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Quest Means Business
Corporate Earnings Boosting Stocks; Good Numbers From Netflix And United Airlines And Hanging Over With All Tensions With Saudi Arabia; Donald Trump Defends The Saudi Government; Marijuana Is Legalized Now For Recreational Purposes In Canada; Trump Says He's Eager to Hear Audio from Inside Saudi Consulate; Turkish Investigators Enter Saudi Consul's Residence; Death Toll In Crimea Rampage Reaches At Least 19; First Lady Melania Trump's Plane Lands Safely After a Mechanical Issue; Theresa May Makes Pitch To E.U. Leaders; Trump Instructs Cabinet To Cut Spending By Five Percent; China's Baidu Joins Silicon Valley AI Partnership. Aired: 3- 4p ET
Aired October 17, 2018 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL HOST: The last hour of trading and our 60 minutes until the closing bell, and what a fascinating day. The market, a
sea of red throughout most of the morning. A bit of who knows what during lunch time, more red but how will we last? Will these losses extend in the
usual volatile arc and one stock in one area of one market, watching oil -- it had been in the talking points all day.
Look, West Texas is up three percent. The oil market is hot. We need to understand why when you look at the global markets, these are what's
driving the day. We've gone back to volatility since the Fed minutes came out, some members are calling of restrictive rates. Corporate earnings
boosting stocks; good numbers from Netflix and United Airlines and hanging over with all tensions with Saudi Arabia. Oil prices are dropping. Donald
Trump defends the Saudi government. We need to understand that mechanism.
Live from the world's financial capital, New York City on Wednesday, October the 17th. I'm Richard Quest, I mean, business.
Good evening. Tonight, the White House was appearing to put commerce ahead of morality. Donald Trump is denying he is giving cover to Saudi Arabia
after the disappearance and apparent murder of the journalist, Jamal Khashoggi. But talking about US-Saudi relations earlier today, the
President made much of the contracts, the commercial contracts, the arms contracts that Riyadh had signed with US companies, and cited close
economic ties as a reason t give Saudi Arabia the benefit of the doubt.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: They are an ally. We have other very good allies in the Middle East, but if you look at Saudi Arabia,
they are an ally and they are a tremendous purchaser of not only military equipment, but other things. When I went there, they committed to purchase
$450 billion worth of things and $110 billion worth of military. Those are the biggest orders in the history of this country, probably the history of
the world. I don't think there's ever been any order for $450 billion and you remember that day in Saudi Arabia when that commitment was made.
So they are an important ally, but I want to find out what happened, where is the fault and we will probably know that by the end of the week, but
Mike Pompeo is coming back. We're going to have a long talk.
(END VIDEO CLIP)
QUEST: We'll talk about this issue of commerce versus morality with David Gergen later in the program. The reference to Saudi and the reference to
oil of course and commercial contracts could have huge implications and what we saw in Saudi is one of the reasons along with, as well, supply
issues why we're seeing Brent crude down nearly two percent, but West Texas which is the US plant is off nearly three percent on supply. The oil is
falling after US stockpile rise.
Whilst the recent -- the US recently became the world's top producer. Now, this is the way it looks at the moment. We know that the US is now number
one because of nontraditional methods, so called fracking. The sheer size and scale of places like the Permian Basin and the northern part. Then you
have Russia, which is huge as well, much more difficult, much more complex operation and Saudi Arabia, now number three.
So the US still is importing around 11 percent of its oil from Saudi Arabia and the interesting part about the Saudi oil is that the Saudi oil is part
of OPEC and the OPEC agreement of course does include Russia on the sidelines. Now, these levels of Saudi importing of oil to the US is at
similar as 1973 when the Saudis launched the oil embargo. Anyone who is around that time will remember with that -- about the shortages, the
problems and the misery as a result.
It led to the crippling of the US economy, a recession. John Defterios has more.
(BEGIN VIDEOTAPE)
JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: The 33-year-old son of the King seized power last year to become Crown Prince. He has offered Western
companies a volatile mix ever since. The high profile 20/30 economic reform plan with cutting edge mega cities coupled with heavy handed moves
to consolidate his grip on power, and now the apparent death of Saudi journalist, Jamal Khashoggi -- a frequent critic of his leadership.
GARY GRAPPO, FORMER US DIPLOMAT: The game changer has been on the Saudi side, that they act in this way against a perceived opponent and I think US
businesses and indeed, all international businesses are going to have to take that into their calculation.
[15:05:08]
DEFTERIOS: So why has Western business remained so engaged in the Kingdom. Primarily because Saudi Arabia remains the number one oil exporter in the
world, which has fueled an infrastructure boom well before the current Crown Prince came on the scene.
RICHARD THOMPSON, EDITORIAL DIRECTOR, MEED: So you have that combination of oil income and the leadership committing to delivering key projects and
investments; that other markets surrender or don't have and that's why potentially, Saudi Arabia is one of the most attractive markets anywhere.
DEFTERIOS: Research compiled by Meed captures the scale. $1.4 trillion of major projects. A third of which are already under construction in a
population just a tenth of the size of the United States.
Last year, I toured the Haramain Train Station, part of the $14 billion rail network that will link the port city of Jeddah to the Holy sites of
Mecca and Medina.
MOHAMMED FIDA, DIRECTOR GENERAL, HARAMAIN HIGH SPEED TRAIN PROJECT: This is only the start. We will go more and more bigger and bigger and better.
DEFTERIOS: The oil price collapse between 2014 and 2016 slowed down master plans at Haramain and scores of other projects, but new start of the art
buildings metros and economic sites can be found everywhere.
UNIDENTIFIED FEMALE: His Royal Highness, Prince Mohammed Bin Salman.
DEFTERIOS: The young Crown Prince marched in and out of the layer of complexity with his 2030 plan, which is dependent on Western know-how and
political predictability, which seems to be lacking now.
GRAPPO: US businesses are going to think long and hard about how they are going to continue their relationships with Saudi Arabia when this
particular government takes actions of this nature.
DEFTERIOS: There's a big bounty in the Kingdom for international business, a great risk now, as well.
(END VIDEO TAPE)
QUEST: John Defterios is with me now staying up late in Abu Dhabi. John, two aspects we need to talk about briefly. Firstly, the oil price which
today went down has held its own if you like, it has not been unduly disturbed by the Saudi issue and went down on other issues of supply and
demand.
DEFTERIOS: Yes, indeed, Richard. We had a scare over the weekend, because we heard a very stern statement coming out of the Saudi government itself
and then now bared in a TV channel, an op-ed writer of the channel they owned, Al Arabiya suggesting they may use oil as a weapon, but I would say,
listen very carefully to Khalid Al-Falih, the Minister of Energy who gave a speech in India and said that in fact, Saudi Arabia will remain to be the
shock absorber for oil going forward, the buffer against Iran, Libya and Venezuela.
This squares nicely with US policy as well. There's not a huge shortage right now. We have to see what the Trump administration does though with
the Iran sanctions because their exports are dropping quick. It's down to 1.6 million barrels a day and you know, Donald Trump has talked about
getting them to zero.
QUEST: And this question of business and one might call it morality over values and commerce. Saudi Arabia will be pleased with the way the US
administration at least seems to be getting much more emphasis to keeping good commercial relations.
DEFTERIOS: Unbelievable. Donald Trump again put it front and center and he jacked up the numbers a little bit, $110 billion of military contracts,
$450 billion overall, Richard. He is adding the security pact that they have with Saudi Arabia and when he went in May of 2017, I remember covering
it, they signed $200 billion of agreements going forward outside the military space.
This is front and center for Donald Trump, but it really begs the question, does he understand the nuance of how to balance the relationship with Saudi
Arabia. He can't always put business as a priority and that's a huge question mark now whether he can manage this expectation and relationship
going forward.
QUEST: John Defterios in Abu Dhabi will continue watching. John, come back if there is developments in oil. Sam Kiley is in Riyadh. Sam, you
were obviously listening closely to what John was saying, the business question, and this all becomes extremely distasteful talking about business
when you read as the "New York Times" has published in the last couple of hours what's alleged to have happened to Jamal when he arrived at the
consulate. What is the Saudi position now on when they're going to reveal more.
SAM KILEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, they've given themselves possibly up to two weeks according to Mike Pompeo. They want to
have it resolved perhaps inside that time. He was hoping for a week. The Saudis have committed, Richard to a transparent process. We'll see if it
is -- and one that is timely, we'll see if it is.
[15:10:09]
KILEY: But I think that this is something that the Saudis want to get resolved very, very quickly, not at least because they've got this big
Davos in the Desert meeting coming up just next week. So we may see some movement, we never know over the weekend. But this is an investigative
process and there has to be at least a semblance of it.
QUEST: And Steve Mnuchin, the US Treasury Secretary has said he will decide tomorrow if he is going to the investment conference. Now bearing
in mind just about everybody and their brother has decided not to go, how will that be regarded if he doesn't go versus if he does go, how will that
be regarded within the higher echelons there, do you think?
KILEY: I think it would be regarded with great disappointment, but not great surprise by the Saudis. The head of the IMF has already announced
that she's not coming, having said that she would, but remember, Richard, also, the conclusions of a formal investigation rather than what is being
leaked have not been reached.
There is no formal exchange of data that has gone on and that is really going to be more awkward, I think, for the United States politically for
the Trump administration given the pressure that's building on Capitol Hill to somehow punish the Saudis, not at least by not going to this meeting,
but very diplomatically awkward not to go if you don't have the facts behind you. So it's a very problematic issue.
I think going forward, Richard, one of the pressure points could easily be down the line, it's not so much in cutting or sanctions, but restricting
armory supplies for the war in Yemen. That is the point of vulnerability that would be particularly costly for the Americans.
QUEST: Sam Kiley, who is in Riyadh. We thank you. Now, the final hour of trading, and investors are looking as you just all heard. We talked about
the Fed, there's oil and there's corporate earnings, all of which mix into the pot. But talking of pot, the utilization of recreational cannabis in
Canada. We'll talk about that. And your phones, please get your phones ready. Cnn.com/join is where there will be a chance for you to take full
part in what we're talking about.
[15:15:00]
QUEST: And a look at the market shows exactly what the picture is. We are down on the Dow, down in the S&P, down on the NASDAQ admittedly small
losses for these -- well, for all of them it's fallen into this one, but if this carries on, not this hour, 40 minutes to the close, it's a red without
question, a red across the markets see-sawing in the "Quest Means Business" trading post. Certainly, no records -- well, it's worth reminding us about
15 Dow ,19 S&P, 29 NASDAQ and none recently or no more in Europe.
The market is trending lower. We've had that Fed warning about the possibility or likelihood of higher rates to come. More rate rises even
restrictive territory for them. Energy shares falling earlier in the day. You saw that on the back of the oil price and strong corporate earnings
that wipe out initially the Dow losses, but let's look at the earnings season. Remember, our earning share case which tracks the stocks, the
stock price in the 24 hours immediately after earnings. We've discovered and found over long time that if you look at the share price 24 hours after
or in the period after, that is the best reflection on what the market thinks of them.
So bank earnings are just about done and mostly positive. You've got Wells Fargo, Citi, Goldman Sachs between 2 percent and 4 percent, but at the
other side, down JP Morgan, Bank of America and PNC. You could arguably say that the two cancel each other out. Today, it is IBM first all,
revenue is down 8 percent. The stock is down 8 percent. Revenue fell and worryingly for IBM, the cognitive solutions division, that's the bit that
includes Watson was one of the poor performers. The future bit seems to be fortunately not good.
You've got United where the stock prices up 7 percent and that's firmly on the back of profits that were up 30 percent and this is despite the fact of
higher fuel cost, this reason is simple -- they are able to put up prices. There is some pricing capacity availability in the airline industry. As
for this one, Netflix, up 4 percent now. It came after the bell. Huge subscriber growth and it is expected to add nine million new subscribers in
the fourth quarter.
The share case will fill u pin the days ahead. Clare Sebastian is here to put perspective into Netflix.
CLARE SEBASTIAN, CNN CORRESPONDENT: Yes, I mean, this was a really important quarter for them, Richard. They missed expectations, their own
expectations, I should in the last quarter. They fell short of subscriber growth. This time, I mean, clearly, they got the forecast wrong as well,
but in the right direction, so they beat their own forecast by two million subscribers. They are now up to 137 million subscribers. That is a huge
number.
QUEST: I read an interesting -- a piece by Barry Diller who gave a speech at some conference in Dubai -- out in Dubai at some tech conference. Barry
Diller basically saying that Netflix is uncatchable and the new streaming service -- well, he says the big studios are dead effectively, just doing a
few blockbusters a year and Disney nor HBO part of the same company, WarnerMedia cannot catch them.
SEBASTIAN: Well, they've got -- I mean, they are conscious of the competition that's coming down. They've got -- CNN's parent company AT&T
is launching its own streaming service next year. Disney is doing the same and they're going to pull their material off of Netflix, so they are
spending big to create the kind of content that is going to keep people coming, but there was an interesting nod to this, Richard in the
shareholder letter. They had this chart of how people's Instagram followers go up after their shows launch on Netflix.
Their message being that stars are created on Netflix. They can penetrate the culture, they can penetrate the zeitgeist and this is essentially the
new Hollywood. That's what that felt like as a statement, so that's interesting in the context of what Barry Diller is saying that Netflix is
now where talent wants to go.
QUEST: I'm always wary though of new paradigms, changing of rules, old guard gone, it's all the new business. History has shown that isn't always
the case, but here, they've got 137 million -- that's almost impossible for anybody to ...
SEBASTIAN: I mean, to put it in context, Amazon Prime, which offers much more than just video has just hopped to 100 million earlier this year ...
QUEST: Hundred million?
SEBASTIAN: Yes, so I mean, Netflix, which only offers -- I mean, I say only -- they've got a lot of video on its site.
(CROSSTALK)
SEBASTIAN: Delivery, music, everything. So Netflix is still ahead of them and they've got a lot of catching up to do, but I will say some of the
legacy players like Disney, they already have their own library and Netflix has to build its library.
QUEST: Good to see you, thank you. Now, we're done with Netflix, it's time to chill. We're talking marijuana. It's legalized now for
recreational purposes and our "Quest Means Business" question is just going up for you. Voting is about to begin and you go to cnn.com/join.
[15:20:16]
QUEST: There you are you've got time. cnn.com/join, there you will find the web page that will give you how to vote and we'll give you the question
in just a moment. In other words, we want to prepare you for that moment.
The first day it's been legal in Canada to sell cannabis for recreational use, and Canada is the first G-7 nation to legalize non-medicinal cannabis.
People around the world, governments around the world are watching. Piles lining up at the Canopy Growth store in Newfoundland, described as a
historic moment.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: It's another era of prohibition being lifted.
UNIDENTIFIED MALE: It's 80 years waiting.
UNIDENTIFIED MALE: This is something that you'll want to be able to tell your kids that you were there for this moment because it's going to be in
history books.
(END VIDEO CLIP)
QUEST: The market reaction is one of a buzz kill with the largest pot companies by market value falling. They are all down and it raises the
question buy on the rumor, sell on the news because they've been up so sharply, Tilray which has been all over the place, Cronos, Aurora, Canopy -
- they've all been up so sharply in recent weeks in getting ready for this. Now, of course, so analysts are warning that the pot stocks are volatile
and speculative.
We saw it with the dot com boom and bust, some might say Bitcoin is the same. Our question for you making sure there is nothing that you shouldn't
be seeing on this. Our question for you, are marijuana stocks a bubble? Are they here for the long term or literally and figuratively, will it go
up in smoke? I'll put your responses to our guest after you have voted, cnn.com/join -- are they over hyped and are they a bubble waiting to burst
or is this just the beginning?
Paul Rosen, co-founder of the Cronos Group and now, the CEO of Tidal Royalty joins me from Montreal. Do not answer the question yet, sir. We
will allow good time to tease and titillate before we get there. On this question of cannabis in Canada, how significant is it that Canada is now
the first?
PAUL ROSEN, CO-FOUNDER, CRONOS GROUP: Oh, it's truly a historic milestone. Canada is as you said, the first G-7 nation. It's only the second country
in the world after Uruguay to bring in a recreational cannabis program, but given the size of Canada, approximately 34 million people and really the
influence Canada is now having on the global cannabis economy, the historic nature of today simply cannot be overstated.
QUEST: So I mean, obviously, in the immediate future of course, the eyes look south to the United States. You've already got Colorado and there is
the potential for California. If the United States, which seems a long way off were to take the similar sort of steps, that would be obviously the
game-changer.
ROSEN: Yes, I am comfortable with the idea that the US cannabis economy is going to be one of the great global cannabis economies, but for the reasons
you have heard to the dichotomy between Federal and state law sort of its growth is being impeded whereas Canada, because we have consistent rules
between our Federal government and our provinces, it is allowing the formation of efficient capital market -- close capital markets are allowing
our businesses toward a scale in the here and now and that's giving us the ability to impact the global cannabis industry.
QUEST: With that uncertainty, cnn.com/join is where the question is being asked. With that uncertainty, where would you vote on whether or not the
current stock, they are certainly volatile, that's to be expected. But are they over hyped?
ROSEN: I think the industry is not over hyped. I think we are really building a very long term durable industry that will justify some of the
valuations that people today think are excessive. What I would say though is we're transitioning in Canada from an era where every asset in the asset
class is getting a lift if you will because of the excitement around the legalization and they are going to start looking more carefully at a
company by company basis to really see which of these companies are set up to dominate globally and therefore, perhaps justifying their current and
perhaps even growing valuations and which ones maybe got up and caught up a little bit in the emotions around today's historic day.
QUEST: So what are -- when you value those companies, what are the metrics that we should look at, bearing in mind obviously, you were involved in one
of them, but these are companies we don't know. We don't know the provenance are indeed their abilities to make earnings and profits, all we
know is that this is a gravy train leaving the station, so how should we look at those companies?
ROSEN: Yes, I mean, we can value these companies now using benchmarks sort of investment banking or certified financial analytical tools. We can look
backwards at their earnings. We can project where their revenue is going to grow. We can calculate their margins, so it's a little less opaque than
it was three or four years ago because at least in Canada ...
[15:25:14]
ROSEN: ... these companies now, several of which are publicly traded and therefore providing continuous disclosure to the investment community.
They have enough years of operational history, now there we can start to begin to evaluate them by making an estimation of forward looking earnings
and providing a multiple to those earnings.
QUEST: Are you surprised, sir that the result is in and most of the QUEST MEANS BUSINESS viewers who took part at cnn.com/join -- a wise and
dedicated bunch of viewers, they all say that the stocks -- or 59 percent say the stocks are over hyped, 41 percent say they are not. Are you
surprised?
ROSEN: You know, I didn't really have a strong intuition as to how the educated consumer or audience would follow.
QUEST: Excellent.
ROSEN: But I think, you know, I think that someone who that's consistent with what I am saying is some of these companies are going to -- we are
going to look back and some of these companies are going to look like they were priced at a premium today, others are going to look that they were
priced at a discount.
So my general feeling is that the industry justifies the expectation that investors are placing on us, but no doubt, there are going to be some
individual companies that don't justify the hype around them today.
QUEST: Thank you, sir. Good to see you, as always, please come back again and talk more as we understand what is happening.
ROSEN: I look forward to that.
QUEST: And for you, the educated viewer, Paul Rosen said that, keep your phones out. The EU's Brexit negotiator says both sides need much more time
to work things out. Michelle Barnier says they need more time to sort out Brexit. Should the Brits, should the EU be given more time? Leave on
schedule? Wait for a deal? Get out your phones and computers, cnn.com/join. Should Britain leave the EU on the agreed date no matter
what, go and never (inaudible) again or negotiate until you reach a deal whenever that might be.
We will continue. We'll have the results of that, stay with Brexit and Theresa May's big Brussels speech. She had little to bring the UK closer
to a deal. That's the verdict of an EU official following a significant address by the PM. The details as QUEST MEANS BUSINESS continues.
(COMMERCIAL BREAK)
[15:30:00] QUEST: Hello, I'm Richard Quest, there's more QUEST MEANS BUSINESS in just a moment. You need to be thinking about voting, we hope
on the question of Britain leaving the EU. Should it leave on schedule or should the U.K. be given more time to get its act together?
They're voting on that, and the results and discussion in a moment. Donald Trump is getting his cabinet together and tells them all to cut five
percent off their budgets, we'll talk about that.
China's answer to Google, teaming up with Silicon Valley to protect us from artificial intelligence, those and more still to come. You are watching
CNN, here on QUEST MEANS BUSINESS, the news and the facts always come first.
President Trump says he is eager to hear all the info from inside the Saudi Consulate in Istanbul. Turkey is claiming that the audio paints a grizzly
picture of the killing of the journalist Jamal Khashoggi. Mr. Trump has been Saudi Arabia's staunchest international defender and has cast doubt on
whether the tape even exists.
The investigation into Khashoggi's disappearance has now taken Turkish police to the Saudi consul's residence in Istanbul. And investigators wore
hazmat suits as they comb for clues. The consul left Turkey on Tuesday and returned to Saudi Arabia.
The death toll from a rampage of the college in the Crimea has reached at least 19 people. Russian officials say a student set off a bomb at the
school in Kerch on Wednesday, then went on a shooting spree as attack left about 50 people wounded. Officials believe the suspect later committed
suicide.
The plane carrying the U.S. first lady Melania Trump was forced to return to the airport after reporters on the plane smelled burning, instructing
haze of smoke. Mrs. Trump stopped for the mechanical issue and the plane landed safely, a woman said everyone was fine.
Yes, Theresa May's big Brexit pitch tonight was given to other EU leaders at a council meeting. And according to one EU diplomat who heard her
speech to fellow leaders, nothing exciting or new was there. Now, it was billed as a moment of truth summit.
Perhaps, they couldn't even clinch a Brexit deal this week, instead EU's Brexit negotiator Michel Barnier, he says much more time, much more time in
his words needed to work things out. Ahead of her speech, Theresa May sounded confident a deal could be struck.
(BEGIN VIDEO CLIP)
THERESA MAY, PRIME MINISTER, UNITED KINGDOM: Right, we will be able to talk about the very good progress that we've made since Salzburg. Yes,
there are differences remaining on the Northern Ireland's backstop issue, by working intensively together, I believe we can resolve those issues, I
believe we can achieve a deal.
As I say, a deal is in the interest, not just at the U.K., but also the European Union.
(END VIDEO CLIP)
QUEST: Now, joining me from London, Simon Fraser was the Deputy Chairman of think-tank Chatham House and was the head of the U.K. Diplomatic Service
until 2015. And Shanker Singham is the director of International Trade at the Institute of Economic Affairs.
Gentlemen, thank you for both taking the time to come and join us this evening. I suspect -- well, pretty much, no, that you're not going to
agree on the issue, the fundamental issue of Brexit and the way it goes forward. But starting with you, Mr. Simon, this question of disarray that
the U.K. is not ready -- what Michel Barnier says is that more time needs to be given, particularly that will go on the transition. Would you go for
that?
SIMON FRASER, FORMER DEPUTY CHAIRMAN, CHATHAM HOUSE: Well, I do think obviously, more time is needed because they haven't reached agreement. But
the Prime Minister is right to say that a lot of progress has been made, and there was no reason why a deal had to be reached today on the full
details of the U.K.'s withdrawal treaty.
I think the summit in Brussels today is largely now about keeping the show on the road so negotiations can continue. There's no reason why that deal
can't be reached in time for us to leave next March as planned. The biggest risk around this is the domestic political risk in the U.K. and
whether the Prime Minister can get it through parliament.
QUEST: Shanker, are you OK with a longer transition period, providing the exit happens on March the 30th next year?
SHANKER SINGHAM, DIRECTOR, INTERNATIONAL TRADE & COMPETITION UNIT, INSTITUTE OF ECONOMIC AFFAIRS: You know, I think if the two sides are
negotiating and we get to, let's say September, let's say we've got a withdrawal agreement and then --
[15:35:00] QUEST: No, we're there, will be on September, sir, we're already in October.
SINGHAM: No, I mean, September of 2020. I mean, suppose we are negotiating and we need more time, I don't think anyone would have a
problem with giving more time at that point. I think the most important thing is actually to get on with the negotiation.
And I agree with Simon, but actually there's nothing magical about this particular date even though people have built up expectations for it.
There's another potential council meeting in November, there's a ministerial meeting in December.
I think the two sides can actually get down to it. We can actually get a deal, and I think the two sides are not that far apart actually, contrary
to what people suggest.
QUEST: You said that -- you said that --
SINGHAM: The EU has already offered --
QUEST: No, well, you said that, but the issue is Northern Ireland and the Irish border question. And Mr. Simon, on that question, I mean, we can
pass it anyway you like, the facts don't change, you can fudge it one way or the other, but there's going to have to be some form of border --
whether it's a virtual one by definition, there's going to have to be some form of border. Do you accept that?
FRASER: Well, I accept that it is a complicated issue and it's a very important issue politically and economically. And indeed, in terms of
security on the island of Ireland. So I agree with that. It doesn't have to be actually resolved fully now because it will only be resolved when we
know what the long term economic relationship is going to be.
We're talking now about a contingency plan if that doesn't work out. And I -- you know, I accept that people want that contingency plan and there are
differences over it. I think it would be strange if in the end, disagreement on that insurance policy backstop for what might happen in two
or three years time, stops the withdrawal deal going ahead.
QUEST: Are we not heading, Shanker, towards classic fudge here? Listening to what Simon was saying, let's -- there's an element of let's -- the facts
are not going to change when it comes to Northern Ireland. The Prime Minister herself said every option has been looked at.
Why does everybody think if we wait for another few months, is it just to take the sting out of it?
SINGHAM: Well, I think what -- you make a very good point. I think if deadlines gets pushed back without people actually doing any negotiating,
then it tends to be kicking the can down the road and we face the same problems in a few months that we're facing now. So I don't think that's
the solution.
On the Irish backstop there, I think Simon is absolutely right. The most important thing is the actual relationship between the U.K. and the EU and
what the island of Ireland looks like in that context --
QUEST: Right --
SINGHAM: And that's what we should be talking about. And I think there are all solutions that make the goal of not hoarding the Irish border in
ways that damage the Good Friday agreement and the peace process. That is possible to do, and it's possible within the context of a free trade
agreement between the U.K. and the EU.
And that's broadly --
QUEST: But --
SINGHAM: What the EU has offered.
QUEST: That's what they've offered. Gentlemen, finally, to each of you. Starting with you, Shanker, the question of a no Brexit deal. No Brexit
deal is better than a bad deal says the British Prime Minister. Donald Tusk says it is now getting increasingly likely.
You're still prepared to go for -- and the Brexiteers are still prepared for a no deal.
SINGHAM: Well, I think it depends what you mean by no deal. If you're talking about no free trade agreement, well, I appreciate that people are
talking about the likelihood of no free trade agreement increasing. I however believe that the optimal solution which is a free trade agreement,
I think between the U.K. and the EU is still -- is still very achievable, provided we deal with the issue of the Irish border in the context of
customs and trade facilitation.
And I think there are --
QUEST: Right --
SINGHAM: Technical solutions, there are other things that you can do. But we have to remember that, this is -- this requires a diplomatic solution.
You can have as many technical solutions for the Irish border as you like. But if people don't agree on the island of Ireland that these are
acceptable, none of it will work.
QUEST: So Simon, both of you gentlemen are sounding extremely reasonable tonight and I'm sure you're very reasonable in all your dealings. But you
know the reality of this, the moment things get -- people get into quiet -- you're nodding, sir. The moment people get into quiet rooms, the
Brexiteers become ferocious, the remainers start to become troublesome.
Nobody, Northern Ireland is intractable, the Europeans stand by their four pillars, that's the problem here, isn't it? There really is no fundamental
meeting of minds.
FRASER: So I actually think that a deal can be achieved, which allows the U.K. to leave in an orderly way next March. And I think that's really
important, not least is really important for business so that business has continuity in its operations after we leave.
[15:40:00] Even if we don't know the long-term answer, but you're right to point out that those who comment on this, we tend to apply rational
argument and we shouldn't underestimate the power of the irrational and the politics of Brexit. It is an important factor.
QUEST: Right, good to see you, both gentlemen, thank you. We'll talk next in London face-to-face --
FRASER: Thank you --
QUEST: And enjoying a strong debate. So the results are in on the cannabis, of course, no, I think the Brexit question, the Brexit question,
and it is leave on schedule or go early, and it is 67 percent of you say you should wait for a deal or at least they should wait for a deal versus
30 -- so, I'm sorry to squinter the screen to see what it is, 33 percent of you who say otherwise.
David Gergen is with us, when we come back, we'll talk to Mr. Gergen on the question of Donald Trump and the Saudis.
(COMMERCIAL BREAK)
QUEST: Last night on this program, we talked about the U.s. federal deficit which is at its highest in some six years. Now Donald Trump has
unveiled a plan to get it under control. The president wants a 5 percent spending cut from every government department, and he told the world this
before he told the cabinet.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I'd like you all to come back with a 5 percent cut, and I think if you can do more than that we will
be very happy. There are some people sitting at the table, I'm not going to point you out, but there are some people that can really do
substantially more than that.
(END VIDEO CLIP)
QUEST: David Gergen from Harvard's Kennedy School of Government is here, served as an adviser to Presidents Nixon, Ford, Reagan and Clinton. Good
to see you.
DAVID GERGEN, FORMER PRESIDENTIAL ADVISER WHO SERVED UNDER NIXON, FORD, REAGAN AND CLINTON: Good to see you, Richard.
QUEST: Well, I hear that and rather the movie "Dave" who he sits there and says to everybody, I want you to come back to me with proposals to do this,
it's a bit bizarre way.
GERGEN: Well, it's not political, he's in his theater. You know, he's under a lot of pressure now with a deficit, Richard, coming in and they
were too high. The Republicans promised to pass out the tax cut, you won't have any deficits, and boom, here we are.
And now the Republicans are talking about cutting, you know, funding for the older people. It's -- he's trying to push back against that.
QUEST: He's blaming the Democrats as well, obviously --
GERGEN: Of course, does he ever blame anybody else?
QUEST: No, but can he get 5 percent spending cuts, will he be able to force it too, because as you know, and until you tackle entitlements --
GERGEN: Yes --
QUEST: Until the discretion will be part of the project very small --
GERGEN: Yes --
[15:45:00] QUEST: And you still have got defense.
GERGEN: Well, exactly, and let me walk in the door and tell, you know, Secretary of Defense Mattis that he wants to take 5 percent after
increasing it every year and very proudly doing that. And it's 5 percent from what? Is it 5 percent from the current baseline or is it 5 percent
from a projected spending? No, there's a lot of different ways to play this game.
The bottom line here is the five percent is more about fear than it is about solving the deficit problem.
QUEST: Today, he gave great credence to the commercial importance of the relationship with Saudi Arabia --
GERGEN: Yes --
QUEST: Again, referring to the value of the contracts.
GERGEN: Right --
QUEST: Four hundred and fifty billion --
GERGEN: Right --
QUEST: He said, and which has led us to question whether he's putting commercial interests before the morality of the fact that man apparently
have been murdered.
GERGEN: Listen, he's in a very tough spot, this could turn into the first major crisis of his administration and international affairs, he's had
pretty easy sailings so far. He doesn't necessarily have the team around him that you want to have there in a crisis.
I mean, if I was sitting in the White House today, I would say Mr. President, you know, you've got some very hard decisions to make.
QUEST: What are those hard decisions?
GERGEN: When you're going to decide -- what are you going to -- you know, the Saudis have in fact been a pretty stout friend of ours on a number of
different issues, not just the contracts, but in a geopolitical relationship.
You know, you can go back to the early days of OPEC when the Saudis tried to keep things, you know, reasonably stable. They acted with us on Kuwait,
going into Kuwait, hit and knock Saddam Hussein out of there. There have been a whole series of things they've done.
So they're trying to -- but I think Trump is on the wrong deal by signing the contracts, because it makes it sound like money is more important than
human rights.
QUEST: No, that's exactly what he's making it sound like.
GERGEN: Yes, and I think that's terrible for the United States, an embarrassment for the United States to be put in that position.
QUEST: If you were advising a president on this --
GERGEN: Yes --
QUEST: Once you've got the facts and obviously you've got to get more facts than you've got at the moment. But let's say it is as it seems to
be. What do you do? You don't break off diplomatic relations, you don't cancel contracts. But what do you do?
What are these severe punishment options that you have?
GERGEN: Well, first thing you do is you consult the best minds, the most creative thinkers of international affairs, I would say, Mr. President,
let's call Henry Kissinger, let's call George Shultz, let's call Jim Baker, Condi Rice, you can go down.
And there's some Democrats included in that too, and see if we can come up with a created solution. Do -- and for example, do we have to push for the
Crown Prince to step down?
QUEST: That will be the new --
GERGEN: After all the time --
QUEST: That'll be almost the nuclear option in this --
GERGEN: It will almost be the -- but do we have to pay that price in order to keep our relationship going? In order to maintain respect to the world,
I don't know the answer to that question, but I do think it's looming out there.
QUEST: I don't think -- you think it's going to get that far to that, assuming --
GERGEN: Well --
QUEST: Because clearly, there are fingerprints everywhere and dirty hang out --
GERGEN: Exactly, and where's the body. You know, the -- but the both -- the president ought to be demanding this, the investigation has been slowed
off now for two weeks.
QUEST: I'm curious that you say this is turning or could turn into his first major crisis.
GERGEN: Right --
QUEST: Unlike say Kim Jong-un where he had his summit and there was little rocket man --
GERGEN: Right --
QUEST: But you think this has the potential --
GERGEN: Yes --
QUEST: To become more --
GERGEN: Yes --
QUEST: Serious.
GERGEN: In fact, I think that -- I think that the decisions he has to make are going to be very difficult. They could -- you know, he has damn their
-- bet the farm in the Middle East on Saudi Arabia, his relationship with Saudi Arabia.
And Kushner, his son-in-law has bet the farm on his relationship -- personal relationship with the Crown Prince. Those are pretty critical and
that's how, you know, that's what's holding a lot of that, that's why he's been so, you know, defending the Saudis as he is in addition to the
contracts.
And these are the kind of things that -- you know, the Europeans are going to be watching closely, you know, a lot of the world is watching closely if
we say it's OK, you guys -- it's OK for you guys tell a lie, put out -- you know, put out a fraudulent story and we will just wink at it and move on as
if we don't have to worry about this.
I don't think the rest of the world is going to stand for that. It's public, it's too graphic.
QUEST: Good to see you, sir, thank you.
GERGEN: Thank you sir.
QUEST: As we continue tonight on QUEST MEANS BUSINESS, Silicon Valley is teaming up with China's Baidu to develop safe artificial intelligence. And
that of course begs the question what essentially? In a moment.
[15:50:00] (COMMERCIAL BREAK)
QUEST: Baidu has become the first Chinese company to join a U.S.-led ethics body on artificial intelligence. Now, its aim is a partnership on
AI, and the members include Facebook, Google and Amazon wants to address public concerns over advances in AI.
The group says with Baidu on board, it's on his way to becoming a global partnership. In the C-suite now, Tom Siebel is the CEO of C3 which offers
platforms for AI, good to see you, sir.
TOM SIEBEL, CHIEF EXECUTIVE OFFICER, C3: Nice to be here.
QUEST: Right, Baidu joining, I mean, Baidu is big in China, if you can have a partnership on ethical questions of AI, we need the Chinese element.
But you don't seem totally convinced.
SIEBEL: Well, I think that -- you know, it's a good idea, I think that you know, when we deal with information technology in China, the problem we're
dealing with it is massive state sanction intellectual property theft, OK, and massive invasion of privacy. So I think it's a good idea and I hope
they're sincere.
QUEST: But you don't think they are?
SIEBEL: I think that one needs to -- as Ronald Reagan used to say, "trust, but verify".
QUEST: "Trust, but verify". On this question of AI, everybody is into it, it means everything to anybody. We all sort of know what it means in the
most generic sense. But as somebody who runs platforms for AI, what are you seeing as the trend?
SIEBEL: Well, what AI is simply solving a new class of computing problem that we're able to do very cheaply associated with accurately or
calculating predictions. Predictions of when transactions are fraudulent, predictions of what people might want to buy, predictions of, you know --
so accurately, predictions. So we can optimize business process.
QUEST: Where are we in the AI development?
SIEBEL: Where it's the earliest adoption of what will be a huge information technology market.
QUEST: But is it going to be so incremental in terms of development, but it's only with hindsight in 15 years time, 20 years time, whatever that we
will -- that's what it was all about. Because anybody -- it's a bit like anybody who's got anything to do with AI, Trump had said, hopes its share
price rises on the back of it, and I believe it's been a bonanza.
SIEBEL: Well, I think that -- if you look at the corporate world, we're going to a mass extinction, is that. Fifty two percent of the Fortune 500
companies have disappeared in the last 18 years. And but -- I mean, where is GE? Where's Sears? Where's Kodak? Where's Leslie Gas(ph)?
These companies are -- she's not yet gone yet, but they're actually the mark. OK, now, we have this new generation of companies coming out like AI
-- oh, excuse me, like Amazon, like Tesla, like Uber with new DNA, and they're all about using AI to solve business problems better.
And candidly, we had 8,000 retail outlets closed in the U.S. alone last year. If you're Wal-Mart looking down the barrel from Amazon, you got a
world to hurt.
[15:55:00] QUEST: Right, but Wal-Mart needs to use AI -- what you're saying, if what you're saying is right, Wal-Mart needs to use AI, Boeing
needs to use it, every participant in the industrial chain needs to have an AI component.
SIEBEL: They are, they will and they're doing it today. Whether we're dealing with subsistence agriculture, travel, transportation, healthcare,
oil and gas, all of them.
QUEST: And we're doing it well because I heard you talking today with Gergen about the work being done in some of the leading universities here
in the United States. Is the U.S. leading on this at the moment or following?
SIEBEL: I think the U.S. is leading at the moment, but make no mistake, what's going on with China is absolutely open warfare, OK? As it relates to
AI, and these people are not asleep at the switch, they're extraordinarily confident, they're very well funded then they ought to be worried about.
QUEST: And you say open warfare, the weapons being what?
SIEBEL: The weapons -- the weapons are various forms of AI. I mean, this is -- I mean, the next form of warfare are cyber war. It's all -- I mean,
look at what's going on with the weaponization of social media in the United States. I mean, this cuts through the question of whether we can
conduct a democracy. This is all about AI, it's a very scary stuff and there's basically a war going on between China and the United States, and
we're going to see who wins.
QUEST: You'll be here to help us understand what -- whoever wins, what it looks like.
SIEBEL: We're trying.
QUEST: Good to see you, sir, thank you.
SIEBEL: Thank you.
QUEST: We'll have a profitable moment after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment. Whatever may be the true intent of Donald Trump and the administration, the fact that he constantly talks
about contracts, Saudi Arabia values, biggest contract in the world, $450 billion.
At the same time as everybody else is talking about the potential murder of Jamal Khashoggi, it raises real issues about -- as you heard from David
Gergen, whether the United States is now being perceived to put commercial interest ahead of moral values.
You simply can't get away from it when the U.S. president insists on linking the two so much. Whatever may be the true intent, that's the
reality, that's the message that the rest of the world gives, which is really this: money and values come before what's the right and moral thing
to do.
And that's QUEST MEANS BUSINESS for tonight, I am Richard Quest in New York. Whatever you're up to in the hours ahead, I hope it's profitable --
(BELL RINGING)
The bell is ringing, the day is done, it is a robust AI, has finally come to the Exchange.
END
