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Quest Means Business
Source: Top U.S. Diplomat in Ukraine Bill Taylor Claims He's Willing to Publicly Testify in Impeachment Investigation; New Fire Breaks Out in Southern California; One Hundred Killed and Over 5,000 Wounded in Iraq Protests Since Friday. Aired 3-4p ET
Aired October 30, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[15:00:14]
ELENI GIOKOS, CNN BUSINESS AFRICA CORRESPONDENT: All right, it is the final hour of trading on Wall Street and stocks are higher after the
Federal Reserve cut rates for the third time, down by a quarter of a percent and the markets are up three-tenths of a percent right now. Lots
of figures to absorb today for investors.
We had third quarter GDP numbers coming in slightly better than anticipated and we also had some private sector job growth figures to digest as well.
So those are the markets and these are the reasons why. The Fed stays the course. Jay Powell hints that he is done cutting rates for now.
U.S. lawmakers grill the Boeing CEO as a damning internal e-mail chain is made public. And better than unexpected results at General Electric see
the stock bounce to a three month high.
Live from the world's financial capital New York City. It's Wednesday, October the 30th, I'm Eleni Giokos in for Richard Quest and this is QUEST
MEANS BUSINESS.
All right. A very good evening to you and tonight the Fed makes it three and may be done. In the last hour, the Central Bank announcing its third
interest rate cut this year. The Fed says that's motivated by global economic uncertainty and stubbornly low inflation. Today's cut was
expected however.
As we can see markets are ticking higher on Wall Street, but in fact it was a kind of tug of war between positive and negative, while the Fed hints
that further rate cuts are unlikely. Policymakers are assuring investors that they will continue to monitor economic data to make rate decisions.
Now speaking moments ago, the Fed Chair, Jerome Powell said monetary policy is in a good place. Take a listen.
(BEGIN VIDEO CLIP)
JEROME POWELL, U.S. FEDERAL RESERVE CHAIRMAN: We see the current stance of monetary policy as likely to remain appropriate, as long as incoming
information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market and inflation near our
symmetric two percent objective.
Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Policy is not on a preset course.
(END VIDEO CLIP)
GIOKOS: So we've called in Clare Sebastian who is taking a very close look at the numbers. This was expected, essentially. Right?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Right.
GIOKOS: And I mean, I think even though there was a bit of a cautious stance on Wall Street today, they were hoping for a quarter percent. They
got it. Now, what is ahead? That's the big question, right?
SEBASTIAN: Yes, that's the thing. This is the keynote today, but that was pretty much almost a sideshow, Eleni, because as you say, so completely
baked into the markets. It was almost unanimous with the expectations going into this.
But I will say, get used to this number because the Fed wants you to believe that we're going to be here for a while. You heard him just there.
He is giving very little away. But there were some hints that we're going to stay here.
He said that some of the risks have receded. Things like trade. He said that the three cuts so far have done quite a lot to support monetary policy
and the economy. So some hints there, but let's take a look at expectations for December because we've had three cuts so far this year,
could there be a fourth? At the moment, the markets don't think so. Only about 18 percent think that there's going to be a cut in December compared
to about 100 percent today that shows you that the shift is taking place there.
And another factor that we've been looking at over the last couple of meetings since we've had dissent on the Fed is the votes. We had two
dissenters today, two votes against cutting rates. They are the same two who didn't want to cut rate at the meeting.
But there was one other dissenter at the last meeting you wanted a bigger cut. He didn't dissent today and then he said that seems to suggest that
consensus is slightly shifting away from faster easing.
GIOKOS: Okay, so there was one thing that he kept talking about, and he was saying appropriate monetary policy for the current economic climates
and we'll reassess if needs be, and he was saying both, if the economy gets better and if it deteriorates.
Was that kind of opening a slight door to the possibility of another rate cut if things do get bad and if they don't improve?
SEBASTIAN: You know, I think he was trying not to do that because the impression was --
GIOKOS: Yes, but everyone is going to read into these like tiny little words --
SEBASTIAN: From Powell to say -- right, they absolutely will, and I think that's why you saw the market kind of slightly rise, not a lot relative to
past Fed meetings, but slightly rise off the back of that. He was trying to give away as little as possible.
We have all this mixed economic data, Eleni, the risks in terms of trade, in terms of Brexit, they might have receded a little bit, but they are
still there, so he is treading a very fine path. Trying not to risk further disappointment for the market swings if the risks do materialize,
even though he says right now, the rates are where they should be.
GIOKOS: I mean, the big worry is that you're going to overheat the economy. We've had a super low interest rate environment in the past and
then as soon as you reverse that cycle and you start hiking rates, then all the kind of cracks in the economy start to show. Are they taking that into
consideration? Did he mention anything on that?
SEBASTIAN: You're absolutely right, because in a low interest rate environment, companies pile up on debt, and then that becomes a risk when
rates start to go up.
[15:05:07]
SEBASTIAN: But I think the situation here is unusual because the expansion has been going on for so long. But in some ways, things haven't caught up,
inflation hasn't caught up, wage growth has lagged behind employment. So that has presented a conundrum for the Fed. And that's why we're slightly
in this unusual environment where the economy is expanding, but they see these risks. They're trying to insure against them. But it's becoming
increasingly difficult to communicate that as we go forward.
GIOKOS: Exactly. I mean, we are seeing Central Banks around the world also trying to take a more kind of easy monetary policy stance. So they
are kind of changing the rules globally. But at the end of the day, you're going to have to see a normalization.
Are you watching what the bond yields are doing? Remember, we had an inverse relationship, which kind of freaked the markets out. Is that
pointing towards a recession?
SEBASTIAN: I mean, I think that will be one thing that the Fed is certainly watching going forward. That's been something that they've been
factoring in over the past couple of months, among the various other things.
Now, it is interesting because the Fed's mandate isn't, you know, market stability in any way. But there certainly is a feedback loop when it comes
to bonds and also when it comes to stocks, they don't want to cause any gyrations. They want to keep things as calm as possible and setting
expectations is crucial.
GIOKOS: Markets couldn't be happier. Of course, like look, they were a bit cautious today, but they're up three-tenths of a percent. We know this
was priced in. Clare Sebastian, thank you so very much for joining us. Great to have you on.
So new figures show U.S. economic growth slowed in the third quarter, GDP grew at an annualized rate of 1.9 percent. And that's a bit stronger than
expected, but the weakest pace of growth so far this year. A lot of factors in play here, and they are pulling in different directions.
So let's take a look here, 1.9 percent is what we've got for the third quarter. People are expecting 1.6 percent rise in GDP, so slightly better
than people had anticipated. Consumers, the biggest part of the economy are still providing a decent lift, but less than before, and the factors
weighing on growth are getting heavier.
Business investment fell three percent year-over-year, so that's a really big concern weighing on the overall outlook. That's due in part to
concerns about the trade war and slowdown in global growth.
Also, the grounding of Boeing's bestselling 737 MAX and the strike a GM both acted as a drag on the economy. And we've got Mike Ryan, the Chief
Investment Officer for the Americas at UBS Wealth Management joining me now and great to have you on the show. Thanks so much for joining us.
You're looking at these numbers and you're saying hey, they are slightly better than we expected, but we weren't exactly, you know, aiming for a
really high number here, and it is a slower growth environment. Any reason why we should be worried or we should be optimistic looking at these
figures.
MIKE RYAN, CHIEF INVESTMENT OFFICER FOR THE AMERICAS, UBS WEALTH MANAGEMENT: No, I don't think we should be overly concerned. But I do
think what it suggests is what the Fed did in terms of these mid-cycle adjustments that you know, Chairman Powell has talked about, I think it was
appropriate because you saw the concerns about the deterioration in global activity. And the fact that we were starting to see that spill over to the
US.
It meant that the Fed needed to reset policy, but as Chairman Powell said, this is going to be appropriate, given what we saw some of the short term
risks. And as these risks start to dissipate, it means that policy is now on pause.
GIOKOS: Yes, I mean, this was the interesting thing, because he was saying it's appropriate for the current economic scenario. But it was
interesting, because he had a caveat on that and said, well, if it deteriorates further, we'll have to relook at things. Do you think is
opening the doors to the possibility of even more accommodative monetary policy at some point?
RYAN: It certainly could be. What I would say, I read it more that he kept his options open, because what they would need to do is that the fact
is, the Fed is back to being data dependent now. So it means they're going to be conditional in terms of any movements they make.
There's not going to be any pre-commitments about whether we're going to cut rates or not. What they'll do is they'll take a look at the economic
data, they'll look at some of the geopolitical issues that are going on, whether it's a trade front, whether it's other frictions with regard to
geopolitical uncertainty, say in the oil patch, and they'll look at that and assess how is that impacting global growth, and then they will act as
appropriately based on what they see as the demand for the domestic economy.
GIOKOS: So this is the other big issue that you -- there are some worries that you know, you're running out of ammunition. You don't have many tools
left in the box. So things do get bad. What do you then do? Are you guys pricing in a worst case scenario of a possible recession type impact down
the line where people have been talking about it because they worried about negative bond yields. That could be pointing to this sort of worst case
scenario?
RYAN: Well, I think what you see is, first of all, we're not forecasting negative rates in the U.S. I think what the Fed has done is, in order to
make sure that they didn't have to take more aggressive moves down the road, they acted appropriately mid-cycle. They did move now to make sure
that the expansion remained intact, that they didn't allow to see some of these concerns begin to build in terms of the slowdown we're seeing in
manufacturing, but also a deterioration of business investment spending.
So the Fed took out an insurance cut to make sure they wouldn't have to take more dramatic policy moves later in the cycle that would perhaps force
rates even lower than they are now.
GIOKOS: All right, Mike, you very much for that update. Much appreciated. So General Electric's slogan is "Imagination at work." The company's share
price got to work on Wednesday, a boost in guidance is giving GE stock a 10 percent surge. The storied American company is defying grim expectations.
And we have, of course, our very own Matt Egan joining us that's been looking very closely at the numbers. And one of the big barometers for
this company is just how much cash they have on hand, and it's looking far better than before. And in fact, they are talking about, you know, that
increasing down the line. Are they getting better at what they're doing? Or is business increasing?
MATT EGAN, CNN BUSINESS SENIOR WRITER: Yes, that's a good question. I think that the numbers they put out today really show that the crisis at
General Electric appears to be over when you think about what just happened over the past year. Well, just a year ago, they hired their third CEO in
as many years. He is the first outsider CEO ever. They had to cut the dividend to a penny and the stock price was in a tailspin.
But now they are, as you pointed out, they're doing positive industrial free cash flow, which is really, really important. Earnings and revenue,
they beat expectations, and the CEO for a second quarter in a row, they've raised the outlook, so investors are celebrating. I think they're
breathing a sigh of relief that this GE turnaround seems to be intact.
GIOKOS: So let's talk about the aviation business because they had sort of mixed messaging coming through there, where you saw the selling of their
engines actually up by 50 percent. But at the same time, they're saying they're really worried about what's happening with Boeing that that could
drag on that division within the company.
EGAN: Right. So I mean, there are definitely some risks out here, even though the stock price is up, and one of them is the Boeing 737 MAX crisis.
And that's because GE has a joint venture that supplies engines to that plane.
And so the grounding has hurt the cash situation at GE Aviation, and it's also hurting orders as well. But you know, that's just one of the risks
here. GE just like all of these multinational companies is really exposed to the global economy, arguably, more so because their balance sheet has so
much debt. So that is a big risk. The trade war of course, as well, that dinged profits healthcare and renewables. So there's certainly some more
obstacles out there.
GIOKOS: Yes, I mean, it is a multinational company operating in various jurisdictions, right, where they're most comfortable and where do they
foresee growth coming?
EGAN: Well, the healthcare business continues to generate a lot of cash, and that has really been a bright spot. Aviation has been up until
recently a strong point, but you know, the big problem is GE Power, because it is so exposed to this really, really powerful shift away from fossil
fuels and towards renewable energy. And so that has been draining cash for GE and that continues to be another challenge.
GIOKOS: Great to have you in studio. Thank you very much, Matt. Appreciate it.
EGAN: Thank you.
GIOKOS: So it's Day 2 of fiery testimony for the Boeing CEO on Capitol Hill. Lawmakers are questioning Dennis Muilenburg's high salary, as new
evidence shows early concerns at the company about the doomed 737 MAX jets.
And Fiat Chrysler is at it again. It is taking a second shot at finding a partner. This time in Peugeot. We'll discuss the risks and rewards after
this. Stay with us.
(COMMERCIAL BREAK)
[15:15:39]
GIOKOS: Welcome back. So a damning internal e-mail chain at Boeing has been made public. It shows that more than a year before the 737 MAX plane
was approved for flights, employees had concerns about the very flight control system that's being blamed for the Lion Air and Ethiopian crashes.
In a second day of tense testimony in Washington, CEO Dennis Muilenburg's perceived lack of accountability was highlighted by various lawmakers.
Many questioned why he still has his job, and were incensed over his salary and bonus since the crashes that claimed 346 lives.
(BEGIN VIDEO CLIP)
REP. STEVE COHEN (D-TN): Let me ask you this, Mr. Muilenburg, you said you're accountable. What does accountability mean? Are you taking a cut
and pay? Are you working for free from now on until you can cure this problem? These people's relatives are not coming back. They're gone.
Your salary is still on? Is anybody at Boeing taking a cut or working for free to try to rectify this problem like the Japanese would do?
DENNIS MUILENBURG, CEO, BOEING: Congressman, it's not about the money for me. That's not why I came at all.
COHEN: Are you giving up any money?
MUILENBURG: Congressman, my Board will conduct a comprehensive review that --
COHEN: So you're saying you're not giving up any compensation at all. You're continuing to work and make $30 million a year after this horrific
two accidents that caused all of these people's relatives to go, to disappear, to die. You're not taking a cut in pay at all?
MUILENBURG: Congressman, again, our Board will make those determinations.
COHEN: You're not accountable them. You're saying the Board is accountable.
MUILENBURG: Congressman, I am accountable, sir.
(END VIDEO CLIP)
GIOKOS: All right. Mary Schiavo is in Washington. She is a former Inspector General at the U.S. Department of Transportation. Now, she
represents families of air crash victims and currently has litigation pending against Boeing. Mary, thank you so very much for joining us.
You're watching this testimony. Is there anything that Dennis Muilenburg has said over the last few days that can be used in courts for your case?
MARY SCHIAVO, CNN AVIATION ANALYST: Oh certainly, yes. And I attended the hearings over the past two days, and there were some things that are going
to be very helpful in the litigation. But of course, Boeing in the litigation must also produce the documents in court, but there were some
revelations that were astonishing.
I mean, they were really spellbinding in the hearing room, in particular, at one point, Boeing testified that MCAS was put on the plane and they
said, oh, you know, the pilots will recognize this and will respond within four seconds. But on further questioning, they said yes. But at 10
seconds, it would be catastrophic.
So literally, there was a six-second safety margin there. That was really -- I mean, it was spellbinding in the hearing room. And there were several
other points like that. So new information did come out in these hearings. You know, a lot of times hearings are a rehash. And then, of course, they
will produce that and much more in court.
GIOKOS: Yes, I mean, and we were also looking at an e-mail that was sent in 2015 that talks about the sensor, it talks about the issues.
SCHIAVO: Right.
GIOKOS: Is there a sense that they was, you know, active deceit and concealment in the failures with Boeing? And how would that then be used
for the victims?
SCHIAVO: Well, there was certainly that feeling in the hearing room from several Members of Congress and then yesterday's hearings from senators,
and it was total amazement that the managers of Boeing claim they didn't know all of this information. And yet this information, as it came out in
the hearing should have been provided to the Federal Aviation Administration.
Yes, failure to come forward and be forthright and honest, particularly in a certification process with the F.A.A. is an important piece in the
litigation. But there's also a criminal investigation going on and if you don't tell the government the truth, that's a false statement to the
government, it can be criminal and that investigation is very active right now.
GIOKOS: And it is interesting. I mean, some of the things that we've been hearing is, you know, who is going to take accountability? Who is going to
lose their jobs? How much money are people making? But here you're talking about a criminal investigation as well. Is there a chance that
this could go towards, you know, people being jailed for deceiving the public for making these mistakes that turned out to be fatal?
[15:20:00]
SCHIAVO: Well, you won't be jailed for deceiving the public. Sadly, that's not a crime, but that you can be jailed for deceiving the Federal
Aviation Administration, and certainly you can be jailed for lying to Congress if you're under oath or lying the Senate.
But the real issue here is what did they tell the Federal Aviation Administration? So what you have to have for a criminal charge is you have
to have guilty knowledge. It's called scienter, in other words, someone and it is usually an individual, not usually a company, but an individual
knowingly made false statements to the government. Usually they have to be under oath. Most certifications are under oath. So that is most likely
where the criminal investigation is going.
And some of the questions by the way, Boeing didn't answer. The Congress people called it dodging, but it's possible they couldn't answer them
because some people have received grand jury subpoenas. I'm not saying I have inside knowledge on the criminal process. But I used to be a Federal
prosecutor and if someone has received a grand jury subpoena or they are a witness in a criminal investigation, it's not a good idea to talk to them
or debrief them.
So some questions perhaps Boeing couldn't answer or couldn't talk to those people. So we don't know what that criminal track is doing because a grand
jury is secret in the United States.
GIOKOS: Now, Mary, very quickly, how important is what happened after the Lion Air crash and the steps that were taken to investigate internally
going to be for this case?
SCHIAVO: Huge. Those are going to be huge, because as it came out in these hearings in and last two days, Boeing really did have a lot of
information after Lion that they didn't share, which it certainly appears to me and the judge and jury will be the, you know, final decider of that.
But it certainly appears that had they shared that information, the second one wouldn't have happened.
GIOKOS: Mary, thank you very much for that insight. Great to have you on the show.
SCHIAVO: Thank you.
GIOKOS: Mary Schiavo there joining us. All right, so while U.S. politicians debate the Boeing CEO salary, the financial toll is mounting
for the company and the U.S. economy. Clare Sebastian looks at the cost of the 737 MAX crisis.
(BEGIN VIDEOTAPE)
UNIDENTIFIED MALE: The MAX uses 14 percent less fuel than current 737s. That's a lot less fuel. A lot less.
SEBASTIAN (voice over): From the beginning, the 737 MAX was marketed as a money saver.
UNIDENTIFIED MALE: The 737-8 can carry 12 more passengers --
SEBASTIAN (voice over): And it worked. By the start of this year, airlines had ordered more than 5,000 of them - Boeing's fastest selling
plane to date.
(BEGIN VIDEO CLIP)
DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: We are going to be issuing an emergency order of prohibition to ground all flights.
(END VIDEO CLIP)
SEBASTIAN (voice over): The global grounding in March in the wake of two deadly crashes turned any promise of cost efficiency on its head. Boeing's
own costs, including customer compensation and higher production costs have topped $9 billion.
(BEGIN VIDEO CLIP)
RONALD EPSTEIN, SENIOR EQUITY ANALYST, BANK OF AMERICA: The 737 is 40 percent of their earnings, a third of their cash flow. All of Boeing,
right, so it is a big number, it's a big contributor to the profitability of the company.
(END VIDEO CLIP)
SEBASTIAN (voice over): Since April, Boeing halted all deliveries and slowed production from 52 to 42 planes a month, finished aircraft piling up
in employee parking lots. JPMorgan estimates that production slowdown shaved one to two-tenths of a percentage of U.S. economic growth in the
second quarter.
(BEGIN VIDEO CLIP)
MICHAEL FEROLI, CHIEF U.S. ECONOMIST, JPMORGAN: It is enough to leave an imprint on the economic data. We don't think it's enough to really slow
the expansion, but if we were to see production slow or just hypothetically stop, that would have the potential to impact the suppliers and the
employment at those suppliers.
(END VIDEO CLIP)
SEBASTIAN (voice-over): There are signs that's already happening. Spirit Aerosystems, which makes the plane's fuselage and relies on the 737 for 50
percent of revenue has embarked on a cost cutting program including a hiring freeze and voluntary retirements.
General Electric, which makes the MAX's engine says so far, it has cost them a billion dollars, though they are now seeing orders increase.
And then there are the airlines.
(BEGIN VIDEO CLIP)
EPSTEIN: At any given time, one airplane might have upwards of five different crews. So you're talking 10 to 15 pilots, on some of those
airplanes three or four flight attendants. So times five, right? So you have a large crew structure that is tied to that airplane that basically
went on the beach at cost.
(END VIDEO CLIP)
SEBASTIAN (voice over): American Airlines estimates it will cost them more than half a billion dollars this year. For European travel company TUI,
it's more than $300 million.
(BEGIN VIDEO CLIP)
GARY KELLY, CEO, SOUTHWEST AIRLINES: We have removed the 34 MAX aircraft from service.
(END VIDEO CLIP)
SEBASTIAN (voice over): Southwest, the plane's biggest customer, says the cost this year is north of $400 million. Its pilots' union is also suing
Boeing, claiming $100 million in lost income.
And the airline which only flies the 737, including older models now said to be rethinking that exclusive relationship, a sign that even when the
plane returns to the skies, this crisis may be of permanent damage -- Clare Sebastian, CNN, New York.
(END VIDEOTAPE)
GIOKOS: Fiat Chrysler is talking mergers again. The Italian American automaker has its sights on PSA Group, the French company that owns Peugeot
and Citroen and Fiat shares are trading higher on the potential deal. A tie up could create the world's fourth largest auto automaker worth $50
billion.
[15:25:01]
GIOKOS: It comes after Fiat Chrysler pulled out of merger talks with Renault back in June. Anna Stewart joins me now from London. Look,
there's a lot of optimism it seems when you take a look to see how the share price is doing. But they've got one big hurdle and that's the French
government and the regulator.
ANNA STEWART, CNN REPORTER: Without doubt because if you look at Fiat Chrysler, we've been here before. It tried to have a tight with Renault
early this year, those talks broke down in June and I can read you what they said at the time.
They said if the French government ruled -- sorry -- it has become clear that the political ambitions of France do not currently exist with such a
combination to proceed successfully. So why if it failed to merge with Renault in June because of political conditions in France, why would this
work?
Perhaps because it's a less complicated relationship. Of course, Renault has all the issues within the Nissan alliance following the arrest of
Carlos Ghosn, but it remains a big French state company. It remains politically a bit of a football.
GIOKOS: Okay, so Anna when we look at this potential tie up, it seems like that it's a combination of equals. They've got similar market
capitalizations. But we know PSA has done a really good job in terms of bending down what they did with GM as well. I mean, what kind of type are
we going to potentially see here?
STEWART: Well, you can see where it works, particularly geographically. Actually, if you look at Fiat Chrysler, it really needs to up its game in
Europe. And actually, if you look at Peugeot, it needs to make more inroads into the United States. So in that sense, it matches up.
Also it matches up for Fiat Chrysler in terms of they are really struggling to meet new, very hefty CO2 emissions, particularly in Europe. They're
actually spending $1 billion dollars or just over to Tesla on carbon credits. So they could do with some help there.
And of course, all these car companies really, really need to scale up when it comes to R&D and technology. That is costly. You don't see profits for
years and years.
So if the French government wants Peugeot to succeed, you'd think they'll see sense that it will need to merge with someone at some stage.
GIOKOS: All right, thank you very much, Anna. Great to have you on the show. Much appreciated. So still to come. The Fed hints it is done
cutting rates for now as new numbers show U.S. growth is slowing. We'll be back right after this.
(COMMERCIAL BREAK)
[15:30:00]
GIOKOS: Hello, I'm Eleni Giokos, there's more QUEST MEANS BUSINESS in just a moment. When we'll discuss how a slowing U.S. economy could spell
trouble for Donald Trump in 2020. And as Britain swings into election mode, what are Boris Johnson's chances of breaking the Brexit deadlock.
Before that, the headlines at this hour.
A source tells CNN the top U.S. diplomat in Ukraine is willing to go public with its testimony and the impeachment inquiry into President Trump that
will likely make Bill Taylor a key early witness for Democrats. This comes a day before the house votes on a resolution that lays out the official
rules for that investigation and the public hearings.
At least ten wildfires are burning across California and heavy wind gusts are making the battle harder than ever. Take a look at this. A new
wildfire broke out today in Simi Valley, northwest of Los Angeles. It forced the evacuation of the Ronald Reagan Presidential Library, schools
are also closed in the area.
All right, so the death toll has now risen to 150, 500 are wounded in protests in Iraq since Friday. That's according to a human rights
organization that also says the majority of those killed and wounded are civilians. Demonstrators are now calling for the government to step down.
After two weeks of protests, President Sebastian Pinera has announced Chile will no longer host two major international summits. The Asia Pacific
Economic Cooperation Summit and the COP25 Environmental Summit had been scheduled over the next two months, the protests have left at least 20
people dead and counted eight cabinet ministers to resign.
A new climate change study finds the impact of rising sea levels could be much worse than previously thought. It says hundreds of millions of people
living in coastal areas could be impacted over the next three decades. A three-times estimate in previous reports had singled out several Asian
nations which it said could face chronic flooding if more is not done.
So, the U.S. Fed has just cut rates for the third time this year. Policy makers say that's motivated by global economic uncertainty. The biggest
factor, President Trump's trade war which has hurt business sentiment. The Fed Chair Jerome Powell spoke about that a short time ago. Take a listen.
(BEGIN VIDEO CLIP)
JEROME POWELL, CHAIRMAN, FEDERAL RESERVE, UNITED STATES: If we were to have a sustained reduction in trade tensions, broad reduction in trade
tensions and a resolution of these uncertainties. That would bode well for business sentiment, which is trade uncertainty has been weighing one
business sentiment. You know, our judgment and the judgment of many analysts. And ultimately it could affect activity.
(END VIDEO CLIP)
GIOKOS: Right, and we learned today that U.S. growth slowed in the third quarter, business investment has been falling, driven in part by trade
tensions. President Trump of course is banking on a strong economy going into the next year's election. On the left, here's what he tweeted moments
before today's report was released. "The greatest economy in American history!" And on the right, here's what he had to say about the same
number of economic growth in 2012 when the growth rate was at 1.9 percent as well.
"The economy is in deep trouble." We've got Cristina Alesci following it all for us. What a sea change in terms of what he thinks on 1.9 percent
growth. It's fascinating, but now he needs to of course, use that card to head into next year's election.
CRISTINA ALESCI, CNN BUSINESS & POLITICS CORRESPONDENT: That's right --
GIOKOS: Is he going to get it right?
ALESCI: He is spinning.
GIOKOS: Yes --
ALESCI: And he's hoping that nobody would notice that he's criticizing -- he criticized the same exact economic growth number that he's now
trumpeting now. But the reality is that we are decelerating, the U.S. economy is decelerating and it could be problematic for him. But let me
just illuminate this for you. There are two schools of thought here.
There are those who believe that Donald Trump will get credit for a strong economy, no matter what --
GIOKOS: Yes --
ALESCI: The number is, so long as we avoid a recession.
GIOKOS: Yes --
ALESCI: So the bar is pretty low. On the other hand, there are those who say look, the Democrats are going to hit him really hard because he
promised growth between 4 percent an 6 percent. Clearly, 1.9 percent is not doing the trick, and he's going --
GIOKOS: Yes --
ALESCI: To fall short of his campaign promise.
GIOKOS: So, I wonder, I mean, we had a quarter of a percent cut on the interest rate front.
ALESCI: Yes --
GIOKOS: And we know that President Trump has berated Jerome Powell --
ALESCI: Yes --
GIOKOS: In the past about not doing enough, comparing the U.S. to the likes of Europe and of course, Japan as well.
[15:35:00]
Have we heard anything thus far?
ALESCI: He's been quiet today, and I think he's being quiet in part because of the 1.9 percent number which he didn't tweet. He tweeted before
--
GIOKOS: Yes --
ALESCI: The number came out. But after the number came out, we didn't hear much about, you know, how strong the U.S. economy was. Look, the
Democrats have an opportunity here to illuminate the fact that the Republicans and President Trump really promised that the tax cuts that they
delivered that took effect --
GIOKOS: Yes --
ALESCI: In 2018 would really have a broad-based impact on the U.S. economy, and that the average person would feel the benefits of that.
Clearly, the 1.9 percent that we have now really shows that the benefits of that tax cut were temporary, and they were a bit of a sugar rush and they
benefitted the corporations and the bottom lines of companies unclear how that filtered down into the broader economy. Because there are cracks in
the U.S. consumer that we're starting to see now.
GIOKOS: So, how -- I mean, to what extent have the Democrats been using the economy as a card going into next year's elections?
ALESCI: Not --
GIOKOS: Because at the end of the day, they're going to have to promise better than the sort of a Trump-led economy.
ALESCI: Correct. They're not using it as much right now. I think there's a very much wait-and-see attitude to -- you know, there was talk a couple
of months ago about a possible U.S. recession. If we get to that point again, and there are fears, they seem to have subsided at this point. But
if fears of a recession really regain steam, then we can hear the Democrats really hitting Trump on this point. But remember, keep in mind, the
Democrats really have to present an argument against this. It's still growing at 1.9 percent.
GIOKOS: Yes --
ALESCI: The U.S. consumer is still spending a ton of money. The government is still spending a ton of money, that's really helping growth
here in the U.S. Now, there are some signs here and there, if you talk to investors and analysts on Wall Street that the consumer may be pulling back
a little bit forward-looking. For example --
GIOKOS: Yes --
ALESCI: UBS put out a report that said there's a slight uptick in the percentage of families that are having trouble making ends meet.
GIOKOS: Wow --
ALESCI: So, I mean, people are looking. They're looking to see what cracks are ahead.
GIOKOS: All right, thank you very much for that.
ALESCI: Of course --
GIOKOS: Appreciate it. OK, so despite the softer GDP numbers, U.S. markets are trading near all-time highs. Take a look at this, the Dow is
now up 0.3 percent, and as you can see, taking, you know, a really big boost towards the end there. We're heading close to the end of trade
today, but it was all about the Federal Reserve's announcement, the S&P and Nasdaq also posting solid gains.
Ben Phillips is Chief Investment Officer at EventShares, he now joins me from Los Angeles. Thanks so much for joining us. I mean, just looking at
the caution in today's trade, we had the GDP number coming through, 1.9 percent, slightly better than people had anticipated. It's not exactly as
high as people had hoped towards the end of the year.
But it's interesting that this cut was really important even though it was priced in.
BEN PHILLIPS, CHIEF INVESTMENT OFFICER, EVENTSHARES: Yes, that's right, the cut was important. And I think, you know, the markets -- when they
priced it in, I think the Fed has learned that they need to do what markets are expecting or else we'll have a painful outcome like we did last year in
Q4.
So, I think the Fed is listening to markets much more closely, now looking at where expectations are, and that's really what's driving their moves.
GIOKOS: So, listening to Jerome Powell earlier, he was talking about the China-U.S. trade war, that, that is going to have an impact on the U.S.
economy. And he also said that the current monetary policy starts as appropriate for the situation at the moment. If that -- if the Chinese-
U.S. trade war does not dissipate in the near term. Is that going to be a big risk for the U.S. economy?
PHILLIPS: I think so. I mean, we're seeing it. I mean, you talk to any economist or analyst out there, even the Fed himself, the range is
somewhere between .3 and 1 percent drag on growth this year. So, we're seeing this China trade dispute really dragging on growth. It's dragging
on CEO sentiment.
And I know you're just talking about tax reform and what that did for companies --
GIOKOS: Yes --
PHILLIPS: That boosted cash flow, but it permanently boosted cash-flow, and these companies if they had more clarity on policy and where trade was
going, I think they'd be reinvesting in that cash-flow and we would have seen a much stronger growth here. So, I think that 1 percent might be even
muted.
GIOKOS: Yes. And you make a really good point here because you can cut rates, but -- and you can ease and you can try and stimulate the economy if
it doesn't get into the right hands, no one is going to be spending and especially if sentiment isn't, you know, changing on the ground.
What is your prognosis? Are you feeling optimistic that the U.S. economy is going to start experiencing higher growth than sort of the 2 percent level?
PHILLIPS: Well, I'm -- we're feeling pretty balanced. It's hard to be super optimistic with all the geopolitical tensions. I mean, it's
interesting seeing the market at an all-time high and the Fed cutting rates. That just doesn't make sense to most investors. So, we're looking
at it with a pretty balanced tone, we're not being overly aggressive in our portfolios, we're being really overly defensive.
But we have themes that are long-term secular that are going to play out outside of what's going on in the geopolitical landscapes. So, we're
really trying to invest, looking through all that political noise and invest in our policy ETF in a very explicit way.
[15:40:00]
GIOKOS: All right, Ben, thank you very much for that update, I appreciate it. So, bailout --
PHILLIPS: Thank you --
GIOKOS: Dents and high unemployment. We'll have a deep dive into South Africa's dire economic story right after this, stay with us.
(COMMERCIAL BREAK)
GIOKOS: Saudi Arabia is staging its future investment initiative in Riyadh. Last year, the gathering nicknamed Davos in the Desert was wildly
boycotted in the wake of Jamal Khashoggi's murder. Not this time -- U.S. Treasury Secretary Steve Mnuchin was on stage, Wednesday touting the
kingdom's bright economic future.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: How do you see the global economy?
STEVEN MNUCHIN, SECRETARY OF TREASURY, UNITED STATES: I think the potential role that Saudi can play in the regional hub of the economy is
very important. And I think his highness, the Crown Prince's execution of his transformation will be the critical vision on getting that done. So, I
think the opportunity is here, and really now it's important to provide a road map and specifics for U.S. investment in others. No need for others,
really, just plenty of U.S. investment.
(END VIDEO CLIP)
GIOKOS: We've got CNN's John Defterios in Riyadh for us. And John, I mean, he was talking about a road map and actually specifics. We've
actually seen big numbers put on the table already in terms of investment promises.
JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: Yes, I think this is an effort to reopen the doors if you will, Eleni, to the kingdom and an effort
to try to revive the vision 2030 plan for Mohammed bin Salman; the Crown Prince, clearly having Steve Mnuchin on the stage is a far cry from where
we were in 2018.
He was in Riyadh, but it was so toxic he didn't show up to the Ritz- Carlton. And I think the watch word for this future investment initiative in 2019 was discretion. I think 90 percent of those attending the
conference this year were from the financial sector over all. Wall Street and Europe well represented.
They're willing to fly the flag if you will for Saudi Arabia, but they did not want to bang the drum. They didn't want to do any interviews at all,
whatsoever. It kind of let the deals speak for themselves to your point. The overall was $15 billion, concrete numbers of $3 billion on the table,
$10 billion for example pledged to Brazil, Eleni.
GIOKOS: So, I'm just curious, John, why the big change from last year's boycott to what we've seen this year when we still don't have clarity on
what happened with the journalists?
[15:45:00]
DEFTERIOS: Well, you know what happened a month ago in that interview with "60 Minutes" in the United States by Mohammad Bin Salman. He said it was a
heinous crime, and he took responsibility because it happened under his watch. There's not the normal rule of law in Saudi Arabia.
And I think this is where Saudi Arabia would like to park it. Now, after doing some interviews on the ground here and talking to a number of
different sources, they said they were taking heat back in the United States by human rights groups and liberal politicians for example who were
criticizing this as too early to go back in.
What I did find fascinating, that this was limited to the financial sector. We didn't see those from Hollywood --
GIOKOS: Yes --
DEFTERIOS: Those from Silicon Valley, two key important sectors for the kingdom itself, Eleni, and they didn't show up because of those
sensitivities. So, obviously --
GIOKOS: Yes --
DEFTERIOS: The financial sector is willing to come back in because there's money on the table.
GIOKOS: Yes, clearly, very quickly. In terms of what we've seen regionally, you've got protests now erupting in Iraq, you've got a change,
you know, in a big way in Lebanon with the Prime Minister resigning in protest action continuing there. What are they saying about the regional
outlook?
DEFTERIOS: You know, it's unbelievable because as you said, you had the boycott last year and the people re-engaging. But the underlying --
GIOKOS: Yes --
DEFTERIOS: Theme, and every conversation I had was real concern about Iraq and Lebanon. You look at the numbers, nearly 100 killed since Friday in
Iraq, 4,000 wounded, an overthrow of the Prime Minister in Lebanon. So, there's worries about sectarian strife. There's a spill-on beyond Lebanon,
is a huge question mark right now.
The response from Hezbollah in Lebanon and a very bad signal this evening, the supreme leader in Iran is now pointing the finger at the United States
for sparking the dissent that we're seeing --
GIOKOS: Yes --
DEFTERIOS: Both in Lebanon and Iraq. And the concern is, this could be like --
GIOKOS: Yes --
DEFTERIOS: Arab Spring 2. You know, this is Algeria, Sudan, Lebanon, Iraq, mild protests that percolated in Egypt at the same time. It's not
looking pretty --
GIOKOS: Yes --
DEFTERIOS: And it could be a major setback for the Middle East and North Africa, if not, a cap put on top of it.
GIOKOS: John, thank you very much, great to have you on the show. So, not enough growth, not enough income and too much spending. South African
Finance Minister Tito Mboweni admitted today the country's finances have got significantly worse since his last budget in February, national debt
currently stands at 61 percent of GDP.
Mboweni now says it could be over 70 percent just three years from now. That admission just one day after government figures showed unemployment
has passed 29 percent, its highest in over 16 years. And take a look at that, it's incredible to see this graph of 29 percent. You've also got the
likes of youth unemployment sitting very close to 60 percent.
We've got Colin Coleman; the CEO of Sub-Saharan Africa for Goldman Sachs joining us now from Johannesburg. Colin, it's a dire picture. I mean,
I've been here for the last few weeks, and I'm calling home, and all I'm hearing about is the fact that there are continued blackouts and that
coupled with the bad news coming through from the finance minister. It's not painting a good picture.
COLIN COLEMAN, CHIEF EXECUTIVE OFFICER, SUB-SAHARAN AFRICA FOR GOLDMAN SACHS: Thanks, Eleni. There's plenty of warning signs out there for sure.
Unemployment too high, violence, somewhat escalating. But I would caution about panicking in the sense that there's no Arab Spring around the corner
of South Africa. I think --
GIOKOS: Yes --
COLEMAN: It's some fires that are, you know, from time-to-time flaring up. But South Africa is a very resilient society between a very strong business
community, very strong financial sector that's dealt over many years with very complicated, transitional issues as you're well aware from anti-
apartheid days right through to the democratic transition.
And over the last 25 years, we've grown --
GIOKOS: Yes --
COLEMAN: At 3 percent. But in the last ten years, this has dropped by about half, and unemployment --
GIOKOS: Yes --
COLEMAN: Has escalated from 20 percent narrow to 29, so there are certainly worrying signs and worrying trends.
GIOKOS: Absolutely. Look, I know you've been through so many cycles, we've seen the worst of the worst in the country. But you've got -- South
Africa being one of the most unequal countries in the world. The youth unemployment figures are incredibly worrying.
We are seeing violence action on the ground every now and again, and this does take away from the power that the president has to rectify the
situation. He doesn't have money and he's got social issue that he needs to deal with. How do we fix this problem?
COLEMAN: Well, I think the President Ramaphosa is very clear on the need for structural reforms and modernizing the economy.
[15:50:00]
You know, we've come out of two years of what was called state capture and corruption under President Zuma, and the ship is turning, but obviously
there's some constraints that the president has in terms of getting the political mandate to undertake these --
GIOKOS: Yes --
COLEMAN: Structural reforms. And that is obviously the heart of politics, is to keep people united, keep people focusing and undertake the painful
measures needed. One example is the public sector wage-full which is roughly one-third of the total budget. And he obviously has a very strong
constituency among those public sector employees and the unionization of those employees is very high.
So for him to effectively get wage freezes, get retrenchments --
GIOKOS: Yes --
COLEMAN: On a voluntary basis in the public sector is a very tough task. But it's very clear from the finance minister's warnings today which were
very powerful warnings about a debt trap looming --
GIOKOS: Yes --
COLEMAN: In South Africa, that they're going to have to tackle the public sector worker --
GIOKOS: Yes --
COLEMAN: Wage full, and they're going to have to tackle the bleeding of state-owned enterprises.
GIOKOS: And that's the thing, state-owned enterprises, a big one, and let's see where they can find the money to fund those. Colin, what a
pleasure to have you on the show. I really appreciate you joining us from Johannesburg. All right, so will Boris Johnson break the logjam over
Brexit or is he making the same mistakes as Theresa May? We'll look at prospects as Britain preps for a Christmas election.
(COMMERCIAL BREAK)
GIOKOS: Brexit bedlam has given way to election fever at Westminster. Candidates are rolling out their campaigns, just hours after lawmakers
agreed to hold a vote on December, the 12th. In parliament, Boris Johnson said a conservative victory will end the Brexit paralysis. Mr. Johnson's
party holds a comfortable lead in most polls. We've got Chris Curtis in London, he's a political research manager for YouGov.
And Chris, what chances do the conservatives have in getting this in the bag come December, the 12th?
CHRIS CURTIS, POLITICAL RESEARCH MANAGER, YOUGOV: So, the conservatives do as you mentioned there, currently hold quite a comfortable lead in the
opinion polls. In our most recent opinion polls, the conservatives held a lead of 13 percent over the Labor Party, and that would under normal
circumstances lead to a majority government.
But I think it is important to emphasize --
GIOKOS: Yes --
CURTIS: The level of uncertainty that currently exists in British politics. At some point this year, there have been four different parties
that have led in the polls --
GIOKOS: Yes --
[15:55:00]
CURTIS: And now all of the academic evidence is showing that we've got more swing voters, more voters moving between the parties than we ever have
before.
GIOKOS: So, this is going to be interesting to see how, you know, all the parties campaign in the next couple of weeks. Do you think people aren't
sitting and being undecided? Is that the sense that you're getting?
CURTIS: Well, what we basically have, the main dynamic of this election is we have an electorate that is split in two. So, we have about half the
country who voted leave in that referendum a couple of few years ago, and we have half the country who voted remain.
And people don't tend to be moving between those two camps. But what's interesting is the movements that's happening inside them. So, on the
leave side, there's this big battle between the Conservative Party and the Brexit party. The Conservative Party need to hold on to those leave voters
as much as they can.
On the remain side, there's a big battle between the Labor Party and the Liberal Democrat Party here in the U.K. and lots of voters moving between
those two. So, what we have to look at is how the movements are happening inside those two voter groups. At the moment, the conservatives are
holding on to most of those who backed leave in the referendum --
GIOKOS: Yes --
CURTIS: Whilst on the remain side, the vote is split between lots of different parties.
GIOKOS: So, it's interesting you say that the general sense is just a lot of uncertainty. We don't know where this is going to go. In the next few
weeks, how much more clarity could we possibly get? And does it really depend on what the politicians tell us?
CURTIS: We will hopefully get a lot more clarity as we head towards election day. The other thing to remember about the British election
system is that it's not one national election, it's 650 local elections. Elections happening on each constituencies, and an election that happens
onto the first past the post-electoral system.
So, one of the other things we'll be looking at, and one of the things that will hopefully give us a lot more certainty is how this is playing out in
different constituencies in --
GIOKOS: Yes --
CURTIS: Different parts of the country. At YouGov, we're going to build a big election model which doesn't just try to look at the national picture,
but tries to look and model each of those individual races. That's hope -- we're hopefully hoping to get that out about two weeks out from election
day.
GIOKOS: Great stuff, thank you very much, Chris Curtis. So with just moments left to trade on Wall Street, the S&P 500 is on track for a record
close, we'll have the final numbers and the closing bell right after this.
(COMMERCIAL BREAK)
GIOKOS: Right, moments away from the close of trade today. And there we go, and that is the sound of the closing bell in New York. The Dow is up
around 0.4 percent, record high for the S&P.
(BELL RINGING)
I'm Eleni Giokos, thank you so very much for watching, we have got Jake Tapper up next.
END
END
