have time to talk about it. But you talk about the spikes in popularity in the viral messaging, the 60s, the
80s, the 90s, and not to mention what we're seeing today. Fascinating as well.
Professor Shiller grateful. Loved it. Thank you so much. Professor Robert Shiller there, "Narrative Economics." All right, up next,
navigating the Brexit headwinds. Yes, we're still doing it. Airbus tells us how it's preparing for a hard Brexit. Stay with us. That's coming up.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE. The European Union warned Britain once again, Wednesday, that it is heading for a no-deal Brexit with just
six weeks ago.
The government's Brexit strategy remains in flux. The question is how is some of Europe's biggest companies picking up the slack and preparing.
Anna Stewart joins us on this. Anna, you've been speaking to Airbus. What are they saying about the situation?
ANNA STEWART, CNN REPORTER: Yes, so today, they are announcing a new forecast for the industry. They say there will be demand for over 39,000
new planes by 2038. All very bullish. And that's despite all these headwinds, and there are plenty of them.
But Brexit is the one I really wanted to speak to the CMO of Airbus about simply because this is a company that makes planes between France and the
U.K. It couldn't be worse, placed frankly, in a no deal or a hard Brexit, so I asked him how is he preparing? What does it mean for the company?
[09:50:07]
(BEGIN VIDEOTAPE)
CHRISTIAN SCHERER, CHIEF COMMERCIAL OFFICER, AIRBUS: As a large industrial company, we don't like uncertainty and no deal means uncertainty. But
fundamentally, what it means with our -- for our 13,500 employees here in the U.K., or for the six billion of work that we do perform in the U.K., is
the question of what would the consequences of Brexit be on the competitivity of our footprint here in the U.K.?
So, it is a longer term consideration that obviously as an industrial company, we will have to consider.
STEWART: Would it have any impact in terms of where you make your planes? Will you move any production?
SCHERER: Well, we adapt to the best cost solutions that we can find. So if a particular site proves to be less performing than another one, yes, of
course we will move around.
(END VIDEOTAPE)
STEWART: So certainly not ruling out moving production out of the U.K. in the event of a hard or no-deal Brexit. More to come on that I suspect.
One to watch Julia in the coming weeks, the WTO is expected to rule in favor of the United States in a long running dispute with Airbus, and that
could mean more U.S. tariffs on European goods, but particularly on aerospace parts and aircraft. So that could be another major headwind on
the horizon.
CHATTERLEY: Yes, and in around eight months' time vice versa for Boeing, which is the crazy thing here. They should have done them both at the same
time and just netted it off. But anyway, what do I know? Anna Stewart, thank you so much for that.
All right. Here's today's "Boardroom Brief." General Motors and the United Auto Workers standoff has entered a third day. Nearly 50,000
workers are on strike while negotiations continue. GM says it will stop paying for the healthcare for the workers protesting forcing the union to
pick up the bill. Credit Suisse says the auto strike could cost GM $50 million a day in lost revenue.
Facebook says the members of a new oversight board will be announced soon. The Board will have the power to override the company's decisions on some
content. Some are questioning its independence already, but CEO Mark Zuckerberg said in a blog post that the Board's decisions will be binding
even if he disagrees with it.
Facebook says it also won't pay the Board directly. The funds will come indirectly through a trust.
Fears of protest supporting the Hong Kong government to pull back. It has called off the upcoming National Day Fireworks scheduled for October 1st.
The Jockey Club also just canceled a lucrative race night claiming threats made by anti-government protesters.
Will Ripley is at the city's race track where that event was due to take place. Will, we can't underestimate the importance to GDP the financial
flows from the Jockey Club here for Hong Kong. Talk us through this decision and why.
WILL RIPLEY, CNN INTERNATIONAL CORRESPONDENT: This is the latest decision, you know where the protests are directly having an impact, Julia, on Hong
Kong's economy. The race that was supposed to happen here tonight, and you can see I'm standing in front of empty stands because the Hong Kong Jockey
Club called it off when protesters by the hundreds were threatening to storm onto the race track because a pro-Beijing lawmaker, Junius Ho, one of
his horses was going to be racing tonight.
They were going to try to disrupt the race which could have put their lives in danger, the horses in danger spectators, and even if they didn't, you
know, make it inside, there could have been a situation outside. That's why they made the decision to cancel, and basically cutting off what last
week amounted to $140 million dollars in revenue. That's what the betting numbers were just last week.
Sixteen thousand people attended. Their bets coming in from all over the world, places like Australia, New Zealand, the U.K., and so that the
financial impact that the Jockey Club is kind of downplaying saying they have to cancel meets all the time.
If there's inclement weather, if there's a typhoon, they reschedule and they say they're going to try to reschedule this meet, but when you couple
this with the announcement, you mentioned, Julia the canceling of the Hong Kong -- of the National Day fireworks on October 1st to celebrate the China
-- the anniversary of the founding of the People's Republic of China. They've postponed the Hong Kong tennis open. "Matilda," the musical isn't
coming here. They postponed that.
So you have a lot of different things that are being affected, not to mention hundreds of restaurant workers being laid off. Hong Kong airport
seeing its service declined last month, in nearly a decade, almost a million fewer passengers moving through the airport.
And we're told that hotel workers are being told to stay home here as well because bookings are down so dramatically and rooms that normally would be
very expensive, are being sold at just, you know, slashed rates right now here in Hong Kong because the protests have disrupted so much the
hospitality and the retail industry.
A lot of businesses saying they can't even hold on much longer if the protests continue, particularly in some of the harder hit areas, like
Wanchai, you know in the center of Hong Kong where we saw violence flare up yet again just last weekend with protesters injured and people arrested.
Petrol bombs being thrown by protesters, police firing back with tear gas. It's the kind of thing that really is going to do a lot of damage in the
long term to Hong Kong's economy if this unrest continues, and this race cancellation tonight is just the latest example of that.
[09:55:19]
CHATTERLEY: Yes, well, the economic consequences becoming ever more clear. But to your point as well with that October 1st celebration of the founding
of the People's Republic of China, how much longer is China going to sit on their hands and just watch this? Will Ripley, thank you so much for that.
All right. Let me give you a look at the market. The price action that we're seeing, remember, what do they call it earlier? Pause for Powell.
Well, we're slipping a little bit here, down some that three tenths of one percent, 2:00 p.m. Eastern Time, that Federal Reserve rate decision, of
course, expected to cut rates by a quarter of a percent, but the key as we keep reiterating, what do they say about the outlook for rates here and how
to Jay Powell calibrate that message.
A quick look at what we're seeing for oil markets. The Saudis saying they will get Saudi Aramco back on track in the coming weeks, easing a bit of
pressure there, but for now, that's it for the show. I'm Julia Chatterley. You've been watching FIRST MOVE. Time to go make yours.
(COMMERCIAL BREAK)
[10:00:00]
END
