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First Move with Julia Chatterley
JPMorgan Delights, Goldman Sachs Disappoints; U.S. Sanctions On Turkey Criticized For Their Leniency; Cybersecurity Firm, Crowdstrike Warning About The Threat From China. Aired 9-10a ET
Aired October 15, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:18]
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 needs to know.
Bank Earnings Bonanza: JPMorgan delights, Goldman Sachs disappoints. It's a mixed quarter. Bark worse than Bite? U.S. sanctions on Turkey
criticized for their leniency. And an active adversary. Cybersecurity firm, Crowdstrike warning about the threat from China. We will speak to
the CEO. It's Tuesday. Let's make a move.
Welcome once again to FIRST MOVE and we are in the midst of a bank earnings blizzard. As I mentioned there, JPMorgan, Wells Fargo, Goldman Sachs among
some of the names here. In fact 40 percent of U.S. banking assets reporting today. Expectations going into this, pretty muted and the
results still mixed.
Let me give you a quick summary. JPMorgan outperforming again on the top and the bottom line. Citi's earnings also beat. Goldman's and Wells Fargo
missing on the profit number line.
All the banks beating on revenues. More analysis to come. But as investors that crunch the numbers, here take a look at futures pointing to
a higher open, retracing some of yesterday's minor losses. Perhaps we can call it a minor reality check over Friday's trade agreement announcement.
You know my view here is that we shouldn't be disheartened by the Chinese here saying more talk is needed. It clearly is to reach a deal here.
It was also interesting to see the Editor-in-Chief of China's "Global Times," aka state media here tweeting yesterday, "Don't be fooled by the
more muted tone from Beijing compared to the United States. That's just China's way."
To be fair, though, there are reports floating around today that China wants the White House to roll back on existing tariffs in order to sign a
deal. I have to say no one said the parquet would be smooth, and we know it.
Trade though, just one of the issues the banks had to deal with in this past earnings season. We can throw in a soft new issue market and of
course, the Federal Reserve cutting rates a couple of times, too. The U.S. banks, though, and I should point this out, expected to be one of the
sectors posting positive earnings growth this year.
The big question for me is, can investors bank on the banks? Matt Egan has all the answers for us. Matt come here and I think we should break this
down in terms of what we saw from the U.S. economy, the consumer side from some of these big banks, and what we saw going on with trading.
So let's start with the U.S. economy and the consumer side. What do we get from the banks here?
MATT EGAN, CNN BUSINESS SENIOR WRITER: Well, Julia, I think that the results from America's biggest banks, they don't signal a recession, but
they do sort of hint at a slowdown.
I like to look at loan growth because when the economy is booming, there's a lot of demand for loans. And what's interesting is that none of the big
banks reported strong loan growth, it was really pretty sluggish.
Even JPMorgan, the star of the bank's reported flat loan growth or it was up three percent, if you exclude the sale of certain loans. Wells Fargo's
loans were only up about one percent, so that's something that we need to keep an eye on.
Deposits on the other hand, deposits were up pretty modestly, Citigroup, which has more international exposure, said its deposits were up eight
percent.
Americans are continuing to use their credit cards and that's obviously important when it comes to retail sales. JPMorgan reported double digit
credit card and merchant processing volume.
But interest rates continue to pose a real challenge and sort of an obstacle when it comes to lending. Wells Fargo is particularly exposed to
the flattening, if not inverted yield curve, and Wells Fargo reported a sharp decline in net interest margins. So that's another thing we need to
keep an eye on.
And Jamie Dimon is usually very, very optimistic on the economy, I think he hedged his comments a little bit. He said in his statement that while the
households remain healthy, he said that is being offset by weakening business sentiment and capital expenditures, mostly driven by increasingly
complex geopolitical risks, including tensions in global trade.
So a bit of caution, Julia from Jamie Dimon.
CHATTERLEY: Yes, it is interesting, isn't it? As the interest rates come down, it makes it more difficult for the banks to make money. Arguably,
you could say it's easier for consumers then to borrow money because it gets cheaper, but not if the broader environment is a concern and people
are talking about recession risk, which is also what we faced in the quarter that filters in to the trading environment hereto.
And Goldman Sachs' numbers stood out for me here. Talk us through the trading environment here and what we saw in the results there.
[09:05:08]
EGAN: Julia, JPMorgan continues to be the MVP of the banking industry. JPMorgan's Wall Street results were really strong.
It reported investment banking revenue jumped because of higher underwriting fees. Trading was a bright spot. They said fixed income
markets revenue surged 25 percent. That was aided by weak comparisons.
But as you mentioned, Goldman Sachs on the other hand, even though it is very exposed to Wall Street, it had some weakness here.
Trading revenue was up, but not by nearly as much as JP Morgan's and investment banking revenue at Goldman Sachs fell 15 percent that was driven
by a sharp decline in advisory revenue due to weaker M&A.
Also, underwriting revenue was lower at Goldman Sachs and they blamed a weaker IPO market as well as lower borrowing activity.
What's also interesting about Goldman Sachs is they went on a bit of a hiring spree. They reported a 2,200 increase in its headcount between this
quarter and the second quarter of this year. That's pretty interesting.
And one other thing I'll point out, Julia, is Wells Fargo. Wells Fargo's profits fell pretty sharply and that was driven by more of its legal
problems. They reported a $1.6 billion litigation expense. That's a another reminder of the really difficult job that Charlie Scharf, the
incoming CEO has agreed to take on, he gets handed over the reins of Wells Fargo next week.
CHATTERLEY: How do you manage to disseminate all of that information and present it to us there, Matt, but you did a great job. Thank you very
much. A mixed bag.
EGAN: Thanks, Julia.
CHATTERLEY: Bottom line. That also feeds into what we've got here for next driver as well with the International Monetary Fund, the IMF, trimming
its global growth forecast this morning, too, to the lowest level since the financial crisis - 3.4 percent in 2020. Clare Sebastian joins us now.
Trade, manufacturing filtering in here in terms of the broader weakness that we're seeing around the globe, Clare.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, absolutely, Julia. This was a pretty downbeat report from the IMF. They call it -- they're calling
this a synchronized slow down, a sharp turnaround from the synchronized upswing that they were talking about just two years ago.
But it's interesting, if you look geographically at what's going on here, they say that global growth compared to this year, which is expected to be
three percent, picking up to 3.4 percent next year.
A lot of that pickup they say is driven by emerging markets in Latin America, bits of emerging Europe, the Middle East where it's really putting
a drag on things they say is parts of Asia and that partly or mostly, I would say due to the issues with China, not just the U.S.-China trade
tensions, but slowing growth in China generally which most people say would be happening with or without the trade war.
We'll look at the numbers, Julia for China. Growth at 6.6 percent last year; now, expected to be 6.1 percent this year and 5.8 percent in 2020 -
that means GDP growth in China will have almost halved in the space of a decade.
And this is a country, which contributes between a third and a quarter of global GDP. You really get a sense from this report why this matters so
much, particular weakness in some Asian economies -- Korea, Singapore, Hong Kong -- possibly due to the geopolitical tensions there.
So a serious issue with Asia coming out of this report -- Julia.
CHATTERLEY: Yes, it's such a good point. It was one of the things that jumped out to me as well. The other point I think that let out was the
fact that if you look across developed markets and emerging markets, we saw Central Banks easing throughout this period, too.
So despite the support that they're trying to provide here, it's simply not enough. What's the prescription on the part of the IMF?
SEBASTIAN: Yes, the IMF is very clear about both the impact so far of monetary policy and the dangers going forward. They say that without the
kind of coordinated easing that we've seen from Central Banks, global growth would be naught point five percentage points lower this year and
next year.
So they say it very bluntly, Central Banks are having to spend limited ammunition to offset policy mistakes, referring, of course, to those trade
tensions, but the prescription going forward, Julia, they are also extremely clear about that. Central Bank's monetary policy are not the
only game in town.
They say governments need to act in the short to medium term. They need to be spending if they can on fiscal policy, investing in infrastructure and
social programs, taking advantage of lower interest rates.
And in the longer term, this was particularly interesting. They say that structural changes need to happen. Countries need to be preparing
themselves for the future. Things like automation, they need to be retooling their workforces, and building in kind of resilience that way.
So some very strong kind of language and opinions from the IMF on this particular topic.
CHATTERLEY: Yes, it's a well-repeated message. We can definitely say that. Clare Sebastian, thank you so much for that. Actually, one of my
other observations here was that they've said that stronger growth will come from some of the distressed emerging markets such as Argentina, Iran
and Turkey.
Interesting on that point because that follows to our next driver here. President Trump imposing sanctions on Turkey over the invasion of Syria
this week. Anna Stewart joins us now.
I said earlier on the show, Anna, all bark and perhaps no bite. I was asking the question here. A total lack of reaction, though, in the Turkish
lira here, I think perhaps tells a story. It could have been a lot worse.
ANNA STEWART, CNN REPORTER: Yes, but what a bark. I mean, Julia, if we just read out the last sentence in the President Trump's statement, "I'm
fully prepared to swiftly destroy Turkey's economy if Turkish leaders continue down this dangerous path." That is quite a bark.
But you're right, we've not seen much retaliation, not on the equity front, not really on the Turkish lira, and partly that's because many investors
were expecting something of this sort to happen at some stage.
Also, because maybe it just didn't go as far as many people feared. Sanctions on individuals are returned to a 50 percent tariff on steel and
the stopping all negotiation on the U.S.-Turkey trade deal.
But speaking to economists today, there was never much hope that that trade deal was going to get off the ground anytime soon anyway.
I think what we've got to watch for though is what happens next. What is the retaliation? Speaking to a strategist, actually just now from BlueBay
Asset Management, there is expectation that President Erdogan is likely to retaliate if you look at what happened last year over the American pastor
political spat with the United States, we saw a tit-for-tat tariffs.
We saw Erdogan calling for a boycott of American-made goods like iPhones. So I think investors will be wary looking ahead. I think there'll be some
jitters, but we're not seeing much reaction just yet.
CHATTERLEY: Yes, it would be interesting to see if they do you decide to target financial flows. We know Turkey is very dependent on foreign
financial flows. If you target dollar funding, and you target the banks, that would be a real game changer.
For now, though, for the business environment, it remains an uncertainty, it remains a challenge. Volkswagen pausing perhaps on some investment.
What do we know about this, Anna?
STEWART: Well, this is an interesting one. I mean, it's just one company and it's causing a decision to invest in a big part in Turkey, rather than
pulling the plan all-together.
Of course, if that became a trend, however, this would be a big problem for Turkey. I have been reaching out to other carmakers who have plants in
Turkey. I've heard back from Ford, Renault, Fiat, they are all saying no change for now. But they are watching the situation carefully.
And on your point on debt, Turkey has a huge debt problem. I was looking at figures. Their external debt pile stands at $466 billion. That's over
50 percent of its GDP. Seventy percent of that is held by corporates, they are already struggling to repay debt. Any escalation of this situation
that sends the Turkish lira further down is going to be a real big problem for Turkish business and the economy -- Julia.
CHATTERLEY: Anna Stewart, great job. Thank you so much for that.
All right. Let me bring you up to speed now with that some of the other stories that we're following around the world. CNN has learned that Donald
Trump's former Russia adviser, Fiona Hill told Congress that she saw quote, "wrongdoing" in the White House's policy towards Ukraine.
It comes as lawmakers continue to look into the President's involvement in pressuring Ukraine to investigate his political rival, Joe Biden.
Biden's son, Hunter Biden spoke to "Good Morning, America" earlier. He was asked if he ever discussed Ukraine with his father.
(BEGIN VIDEO CLIP)
HUNTER BIDEN, SON OF JOE BIDEN: No. As I said, the only time was after a news account, and it wasn't a discussion in any way. There's no but to
this, no, we never did.
AMY ROBACH, ABC HOST: Your dad said, I hope you know what you're doing.
BIDEN: I hope you know what you're doing.
ROBACH: And you said, I do.
BIDEN: And I said, I do. And that was literally the end of our discussion.
ROBACH: Why?
BIDEN: Because my dad was Vice President of the United States. There's literally nothing as a young man or as a full grown adult that my father in
some way not influence over because it does not serve either one of us.
(END VIDEO CLIP)
CHATTERLEY: Those comments of course relating to Hunter Biden's presence on the Board of a Ukrainian gas company. Those comments come hours before
tonight's CNN democratic debate where 12 candidates including Joe Biden square off in Ohio.
Abby Phillip joins us there, and will be there tonight, too. Abby, great to have you with us. A coincidence of timing? Obviously, it's going to be
front and center on people's minds. Do the other candidates tackle Joe Biden on this issue with his son? And what more can we expect tonight?
ABBY PHILLIP, CNN POLITICAL CORRESPONDENT: Yes, Julia, it's pretty extraordinary timing that this interview would air today on the day that
Joe Biden is going to be right behind me on this stage in center stage, and probably will be getting a lot of questions about this issue.
At the center of this is what was Hunter Biden doing in Ukraine, and what has Joe Biden pledged to do going forward? He and Hunter have said they
will no longer allow family members to be on foreign boards if Joe Biden is elected President.
But you're right that there's a question about whether other candidates, especially the ones vying for that top of that -- you know, top tier status
will go after Joe Biden on this issue.
[09:15:00]
PHILLIP; There are a couple of major dynamics in this race that are very different from the last time that the Democratic candidates were all
together.
First of all, 12 candidates will be on that stage behind me. That's the largest Democratic debate ever. And since the last debate, we have what
appears to be a new front runner. Senator Elizabeth Warren has edged out Joe Biden in a number of polls at the state level and at the national
level, indicating that her rise is very real.
Will she solidify this tonight is a big question facing a lot of people. She'll also have a lot of attention trained on her. There are several
other candidates who are eyeing her, sharpening their criticism, including Bernie Sanders, who has for a long time been very close to Warren, but has
been starting to really, really explain more clearly how they differ.
Recently, a couple of days ago, he called Elizabeth Warren a capitalist saying that that is the main difference between the two of them.
And Sanders, of course is also recovering from a heart attack that he suffered just a couple of weeks ago. So this will be his debut back on the
campaign trail.
So Julia, a lot of dynamics happening in this race tonight. Many of the candidates who will be on the farther end of the stage who are polling in
the single digits are really working hard to capture people's attention tonight.
So we will see whether they do that by trying to go after some of these top tier candidates and whether we'll see some real one-on-one dynamics coming
out on the debate stage tonight -- Julia.
CHATTERLEY: My attention is captured. We shall wait and see. Abby Phillip, thank you so much for joining us there.
And remember, you can watch the Democratic presidential debate tonight right here on CNN. That's at 8:00 p.m. Eastern Time.
All right, let's move on. The E.U.'s chief Brexit negotiator is fueling cautious optimism over a deal. Michel Barnier says ongoing talks are
difficult, but still believes that an agreement is possible.
The British Prime Minister Boris Johnson is set to meet E.U. leaders in a crunch Summit on Thursday.
And just in to CNN, the head of the Bulgarian Football Union has resigned. It follows racist behavior by some fans during a match between Bulgaria and
England. The Monday night match in Sofia was halted twice after England's players was subject to monkey chanting and Nazi salutes by fans.
All right, we're going to take a quick break here, but plenty more to come on FIRST MOVE. Stay with us. We're back after this.
(COMMERCIAL BREAK)
[09:20:36]
CHATTERLEY: Welcome back to FIRST MOVE live from the floor of the New York Stock Exchange where we are anticipating a stronger open up for U.S. stocks
this Tuesday amid some mixed bank earnings.
I have to say despite muted expectations, shares of the JPMorgan Chase are higher premarket. As we were discussing, they've beaten the top and the
bottom lines. Goldman Sachs though and Wells Fargo missing earnings. Their shares under a bit of pressure premarket along with Citigroup.
Citi's earnings beat on good trading results, but it was the lending part of the business there that didn't do as well as anticipated.
All right, let's talk about what we're seeing right now. Alicia Levine is the Chief Strategist at BNY Mellon, and joins us now. Great to have you
with us.
ALICIA LEVINE, CHIEF STRATEGIST, BNY MELLON INVESTMENT MANAGEMENT: Thanks for having me back.
CHATTERLEY: I want to come back around to the banks and the financials at this moment. But I do want to talk to you about China more broadly.
You talked about a skinny deal. So is phase one as it has been called by the White House, your version of the skinny deal?
LEVINE: Yes. So the White House was listening to me.
CHATTERLEY: I know.
LEVINE: And I've been talking about a skinny deal. We have been expecting some kind of skinny deal by the end of the year or by Q1 of next year, for
the simple fact that the administration really has to stabilize markets and the economy.
And any more escalation is going to turn the economy really into a downturn and so they have to do something and this is it, a skinny deal.
CHATTERLEY: The timing worked. The messaging, I think from the Chinese side as well feels a little bit different here.
But the rumor overnight was that the Chinese are saying here, look, we'd like to see tariffs removed. You have a great statistic on what would
happen if they aren't, and if we still see those December tariffs applied. Talk me through that.
LEVINE: So the real sticking point here is that the Chinese really want the tariffs removed.
CHATTERLEY: Right.
LEVINE: But the administration understands that is precisely the tariffs and the escalation of the tariff side, which has brought the Chinese to the
table.
CHATTERLEY: Leverage.
LEVINE: So you have a Gordian knot here of competing interests. So you can get both sides to the table. It is very hard for me to see the
administration rolling back existing tariffs.
You could see tariffs postponed for December 15th, and it actually has to happen because if the tariffs get put on for December 15th, then the
probability of a recession in 2020 goes up markedly because those are the consumer tariffs and the consumer has been holding up the U.S. economy and
holding up the global economy. So you cannot have this December 15 tariffs.
CHATTERLEY: I feel like -- and I'm going to play devil's advocate here. For investors and for the market here, the fear is that we're always just
one tweet away from this President if he doesn't get what he wants, so there's a deterioration in the talks. We could see tariffs escalate quite
dramatically.
Do you think we're finally, finally, finally at the point where your point, all sides are recognizing that the time is nigh for a deal? And actually,
we can set aside that fear?
LEVINE: I think that what happened last week and the Friday discussions and the press around in the last few days have made it very clear, there's
been a truce.
CHATTERLEY: Right.
LEVINE: There's been a stabilization, so it's not nothing, right? So it's not that we're the same place we were a week ago. We are further along
towards the truce.
That in and of itself is enough to kind of calm sentiment and calm markets, but whether we get the fat deal -- so we're going to get a skinny deal --
but whether we get the deal where we address intellectual property rights and forced technology transfer, I find that very hard to see.
But I do think you get a stabilization here and that may be enough to keep corporates okay and the consumer spending. I mean, the headlines hit
consumer spending as well.
CHATTERLEY: What's in the price here? Because you have a great gauge of everything. The good news is in the price here for markets and the things
that aren't in the price which have to say worries me far more.
What is in the price here? And particularly as we head now into earnings season and we've already seen a mixed bag from the banks here. What's in
the price?
LEVINE: So there's already a lot in the price. You have 25 more basis point cuts from the Fed in the price, plus another 50 for next year. You
have tepid inflation. You have 10 percent earnings growth for 2020.
And we know those 2020 earnings estimates are stale. They've simply been cycled in from existing models and slowly over this quarter earnings
estimates are going to be coming down for 2020. So that's baked in. That's a negative.
And then also there's been some margin compression in the S&P primarily through the tech sector. So margins are coming in also.
[09:25:10]
LEVINE: So the other thing that's baked in is that the market really does expect a skinny deal, which is why you haven't seen a huge risk on move.
But this is pretty much baked in.
CHATTERLEY: Really important.
LEVINE: And there is a baking in of a negotiated Brexit. Right? So the pound is slowly drifting upwards. What I find really interesting if there
is a negotiated Brexit, I think it definitely stabilizes the European banking sector, and that's very positive for the U.S. banking sector as
well.
I think you get a positive spill over here if there is a negotiated Brexit.
CHATTERLEY: How interesting. So actually, that will lend some support to the European banks and --
LEVINE: That's right.
CHATTERLEY: In sentiment terms, it helps here.
LEVINE: And on top of that, you'll wind up weakening the dollar a little bit, which you really need to do here because we're at multi-year highs.
Very difficult for corporates to earn through that.
CHATTERLEY: Very quickly, what isn't a negotiated Brexit? Because we're now heading into a crunch couple of days, Thursday-Friday this week?
LEVINE: So if there's no negotiated Brexit, you will see the pound drop again, the dollar strengthen. You'll have to selloff on all risk assets in
the U.K., and ultimately, it hurts the European economy as well.
CHATTERLEY: So the U.S. remains resilient?
LEVINE: The U.S. remains resilient, but it's -- I call it the boiling the frog slowly market. You know, it's just one more piece of bad news. The
market is up 18 percent this year, you know, year-to-date.
Every piece of bad news has not been able to kill the market and that feels like another piece of -- you know, another leg in the boiling water, not to
kill it yet.
CHATTERLEY: But the boiling frog market. I am just pausing on that imagery there. Alicia, fantastic to have you with us.
LEVINE: I appreciate it.
CHATTERLEY: Alicia Levine, chief strategist at BNY Mellon. We do have some fun here. The market opens next. Stay with us. We're back after
this.
(COMMERCIAL BREAK)
[09:30:00]
CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange. The opening bell and that bell being run by Dollar General this
morning. We've got a higher open for stocks as Q3 season officially kicks off.
Stocks beginning the session today, around two percent away from record highs in aggregate at least, despite the underlying ripples that we're
seeing. It's why those earnings -- as we were just discussing -- are going to be key over the next few weeks.
Analysts expecting a third straight quarter of lower profits which truly puts us in line for an earnings recession. It does though, set us up for
the possibility of upside surprises, too. Yes. Always. Context to everything here.
Let me talk you through our "Global Movers" in the session. Johnson & Johnson in focus. The pharmaceutical company reporting back to the
unexpected profits and revenues - that despite growing the legal challenges.
The company is seeing strong growth in its consumer and in its pharmaceutical divisions. They also raised their earnings guidance.
It was also a bumper day for bank earnings. Citi, Goldman Sachs, JPMorgan Chase and Wells Fargo all out with results. Let me walk you through some
of these.
JPMorgan Chase beating on the revenues line and on the profits. Its shares higher so far in the session continuing to see growth in home and auto
loans and credit cards. Jamie Dimon, the CEO saying that the consumer remains strong.
Shares of Goldman Sachs and Wells Fargo meanwhile trading lower, as well as shares of Citigroup. Goldman and Wells Fargo earnings missed expectations.
Citigroup's trading results were solid, but lending was sluggish.
John Petrides is with me now. He is the Portfolio Manager Tocqueville Asset Management. John, always a pleasure to have you on the show.
JOHN PETRIDES, PORTFOLIO MANAGER, TOCQUEVILLE ASSET MANAGEMENT: Thanks for having me on.
CHATTERLEY: That was a real mixed bag. I called it a blizzard. Let's try and sort through some of the fog that has been created here. What's your
key takeaway?
PETRIDES: You described it perfectly. It is a mixed bag. And I think what we're seeing from the results, it confirmed what we already know. The
global economy slowing. The U.S. economy has slowed, but the consumer is holding in because the loan losses are hanging in okay for the banks, which
is a very good thing.
CHATTERLEY: When you're talking about loan losses, you're talking about even the provisions that the banks are making here. They're saying that
they're not too worried about deterioration at this stage.
PETRIDES: So far without hearing the conference calls, that's what I'm seeing in the numbers; and of course, you know, spreads on yields and bonds
have been very narrow. So that has pressured the net interest margin.
So those banks that have more diversified business model are outperforming those that are purely reliant on a pure banking business model.
CHATTERLEY: Just to make that clear for our viewers here, they earn money by lending money. They also then pay out money on deposits, and when
interest rates come down and they can't charge higher interest rates on loans, they can't make so much money.
PETRIDES: Yes. Exactly. That spread between what they own -- what they earn on a loan and what they pay on a savings rate is really narrowed and
that is hurting the bank's revenue.
CHATTERLEY: If we didn't hear the fact that we've had the Federal Reserve cutting rates as well, how much impact does that have on the margin to
enable actually consumers to acquire more credit as well?
PETRIDES: Yes, so it's great on the consumer side, because what the Fed is trying to do is to stimulate growth by consumers taking on more loans to
buy houses, to refinance, to buy cars and things like that. But for the banks, it's really a struggle.
Look, a year ago, this time, the 10-year, U.S. 10-year was turning at 3.1 percent. Now, we're at 1.7. That's a 45 percent contraction of yields on
spreads. That's enormous in the banking world in that short amount of time. Who would have thought 12 months ago that we would have been this
way in banks in terms of interest rates?
CHATTERLEY: So key takeaway, if we are talking about the consumer because this has been one of the fears. It's been, look, okay the manufacturing
sector in the United States is a concern. Farming is a concern, agriculture -- but the consumer is holding in there.
PETRIDES: That's it.
CHATTERLEY: Nothing that really that you've seen so far in these bank results suggests a reason to worry.
PETRIDES: So far, that's the case. But let's hear what they have to say on the earnings calls. I mean, if you look at the dominoes, right? We're
seeing that on the global side with China's economy starting to slow which is spilling into other emerging economies, which is spilling into Europe
and in developed economies.
But it is the U.S. consumer that's holding the demand up at 70 percent of our economy.
So if the U.S. consumer breaks, then watch out below, but so far, the consumer is holding it tight.
CHATTERLEY: What about on the trading side and on the investment banking side? Because again, I point out that there's no real theme that's come
out again.
PETRIDES: You've got it. Judging where banks are going to earn quarter over quarter is tricky, right? But this -- you're seeing it in this
environment. You hit the nail right on the head. It's messy.
CHATTERLEY: Yes.
PETRIDES: And each company is sort of dealing with their own issues. So you're not seeing a uniform beat on the top line beat on the bottom line.
It is a mixed bag.
CHATTERLEY: Should we be worried about what we're seeing? I mean, one of the things that I think we thought would be a problem for Goldman Sachs was
a softer new issue market and the IPO market. We've had disappointments like Uber, like Lyft. The shenanigans like the WeWork that never actually
made it to go public here.
To what extent do you think these again, idiosyncratic stories versus a broader theme here about where we are in the market cycle and perhaps
concerned about ability to make profit?
[09:35:21]
PETRIDES: I think that's where the large money centers should get credit for diversifying their business model from where they were, say 15 or 20
years ago, where they were purely depending on loans, right?
Goldman has gone into banking. They're also in M&A. They have the fixed income trading. They have asset management. And now they're adding
deposits because they are FDIC insured now, right? So they have diversified their business model entirely.
JPMorgan has really been credited to doing that as well. And you see, they're firing pretty much on all cylinders, but then you have someone like
Wells Fargo that's still dealing on the operational side with the nefarious actions with their client accounts, you know, three years ago now. So it
really is a mixed bag and company division.
CHATTERLEY: And the restrictions on their balance sheet.
PETRIDES: Yes, no question.
CHATTERLEY: Which have become sorely a problem for them. What about valuations then? Because if I look at the performance of some of these
banks year-to-date, they've outperformed the S&P 500 if you incorporate December in the market selloff, then they tend to look a bit less rosy.
Is the good news in the price, or is there more upside potential here?
PETRIDES: Yes, by and large, I mean, you know, it is a separate -- if you're higher quality JPMorgan is clearly going to premium valuation for
the rest of the group. But the market is baking in a pretty drastic downside scenario to book value.
If you're trading below your book value, the market is pricing, your book value is going to deteriorate. And by heart, we're just not seeing that
yet. So valuations for the banks are pretty attractive.
CHATTERLEY: So you'd be saying to investors at this stage, there's opportunity there.
PETRIDES: Well, I think we definitely preach diversification in client portfolios, right? I mean, you can't throw all your eggs in one basket.
But this has been one of the weaker performing sectors, particularly in the last six months. So yes, we would diversify into banks.
CHATTERLEY: And just more broadly, what are you watching in this earnings season? Where might we be surprised and what do we need to be cautious of?
PETRIDES: So continued progress on where the consumer is across the board. And you know, can those industrial companies that have been suffering from
a weaker global economy outperform expectations? And clearly, what's their guidance?
You know, the earnings dance is always about -- now, we've seen this for 10 years now, where companies have beat quarterly estimates, right? But it's
always based on the future guidance.
CHATTERLEY: Yes.
PETRIDES: And that's what -- that's what's making this time right now so tricky, because there's so many crosscurrents going on, you know, so we
want to hear what management is saying about not only the global economy, but the health of U.S. economy and the consumer in particular.
CHATTERLEY: Do you think there are companies that are quickly rewriting their transcripts in light of what we've got on Friday and there are some
more positive noises over trade, or are they just going to be really careful until we see a sign on the dotted line?
PETRIDES: I doubt it. If I was the CEO or CFO of a company based on what we heard on Friday, I would be -- everything sounds positive. The fact
that the U.S. is not levying more taxes that were supposed to do today is a good sign that the parties are taking a step back.
But we still need to be -- you know, the devil is always in the detail. So, no one is going to stick their neck out and make future forecasts on
the trade war is over without seeing more results.
CHATTERLEY: Or make investments, which is the key here.
PETRIDES: Right. Exactly.
CHATTERLEY: John Petrides, thank you so much for that. John Petrides, Portfolio Manager at Tocqueville Asset Management there.
All right, we're going to take a quick break. Plenty more to come on the show, including LeBron James wading in on the NBA-China situation. We'll
have the details next.
(COMMERCIAL BREAK)
[09:42:03]
CHATTERLEY: Welcome back to FIRST MOVE. Now one thing that the partial China trade deal or the skinny deal as we've been calling it fails to
mention is cybersecurity.
Right now, China is one of the most active adversaries out there. That's according to Crowdstrike. The firm is on the front line in the fight
against hackers and is now facing scrutiny, too from the President of the United States.
Co-founded by George Kurtz, Crowdstrike provides Cloud-based cyber security to governments and to corporations. It's been hunting down North Korean
hackers for more than a decade and investigated the 2014 hack on Sony Pictures.
Fast forward to 2016, it revealed that Russia hacked the Democratic National Committee sounding the alarm about election meddling for the first
time.
Fast forward again to this year and Crowdstrike was mentioned in the call between the Ukrainian President and President Trump, claims that Russia was
falsely implicated have been debunked and dismissed by the company.
Crowdstrike went public recently, too, to much fanfare and currently has a market value of some $14 billion. Joining us now is the CEO of
Crowdstrike. George Kurtz is joining us from Phoenix, Arizona.
George, fantastic to have you with us. Exciting times. I think our viewers will be a pretty mesmerized. I want to talk about your business
and what you're doing. But first, let's just address some of the issues that have come to light once again.
And I know you've been debunking myths left, right and center. Forgive me for asking this question. But could you have made a mistake back in 2016?
Could operatives working in Ukraine have framed Russia for the hack on the D.N.C. in 2016?
GEORGE KURTZ, CEO, CROWDSTRIKE: Well, that theory has been debunked. We have a world class forensics team. We, like many other organizations
provide forensic services to companies and because of our technology and our people, we are able to understand, in general who those actors were.
But put that aside, if you look at what happened in this particular case, the U.S. Intelligence Committee organizations have proven that it was
Russia, not Ukraine, and this has been backed up by the U.S. government. In fact, there's been D.O.J. investigations on this, and they actually came
up with 12 individuals that they charged.
So this conspiracy theory has been debunked and we're delighted that we've got a world class forensic team providing protection for a lot of our
customers.
CHATTERLEY: Yes, I think you firmly said it there. Is the bigger point here, given what you found in 2016 and the investigations that you did that
actually more haven't been done since then to tackle this kind of interference and to protect ahead of the 2020 elections?
KURTZ: Well, as you know, security is a big topic right now, whether it's elections or whether it's for corporate America or companies around the
globe, it is such a burning issue because the adversaries keep getting better and better.
And it's one of the reasons why we've created our technology, which really focuses on artificial intelligence to identify these adversaries before
they can cause damage to organizations.
[09:45:21]
CHATTERLEY: Explain how that works, because I mentioned that you're a Cloud-based cybersecurity company. What does the Cloud element here
actually represent for your customers and talk to me about the artificial intelligence angle here, too?
KURTZ: Sure, one of the challenges that we really focus on is being able to prevent breaches and this is one of the main issues in the security
industry.
If you look at what's happened over the last 15 to 20 years, people have been buying firewalls. They've been buying traditional signature based
antivirus and they're still being breached.
And we've created a technology, a Cloud-based endpoint technology which essentially as a small little piece of software that runs on every computer
and workload and we're able to understand what's happening on those systems and connect it to the Cloud and leverage the power of the Cloud and data
collection.
So that from an artificial intelligence perspective, we can identify unknown adversaries and breaches that have never been seen before and
protect and prevent against those breaches, leveraging this massive data set that we have.
And it's been very, very effective, and it's one of the reasons why we're a leader in the space.
CHATTERLEY: So basically, it's the ability to process the data that you're collecting incredibly quickly, spot anomalies and prevent the kind of
cyberattacks that we're talking about. This is what your business does.
KURTZ: Absolutely. And one of the main differences is that we don't rely on traditional signatures and those are like fingerprints. And traditional
antivirus, as an example leverages these fingerprints and you have to see them first to be able to put them in a database so that you can stop them
again.
Our technology actually mathematically computes whether there's an anomaly on that system, and then can basically prevent against something that has
never been seen before, and that's really the power of Cloud-scale AI.
CHATTERLEY: What proportion of your business comes from government contracts versus companies? I know you work with Amazon, one of the big
names that is frequently mentioned. What proportion of your business and what's the relevance, which is perhaps the better or the more interesting
client to be dealing with here? Because who is ahead in tackling these risks?
KURTZ: Well, we don't break that out, per se, but we've got a robust corporate business. We've got a robust government: Fed state, local
government, not only in the U.S., but around the world.
And if you look at what's interesting, I think what's most interesting is the adversaries and how good they are at actually getting into
organizations. Again, whether it's government or whether it's in corporate America.
One of the things that we've seen that has been really problematic for many companies and organizations out there is the rise of ransomware
particularly focused on specific government entities and taking those entities down, whether it's a state or local government or even school
systems.
And they've been able to extort these organizations for massive amounts of money in order to make sure those organizations can come back online.
CHATTERLEY: You know, it is interesting, in the introduction, I mentioned that in your latest Risk Report, you point to China and say, actually, this
is one of the big adversary concerns that you have out there. How important is it that this wasn't tackled as part of the broader agreement,
the broader deal that we're seeing formed between the United States and China? Is it possible do you think, for the two governments here to tackle
this together?
KURTZ: Well, I would hope it would be possible. It is problematic. If you look at what China has been able to do over the many years, it's been
able to successfully break into many organizations around the globe, steal their intellectual property and then commercialize it for their own
benefit. And you know, that has to stop.
It's a problem for many organizations. We recently wrote a report on it in the aerospace industry and it's not just the aerospace, it's every industry
that's out there. And it really puts companies at a disadvantage if their IP is being stolen and then recreated in a different country.
CHATTERLEY: Can you prevent this? Based on what you were just saying about your technology, your predictive powers, is this where you fit in the
interim that you can actually prevent this kind of attack because you're already identifying the risks?
KURTZ: Well, we stopped about 30,000 in process breaches last year, meaning if Crowdstrike wasn't there, there would have been a breach and
many companies may have an incident, but at the end of the day you want to prevent a systemic breach.
And our technology, our platform, our ability to quickly identify the adversary, in many cases, prevent any activity, but quickly identify them,
sometimes within a minute has really helped organizations prevent breaches, which as you know, security and preventing breaches is absolutely a board
issue right now and many organizations are struggling with how they keep all of these adversaries out and keep their business running.
[09:50:30]
CHATTERLEY: Absolutely. And it's a cost consideration hereto. George, very quickly, I want to ask you about the share price. You've had a great
run. but a volatile run since the IPO.
A number of analysts coming out and going, a lot of the positive news about your businesses is now in the price. They like it, but the good news is in
the price. What's your message to them about the plans of the company and what next?
KURTZ: Well, we had a fantastic quarter that we reported on, Q2, so we were delighted with that, almost triple digit growth on the revenue line,
triple digit growth for annual recurring revenue.
And at the time of IPO, the fastest company to ever IPO at scale. So we believe we have a great future ahead of us. We continue to focus on our
customers, which is most important and stopping breaches.
CHATTERLEY: Great expectations, I think that's the case. George Kurtz, CEO of Crowdstrike. Sir, we'll get you back. Thank you so much for
joining us on the show today.
KURTZ: Thank you.
CHATTERLEY: All right. Coming up after this, the NBA star, LeBron James comments about a pro-Hong Kong tweet, and it's raising a few eyebrows. All
the details, next.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE. Basketball superstar, LeBron James is getting some heat with his comments about Hong Kong and China.
He spoke for the first time about the pro-Hong Kong tweet by Houston Rockets General Manager that sparked an outrage in China and some costly
trouble for the NBA.
CNN Sports Andy Scholes is with us. Andy not normally shy about his views, but these comments have raised some eyebrows.
ANDY SCHOLES, CNN SPORTS ANCHOR: They certainly have, Julia. You know, LeBron has always been a champion for social justice and speaking out on
what he believes in and that's why his comments on Daryl Morey's pro-Hong Kong tweet are not being received well by many.
You know, everyone had been waiting for LeBron to weigh in on this whole controversy. And LeBron says, you know, he believes Houston Rocket's
General Manager, Daryl Morey was misinformed about the ramifications his tweet would have, and that Morey was not really educated about the
situation.
(BEGIN VIDEO CLIP)
LEBRON JAMES, NBA PLAYER: We all do have freedom of speech, but at times there are ramifications for the negative that can happen, when you're not
thinking about others and you only think about yourself.
I believe he wasn't educated on the situation at hand, and he spoke and so many people could have been harmed, not only financially but physically,
emotionally, spiritually.
So just be careful what we tweet and we say and what we do, even though, yes, we do have freedom of speech, but there can be a lot of negative that
comes with that, too.
(END VIDEO CLIP)
[09:55:12]
SCHOLES: Now last year, LeBron had been told by a Fox News commentator that he should just quote, "Shut up and dribble." Well, LeBron said he was
never going to do that. He was always going to speak up on issues that were important to him. Well, that's why his response to Daryl Morey's pro-
Hong Kong tweet has received so much backlash.
Now, LeBron did try to take to Twitter to clarify his statement saying, "Let me clear up the confusion. I do not believe there was any
consideration for the consequences and ramifications of the tweet. I'm not discussing the substance. Others can talk about that."
We'll wait and see if LeBron addresses the media again, the next time he meets with them, which should be later this week.
And Julia, you know, as we saw from the damage, just one tweet can cause this obviously a very sensitive subject, considering how much business the
NBA does in China.
CHATTERLEY: Yes. Where politics meets economics. It can get messy. Andy, thank you so much for joining us on that.
All right. That's it for FIRST MOVE. Great to have you with us. Plenty more to come in a couple of hours in "The Express." We'll see you
tomorrow.
(COMMERCIAL BREAK)
[10:00:00]
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