Return to Transcripts main page
Quest Means Business
Oil Prices Sink To Their Lowest Levels Of The Year; Work Is Far From Over For The British Prime Minister; New Study Is Out With A Dire Warning On The Consequences Of Climate Change On Health And The Economy; Thirty One Killed in Pakistan Market Blast; Pakistan Promises Arrests After Consulate Attack; A Top Turkish Official Says Trump is Turning a Blind Eye to Khashoggi Killing; Dolce and Gabbana Apologize After China Outcry; Dolce and Gabbana Products Pulled By Alibaba and JD.com; A Chinese Start-Up Makes Waves Overseas; Herjavec Says Facebook has Only Just Realized How Much People Care About their Own Data; Rising Corporate Debts Worry Investors; Dow Loses 1,000 Points in One Week. Aired: 3-4p ET
Aired November 23, 2018 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA NEWTON, CORRESPONDENT, CNN: Okay, it is Friday, but we are still thankful. Thankful that it wasn't worse than that. This is what is
driving the day on Black Friday, November 23rd. It is the crude oil clearing sale. Oil prices sink to their lowest levels of the year, stock
markets suffering a Thanksgiving hangover, that is what we are calling it, the Dow lost about a thousand points, a thousand points in just one week.
And sorry may not be enough. Dolce & Gabbana are in damage control mode in China. I'm Paula Newton, and this is "Quest Means Business."
Good evening. It is truly a Black Friday for oil prices as they plunge to the lowest level in a year now. We have seen falls as high as nearly 8%,
Brent crude is now way below $60.00 a barrel and as you can see there, US crude, West Texas Intermediate is hovering over that $50.00 mark, and now
as you can see here, that is a staggering fall of about a third in less than two months.
There are several reasons here for these Black Friday discounts on oil. Firstly, there are fears over of course a global slowdown in growth. What
does that mean? Less demand for oil. The latest data from the Eurozone shows business activity growth in November has been at its slowest
unfortunately in four years. Secondly, the world is again facing the problem of too much oil on the market. Saudi Arabia's output for example
is close to an all-time high, and the US crude production is also robust. Finally, US President Donald Trump even if he is not, he certainly wants to
be a factor in all of this.
He has repeatedly commented on oil prices, thanking the Saudis profusely for bringing them down and asking for more. Our Clare Sebastian is here.
Clare, there are a lot of factors at play there, but just to put the context in here, we can't say enough, just a few weeks ago, we were talking
about $100.00 a barrel oil and here we are with those kinds of prices.
CLARE SEBASTIAN, CORRESPONDENT, CNN: Right, well, I would add another factor which has really played into this and that is the Iran sanctions.
So when we were talking about $100.00 oil, that was partly an expectation of them coming back and taking a lot of oil off the market.
Obviously, the impact of that was severely blunted by the fact that the Trump administration added waivers for eight countries including the likes
of China and India, and that kept a lot of Iranian oil on the market, a lot more than people were expecting. So this is why we've seen these price
falls.
I think a lot of what is going to happen next whether we see oil bounce back or stay as it is will hinge on what OPEC does on December 6th.
NEWTON: It's going to be an all-important meeting especially when it comes to Saudi Arabia and Russia, and there is word that they just cannot stand
these prices. No one has to tell you that the break-even point for the Saudis is around $80.00 maybe a barrel, maybe less than that. What could
change in the weeks to come depending on that OPEC meeting or as those Iranian exemptions kind of settle out to the beginning of 2019?
SEBASTIAN: Well, I think it is as very delicate balancing act for Saudi Arabia particularly ahead of that meeting. Obviously, we've seen oil
prices move a little bit in the last week as we have seen Donald Trump offer some political cover to Saudi Arabia despite the Jamal Khashoggi
affair, and that led people to wonder whether that made a production cut and OPEC less likely, but now we're seeing "The Wall Street Journal"
reporting today that there may be some kind of compromise at stake, a production cut by another name, perhaps they're just going to keep the
targets at their 2016 levels, which would effectively amount to a production cut by Saudi Arabia, because they have been overproducing.
But it won't anger the Trump administration with of course, Saudi Arabia, also wants to keep them on sides, so the markets are weighing this kind of
delicate political, calculus in amidst all of the economic concerns at they already have.
NEWTON: Yes, and the key thing is they just do not have as much control as they used to especially with the United States producing so much oil now,
they are such players in the market, and of course, not a party to OPEC.
Clare, this is in some way shape though a good news and bad news story for the economy and everyone likes lower gas prices, and it certainly helps to
curb inflation and yet, it could damage a lot of those crucial oil producing companies, those energy companies, stocks have just taken a
beating.
SEBASTIAN: Absolutely. I mean, I think -- you know, Trump in the tweet earlier this week called it lower oil price is a big tax cut for Americans
and he may have a point. We have seen gas prices start to come down. That is a good thing of course, ahead of Thanksgiving when a lot of people were
traveling, but the markets resoundingly did not agree. Today, you see Exxon down almost three, Chevron 3.5%, BP -- I mean, these are companies
that will be severely affected by lower oil prices, and it's not just them. You see the likes of Caterpillar as well which came down sharply there.
They have a big energy equipment producing business.
So there are a lot of companies in the stock market that really rely on the high oil prices for their businesses.
NEWTON: Yes, and going into what is already likely to be slower growth in 2019. A lot of headwinds there for oil.
[15:05:06]
NEWTON: Clare, thanks so much for being here and have a great weekend.
SEBASTIAN: Thank you.
NEWTON: Donald Trump says there is question why oil prices are falling, it is because he is the one as Clare was just saying trying to put that
pressure on Saudi Arabia.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I have the oil prices low, because I am jaw boning them and the others all of the time to keep them
low. Nobody ever did that. No President ever did that and the gasoline is now at a very low number. We want low oil prices. And Saudi Arabia has
really done a good job in that respect. They pumped out a lot more oil than was going to be pumped out when I called them about four weeks ago,
and if you are look at oil four weeks ago, it was at $80.00 to $83.00 and it was going up to $100.00 a barrel. That would have doubled your prices
and even tripled your prices at the car for gasoline and instead, you have very low gas prices all over the country. That's because of what I did,
and Saudi Arabia helped us
(END VIDEO CLIP)
NEWTON: The President at his modest best. Stephen Moore is CNN's senior economic analyst and a former adviser to the Trump campaign, I mean,
Stephen, look, many people would say that what he is doing actually with all of this is quite clever and that Americans will appreciate him for it.
STEPHEN MOORE, SENIOR ECONOMIC ADVISER, CNN: Well, Americans sure like low gas prices, there's no question about that, and despite the fact that I
was listening to your previous conversation, certainly, this is bad news for energy producers, but for everyone else low gas prices are just the
gift that just keeps giving whether you are talking about restaurants, whether you're talking about retailers, whether you're talking about
airlines, whether you're talking about the just about all of the manufacturers. I mean, low oil prices are really a big stimulant to the
economy and you put it well that this is a tax cut.
Now, how much credit does Donald Trump deserve for this? I think, it's not because of his jawboning of the Saudis. I think, one of the thing that is
going on here in the energy markets, and this has been going on for ten years, but especially now. I just got back from the Permian Basin in the
middle of Texas where you just see so much oil production, and that has really changed the whole playing field for energy where the Saudis now have
real competition from American producers.
NEWTON: But let's stay in the Permian then Stephen, and it's great that you were just there. You know what the cost per barrel are there. They
are definitely higher than some of the other oil production. How worried are they going to get as their own President talks down the price of oil to
unsustainable levels?
MOORE: Well, that is a great question. Look, I remember when I was out there five or six years ago and the frackers and the shale producers really
needed a price of like $80.00 or $90.00 a barrel to break even. One of the thing that's happened is they have become more efficient as the prices have
come down.
Now, you ask a good question, because once that price gets below $50.00, you're going to see a huge reduction in the number of new oil wells that
are being drilled, because they just can't make money, you know, with the current technology at that kind of the price.
So absolutely, Texas is going to take a big hit if these prices stay low, but my point is, other industries will do very well -- think about
manufacturing companies, I mean, energy costs are a major, or maybe the major cost of production, and so that helps other industries and it hurts
the oil industry.
NEWTON: And the President knows all of this, but I am just trying to gauge from you, Stephen, at what point do you think the President will get
worried and his adviser s will get worried, and I put this to you, look, the President came into the office and he gave the greenlight for Keystone.
That Keystone pipeline is a big deal. It is now again stalled in the courts. It's just one part of what is a very complicated puzzle on
continuing to pump oil in the United States and getting it to the important markets. At what point do you think he will start to reverse his language
understanding that it is hard to get that Goldilocks price on oil.
MOORE: You know, I am only laughing that you ask me that question because I have been getting the last three or four days, I have been in calls from
investors all over the place asking that exact same question. When does Trump reverse his rhetoric and when does the price get too low? I don't
know. I do think you know, I think you had a chart up earlier that showed the West Texas Intermediary price was what? $50.50 or something near that.
Once you get below $50.00, you really are starting to put a real, real pinch on the American producers and you are going to see a dramatic -- if
the price stays that low, you'll see a big dramatic reduction in the number of wells.
And by the way, that's exactly what the Saudis want, right, I mean, they've tried this before or lowering the price dramatically because you put it
very well that the Saudis are the low-price producer, no question about it.
They still have a big impact on what the world price is, and so they would be smiling like Cheshire cats if driving the price down has actually led to
less competition that they have to face in the future.
NEWTON: Yes, but only if it gives them more market share, you and I both know they've tried that a few years ago. It just didn't work out for them.
MOORE: Exactly. It didn't work.
[15:10:03]
MOORE: It's a risky strategy, no doubt about it, but they do -- their hope is they can put these frackers out of business, and then later, they can
jack up that price again, but you know what happens is as soon as that happens, those guys in Texas and Alaska and North Dakota, they just jack it
up again, and so that's the game that's being played now.
NEWTON: And I am sure as you've learned, they've become much more efficient and much more productive. It's actually done them a favor.
Stephen, stay right there but we want to turn to another market moving story.
China shares closed in the red on Friday, pulled down by tech stocks. And that followed a "Wall Street Journal" that the US government is urging
allies not to buy hardware from Chinese tech giant, Huawei.
We want to get Steve's take -- Stephen's take on this right now. You know my question to you is, this is also something that the President is briefed
about. This seems to me to be like DEFCON 5 in terms of actually offering money to allies to abandon the Chinese equipment.
On this issue, how serious do you think the President is about pushing this issue, and you know, it may also come with retaliation from China?
MOORE: I think he is deadly serious, and I think, this one of these areas where he is not going to back down. I think we are in an almost -- I think
this expression is being used more and more now, a kind of the Cold War between China and the United States. Donald Trump believes, and I think,
in a large part he is right that China has been engaging in very abusive trade practices, that their theft of intellectual property and other
problems. They are increasingly aggressive military stance has moved them from the position of being kind of an ally to an adversary of the United
States, and Trump believes that this is really the big fight of our generation, of whether the United States or China will be the dominant
world economy, and, you know, we will see.
So I don't see Donald Trump backing down. I think when it comes to the trade dispute, the ball is really in Beijing's court about whether they
will start to make some concessions that both countries can live with.
NEWTON: Yes, and on the technology, you are right, the President definitely sees this as a long game. I have run out of time, but I want to
ask you finally, when was the last time that you talked to the President? Sometimes, I just want to get it in there if you had talked to him
recently.
MOORE: Oh, I talk to him maybe once a month, and he is feeling good about the -- the last time I talked to him, he was feeling really good about the
economy, I don't know since that 1,000-point stock market drop, but he is very angry right now at the Fed. He believes that the Fed is what is
driving down these -- the higher interest rates are driving down these stock values.
NEWTON: And guess what, Stephen? I am sure we will have you back to talk about that in the near future. You have an open invitation here, Stephen.
Have a great weekend. Appreciate you being around for us.
MOORE: You, too. Take care.
NEWTON: Now, the Dow closed down triple-digits once again, dropping 178 points to finish a very tough week. Friday's drop brings this week's Dow's
losses to almost a thousand points. US markets closed a couple of hours ago and early in, thank goodness to the long Thanksgiving weekend. It is
of course Black Friday and that is the subject of our question of the day. Get out the phones now and go to cnn.com/join. The annual shopping event
has spread right across the world, but it remains a staple of the US holiday season and giving retailers a much needed boost.
Now, according to Adobe's latest data from few hours ago, yes, updated a few hours ago, online sales were up 28% compared to the same time last
year, and as we have seen over the past few years, shoppers are moving online, 60% of them plan to bargain hunt on the internet.
Now, shares of traditional retailers such as Macy's and Target have not gotten that lift, in fact, quite the opposite, both closed down 2% and 3%
respectively.
Now, if you bought a new smartphone today, take it out of your pocket and go to cnn.com/join, that's assuming you've learned how to use it so far,
where it takes me much longer. We are asking you, where are the best deals to be found? Is it online, in the store or do you think it's best to mix
and match? Go to cnn.com/join right now, voting is open and you will see the results updated right there on your screen.
Greg Portell is a partner at AT Kearney. He is live from Palm Beach, Florida. I mean, look, an absolutely banner day today. I don't think
anyone expects it to be anything other than record breaking, higher than last year.
In terms of that mix though between bricks and mortar and online, you have to have both these days to be a winner in this, don't you?
GREG PORTELL, PARTNER, AT KEARNEY: You definitely do, I mean, consumers don't really define themselves by channels, they want products at the right
price and sometimes that is online and sometimes that is in brick and mortar.
NEWTON: And in terms of how companies are going to do that moving forward. I mean, look, I'll give Target as an example. I've used it before. They
had fairly mixed results, and the reason was that their margins were squeezed, why? Because they were trying to up those online sales and
giving the customer what they want in terms of online, delivery, pickup, and store. It squeezed their margins, not to mention the fact that they
are leading into an environment where they have to pay more for their workers.
PORTELL: Right. Those two stories are going to play out this holiday season. The first one being the cost of that labor and making sure that it
is having the right experience for the consumers, whether it is in the store or in fulfilment.
[15:15:05]
PORTELL: And then the second part of it is getting that pricing correct in the market basket.
NEWTON: What do you think the trends are for 2019? Because I think baked into this market, and even those bad results unfortunately is a banner end
to 2018, so what are we looking for, for 2019?
PORTELL: The story in 2019 is really going to come down to how long the retailers can extend the consumer wave. We know that consumers are
positive. We know they have money to spend, and the question is, can the retailers hold that momentum through Black Friday all the way into the
start of 2019?
If they are able to do that, that is a sign they have started to find the balance between the labor and the product selection that they offer online.
NEWTON: And do you think margins is going to be the thing that everyone zeroes in on?
PORTELL Margins is absolutely going to be part of this, because we all get enamored by the sale amount and the dollar amount, but the metric to watch
is how many of those buy one, get one free items or the signs that go up in the stores right after the holidays around sales, and how many of those are
we seeing? Because that would be an indication that the retailers got it wrong and they are having to take hits on the margin.
NEWTON: You know, as much as we've said it's been a great year, we only have to point to Sears to say that there is consolidation, and
consolidation that may continue. Who do you see being the winners and the losers? I don't even mean specific names, but what do the winner have the
do to make sure they don't follow the road right behind Sears?
PORTELL: It's really going to be a three-part strategy for most of them. The first one is going to be get that store labor strategy right. Because
if a consumer is going to be going into the store, they want the right type of experience. They want knowledge. They want quick checkout lines, and
they want someone in the store that can help them to find something.
When you switch online, it is all going to be about product curation. Can you get the right product in front of the consumer? Because while we hear
about the endless aisle, consumers really don't go past that first page, and so it is making sure the right products are there at the right time,
and then the last part of this is execution. Can you keep the website up? Can you keep the labor in the store and engage? Those the types of just
basic blocking and tackling execution are going to be a big part of the winners and losers when we do the accounting in January.
NEWTON: Yes, it's interesting to see those retailers try and mix that up. Have the online dovetail into the on-store presence, and have more digital
features or just more of the accessories like cappuccino bars that people want to have. Before I let you go, I want to ask you in terms of the way
this -- are we at peak Amazon effect here? We talked about that so much, but I had a great reality check earlier in the week with one of our
analysts telling us, look, Walmart still has above double the revenues of Amazon.
Now at what point is that Amazon -- it is a really good stat to bring up and I will add the PE ratio of Walmart is much lower than that of Amazon.
Have we reached that kind of peak Amazon? I am not talking about it as a stock buy or sell. I mean, in terms of Amazon's effect on the retail
market?
PORTELL: Well, what we are starting to see is other retailers being able to compete against Amazon across a range of dimensions both consumer
expectations, pricing and assortment. So when you looking at Walmart, you look at Target, they have become very credible competitors to Amazon and
that creates a healthy market when one player isn't necessarily dominating the story line.
NEWTON: All right, and Greg, true confessions, did you shop today? Did you buy anything? Online? In store?
PORTELL: Oh, I've been up -- I've been out shopping and seeing if I can crash a few web sites for sure.
NEWTON: Was it a TV? Come on, you have got to tell me? A TV? You bought a TV?
PORTELL: No, no. I avoided the TV.
NEWTON: Good, good. I'm not --
PORTELL: It is all impulse purchases for me.
NEWTON: You know, I don't think I am going to avoid the Insta Pot though, that's the problem. Anyway, Greg, thanks so much. Have a great weekend.
Really appreciate it.
PORTELL: You, too. Bye-bye.
NEWTON: Thanks. According to the voters at cnn.com/join, most of you think the best deals, yes, are online. Good news for those people. It's
Cyber Monday, of course coming up this weekend and you see the results there.
Up next, the week may be done, but the work is far from over for the British Prime Minister. She heads to Brussels for a make or break EU
Summit this weekend just as Spain threatens to veto the deal. We are in London live, next.
[15:20:00]
NEWTON: Theresa May has finished her working week, and now heads to Brussels for a make or break summit this weekend. If all goes well, EU
leaders will sign off on the text of the draft deal on Sunday and of course, one of the stumbling blocks to that, a rock in the Mediterranean
called Gibraltar. Hadas Gold is in Londong.
It's been hard to follow this yoyo. You know, in the last 24 hours, at one point, Spain was hinting that maybe it was going to be okay, and then
it's not going to be okay. Is this really going to hold up this deal? Really, Theresa May has enough problems with this deal, and this could
scuff her, but do you think they will come to some kind of accommodation so that the press conference in Brussels will go off as planned on Sunday at
least?
HADAS GOLD, CORRESPONDENT, CNN: Right, so that whole issue is that tiny outpost in the southern part of Spain, Gibraltar which the UK has had since
the 1700s, but Spain still claims over, and Spain has had an issue with what they say is language in that withdrawal agreement which they say did
not give them enough of the say over future deals involving Gibraltar. This is sort of a last-minute announcement that the Spanish Prime Minister
made last night in a tweet.
I will read a little bit of what he said. He said, "After my conservation with Theresa May, our positions remain far away. My government will always
defend the interests of Spain. If there are no changes, we will veto Brexit." But I have to note, Spain doesn't really have a veto power over
this withdrawal draft agreement that is going to be supposedly agreed upon this weekend. There are some possibly domestic politics at play, because
there is a local election in Anda Lucia which borders Gibraltar which is very convenient for the Prime Minister, but they do have veto power over
future trade deals.
But this is way further down the line, so to answer your question, it is unlikely that this recent Spanish prop-up has is in any way going to be
affect what Theresa May obviously hopes will be a stamp on that draft deal which she can get on Sunday and then bring it back here to London and
hopefully convince the members of Parliament and the public to approve it and see it through.
NEWTON: And that is key. I know Theresa May wants to try and sell this to the British public hoping they can convince Parliamentarians because right
now, that vote is still very much in doubt. Hadas Gold, I would say have a nice weekend, but I have a feeling, you will be on your phone watching the
wires quite a bit. Appreciate you staying late for us tonight. Thanks.
GOLD: Of course.
NEWTON: Now, to the US now where the government has just released and when I say "just" just in the last hour and a half or so, a damning report on
climate change. The new study is out with a dire warning on the consequences of climate change on health and the economy.
Now it even says future US economic growth could be affected. Andrew Light is one of the authors of the report. He joins me from Washington. I am
going to get to the timing of this in a moment, but it's not really could affect economic growth, you and the co-authors of the report believe it
definitely will affect future economic growth.
[15:25:03]
ANDREW LIGHT, CONTRIBUTING AUTHOR, US NATIONAL CLIMATE ASSESSMENT: Yes, it will. We do a couple of different things in this report. One is to look
at how climate change is already impacting the United States. This is the most comprehensive look that has ever been done. At Climate Impacts, we
break down the country in to 10 regions, and region by region show how it is affecting the US now.
We also look at future impacts. The top line there is pretty dire. But also, there is some hope, if we can avoid some of the worst warming trends
that we can see, then we can avoid damage of hundreds of billions of dollars per year by the end of the century. We with can save tens of
thousands of American lives by the end of the century if we get serious from top to bottom at every region of government to try to do something
about this problem.
NEWTON: Many would love to hope, although, I mean, as you guys point out, not a single G-20 country at this moment is meeting any of its climate
targets. What do you hope will happen for that to change in the short term because it doesn't sound like there's a heck of a lot of time left?
WHITE: Look, most of the G-20 countries have targets that are out to 2030 and so, we don't know yet whether they are or are not going to hit their
targets. The important thing is that there is a lot of activity moving forward on the climate change, but we are at the point of urgency. We
cannot afford the wait any long ever. We need the Federal government, state, local governments to all work in concert in the United States and
with other countries around the world to try to meet some of our stabilization targets.
NEWTON: And yet the President himself very recently, I mean, just really a matter of hours doubted that climate change was actually real. Instead of
getting into a back and forth politically on one end or the other, as you can see there, Donald Trump's tweet, "Brutal and extended cold blasts could
shatter all records. Whatever happened to global warming?"
I know your response and most of our viewers have read it, it is about long term trends, and yes, temperatures will be extreme hot or cold in certain
instances, but you've heard the President there. Why do you think it is politically expedient for anyone at this point to ignore the reality
because that is the issue here, and you know that many American, and people throughout the world agree with the President?
LIGHT: Well not a majority of the Americans agree with the President on this, in fact, if you look at the studies that have been done on US public
attitudes, most Americans think that the climate is changing, and things are getting worse. Most Americans understand that it is humanly caused.
The President here is confusing climate and weather with respect to why anyone would take that position against the overwhelming scientific
evidence at this point as I can only imagine, it is either they have not yet been able to find the time to educate themselves on the issue. They
are being, you know, given false information by sources that they trust or finally, that they just don't like the solution set and that is that we
need to move towards non-carbon sources of energy as quickly as possible, nonpolluting sources of energy, and the good news there is that you can
actually do that now at a very, very low cost, and you can grow your economy in doing it. So actually, I don't really see the downside in
attending to climate change at this point.
NEWTON: Okay. And we do note of course, the timing of this report released on a Friday afternoon on a holiday. I don't know if there is
anything to that or not, and I will ask you quickly, do you think there was anything no the release and the timing?
LIGHT: I can't say. There are a couple of big major international conferences coming out and I know there was pressure to release the report
before then, but look, there's lots of days between now and those conferences when you could have picked a better time to do it. I'll let
the viewers come to their own conclusions about why Black Friday would be the day that you would release a report on anything this important.
NEWTON: Right, and we will leave it there. Andrew Light, thanks so much for joining us. Appreciate it. Up next, Dolce & Gabbana say sorry after
being accused of anti-Chinese racism. The backlash has been their products being pulled off the country's largest online retailers. The impact on
high fashion next.
(COMMERCIAL BREAK)
[15:30:00] PAULA NEWTON, HOST, QUEST MEANS BUSINESS: Hello, I'm Paula Newton, coming up in the next half hour of QUEST MEANS BUSINESS, we'll look
at the corporate debt bond that's got analysts worried that the end of what is already a miserable week for stocks.
And good luck getting a Black Friday deal on Dolce and Gabbana. If you're in China this weekend, the company's products have actually disappeared
from some websites, first though, these are the headlines on Cnn this hour.
There are no claims of responsibility so far after a deadly bomb blast in northern Pakistan. Officials say as many as 31 people were killed after a
bomb hit a busy food market Friday. At least 51 others were injured including 17 remain in critical condition.
Meanwhile, Pakistan is pledging to arrest whomever is behind Friday's attack on the Chinese Consulate in Karachi. Officials say armed attackers
tried to storm the Consulate, killing four people. Security forces stopped the raid and killed three attackers.
Balochistan Liberation Army, separatists claim responsibility. Turkey's top diplomat is accusing U.S. President Donald Trump of turning a blind
eye to the killing of journalist Jamal Khashoggi. It is a day after Mr. Trump once again defended Saudi Crown Prince Mohammad Bin Salman, the CIA's
assessment is that the Crown Prince ordered Khashoggi's killing.
The designers Dolce and Gabbana are apologizing after being accused of racism. People in China were outraged after an ad for the fashion house
showed a Chinese woman struggling to eat Italian food with chopsticks. On top of that, Instagram messages that seemed to be from co-founder Stefano
Gabbana allegedly mocked Chinese culture.
Now, the fashion house says his account was actually hacked. Today, the designers issued a video apology though posted to Chinese social network
Weibo.
(BEGIN VIDEO CLIP)
DOMENICO DOLCE, FASHION DESIGNER: (SPEAKING IN FOREIGN LANGUAGE)
STEFANO GABBANA, FASHION DESIGNER: (SPEAKING IN FOREIGN LANGUAGE)
(END VIDEO CLIP)
NEWTON: An apology that may be too little, too late. D&G cancelled a major show in Shanghai and some Chinese retailers including Alibaba and the
country's largest online retailer JD.com, you see there have now withdrawn Dolce and Gabbana products.
[15:35:00] Peter Shankman; branding and social media consultant and author of "Zombie Loyalists" joins me now. I mean, I think if we take it beyond
the obvious, what does it say to you when this ad actually was approved in terms of what does it tell you what's going on in the company when this
happened?
PETER SHANKMAN, BRANDING & SOCIAL MEDIA CONSULTANT: I imagine that in these companies they have a giant room where one person says this seems
like a great idea, looks around for, you know, anyone to question that, there's no one in the room and he goes, cool, must be perfect, let's go for
it.
You know, anyone who would see this ad, even if they didn't think it was racist to begin with, might just raise their hands, you know, maybe not,
maybe we shouldn't -- so the first question is how does something like this get approved? Second question is once it does, are you not expected to -- I
wasn't expecting that to be backlash.
And of course, the third question is when there is, and you have conversations about it, you might want to be careful about how you have
this conversations. One-point-three-five billion people live in China, it is one of the largest, if not the largest market for consumption of high-
end, high goods.
You know, you're looking at a huge hit for Dolce. I mean like huge massive hit like something that will impact their bottom line very hard this year.
NEWTON: And in terms of that impact, I mean, look, what would you advise them to do and yet, do you think the ultimate message is going to hurt no
matter what you do?
SHANKMAN: It's going to hurt. This is -- this is like when you know, you get sun-burned and you put aloe on it, whole shirt sticks your back, that's
going to be a rip that's going to --
NEWTON: Oh --
SHANKMAN: You get it, right?
NEWTON: I'm hurting already --
SHANKMAN: Really painful, the best thing they can do right now is use time on their side, you know, they're going to have to hope that someone else,
someone in a political -- makes a political statement and insulting China, but you know, this is not going to go away.
What Weibo and Alibaba and JD, that's scary because that's makes up the majority of where they sell their products. You know, you imagine, people
going and buying stuff in stalls in China is Alibaba and it's JD, and that's very frightening because that's -- you can't even get the links to
them.
Like it's not that they're not advertising them, they've literally taken the links down. So you're basically saying, here is your revenue stream
and now it's cut off.
NEWTON: In terms of other companies taking a look at this, how do you -- because it's this time, and yet you'll have another company you know it's
going to happen in a --
SHANKMAN: Yes --
NEWTON: Few weeks, and so what were you thinking?
SHANKMAN: Exactly --
NEWTON: So what needs to be the DNA inside of a company so that you know this is going --
SHANKMAN: Companies and brands and even individual celebrities need to understand that if there is a smallest possibility of it being taken out of
context, don't run it, because it s going to be taken out of context. There will be someone who is going to take it out of context.
NEWTON: You know that they thought it was cute somehow --
SHANKMAN: Right, and that's the problem, is that you have a bunch of -- oh, it's adorable, and here's the thing, not everyone thinks like you. I
mean, we live in this world where our friends think like us. You know, I can make a joke out of my friends who will think it's bad, someone who
doesn't know me.
I wouldn't do that, I don't joke on Twitter like that, I don't joke on Facebook or social like that. And the bigger problem is once you're
caught, and that's the whole message behind the customer experience, once you're caught, you have to own that.
We are so -- we expect as a customer economy and a consumer economy, we expect to be lied to. And so when you do make a mistake, the best thing
you could do, don't post on Instagram or have a "Instagram chat" that was "hacked", right? The same way Anthony Weiner claimed his zipper was hacked.
You know, you weren't hacked, you have to own that, get in front of it, own it and say, you know what? This was stupid, we made a mistake, we're going
to learn from this. Had they -- had they come out and made that announcement two days ago --
NEWTON: Right --
SHANKMAN: Right, the second it broke, forget about the back story of the Instagram, had they come out and made -- it might not have been it would
have hurt, but it wouldn't have hurt as much. This is going to kill them.
NEWTON: It really showed the insular thinking within the company --
SHANKMAN: Well, that's the thing --
NEWTON: The fact that they didn't realize --
(CROSSTALK)
SHANKMAN: You insulted in the commercial, and then your basic line of --
NEWTON: Yes --
SHANKMAN: Thinking is we want to insult them --
NEWTON: Yes --
SHANKMAN: And it was a mistake.
NEWTON: Got you, Peter, thanks for being here, especially weekend -- holiday weekend in New York --
SHANKMAN: Yes --
NEWTON: Appreciate it, don't -- stay warm. Chinese tech firm is rarely find massive success outside of what is a huge domestic market, but one
start-up from Shenzhen is doing business with thousands of school right around the world. Matt Rivers reports on the company teaching children to
build robots and code at the very same time.
(BEGIN VIDEOTAPE)
JASEN WANG, CHIEF EXECUTIVE OFFICER & FOUNDER, MAKEBLOCK: This is a robot.
MATT RIVERS, CNN CORRESPONDENT (voice-over): When Jason Huang was a kid, toys didn't look like this, no robots, just modeled cars and with plastic
figures, and even those toys were out of reach.
WANG: I grew up in the very poor family.
RIVERS: But Huang who comes from eastern China studied robotics at a good school.
WANG: So that's --
RIVERS: And after graduation, he came up with an idea, build a new affordable toy to help young children realize their own ideas. He called
it Makeblock.
WANG: It makes creating simple. It has --
RIVERS: So here is the concept, you buy a kit starting at around $80, that comes with metal building blocks. But also motors, gears and modules you
can program through basic coding to do fun stuff like play music, walk across a table, even fly.
This five-year-old start-up isn't much of a start-up anymore. Makeblock is one of the rare Chinese tech companies finding commercial success outside
China, and the latest funding round valued the company and more than $350 million.
WANG: Many schools not only in China, but outside of China, many schools, they need these kinds of solutions to help kids to build robots to learn
programming.
[15:40:00] RIVERS: Like many startups, Wang's journey began here in Shenzhen, close to the supply chain and much needed money. Wang got early
investment from HAX; a venture capital group that helps ideas get off the ground.
More and more of their funding applicants are now Chinese, and that's not the only change they are seeing.
DUNCAN TURNER, MANAGING DIRECTOR, HAX ACCELERATOR: Their Chinese startups have gone from, you know, we want to become a success in America and then
come back to China to now being proudly Chinese designed in China, innovated in China and manufactured in China.
The economy is changing too, rapidly expanding middle-class means a new generation of young Chinese now find more expensive technology well within
reach which means more customers for Wang. Like at this science technology, engineering and math or STEM after school program.
WANG: STEM medication is becoming more and more popular in China, so we can see the growth of our local business.
RIVERS: Jasen Wang now makes a very good living and he does it by making toys. He's come a long way from the kid who couldn't afford any of his
own. Matt Rivers, Cnn, Shenzhen.
(END VIDEOTAPE)
NEWTON: He's been on "Shark Tank", "Dancing with the Stars" -- and sorry, by the way, he just happens to run his own cyber security company. You'll
hear from Robert Herjavec; you'll hear him reflect on a rocky week for Facebook, that's next.
(COMMERCIAL BREAK)
NEWTON: He's one of the most well-known CEOs in the world of cyber security. Now Robert Herjavec says Facebook has only just realized how
much people care about their own data. Herjavec runs his own cyber security company, but maybe better known of course for his roles on "Shark
Tank" and yes, "Dancing with the Stars", I saw that.
He's been speaking to Chloe Melas who joins me now. And beyond -- in fact, I have seen "Dancing with the Stars", I have actually interviewed him about
many topics, in fact, even politics. He's got a lot on the ball, but I do find them particularly insightful on cyber security, and I'll have to tell
you it's really top of mind for all CEOs now.
CHLOE MELAS, CNN ENTERTAINMENT REPORTER: Well, especially with what's going on with Facebook where there's so many questions as to what did
Facebook know about the data breaches especially when it came to the elections, what role did Russia play in those data breaches.
And you know, Robert and I spoke about that, and that his company really is in the business of getting ahead of breaches like that.
[15:45:00] And you know, Facebook has been criticized in two different investigations by the "New York Times" when Laurie Segall sat down with him
in an exclusive for Cnn this week.
He admitted that, you know, they're acting a bit more reactive now instead of proactive. And you are right in your introduction just now to my piece
that we're going to show. You know, he is -- Facebook is under so much fire because I don't think they ever realized that people care so much
about their data, and people are just now realizing that when they go on Facebook, they are the product.
You're not just signing on Facebook to talk to your friends and your family and to share photos or to tweet a thought on Twitter that these companies
are making so much money off of your information, and just look at what happened with Cambridge Analytica, it's an important issue to be
discussing.
NEWTON: And we're going to listen, I think to your report right now, so let's take a listen.
(BEGIN VIDEO CLIP)
ROBERT HERJAVEC, CHIEF EXECUTIVE OFFICER, HERJAVEC GROUP: What we do specifically in that vertical is we watch big companies, watch their
networks to to see if they're being hacked, and they are, all the time. And we are at the tip of the iceberg. We're going to see more
proliferation attacks.
We're going to see attacks that affect hospitals and human life and all kinds of stuff, the problem is going to get worse, and there's two things
driving that. One is the cloud which makes it easier to access data, more people are putting up more data out there.
And second is internet of things. Every quarter, there are more devices on the internet than exists today. So, the internet, the amount of things
being connected to it is doubling every quarter.
MELAS: What would be your solution for a company like Facebook that seems to have a big problem on their hands right now?
HERJAVEC: What I love about this whole Facebook scandal is that the average person is waking up to data. I don't think people realize that's
how Facebook made money. But that's always been their business model. What we're seeing is an awakening of the consumer realizing, oh, my gosh,
everybody in the world is getting my data and it's going to be really difficult to stop that.
MELAS: For individuals out there who are listening to you right now, and are now starting to feel like you, paranoid, hearing about this and
nervous, how do you protect yourself?
HERJAVEC: You've got to check your credit card statements, I try not to do banking or confidential data in public places. In general, anything you do
on a public Wi-Fi, someone could be watching or probably is. So I try not to do stuff like that, just very simple stuff, and I tried to use credit
cards that protect if I'm breached.
And I'm very careful about my privacy.
MELAS: What is something that you know now that you wish that you knew early on in your career?
HERJAVEC: Te sun always comes up tomorrow. I believed that everything had to happen right now. I think that now I realize good or bad, the sun will
shine tomorrow.
(END VIDEO CLIP)
MELAS: You know, we also talked about the fact that Facebook and Twitter, there's a big debate as to whether or not they should be considered
publishing platforms. Should they be responsible for the hate speech, for the false information that some people put out there on those platforms?
And he said that they should be responsible, but that they shouldn't be policing the fake news aspect of it. So he said that, you know, if there
is fake news out there, that they really shouldn't be responsible for moderating that.
I will say Mark Zuckerberg did say earlier this week to Laurie Segall that there are over 2 billion users of Facebook, and that there's always going
to be data breaches and people posting malicious content, and that it's very hard to moderate something like that.
NEWTON: Yes, and that debate will continue. Chloe, thanks so much for coming in, have a great weekend, appreciate it --
MELAS: Thanks --
NEWTON: And as we've been telling you rough week for stock markets, after the break, one top analyst tells me, if the bubble is about to bust.
[15:50:00] (COMMERCIAL BREAK)
NEWTON: Analysts are warning of a corporate debt bomb. Cheap rates have made it easy for companies to borrow and borrow indeed, they have. More
than $6 trillion, companies have used it off from stock buybacks to takeovers with hopes that revenues of course will follow.
It's not just though the size of the pile that worries investors, it's also what's in it. Now rating agencies classify bonds according to this scale.
Bonds in the bottom half are riskier, and companies need to pay more for investors to hold on to them. Triple B is the very edge of what's
considered investment grade, yes, that means OK to invest.
And while the market was booming, companies didn't have much incentive to make their balance sheets safer, the pile of Triple B-rated debt grew and
grew. And now interest rates are rising first and economic warning signs are flashing. That would hit balance sheets that are already quite fragile
and that means downgrades.
Gary Shilling has made a career out of spotting dangerous bubbles, he's a financial analyst who's been trying to spot those recessions for decades
and he called -- remember, he called the financial crisis in 2008. Now, when I spoke to him last week, he said he is not yet too concerned about
these rising debt levels, but says investors absolutely cannot be complacent.
(BEGIN VIDEO CLIP)
GARY SHILLING, PRESIDENT, A. GARY SHILLING & CO: I made a career out of spotting bubbles, and I've had -- I've had a fair amount of luck at that I
must say.
NEWTON: Unfortunately for all of us --
SHILLING: Yes, I mean, the last one. We started talking about the bubbling in subprime mortgages in 2002, followed there up to the collapse
at the end of 2007 and so on. So I am always looking for bubbles, and I don't see anything on the horizon right now that's like that.
The overdone nature of those subprime mortgages or the dot-com nonsense in the late '90s. There isn't anything like that. And if you look at
emerging markets, even if they fall apart, unless there is tremendous contagion to the rest of the world, it's probably not going to sink a
global ship.
You look at -- there is a global crisis in emerging markets starting in 1998 in Thailand and spread to the rest of Asia and then went to South
America, Argentina, Brazil, finally to Russia, start a long-term capital management in the process.
OK, but that in itself did really do the job. There was a mild recession in the U.S. in 2001, but in the meanwhile, you had the dot-com blow-off and
the Fed was tightening. So you can't really blame that on the subprime even then. And that was probably a worst crisis than now. There were much
more leverage than they are today even.
NEWTON: Why are people already thinking it's time to get into emerging markets though now?
SHILLING: Well, because there's a tremendous zeal for yield. Investors simply are not satisfied with the interest rates and returns where they are
now. So there's always that feeling, I've got to have more. If you look at pension funds, many pension funds still have 7 percent or 8 percent
targets for their investment returns.
Now, if they can't make that, what do they have to do? They've got to go to the state legislatures for a bailout, they've got to cut benefits, they've
got to increase contributions from people still working, contributing. Those are unacceptable options. So they moved further out on their risk
curve, and they're moving into leverage loans, into emerging markets and to hedge funds and into venture capital, it's a whole spectrum.
I think a lot of those institutions are further out on that risk curve than they realize, but they are really -- they really are driven there because
they've got this tremendous zeal for yield.
[15:55:00] NEWTON: And even though you have seen this coming obviously before you've predicted this bubble, you really do not see anything like
that. You see a recession certainly that the bull market has got to end and the growth of the economy will come to an end at a certain point, but
that's what you see here, something that's in the historical range of a regular --
SHILLING: Yes, I think so, the thing of course is that the dirty laundry always comes out after the washing machine stops, and you never know what's
going to come out of the wood work, but as they say, I sort of made a career out of looking for the -- looking under the sheets and looking for
the bubbles.
And I really don't see anything right now that's just itching for a big -- for a big collapse. But the same token we've had a long bull market, we've
had a long economic expansion, stocks were really driven by the Fed's largesse versus the reduction of interest rates to basically zero, and then
quantitative easing, just buying all the government securities and mortgaged-backed securities.
And it's created a lot of complacency, and you see that in the signs -- I mean, now, if you look at the consumer polls, most people expect stocks to
be higher in a year from now even though they've been selling off recently. People are quitting their jobs because they think there are plenty of other
options.
You know, you've got a lot of signs that the housing is turned down. You know, as you've got a lot of things that are indicating that, and really to
get to your point though, we may find that this complacency has spread a lot more susceptibility to the downside than we're well aware of, but I
don't see any -- I don't see any huge problems just waiting to -- waiting to collapse.
(END VIDEO CLIP)
NEWTON: Yes, important to step back especially on such a bad week for the markets. When we come back, we will talk about the holiday spirit that
seems to be lost on these markets. We will take a deeper dive when we come back.
(COMMERCIAL BREAK)
NEWTON: Just enough time for a recap on how stocks finished on Wall Street. Remember, as I've been saying, it was a half day for traders after
Thanksgiving and it turned out to be a big, fat turkey for U.S. markets. The major indices all ending this holiday week in the red, energy sector
failed to ignite with continued weakness in oil prices weighing on oil giant Chevron and ExxonMobil.
Look at all that red, the Dow and the Nasdaq posted their biggest weekly drops since March. The benchmark U.S. index is off by more than 1,100
points this week alone, and as I mentioned, you know, all that bad news in just one short week.
And that is QUEST MEANS BUSINESS, I am Paula Newton, have a great weekend. I'm glad to report Richard Quest will be back here on Monday.
END
