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Quest Means Business
Netflix Is Losing As Investors Are Reacting To Warning Signs Of The Company's Results; U.S. Navy Is Sending A Message To Iran With A Show Of Force; James Bullard Says An Expected Cut Next Week Is Now Overdue; U.S. Ship Destroys an Iranian Drone; Thirty Three Dead in Suspected Arson Attack at Anime Studio in Japan; A Judge Denies Bail for Epstein in Child Sex Trafficking Case. Aired 3-4p ET
Aired July 18, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL HOST, QUEST MEANS BUSINESS: Last hour on trade on Wall Street, and a very interesting dynamic. The market was down
for most of the session, triple digits before lunch, a recovery of -- not a sort -- a real recovery has taken place, and we are now positive.
So, we need to analyze and understand exactly what happened around two o'clock this afternoon that sent the market higher. Those are the markets
and these are the reasons why.
Netflix continues to be down. Netflix is losing as investors are reacting to warning signs of the company's results. They talk about 11 percent.
The case for a rate cut. The Fed's dovish James Bullard, he speaks exclusively to Julia Chatterley and CNN. And there's a new warning about
the consequences of no deal Brexit. The anti-Brexit campaigner Gina Miller has a plan to stop it. And yes, it involves litigation.
Live from London. It is July the 18th. I'm Richard Quest, of course, in the British capital, I mean business.
Good evening. Tonight, red is the new black for Netflix. The streaming wars are hitting the company hard, millions of viewers, and billions in
production budgets simply weren't enough to delay the inevitable. A brutal earnings season report that sent the shares down sharply. It is on track
for its worst day in three years.
Now, there's no shortage of must-watch Netflix stories. So we're off there. Let's see exactly which ones to browse, who's watching and what
investors are cringing their way through a horror movie when it comes to the competitors.
Now, they're pulling -- the shows -- the competitors are pulling their shows like "Friends" and "The Office" because of course they're stockpiling
that content for their own apps, like HBO Max and Disney Plus.
Netflix executives, meanwhile, well, they are now starting to really watch the production costs. Spending some $15 billion -- billion -- this year on
original content. And as for the customers, they're seeing prices rise, and in doing so, they are walking away.
Netflix lost more than 100,000 subscribers in the United States in the last quarter. And perhaps worse than that, came up a million short
internationally.
If that keeps happening, then it's -- Netflix will look like this. Frank Pallotta is in New York who joins me now. Frank, you have said on numerous
occasions on "Express," look, keep the hundred thousand in perspective, they've still got 100 and something million people, but the reality is, it
is a case of what have you done for me lately? And the numbers are not good.
FRANK PALLOTTA, CNN BUSINESS MEDIA WRITER: No, the numbers are really, really terrible and the stock showed that today. It's been down around 10
to 11 percent. It's just a really bad day for Netflix, probably one of their worst days in a long time. But people, what they're really trying to
figure out is that, is this a blip? Is this an anomaly? Or is this the end of the booming era of Netflix?
I really don't know. Both have arguments. You could just say, "Well, you know, they lost -- they raised prices about 20 percent and they didn't
really lose anybody." They still they still went up 2.7 million overall.
I mean, they lost about 130,000, but that was basically flat in the United States. But name another company that can raise these prices around 20
percent and not really lose consumers.
On the other side of that though, you have a bunch of competitors like Disney, Apple and CNN's parent company, WarnerMedia at the gates. These
are not small streaming service companies. These are the biggest people, these the biggest companies in media and tech. So it's concerning.
QUEST: Frank, Frank, those streaming services are not here yet in any capacity.
PALLOTTA: True.
QUEST: Disney or HBO Max, part of our parent company. And so why would we be seeing this weakness in the future subscriber numbers? I'm guessing
what we really have to work out is, is this an aberration?
PALLOTTA: I mean, to really -- the other question, we have to ask is, has it hit a ceiling in the United States? Has -- is there going to be any
more growth in the U.S. or is Netflix's growth going to be all global going out? That is going to be the major conflict for Netflix over the next
year, even more so than all of these new competitors, is its growth around the world because it seems like the U.S. is tapped out.
[15:05:09] QUEST: Okay, so, I mean, I think when I got my subscription to Netflix, I think at that point, you could probably have said, yes, it was
tapped out, because I must have been the last person in America to actually finally pay that money, but they've had two price rises almost in as many
years. And it was only a couple of dollars here or there. That's true to be -- that's fair, but they can't keep doing that, can they?
PALLOTTA: That's the other major thing here is that if I'm an investor, and I'm looking at this, I'm very, very concerned about how much more can
Netflix raise its prices, because everything goes up in price eventually.
So, it looks like right now that they've raised their price about 20 percent and people got -- and it was -- people kind of freaked out. It
didn't really go up the way they were supposed to. It's literally half of what they were expecting.
So, what's the growth here if say, you know, if they keep bringing in this content and keep growing and they keep spending this amount of money on
content? How much more can they charge consumers without consumers bailing out?
QUEST: Frank, good to see you, sir. Thank you. The U.S. Navy is sending a message to Iran with a show of force, a new show force in the Persian
Gulf. CNN got access to the patrol ship USS Boxer as it sailed in the Arabian Sea towards the Gulf.
It comes a day after the U.S. defense officials said the Pentagon is sending 500 more troops to an air base in Saudi Arabia. CNN's Sam Kiley
was on board the Boxer just before it's headed to the Strait of Hormuz. Sam is in Abu Dhabi tonight.
We're looking forward to sort of seeing your exploits on the ship and -- but is this an escalation in military power in the region?
SAM KILEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: It's not an escalation, Richard, it's a demonstration. The escalation came earlier in the year
with the deployment of the USS Abraham Lincoln, a full blown aircraft carrier with all the attendant shipping that goes with it, which -- and it
currently is sadly, preoccupied with trying to find a man who fell overboard a few hours ago, we understand from the Pentagon.
But meanwhile, the USS Boxer which looks like an aircraft carrier, but it's very much the center of the U.S. Marines capacity to be deployed anywhere,
anytime really was tasked with the not unusual, but nonetheless tense job of transiting through those very narrow straits, the Straits of Hormuz,
this was what I found when I visited them just before they made that transit.
(BEGIN VIDEOTAPE)
KILEY (voice-over): It's all entirely routine, until it's not. A U.S. Marine expeditionary force at the ready, while world leaders wrestle with
the tangled question, what to do about Iran. At the center of events, the USS Boxer on its way to already tense Straits of Hormuz.
(BEGIN VIDEO CLIP)
CAPTAIN RONALD DOWDELL, COMMANDING OFFICER, USS BOXER: Anything that's asked of us that can make the situation, the geopolitical situation more
stable. They're chomping at the bit to kind of get after it.
(END VIDEO CLIP)
KILEY (voice over): The U.S. has blamed Iran for alleged mine attacks on six oil tankers in this region this year. Iran denied responsibility, but
is furious at the U.S. withdrawal from a deal to lift sanctions in return for suspending its nuclear program.
In June, President Trump called off air strikes in retaliation for the downing of a drone by Iran over the Straits of Hormuz.
KILEY (on camera): The USS Boxer is technically an amphibious assault ship. What that really means is that it's an aircraft carrier packed with
U.S. Marines. A means by which the United States can project real muscle, real power, sending an unmistakable signal in this region right now.
KILEY (voice over): And a routine transit to protect shipping lanes through the Straits that brings a ship this size, carrying 1,500 Marines
within sight of Iran's coast will inevitably be seen as provocative in Tehran. A small error as the Boxer threads through the Straits could spell
disaster.
(BEGIN VIDEO CLIP)
KILEY (on camera): When these sort of operations are going on, I mean, there is a potential for a strategic effect from a small error.
BRIG. GEN. MATTHEW G. TROLLINGER, COMMANDER TASK FORCE 51/5: That's absolutely accurate. And all the training that we do, all the education
that we do, is the expressed purpose of getting after that.
(END VIDEO CLIP)
KILEY (voice-over): Iran's leaders say they want to keep the Nuclear Deal alive and the U.S. to end trade sanctions that are crippling its economy.
They see the U.S. presence here as potentially explosive.
(BEGIN VIDEO CLIP)
[15:10:03] MOHAMMAD JAVAD ZARIF, IRANIAN FOREIGN MINISTER: The United States is intervening in order to make these waters insecure for Iran. You
cannot make these waters insecure for one country and secure for others.
You cannot simply disregard a possibility of a disaster. But we all need to work in order to avoid one.
(END VIDEO CLIP)
KILEY (voice over): The Boxer's flotilla got through the Straits without a hitch. Its air squadron keeping watch overhead. It has a nickname that
coincidentally reveals how Iran and the U.S. see each other -- Evil Eyes.
(END VIDEOTAPE)
KILEY: Those two nations glare at one another, other nations Richard as you know, a round of steps, particularly with the United States on its
treatment with Iran at a time when the United States is trying to put a Maritime Coalition to increase security through those very tense waterways.
Countries like Britain, Germany, France, China and Russia, of course, are very much trying to keep that Iran nuclear deal on track at a time when the
Americans have walked away from it and imposed these very stringent sanctions, Richard.
QUEST: But the one thing I sort of remember from last week was the Royal Navy and its activities, and now listening to your report from the U.S.
Navy.
The Commanders involved are very much aware of the tinder-like environment under which they're operating, aren't they?
KILEY: Yes, very much. So I mean, the HMS Montrose actually leveled its weapons at Iranian gunboats, who allegedly tried to hurt a BP tanker into
Iranian territory.
No such incident occurred during this transit by the Boxer, but they did get some attention as they anticipated they would from the Iranian Navy,
which as they pointed out on board the Boxer would be routine were there an Iranian ship that close to American shores of the United States.
QUEST: Sam, good to see you. Thank you, sir. Turning to U.S. markets now, it's the fourth day of burnings and the markets are surging quite a
comeback. Look how the Dow has rebounded, 150-point loss.
Now, the reason why we've seen this is comments from the New York Fed President John Williams, who of course is Vice Chair of the FOMC that's
boosted the market. He said, "The Fed is wise to act quickly on rate cuts," just about cementing the view that the Fed will cut rate at its July
meeting.
On to the results, Morgan Stanley beat profit expectations in Q2. Its wealth management arm and investment arms that did the business. The stock
had been up all day on the news and the wealth business is a key focus of James Gorman. It rose almost two percent from last year and contribute 44
percent of Morgan's revenue.
European markets stocks finished mostly lower. It was SAP that weighed in Germany. The DAX was down. It looked the worst of the day, but Zurich was
greatly cheered by the Swiss drug giant, Novartis saw three percent better on 2Q results that were good.
The President of the St. Louis Fed says an interest rate cut is overdue. As the Fed prepares to meet next, week James Bullard tells CNN how he'll be
voting and whether there's a half point needed, we'll have to wait and see.
A little later, Gina Miller, the anti-Brexit campaign who says she will sue if the next British Prime Minister tries to push through a no deal breaks
it by suspending or proroguing Parliament. Gina is with me after the break.
[15:16:19] QUEST: The man regarded as probably the Fed's dove says the Federal Reserve should slash interest rates twice this year. He is the St.
Louis Fed President, James Bullard who was speaking exclusively to CNN.
Now, Bullard is a voting member of the FOMC, the interest rate setting committee and he told Julia Chatterley why an expected cut next week is now
overdue.
(BEGIN VIDEOTAPE)
JAMES BULLARD, PRESIDENT OF THE FEDERAL RESERVE BANK OF ST. LOUIS: Well, I said we should have got it in June, so, now I think we should ratify the
signals that we've sent that we're going to follow through in July.
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR: What about half a percentage point cut?
BULLARD: I don't think we really need to go that far at this point, but we can make further moves as we go through the fall. We'll see how the data
come in. We could be data dependent on that.
CHATTERLEY: You know, a lot of analysts out there and the market itself is pricing three rate cuts for this year. You suggested perhaps one insurance
rate cut in July, another one towards the back end of the year. The market is a bit overenthusiastic?
BULLARD: I mean, you know these things always depend on the data, but I think the critical thing here is to get inflation and inflation
expectations better centered on our two percent inflation target. Credibility is very important. We've missed our inflation target on the
low side for many years.
The economy has actually surprised on the upside during 2017 and 2018 and yet we still haven't been able to get inflation to two percent. So, I
think it's a good opportunity to try to hit that target and then come what may later and we can react to data later.
CHATTERLEY: But as you're looking at the data right now, it only justifies two to the end of the year in your mind?
BULLARD: Yes, I mean economic forecasting is not -- not the most exact of sciences. So, if I was just penciling it in, that's what I would guess but
we'll see as the data come in.
I think, you know another aspect about moving now is you have some insurance against further deterioration in the economy. The economy is
slowing down, which isn't a terrible thing at three percent growth year- over-year as of the end of the first quarter.
But most forecasters have about two percent growth in the second quarter and depending on who you look at, maybe less than two percent in the second
half. I think that wouldn't be the end of the world, but what if it slows down more than we think, possibly because of the trade war. This would
provide a little bit of insurance against that.
CHATTERLEY: Can recession be avoided if you act like this with insurance rate cuts?
BULLARD: You know, one thing about recession is recession predictor models are pretty high probability right now.
CHATTERLEY: Yes.
BULLARD: A lot of those are based on yield curve arguments and the yield curve is inverted at -- parts of it are inverted right now. So, one thing
I would like to do is kind of straighten out the yield curve, have a nice upward slope - kind of a natural slope to the yield curve.
CHATTERLEY: And then we'll have a better reflection of the recession risks?
BULLARD: I think it would bring the Fed more in line with markets about where markets think medium term growth is and medium term inflation and
where the Fed thinks it is.
CHATTERLEY: So, those that are saying recession risk is high or at least we could see recession right now in 2020 perhaps based on the yield curve
measures is getting it wrong.
BULLARD: Yes, it's kind of hard to believe recession risk is really high right now because look at the job market, look at everything. But the
yield curve is saying that, but I think if we -- if we make a cut here and maybe a little more later in the year, then we'll get a nice upward sloping
yield curve, that's right.
CHATTERLEY: Let's talk about trade. You mentioned the trade war and the risks this presents. We have the two things. We have a decision by the
United States government to sign or not sign a trade deal with China.
[15:20:01] CHATTERLEY: We also have a President that's very eager to see rates lower. And there are those that look at this situation and say
there's a moral hazard problem. The President could hold off signing a trade deal, allow the Federal Reserve to cut rates two or three times and
then sign a trade deal. And that big risk then goes away. What's the problem?
BULLARD: My assessment is that trade uncertainty used to be relatively low, this used to be an issue that was relatively speaking on the
backburner. The President has moved it to the front burner. Now, I think trade uncertainty is high and I don't see that uncertainty declining any
time soon.
And I think other countries are getting into the game. They're wondering about their own trade relationships, they're wondering if they could get
better deals or renegotiate. So, I think we're in for a long period of higher trade uncertainty than what we're used to and it's not just the
U.S., but obviously something like Brexit or other things around the world, I think the Chinese are rethinking their trade policies.
So, I think we're just going to have to cope with the idea that this is going to be a volatile area of policy, at least over the forecast horizon
and maybe even much longer than that, whereas previously we kind of thought of this as okay, that was something that was decided via the post-war trade
liberalization program.
CHATTERLEY: Just to be clear, you're not anticipating a trade deal between the United States and China any time this year?
BULLARD: Well, I think they could come to a nominal deal, but things could come up later that then, you know, provoke more uncertainty around that.
So, I just think that countries are reconsidering what they're trade relationships are and I think that for investors that just means, well,
you've got to -- you've got to be ready that trade relationships might change on a dime.
CHATTERLEY: I think investors are more optimistic than you right now.
BULLARD: I think the story that you're going to all of a sudden reach a deal with China and then we're not going to hear anything more about trade
over the next five years, I think that's a fantasy. These articles have -- these ideas have been brought out of the box and now we're going to have to
wrestle with them and they're difficult to solve.
(END VIDEOTAPE)
QUEST: James Bullard talking to Julia. Paul La Monica, Guru La Monica is in New York. When you listen to what Bullard is saying, and you take it
along with what Williams has been saying in New York, this rate cut is going to happen before the end of the month, and the market likes that.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, the market obviously wants the Fed to cut rates, if for no other reason than to take back that December
rate hike, this would be sort of an admission that the Fed maybe went a little bit too far.
And you know, now they're kind of bringing things back to where levels were before that last rate hike. And then the hope is that if the economy
continues to grow at a decent clip, maybe the Fed doesn't have to cut rates too many more times. Maybe one more time as Bullard suggests, but not
three or four rate cuts and not half point cuts.
I think the market might be getting too excited about the possibility of aggressive rate cuts for the remainder of the year.
QUEST: Well, let's talk about that. I spoke to the Secretary General, the OECD Secretary General, Angel Gurria earlier. Now, his organization
forecast trade tensions mounting, and as you know, dramatically cut its forecast by seven tenths of a percent, which is a lot.
So, he wants Central Banks to stay accommodative growing rates. But he said rates are so low, Central Banks -- there's only so much they can do.
Have a listen.
(BEGIN VIDEO CLIP)
ANGEL GURRIA, OECD SECRETARY GENERAL: Now, it's time for fiscal policy to come in. Now is the time for the governments now, it's time for the
Ministers of Finance, the Minister of the economy to come in. And the problem of the uncertainty is very simple. It's -- the trade tensions
create problems with the investment because if you can't sell, why would you invest in order to produce things you won't be able to sell?
So, it's a pretty simple explanation that is driving down the rate of growth of the world economy.
(END VIDEO CLIP)
QUEST: But I mean, the ECB may be at the low end, the Fed still has got some room.
LA MONICA: The Fed has a little bit of room. But again, we're not talking about a Federal funds rate that is prohibitively expensive. I mean, we're
in that what? 2.25 to 2.5 percent range or so right around now. That's not exactly a rate that screams "Oh, my gosh, rates are so high" that no
one in their right mind would try and borrow money for the long term right now.
So I think the big issue is going to be, will we get that fiscal policy that helps the Fed? It can't be just monetary policy and lower rates. If
we have a trade war, that's not going to be good news for the global economy, no matter what rates are at.
[15:25:10] QUEST: No, no, but hang on a second, Paul. Fiscal policy? Well, arguably the U.S. did have fiscal policy with a tax cut, which
created a certain stimulus, which is now fed through the system.
Germany argue -- I mean, we only had this program the other day, you know, people are constantly calling for Germany to use some of the fiscal
headroom, but they seem very unlikely to do so.
LA MONICA: Yes, I think that obviously, the U.S. can only do so much to hold up the global economy and it's not necessarily America's job to be the
country that can keep the global economy afloat. We are going to need fiscal and monetary policy help from the ECB, arguably, from China and the
People's Bank of China as well. PBOC to also have some sort of stimulus.
Right now, we have this myth that the decoupling is no longer something that matters in the world or that decoupling is something that maybe is
back and that the U.S. can still hold up well even if there is this trade war and China is hurting and Europe is hurting. That doesn't -- I don't
think that's going to get us very far for long. Eventually, the U.S. economy will stumble if Europe and China are decelerating.
QUEST: Thank you, Paul. Paul, by the way, are you -- okay, we will be back with you to talk more about that in just a moment. QUEST MEANS
BUSINESS continues with the news.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. There is more QUEST MEANS BUSINESS in just a moment. The anti-Brexit campaigner, Gina Miller joins me live as we
get a new warning about the consequences of a no deal Brexit.
And FaceApp on face off, the app ages your face and the issue about privacy, how it affects -- how these things have managed to make such a
mess is really quite extraordinary.
[15:30:00] As you and I continue tonight together, this is CNN, and on this network, the facts always come first.
Breaking news to CNN. Donald Trump says the U.S. has shot down an Iranian drone in the Strait of Hormuz. According to the U.S. president, the drone
was destroyed by the USS Boxer Naval ship. The ship that you saw earlier in this program after we got rare access to it only hours earlier.
Mr. Trump called on other countries to condemn Iran's action and protect their own vessels. Meanwhile, Donald Trump is distancing himself from a
chant by his supporters that's causing outrage across the United States. The president says he wasn't happy that a crowd responded to his attacks on
the Somalian-American Congresswoman by yelling send her back at a rally in North Carolina last night.
At least, 33 people were killed in a suspected arson attack at a renowned animation studio in Kyoto in Japan. About 3 dozen people were injured in
the blaze. The number of people who died is expected to rise and the suspect is in hospital with serious burns. There's no known reason or
motive.
A judge in New York has denied bail for Jeffrey Epstein. The multi- millionaire accused of sexually abusing dozens of underage girls. That means he'll remain in prison pending his trial. Prosecutors argue those
overwhelming evidence that actually would try to flee.
And the governor of Puerto Rico says he is committed to restoring confidence in his government despite louder protests against him.
Protesters are angry about leaked chat messages in which the governor makes homophobic and misogynistic statements. The crowds are demanding his
resignation.
Top breaking news, and Donald Trump says the U.S. has shot down an Iranian drone in the Strait of Hormuz. The president spoke a moment ago.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: When of an incident in the Strait of Hormuz today, involving USS Boxer; a Navy amphibious assault
ship. The Boxer took defensive action against an Iranian drone which had closed into a very near distance, approximately 1,000 yards, ignoring
multiple calls to stand down and was threatening the safety of the ship and the ship's crew.
The drone was immediately destroyed. This is the latest of many provocative and hostile actions by Iran against vessels operating in
international waters. The United States reserves the right to defend our personnel, our facilities, and interests and calls upon all nations to
condemn Iran's attempts to disrupt freedom of navigation and global commerce.
I also call on other nations to protect their ships as they go through the Strait, and to work with us in the future. Thank you very much, I thought
you should know that. I'm honored to be --
(END VIDEO CLIP)
QUEST: Oh, Ryan Browne is with me from the Pentagon. The president giving a very full account there of what happened. Has the Pentagon come up with
any more details?
RYAN BROWNE, CNN PENTAGON REPORTER: Well, no official statements yet, Richard, but we are being told that this incident did in fact occur, and
that the Boxer was -- did down this drone in the area near the Strait of Hormuz after it perceived the drone, which is reported to be Iranian to be
-- posed a threat to this amphibious ship that had been operating in the region for some time.
You know, Iran has flown drones in close proximity to U.S. Naval vessels in the past, they try to keep an eye on the U.S. as much as the U.S. attempts
to keep an eye on Iranian forces operating in the region. You saw several weeks ago, Iran shot down a U.S. Navy drone in a similar area.
So, high tensions as these two forces kind of operate in close proximity to one another there --
QUEST: Right --
BROWNE: And you heard there at the end, President Trump calling for other nations to kind of boost their presence in the gulf, something the U.S. has
been lobbying for, for some time to kind of create this kind of Maritime security force to help, but deter what it says is the Iranian threat to
shipping and other vessels in the region.
QUEST: I was talking to Sam Kiley; our correspondent who was on the Boxer earlier today, and I said all of this is in close quarters. It's exactly -
- you know, the tensions and the geopolitical situation is so tense.
[15:35:00] This is exactly the sort of incident the Pentagon will deal with, but fears is going to happen.
BROWNE: Absolutely. I think this is a concern about potential miscalculation when you have forces operating in close proximity. You
know, Iran has both its regular forces and its Islamic Revolutionary Guard Corps which operates a little bit more loosely in the region. So, there
are concerns that a potential incident not necessarily planned, but a potential clash or incident could occur.
This is an example of what the risks that are run by operating in such close proximity to each other with tensions so high.
QUEST: What is the U.S. policy in the sense of obviously to protect shipping, it wants to contain Iran and the president's made it quite clear
that there will be no way that his administration will allow Iran to get close to a nuclear weapon, but they've withdrawn from the agreement,
they've put in the sanctions. What happens next?
BROWNE: Well, several U.S. officials have been calling on a more robust agreement, calling for a more robust agreement with Iran on the nuclear
situation. In fact, Trump's pick to be the next Defense Secretary called it -- he said he wanted a plused-up version of the very agreement that the
Trump administration exited.
What exactly they're looking for, not entirely clear. President Trump speaking earlier today, saying that he wanted it for a longer term, he
thought the Obama-era negotiated deal was too short, he wanted to address ballistic missiles, something the deal didn't have, but there's no signs
that Tehran would go for that kind of thing.
So, again very much a wish list from the administration on that front. On the Maritime security, you know, keeping the waterways open, the U.S. very
much trying to build a coalition with allies, they have been calling on other countries --
QUEST: Right --
BROWNE: To try and step up those who have oil. You saw the U.K. has recently deployed some additional Naval forces to the region. They had an
encounter with Iran not too -- a few days ago. So, the U.S. very much trying to build a coalition to handle that side of the house.
QUEST: Brown, thank you, bring us up to date. But if we do hear more during the course of this program, please, come back for more. Now, when I
have my breakfast, I always enjoy a kipper. Do you know what a kipper is? You really can't beat them, it is a sort of a -- it's hard to describe,
it's a smoked herring, feel it.
Boris Johnson says the EU wants kippers to be packed with ice pillows which you have the cost. The EU says Boris Johnson's claim is a red herring.
How does kippers get so involved in the Brexit debate? As it nears its end, the anti-Brexit campaigner Gina Miller joins me live. I wonder if she
likes kippers.
[15:40:00] (COMMERCIAL BREAK)
QUEST: Leaving the European Union in October without a deal will plunge the U.K. into a recession. It's the warning from the country's spending
watchdog. It says the Office of Budget says no deal scenario would wipe 5 percent off the U.K. stock market, a lead to a 10 percent drop in the
pound, and all remember that the U.K. is expected to leave the block on October the 31st.
Now, but remember, of course, there's a new Prime Minister on the way. We'll know next week whether it's going to be Jeremy Hunt or it's going to
be Boris Johnson. If it's Boris Johnson, well, British lawmakers have voted to make it more difficult for Johnson or whoever to force through a
no deal Brexit by suspending parliament.
The concern is this. The front-runner Boris would suspend parliament just at the moment when they have to make a decision, prorogue is the word they
use. The reason is, of course, parliament has any say at all is due to this lady, Gina Miller. She sued -- she sued the government and she got a
Supreme Court ruling that says parliament has the last word, and now she's threatening to do it again. Why?
GINA MILLER, ANTI-BREXIT CAMPAIGNER: Because as Mrs. May tried to bypass parliament, Mr. Johnson, if he becomes Prime Minister is threatening to
close down parliament. So, to deny its voice, and it is a central pillar of our constitution, it's the jewel in the crown, if you like, of our
constitution.
The parliament is sovereign and has to be involved in this process all the way through, and especially at the end of the process.
QUEST: But he has the right to prorogue parliament.
MILLER: So proroguing happens every year, it actually happens when parliament takes a break and then it comes back again to have its new
business. But to deliberately provoke parliament to -- with the aim of closing down the voice is we feel illegal.
QUEST: But surely, it's up to parliament which has the power to pass resolutions and laws to say you shall not prorogue us to prevent Brexit.
MILLER: Well, they have to have the opportunity to do that. And today, what we've seen -- there was a vote saying that parliament has to set
certain days. It didn't specifically say that parliament can't be prorogued. So, when parliament comes back in September, they'll have 20
days to sit between September and 31st of October.
Now, if -- it looks, we think out of desperation that there's no way of getting anything through parliament, then there could be a temptation to
close it down, so the MPs won't have the opportunity to use their voice and their vote.
QUEST: Why do you do this? I mean, you're not a politician.
MILLER: No.
QUEST: You know, politically active, yes, but why do you do this? Why do you take it upon yourself to take on this charge?
MILLER: Two reasons. I'm a constitutional geek if you like, and I'm much more interested in the long-term consequences of this. Because we have a
non-written constitution, the long-term consequences of having a precedent set where a Prime Minister and executive can bypass parliament is that
actually the power would shift. We would have -- we would move to a more authoritarian form of government, and that is a real threat to us.
QUEST: But how much of your movement or your actions is based on constitutional probity versus the fact you are anti-Brexit and you don't
want the country to leave the European Union, and you'll do what needs may to stop it.
MILLER: No, because what I'm doing can't do that. All it does is give ministers a voice, and then they'll decide what they do with that voice.
So, all my actions can't tell them what to do, a court couldn't tell them what to do.
All it can do is give them their rightful voice in the process. So for example, if the -- if the idea was -- if MPs voted for a no deal, for
example, there's a whole raft of legislation and financial resources that need to be allocated to cushion a no-deal outcome.
QUEST: Right, but this --
MILLER: Proroguing would give them the opportunity --
QUEST: OK --
MILLER: To do that.
QUEST: But if no deal looks to be the way forward, will you accept it?
MILLER: Oh, absolutely, there's nothing we can do about that. If parliament chooses that as the outcome, that is the Democratic process we
have in this country.
QUEST: And within those confines, when Boris Johnson does become Prime Minister and --
MILLER: I think he will --
QUEST: And then right, thank you for that --
MILLER: Yes --
QUEST: That was it for the purposes of this --
MILLER: I did, yes --
QUEST: Of our conversation --
MILLER: Yes --
QUEST: Let's say he's going to win. What's your biggest fear?
MILLER: My biggest --
QUEST: He's not -- he's not a stupid man, he's been Foreign Secretary, he knows his way around the political world and --
MILLER: But he's not a man of detail, and I think that's the problem. Is that you have a Prime Minister going in, making promises, painting his own
red lines. If you think he would have learned that you don't put red lines, and saying we're going to do or die and leave on the 31st of
October, having completely ignored the fact that our extension was on the basis that nothing would be renegotiated.
So, he's promising things he cannot deliver. So, what do you do? How does he live up to that deadline on the 31st of October?
[15:45:00] QUEST: He continually says as indeed that Jeremy Hunt has set an example, Boris pretty -- he believes that they will move, that it will
still be the old -- it will just be at the worst possible moment between Juncker and von der Leyen, so I assume she'll be heavily involved in the
discussions with it because she will be picking up the mess after the first.
MILLER: Though, that's not actually what we've heard is going to happen. We've heard that Juncker will stay on until the end of the year, and that
he -- and that has actually been agreed with the new incoming von der Leyen, so, I think that that's already that was announced last Friday that
came out of the EU.
And I think at the moment, what is it they're saying? And if you look at their actions when it comes to withdrawing equivalence in Switzerland, it's
happened recently, the EU, its biggest concern is to -- is the unity of the union and to protect the four freedoms and the pillars will be protected.
So, it's more about their own legacy rather than just one member state.
QUEST: OK, but that argument or that point has not shifted since day one.
MILLER: No, it hasn't.
QUEST: I mean, you know, since the very start of this process, I think I'm asking the wrong person this question, but you may have another thought.
What do you think makes Boris think he will get movement?
MILLER: I think he thinks that -- his advisors and Boris think that the EU won't want the disruption that they'll see because --
QUEST: Oh, hang on, if they went as far as they did in March, I mean --
MILLER: They are prepared.
QUEST: They are. I mean, if anybody -- and you, speaking to the "BBC", you heard Michel Barnier saying until now, we've never even considered or
the U.K. have never even considered that they would leave without a deal.
MILLER: So, I presented to the Senate in France and I've been to -- everyone is prepared, everyone is prepared --
QUEST: Exactly --
MILLER: And the U.K. seems to be ignoring this. We are living in some sort of "Alice in Wonderland" where we think that we can make the rules and
forgetting that actually you've got the EU, you've got a bloc worth to protect its 27 members, and you have WTO with a 164 members who have to
protect their members.
So, we are living through this sort of illusion at the moment.
QUEST: Do you see -- and it's nice that we have some extra time to talk about this. Do you see that the EU does need to move somewhere, something?
So, for example, I mean, I know WTO rules that would suggest we could continue trading on those terms, on existing terms, if I didn't know,
nobody objected, they're always rounded.
MILLER: So, article 24 under the WTO is very clear that we can only use that if we have a pathway to an agreement. And we haven't even started
that.
QUEST: Well, we could fudge it.
MILLER: We could fudge it, but it still will take time, and that is the biggest threat here. Is if we leave with no deal, we have no transition,
so we don't have that two-year period. And it is very interesting last night because Mr. Johnson was saying, perhaps some sort of a rollover
period which he meant the implementation period.
So, perhaps that's what he will ask for, is that, yes, we are leaving with no deal, but could we please have the two years to implement the no deal.
QUEST: You like it?
MILLER: I do like it perfectly --
QUEST: You know, I know, I'm afraid they're not Minsk kippers, they're Scottish kippers, but they'll be on my breakfast table --
MILLER: Well, I have to say, the kippers event -- episode last night was interesting.
QUEST: Why?
MILLER: Because it was yet another misguided message from Boris, basically a lie, and this is a problem that Boris will have, is that he has spent 30
years saying things about the EU that are not true, and so they're not going to forgive him --
QUEST: You know --
MILLER: For that.
QUEST: It's worked for the U.S. president.
(LAUGHTER)
MILLER: I think the EU 27 may have something to say about it.
QUEST: Good to see you.
MILLER: And you.
QUEST: Love you as always, thank you. Now, as we continue, millions of people are rushing to confront their own mortality. They're downloading
FaceApp, it might be giving up privacy along the way. The read of FaceApp's terms of service, so you don't have to. In a moment.
[15:50:00] (COMMERCIAL BREAK)
QUEST: In youth we learn, in age we understand as the saying goes. And now authorities in the United States are trying to understand more about
FaceApp. It's the top download in the Apple app store at the moment. So FaceApp, this is what it does.
There are privacy concerns -- OK, never mind, I wonder how old I'm supposed to be in that, probably in my 70s or 80s maybe. Now, there are privacy
concerns over language in the app's terms of service and over its Russian owner. The Senate Minority leader Chuck Schumer wants the FBI to
investigate.
He says "FaceApp's location in Russia raises questions regarding how and when the company provides access to the data of U.S. citizens to third
parties including foreign governments." So, what's got so alarmed is the terms of service.
If you share a photo, you give us permission to store a copy and share with others. Well, that belongs to Facebook. "And alternatively by submitting,
posting or displaying content, you grant us a worldwide non-exclusive, royalty-free license to use." That belongs to, yes, Twitter. So, here's
FaceApp's -- what's FaceApp's? There it is.
(BABBLING)
To you. It's a lot longer. It's got more words. It's more detailed, but it's the same idea. So, we want you to join the conversation, get out your
phones and go to cnn.com-slash-join. Is FaceApp a threat to your privacy and do you care? Frankly, do you care, yes or no? Russia know that -- but
no more on the apps. Donie O'Sullivan is with me from Washington. Well, is this a fuss about nothing?
DONIE O'SULLIVAN, CNN BUSINESS & TECHNOLOGY REPORTER: Richard, you're looking pretty well in that photo, by the way. I mean, I think you know,
it's the Russian mystique about this app. The app is made by Russian developers and because of that, that's got the Democratic Party worried
here in Washington, of course, they were targeted by hackers in 2016 and also a senator on Capitol Hill.
And really, when you look through the terms of service, sure, you know, some of that is quite worrying, that small print, but there are many apps
that have similar terms of services --
QUEST: Right --
O'SULLIVAN: Like that.
QUEST: Right, but I guess the point is, Facebook, Twitter et al., certainly after the furore of the last few months and years will be more
circumspect because they'll be hold up on Capitol Hill if they start finagling with your data. FaceApp in Russia, different story.
O'SULLIVAN: That's right, you know, we focus all the time on Facebook, Twitter, Google to an extent, but there are thousands, tens of thousands of
apps just like this, that millions of people use every day. So I think that, you know, while we're talking about FaceApp, it's sort of important
that we talk about the wider conversation of, you know, it's probably really important that we read that small print before we hit download on
the apps.
Now, as we've learned over the past 24 hours, you know, the whole furore about this app, you know, it is still the number one downloaded app in the
U.S., Apple app store despite all the sort of Russian paranoia here in the U.S., so that gets to your question of do people really care about their
privacy?
[15:55:00] QUEST: What's the fear here though? I mean, what data are you giving that the Russian security services or any security services cares
about?
O'SULLIVAN: So that's a great question. What you are giving the app access to is your photo library. So, a lot of people have been uploading
images of themselves, but technically, the app will have access to your entire photo libraries. So, you know, if there was something nefarious
going on, they could go and access other photos that you maybe don't want them to see, but that is also how all these sort of apps work.
So, I mean, the company, it should be mentioned, they say everything is above board, they say that the images are never even transferred to Russian
servers --
QUEST: Right --
O'SULLIVAN: And they say in most cases that they delete the images after a few days. So, you know, some might say, they're just being tarnished with
the brush because they're Russian, but also there are some concerns of, that if you are a Russian company operating in Russia, that you will be
more likely to cooperate when compelled --
QUEST: Probably --
O'SULLIVAN: To hand over evidence.
QUEST: Donie, good to see you, thank you. Once we go to a break, there's a profitable moment on the other side. Let me show you how the market has
suddenly dropped, not hugely but it is down. We'll have a profitable moment after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable open. How old do you think FaceApp has made me look in the right picture? I'm 57 now in the left, so 50-what?
Seventy?65, 70? Not bad really, all things considered. But you know, this is a fuss about nothing in some extent. I understand that there are good
people like Gina Miller who do sue and protect our interests and all sorts of issues.
And there will be somebody who will litigate on the questions of privacy. But most of us assume that when we hand over anything on our phones,
everybody's going to get it. I mean, that's the whole point. You know, if you want the thing to work while you end up having to give up your rights
and there will be some abuses and thankfully people like the U.S. Senate and Margrethe Vestager in Europe will be watching out and protecting our
interests.
But this idea with FaceApp that it's in Russia -- I mean, when you put -- when you download one of these apps to start with, it's game over. Maybe
it shouldn't be, but that's the real politic of life these days. And that's QUEST MEANS BUSINESS for tonight, I am Richard Quest in London.
(BELL RINGING)
Whatever you're up to in the hours ahead, I hope it is profitable. The bell is ringing, the day is done.
END
