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First Move with Julia Chatterley
Global Markets Volatile as Short Squeeze Rattles Stocks; Apple Profits Soar To Record on iPhone Sales; Crisis Talks Fail to Resolve E.U.- AstraZeneca Vaccine Row. Aired 9-10a ET
Aired January 28, 2021 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
JULIA CHATTERLEY, CNN BUSINESS ANCHOR: Facebook to reduce the platform's political content.
And super cycle starting. iPhone demand fuels Apple's record revenues.
It's Thursday, let's make a move.
A warm welcome once again to FIRST MOVE this Thursday, a day when the speculative surge in heavily shorted stocks like GameStop has gone from
being a curious market story to a drama making news headlines around the world and with it perhaps, the realization that some kind of seismic shift
in financial markets may be taking place.
A combination of a social media platform and easier access to simple trading platforms has allowed smaller retail investors to tackle the titans
of finance. We could call it the return of Occupy Wall Street in a different form. This time, it's got more power, at least for now.
Global investors, I can tell you are clearly unsettled. U.S. futures highly volatile premarket after seeing their worst day of trade actually since
October in Wednesday's session. Weakness in Europe and Asia overnight, too, a mixed batch of tech earnings and vaccine rollout concerns also hitting
sentiment admittedly.
The broader markets may be unsettled, but GameStop is looking to add to gains. AMC though, the cinema chain a little bit softer. GameStop rose more
than 100 percent in Wednesday's session. AMC rose more than 200 percent just to give you perspective on that, down 23 percent. The speculative
surge, now also spreading to names in Europe and in Asia, too.
The popular WallStreetBets chat room, the day traders used to discuss these stocks will now be shut to non-invited guests maybe that perhaps helps slow
some of the speculative fever that we've seen. We'll be talking to the founder of WallStreetBets Reddit page later on in the program.
But at its heart, we could make this a story of empowerment for those who haven't had the chance to make money in financial markets as easily as the
established players, and now they have, but of course, the risks are vast.
Whenever stock prices detach from the underlying fundamentals, they eventually revert and money gets lost and people get hurt.
Let's get to the drivers: to GameStop, the stock everyone is watching from the Federal Reserve to the White House.
(BEGIN VIDEO CLIP)
JEROME POWELL, U.S. FEDERAL RESERVE CHAIR: I don't want to comment on a particular company or day's market activity or things like that. It's just
not really something that I would typically comment on.
JEN PSAKI, WHITE HOUSE PRESS SECRETARY: Secretary Yellen and others are monitoring the situation. It's a good reminder, though, that the stock
market isn't the only measure of the health of our economy.
(END VIDEO CLIP)
CHATTERLEY: Christine, what is going on here? When the Federal Reserve is being -- I mean, we are laughing. There are so many big issues to discuss.
But I called it a seismic shift, and I do feel like we should talk about this. We are seeing money being pumped into stocks like this.
ROMANS: Yes.
CHATTERLEY: And people behind the scenes and on these social media platforms are talking about taking on the elite, being willing to lose
money if it means they can tackle and I do see a pattern here with some of the other things we've been talking about and dealing with, at least over
the past few weeks, if not longer?
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: It is -- and when you said Occupy Wall Street that is just right on. In a way, it is
just the new iteration of internet populism that these people can get together on the social media platform and decide that they are all for the
same cause and the cause in this particular case is taking down the short sellers.
And from what I can tell, and I've been covering this pretty extensively for the past few days, no one feels sorry for the big hedge funds who are
losing money here, right? No one is crying for -- more often than not, they are saying, this is just desserts for what is a real cutthroat part of the
business. And this is a way for the small guy to have a voice, quite frankly, and that's what you're seeing here.
I also think there's another part that has empowered this and that is the trend over the last year to free online brokerage accounts. You don't have
to pay 799 anymore to make a trade. I mean, that is something that used to always hold me back, I think about: do I want to make -- just buy a few
shares of a stock if I have to pay 799? You don't have to pay anything in your Schwab account or in your TD Ameritrade or in your ETrade or your
Robin Hood account.
So if somebody wants to sit there and pull the trigger, they can with no immediate financial consequence. Also, everyone is talking about this.
This morning, I talked to a man whose son, 25 years old made $20,000.00 in three days and paid off his student loans. That story spreads like
wildfire. And there are a lot of people talking about like this is some sort of a get rich quick scheme more than investment.
CHATTERLEY: And he is one of the lucky ones. My fear here and it goes back to your point I think about no one feeling sorry for the hedge funds. There
will be people that get into this late.
ROMANS: Yes.
CHATTERLEY: There will be people that simply doing this and they don't understand the fundamentals, they've not captured the enormous run up that
they've seen and they get in late and then we -- as I made the point, eventually these bubbles, and it is a bubble, when you look at the chart
here, it's totally dissociated from any form of fundamentals, it pops, and people lose money, and I do fear that those are the people that go to the
government and say, hang on a second, you know, I wasn't protected, I didn't understand. There are huge risks here.
[09:05:27]
ROMANS: You know, it is a democratization of Wall Street, which is seen as an elite insiders' game, but then there's also the risk when you open it up
broadly like that, not knowing the consequences could be dangerous. And there's always the last person in who is the person who gets hurt the most.
So I always am worried about people who jump on the bandwagon. You know, I always say -- I always say, you know, you want to focus on your 529, your
401(k), or your IRA and when that is fully funded, and you have play money, fine, play with your play money, but you know, you need to have a financial
strategy, not a get rich quick scheme, and this is also not a lottery ticket.
This is some sort of distortion in the market that's getting an outsized amount of interest, because it is just so wacky, and wild, even the Fed
Chief being asked about it, but you know, buyer beware. Please, buyer beware.
CHATTERLEY: Yes, this is -- this is not in my mind investing. This is not long term wealth building. This is a get rich scheme. And that's great if
you manage to get in and you get out and you take profits and you're okay, but I do feel for those that get caught in this.
And of course, the industry itself is saying, and this is what's fascinating going to the S.E.C. now and saying, hey, protect us, because
this is a 21st Century style pump and dump scheme. And I think this is what --
ROMANS: Yes.
CHATTERLEY: Yes, this is what the regulators will have to be asking questions of, not of the big guys once again, but of the power of the
retail investment community if indeed they are colluding to distort the price and we're going to be discussing this later on in the show.
We're going to be discussing this I feel for a long time. Christine, great to have you with us. Thank you. Christine Romans there.
Now from Reddit to the world's largest social media company, Facebook reporting record sales and profit in the fourth quarter, thanks to a boom
in advertising around the holidays. Revenues jumped 33 percent from a year earlier, net income soaring some 53 percent.
Also, CEO Mark Zuckerberg says Facebook will permanently stop recommending political groups to its users and plans to reduce the political content in
its newsfeed. CNN chief media correspondent, Brian Stelter joins us now.
Brian, great to have you with us. You know, when I read this, it felt a little bit like the corporates that said, you know, we're going to suspend
political donations. That's like me saying I'm not going to buy a Christmas tree and Christmas lights in January, nine months until Christmas, quite
frankly. But what do we think of this move from Facebook?
BRIAN STELTER, CNN CHIEF MEDIA CORRESPONDENT: Right. Right, after a U.S. presidential election --
CHATTERLEY: Bingo.
STELTER: Facebook now says it will deprioritize politics. Mark Zuckerberg does say this will roll out globally. He does say this is a big change for
Facebook. But he has made similar claims before.
So I agree with you, Julia, we should heap some skepticism on to this news. I do get the sense that Zuckerberg having built this machine that is also a
radicalization engine that is distorting politics around the world is now backing away from the table and having some regrets. He said on the
earnings call yesterday, we're going to focus even more on being a force for bringing people closer together, okay.
He said one of the top pieces of feedback that we're hearing right now from our community is that people don't want politics and fighting to take over
their experience on the services. I would say that that feedback he is hearing has been coming in for years. And this move is probably years late.
But the notion that Facebook should not be a political chatroom, a place where people fight about QAnon and crazy conspiracy theories, if he
actually acts on this and makes real changes, it may improve the health and wellbeing of the Facebook world, which, as you've seen, Julia is also the
real world.
CHATTERLEY: Yes. And let's try and reduce the echo chamber effect where everyone only hears views that agree with their own and actually don't
listen to other people, perhaps which, would help, too.
You know, Brian, I remember when the antitrust hearings were going on and you and I were talking about the idea of looking at how the Big Tech
companies impinge on each other's businesses in order to understand and engage the power that they have.
So it was quite fascinating to hear Facebook sort of winching about Apple's potential rule changes on their third-party app collecting of data to say,
look, we're going to allow people to perhaps opt out and Facebook saying, hey, this is going to hurt the small businesses and their ability to
advertise on our platform. What do we make of this?
STELTER: Yes, this is very rare to see Zuckerberg, you know, one Big Tech CEO directly calling out Apple and Tim Cook. Normally, these things are
handled much more delicately and quietly.
CHATTERLEY: Delicate.
STELTER: You know, it's really remarkable to see Zuckerberg on the earnings call again, calling out Apple saying hey, Apple claims they are acting in
people's best interest, but really, this is a self-ish agenda, this is about Apple's benefit, and we'll see if Apple responds and then do kind of
-- and how Apple responds to this, but it reminds me of the upcoming movie "Godzilla versus King Kong" where it's Apple, it's Facebook, they're both
claiming they're trying to protect the cities, the little guys, kind of protect the people, the populations, but it's really these two monsters of
giant companies going at each other.
[09:10:22]
CHATTERLEY: Yes, and let's call it Apple Godzilla in this case is going to say, look, we care about privacy, and we're just going to be selling
monster amounts of iPhones, 5G iPhones. That's exactly what they did.
Brian, thank you so much for that.
STELTER: Thanks.
CHATTERLEY: Let's talk about Apple also reporting its most profitable quarter ever. Revenue for the holiday quarter up more than 20 percent, too,
an incredible $111 billion. As I mentioned, strong sales of the iPhone 12, Apple's first 5G device were behind the blowout earnings, but other things,
too.
Paul La Monica joins us now with the details. We've long been talking about this super cycle upgrades and purchases for Apple beginning, Paul, is that
what we're seeing in these numbers?
PAUL LA MONICA, CNN BUSINESS REPORTER: We're definitely seeing that, Julia. I mean, you add Apple's iPhone sales, they don't break it down by specific
model, but it stands to reason that upgrades to the 12 probably led this surge, nearly $60 billion in revenue just from the iPhone more than
expected, a huge jump about, you know, 17 percent increase from a year ago.
So it is clear that a lot of people that might be sitting there with their iPhone 8, like may sadly still, the 10, they might be finally realizing
that it's time to upgrade. They may not have jumped from a seven or eight to a 10 or even to an 11, but people with the 8, 10 and 11 are finally
realizing that you know what, the 12 looks pretty good. Let's upgrade. Let's buy it and you're seeing this gigantic surge in sales as a result.
CHATTERLEY: iPhone 8. Paul, does that even still work?
LA MONICA: It still works amazingly enough. I have to crank the wheel.
CHATTERLEY: Just checking.
LA MONICA: A little bit.
CHATTERLEY: Exactly. I hear the conks. There are a couple of things in this, I noticed. What issues in China that revenues surging more than 50
percent in China, a record number of people upgrading their iPhones, which is one of the key things here, but also benefiting from one of the huge
challenges, of course that COVID brought, and that's people working from home.
Half of the customers who purchased Macs or iPads in the quarter were new to those products. These are incredibly bullish signals, I think for Apple.
LA MONICA: Yes, definitely. The work from home environment that many of us all find ourselves in, as you can see, I'm not in the studio right now,
obviously, is benefiting Apple. It does lead to this ripple effect, you know, through the entire product chain for them.
It's not just people buying iPhones, people are buying Macs because they need to be more productive at home. There are still, you know, decent sales
for iPads, which can be used for, you know, school and work as well.
So I think that Apple is benefiting from work from home, and it is not just a U.S. trend, obviously, it is China as well. What's notable with China is
that obviously, relations between the U.S. and China have been frosty, to put it mildly, for the past couple of years with the Trump administration
and it may not change all that much under President Biden.
Maybe the tone will, and probably be a little bit less publicly antagonistic, but people don't expect Biden to necessarily lie down versus
China with regards to the economy and big trade issues. So it is telling that a lot of Chinese consumers, even though they have options from
homegrown rivals are still buying iPhones.
CHATTERLEY: Yes, business carries on regardless, or at least it does its best to despite the political overtures.
Paul La Monica, thank you so much for that. The European Union insists that AstraZeneca provides an alternative way to deliver the vaccines delayed due
to production issues in Europe. The E.U. suggest that the drug maker should divert doses from the U.K. production chain.
Melissa Bell joins us from outside the factory in Belgium that's making AstraZeneca's vaccines for the E.U. and CNN has learned that the E.U.
conducted an inspection of the site on Wednesday.
Melissa, great to have you with us. I believe there was so called constructive talks between E.U. officials and AstraZeneca last night, too,
but no real breakthrough on how to tackle this disagreement.
MELISSA BELL, CNN CORRESPONDENT: That's right, Julia, still a sense of frustration coming out of E.U. officials at first the lack of clarity about
just how substantial the shortfall will be. We understand that it'll be about 60 percent for the first quarter. But beyond that, E.U.'s spokesman
saying that they really don't have that much clarity about how bad it will be beyond that.
Now we heard earlier this week, of course, Julia from Ursula von der Leyen saying look, the E.U. means business when it comes to this. They're going
to make sure that Big Pharma groups deliver the vaccines they promised, stick to their contractual agreements, and perhaps a real sign of how
serious the E.U. is about this is that inspection that you mentioned here at this site.
Now we've had it confirmed to us that it was yesterday that the Belgian Medicines Agency at the request of the European Union, Julia, came here to
inspect the site in order essentially, to verify what the CEO of AstraZeneca had explained, according to him, the shortfalls in getting the
AstraZeneca vaccine to the E.U. were the result of production problems at this particular site.
Yields from these cell cultures that were simply not as big as they were at other sites. That's what the Belgian Medicines Agency came here to get to
the bottom of yesterday, they will now produce a report that could take several days to get out.
But the fact that it happened, Julia, I think, speaks of just how bad the blood has become between AstraZeneca and the European Union over this.
CHATTERLEY: Yes, absolutely. Very, very awkward. And you've got to get back to your population and say, I know you're hanging on in there, but you've
got to wait a bit longer for these precious vaccines.
Challenges all around. Melissa Bell, thank you so much for that update there.
All right, we're going to take a break, but still to come on FIRST MOVE, the man behind Wall Street vets. We're joined by the founder of the
GameStop saga, Reddit group.
And boosting spirits. Diageo saw unexpected sales growth as U.S. drinkers turned to tequila in the second half of 2020. We've got the company CEO
later on the show. Stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE live from New York where U.S. stock futures have turned higher after shedding more than two percent Wednesday.
That's the picture that we're seeing. There is still clearly a lot of nervousness over how the market mille pitting short term retail investors
against established Wall Street players will ultimately end. That nervousness clear from the VIX Volatility Index that soared 60 percent
yesterday. That was one of the biggest jumps ever.
And the last thing of course the U.S. economy needs is added uncertainty. First time U.S. jobless claims coming in at 847,000 last week. Also the
latest U.S. GDP numbers out today, too. The economy growing at an annualized rate of four percent in the last quarter, that's much slower
than the torrid 33 percent bounce back during the summer.
[09:20:13]
CHATTERLEY: All right, let's talk about the GameStop saga already having wider political ramifications, too. Senator Elizabeth Warren demanding that
U.S. regulators rein in the hedge funds and the private equity firms that she says has treated the market like casino, perhaps no surprise there, but
Jordan Belfort who is the Wolf of Wall Street trader convicted of stock manipulation during the dot-com boom, told Richard Quest last night on
"Quest Means Business" that the government will be forced to take action.
(BEGIN VIDEO CLIP)
JORDAN BELFORT, AUTHOR, "WOLF OF WALL STREET": The S.E.C. and N.E.C. playing catch a ball. They're always trying to figure out how to stop it.
So eventually, they will do something here and they'll come up with some laws or circuit breakers that don't allow this to happen. But that could
take three to six months. It will eventually, I believe, stop and it should.
(END VIDEO CLIP)
CHATTERLEY: The talk on Wall Street today is that the S.E.C., the regulator is now hearing from hedge funds pleading the some form of action.
Jacob Frenkel joins us now. He is a partner at the Washington, D.C. law firm Dickinson Wright, and he is a former S.E.C. senior counsel. Jacob,
fantastic to have you on the show. I want to break this down actually to three things if we can.
The first thing which is the sort of market volatility and the soaring of these specific share prices, then we've got the action and the behaviors of
short sellers in the market and the role they play, and then we've got the Reddit revolt, those on social media that we're talking about buying these
stocks.
Can we start there? From an S.E.C. perspective, do you see any form of manipulation or malpractice in what was done there for those retail
investors?
JACOB FRENKEL, FORMER SENIOR COUNSEL, U.S. SECURITIES AND EXCHANGE COMMISSION: Julia, I think the best way to sort of put it all together is
when you have this kind of market activity, this market volatility, the S.E.C.'s Enforcement Division certainly is going to investigate. The
existence of an investigation does not mean that there is a violation of the securities laws, but I can easily see the enforcement division really
looking at three things: fraud, manipulation, and again, we're talking about a New York Stock Exchange listed stock, so there's a specific statute
within the Securities Exchange Act of 1934 that actually defines a manipulation and that's certainly something that they will look at.
And we'll also look at whether there were enough investors somehow to be perceived as forming a group that may actually give rise to a group
disclosure obligation, which on the other hand, you can argue, well, that's usually for effecting change within a company whether it be for corporate
governance or other purposes, and that's not really the purpose here.
I think, fundamentally, what the S.E.C. is looking at is what -- and needs to know, from a regulatory perspective is what is going on here? There's
plenty of regulation in place to protect all investors, whether it be the funds, whether short or long, whether in the individual investors, but one
of the things that I am advocating for, and I still do, I mean, look overnight pre-trading, the stock hit $450.00 a share.
I mean, you look at the fundamentals, there's a complete disconnect. You know, are we moving away from fundamentals being important? These are all
issues that the S.E.C. does need to grapple with. I don't know if it's more regulation, but I do think there is scrutiny and there needs to be a real
focus at the S.E.C. level as to not how stop it necessarily because we've seen momentum trading, momentum trading is not going to become illegal.
It's really more a matter of what is going on here and are their market phenomena?
Do the circuit breakers really work? Or are they sort of old school in the current market? And what's the real motivation behind this trading? A lot
of questions, good questions, important questions that I think can be solved in part by the S.E.C. imposing a trading suspension and to be clear
what the statute says it's for 10 days, the S.E.C. could also -- it says up to 10 days.
So the S.E.C. easily could step in and impose a one or two-day trading suspension to try to create some order and stability in the market.
CHATTERLEY: But when you've got a social media group and a bunch of people and I want to get back to you a very important point, I think about when
it's a group of individuals talking about doing something, and if they're not actually talking about the fundamentals, they're just talking about
perhaps tackling the elites whether that starts to look like collusion to adjust a share price of a stock away from the fundamentals, whether that
does start to look like something the S.E.C. needs to investigate, but isn't this the point?
FRENKEL: You raise a great issue. I think that's one that the S.E.C. is really going to grapple with, because the S.E.C. is not -- is not going to
step in and regulate free speech.
I mean, you know, but nevertheless, message boards historically have been a vehicle for stock manipulation. So these are the dynamics that the S.E.C.
is going to deal with.
[09:25:06]
FRENKEL: I mean, merely -- let's assume just for the sake of oversimplifying, you know, this is a movement that is a combination of
anti-short and anti-wealth, you know, does that in and of itself justify regulation? No, the fact is, these are just new and different market forces
that are at work, but where the S.E.C.'s mission is, is investor protection.
The S.E.C. wants to maintain fair and orderly markets. And the question is, if there are now phenomena that are upsetting the ability to maintain fair
and orderly markets, that's where the S.E.C. needs to look at approaches to, you know, intervening. And the simplest way to do that is by creating
the S.E.C. version of a trading halt, and it can do so for a short period of time, but assert itself as saying, there needs to be clarity as to the
information that is in the marketplace that is causing the stock to move.
CHATTERLEY: Right. Because this is the key, I think, and I understand your point about not limiting free speech, but where does not limiting free
speech and then identifying something that's pump and dump -- 21st century style -- 2021 style pump and dump. And this is the key.
FRENKEL: Well, Julia, let's dial the clock back nine months, you know, to the S.E.C. using this trading suspension of authority very vigorously in
connection with stock manipulations involving COVID-19 solutions.
The S.E.C. brought 35 to 40 trading suspensions back last year, this is a different phenomenon. But we've also have a lot of new entrants into the
market, who seem to be wanting to impact the market for different reasons. And while our focus is on GameStop, we're already seeing this occurring
with other securities and it comes back to the fundamental question of, to your point, is there manipulation?
That will be the focus of an S.E.C. investigation, but we won't know the results of that for a year to 18 months. And meanwhile, because of the
ability to access information to communicate so freely and so quickly and impact the market, I think we really are -- that is why the S.E.C. needs to
move quickly to make a statement. And to me again, I don't -- it's not a lobbying, it is really just my opinion, is a trading suspension to
accomplish -- let's make sure there is full and fair information in the marketplace about this issue that's informing the decisions that is within
the S.E.C.'s administrative -- it is not enforcement -- administrative authority.
CHATTERLEY: It is so funny when I see all the emotion and the anger and some of what's led to this, some, not all admittedly, I just -- I don't
feel like a cooling off period will work. But it's a fascinating discussion. I will never be forgiven, if Jacob I don't get quickly to ask
you your view and we have about 30 seconds whether there is enough protections against short sellers and their behavior in this market.
Some think they are helping smaller investors from getting caught out with bad companies, others say, you know, they're anti-business and they're
trying to make business fail. Is there enough regulation against short selling?
FRENKEL: Well, the question, in all fairness makes a presumption that the shorts do not have an important role in the market. I believe that the
shorts do have an important role in the market, which is to ensure that there is a proper pricing mechanism that exists.
So I think there is plenty of protection. I don't think that regulators should be stepping in and preventing short selling. To me there's a
difference between short sellers who do serve a constructive, meaningful purpose, if they believe there is fraudulent activity in the market, or
security is overpriced.
That's the -- you know, that's the balance. That's the battle that goes on all the time in what I call fraud shorts. Those who are putting out
materially false information for the purpose of driving down the stock price, but at the same time, that happens on the long side, too.
So I do not think it would be reasonable or fair to create additional regulations. You know, this is a sophisticated market. It's a free market,
and one in which both shorts and longs have a right to participate.
CHATTERLEY: Yes, Jacob, great to have you with us. There's going to be some debating over the next few months. Jacob Frenkel, a partner at the
Washington, D.C. law firm -- keep to your business, sir -- Dickinson Wright. Thank you.
After the break on FIRST MOVE, the founder of Reddit WallStreetBets, is GameStop a blip or a statement or the start of something much bigger? Stay
with us.
(COMMERCIAL BREAK)
[09:32:53]
CHATTERLEY: Welcome back to FIRST MOVE. U.S. stocks are open for trade this Thursday and we do have a higher open, but of course, trading was volatile
premarket, so we'll watch this space. The action on U.S. markets will be watched by a wider global audience, I think today as we track the
speculative shares that have soared into the stratosphere over the past week as we've been discussing.
It looks like the air has been taken out of some of those well-known names like GameStop and AMC. Look at that. Both are lower in early trade this
morning, but still sitting on huge, huge year-to-date gains. We'll call this consolidation.
Well-established tech names are active, too after a mixed batch of earnings last night. Tesla, Facebook and Apple are mixed in early trading. Facebook
at this moment, the only one higher.
All right, the WallStreetBets Reddit page has been at the center of the GameStop frenzy. It is a trading forum with over four million followers who
share information and chat on trading companies like GameStop. Some say it feels more like gambling than financial analysis.
On Wednesday, it was briefly taken private by moderators because of technical issues. Joining us now is Jaime Rogozinski. He's the founder of
WallStreetBets, and he founded it nine years ago, but did step away from it last year.
He's also the author of "WallStreetBets: How Boomers Made the World's Biggest Casino for Millennials." Jaime, great to have you with us, aptly
named in the book. And actually, you did predict I think some of what we're seeing here with these Redditors talking about buying these stocks that
were heavily shorted. But did you ever imagine this could happen when you founded the platform?
JAIME ROGOZINSKI, FOUNDER, WALLSTREETBETS: You know, like I said, I predicted the trajectory where things were going, but by no means did I
predict the timing or the magnitude. This thing has happened so quickly, so fast. I think that the turning point was when I saw yesterday, the White
House was commenting on this story. I can't imagine that I ever envisioned this happening.
CHATTERLEY: You've been quoted as calling this a train wreck happening in real time. What do you mean by a train wreck?
ROGOZINSKI: You know there's a lot of forces at play that have just been never been tested. There's a lot of people looking and commenting on the
story looking for precedent before and there just isn't. It is two different dynamics. There's too many people, the technology, the social
component of it and the regulation, which, quite frankly, I think was written the time that it wasn't able to predict this type of thing, either.
So we're going to see it. What we're seeing is kind of this collision between a system which is clearly not behaving the way it should be
behaving, yet, nobody is prepared to handle it on the regulatory side, the government side or on the actual forum itself.
[09:35:33]
CHATTERLEY: We just had a senior council member formerly at the S.E.C. saying that there's enough regulations in place for everyone here to
protect them. But I kind of agree with you, I do see a pretty seismic shift here and it's a combination of social media platforms like Reddit that
allow people to talk about what they're going to do and to debate these things, and to collectively make a decision to do something combined with
what we're calling the democratization of access to financial stocks through platforms that, for the most part are free.
It's created a sort of a perfect storm that's allowed the power of the people to take on hedge funds in the way that we've seen.
ROGOZINSKI: That's correct, you know, there's a lot of talk about how this resembles the 90s and how there was the dot-com bubble and how there were
chat rooms in those days where people would discuss things in a similar fashion. But this is fundamentally different because no longer are these
people placing bets on you know, a sports game or a horse race. They're placing bets in a market in a way that they're actually affecting the odds
of the outcome.
The numbers are so big and the access, which is the key to your question, is the biggest part. Because this is so easy, free, readily available,
completely gamified on people's cell phones, they're able to instantly get getting their participate and start using these sophisticated leverage
tools that they're able to exploit the asymmetry of money, right? A lot of people, little money, but they're forcing the big guys to -- you know, they
are forcing the hands of the big guys.
CHATTERLEY: It's kind of sexy, making lots of money, and some people are making real amounts of money, paying off school fees, paying off mortgages.
It's sexy also when the headlines say a hedge fund has got caught on the wrong side of a trade and now needs bailing out for billions of dollars by
friends in the industry.
Jaime, but at some point, the bubble will pop and people will lose money. Is this a real movement that will go on? Because we are seeing it in stocks
beyond GameStop? Or do you think when people start to really lose money, then they'll go hang on a second, I didn't know what I was doing and it all
fizzles.
ROGOZINSKI: Let me challenge you.
CHATTERLEY: Please.
ROGOZINSKI: And the framing of this whole bubble popping is a boomer mentality, right? What is a bubble?
CHATTERLEY: Well, thank you.
ROGOZINSKI: A bubble, you know, it's just this idea that the stocks are going to change direction. You know, what's going to happen when this quote
"bubble" pops? In other words, when the stock starts falling? These people are going to switch to buying puts, which is a, you know, a bet that the
money -- that the price is going to go down, and they're going to make money on the way back down as well.
The bubble to them is just what direction should we buy today? Should we buy up or down? And they're gnostic as to what happens. There's no -- none
of these people are buying the shares. They're buying stock options.
CHATTERLEY: Not all of them, Jaime, come on. I agree with you that there are a lot of smart people that got in early and a lot of smart people will
be buying options on this on the downside or on the upside, but not everybody and some people will get really badly hurt. It's actually not a
game.
ROGOZINSKI: Well, you're right. No, it's not an -- but it is if we want to call it a zero sum game, right? There is for every trade, there is a person
that makes money and a person that loses money.
CHATTERLEY: Admittedly.
ROGOZINSKI: That's the rule since the inception of Wall Street. Guess what? Every time you see a transaction, there's somebody that made money and
there's somebody that loses money. Period.
CHATTERLEY: And some of this makes investors invest and some of this makes regulators really nervous.
ROGOZINSKI: For sure, and you know what? I don't envy any of them. I don't envy the regulators, they have a really difficult time on their hands.
S.E.C., FINRA, whoever else is getting into this. I don't envy the current moderators of WallStreetBets, I certainly wouldn't want to be caught
actually involved with any of these trades.
I don't envy Reddit. They're in a really sticky situation. You know, it's - - I am enjoying this from the sidelines. It's extremely interesting, and I definitely think it's going to lead to some change.
CHATTERLEY: Do you think financial markets are forever altered by what we're seeing? Because after the financial crisis, we saw the participation
of models and algorithms and this belief that it's emotions and people making decisions is quite frankly not true. There's a lot of pressures and
flows in this market that aren't ruled by human emotion. They're ruled by triggers and bi-directional change.
Do you see the participation of retail investors and the democratization of finance as a fundamental change in financial markets that perhaps we've not
reckoned with before now?
ROGOZINSKI: You know that's a great question. I do. I do believe it, but that change has been perpetual ever since the beginning of the stock
market.
You talk about all these different players that are involved that, you know, the first thing that comes to mind is when we had a volatility issue
in February of 2018, stock markets did some really crazy things that is extremely technical, and it's really fascinating for those that are
interested.
But that was a result of a lot of different players getting their hands into this really complicated system and it crashed the stocks like five
percent that day.
[09:40:29]
ROGOZINSKI: What we're seeing now is the acceleration of that. You know that every time something like this happens, they make adjustments, they
correct it the dot-com -- sorry, also in the financial crisis, but the speed at which this thing is growing is what is making it really hard to
keep up with.
I definitely think that there's going to be changes towards the longer term and I think that the force with which this is happening is slapping
everyone in the face and forcing them to do something about it now.
CHATTERLEY: Yes, it's one definite wake up call. I can tell you. I have about 20 seconds, Jaime, are you confident this isn't pump and dump 2021
style?
ROGOZINSKI: You know, that is such a loaded question. Pump and dump has very, very specific definition to it.
CHATTERLEY: It's illegal.
ROGOZINSKI: And people -- and it's illegal, of course, it is. And so is manipulation and fraud, and all sorts of different things like that.
In order to pump and dump, you actually have to dump your stocks on an unwitting investor. As I said the majority, 30 million options were traded
yesterday. Never in the history of the market. These guys aren't dumping stocks, they are dumping options.
CHATTERLEY: Yes, that's exactly -- buy that put. Jaime, great to have you with us. We'll chat again soon.
ROGOZINSKI: Thank you for having me.
CHATTERLEY: Thank you. The founder of WallStreetBets there.
All right. Up next, pandemic proof drinks. Diageo CEO joins us next.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE. Shares in drinks maker Diageo are trading higher this morning. Strong North American sales of hard liquor
drove an unexpected sales growth in the second half of 2020. Diageo has also raised its interim dividend and joining us now is Ivan Menezes. He is
the CEO of Diageo.
Ivan, always great to have you on the show. You know, I read over the presidential election that the most Googled -- or one of the most Googled
phrases was "liquor store near me" and I look at your results and I think that was probably true for the entire quarter and there was a lot of
tequila buying going on.
[09:45:31]
IVAN MENEZES, CEO, DIAGEO: Hello, good morning. We're very pleased with our performance. Overall worldwide, we grew one percent, which is putting us
back to pre-pandemic levels, but the standout performances were North America that grew 12 percent and China that grew 15 percent, and in the
U.S. market, the trend towards premium spirits at home when the cocktail culture is alive and we've had -- we pivoted very quickly to target our
marketing and innovation to the new locations that have developed through the pandemic.
And our entire portfolio is very robust. Tequila had astonishing growth, Don Julio and Casamigos together in the U.S. are up 80 percent, but Johnnie
Walker was in double digit growth, as was Baileys. Ciroc grew 17 percent and the premium end of the business, people are drinking better and they
are moving to more premium brands.
And we benefit from that because we've got a wonderful portfolio sitting at the top end of the market and the trends are very encouraging. Spirits is
consistently taking share from beer and wine and we benefit from that.
CHATTERLEY: That was the good news certainly. And I also saw the numbers in China as well, which are, for those that are looking for evidence of
further recovery, it looks really good.
The sort of more negative side of the story here is what's going on in Europe and in Turkey. Just talk me through what you're seeing there to
where we've clearly seen further efforts to mitigate the virus spread and of course that has an impact on people's ability to go out and drink.
MENEZES: Right. Our European business, about half the business is out of home. In the United States, 20 percent is out of the home, 80 percent is in
home. And a brand like Guinness which is predominantly consumed in the pub with the lockdowns has got impacted, so total Europe business is down 10
percent.
But like the United States, the at-home occasion, we're doing very well. Spirits business is growing market share and doing well there. We're
predominantly held back by our Guinness business in the U.K. and Ireland and in Southern Europe, where a lot of consumption is out of the home and
in places like Spain and Portugal and Italy, the lockdowns impact us there.
But we remain confident about when the recovery happens. We see our business coming back strongly. The human orientation -- and we track this
in our consumer research -- to want to go to socialize outside the home in bars and restaurants, festivals, sporting events, is very strong.
And as conditions get to normality again and people feel safe to go out, and we're seeing this in China, for example, the recovery of out of home
consumption has been very strong. So Europe is tougher right now and it has more lockdowns in the restaurants and bars around the U.K. and the European
continent, but hopefully, things will get better. We're not counting nor can we predict the timeframe.
CHATTERLEY: And that was going to be my next question --
MENEZES: Yes.
CHATTERLEY: Difficult to predict.
MENEZES: Difficult to predict, and so we're focused on what we can control. We are supporting the on trade, bars and restaurants significantly. We've
put up $100 million fund to help them get their premises to be more COVID secure, where we're training the bartenders. Brands are giving back to
customers.
So we're standing shoulder by shoulder with the hospitality industry, which has been significantly impacted, and it's so important for the recovery
because one in 10 jobs is in the hospitality industry and it's mostly young people. So the recovery of the sector is really important for economic
recovery as well.
CHATTERLEY: Yes, business, as you quite rightly point out has to play its role, too.
Ivan, great to have you on the show. Thank you so much for joining us. Come back and talk to you soon because I wanted to talk to you about the online
opportunity. But I've run out of time here, too.
So as always more to discuss and we shall reconvene. Sir, thank you so much, the CEO of the Diageo there. Thank you.
You're watching FIRST MOVE. More to come. Stay with us.
(COMMERCIAL BREAK)
[09:52:06]
CHATTERLEY: Welcome back to FIRST MOVE. Dubai is getting ready to host one of the world's largest events this year, the delayed Expo 2020. More than
190 countries will showcase innovations at the event which opens in October. And if any sector of business is poised to cash in on the wave of
change, it is small and medium sized enterprises, as our John Defterios reports.
(BEGIN VIDEOTAPE)
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR (voice over): Seven years ago, Stevi Lomas saw a gap in the multibillion dollar global soap
market. She developed a handcrafted product with a key ingredient from the Middle East, camel milk.
Using locally sourced natural ingredients, the milk is mixed with oils placed in molds, dried and manually cut into bars.
STEVI LOMAS, FOUNDER OF THE CAMEL SOAP FACTORY: The camel milk in the south is really, really gentle on the skin. So it's really good for people with
skin complaints or people who are sensitive to detergents and detergent products.
DEFTERIOS (voice over): Her products which she makes in a factory on the outskirts of Dubai relies heavily on the tourist market. But they've been
hit hard by the COVID pandemic.
Now, thanks to Expo 2020, her camel soap factory has been given a chance of global exposure as her Expo branded soaps have received a license to be
sold during the six-month event.
LOMAS: We're hoping for up to 30 to 40 percent of our revenue will be generated by Expo. We're hoping to create a brand that actually represents
the Middle East both in terms of the ingredients that we use, but also the kind of products that we're developing and making. So for me, Expo is all
about helping build that brand recognition.
DEFTERIOS (voice over): The Camel Soap factory is among 46,000 small and medium sized enterprises that have applied to be part of Expo 2020. The
event which is expected to attract millions of visitors has pledged to spend a fifth of its budget on SMEs and has already provided more than $1
billion in aiding the sector so far.
KHALID SHARAF, DIRECTOR, INTERNATIONAL BUSINESS ENGAGEMENT AT EXPO 2020 DUBAI: There are a lot of opportunities that are going to come from
investments to partnerships to networking. So we're creating and developing a lot of these programs and activities to make sure that businesses, SMEs
startups come at the right time and meet the right people.
DEFTERIOS (voice over): For the likes of the Camel Soap Factory, it is a potential Lifeline as it is emerges later this year into what is hoped is a
post pandemic world.
John Defterios CNN, Dubai.
[09:55:10]
CHATTERLEY: John Defterios there. All right, we're just about wrapping up the show, but I just want to give you a quick spot check of what we're
seeing for those stocks, GameStop, up a further 16 percent plus as you can see. AMC, the cinema chain down 26 percent. Remember that was up 200
percent yesterday, so perspective. And the latest stock that's got a big short interest out there now up some 25 percent in the session today.
Early times, many hours to go in this trading session. It could be an interesting one, but that's it for the show. I'm Julie Chatterley. Stay
safe. "Connect the World" is up next.
(COMMERCIAL BREAK)
[10:00:00]
END
