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Quest Means Business
Dow Loses More Than 500 Points; Chinese Stocks Crash 11 Percent in One Week; Chinese Manufacturing Slowdown Deepens; Dow Nosedives; European Markets Down; Worst Weekly Sell-Off Since 2011
Aired August 21, 2015 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:59:55] (NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: The Dow is closed down 528 points. A loss of 3 percent on the market over the course. The closing bell has rung, the
gavel has been hit, it's Friday, it's August the 21st.
This rout as fear grips the markets around the world. US oil is also down, below $40 for the first time in six years.
Put it all together, we have a busy hour together as I explain with my guests why the market has turned turtle on this Friday.
I'm Richard Quest. I mean business.
Good evening. Markets all over the world have gone into free fall on Friday, and it's been led by this massive fall and drop on Wall Street.
The reasons we'll get to in a moment, but let's just pause and follow how the trading day went.
Having lost over 350 points on Thursday, the market was set for a sharp decline. A bit of green at the beginning, but we'll ignore that. It
opened down, and the selling continued through the course of the morning.
The real impetus behind all of this was what has been happening in China and concerns over China manufacturing. Oil prices, which continue
fall, oil went under $40 a barrel today, also fed into the sell-off.
The market continued to fall until we get to about 3:00 in the afternoon or 3:30 or so, and then we started to see this very serious
selling, down some 529 points, 16,460, a loss of 3 points.
These two days combined are the worst sell-offs in four years, and when you total up since the high of May, since the recent all-time high
back earlier this year, we are now well and truly into correction territory, which of course, is a loss of more than 10 percent.
Tim Anderson joins me now from the New York Stock Exchange. What happened and why, Tim?
TIM ANDERSON, MANAGING DIRECTOR, TJM INVESTMENTS: Richard, you nailed it. China is definitely an issue. Global growth is an issue. Our
attitude on the floor is to embrace the volatility. It's been a long time since we had an extended decline like this.
We had a very sharp decline last October that went down for about two and a half weeks and then back up. It's due -- we're way overdue for
another correction, if you want to call it that, without arguing about exactly what defines a correction.
And we just view this as a healthy, cleansing process for right now, although no doubt, there are some issues for the market to deal with --
QUEST: All right.
ANDERSON: -- going forward.
QUEST: But Tim, it's the brutality of yesterday and today that is striking at the moment. I mean, I look now at the graph, it looks like the
Himalaya Mountains over the course of the year. It's that brutality that's fascinating.
ANDERSON: Yes, it is. And shortly before the close, we had 609 new 52-week lows and zero new 52-week highs. That follows 360 new 52-week lows
yesterday. Now, at the bottom of the October correction last year, we had two consecutive days of 600 new 52-week lows.
So we think that this could set up a very short, a very oversell condition short-term, and we could be looking at a bounce sometime next
week.
QUEST: So, I'm just --
ANDERSON: Obviously investors -- go ahead.
QUEST: I'm just looking at the various components that were down today. You've got more up-to-date numbers than I have on my screen. But
I'm seeing a lot of the financials -- Goldman Sachs off 4.5 percent, Home Depot down 3.5 percent, Chevron down 4 percent. Where is the -- where's
the symmetry in all of this in terms of who got clobbered most?
ANDERSON: Richard, big -- big mega global funds are raising cash, and they're raising cash in very liquid stocks the last couple days, not
necessarily representative of what their investment decisions might be in those stocks.
They're raising cash for either redemptions that they have or redemptions that they think they might be getting after people read the
headlines over the weekend. So there was very little place to hide in the market the last couple of days. Early in the day --
QUEST: Right.
ANDERSON: -- even when oil was down, oil shares were up a bit, that didn't last very long.
[16:04:58] QUEST: Tim, just a couple more minutes as we put this to bed. The viewer tonight needs to know one simple question -- the answer to
one simple question: is this serious? Does it feed into next week, or is it a bit of August nonsense?
ANDERSON: It very likely could lead into next week. We don't know what kind of headlines we're going to get over the weekend. There was a
lot of chatter the last couple days that China could be lowering reserve requirements for their banks shortly. They might do that over the weekend.
We don't know yet.
QUEST: Right.
ANDERSON: We don't know whether this is the low or whether it's going to go on for a bit. We just have to watch it very carefully.
QUEST: We watch it very carefully, and we thank you, sir, for riding to the rescue at the top of our program tonight and giving us your
expertise. Have a good weekend.
ANDERSON: Thank you, and have a good weekend.
QUEST: Have a good weekend. Right. Whoa. You can get an idea. Let's just pause for a moment, and I'm going to remind you, look at the
Chinese market that took place. Because so much of what we're talking about is about China.
And what happened in the Chinese market this week might also have been scripted to teach Beijing a lesson that you can't buck the markets.
Margaret Thatcher said that some years ago.
The Shanghai Composite sank more than 11 percent over the last five sessions, starting over there, continuing. We had a bit of a rally on a
Wednesday, but that rally petered out, and it went down quite sharply overall, ended with a drop of 4 percent this Friday, the biggest weekly
loss since the government began it's drive to prop up a falling market.
And today, many stocks fell the maximum 10 percent. Some analysts believe Beijing will try to keep it above 3500 on that market as long as
possible.
The concerns are mounting gears that driving the Chinese economy are slowing. So for years, China's breakneck growth has been powered by
manufacturing, and manufacturing has been slowing very slowly. Today, manufacturing numbers showed that the biggest slowdown in some six years.
In construction as well, also an area, counts for 30 percent of GDP. New building has overshot what the country needs. So two crucial engines
of growth are stalling, manufacturing and construction.
Now, Beijing knew something like this was coming, and it wants consumption and services to expand at a much greater rate of the economic
activity. And although retail is growing as part of all this, consumption and services, the growth in sales of smartphones of cars, they are actually
going backwards.
Let's put all this together and talk more about this. Patrick Chovanac is with me. Sir --
PATRICK CHOVANAC, CHIEF STRATEGIST, SILVERCREST ASSET MANAGEMENT: Good to see you.
QUEST: Make sense of it all.
CHOVANAC: The market is waking up to a story that it has long ignored but doesn't fully understand.
QUEST: Which is what?
CHOVANAC: Because China -- people see this and they say, this is the moment that we've been dreading, China is -- the developments in the China,
the slowdown in China. I think it's the moment that we've been waiting for to get the global economy on a more sustainable growth path.
The adjustment that's taking place in China, first of all, the market adjustment is long overdue in terms of the equity market there. But it's
reflective of a change in the gears of the Chinese economy that needs to take place.
QUEST: OK. But to the core question, has the Chinese -- has the government in China lost control of the economy?
CHOVANAC: I don't think it was in control of the economy. I don't think that -- a lot of people --
QUEST: So you're saying yes.
CHOVANAC: A lot of people felt that this was a controlled slowdown. It hasn't been for the past two years. But this slowdown in the Chinese
economy has been taking place over the past two years, and it's only now being reflected in things that are grabbing people's attention.
QUEST: OK. So far so good, but if you look at what they did to try and rescue the market, first, let's just go through the list of things that
they -- the Chinese have done. Firstly, they poured money into the market and got everybody else to buy their own shares.
Then they suspended shares at the same time. Then they did a stimulus, package, several stimulus packages to try and keep going. Then
they altered the currency, the yuan, to try and keep that going. Are these the acts of rational economics?
CHOVANAC: They're not going to stave off the economic adjustment that China faces, no. And we've had this conversation before. I've said that
their effort to shore up their stock market wasn't going to succeed. If they cut the required reserve ratio over the weekend, that might boost some
sentiment on Wall Street, but it's not going to change the overall trajectory of the Chinese economy.
QUEST: The Chinese economy is the second largest in the world, but on a GDP-per-capita, it's still relatively small. And so, the question is,
why does -- are we seeing this phenomenal transmission of worries about China to what you see today in a Dow Jones down 500 points?
[16:10:03] CHOVANAC: Well first of all, China -- people talk about China being this growth driver, it's driving the global economy. In fact,
China has been a deriver. It's run chronic surpluses -- trade surpluses, it's deriving its growth from demand external to China.
That model has reached its sell-by date. And that's why the reaction in 2008 was to double-down in investment and create growth through
investment and over-investment.
QUEST: But a China growing -- look, the number they say will be 7 percent this year. You don't believe that.
CHOVANAC: No.
QUEST: What do you put that at?
CHOVANAC: And most people think that it's significant --
QUEST: Five?
CHOVANAC: Five, four, three. I don't think --
QUEST: Do you think two?
CHOVANAC: -- it's impossible for China to go into recession.
QUEST: If that's the case, then what effect happens in the rest of the world?
CHOVANAC: What matters to the rest of the world is China's ability to consume, to demand, to add to global demand, not its output. In fact, part
of the problem with the imbalanced --
QUEST: Right.
CHOVANAC: -- global economy now is that China has not only --
(CROSSTALK)
QUEST: Well, when you say --
CHOVANAC: -- added to the global glut --
QUEST: Hang on. When you say consume, do you mean Chinese industry to consume raw materials and commodities, or do you mean Chinese consumers
to consume?
CHOVANAC: Chinese consumers to consume, but then also support more sustainable investment in the Chinese economy. Because what's happening
right now is that they're driving growth through investment, but for who? They're creating overcapacity in the global economy. They're adding to the
glut.
QUEST: OK. Final -- I'm going to ask you the question that I asked Tim down at the stock exchange. When we look at what happened today --
let's see the Dow Jones again. When we look at what happened today with the Dow, off 530 points on a random Friday in August, do you take this as
being something serious, nothing serious about the US economy? What do you take it as?
CHOVANAC: I don't want to be Pollyanna-ish about the US economy. There are some strong points and there are some weak points there. And
actually, valuations have been a little stretched, given earnings.
But this is not something that is going to suddenly be a game changer. This is something that we have -- the adjustment that's taking place in
China is something that we've been living with for a while, and also --
QUEST: Right.
CHOVANAC: -- is not uniformly negative for the US economy.
QUEST: Good to have you, sir. Thank you. I appreciate it.
So, it's not often that you have a day like today. This is the worst session of the year. Taken with Thursday's session, it's the worst since
2011. The market is now officially, depending on your definition, but I think we can all agree a 10 percent from its recent all-time high, it is a
10 percent -- more than a 10 percent correction.
The Dow Jones off 3 percent on the Friday session, 2 percent on the Thursday session. We'll have the latest from Wall Street. QUEST MEANS
BUSINESS, good evening.
(RINGS BELL)
(COMMERCIAL BREAK)
QUEST: QUEST MEANS BUSINESS, it is a Friday. I wish I had better news to bring you, but as you'll see from the numbers, the Dow Jones
Industrials, which have been lower all session, decided to turn turtle at the end and closed at the lowest point of the day, as best I can tell from
that chart, down 530 points, a loss of 3 percent, 16,459.
Joanne Lipman is the former deputy managing editor at the "Wall Street Journal." CNN's Poppy Harlow, who's familiar with this chair --
(LAUGHTER)
POPPY HARLOW, CNN BUSINESS CORRESPONDENT: Filling in.
QUEST: Never.
HARLOW: Trying to fill your shoes, which I can't, especially on a day like this, Richard.
[16:15:01] QUEST: Well, come on. Let's start with you, Joanne.
JOANNE LIPMAN, DEPUTY MANAGING EDITOR, "WALL STREET JOURNAL": Plug it in.
QUEST: Give us -- you've heard the guests. You've heard Tim at the exchange saying it's China. Well, all right, so it's China. But what do
you make of this?
LIPMAN: So, what you have to remember -- OK. China kicked this all off. And really, this started -- think about this -- a week ago, right?
When China devalued its currency, people started getting nervous. And then we start looking for more things to be nervous about.
And so, we're looking -- we're focusing on anything bad, as opposed to some of the really positive news that's been coming out of the economy and
out of corporations. So, what you've got here is largely a reflection of psychology as opposed to market fundamentals.
QUEST: Poppy, I'm looking at the markets. I'm looking at the Dow components. Microsoft was one of the largest losers --
HARLOW: Right.
QUEST: -- it's a 5.6 percent Microsoft was off. And Apple, which I think, if I'm not mistaken, Apple is the largest loser on the Dow.
HARLOW: 5.8, right.
QUEST: No, 6.1.
HARLOW: Ah.
QUEST: I mean 6.1 percent. Even Goldman Sachs is down 4.5 percent. But there's now symmetry in any of that, other than --
HARLOW: Good thought, right. So, it's broad-based, so it plays into the psychology argument here that this is a psychological sell-off, but
also partly fundamental, looking at China, wondering do we believe the numbers out of China? Was it 7 percent growth, or is that not exactly
accurate?
I think also the question is, has this market reflected the unemployment problem in this country that still is very relevant? These
companies are doing extraordinarily well, they've had record earnings --
(CROSSTALK)
QUEST: What unemployment problem --
HARLOW: -- quarter after quarter --
QUEST: -- in this country?
HARLOW: It's not all reflected in the unemployment numbers. And you say that, but there are still -- the jobs that have come back, many of them
are not jobs that pay as much as they did. The income gap is widening, and there's still concern over the US economy and over demand, when you look at
oil prices. Oil prices falling below $40 a barrel since 2009, part of that is demand.
QUEST: All right. But that only affects -- that fall in oil prices - - if somebody in my ear tells me what oil closed at today, please, when you get a moment -- that oil price, which dipped below $40 a barrel today for
the first time in so many years, closed at $40.20 for NYMEX. That's a positive for the US economy, unless you happen to be in North Dakota or
Texas.
LIPMAN: Well, if you're in North Dakota, Texas, New Mexico, it's not good for you --
HARLOW: For your job
LIPMAN: -- right? It's not good at all for your job. So, clearly, there's a good -- there's a plus and a minus. For the average consumer
who's on the road, who's taking a road trip, maybe taking their kid back to college, yes, that's actually not a bad thing.
QUEST: Well, hang on. For all these manufacturing companies as well, where energy is a large component in the cost of manufacturing,
distribution, transportation.
HARLOW: If the demand is there for their goods.
QUEST: But you're -- but hang on. The US economy this year -- I'm going to go to battle here. The US economy this year will go 2 to 2 and
change, 2.5 percent. Unemployment is at 5 and change, down at 5 and change. All right, capacity utilization is high and there is under
utilization of employment. But there's nothing smelly in the US economy.
HARLOW: Unless it was just overblown. Unless the market was just too high than it should have been. And if that's right, and if this is a
correction at last, then the market corrects itself. It's not necessarily --
(CROSSTALK)
QUEST: Which is good.
LIPMAN: Right.
HARLOW: -- a bear market.,
LIPMAN: Which is good, actually. There is the argument to be made that we have had this incredibly sustained bull market --
HARLOW: Since 2009.
LIPMAN: -- since 2009, and so --
QUEST: This is the first correction of 10 percent --
HARLOW: Yes.
QUEST: -- for something like 1100 days.
LIPMAN: Yes.
QUEST: The fact that it's happened with brutality on a Thursday and Friday in August, Joanne.
LIPMAN: Right. So, it's quite extraordinary that we've had this incredibly sustained rally, right?
QUEST: Yes.
LIPMAN: So, there is an argument to be made that we are overdue for some sort of correction. So, putting that aside, we're also in August. In
August, people are on vacation. It's very lightly traded relative to the rest of the year. Which means that a small move can be amplified, which I
think is part of what we've seen this week.
QUEST: Now, with your various readers and followers wanting to know, give it to me in a sentence what you'll be telling them this weekend.
(LAUGHTER)
LIPMAN: Don't panic. I think that is the major message you can take away from something like this. This is -- you know, we're seeing the
markets panicking. There's no reason for an ordinary American, or maybe has stock in their 401(k) who doesn't need the money tomorrow to do
anything, right? We may be in for a correction. It is possible.
QUEST: It's there.
LIPMAN: Well, we may be in for a sustained correction.
HARLOW: Right.
QUEST: Ooh.
LIPMAN: But -- but -- it doesn't mean that it's time for you to liquidate your portfolio.
HARLOW: And it's better for the market to be reflective long-term of what the economy is actually telling it and doing than for it to be
overblown.
LIPMAN: Absolutely.
QUEST: You just talk amongst yourselves.
HARLOW: We will.
LIPMAN: We will.
QUEST: Thank you very much.
(CROSSTALK)
LIPMAN: Have to say, Richard, good to see you.
HARLOW: Good to see you as always, my friend.
QUEST: It's a Friday. Don't panic, they say, don't panic! We'll have more from Wall Street, where the Dow Jones Industrials had a panic of
their own. QUEST MEANS BUSINESS.
(RINGS BELL)
[16:20:00] (COMMERCIAL BREAK)
QUEST: QUEST MEANS BUSINESS, it's a Friday. Wall Street has suffered its worst day in four years, the Dow dropping 530 points. We're going to
show you how the euro bourses traded. London was off 2.8 percent. The Xetra DAX in Frankfurt, look how that traded. They all followed the same.
And in fact, you can see very clearly the transatlantic effect, 4:00 in the afternoon in Frankfurt, that's where you start to see -- that's
roughly about the time when the selling in New York picked up speed as well. I'm guessing we'll see a similar sort of movement on the FTSE as
well. Yes, there it goes, late into the afternoon, 3:00, 10:00 in the morning New York time.
The NASDAQ down very sharply. We haven't looked at the NASDAQ so far. That's down 3.5 percent, so the NASDAQ further down than the Dow Jones.
Apple a major component in the Dow, and that, of course, was off the best part of 6 percent. The Athens Composite was down 2.5 percent, but that was
on its own frolics concerning what's happening in Greece itself.
Andy Serwer is the editor in chief of Yahoo! Finance. Just as well for you, sir, that I have your data --
(LAUGHTER)
QUEST: -- on the screen with me here.
ANDY SERWER, EDITOR-IN-CHIEF, YAHOO! FINANCE: Thank you.
QUEST: So -- Joanne says don't panic. Tim Anderson at the exchange says keep a watch, this could be serious. What's your gut feeling telling
you tonight?
SERWER: I feel -- well, that I -- it's a little mixture of both, and I hate to equivocate on you, Richard, but it's basically that I don't think
you should be panicking over the weekend, but I don't expect things to head north next week. And here's why.
It all sort of comes from China. The Chinese market was so high -- it's come down a lot, but it's nowhere near where it was a year ago. So,
we had such a bubble in the Chinese market that I think you're going to see continued selling in China. The government there trying to respond
ineffectually, and that will scare people here.
QUEST: So, the viewer watching us tonight --
SERWER: Right.
QUEST: -- who says, all right, I can understand China's a factor, but why does China, second-largest economy but still relatively small --
SERWER: Yes.
QUEST: -- GDP-per-capita basis, why does China have such a dreadful effect in the US when the US economy is growing?
SERWER: Because stocks in the US were very, very high, and business in China --
QUEST: Traditional piece being --
SERWER: Yes, being 20, right?
QUEST: And we are at?
SERWER: Right. Well, you mean, since the sell-off?
QUEST: Yes.
SERWER: It's now down to 17. So, it's -- it takes a little while to sort of sort that out. But we're coming down. Apple, by the way, has a PE
of around 12 now. It's amazing. Stocks -- some stocks are really starting to get pretty cheap.
But the point is that because stocks were so high, even though the Chinese business in most of these companies is small, on the margin, when
it starts to go away, oops! There goes the better part of the growth component of these companies' earnings.
So, for companies like Caterpillar, and a lot of other companies doing heavy construction, when their Chinese business goes away, that's the
growth in their business. Yes, they're still selling stuff in the United States, but over in China, not so much.
QUEST: Which -- I'd like to just bring into this -- I'm going take you into very deep waters here.
SERWER: I can do it.
QUEST: I know you can. But do you want to?
(LAUGHTER)
[16:24:56] QUEST: When Donald Trump in the campaign for the US presidency starts talking about teaching China a lesson and dealing with
China, I beg to suggest that China's in a good position to teach the U -- not teach a lesson, but give a nasty shock.
SERWER: Well, who's the tail and who's the dog?
QUEST: Exactly.
SERWER: I mean, that's a good question. I've made this point over the last couple days. Get used to it. This whole thing, oh, it's crazy
the Chinese market is affecting us. Well, do you think this is the last time that's going to happen in your lifetime? Of course it isn't.
China -- you're right, it's the second-biggest economy, it's smaller than the United States, but it's getting bigger all the time, and it's more
important and there's more global trade, more connectivity.
QUEST: Do you think enough US CEOs make it clear the significance of China or Asia trade in their public pronouncements? They talk about what's
happening in America, they often talk about the slowdown in Europe, in Germany. And they always say China is an important part of the company,
but they never really say our future growth depends -- our future profits depend on it.
SERWER: Yes. I think that it's something they probably should be saying and wish they had been saying a little bit more, probably, to try
and create more of a soft landing here. But really, I think the bigger point is that stocks in the US very high, Chinese market craters, and
people just start to get scared. And --
(CROSSTALK)
QUEST: Look at this --
SERWER: -- here's their oil, which is a very interesting component to this as well, Richard.
QUEST: Well, let's talk about that interesting component.
SERWER: Yes.
QUEST: West Texas -- we weren't worried about the backwardation of the prices --
SERWER: Yes.
QUEST: -- and oil -- and Brent's underneath.
SERWER: Yes.
QUEST: But we seem to be --
SERWER: Well, here we usually talk about WTI in the United States --
QUEST: Yes.
SERWER: -- often, West Texas Intermediate.
QUEST: But $40.30 --
SERWER: Yes.
QUEST: -- and it dipped below $40.
SERWER: It did. An important point.
QUEST: Now, net that's a gain for the economy --
SERWER: Yes --
QUEST: But you're -- go on.
SERWER: But you know, yes until it becomes a negative. And of course, lower oil prices, of course great for driving, great for
businesses, their fuel bills go down, great for car sales. But what about employment?
Of course, the United States is a huge oil producer, so when oil prices drop, it hits the oil business in the United States, and states like
Texas, Oklahoma, the Dakotas, California, get hurt with employment.
QUEST: OK, I can buy that. But factor factor for me the Saudi effect, the UAE effect, the Russia, the Kazakhstans, the Nigerias.
SERWER: Yes.
QUEST: This price is causing them -- I mean, some viewers may not necessarily shed any tears, but this price is causing real economic damage
there.
SERWER: That's absolutely right, and so that becomes a global problem, because it hurts their economies very, very badly. And the ripple
effect there throughout the Middle East and oil-producing countries, not only in the Middle East -- Canada, Mexico, Venezuela, Ecuador, Russia --
all of those are oil-producing and oil-exporting nations. This really hurts them, Richard.
QUEST: Sir --
SERWER: Good to see you.
QUEST: -- we are grateful.
SERWER: I only wish we had better news.
QUEST: Well, you'll come back on when it's a good day.
When we come back, we're going to talk about Netflix, Facebook, Microsoft shareholders, they all fared badly in today's massive market
sell-off. Some of the biggest losers were Apple, and they were, of course, Microsoft itself. We'll talk about that. QUEST MEANS BUSINESS.
(RINGS BELL)
[16:28:09] (COMMERCIAL BREAK)
[16:30:26] RICHARD QUEST, CNN INTERNATIONAL ANCHOR AND REPORTER HOST OF "QUEST MEANS BUSINESS" SHOW: Hello, I'm Richard Quest. We'll have the
latest on the market route in just a moment. Before we go any further, allow me to update you -- the news headlines -- because this is CNN and on
this network the news always comes first.
And tonight, the big news story is the worst trading day of 2015 on the U.S. markets. The Dow Jones closed down 530 points, a loss of more
than 3 percent on the day.
The weak sell-off was the biggest in September of 2011. It was caused by fears over a slowdown in the Chinese economy and further pause in the
price of oil and uncertainty about when the Federal Reserve will raise interest rates.
The Dow is now more than 10 percent lower from its recent high. That, depending on your definition, is a correction.
A gunman's in police custody after a shooting onboard a high-speed train that was traveling from Amsterdam to Paris. The gunman was carrying
an automatic weapon, a blade and managed to injure several people before he was subdued by other passengers.
French officials say they do not know his motive. The train was diverted to the French town of Arras where a major police presence has been
set up around the station.
The White House says the second in command of the Islamic group ISIS has been killed by U.S. drone strike. Haji Mutazz died on Tuesday near the
Iraqi city of Mosul. The U.S. believes he was heavily involved in directing ISIS' financial operations.
North Korea's state-run news agency says Pyongyang's army has gone into a war-time state with its soldiers awaiting orders. North Korea gave
the South an ultimatum to silence its loud speakers which blast propaganda at the border.
The ultimatum expires less than 16 hours from now. Seoul says its military is on the highest level of alert.
The police on the border of Macedonia have used force to prevent crowds of migrants crossing into the country from Greece. Officers fired
teargas to disperse the crowds. At least 10 injuries have been reported.
On Thursday, Macedonia declared a state of emergency in two border regions.
We pause from the business world and we have another breaking story to bring to your attention this evening. As I mentioned, there's been a
shooting onboard a high-speed train from Amsterdam to Paris.
CNN's Jim Bittermann joins me on the line from Paris. Jim, do we know who and why?
JIM BITTERMANN, CNN'S SENIOR EUROPEAN CORRESPONDENT BASED IN PARIS: No, we don't know the answer to that question.
In fact, we were just cautioned by Bernard Cazeneuve, the interior minister here. He was at the scene just a few minutes ago - that we should
not follow any false leads, we shouldn't rush to identify the gunman.
But it is true that the terrorism - anti-terrorism - prosecutor's office has been involved and is now opening an investigation into this. So
the suggestion is there that this was some kind of a terrorist incident.
Apparently it occurred as the train was coming from Amsterdam to Paris, it was about halfway between the two cities - and this gunman at
some point went into the bathroom of the train and was heard reloading his guns.
He had a - some kind of an automatic weapon as well as a knife and two passengers -- and Cazeneuve he (inaudible) who saluted their bravery - two
American passengers took the gunman down. One of them was injured. One was injured by a gunshot and another injured by a knife wound.
It's not sure - it's not clear - whether the two Americans were injured. One of the Americans was injured but there are two people
injured. One is in critical condition at a nearby hospital. The other is a less severe wound, and a French actor who was onboard the train was
injured as he brought the train to a halt with the emergency alarm. He was injured breaking the glass to pull the alarm.
QUEST: Is your - is it the general feeling though how (INAUDIBLE) the events that it is now over, what took place?
BITTERMANN: Well it's over, definitely over. I mean, they've emptied the train, they have their gunman. He's being questioned and he
may or may not have been known to police.
According to some reports here he has - there was a file on him and so the intelligence agencies here had a file on him.
In any case, he's being questioned now and police are kind of trying to reconstruct exactly what did happen. But it's over in the sense that
this incident's over, but I think this has really put a real fear into a lot of people, you know, a real fear into a lot of people. Is this going
to happen onboard a train which of course as you know, Richard, are not exactly - the security measures are not the same as that they are at
airports, so you can board a --
[16:35:21 ] QUEST: Right.
BITTERMANN: -- train with just about anything. I think, you know, now we may see some more increased security, in fact we've already
heard that from the Belgians already this evening. The Belgians are saying they're going to increase security on trains.
QUEST: Jim, you have beat me to it. I was just about - when you said security is not at the same levels - I was just about to say not yet.
Jim Bittermann who is in Paris for us.
The worst weekly sell-off since September 2011 on both the Dow and S&P 500. Tonight it really is all about the numbers.
We normally shy away in many ways to just go into too much detail. But I want you to look because here you can see across all three continents
how the markets were similarly disrupted with bilious behavior.
Let's start with Asia at the bottom. The Nikkei in Tokyo, Shanghai in China, Hong Kong in the special administered region - 3 percent, 4 percent,
1.5 percent.
And then you move into Europe with the FTSE down 2.8 percent. To Paris - that's right - the Zetra DAX down nearly 3 percent. Even Athens
which of course has gotten its bailout money down nearly 2 1/2 percent.
And finally, to the United States. Let's start with the NASDAQ which was off 3 1/2 percent - a loss of 171 points. The broader market - the S&P
500 - down 3 percent and the Dow Jones Industrials down 3.1 percent.
And the Dow - the worst weekly drop since 2011. More than 10 percent drop now on the Dow which - a correction, the Dow has not experienced back-
to-back 300-point falls - because w ehad 300 points off yesterday and 300 points - well, 500 points today -- back-to-back falls of this magnitude
since 2008 which was when the Great Recession and the Great Financial Crisis was just getting started.
So it's the worst. Then you've got oil prices - they are at the lowest level since March 2009. Now throw into this the VIX - the VIX index
- the volatility index. And it's up some 44 percent today alone. The volatility index is up 115 percent for the week so far.
We need the help of Cristina Alesci who is at the New York Stock Exchange where, you know, the classic phrase comes to my mind, Cristina,
where the dust is settling --
CRISTINA ALESCI, CNNMONEY CORRESPONDENT: (LAUGHTER).
QUEST: -- I would imagine. Tell me how it happened, tell me how it felt.
ALESCI: It felt awful all day actually. You know, I heard traders behind me groaning and there was a collective groan at one point.
And you know, this is the reality of a volatile world, Richard. We've been living in a fantasy land for the last - you know - five years or, you
know, four years that we haven't had a correction. This is real world fundamentals finally showing up in the market. As you said, emerging
markets really taking a beating. We had some bad manufacturing out of China. That data really put pressure on things today and it just continued
to slide. You have oil again slipping, really putting a big question mark -
QUEST: All right.
ALESCI: -- about global demand for oil in the face of a supply glut. So you have that and then plus oil's going down, dollar's going to
go up.
So U.S. investors are very nervous about how a strong dollar will affect the ability of U.S. companies to sell their goods overseas.
Then you have the question mark over the Fed and whether it will raise rates in the face of all of this volatility.
QUEST: OK, but I'm looking at a graph of the Dow over the last year. And you'll be familiar - you'll remember of course - you had a very
sharp fall at the back end of October, early November of last year. Well that was a - that rallied back quite dramatically.
And then you had another one in February and another one. So why is this different?
ALESCI: It's different because first of all you're talking in a two-day span - and you said this earlier - you're talking about a nine -
nearly a 900-point drop - that's huge. We haven't seen that kind of move in a long time.
And the real question out there and the real reason it's different right now is because now - or close to now - was what's supposed to be when
the Fed was going to raise rates in the U.S.
So the question mark is - or rather maybe investors are concerned that the Fed will raise rates even in the face of these market jitters. So
that's - it's sort of creating this cycle that's going to be hard to break.
[16:40:08] All of that said, Richard, as you know, this doesn't mean anything for the long term necessarily. We're going to need to have a few
corrections in order to establish a long-term trend -
QUEST: Right.
ALESCI: -- of a technical bear market. We're still in a bull market, you're still looking at, you know, pretty high numbers relatively
speaking on a historical basis.
QUEST: OK. Now so, you mentioned oil and the price of oil fell below $40. It rallied back up again but it's still very weakened. And the
general consensus is the pressure is down because of an oversupply. But you also talked about the effect that had on the dollar. Explain.
ALESCI: Well, it's very simple. Dollars - oil is priced in dollars - so if the dollar could buy more oil, that means that oil is - you
know - it puts downward pressure on the price of oil because the dollar is so strong. You could buy more oil with one dollar today than you could,
you know, a couple of months ago.
And that is creating concerns about a strong dollar here in the U.S. because ultimately we want to sell our stuff overseas. And if we - if our
stuff is more expensive because we have a higher currency, then, you know, we --
QUEST: Right.
ALESCI: -- that may hinder our ability to sell our stuff overseas.
QUEST: Excellent to have you at the Exchange. I know you've had a busy day. Thank you for staying late to talk to us this evening on "Quest
Means Business." We appreciate it, Cristina. Cristina Alesci -
ALESCI: Thank you.
QUEST: -- joining me there now. The stocks that were beaten up were broad based. We know that - look at the range on the Dow Jones. The
tech stocks were particularly hard hit. We'll be talking next about tech stocks and why they were beaten up.
Come and join me, sir, after the break.
(COMMERCIAL BREAK)
QUEST: We look at the way the selling took place on Wall Street. Techs were some of the hardest hit stocks during the sell-off.
Netflix fell more than 7 percent. And if you add the Netflix onto yesterday's 8 percent, you're looking at a loss of Netflix of some 16
percent over two days. Apple and Microsoft closed down around 6 percent, Google fell 5. Lance Ulanoff joins me now - chief correspondent and editor
at large for Mashable.
Sir, tell me why tech stocks got hammered because they don't have the same export lead (ph) of say of a Boeing or a GE -
LANCE ULANOFF, CHIEF CORRESPONDENT AND EDITOR-AT-LARGE, MASHABLE: No, no.
QUEST: You know.
ULANOFF: But, you know, they're tied to - when - what does innovation take? It takes investment. And when people are scared, when
the market starts to get weird, they pull back on investment, they pull back on what things are riskier - startups, things like that and new
products that might come out of even established companies.
And you have in the case of Netflix a company that's really relying now on international expansion, and if things are getting tough out there
in the rest of the world, even - you know - places they might look at later on that maybe if they go to China - these are a kind of (inaudible) -
(CROSS TALK)
[16:45:08] QUEST: But 16 percent in two days.
ULANOFF: You know, it's - I can't say that it makes a lot of sense but it's all sort of - it's like you're pulling a little pin and
you're letting air out of this bubble.
There was a lot of excitement, things were going really fast and I think people just got scared. Netflix is a tremendous business that is
especially internationally going through a transition where -- it went through the transition in the U.S. already, you know, getting rid of DVDs,
going to streaming and that's happening in - outside the U.S.
But if we're seeing difficulties in the European market, that's going to hit Netflix harder because that's where they want to see more expansion
and more revenues.
QUEST: Now you're not surprised of course with what we saw with Apple today?
ULANOFF: No.
QUEST: Because obviously it sells into China and it manufactures from China.
ULANOFF: Yes.
QUEST: And I am never sure with China and Apple where the net net (ph) comes out on all of that.
ULANOFF: Well I certainly know that they've talked almost every quarter about headwinds on the currency side. In fact, every single tech
company at every earnings call talks about headwinds on the currency side, so -
QUEST: Because they're selling local, converting to dollars.
ULANOFF: Yes. I think it just gets really tough for them. There's also this sort of interesting transition happening in the
smartphone space. You know, carriers are getting rid of contracts which is going to change the whole sort of chemistry of consumer relationships to
carriers and the phones that they buy.
We have been buying expensive phones that have been subsidized by these carriers. Now if they're not subsidized anymore, do we switch? Do
we start buying, for example, more Android phones where there are a lot of cheaper alternatives? Because Apple's always selling a premium product at
premium prices.
So fears like that can certainly, I'm sure, hinder or hurt the stock price.
QUEST: I'm going to ask you the same question I've been asking all our guests this evening - whether you think this random correction
starting in the middle of August is significant?
ULANOFF: No. Everybody's on vacation. I mean, it's probably the - maybe the smartest people aren't in the room like saying, `Whoa,
whoa, who,' we're about to head into our best time, our best quarters. Or it's a deep breath before that all starts.
You know, from where I sit there's a lot of innovation, a lot of good products coming out. I'm about to hit the road and go to Germany and see a
ton of new stuff -
QUEST: Whew -
ULANOFF: -- and maybe soon after that, -- who knows? - go to San Francisco and see even more. So I see more upside than other people.
I don't even own tech stocks - I'm not allowed to. I don't know why people are doing this but I got to say, I don't think it's the start of a
trend. I think it's maybe just a little bit of an exhale before they start inhaling again and buying a lot of tech products.
QUEST: What remarkable common sense (RINGS BELL). That's worth a bell --
ULANOFF: (LAUGHTER).
QUEST: -- on a Friday. Thank you, sir, thank you (inaudible).
ULANOFF: You bet.
QUEST: Have a safe trip to Germany -
ULANOFF: Thank you.
QUEST: -- just know if you see something interesting -
ULANOFF: Yes -
(CROSS TALK)
QUEST: -- come back here and talk about it.
ULANOFF: Will do.
QUEST: Thank you. Still to come, it's "Quest Means Business," it's on a Friday. It's exhausting. A new party is vying for Greek's
voters' attention.
I'll be talking to one of the MPs who's ditched Syriza to join what's called the Popular Unity Party. He doesn't like the prime minister and
he's certain the population doesn't either. Next.
(COMMERCIAL BREAK)
QUEST: It doesn't matter which additive you want to use - horrible, terrible, dreadful, awful, don't look unless you plan to go
between your fingers.
[16:50:01] It was a terrible day at the European markets - the FTSE, the Zetra DAX, the CAC Current (ph) all fell around 3 percent. Even the
Athens General closed down 2 1/2 percent, perhaps not surprising in Athens.
Elections were called yesterday - we told you about that. Well if things weren't complicated enough, now in Greece there's a new anti-
austerity party that's emerged a day after the P.M. resigned. Twenty-five members of Syriza walked out of the ruling party and formed what they're
now calling the Popular Unity Party.
They say they're fed up with the concessions the government made to Greece's creditors. The split means there's an added level of uncertainty
and confusion about the future. When the elections take place is a date yet to be - a date yet to be set.
Despite the turmoil, the creditors say the reforms must go forward.
(BEGIN VIDEOCLIP)
STEFFEN SEIBERT, GERMAN GOVERNMENT SPOKESMAN, VIA INTERPRETER: The agreements are valid regardless of the outcome of elections and also of
possible changes within the government. And naturally the German government expects in accordance with other European partners of Greece,
the implementation of reforms and the agreement of the program.
(END VIDEOCLIP)
QUEST: We'll see how they think about that from the Unity Party. Costas Lapavistsas spoke to me from Athens. He's one of the M.P.s who
broke away from Syriza. I asked him what the Popular Unity Party's hoping to accomplish.
(BEGIN VIDEOCLIP)
COSTAS LAPAVITSAS, GREEK LAWMAKER, POPULAR UNITY PARTY: Our first aim is to show to the Greek people that there are sections of the
political establishment that stick to their words, that they follow bailout and anti-bailout strategy consistently and that they don't say one thing
and do another.
That's the first thing we want to show to the Greek people - that we are credible and reliable. Now we know that we're not going to be forming
a government after this election. We know that.
But we do hope and are pretty confident that we will do well and that we will be a pivotal component of Greek politics in the short run and we've
got very good prospects I believe in the medium run.
QUEST: You say credible but as I look at the paper and the policies, you're talking about suspending membership of EMU, you're talking
about the debt - not paying certain official debtholders, you're talking about the amount of preparation (ph) necessary in the devaluation that
would come as a result of a return to the drachma. Are those credible policies, bearing in mind that every polls shows the Greek people want to
stay in the Euro?
LAPAVITSAS: Please. This talk about every poll that shows that the Greek people are desperate to stay in the Euro, that they're in love
with the Euro. This story's so old, it's just make us believe that it's being repeated. What I know and what everybody knows is that there was a
referendum a month and a half ago - not a poll, a referendum -- a very rare occasion in Greece.
And this referendum showed that 62 percent of the Greek people don't want bailouts. And that was in the face of an all-out attack by the forces
that want a bailout to persuade the Greeks to vote yes. Sixty-two percent voted no. That's a fact. That's the only proper measurement of what the
Greeks want.
Gallup polls and so on that the Greeks are desperate and that they would sell their mothers to stay in the Euro, please. You know, we've seen
many of those.
Now, credibility? What does it mean in this context? We have a policy - rather strategy - and a set of policies that every sensible
economist knows they're good for Greece. If these policies mean that Greece must exit this failed Monetary Union, then we're prepared to
contemplate that.
QUEST: Your policies go further than Grexit, don't they? You're talking about nationalizing large parts of the economy, particularly the
banks. You're talking about very much a left-wing traditional Socialist agenda and I wonder whether the Greek people want that.
LAPAVITSAS: Grexit is not our policy. Our policies are interventions in the realm of the economy. Grexit is an instrument. We
don't want Grexit for its own sake. So our policies include - what - let's think about them for a minute. Debt relief - serious debt relief, a
lifting of austerity, nationalizing the banks to put them on a healthy basis.
And a policy of restructuring the productive sector, to strengthen the primary and the secondary sector, agriculture and industry. What exactly
is socialist about all that? That to me seems like a sensible set of policies.
(END VIDEOCLIP)
QUEST: Before we go to a break, let me just tell you a senior European official - counterterrorism official - is now saying - telling CNN
- that the attack on the high speed train from Amsterdam to Paris that we talked about a moment or two ago is believed to be an Islamist terrorist
attack.
The gunman is a Moroccan national who was on the radar screens of European counterterrorism officials. The security guards told CNN - the
source says he was known by French intelligence and it appeared that the gunman was sympathetic to ISIS. A full determination of his specific
loyalties has yet to be reached.
So it would appear that that attack does seem to have been a terrorist attack of an Islamist terrorist terrorism.
We'll have a "Profitable Moment" on the markets after the break.
(COMMERCIAL BREAK)
QUEST: I hesitate to say "tonight's Profitable Moment" because when you look at that and look at the last two days. It's most definitely
not been that profitable.
But the market is down and there are some worries. They concern China's growth, there are worries about the Fed and interest rates, there's
worries about the falling oil price and what that means for employment and for businesses.
All in all, wherever you look, there are deep concerns. But there is nothing fundamentally wrong at the moment and certainly the fact that this
happened in August will lead us to suggest that you have to just take a deep breath - maybe a strong drink - certainly a cup of tea and wait until
Monday.
And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, (RINGS BELL) - three
bells for a Friday. I'll see you on Monday. Have a good weekend.
END
