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Quest Means Business
Mexico's Secretary of Economy Says Kushner has been Positive Factor in Trade Talks; Vladimir Putin: Naval Incident was Prepared in Advance By Kiev; Russia to Hold 24 Ukrainian Sailors for Two Months; Trump not Ruling Out a Pardon for Paul Manafort; Magnus Carlsen Wins World Chess Championship; Dow Soars After Fed Signals Fewer Rate Hikes Ahead; Lion Air Crash Probe Shows Pilots Fought Automatic Controls; EU Unveils Plan to Be Climate Neutral By 2050; Vitality Insurance Uses Apple Watch to Incentivize Physical Activity. Aired 3-4p ET
Aired November 28, 2018 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: And afterwards, the closing bell on Wall Street, an extraordinary day, all you need to do is focus on
that. It happened just before midday and the market went up like a rocket. The gains coming up the top, but still 2% on the Dow, same for the S&P 1.5%
and more than 2% for the NASDAQ. We need to understand what was going on. When you look, you'll see these are the drivers of today.
Rates are near neutral and the markets are in overdrive. The Feds - Jerome Powell says what investors wanted to hear, when he gave speech in New York.
Britain admits its Brexit plan will hurt the economy and that's only the good news. As for the battle for all ages, Apple and Microsoft vying as we
speak to be the world's most valuable company.
Live in the world's financial capital, New York City on Wednesday November the 28th. I'm Richard Quest. Of course, I mean business.
Good evening, today the Fed Chairman says the Central Bank is almost done by raising interest rates and the markets and investors not surprised that
they are ecstatic with the result. There's the graph and the chart that I showed. Now, the Dow may be up the highs of the day, which was up over
more than 560 points. But it's still on pace for its best day in three weeks.
Look just before 12:00 on that chart and you can see the moment when Jay Powell's speech was released. At that point the Dow rose more than 200
points. Now, he only spoke hours after President Trump severely criticized the man he had nominated. The President blamed the Chairman and his rate
rises for a range of economic woes. This was Powell's response. He gave an explanation of how the Fed makes its decisions.
(BEGIN VIDEO CLIP)
JEROME POWELL, US FEDERAL RESERVE CHAIRMAN: We know that moving too fast would risk shortening the expansion. We also know that moving too slowly,
keeping interest rates too low for too long could risk other distortions in the form of higher inflation or destabilizing financial imbalances.
Our paths of gradual increases has been designed to balance these two risks, both of which we must take seriously.
(END VIDEO CLIP)
QUEST: Now, the Fed Chairman was very clear that the Fed again is data dependent, but that they are reaching this point of neutrality, where it's
neither a commutative, i.e. pumping money in, or restrictive, taking money out. And the stock market gains are broad, the narrow market.
Now, look, it's given back about a hundred in the last hour or so and we're in the last hour of trade. So we are going to watch very closely. I think
it will be somewhat extraordinary even further if all those gains were to evaporate, but how much can be held on as the last hour? The same with the
S&P 500, slightly smaller gains for the broader market. Tech is strong. Not as strong as it was at the height of the day, but it remains strong
throughout the course of the session.
And if you look at ten year bond yields, well, remember, what started all this volatility, the latest round of volatility and arguably leading the
market to correction was as the Fed raised rates and bond rates rose accordingly and we've reached 3% on the market, we got up to 3.07%. So
that particular point is where the trouble starts.
The speed, one, two, three, four. And now, of course, they're coming back down again. Well, I don't expect they'll go all the way down to where they
were. Because, obviously the Fed is still going to keep raising rates. But moving to a position of neutrality, which seems to be somewhere around
there, not, indeed, about the euro now.
Now, he says rates are just below neutral. Meaning they're level where they are not speeding up or slowing down the economy. That's a change from
October when he said neutral rates were a long way off. As always, though, there is no preset policy path. In other words, data dependent. There is
no trajectory. It's not all one way. New economic data will factor into the Fed's decisions. Clare Sebastian has been following development. So
what is widely believed to be the new neutral?
CLARE SEBASTIAN, CORRESPONDENT, CNN: Well, Richard that is very much still up for debate and that is why the task of the Fed is so complicated right
now. He says that just below neutral, the range that we believe that the Fed participants think of as neutral right now is between 2.5% and 3.5%,
Richard, which is a broad range.
[15:05:06]
SEBASTIAN: We are now at 2.25%, so it could be anywhere within that, but the point is --
QUEST: So it's 2.25% to 2.5% is the Fed fund's rates.
SEBASTIAN: Right now, yes. They're going to raise again in December probably.
QUEST: Which would be in the range, we'll go to 2.5% to 2.75 % and that takes you towards 3%.
SEBASTIAN: Right, exactly. But this is uncharted territory. Don't forget, we're now ten years post-crisis, but we are still unwinding the
emergency measures that came in, in the crisis, not only record low interest rates but also the balance sheet and that has led to people really
having more uncertainty than usual about where these neutral rates are and frankly, revising them down as they've gone along.
QUEST: Do we know if President Trump's comments, I mean, Stan Fischer in the studio, the former Vice Chair said it doesn't have a direct effect, but
it can have a psychological impact if the President is bashing you. When the President says, "I made a mistake nominating you," and has been bashing
the Fed and says, the Chairman - I'm sorry, the President saying, "I'm doing deals and they're doing nothing."
SEBASTIAN: I think there are some hurricanes that if the Fed does pull back as the signal was today on the prospective part of interest rates that
that could give the appearance that they are bowing to political pressure. But I spoke to another former Vice Chair of the Fed today, Donald Kohn who
was in the job between 2006 and 2010, he said what is really important to remember about Jerome Powell is transparency as part of his MO. We've got
a press conference at every meeting starting next year. He is going to really explain why he's doing it and it's not about politics.
QUEST: Well, let's look at what President Trump has said about Powell. "I think the Fed is a much bigger problem than China. I am not at all happy
with the Fed. I am not at all happy with my choice." Well, he doesn't really get much chance to do anything about it now until after a few more
years. And it's pretty damming that the President should say this about the Fed Chair.
SEBASTIAN: Not only that he should say this, but he should do it for months on end. We are now seeing a sustained series of critiques, which
have been escalating. At one point, he even said, "You know, I'm not considering firing him, but I do regret - maybe I regret hiring him."
QUEST: They can't fire him.
SEBASTIAN: Well, exactly, but this is not something that Jerome Powell has engaged in. He said he didn't comment on it today. I was in the room as
he gave that speech before he said we're outside of politics. This isn't a factor in our decision making. At one point he said, "I am trying to just
control the controllable," which got a few laughs from the audience in a past speech. So he staying well outside of it as far as he can.
QUEST: So, next move in December?
SEBASTIAN: Yes, December 19th.
QUEST: I mean, do you think they are going to move?
SEBASTIAN: I think they probably still will. He didn't say it today we're going to start being accommodative. He simply said, "We are going to start
being flexible." If you really look at it, it's more about data dependency.
QUEST: Data dependency. Good. Thank you. To Europe now where the top Brexit negotiator for the European Parliament says Brussels has no
intention of restarting Brexit talks if Theresa May can't get her deal through the House of Commons.
Speaking to me on "The Express," Guy Verhofstadt said negotiations have gone on long enough.
(BEGIN VIDEO CLIP)
GUY VERHOFSTADT, BREXIT COORDINATOR, EUROPEAN PARLIAMENT: We are not absolutely not in the mood to start again a negotiation that has lasted
more or less two years. First of all, on the withdrawal agreement and certainly not on the withdrawal agreement and also not on the political
declaration.
There are many people saying, yes, if the deal is rejected to now on the 11th of December, maybe there will all be a second attempt later on by the
end of the year, the beginning of next year. That's also a possibility. I read that in the newspapers in Britain.
But I can tell you, it's not the intention. Neither of the 27 member states, neither of the three European institutions, to start again the
negotiation on the withdrawal agreement on the political declaration.
(END VIDEO CLIP)
QUEST: Under any scenario, Britain will be worse off after Brexit. Let me just repeat that sentence. Under any scenario that's been published so
far, the UK's economy will be worse off. And that's according to the UK government's own forecast. So, under one scenario, under Theresa May's
plan, Britain's economy in 15 years will be up to 3.9% smaller than if it stayed in the UE.
Now, that does not mean a contraction of 3.9%. It means it would not have grown by that much. So the economy is still growing, but it is going to
lose that much momentum. The Prime Minister's plan forms the basis of the latest agreement with the EU and that's what lawmakers are voting on in two
weeks' time. The government assuming that there will be some barriers to trade with the EU. Take that 3.9% and now factor in if Britain leaves
without a deal, then the barriers will be much higher to trade and the GDP number could be as high as 9.3%.
[15:10:07]
QUEST: That's the worst case scenario if Britain leaves without a deal. The Finance Minister, Chancellor of the Exchequer says that the UK needs to
consider the economics, which are disappointing, but the politics as well.
(BEGIN VIDEO CLIP)
PHILLIP HAMMOND, BRITISH FINANCE MINISTER: The only consideration was the economy, then the analysis shows, clearly, that remaining in the European
Union would be a better outcome for the economy, but not by much. The Prime Minister's deal is - delivers an outcome that is very close to the
economic benefits of remaining in while having all the political benefits of being out.
(END VIDEO CLIP)
QUEST: Now the UK's Institute of Economic Affairs says the government's projections overplay the cost of Brexit and down play the benefits.
Shanker Singham is the Director of the International Trade at the IEA, advocating for a harder Brexit, the most. And these numbers, let's start
with the most optimistic scenario, that there is a Brexit under Theresa May's plan or something similar.
Then the UK suffers a 2.7% loss of GDP growth. That's pretty bad.
SHANKER SINGHAM, DIRECTOR OF THE INTERNATIONAL TRADE AT THE IEA: Well, I would say, first of all, that it's actually very difficult to model these
economic policy independent trade policy, independent regulatory policy out into the future. So, for example, when governments have tried to model
this in the past, they have usually under, come in spectacularly under what's actually happened.
So New Zealand, for example, underestimated the benefits with its trade deal with China by about 500%, came out with a number for New Zealand
exports to China which would be reached in 20 years. It was actually reached in 20 months.
So first of all, the top line thing says, this is about the seventh iteration of treasury models that have said that this is going to be a very
bad deal. It's very difficult to predict. The ITC has tried to predict this with the TPP when the US was a member. That was very difficult to
predict.
But you have to look at the underlying assumptions of these forecasts. And they have massively underestimated the benefits of an independent trade and
regulatory policy. So for example, the Bank of England today said that the benefits of a domestic regulatory policy in 15 years, the UK would
benefit by 0.1% of GDP. I mean, these are ludicrously low numbers. You may as well have no number.
QUEST: Right, let me just jump in there, because you point out the difficulty of estimating these figures. But your benefits only come to
full fruition after the implementation period and assumes that there is a full free trade agreement in two years' time. So for you, there is a huge
unknown that the backstop isn't implemented or the UK does not fall on the backstop?
SINGHAM: Yes, so the problem with a backstop is that the backstop is essentially GB and the Customs Union, Northern Ireland essentially in the
single market and the customs union. And this will be used as a negotiating point in the negotiations.
So it is very unlikely with this current deal, that we will have any independent trade policy, that we'll actually have any meaningful
comprehensive trade agreements with any countries. So, you know, if you were actually trying to model independent trade policy, it's really
important to model what you might actually get.
So if you actually have a comprehensive trade agreement with the EU as we have suggested and you also have a trade deal with the US CPTPP accession,
which is you know UK government policy --
QUEST: Sure, sure. That's a scenario - that is a scenario that everybody would like. But that doesn't allow for the fact that the EU might not give
it. The EU might not gave a comprehensive trade agreement of the width and breadth that you want without the UK either paying into the single market
or paying into the EU coffers or agreeing to some form of the freedoms which you won't accept?
SINGHAM: Yes, it may very well be that the EU will not accept our reasonable proposals. But let's remember that the EU's opening bid to the
UK, which we rejected, was a comprehensive trade agreement with the whole of the UK, with regulatory cooperation, with customs facilitations and with
our total facilitations. If we build on that, I think we will have a comprehensive deal.
But let me say one thing about the --
QUEST: Let me just - if I may, forgive me because there's - while we're on this track, to finish up. What happens in ten days' time, or whatever, if
the vote - if the Prime Minister does not get this through Parliament where the numbers suggest she won't, what happens next?
[15:15:00]
SINGHAM: Right. So I think, you know, contrary to your previous guest, Guy Verhofstadt, who towed the European line, of course, they've got a deal
that locks the UK into this customs union, international treaty with no exit clause. And that will be used in the negotiation. So they've got a
very, very good deal from their perspective, politically. So they are not going to want to do anything to rock the boat and change that. They are
going to say to you now, "We won't have a deal."
But if this is voted down, significantly.
QUEST: Yes.
SINGHAM: And we're not going to sit on our hands, the UK and the EU and do nothing and sort of careen to no deal until March. We are obviously going
to intensify the negotiations, but we're going to do it on a more political and a less legalistic track.
And I think actually, a vote down of the withdrawal agreement will actually open up space to come to the EU with the source of withdrawal agreement and
you can say that about 90% of this withdrawal agreement and you eliminate the backstop. You replace it with a sensible backstop that is actually
more like the permanent relationship we need to have on the Irish border. You ensure that you have paved the way for actual trade agreement.
And I think that will actually come on the support of the Parliament and the EU, let's remember, the EU does not want no deal. There are a major
agricultural exporter into the UK. They will not want no deal, because we will have to apply perhaps a zero tariff or open up our import quotas no
agricultural products from other companies would damage EU exports into the UK significantly, so they don't want a deal. Nobody wants no deal. I
think if this is voted down, we have a pathway open to actually have a sensible negotiation with EU.
QUEST: Thank you sir. I appreciate it. Thank you. As we continue tonight, changes are coming to Mexico as the days tick down to a radically
different government, I'll be speaking to the outgoing Mexican Economy Secretary as his exit interview and it's a vie for supremacy, Apple and
Microsoft vies to be the world's most valuable company.
On cnn.com/join, we are going to ask you who two you think will be victorious in that particular battle. Get your phones ready. The
question, who will be victorious? We will open the lines.
We are about to open our question of the day. Get your phones and go to cnn.com/join in real time. We are the only international broadcast that
allows you to take part real time and show you the results.
[15:20:08]
QUEST: One of the most famous rivalries in the history of capitalism. Today, Microsoft briefly overtook Apple and became the world's most
valuable company. Now, the last time we had that dubious distinction was 2002 for a smidgeon. But you've really got to go to 1999 when it was the
world's most valuable company. And they were at about $600 billion. Now it's over $800 billion. It just beat out for a moment.
It's pulled back - Apple has just pulled ahead again for the moment and it's all because under Satya Nadella, the CEO, Microsoft is playing the
long game, Cloud computing, AI, subscription models instead of single purchases as we all know who pays for Office.
Apple shares were only up 5.5% year-to-date. Microsoft's stock is 29%. So on cnnbusiness.com, Paul La Monica is arguing that Microsoft is now the
better bet than Apple. Is he right asking the question? Go to cnn.com/join today. Which company is the better bet? Microsoft or Apple?
Which is better? And I'm fascinated because at this early prediction, early voting, 59 - it's about, look at it, it's absolutely half and half,
the first time we've seen this out at cnn.com/join.
So plenty of time for one or two of you to make the difference. Shelly Palmer is the Chief Executive of the Palmer Group, and economist, good to
see you, sir.
SHELLY PALMER, CEO PALMER GROUP: How are you?
QUEST: Does it matter which company is most valuable in the world? And if so, why?
PALMER: We're talking levels of greatness at this point, right? Interestingly, both companies are belief systems. Microsoft is a religion,
and so is Apple. You want an iPhone, only an iPhone will do. If you're an Apple ecosystem person, that's what you do when you defend your choices
vigorously and Microsoft people are exactly the same way.
QUEST: No, no. I mean, if we're going to talk about origins, I might venture to suggest Microsoft people might be the Church of England. Sort
of they go along on occasional Sundays or Christmas. But Jehovah Witness are over in Apple, they will be knocking on the doors, screaming from their
--
PALMER: Fair point, but on the engineering level where the enterprise money is made, there are Microsoft shops and there are other shops. So
here's the thing. It doesn't matter who is the most valuable company in the world. You asked the question of your audience who is the best bet?
And you also made the point that Microsoft is playing the long game or opposed to Apple, which is trying to get phones sold right now and they are
trying to figure out their supply chain and are people going to care about phones? Phone have hit the law of diminishing returns.
QUEST: But what about all the other parts? Let's just put phones to one side. I mean, there's all the Macs, the Mac Air, the Macbook this, the
Macbook that. You've got subscriptions from the Cloud. You've got subscriptions - they get that $2.99.
PALMER: They do. But look they've made the Macbook line extraordinarily expensive. The tablets are extraordinarily expensive. They are not that
much better than the previous models, they're iterations, not innovations. They're ready for a future. Apple I believe is playing a longer game than
people give them credit for because their tools are ready for augmented reality, their tools are ready for the things that require higher
processing power and more storage and more memory and just better electronics.
Microsoft is playing a very different game. Microsoft is saying cognitive Cloud, Azure, I want to be in subscription businesses across the entire
Office. I mean, they are really playing a much different game.
QUEST: But, I mean, I read Satya Nadella's book and he is very honest about it. He says, "Look, Microsoft is the company you go to for
productivity.
PALMER: Yes.
QUEST: You want to get the job done, that's Microsoft. Apple has always been the creative side of it. It's always been a bit the airy, fairy
wishy-washy, let's play some music and do all of that. Now, if that is the truth to two choices, then Microsoft probably wins.
PALMER: So the best e-mail client on your iPhone that you can possibly use and people will refute me on this is Outlook. You figure that out. Satya
came in to power and said, "You know what? We need to have Office. It would be the most populous thing in the Apple world." And he made it thus.
They actually put the programmers in place to make that true. They make an incredible set - Swedish software for iPhones and iOS. So that's the
Microsoft vision and that should tell you what you need to know.
QUEST: Companies - in your business, I suspect you shouldn't really answer this, but which company is the better bet? Microsoft or Apple? You can't
see the results, how do you think our viewers voted?
PALMER: I think your viewers are going to say Apple, but I --
QUEST: Wrong.
PALMER: But I would say Microsoft and I'm not allowed to vote.
QUEST: You are not.
PALMER: No.
QUEST: Nor am I.
PALMER: But the viewers said?
QUEST: But the viewers have said, it's 58%.
PALMER: Wow.
QUEST: Fifty nine percent to 41% to Microsoft.
PALMER: Impressive.
QUEST: Impressive. Good to see you, sir.
PALMER: Great to see you, Richard.
QUEST: Have a good holiday season.
PALMER: Yes, you too.
QUEST: We are seeing a second day of rebounds for Mexican stocks, close on a four-year low on Monday and Mexico is facing a slew of uncertainties.
The USMCA which is the new NAFTA is expected to be signed this week at the G-20 in Argentina.
[15:25:06]
QUEST: Donald Trump is threatening to close the US border with Mexico and there are fears the new government could unwind reforms meant to prop up
the Mexican economy. Joining me now from Mexico City, the country's outgoing economic secretary's or economy secretary, economy secretary,
Ildefonso Guajardo, good to see you, Minister, thank you for taking time.
Look, the - you're on the way out or the government is on the way out, and, but USMCA is coming in. Is that going to be a satisfactory replacement for
NAFTA for Mexico in the long term?
ILDEFONSO GUAJARDO VILLARREAL, OUTGOING ECONOMY SECRETARY OF MEXICO: Definitely, definitely, Richard. Because what we have to admit is that the
actual NAFTA went for too long with any checkpoint. We really made the point that in a democratic society, public policy, even if it is foreign
trade agreements have to be sustained in time. And we left it in its own to the point to risk it.
This is not about one election in the US that changed the course of things. It's about a very important ratio of the US electorate growing
uncomfortable with the terms of the agreement.
QUEST: The issue, of course, of the relationship, let's take the border, for example, and President Trump's threats to close the border and as more
migrants come up and more caravans arrive, it begs the question, A, is Mexico equipped to face this? And B, if the border is closed? What does
that do for the relationship between the two countries?
GUAJARDO VILLARREAL: I don't think that the issue comes down to closing or not closing the border. The issue comes down to what is the cause of
migration? As you understand, at this time, Mexico in net is not sending people abroad. It is basically a country that is being used as a path way
from South America and Central America to the US. And that is very relevant.
And if you look at what happened in Mexico in the last 20 years, it's exactly thanks to NAFTA that Mexicans are finding jobs that are good jobs
in Mexico. So the United States, Canada and Mexico would have to approach this issue of immigration with a constructive view, to try to help Central
America to build different alternatives in the future. Closing the border is just worse and make this problem even terrible in terms of opportunities
in Mexico and Latin America.
QUEST: Why is Mexico giving Jared Kushner the President's son-in-law its highest civilian award?
GUAJARDO VILLARREAL: This is a decision that is being made by the Mexican government to people that has helped in order to make Mexico to connect
internationally in the best way possible and I think that Mr. Kushner has played a very important role in the process of negotiation of NAFTA.
I was a chief negotiator, my counterpart was Bob Lighthizer, but always good ideas and worthwhile solutions came to good solutions came from Mr.
Kushner's office and those ideas helped to find common ground that are wins for the two countries involved in this negotiation.
QUEST: The common view or the popular view is that he is a man out of his debt. It is it there because of his relationship with the President, as
his father-in-law. But did he, in your view, from what you saw, make real contributions in terms of the USMCA negotiations?
GUAJARDO VILLARREAL: As you know, Mr. Kushner has real contributions in many items of the US-Mexico bilateral agenda. And I do believe that that
had been a positive factor. You just have to remember, Richard, if you have made one of those basically surveys that you do in your program two
years ago and ask, what were the chances for Mexico to finish up a renewed NAFTA agreement today, those chances were very slim and we're ending up
with an agreement that is very strong, that will increase competitiveness in the North American region and definitely has given certainty to the
North American region.
Now, in the case of Mexico, the value add that the new administration of Mr. Manuel Lopez Obrador join us with a negotiator as an observer and at
the end of the day, we send a signal to the world that the outgoing government and the incoming government really together are strengthening
Mexico's position in the global arena.
QUEST: I don't think we could have finished on a better note. Minister, thank you for your courtesies of always coming on our program. We look
forward to having you in New York, now you are free from the realms of office and we can talk more and get really get to the bottom of that.
Thank you, Minister. We wish you well post government.
GUAJARDO VILLARREAL: Thank you, Richard, I will be in New York any time.
QUEST: Oh --
GUAJARDO: Thank you.
QUEST: Now, there is a promise. All right, as we continue tonight, a jubilation on Wall Street, look at the Dow, the Fed, Jerome Powell spoke,
the Fed rose, we're not quite at the house of the day, but we are over 500 -- well, see, that's stating the obvious and it's half an hour before
closing.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest, there's more QUEST MEANS BUSINESS in just a moment. Well, I'm going to talk to Europe's climate commissioner, how
can it possibly pay for some ambitious plans on a mission by 2050, we'll talk about that.
And the investigation into Lion Air, the Indonesian aircraft, it raises tough questions about Boeing's new planes. As we continue, this is Cnn and
here the facts always come first.
The Russian President Vladimir Putin now says that Sunday's clash between Ukrainian and Russian vessels was a provocation prepared in advance by
Kiev. Officials in Russian-controlled Crimea says 24 Ukrainian soldiers will be held for at least two months while they await trial for allegedly
entering Russian territorial waters.
The sailors were captured when Russia seized three Ukrainian boats in the Kerch Straits. President Trump said he is not ruling out a pardon for his
former campaign Chairman Paul Manafort. Mr. Trump tells the "New York Post", that it's never been discussed, but says why would I take it off the
table? A special counsel in the investigation says Manafort violated his plea deal on numerous charges by lying to investigators.
Norway's Magnus Carlsen has retained his title as the World Chess champion. Carlsen bested his American opponent Fabiano Caruana after three weeks of
playing after the first round of matches ended in historic draws. They went to rapid play, and there Carlsen retained his crown in three sudden
death games.
[15:35:00] Final half hour of trading on Wall Street. And if you look at the Dow, you really see a most impressive performance, nearly the best of
today. In fact, just a couple of points off. But certainly, look at that, what happened just before 12:00 when the Fed chairman spoke.
Investors now think the Fed will not aggressively raise rates in 2019. On the floor of the Stock Exchange, I spoke to Citi's chief U.S. Equity
Strategist who told me, yes, this looks good, don't bring out the champagne yet.
(BEGIN VIDEO CLIP)
TOBIAS LEVKOVICH, CHIEF U.S. EQUITY STRATEGIST, CITIGROUP: In a simple word, I'm not dancing or partying right at the moment. Look, we -- Citi as
you had been, we're getting the rate hike in December in two more next year. We worked in the three or four camps. So in certain respects, it
wasn't that dovish in our perspective, getting closer to neutral is good.
But it's -- it was never going to be that bad. You know, as the gradual rate increases, something the Fed has been talking about for a very long
time, even under Yellen's leadership. So I don't see that as really as excitable as maybe the investment theory is worried about -- maybe they
were just worried it would be worse and we didn't get it worse.
QUEST: The rotation that we had seen or the readjustment that we had seen into standard, safe stocks, away from higher performing tech stocks. Does
that continue?
LEVKOVICH: So I think you're going to see a little bit of a change. You'll move more towards value away from gross, so tech stocks moving to
more like financials, industrials, energy --
QUEST: Right --
LEVKOVICH: Within growth, I would say healthcare is probably still OK. The stocks you're talking about are more of a consumer staples, the
utility, the defensive areas of the market. I think that was a short-term parking spot, because people weren't sure what to do.
So I don't think those are places you really want to be staying in as yields start to move higher. The economy is doing well in the U.S.
(END VIDEO CLIP)
QUEST: Now, three airports, three dire warnings about climate change and its financial toll. The EU says it has a plan to do its part and it won't
be cheap.
(COMMERCIAL BREAK)
[15:40:00] QUEST: New discovered details about the final moments of Lion Air 610. You'll see here, this is from the digital flight data recorder,
it shows the altitude. There's the normal climb that then you see clearly that there's loss of control.
The pilot reports the loss of control problems and then the nose continually comes down. It gets pulled back up again before finally the
plane dives and what the report says was a high energy impact. And look at what the pilot was actually doing.
The plane was automatically sending the nose down, known as trimming it down automatically. The pilot was pulling it back up again. This goes on
for 26 times over the course of five minutes before the plane finally -- or the pilots finally lose the struggle and the plane falls out of the sky.
And what's pushing it down by the way is this automatic system that the pilots didn't know about, the so-called MCAS that's pushing it down. And
the bit that it's pushing down that we're going to be talking about is this part of the plane and about -- this is 737 800, similar design.
This is the horizontal stabilizer, and it is this part of the aircraft that was automatically pushing the nose of the plane down. The pilot would then
bring the nose back up again, then the plane would automatically pull it down again. This is exactly what was happening in this very bitter battle,
struggle, literally for life versus death and in the end, of course, we saw the awful results.
Now, the pilot on the same plane had managed to resolve the same issues, the previous day by using a particular cut-out procedure for the
stabilizer. He switched it off, so he had to do it manually. Les Abend is a retired American Airlines pilot and Cnn aviation analyst. Les Abend, you
saw those numbers and that graphic. What in your view was the pilot facing?
LES ABEND, RETIRED PILOT & CNN AVIATION ANALYST: Well, this whole situation is very disturbing to me, the fact that what I liked about a
Boeing airplane is that Boeing designed it to work in harmony with the pilots as far as the electronics and computer of it is concerned as opposed
to making it -- to protect it from -- protect the airplane from the pilot.
They were -- they were fighting just a tremendous battle against the machine. The question is raised as you did earlier, why wasn't the
standard procedure utilized to cut out the stab trim switches that at this point the procedure has been changed to or at least made been aware -- been
made aware for the pilots to follow that procedure, so this --
QUEST: Right --
ABEND: Doesn't happen if that fault happens.
QUEST: Right, but you know, because that's the real point. If you look at the previous flight, the pilot did use the cuts -- the stab trim, they cut
it. And surely, you know from your years of experience in flying, if the nose is pushed down repeatedly, there's usually something going on with the
horizontal stabilizer and the normal procedure is to cut it.
ABEND: That's correct, but you have to understand what the fault was before you do anything. I mean, most times, we sit on our hands for at
least a second or two to try to determine what the airplane is doing. So it may have been a whole array, Richard, of different fault messages that
they were facing and it may not have presented exactly the same problem to the crew.
So, it's hard to say, the checklist, here's the disturbing part for me as an airline pilot. Is the fact that this system was never described in the
company operating manuals. In other words, Boeing never conveyed this information enough that it made it into airline --
QUEST: Right --
ABEND: Manuals.
QUEST: On --
ABEND: So now they had -- what checklist do you follow? Well, the checklist that they're indicating that they should follow is what we call a
Run-away Stab Trim. You show the picture of the Stab, and that's -- and they would hit the cut-out switches to stop that horizontal stabilizer from
--
QUEST: Right --
ABEND: Running away from the airplane.
QUEST: Let me ask you, the view has always been as you say, Boeing did -- the Boeing planes, pilots like yourself have told me repeatedly, I like the
Boeing plane because I can fly it, it doesn't fly itself, it doesn't tell me what to do. The exact opposite of the sort of the Airbus, we're going
to build protections into the aircraft to prevent the aircraft against the pilot.
The MCAS, the MCAS software that was installed is exactly an envelope protection, and do you believe the pilot should have known about it?
ABEND: I absolutely do believe the pilot should have known about it. But the problem was when you -- all the versions of the 737 prior to the MAX
didn't have this system in it. So pilots were taken by surprise especially if it wasn't put in the manual.
QUEST: But even if you are taken by surprise, a run-away stab will demand a particular response of which you are already familiar.
[15:45:00] ABEND: Well, here's the key, Richard, is that there is a really good chance that the pilots -- even a 737, and you see, there's a
manual trim wheel that indicates that they had no indication that, that trim was running away unless they had some sort of message --
QUEST: Right --
ABEND: On which you're probably familiar with, it's called Eye-Care Screen, the engine indicating the crew, alerting system screen.
QUEST: Good to see you, thank you, Les, we should talk on happier occasions, but thank you.
ABEND: My pleasure, Richard.
QUEST: "I don't see it". Those are this latest words from Donald Trump dismissing the consensus of his own government that climate change is man-
made. It comes on the heels of three major reports from around the world that predict dire economic consequences if nothing is done.
Last week, the U.S. climate assessment said it could cost 10 percent of GDP by 2,100. Yesterday, the UN report card on the Paris Agreement says
emissions are getting worse, and calls for countries to end fossil subsidies. And today, the EU publishing its own report and says two-thirds
of Europeans face financial harm related to climate change.
And now the EU says it wants to be climate neutral by 2050. The costs though will be considerable, $320 billion a year. Miguel Arias Canete is
the EU's Climate and Energy Commissioner, he joined me from earlier from Brussels. And I asked him, how much harder it makes his job when countries
like China and the U.S. drag their feet instead of making real changes.
(BEGIN VIDEO CLIP)
MIGUEL ARIAS CANETE, COMMISSIONER, EU CLIMATE & ENERGY: We have decided to take action and to show that becoming climate neutral is possible. We'll
have the leadership and then others will follow. It's very clear that China at the moment has not still big emissions.
But it's also clear on other side that China has established a carbon market economy. Why it's a good signal -- and in the United States, we
have a real problem. We were sad that the president decided to announce to withdraw from the Paris Agreement.
But we have seen that even if the federal government is on climate holidays as the Governor Jerry Brown has said in the past, there's section(ph) in
the United States at the state level, at the -- with the majors of the big cities, with the big companies, with the stakeholders --
QUEST: Right --
CANETE: And the United States really has at least enforcing good climate policy. So --
QUEST: Right --
CANETE: And is still present in the negotiations, in the climate negotiations.
QUEST: Just this morning in the "Washington Post", let me read you what the "Washington Post" says. "One of the -- the president said to the
"Washington Post", one of the problems that a lot of people like me have, we have a very high level of intelligence, but we're not necessarily such
believers."
Talking about the national climate assessment in the U.S. He basically says, I don't believe it. As somebody who's responsible for the EU's
climate policy, what do you make of a U.S. president who effectively says everything you are doing is not necessary?
CANETE: Well, we accept that the president is not -- does not understand all the consensus about all the signs in the world. The IPC(ph) panel is -
- makes the report based on the best scientific advice at that level at the moment. And we taken no opinion(ph) in our decisions based on science, not
on own opinions of the (INAUDIBLE).
Climate policy is too serious to give just personal opinions. You have to be science basis, you have to deliver your policies and of course in
efficient way and you have a responsibility with the planet because global warming is a reality that there are acute phenomenon --
QUEST: But --
CANETE: Meteorological phenomenon, we have seen fires all over the place in Greece, in California, in Sweden. We have amazing floats(ph), we have
seen the impasse of climate -- of climate change of global warming every day. So that reality, we have to act. And in the European Union, nine of
ten Europeans think that climate change is a real big problem.
(END VIDEO CLIP)
QUEST: As we continue tonight, new year's resolution are fast approaching, and that means promising to pick the size. How one company hopes to keep
you -- well, maybe me, possibly me on track.
[15:50:00] (COMMERCIAL BREAK)
QUEST: So anyone who is wearing wearables, sporting wearables, whether or not they're actually effective when it comes to getting in shape is the
question that we're asking. One firm discovered that money is a huge incentive when it comes to watching your weight.
Adrian Gore is the chief executive of Discovery and founder of Vitality Insurance and joins me now. You are teaming up with Apple for the watch.
And you found that there is a relationship of all of this to keeping you healthy and if there is a financial incentive, correct?
ADRIAN GORE, CHIEF EXECUTIVE OFFICER, DISCOVERY & FOUNDER, VITALITY INSURANCE: That is correct. You know, we've just come to a study of
400,000 people and found that people who become 34 percent more active through a benefit where they essentially pay for the watch if they don't
exercise.
So they can actually the watch free by doing physical activity and the benefits have been remarkable.
QUEST: So how do you get people to do this? I mean, for example, are you agnostic about whether they use an Apple watch or a Fitbit or any form of a
wearable?
GORE: Well, this particular benefit is a collaboration with Apple. So how it works is you get the watch essentially for free as part of it, and you
earn it through physical activity. The -- I think what came out of the studies is the idea of lots of version of people having something to lose,
motivate change and could work with other things as well. But our particular benefit is collaborations with Apple, and it has had very strong
effects.
QUEST: What is it -- what has been the main result? I mean, yes, it's -- you know, I go to the gym when I can, and obviously any incentive to help
me get there sooner and work harder while I'm there would be to the benefit.
GORE: Well, it's hugely beneficial. You know, our model is an insurance model, but I think the problem is by bringing technology and insurance
together, we can only offer -- there's like no trade off. We make people healthier, it's very good for us, good for society.
So it has a very strong focus on improving the health of our members, which is very good for us as well.
QUEST: But you measure the improvement in health, how?
GORE: Well, we measure improvement in physical activity. We do know that the correlations between physical activity and mortality and sickness is
tremendous. If people are moderately physically active, it can bring down mortality rates by 30 percent. So us getting people 30 percent more
active, doing it across all risk factors, doing it sustainably has a massive impact on the lives of the people that we cover.
QUEST: This is fascinating because it's bringing together the new technology of wearables with one of the oldest industries, which is
insurance. And we all like to get a benefit on both.
GORE: Well, I think this new category we're trying to push aside is shared value is tremendously exciting. It does bring insurance together with
technology. But I think it also brings behavior economics, understanding how people make decisions. And if you bring them together, you do get
great results.
QUEST: Thank you sir, thank you for joining us, much appreciated, thank you. Now, the last few minutes of trade on Wall Street, we're going to
have a look. This is really quite exciting what's happening. We are just a minute away. The key point of the day was here.
[15:55:00] Rarely, I mean, I've seen it before once or twice, but rarely do you see -- we were on the floor of the Exchange at the time. Literally,
the stock surges in all of a minute or so after Jerome Powell spoke giving his speech to the "New York Times".
And now we're up 602 which is -- it is de facto, the best of the day, I think we might have been six-five or six-ten. But we are at the best of
the day and it is being reflected in all the other markets. The S&P 500 which is the broader market.
Interesting, you've got a 2.4 percent here, a 2.2 percent here, but you've got a 2.85 percent on Nasdaq which is of course the crucial tech stocks.
And over on air -- now, look at this, look who's down, Dow point, P&G and Verizon. Three defensive stocks, utilities that were -- yesterday and the
previous days, Verizon was number one.
But look who's number one today. Caterpillar, that's on the back of Boeing, economic -- sorry, on the back of China, economic growth, things
improving. Same with Boeing, China, economic growth. All the big stocks, the financials are strong as well.
This is broad-base with the exception of a couple of defensives. But overall, the market is telling us that economic growth is here on the back
of the Fed and it all started just there. Profitable moment next.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment. What a difference a day makes. Yesterday or overnight, President Trump says I am not at all happen with
my choice, referring, of course, to Jerome Powell, Fed chair. Today, Jerome Powell, Fed chair, gives a speech at the New York Economic Club and
the markets have their best day in some three months since March the 26th.
The Nasdaq is the best of the three indices, the tech shares are up some 3 percent, and all because the man on the left base -- or the president's
right, the man on the president's right says that he's going to -- that we're heading towards neutrality on interest rates which the market
interprets as being no more rate rises.
Put that altogether, Donald Trump attacks the Fed, the Fed responds, is there a connection? Probably not, we'll never really find out. But it is
a good reason as to why you're best not to start criticizing or praising Fed chair, simply say they are independent.
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 is profitable.
(BELL RINGING)
What a day, the Dow is at the best of the day, up 2.5 percent, the bell is ringing, the day is done.
END
