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Quest Means Business
Theresa May Calls Off Brexit Vote, EU Won't Change Deal; Macron Speaks to Nation as Protests Grow; Accused Russian Spy Butina Appears to Reach Plea Deal; Audio Transcripts from Saudi Consulate in Istanbul Reveal Khashoggi's Last Moments; Carlos Ghosn Indicted in Nissan Probe; U.S. Markets See-Saw Between Green and Red as Signs of Global Growth Slowdown; India's Central Bank Governor Quits; Former Malaysian PM Najib Razak Arrested in 1MDB Probe. Aired 3-4p ET
Aired December 10, 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: We're in the last hour of trade on Wall Street, and what an extraordinary day it has been. Very sharp
losses, down 500 points. Completely evaporate to where the market is up, and then down again. And the broader markets, the triple stack shows the
Dow now down, but the NASDAQ is up. There are lots of undercurrents which we need to explore this evening.
The number so far to watch, the pound against the dollar, the pound is down sharply. I'll explain why because when you look at the markets, this is
what's been driving the day.
Theresa May having put off her vote in the commons, now going back to Brussels. Her Brexit plan is going to the drawing board. Emmanuel Macron
raises France's minimum wage after yet another weekend of protests. And it's Apple shares defying gravity that's dragging tech stocks out of their
slide. The feeling is Apple's fall have gone too far.
Now, live in the world's financial capital, New York City, on Monday, it's the 10th of December. I'm Richard Quest. I mean business.
Good evening. There's virtual chaos in Britain's government today as Theresa May calls off a vote on her Brexit deal and sets up a showdown with
European leaders. The British Prime Minister says she wants fresh and more concessions from the EU before putting her deal to her British lawmakers.
The President of the European Parliament insists there will be no renegotiations of the withdrawal agreement or the political declaration.
Now, news of the aborted vote pushed the pound to an 18-month low against the dollar. On Wall Street at one point the Dow dropped more than 500
points. It has since recovered as you saw at the start of the program.
As for Theresa May, it was a humiliating moment. She had to admit she couldn't get U.K. lawmakers and those in her own party to sufficiently back
her.
(BEGIN VIDEO CLIP)
THERESA MAY, BRITISH PRIME MINISTER: It is clear that while there is broad support for many of the key aspects of the deal, on one issue, the Northern
Ireland's backstop, there remains widespread and deep concern. As a result, if we went ahead and held the vote tomorrow, the deal would be
rejected by a significant audience.
We will therefore defer the vote scheduled for tomorrow and not proceed to divide the House at this time.
(END VIDEO CLIP)
QUEST: CNN's Bianca Nobilo is in Downing Street. The Prime Minister is still at some point got to take something to Parliament to get some sort of
vote, a meaningful say is her phrase. But tonight, chaos.
BIANCA NOBILO, CORRESPONDENT, CNN: Oh, without question. It was completely excoriating for the Prime Minister today. One of her own MPs
stood up and said the government should be completely ashamed of themselves. She was roundly condemned. The Speaker of the House of
Commons meant to be a neutral figure even intervened and said that the fact that the government is pulling the vote at this late stage is deeply
discourteous. And he thought the House of Commons should have had a say on whether or not Theresa May should have been allowed to do that.
But clearly, she thinks this is the best strategy to save her Brexit plan and indeed, kicking the can down the road, protracting the process seems to
be her only strategy when it comes to Brexit. But who she's hoping to win over by a few superficial changes or concessions is beyond me because it
seems that only tens of MPs, at best, would able to be won over to supporting her deal, if she makes that type of change.
There are MPs though, Richard that are concerned that because now, technically, the meaningful vote can actually be delayed until the 28th of
March, 2019. That's one day before Brexit that Theresa May has the ability to try and run out the clock until her MPs are faced with that binary
choice.
QUEST: Without getting into the weeds of the various options available, how likely or possible is it that they do have to institute some form of
delay to March 29th or is that simply ...
[15:05:10]
QUEST: ... not possible. I mean, under Article 50, you can get unanimity to say, "Well, let's give it a few more months." But that's not likely.
NOBILO: You can. This is the issue here, Richard, in this entire process is what is legally possible and what is politically possible. Yes, it is
legally possible to extend Article 50 with the unanimous support of the EU 27 and the UK. Politically, whether or not that's viable is a whole other
question. And the Prime Minister has ruled that out.
But then let's think about it, this Prime Minister has ruled out the snap election. She ruled out changing the vote tomorrow, and she has done both
of those things. So if the clock ticks down and then she seemingly can't pass the deal then that perhaps, that will be an option for her.
QUEST: Bianca, finally, the way in which she was attacked by MPs from all sides, this was one of the first times that I've seen or few times I should
say that I've seen Theresa May halting, perhaps hesitant in her answers. Would you say she's rattled?
NOBILO: I think she does well under pressure usually. That's her MO. And to begin with today, when she was addressing the House, she did manage to
cut a fairly defined figure. But by the end of that battering, yes, she was hesitant, she was struggling. She was not only being jeered by the
opposition benches and being called desperate by the opposition leader, Jeremy Corbyn knowing that she's probably going to face a vote of
confidence either from the Labour Party or internally from her own back benches, but I've never seen in the time that I've worked in Parliament and
MPs I have spoken to with much longer careers than me, that level of criticism launched at a Prime Minister in the round, from 360 degrees in
that chamber.
QUEST: All right, Bianca Nobilo, thank you. As Bianca was pointing out, whichever way you look, there's no easy path for Theresa May and basically
the British people. The first option at the moment is that of Westminster taking control.
Now, we're seeing this more and more as Parliament adds new amendments, refuses to accept the deal. It begs the question, what is the option that
they will accept? Which leads us to the question of restarting negotiations with the EU.
Now, the EU has already made it clear, they will not reopen the deal that's been put in place -- withdrawal agreement and the political declaration.
If that remains the case, if neither of these two sides will give ground, well then you move to option three, the possibility of a general election
in the U.K. off the back of a no confidence vote and the people's vote. The next - the second referendum, however you want to put it.
Because if none of these take place, you are dangerously close to the fourth option, which is really not an option at all. Crashing out of the
EU. Now, nobody says - everybody says they don't want to crash out. But as things stand at the moment, the road runs out on March the 29th and
there's a steep drop off in the end.
Lawmakers can't agree on a path, indeed whether they want a Brexit at all.
(BEGIN VIDEO CLIP)
MAY: This House wants to deliver Brexit.
(END VIDEO CLIP)
QUEST: So let's put this into perspective with one of those in Parliament. Steve Baker is a conservative Member of Parliament who resigned from the
government's Brexit team recently. What do you now want? So the vote is off for the time being, but obviously there does have to be a meaningful
say. Europe tonight says that there will or cannot be - they will not renegotiate. What do you expect to happen now?
STEVE BAKER, BRITICH CONSERVATIVE MEMBER OF PARLIAMENT: Well, first of all for this, the vote on this deal to be pulled is a major defeat for the
government. It shows the deal was so bad that the Prime Minister and the government couldn't put it before parliament because it would have been
resoundingly defeated. And that's because we cannot possibly tolerate the so-called back stop.
That backstop should be replaced with a standalone trade facilitation treaty with Ireland to deliver an invisible and compliant border. That's
what should be done. But the Prime Minister, in going back to Donald Tusk, I'm afraid is on a futile errand. Donald Tusk won't renegotiate the
treaty. We cannot accept the treaty as it is, and so it will be defeated.
QUEST: Right, so what happens? Because the question of a bilateral trade treaty with Ireland is not possible. You know the EU negotiates trade for
all members.
[15:10:07]
QUEST: You are moving ever closer to the no-deal Brexit. Are you happy with that?
BAKER: So to be clear that trade facilitation treaty would, if necessary be with the European Union. The point is the text of the treaty has been
drafted, we're clear what needs to be done. But the situation is that U.K. law says that we leave the European Union on the 29th of March next year.
The law has been put in place, that's what happened.
And when Members of Parliament voted to trigger Article 50, what that said was that we would leave deal or no deal on the 29th of March. So I'm not
afraid to go out of the EU trade on WTO terms. Your U.S. viewers will know that the U.S. trades with Europe on WTO terms, so does China. There is an
enormous amount of trade on WTO terms. So it's not the optimal outcome, but it's one of which we should not be afraid because in the end, what
we're doing here, is taking back the democratic self-government of the U.K., and if that means we have to leave to carry out the wishes of the
people on the WTO, we must.
QUEST: So let's put this as bluntly as we can. Manufacturers, those in business, those who actually make things say that if you were to leave
without an agreement or some transitional period, then there will be chaos in U.K. manufacturing.
BAKER: Well, I don't - so I'm an engineer and I've got a great deal of sympathy with the arguments, but what I would say is at the moment, about
20% of just in time car parts come into the U.K. from just outside the European Union just in time. So it can be done.
And let's not forget that even within the EU, it's not free of paperwork. Trade is not free of paperwork. Interest tax declarations need to be made,
there's VAT declarations and so on, so they would need to be replaced with customs declarations, but that trade can still go on. It is a matter of
fact that just in time supply chains work between the U.K. and the rest of the world. And if therefore we're a third country to the EU, it still is
possible. What we need to do is take the right measures to be ready to deliver it.
QUEST: The stalemate that now exists is exactly the disaster scenario that has been forecast. And the reality is that solving Northern Ireland is
going to be impossible. The two sides' parts are inconsistent with each other. So who gives?
BAKER: So I absolutely do not accept this argument that we can't solve the Irish border problem. We certainly can. Look, no one is going to put in
infrastructure in Ireland in the event of no deal. Everyone's been clear about that, the U.K., Ireland and the EU. So there will be no
infrastructure.
The question then is, so how are you going to make that work so that you get a compliant border? And the answer is you need a standalone treaty,
which delivers a compliant and invisible border on WTO terms or with the free trade agreement.
I'm telling CNN tonight that that treaty has been drafted. What we need to do is table it with the European Union after we've voted down the current
deal to make it absolutely clear that we cannot accept this backstop. It is not an arrangement that any decent, normal, independent country would
accept. To have your country split up and governed without a say in how those laws are made. It is not an acceptable place to be.
So the way it should evolve bearing in mind that the U.K. law says we exit on the 29th of March with or without a deal. What we need to do is go back
to the EU and say "We'd like to have a free-trade agreement, please, for the whole U.K. and we'd like to negotiate it now.
QUEST: Good to see you, Steve. Thank you very much. We'll talk more again, please, as this moves ever closer.
BAKER: I look forward to it.
QUEST: Taking what Steve was just saying about he wants to go back and say we want a better deal or an FTA, well will Theresa May get a better deal
from the EU? I've got my phone ready and I'm not allowed to vote, but there we go, you are allowed to vote cnn.com/join is where you can -
question - Quentin Peel would be allowed to vote as an associate fellow in the Europe Program at Chatham House, except he's talking to me.
And by the time he's finished talking to me the voting will have closed. So Quentin Peel, we'll come to how you would have voted. You heard Steve
Baker there. You heard the Prime Minister. Donald Tusk says there's no chance of a renegotiation. So what happens, Quentin? What happens next?
QUENTIN PEEL, ASSOCIATE FELLOW, EUROPE PROGRAMME AT CHATHAM HOUSE: Well, it really looks as if Parliament is blocked on all fronts. There is no
majority in Parliament for any solution. And I think that's the moment where the proposal to have another public vote, what they call the peoples
vote will probably be the only escape route ...
[15:15:09]
PEEL: ... both for the government and the opposition and they'll grab it almost with relief to say, "Okay, let's put the deal that's been negotiated
to the people and see if they accept it or not. The alternative would be to remain in the European Union. And with every passing week, that
possibility unthinkable a year ago is coming a little bit closer.
QUEST: Do you think the EU, if they won't renegotiate, because let's face it, there's no incentive for the EU to change this. They want to make the
terms as hard as possible for Theresa May, specifically so that Parliament does eventually put it back to a vote of am I being too Machiavellian?
PEEL: Just a little bit. I think the reason why the European Union has been very hard if you like, has been twofold. One, they've got to keep 27
countries together. They are actually a nightmare to negotiate with.
I was talking to one Finance Minister a little while ago who said negotiating with the EU is impossible. It's like negotiating with quick
drying concrete. The only people who have ever managed to do it in any sort of reasonable way has been the United States. So it's a very
difficult deal, and the second reason is they've been adamant from the start that they can't allow the single market in Europe to be cherry picked
by a country that's leaving so that the Brits can have one bit of it but not another.
So all along, Theresa May has been adamant, we will no longer have freedom of movement, but that is one of the fundamental parts of the single market.
So it's been a blockage.
QUEST: As you look at the state of play tonight with your experience, we've never seen anything like this before.
PEEL: No. I mean, in my lifetime, I've never seen the British Parliament in such a state of confusion and melt down and deadlock, if you like. I
mean, what was most striking today was actually that Theresa May, who has won a certain amount of respect for her stubbornness and her insistence was
actually just being ridiculed in Parliament. You heard the laughter earlier on at what she was saying. So it's a degree of ridicule and anger,
I think.
QUEST: You'll not be surprised that the CNN viewer, wise and astute as they are as you'd expect, best part of 90% says - 88% say she won't get a
better deal by going to Europe. I'm sure that's not a surprise to you.
PEEL: But the only deal that is better is I think actually to stay where we are because the government came out with its own figures and said every
single alternative deal is economically worse.
QUEST: Good to see you, sir, thank you. As we continue another beleaguered European leader, Emmanuel Macron of France also sought to
reassert control over his political process today. After scenes like this across France for the fourth weekend in a row, Mr. Macron addressed the
nation just a few moments ago, acknowledging the anger that has given rise to the yellow vests protest which is deep and justified.
(BEGIN VIDEO CLIP)
EMMANUEL MACRON, PRESIDENT OF FRANCE (Through a translator): We have not been able in the last 18 months, I'm sure, to respond to this properly, and
I assume my responsibility here. And unfortunately, I gave the impression that I have other priorities and I was not looking at these issues. And I
have also hurt people by some of my comments.
(END VIDEO CLIP)
QUEST: Ben Wedemen watched the speech with the Parisians and Melissa Bell is in London with a Brexit context. First to you Ben, what did they make
of this? Was this a sufficient if mea culpa is too strong, at least, self- flagellation?
BEN WEDEMAN, CORRESPONDENT, CNN: What we heard here, Richard, was it was too little too late but he started off his speech talking - condemning the
violence and then offered crumbs rather than the baguette when it comes to what people are looking for.
He offered - he said he would increase the minimum wage by a hundred euro a month, bringing it from 1,200 to 1,300 a month. He said, he would cancel a
tax increase on pensioners, that he would encourage employers to give bonuses to their employees at the end of the year. But in terms of sort of
the grand picture, the grand scope of the grievances of the French people, it really didn't come close enough to what people were asking for, Richard?
[15:20:10]
QUEST: To Melissa in London, obviously his domestic problems are greater than any Brexit issue he may have to discuss with. Is in your view Macron
looking weaker?
MELISSA BELL, CORRESPONDENT, CNN: Macron is looking decidedly weaker than he was. Of course partly because these protests have gone on for so long.
We saw that fourth Saturday of protest just over the weekend. And as those demands have broadened and the movement appears to have strengthened, it
has also focused itself more decidedly on the person of the French President and the chant that comes back over and over again is for Emmanuel
Macron to resign.
Of course, there's no suggestion, Richard that he intends to do that. But I think picking up on what Ben was just saying, it's difficult to imagine
what he might have said at this stage to calm the anger of people who clearly feel that the government is now listening.
QUEST: Melissa and Ben, thank you. A busy day across Europe. In fact, before the end of the week, we will I think delve more into all the nations
of Europe and the troubles that they face.
A major headache for Apple in China, a report they have banned the sale of most iPhone models. We'll explain in a moment.
And so to the last hour of trading on Wall Street, the Dow cannot make up its mind what it wants to do. Having been lower for most of the session;
now, it has eked a small gain and then it's off again. Major fluctuations throughout the day.
Apple at first led the Dow lower before bouncing back. The Chinese courts have decided to ban the sale and import of most iPhone models. Clare
Sebastian is at the stock exchange. Clare, when I came in, there was no green on the Dow 30. Now there is some. Why did the Dow turn around?
CLARE SEBASTIAN, CORRESPONDENT, CNN: Well, Richard, it's interesting because after we got that news here around lurch time here in New York that
Theresa May was delaying the Brexit vote, that's what's triggered the worst sell-off of the session. That's when we saw the Dow down about 500 points.
But at that point it hit lows that we haven't really seen since March of this year. And I think that is what triggered people to come back in.
There were people who this morning were saying the market is already oversold. I think at that point, we saw people come back in and start to
do a bit of bargain hunting. But that doesn't mean that these uncertainties have gone away.
[15:25:09]
SEBASTIAN: Brexit is one of them that feeds into the general malaise about global growth, there's also trade uncertainties surrounding comments for
example from the U.S. Trade Representative over the weekend that the 90-day deadline is a hard one. There's uncertainty around the Huawei case, so all
of those questions remain unanswered, Richard, but I think there's a sense that today might have been a good opportunity for people to start to move
back in.
QUEST: So if we look at the Dow 30, you can see it's pretty half and half. But the triple stack shows the two - the S&P down, the big stocks if you
like. But the NASDAQ eking out a small gain.
SEBASTIAN: Yes, it's interesting because usually when we see this kind of risk off dependency in the market, Richard, it's the tech stocks that get
hit the hardest, but a couple of notable names today, Facebook was one of the best gainers overall in the markets today after announcing a stock
buyback over the weekend, that stock has been hit really hard since the summer.
And Apple, of course, it was down at the beginning of the day over the fact that it lost this case in China. But Apple has said that it's appealing
the ruling, that it's not having an impact at the moment that all iPhone models remain on sale.
So if you look at Apple, it's already down about 25%, 27% since its highs in October and I think people have started to come back in there, too.
QUEST: Bank stocks are getting clobbered. I see Citi, Bank of America just looking at the other ones that are lower in the market. In fact, AmEx
is down, Morgan is down, Goldman is down. What went on there? What went on there?
SEBASTIAN: Well, this is again, Richard, the fear about global growth. If you look at the big picture it's not just in the U.K. where the delayed
vote today perhaps in the minds of the investors increases the odds of recession in the fifth largest economy.
We've also got weaker export-import data out of China. There's also concerns about earnings growth next year. All of that feeds into the
banks. Plus, the issue over the narrowing yield curve - that has the potential to hit banks' profits. And banks as well, in themselves portend
of where the economy is going. And that's what we see really playing out there today.
QUEST: Good to see you. Clare Sebastian, thank you. The writing is on the wall. We'll discuss how significant the signs around the world are
following on from what Clare was saying, the global economic slowdown, how real it is, how deep, and who stands to be hit hardest. In a moment, it is
"Quest Means Business," from New York.
[15:30:00]
(COMMERCIAL BREAK)
[15:30:00] RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Hello, I'm Richard Quest, there's more QUEST MEANS BUSINESS in just a moment. When India's
Central Bank just suddenly quits. It's a battle over the bank's independence. And it's got giant yachts, sea food canoes and billions of
dollars in government gains.
The 1MDB scandal is claiming more high profile people victims, we'll talk about it with the nod of a book on that. As we continue, this is Cnn, and
on this network, the facts always come first. The British Prime Minister Theresa May has called off a vote in parliament on Tuesday on her Brexit
agreement.
Many lawmakers openly laughed at Mrs. May during a speech, the president of the European Council said there'll be no renegotiating the Brexit deal.
The French President Emmanuel Macron took to the air waves at more than an hour ago in an effort to calm weeks of protests that have shaken France.
He announced several reforms including a hike and a minimum wage, and he encouraged businesses to pay extra year-end bonuses to employees. The
accused Russian spy Maria Butina appears to have reached a plea deal.
Butina is alleged to have infiltrated politically powerful organizations like the NRA to try to advance Russian interests ahead of the 2016 U.S.
election. Until now, she's maintained her innocence, simply insisting she was a student interested in bettering U.S.-Russia relations.
"I can't breathe", those were the final words of the slain journalist Jamal Khashoggi, according to a source briefed on the investigation into his
murder. They went further onto say that the audio recording of his death makes clear it was not a botched attempt to get Khashoggi to return to
Saudi Arabia. Instead, it was a premeditated execution.
Prosecutors in Tokyo have indicted the former Chairman Carlos Ghosn for fraud -- for underreporting his pay. Nissan and its former executive Greg
Kelly were also indicted. Prosecutors say the two men collaborated to underreport Ghosn's income over the past five years by some $44 million.
And so to the QUEST MEANS BUSINESS trading post, we have just under 28 minutes of trading left, and I mean if I had to predict where we're going
to end up, I would say green would be the color we would go for. But then, I might easily say red is the color we would go for.
But I think I'd have to say green at the moment because we have two that are up at the moment. We've got all three that are up, and that seems to
be the way it's going. There are signs of a slowdown hitting some of the world's largest economies.
Japan's economy contracted 2.5 percent in Q3, today's revision was much worse than the previous reading of just over 1 percent. France has
forecast growth, well cut in half, recent protests are hitting the economy, questions over Macron's ability to reform France.
And Goldman Sachs says the odds of U.S. raising rates now in March are less than 50 percent. And I haven't even mentioned Brexit. Those are the
issues. In all of this, Jared Woodard is Global Investment Strategist at the Bank of America, Merrill Lynch, good to see you, sir.
JARED WOODARD, GLOBAL INVESTMENT STRATEGIST, BANK OF AMERICA, MERRILL LYNCH: Great to see you.
QUEST: Of all of those factors, which do you think is the most telling and important?
WOODARD: The most important factor right now is that central banks are raising interest rates, they're tightening policy and they're coming in --
they're doing it at a time when it's increasingly clear that we're in a late cycle market environment.
That's why our view for 2019 is bearish on stocks, bearish on bonds. We do like commodities, we especially like cash, we think it's a time to be
defensive.
QUEST: How -- here's the old question you get asked all the time, how can -- I mean, the roles are always if stocks are doing well, bonds are not and
vice versa. To have a scenario where both are doing badly, what's gaining? What's going up?
WOODARD: This is a really strange time. It's a kind of market that we haven't seen for 20 years. If you look at the returns on October from a
portfolio that's 60 percent long U.S. equities, you know, 40 percent long U.S. bonds, they both fell. It was the worst month for that kind of --
QUEST: Why?
[15:35:00] WOODARD: It's happening because you're seeing inflation rise and interest rates rise at a period where the great news is already priced
in. And so our contention is that the 30-year bull market and bonds that most investors have enjoyed has really come to an end. So that's why --
QUEST: Come to -- slowing down, taking a rest or come to an end? Because you're not forecasting or are you forecasting a bear market?
WOODARD: We're forecasting really terrible returns for the first part of next year, we think that it has to get much worse before it gets better.
There's a few things that investors can look for, to know when it's a good time to step in. I think number one most importantly of all is the big
profits outlook reset.
Profit expectations are too high for next year. The analyst consensus is looking for 8 percent to 10 percent global earnings growth, our top-down
macro model suggests you should look for 0 percent to 5 percent earnings growth at best next year, and until profits reset you can't get back in.
QUEST: Can I ask you a rude question?
WOODARD: Yes, sure.
QUEST: Why should we believe you?
WOODARD: Well, we take the day as we see it. You know, I don't make money from calling yes or no or red or green, I look at you know --
QUEST: I guess what I'm saying is --
WOODARD: Yes --
QUEST: You know, is sort of slightly pejorative ways. We have people on this program who say that it's not going to be a great year next year, but
they're not --
WOODARD: Sure --
QUEST: As pessimistic as you are.
WOODARD: All right, a lot of folks are looking at data that's outright now at expectations that reflect the U.S. tax cuts for example. And there's
been a lot of hopes pinned on those tax cuts as prolonging the business cycle and leading to a big boom, but we haven't seen that in the evidence
yet.
And when we talk to CFOs around the country and ask them, you know, their spending plans for the future, they don't tell us that kind of story. They
don't say that they're going to make big new investments in factories or equipments. Instead, they say they're really worried about trade, they're
really worried about how late it is in the cycle and how interest rates are rising.
And so until, you know, profits reset, until the policy environment changes, it's not a great time to be in.
QUEST: So 401ks, you're pretty much what? Leave them as they are, pension plans, large scalars, leave them as they are because there's not really
much you can do.
WOODARD: You can do some things. You can take some of the gains that you've seen in U.S. tech most of all during this cycle. All the places
where Wall Street --
QUEST: Are you giving back -- but so much of those gains have just been given back.
WOODARD: Absolutely. It's better to sort of take gains where you have them or even realize some small losses where you have them and move to
cap(ph) to look for better opportunities down the road. We think that by May of next year will be a great time to start looking for really
committing capital.
Because at that point, we expect that you'll see -- we hope that you'll see a Fed that's either come around on the tightening cycle or seen maybe
progress on U.S.-China trade tensions and possibly a big profits reset and positioning capitulation out of these bullish positions that investors
have built up for so long. Until those things happen, it's just not a great time to get in.
QUEST: The interesting part I find of what you're talking about is not that it's not a great time to get in, but that it's a good time to get out.
Because the many people will also be saying -- you'll hear people saying on this program, well, if you haven't solved it yet, it's not worth doing it
now because you're already showing, you know, the markets down, you may as well ride this thing out.
WOODARD: Look --
QUEST: You don't -- you don't subscribe to that --
WOODARD: I don't subscribe to that view. Look at the -- you just look at market history, there's a lot of places where look, the S&P 500 just dipped
into negative territory year to date. We've seen a lot of 10 percent and 15 percent and 20 percent corrections and even bear markets that begin
exactly this way.
For investors that are looking for where to commit capital today, if they've got cash in hand, what should I do with it? This is not the time to
buy. And for investors who have realized big gains, incredible gains in the U.S. tech sector in developed market equities over the last 10 years,
it's worth stopping and thinking, can I tolerate, you know, 5, 10 plus downside, especially if as we think, this is late in the cycle, a moment
when the Fed is tightening.
There's a lot of historical analogs where you would have done really well to take your gains to realize those positions and wait for a better entry
point later on.
QUEST: Six months ago, one would have been wise to have done it six months ago?
WOODARD: Some folks on Wall Street, you know, pat anyone in particular on the back, but some folks have been warning about some of the risks, to tech
most of all, to the populous, to threats around the world most of all. And I know -- I think those are warnings important because when we look at
what's happening -- you mentioned Macron, you know, you mentioned Brexit.
Think about the state of U.S. politics, this popular revolt we think is real, it's powerful, and it's only just beginning. And until policy makers
change those policies so that main street catches up to the gains on Wall Street, we think you can expect more of these kinds of revolts.
QUEST: You can understand it's very difficult for ordinary investors to know what to do in these scenarios when the buy on the dips philosophy has
been so prevalent for so long --
WOODARD: Right --
QUEST: You've got growth of 3 percent to 4 percent which may not be next year, but it'll leave you, you've got low unemployment, low inflation,
moderately rising interest rates, you have a goldilocks scenario in the United States.
[15:40:00] WOODARD: Goldilocks for the moment, for the moment. The question is if we don't get big capex, if the Fed continues raising rates
and most importantly if the profit cycle rolls over, which we think is already happening, then it's no longer goldilocks, it's run for the hills.
So in that kind of world, the good news is T-bill yield you 2 percent that hasn't happened in 10 years, it's a great time to pack that cash.
QUEST: Good to see you sir --
WOODARD: Thanks --
QUEST: Thank you so much, thank you. Well, that's -- we'll talk more about that, we'll have Jared back if he'll come back to give us more
guidance. To lose one central bank governor might be unfortunate, has India been careless in losing two? The sudden resignation of the man who
ran the Reserve Bank of India.
It's QUEST MEANS BUSINESS live from New York.
(COMMERCIAL BREAK)
QUEST: India's Central Bank has just lost its second governor in less than three years. Urjit Patel resigned on Monday effective immediately. He was
off, he says he left for personal reasons, though his departure comes only weeks after the Reserve Bank of India's officials warned that the bank's
independence is under threat.
I'm joined by Bobby Ghosh; editor and member of the Editorial Board at "Bloomberg". Where did he go, do you think?
BOBBY GHOSH, EDITOR, BLOOMBERG: Well, his resignation letter didn't provide any clues except for the fact that he conspicuously chose not to
thank the Prime Minister and the Finance Minister, which suggests as you pointed out earlier that when his deputies spoke out about a month ago
about government interference, it was quite serious.
And it would appear that Urjit Patel had quite enough of the interference. This is happening in a few other places around the world. But in India,
especially in the last five or six months, the government has tried very hard to influence the Reserve Bank, which has always enjoyed a high degree
of autonomy.
Urjit Patel who was -- who was supposed to be when he was appointed a more pliable figure than his predecessor Raghuram Rajan clearly was not pliable
enough for the Modi --
QUEST: What?
GHOSH: Government and he decided he had to go.
QUEST: What have the Modi government been doing? How have they been exerting pressure? Is it -- is it naked and obvious or is it subtle?
[15:45:00] GHOSH: It's not subtle at all. They've done a bunch of different things. They've appointed some political people on the governing
board of the bank including people whose credentials are frankly visible. It has been trying basically to get the bank to do things.
Basically, the government is facing an economic slowdown. Foreign prices are low, and there's a big election coming next year. What do governments
want when there's an election coming? They want big spending.
They want the bank to allow for more spending. They want the bank to share a bunch of the -- its reserves. They want to sort of basically go into the
Reserve Bank's piggy bank and take some of those reserves and spend them on populous programs.
They also want some of the restrictions that have been placed --
QUEST: Right --
GHOSH: On state-owned banks which have very bad loans, they want those restrictions to be removed, and the bank -- the central bank doesn't want
to do that, the central bank wants to control inflation --
QUEST: So --
GHOSH: As usually central bankers do.
QUEST: So the markets always are the barometers in these things, particularly when it comes to the central bank. Now, the Indian currency
is already on trade issues, record lows against the U.S. Does that continue? I mean, obviously, the government and the Finance Ministers are
well aware that if you continually beat up on the central bank and question its independence, the market eventually takes fright.
GHOSH: It's a question of priorities, Richard. There's a big election coming up, and right now, it would appear that the political leadership
thinks that winning that election is more important than controlling the price of the rupee. We'll see tomorrow.
There are some very big local election results that will also come out tomorrow at the same time as the market gets its first real chance to
respond to Urjit Patel's resignation. Although in the early indications that the rupee -- at one point today, there was talk that the rupee might
fall faster than the British parliament. That takes some doing these days as you know.
QUEST: Beautifully put, sir, thank you very much indeed, I appreciate it, thank you.
GHOSH: Any time.
QUEST: A scandal within a scandal. The former Malaysian Prime Minister Najib Razak has been arrested yet again. And the man who wrote the book on
the 1MDB scandal after the break.
(COMMERCIAL BREAK)
QUEST: Malaysia's sovereign wealth fund was meant to make the lives of average Malaysians better. Today, the country's former prime minister was
once again arrested as part of a scandal that saw billions of dollars siphoned out of the government coffers.
This time, officials are alleging that Najib Razak tried to tamper with the audit report on 1MDB. Sections of the report were apparently deleted.
[15:50:00] Now, Najib was released on bail after about two and a half hours questioning. The missing sections have to do with the Jho Low. Now,
who is Jho Low? Jho Low is a fugitive who's suspected of helping to steal the money. What did the money go on? The money went on some extraordinary
things.
For example, this giant yacht which has just been sold cost $250 million, and it was found in Bali. And then you have this, this is useful. The
see-through piano reportedly given to a super model now in her home in Malibu. I'm not sure if she -- it includes the ivories.
And then there's the Bombardier business jet valued at $35 million, and the plane was located in Singapore -- oh, yes, a condo in this very building,
in Time Warner Center, $30 million in cash was paid for it. Last month, I sat down for an exclusive interview with Malaysia's Prime Minister in-
waiting Anwar Ibrahim, he told me the entire system had failed to prevent this scandal.
And Ibrahim wants those responsible, especially the bank accused of money laundering, Goldman Sachs, you know, he says to pay up.
(BEGIN VIDEO CLIP)
ANWAR IBRAHIM, PRESIDENT, PEOPLE'S JUSTICE PARTY: If it is purely a business transaction and you lose, it is a fault, but it's not a crime.
Here, you actually squander the money.
QUEST: What were they doing with it?
IBRAHIM: Well, they bought whatever you can imagine, monarch's painting, huge apartments in New York, planes and ship, yachts, whatever they can
find, and diamonds and every -- and all of this is recorded. You cannot imagine -- that is why I think people make reference to this as one of the
greatest scandals involving a government.
But again, what does it show? The entire system has failed. The elites were compromised. It's not just the institutions, the elite, the ruling
elite, the vast numbers, the professors, the scholars, the academicians, the corporate leaders were all either complicit or muted, and that's why
we are landed in this fiasco now.
QUEST: So how much are you looking for?
IBRAHIM: That I will leave it to the Ministry of Finance.
QUEST: You must have a number in mind, 1 billion, 3 billion, 5 billion.
IBRAHIM: Well, it should at least be double of this certainly.
QUEST: Really?
IBRAHIM: Yes.
QUEST: Ten billion.
IBRAHIM: No, I mean, the number of what we lost.
QUEST: Oh, so you're talking about over a billion?
IBRAHIM: Yes --
QUEST: And if they don't pay, what will you do?
IBRAHIM: Go to the courts --
QUEST: What about --
IBRAHIM: In every country possible, where they were involved. You know, but here in Malaysia, in the United States, sure.
QUEST: So you're determined to make as much trouble for them as you can?
IBRAHIM: No, we want -- we want enough resources back to serve our people. I don't believe that the country must suffer or the people must suffer just
because of the greed of some of this corporate leaders.
(END VIDEO CLIP)
QUEST: Bradley Hope is the co-author of "Billion Dollar Whale", a book on Jho Low. He's in London. I just started reading the book, sir, flying
back from San Francisco, it's a superb book and it raises the question when you hear Najib Razak arrested again today, how much of this scandal do we
know?
BRADLEY HOPE, AUTHOR: Well, this was just really one of the smallest parts of the scandal. I was kind of tampering with a document in Malaysia, and I
think the full extent of this whole thing, it'll take years to understand, even just getting to where we are now, we kind of understand some of the
big flows of money that they -- thefts, and some of the outrageous spending. But we don't know a lot of detailed stuff.
QUEST: There was -- I suppose there's two ways to look at it. There's outrageous spending which you can dress up as being, you know, acceptable
because you have put in a receipt, and -- or you've done it through the company books properly, even though you shouldn't have spent that money.
And then you've got simply money out of the till, into your back pocket, cash on the way out. How much of that was going on?
HOPE: Well, this fund raised about $13 billion in debt, and of that, the estimates go from between $5 billion and $7 billion were outright stolen.
QUEST: Why have they not managed to catch Jho Low?
HOPE: Well, Jho Low is believed to be hiding in China. He's been there since late 2015, and also around Asia, and it's believed that he has
protection from the Chinese government. He's played this sort of crucial role as an intermediary between Malaysia and China at a time when Malaysia
was very vulnerable by the very scandal he created.
He kind of created an opening for China to take a more decisive role in Malaysian affairs and in shifting them towards China.
[15:55:00] QUEST: But he will not be able to raise his head again, will it? I mean, if he turns up in any reputable market-based rule of law
jurisdiction, he'll be -- he'll be -- he'll be locked up.
HOPE: Yes, I mean, there's several -- he's been indicted in Malaysia, he's been indicted in the United States and there's Interpol request from all of
these countries including Singapore. I think if he shows up anywhere using his real name, he'll immediately be arrested especially any country that
participates in Interpol.
But it seems like that will be unlikely for him to do that for a while. I mean, he's probably going to try to have to lay low.
QUEST: Good to see you, sir, thank you, come back and talk more about this. It is a fascinating and we're going to need your help to understand
it, thank you.
HOPE: Thank you.
QUEST: Last few moments of trade on Wall Street. And well, look at that, I thought we were going to be green for the day, of course we've still got
another five minutes to go. I think the graph basically shows you the day, the fluctuations throughout the day.
Up at the open heavily down around 11 O'clock on some Brexit fears, comes back to the afternoon and literally bouncing around at the moment. It is
up at the moment, up 62 points, just a quarter of 1 percent. But there are losers, the banks are down, JPMorgan, Amex, Goldman and energy stocks are
also having a difficulty.
If you look down here, JPMorgan is the biggest loser of the day. Chase, ExxonMobil is down, Goldman Sachs, Chevron, and yet showing the interesting
nature of the undercurrents, the tech at the top is up. We'll have a profitable moment after the break.
(COMMERCIAL BREAK)
QUEST: All right, it's a profitable moment, I can keep this really simple. Britain's government is in a shambles. Parliament is betwixt and between
and has no idea which way the Brexit decision should go. And Europe is standing firm, saying we will not renegotiate the treaty we have just
signed.
That is the situation tonight as the British parliament considers what to do next. If anyone tells you they know what will happen next, do not buy a
bridge from them. Nobody knows where this is going. 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)
The day is done! The Dow is up!
