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Quest Means Business
Mendocino Fire Now the Largest in California History; Indonesia Earthquake Kills 105, Displaces 20,000; German Couple Convicted of Selling Child to Pedophiles; Trump to Host CEOs at New Jersey Golf Club; Trump Warns CEOs Against Doing Business with Iran; Trump's Foreign Policy Puts Central Bankers on Their Heels; Wildfires Burn as Scientists Warn of a Hothouse Planet; U.S. Billionaire Kroenke Takes Sole Control of Arsenal; Snap Shares Spike After Earnings; Papa John's Down 10 Percent After Results; Disney Earnings Miss Expectations. Aired 4-5p ET
Aired August 07, 2018 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CORRESPONDENT, CNN: Closing bell ringing on Wall Street, the Dow is up starkly. Time for -- ah, yes, look at that. That's a nice
strong gavel to bring trading to a close on Tuesday, the 7th of August.
If you can beat them, go private. Elon Musk considers taking Tesla off the market. The Federal Reserve isn't the only Central Bank dealing with
President Trump's tweets. China, Turkey and Iran are all under pressure, thanks to the Twitter-in-Chief. And Arsenal FC has a new man in charge.
The fans and the trust aren't that pleased thinking he hasn't got the club's interest at heart.
I'm Richard Quest, live in the world's financial capital, New York City where I mean business. Beautiful day.
Good evening. Tonight, Elon Musk wants to cut out the noise of the market. Tesla's Chief Executive says he wants to take the company private. The
decision will be put to shareholders if he decides to go ahead with it. Elon Musk announced his intentions in a tweet that shocked investors.
Now, the tweet said he was thinking of taking it private at the price of $420.00 a share and immediately, the shares spiked. The market then halted
them, as you'll properly do when there is market news of disorderly markets, and trading resumed just about 15 minutes ago, and they would --
since it has risen by some 11%. You now see Tesla up 36.41. The price that Musk is offering is -- or will be offering or could be offering or
maybe offering is $420.00 a share so there's a significant 20-odd percent premium over the closing price tonight.
In a blog tonight, Musk has written, "I fundamentally believe that we are at our best when everyone is focused on executing, when we become remain
focused on our long-term mission and when there are not perverse incentives for people to try to harm what we're all trying to achieve."
Paul La Monica and Peter Valdes-Dapena are here to help us make sense of it all. Peter of course is automobiles, Paul is our guru on markets and
economic matters. So, first of all, we go back before as we may, gentlemen. Firstly, Paul La Monica, how much of a surprise was this?
PAUL LA MONICA, CORRESPONDENT, CNN: This was a very big surprise. It came out of the blue, woke up a lot of people on a sleepy August summer Tuesday.
Elon Musk pretty much saying, "Hey, you know what? I'm going to take my little electric car company home, maybe go private because I'm tired of all
the scrutiny that I get from being a Wall Street publicly traded stock," but I don't think anyone saw this coming despite the increasingly bizarre
behavior that Musk has exhibited in recent months.
QUEST: How good or strong or robust is Tesla despite all the criticisms?
PETER VALDES-DAPENA, SENIOR AUTOMOTIVE REPORTER, CNN: Despite the criticism, they've come back financially -- some have said, they are not a
profitable company. They are not making money, but they are starting to really ramp up production of the Model 3, which I spoke to some analysts
and is a profitable looking product. They've got production rolling along. He makes the point, it would be nice to maybe be doing this without so much
scrutiny. Maybe it would have been nice to see them ramp up Model 3 production in a more orderly fashion than they did building a production
line in the parking lot under a tent to try to meet their self-imposed goals.
So, there may be something to that if they could have ramped that up in a more orderly fashion without this.
QUEST: Did Musk break any laws -- any SEC laws -- do we think as a matter of opinion, by just -- I mean, by writing this tweet? I mean, obviously,
the blog and the statement is a much fuller explanation, but just to tweet in such a fashion?
LA MONICA: It does not appear as if he has violated any of the SEC's rules, regulation FD for fair disclosure. Apparently, what you need to do
is you as a company have to let your shareholders know that you might give out information through channels like Twitter, Facebook. This is something
that came to light a few years ago when Reed Hastings, the CEO of Netflix put out a Facebook post congratulating one of his executives about the
subscriber growth and people were like, "Wait, why didn't you put that out in a press release?"
QUEST: The cars themselves, people love them. Many of the people, I would say ...
VALDES-DAPENA: Yes.
QUEST: They love them.
VALDES-DAPENA: Yes.
QUEST: The company comes up for great criticism, but Musk is a visionary and maybe, taking the company private is the right way forward?
VALDES-DAPENA: I think it might be. As I said, it might be good to make some of these changes without that kind of scrutiny, have the time to
concentrate on quality, which is my one concern still with the Model 3.
[16:05:04]
VALDES-DAPENA: I am not sure I want to be one of the customers that bought a car when the company was going through a rapid ramp up in production. It
might be better for them. The cars themselves, the new performance version of the Model 3 has had fantastic reviews. There have been the regular
version, I really liked it. I think the user interface is going to be off- putting to some people, but as a fundamental vehicle, as a car, the performance is good, the ride is good. If they can keep the quality, which
may be improved by this, it will be great.
QUEST: There are two other areas. The quality earnings cycle puts enormous pressure on Tesla to make decisions that maybe right for a given
quarter, but not the long term. That is the oldest argument in the book against the quarterly earnings report, isn't it?
LA MONICA: It is, but if you don't like it, then don't go public, which is what he is giving ...
(CROSSTALK)
QUEST: But is it damaging to have companies under such ridiculously short- term scrutiny when the Chinese for example are building the new silk road that may take them 55 years and several hundred billion dollars.
LA MONICA: It is an unfortunate byproduct of Wall Street and the way that American companies and other companies around the world tend to trade in
public markets, but to be fair, and this is why I have difficulty having sympathy for Elon Musk in this particular regard. There are lots of
companies that have faced this pressure before, and they do just fine being able to navigate the short-term pressure of Wall Street, institutional
investors and sell side analysts, while also doing what's good for the long term.
You look at a company like Apple, they did it with Steve Jobs, they're still doing it with Tim Cook. Google, Alphabet -- they have done it.
Larry Page, a founder of the company.
QUEST: Arguably, GE is doing it even in front of our eyes.
LA MONICA: They are doing their best.
QUEST: Right, short sellers ...
LA MONICA: Facebook as well, Mark Zuckerberg.
QUEST: And the most shorted stock in history of the stock market, I don't know whether that's true or not, but I suspect it is, since Elon Musk have
said it, shortest stock in the history of the stock market, being public means there are a large number of people who have the incentive to attack
the company.
Now, short selling as Carl Icahn has done, as he has with Cigna at the moment, being involved, can expose weaknesses and inefficiencies and bad
value in companies.
VALDES-DAPENA: Yes, and it would seem -- as Paul just said, other companies are exposed to this all the time. And, the large number of short
sellers on Tesla does indicate that there are a lot of people who feel like this stock maybe a very good company, just not at the value that it
currently has, and there is a discussion that goes on that these people are a part of.
LA MONICA: I would go long right now on the maker of the world's smallest violin for Elon Musk to play and he can wallow in self-pity about how he is
the most shorted stock, I mean, we've heard this argument before. He needs to give it up. Yes, it is true that a lot of short sellers have targeted
Tesla, but they have done so I think with good reason. It's a company that hasn't made money, traditionally -- typically, and it's a company ...
QUEST: Short term-ism.
LA MONICA: But this company is currently valued at more than General Motors, I mean -- look, they can't have it both ways.
VALDES-DAPENA: It's just not -- I don't see General Motors. Tesla is great -- trust with General Motors.
(CROSSTALK)
LA MONICA: It can't be like, "Trust me, in 2100, we're going to be huge, but don't bash our stock right now because 2100 is a long time away."
QUEST: Gentlemen, thank you. Elon Musk isn't the first CEO to take his company private. Dell went private and then it went public again. Burger
King went public twice. Boots later became part of Walgreens; Heinz and Hilton both delisted from the New York Stock Exchange preferring to be out
of the gaze of the public.
Facebook tonight is actively asking big banks for their customers' data. The "Wall Street Journal" has reported that the social network wanted to
get account balances and credit card activity from major US banks. The shares were down snapping a three-day winning streak. They have been up at
the beginning, but they went down quite sharply. Samuel Burke is in London.
Samuel, firstly, clarify, does Facebook want these bank details or not?
SAMUEL BURKE, BUSINESS AND TECHNOLOGY CORRESPONDENT, CNN: Yes, they want them, but not in this somewhat nefarious way that the "Wall Street Journal"
was reporting. I think the facts of the "Wall Street Journal" report are correct, but Facebook says, "No, we're not going to do what you're trying
to imply, what you're saying we are going to do with them." I'll just put up a statement from Facebook. They are saying, "Yes, we want to create a
space where people can do online banking on Facebook Messenger, but at the end of the day, like many online companies with commerce, businesses, we
partner with banks and credit card companies to offer services like customer chat or account management."
All the analysts I spoke to today, Richard, said the same thing. This is a positive move for Facebook. You want them to be competing with Venbo,
which you know in the United States, everybody uses to send money. That's what they're trying to do here. It's just this microscope that they're
under now after fake news and Cambridge Analytica, every last thing has people suspicious of Facebook.
[16:10:13]
QUEST: All right, and the question of Tesla, once again, Samuel that we were just talking about, the short term and some of the market. The short
selling and Tesla of course is arguably as much a tech company as a motor car company, especially we need to take account SpaceX.
BURKE: But listen, here is the thing, I think Paul was exactly right when he is saying that there are lots of companies. I'll just use Facebook
since this is the story that we're talking about. Mark Zuckerberg, to his credit has figured out how to listen to the market when he needs to. Think
about how much Facebook stock went down when they weren't good on mobile.
They listened to the market there. They took their time and then sometimes, he doesn't listen to the market. Right now, there is a huge
sell off when they said we're going to spend more on privacy and Mark Zuckerberg said, "I don't care what the market is saying, I know what is
best for my products long term. I am going to spend on this one." So, he has that balance of knowing when to listen to the market and listen to them
long term and it feels like Elon Musk just doesn't have that backbone at the moment.
QUEST: Samuel Burke, thank you. Now, what we see with Facebook and indeed, with Elon Musk and others, is tapping into the app economy. I am
awaiting for Snap results, which is another millennial favorite, which will report in this hour. What's undeniable is the change that this group is
bringing to business. Wherever we look -- from transportation to banking - - the trend is changing towards the app economy.
And it is accelerating as we'll talk several times over this program, as you have already heard, millennials are outnumbering baby boomers. Let's
start with investing. There's a range of apps as of now being created. There's Robinhood with zero commission trading for stocks, and now, you can
also have cryptocurrency trading as well. I think this is all going to end badly one day.
Then you've got Stash which is lowering financial barriers, where you can buy fractional shares for $5.00. Think about this. You can -- you take a
buck for even an Amazon at $1,800.00 a share, buy a little bit of it. And then, Betterment. Now, Betterment is an interesting little number because
it builds a portfolio based on your goals, and unlike a commission, charges an annual fee of a quarter of a percent, I assume of assets under
management.
Arguably, if you don't make more -- they make more and you make more. Those apps are forcing the changes of traditional retail investment
companies, with new offerings, with low fee or no fees. In the C-suite, one of the people responsible, Jon Stein is with me. The CEO of
Betterment. Good to see you, sir.
JON STEIN, CEO, BETTERMENT: Thanks for having me. Great to be here.
QUEST: So, Betterment is joining a very crowded field of investment advisors all of whom claim to be able to do the best they can for you, and
frankly, in my opinion, most of whom shouldn't be allowed through the front door. Why are you different?
STEIN: I would say we'd been leading the way.
QUEST: Oh come on, how? How?
STEIN: For a new generation -- we started the first online financial advisor, and that means we take all the things that a great financial
advisor ought to be doing for you. We make them smarter, faster, cheaper, better, and accessible to everyone through technology.
QUEST: All right, so that sounds wonderful, but at the end of the day, what is the average portfolio size on Betterment?
STEIN: The average customer day measures about $40,000.00 on Betterment. We have 400,000 customers and about $15 billion under management.
QUEST: Right, and the amount -- and the transaction fee doesn't exist of course per transaction.
STEIN: There is never a transaction fee. Our fees are totally transparent and they are low. They are a quarter of what a traditional financial
adviser might charge and that's because we use technology to automate a lot of great services for you, like tax off harvesting, asset allocation,
financial planning and it's goal based, as you said.
QUEST: You see, I don't -- I have a question whether or not technology can replace the -- I mean, I am not trying to harp back the 1950s ...
STEIN: I don't believe that there will be a ...
(CROSSTALK)
QUEST: Sitting opposite ...
STEIN: Nobody talks about a replacement.
QUEST: You're ...
(CROSSTALK)
STEIN: Just like if you think about will technology replace teachers or doctors? I don't believe so. But can it augment them and in some places,
can you use it instead? Absolutely, so we work with thousands of financial advisors who use the Betterment platform to better serve their clients with
the best client facing technology.
QUEST: You make recommendations?
STEIN: We make -- we provide diversified portfolios that are appropriate for each of our client's goals, so every client, if the right goal for them
-- retirement or college savings or down payment on a house, what have you? And then we build a portfolio that is appropriate for those goals.
QUEST: How do millennials look at money differently than say an old fogy like me?
[16:15:08]
STEIN: So, we have lots of millennials in our customer base. Though we have people who are just starting out like millennials and people who have
millions of dollars on the platform, too. The millennials are coming to us and saying, they want to be more purpose driven in their investing. We
hear that a lot. So, they find the socially responsible portfolio that we have created really appealing where you get to have it globally
diversified, but still socially good investment.
QUEST: What's the average rate of return on your portfolios?
STEIN: So, it depends. It's different for every individual, and you know, like there is a really interesting Baron study that just came out last
month, and they looked at the entire field of robo advisors, and they rated us on performance, but that was only 30% of the score.
We won on every -- across all of the marks. We are actually number two overall behind one of the other 12, if you included performance, but if you
took out performance, which is only a two-year historic track record, we were number one and we think that two-year performance is like not the
right to evaluate an investment advisor.
QUEST: Good to see you, sir.
STEIN: Good to see you. Thank you.
QUEST: Avis had once called a slogan, "We try harder." The company admits it's still trying. After the break, how traditional car rental companies
are moving with the times.
Looking to the future in "Future Forward," where we're taking a look at the changing face of transportation. We're waiting for earnings from Avis,
which will happen after the bell, and yesterday, we had Hertz, the owner of Dollar Thrifty, and now, Hertz -- interesting, very interesting. If you
look at Hertz, its stock price, if you take it over the course of the year, $23.09, that did fall quite sharply, but it has rallied somewhat back up.
But it's off 12% so far this year as the sector faces huge upheavals, even though there has been a very nice rally in the last two months.
Now, everyone knows the auto industry is changing, and millennials are driving that change. Unfortunately, when it comes to renting a car, well,
I think you might agree, it's not often the easiest, perhaps, even sometimes it's a miserable experience. For instance, these are some of the
bete noires of it. First of all, constant upselling for better insurance, better this, better that. It will only cost you an extra $9.00 for this or
$3.00 for that or this. You get the idea.
[16:20:06]
QUEST: Then, there are the post rental inspections where that little scratch that was just under the fender that you didn't notice now comes
back to haunt you and your pocket. How anybody can be expected to understand the contract when it's given to you? It is pages long, in some
cases, they just print out a long line of things and you just look at that, really, then of course, there are the long (inaudible) when you go into
these various agencies.
Incomprehensible in the contracts is a major problem with them all and finally, of course, I have yet to meet a gas-paid option that makes sense.
Why can they not refill your gas tank for you? Now, as you'll hear, Avis is well aware of all those bottlenecks and is trying to keep one step ahead
by branching out.
Avis is getting into ride sharing by letting Lyft drivers rent an Avis car through the Lyft app. Avis manages Waymo's self-driving fleet. Waymo is
part of Alphabet's Google's owner. And in 2012, Avis continuing its move bought Zipcar which offers no fuss rentals by the hour. The Chief
Innovation Officer of Avis join me and he even told me it's crucial to give people (inaudible).
(BEGIN VIDEO TAPE)
ARTHUR ORDUNA, CHIEF INNOVATION OFFICER, AVIS: What we are focusing on is what our customers, both leisure customers, business customers and all
kinds of folks globally, what are their mobility and transportation needs, not just today, but over the next five to 10 years? That's also why for
example, we took an early position working with Waymo and learning about autonomous vehicles and self-driving.
We feel that it's not a matter of all of these models potentially happening, we feel it's a matter of these models will happen and we want to
be the ones who provide that kind of solution to you.
QUEST: Therefore, you end up with a situation where Lyft -- where Avis, I mean, we traditionally think of it as a rental car company, and yet, when
we talk about rental cars, the gripes about rental cars continue, don't they? And I know that's not necessarily your end, but as the innovation
officer, looking at for example, long lines, the difficulties, the time scales it takes -- the costs of renting, these are all things I know you've
tried to reduce, but there are still many bottlenecks.
ORDUNA: Well, I actually see those as opportunities, Richard, and I am glad that you raised that up. That's why we're investing so much in to the
user experience, so that we cannot only digitize that experience, but also create more of a high touch environment for our customers when do they come
and check out our cars.
I think that what you've laid out actually is a roadmap for us and how we are going to be improving and attacking these pain points and hopefully,
leading the charge in creating incredibly magical journey for our customers.
(END VIDEO TAPE)
QUEST: Now, private car owners are getting into the act, too, in the US and Canada, there's Turo, which describes themselves as the Airbnb of cars.
Those car owners are to share their vehicles on a short term rental basis. In parts of the United States, General Motors is facilitating a similar
scheme.
Turo's Chief Marketing Officer is Andrew Mok and he joins me from Los Angeles, good to see you, Andrew. Thank you. Obviously, in New York which
I think is the only state where Turo does not operate for various insurance reasons, but by and large, it is another way for people to become involved
in the sharing economy.
ANDREW MOK, CHIEF MARKETING OFFICER, TURO: Yes, absolutely. And thank you, Richard so much for having us on the show. Turo is the world's
largest peer to peer car sharing platform. Like you said, a lot of folks like to describe us as the Airbnb for cars, and basically, the way it works
is if you're a car owner, and you have an idle car that's just sitting around costing you money, you can share it and earn extra cash to offset
the cost of your monthly payment, your insurance cost and things of that nature.
QUEST: Okay, but it does create a raft of other problems as well that have to be dealt with. Insurance is obviously one of them, cars on loans and
those loans often don't preclude or don't allow people to actually re-do for private hire, and then there is the argument of course of car taxis,
Ubers and public transport, all of which will be denied from that as well. So, I can see pluses and I can see cons.
MOK: Yes, absolutely. And for car owners, you know, on average, they're making about $625.00 a month sharing their cars on Turo, that means over
the course of nine days on average, they can cover the cost of their entire monthly car payment and that's what a lot of Turo hosts are doing on
average on the marketplace.
So, certainly, we're providing a lot of value to car owners and changing how they think about ownership.
[16:05:07]
QUEST: But just like with Airbnb, and look, I have used Turo, but I had to schlep across the New Jersey to get it to bring it back again into
Manhattan because it's not in Manhattan, but I've used Turo. From what you also see, like Airbnb, is people with multiple cars, but actually, this is
almost car rental through the backdoor by a different name. This is not Aunt Maggie who has just decided to rent out her old Ford Fiesta for a
couple of hours on a Sunday afternoon. These are people with fleets of cars who are going through Turo.
MOK: Well, that's actually a misconception. Ninety-five percent of our hosts have fewer than three cars on the platform, so most of them are
individuals who are sharing their cars and trying to offset the cost of car ownership and in fact, the enterprise that is pedaling the message that you
just mentioned is actually Enterprise Rent-A-Car, the largest car rental player in the industry and instead of competing head to head on customer
experience and reducing some of the points of friction as you mentioned earlier on the show, they are trying to regulate Turo out of existence with
their vast political connections and their huge political lobbying budgets.
QUEST: And as evidence will suggest, they won't succeed because the sharing economy is clearly here to stay. Look, don't get me wrong, I think
what Turo does serves a valuable need at a time when motor vehicles can be extremely expensive to hire or rent, and it is part of a suite of options
with Zipcar car sharing and all sort of things. What do you need to tighten up on with Turo? What do you actually need to perfect?
MOK: Well, I can tell you a little bit about the areas where we're focused on. The first one is continuing to make the experience as convenient as
possible. Today, we're already a lot more convenient than the traditional rent-a-car options because you can book on the app and get the car where
and whenever you need it. On value, we're also on average about 35% more affordable than the traditional rental options, and on selection. You can
rent everything under the sun -- everything from a Cadillac El Dorado to the state of the art Tesla Model 3, so those are the three areas where
we're really focused and we want to make sure that we improve the customer experience on each of those three levers.
QUEST: Good to see you, sir. Thank you. I appreciate you coming in tonight, thank you.
MOK: Thanks so much for having me, Richard.
QUEST: Now, on Thursday, a special edition of "Quest Means Business," we will be coming from the Boeing Everett factory in Seattle. We'll have the
Chief Executive of Boeing, Dennis Muilenburg who will be with us for half of the program. We will have features on the 787, the 747 -- the Jumbo
Jet. Look, you know me and planes, I can't wait. Boeing live, "Quest Means Business" on Thursday.
[16:30:00]
(COMMERCIAL BREAK)
[16:30:00] RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Hello, I'm Richard Quest, there's more QUEST MEANS BUSINESS in just a moment. When Disney
gets off with the ratings and we get massive media earnings, and Tesla isn't the only company about to go private, Arsenal shares are being bought
by one American billionaire who is meant to take the whole thing private.
But before we continue any further, this is Cnn and on this network, the facts always come first. Firefighters in California are now battling the
largest wildfire in the state's history. Mendocino complex fire has doubled in size over a few days and it's now threatening thousands of
homes.
It's one of 16 major fires burning in hot, dry and windy conditions. A number of people dead from Sunday's earthquake in Indonesia is now 105 with
200 people injured. This man's house partly collapsed, he says the trauma may last for months and he doesn't dare sleep in-doors, 20,000 people at
least are now displaced.
A German couple has been convicted of selling a ten-year-old boy to pedophiles on the internet. The couple were accused of raping the boy over
a number of years before selling him to other men for sex and filming the abuse. The woman who is the child's mother and the father will at least
serve at least 12 years in prison.
President Trump is to sit down tonight with more than a dozen chief executives at his golf club in New Jersey. CEOs of Boeing and Fiat-
Chrysler amongst those expected to attend the dinner. The first lady Melania Trump is scheduled to be there as well.
Anyone doing business with Iran will not be doing business with the United States. That was the blunt tweet sent by Donald Trump this morning to the
world's chief executives hours after the first wave of American sanctions snapped back on Iran. The White House says more than 100 companies have
got the message and hightail their businesses out of Iran.
Daimler was the latest, it's freezing operations. Cnn's John Defterios is with me on this. So what -- they're not -- the president's tweet is clear.
If you break these sanctions or if you -- not even break sanctions, if you continue doing business with Iran, you will be in trouble.
JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: Yes, indeed, Richard, I think it's crystal clear, and I think just that at the end of the day, it's going
to boil down to who has the financial heft to put the pressure on those European companies.
Is that Washington on one side or Brussels on the other. The problem is that European CEO right now, I would not challenge U.S. Treasury or the
U.S. Federal Reserve, that's what we're talking about. When it comes to Iran, this is kind of classic President Trump, he goes to the extreme to
try to get his counterpart Hassan Rouhani to the bargaining table.
Back in Tehran, he got some verbal support today from the Speaker of the parliament Ali Larijani who said Iran has friends around the world that
will help us in a very different way. He didn't lay out the specifics, Richard, but we had another European company be very specific about their
intentions and that was Daimler pulling out of the market --
QUEST: OK --
DEFTERIOS: In fact, they didn't even get the chance to go back in, Richard --
QUEST: Right --
DEFTERIOS: They tried to produce 10,000 cars or to sell in the market, but here's the key fact, the reality is they have a quarter of all their sales
in the U.S. market, so there's no way they would risk staying into the Iranian plan when you have that much at stake in the U.S.
QUEST: John, this may be something that you can't answer because it is so mild in far-gone uncertainty. But the European law specifically forbids
European companies from obeying the sanctions. It specifically says you shall not follow extra territorial legislation or rules, and Daimler would
appear to have infringed that.
[16:35:00] DEFTERIOS: Yes, those are the so-called blocking statutes, they were drafted in 1996 and they have come back because of this Iranian
sanctions by the United States. So to my opening point here, it's a challenge between Washington and Brussels and I don't think the European
companies with Wall Street exposure to institutional investors and also --
QUEST: Right --
DEFTERIOS: Raising money in the capital markets would try to risk it. Richard, let's take a look at the companies so far who have declared their
intentions. Let's bring the graphic up. These are the major industrial giants primarily from France and Germany mixing with those from Italy and
the U.K.
Maersk is the shipping company from northern Europe, they've already said they're not going to go back into Iran, despite the opportunity of having
80 million consumers. They're going against exactly what you're talking about, the blocking statute.
We even had a minister of state here in the U.K. saying this is a commercial decision by the European companies, we're there to support them
--
QUEST: All right --
DEFTERIOS: If they want to. Let's get to the realities, Richard, this is a political decision, it's not just a business decision for those CEOs.
QUEST: So an excellent question need to be to Europe, what are you going to do about it. John Defterios, thank you. Donald Trump is creating
headaches for central bankers around the world. The sanctions aimed at Iran hoping to starve the country of foreign currency.
Tehran's new central bank governor will now have a lot of trouble providing relief to Iranian businesses, he's not allowed to do any form of dollar
activity. Washington is reviewing Turkey's tariff-free access to the United States as the breakdown in relations adds pressure on the currency,
the lira, which is already in crisis at a time when the central bank there can at least afford it.
The People's Bank of Japan has been forced into a rule that's put back in place -- I'm sorry, I beg your pardon, China, my apologies -- a rule back
in place that makes it more difficult to shore the currency, the yuan, a clear sign the bank is getting worried about the impact of a trade war with
the U.S.
Julia Coronado is the former chief economist at the MPP, big time working for the Federal Reserve. These MacroPolicy Perspectives, we need your help
here.
JULIA CORONADO, PRESIDENT, MACROPOLICY PERSPECTIVES LLC: Yes, my pleasure.
QUEST: The U.S. is targeting, recognizing that central banks have certain unavoidable duties --
CORONADO: Yes --
QUEST: Any by doing so, they found a weak point.
CORONADO: Well, exactly, so the president is very upset about the dollar strengthening, but some of this is just a natural consequence of the
policies abroad. The Turkish economy was already in trouble, and you already had a breakdown of central bank independence there.
So the regime was controlling the central bank, preventing them from raising rates to stem the decline in the currency, you add to that, the
political pressures and the currency is enough free fall.
The story is a bit different in China. They sort of wanted a devaluation, there was natural pressure towards weakening because their economy has been
weak in the first half of the year, and then they sort of let it go a little bit further because that sort of helps offset the pain of terrorists
of course that the currency is weaker.
So -- but they don't want it to go too far, so they're sort of trying to control that, it's about 7 percent decline there --
QUEST: Yes, but the weakening of the currency and how that plays into what Donald Trump --
CORONADO: Right --
QUEST: Always said about the Chinese keeping their currencies artificially managed.
CORONADO: That's right, but now we're in a situation where there's natural pressed downward pressure from a relatively weaker economy in China. So
they actually are trying to keep it from weakening even further. There's pressure towards the weakness which only makes the dollar stronger which
makes -- which doesn't go in the direction that the president is wanting it to go.
But these are the natural economic forces at play.
QUEST: Central Bankers, again, they play a unique role --
CORONADO: Yes --
QUEST: Mark Carney at the Bank of England having to deal with the way he's dealing with Brexit. This management of an inflation target --
CORONADO: Right --
QUEST: Of 3 percent or whatever it might be, this all indicates the Fed's duo mandate at the time when they are also having to unwind their balance
sheets.
CORONADO: Correct.
QUEST: How difficult is it?
CORONADO: It's pretty difficult and right now, you've -- actually, the Federal Reserve is in probably the best position of any central banks
around the globe. They have a strong economy and subdued inflationary pressures. So they're raising rates very gradually, very slowly, very
orderly, and there's nothing that's telling them that they need to either speed up or slow down.
So right now, the Fed is in a bit of a sweet spot, the president doesn't like the fact that rising interest rates means the dollar is appreciating,
but again, that's going to -- that comes with the long-term --
QUEST: Right --
CORONADO: Stability hold the Fed is seeking to achieve.
QUEST: Do you see -- finally, on the Fed --
CORONADO: Yes --
QUEST: As though, it's not a threat to its independence, but do you see any damage to its independence from the president's tweets?
CORONADO: Not yet, I would say --
QUEST: Not yet --
[16:40:00] CORONADO: Not yet, I mean, look, the Fed is a creature of Congress and their current Chair, Chair Powell is managing his relationship
with Congress very well, very carefully, very bipartisan, very active communication. All of that is good, so as long as the Congress is happy,
the Fed's independence is safe.
So I think the Fed is going to keep doing what they're doing, keep making decisions the way they've always made them, it would really take a
Congressional attack on the Fed for them to see their independence a threat, and right now, there's no signs of that.
So I think right now, we're safe, it just isn't always the Fed is going to ignore it.
QUEST: Good to see you.
CORONADO: Good to see you --
QUEST: I heard what you did --
CORONADO: My pleasure --
QUEST: As always, thank you. As we continue after the break, large parts of the world are sweltering in an extreme heat and it's again warning that
without intervention this is the future -- in a moment.
(COMMERCIAL BREAK)
QUEST: What a picture. Wildfires in California or Texas and Washington state, and of course the Atlantic into Europe, you've got Spain, Greece and
Portugal along with Sweden, it's a truly awesome and awful scene. This Summer is giving the world an insight into the climate of the potential
years ahead.
And scientists say this could be a whole new normal and unless we act quickly, we might push the earth to the point of no return. Cnn's Ian Lee
reports from Paris.
(BEGIN VIDEOTAPE)
IAN LEE, CNN (voice-over): Dangerous fires, deadly drought and melting glaciers. Symptoms of extreme weather and possibly are glinting to our
future, scientists warn. As scenes like this could become the norm according to a report from the National Academy of Sciences.
It starts with what is called a positive feedback. Man-made emissions freeing the earth's natural greenhouse gases locked away like a set of
dominos that can drive global warming. For instance, releasing methane trapped in arctic permafrost or the destruction of coral reefs creating
what's described as a hothouse where temperatures stabilize 4 degrees to 5 degrees centigrade higher than pre-industrial levels.
Right now, the earth is at about 1 degree higher. The hothouse scenario leads to severe heat sea levels up to 60 meters about 200 feet, making some
areas on the earth uninhabitable.
UNIDENTIFIED MALE: Now, if we pass 2 degrees Celsius, most of the occasions are that we can still adapt.
[16:45:00] But if we reach 4 degrees Celsius warming, from the evidence we have today, looking back theologically, it would mean the planet that
cannot basically serve the modern world as we're recognizing.
LEE: This apocalyptic scenario can be prevented with collective human action, scientists say. In 2015, nearly 200 countries signed the Paris
Climate Accord pledging to work to keep temperatures from rising more than 2 degrees. But under President Donald Trump, the U.S. pulled out dealing
the global agreement a blow.
UNIDENTIFIED MALE: And the good news is that we have more and more evidence that's transforming the world to a -- you know, a 100 percent
fossil fuel free world economy is not only necessary, it's both possible, but also has social, economic, health-wise and security benefits.
So the path to success is there and the window is still open to succeed.
LEE: But if action isn't taken soon, then brace yourself, the report says we could be approaching the point of no return. Ian Lee, Cnn, Paris.
(END VIDEOTAPE)
QUEST: Cnn senior investigative reporter is John Sutter and he's been looking into this and joins me now. We talked several times recently on
this program about the issue of climate change and the reality of it. And those people who still deny it's taking place or that in this very hot
weather, this is just one of the things that the earth goes through every now and again.
JOHN SUTTER, CNN SENIOR INVESTIGATIVE REPORTER: You know what? People celebrating and I've seen -- I've seen there too, like, you know, people
saying that they like a hot day at the beach. And I think that's fair but we have to recognize that we are in a fundamentally new normal or new
abnormal is how I've heard it put.
And it's undeniable the facts of -- the facts of climate change.
QUEST: Right --
SUTTER: We know we're warming the world by burning fossil fuels, it's --
QUEST: Right --
SUTTER: It's something we've known for decades now.
QUEST: Why is 2018 seemingly worse? I'm not suggesting that you know, historians will look back and say 2018 was the tipping point, but it does
seem to be worse this year. Is it a blip or is this the norm?
SUTTER: I mean, I think we're heading towards a world war, this is the norm. I mean, this -- we're on track to be among the hottest years on
record, it's hard to say, you know -- you know, exactly where it will fall. But I mean, think about last year, right, like we think of these events
like the heat waves you mentioned and the wildfires, they're in the news this week.
But you know, go back a year and there were all of the hurricanes in the Atlantic like that hit, you know, Puerto Rico, that hit Houston in the
United States back-to-back-to-back, these massive storms. I think it's impossible to look away from all this evidence and to say that there's not
a problem here.
The science is getting better at attributing very specific events to climate change and to human --
QUEST: Right --
SUTTER: You know, emissions of fossil fuels is difficult to do that in many cases, but we're getting better at that, and I think as that science
gets better, it's harder to look away.
QUEST: How damaging is it that the U.S. left Paris? Huge amount of noise made. Some states like California say they will still follow the protocols
and they will follow the limits set by Paris. But Paris continues without the U.S.
SUTTER: Yes, and I think that's the hopeful news, right, as the rest of the world is still rallying around this. I think it was damaging that, you
know, one of the biggest polluters of the world, if not the biggest depending on the measure of the United States pulled out of this.
And looking at this report that you know that we're discussing, I'm just incredibly struck by the degree to which this moment in history really
matters. These authors are saying in the next decade or two, our decisions are going to have ramifications that could last tens of thousands of years,
if not hundreds of thousands of years.
And so you know, if reading what they said about the tipping point arguments, what we do right now in this very short window of time, you
know, when you think about the history of the earth is just so crucially important, so we can't afford to miss steps like, you know, one of the
biggest polluters in the world is stepping away from action on climate change.
QUEST: Good to see you, thank you sir, it's important, very important.
SUTTER: Thank you.
QUEST: We're going to continue to explore this issue on "CNN TALK", the question we're asking is this just a blip or is it something more serious?
Hannah Vaughan Jones and the panel at noon in London time and have your say, Facebook-dot-com-slash-Cnni.
The English Premier League is getting more American. The billionaire Stan Kroenke is taking control, sole control of Arsenal. Meanwhile, the
supporters are calling it a dreadful day for the north London football team -- on a break.
[16:50:00] (COMMERCIAL BREAK)
QUEST: One group of Arsenal fans say it is a dreadful day for their club as the American billionaire Stan Kroenke's take sole control of the team,
he is taking it private. He's bought out the other major shareholder at a deal valuing Arsenal 2 billion.
And in doing so, then they will become unconditional and he can buy everybody else's shares. Arsenal shares will no longer be listed, so their
rivals. Manchester United also owned by an American have traded on the New York Stock Exchange since 2012.
Juventus shares in Italy are essentially a penny stock, although they did get a good boost when they signed Cristiano Ronaldo. And American football
listings are a less common. The NFL's Green Bay Packers are owned by fan shareholders, although they get dividends and the shares are no longer for
sale.
Don Riddell is with me, and we talked about this earlier on "QUEST EXPRESS", now, we can really get to it. Don, once the -- I mean, for
Arsenal, is it better that it goes private, away from the stock market scrutiny whereby investment, private investment can be put in?
DON RIDDELL, CNN WORLD SPORTS: Well, it depends on your point of view. The football fans at Arsenal, Richard, would argue absolutely not. They
feel as though this new situation is going to mean less transparency and less accountability.
And one of the reasons that so many Arsenal fans did buy shares in their club although it didn't add up to much of a portion of the ownership of the
club was that they could basically have some kind of say as to how this club was run. And football clubs are not always run in the best way by
private investors, Richard.
Some have been destroyed by records for overspending, some have been ruined by woeful under investment. So Arsenal fans are very --
QUEST: Right --
RIDDELL: Concerned about this. They have described this as a sad if not a dreadful day --
QUEST: Right --
RIDDELL: For their beloved team.
QUEST: So explain to me because I would turn around to you and say, well, that's fair enough, I understand their peak and their angst and their
anger, but they don't own the club, and you know, any more than I don't own your pocket handkerchief and I can't sort of take if off you.
It's tough, it's tough, they don't own the club. But you're going to point out to me, I have explained this love of the fans of the club and how they
feel it is theirs and part of their community.
RIDDELL: Oh, yes, absolutely. I mean, you could do what you like to a football team, but the fans will be the ones that are there at the
beginning and they will be there at the end. It is their life-long emotional investment. And as you say, a football club really is a major
focal point of the community. And players come and go, managers come and go, owners come and go, but the fans do not.
[16:55:00] And so they really do feel as though they're the only ones with the best interest of the club in their hearts. And so that is why there's
a great deal of concern. And of course it remains to be seen how this is going to play out. But I think they're particularly aggrieved that they're
now being made to sell their shares which they didn't really have as items --
QUEST: Right --
RIDDELL: Of value, they were literally there so they could try and maintain some sort of interest in the running of the club --
QUEST: And so --
RIDDELL: And supposedly, the Arsenal supporters trusted them. And said they feel as though this is now going to be legalized theft to remove a
break on how Arsenal is managed.
QUEST: And is there any talk, any suggestion, any possibility of some accommodation? Because if he does own and he does have all the shares and
he does take the company he owns, he can still issue some form of shares or rights to fans so they feel they've got a stake in the club.
But I'm guessing that so far there's no suggestion of any such a plan.
RIDDELL: Not that I've heard and this is of course is all news today, so we'll have to see how it all plays out, I don't believe that the actual
transfer has gone through. Alisher Usmanov has merely agreed to --
QUEST: Right --
RIDDELL: Sell his 30 percent of the value of -- by the way, $780 million.
QUEST: Thank you, Don, Don Riddell. And now, let's stay with money, earnings news that have come out to us in this hour, SnapChat is up about 4
percent after-hours. Snap reported a smaller loss than expected, the shares actually were up 2 percent during the day.
So they're really just pulling everything to have extra ground. And Papa John's Pizza is down 9 percent after abysmal results, hardly surprised in
growing amount of scandal that that company has been down. But down 9 percent, and Disney shares down after-hours, earnings missed Wall Street
expectations.
And Disney's Chief Executive Bob Iger says he's never been more enthusiastic about his deal to buy "Fox's" assets. A busy day I think
you'll agree, so we'll wrap it up with a profitable moment after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment, you have to forgive me, I've got to dash out, I have a plane to catch, I am heading to Seattle because on
Thursday, QUEST MEANS BUSINESS, you and I, well, will be in Seattle and will be talking to the Boeing Chief Executive Dennis Muilenburg about his
extraordinary company, China trade tariffs, new aircrafts 787, a whole lot palpering(ph).
It's Boeing, it's Seattle, it's Thursday. And that's QUEST MEANS BUSINESS for tonight, I am Richard Quest, whatever you're up to in the hours ahead,
I hope it's profitable. We'll do it again tomorrow.
END
END
