Related topics

Angry North Korean Editorial Blasts U.S. Over Sanctions; EU Suspends Polish Law Lowering Retirement Age of Judges; Manchester United

December 18, 2018



<Date: December 17, 2018>

<Time: 16:00:00>

<Tran: 121701cb.k27>

<Type: SHOW>

<Head: Angry North Korean Editorial Blasts U.S. Over Sanctions; EU

Suspends Polish Law Lowering Retirement Age of Judges; Manchester United

Face PSG in Last 16 of Champions League; Protests Against Hungary’s

Government Turn Violent; Brexit Debate Resumes January 7th; Paul Krugman

Teaches Economics in New Master Class; Dow Drops 500 Points in Final Hour

of Trade; Google to Invest $1 Billion to Double Workforce in New York; Elon

Musk Prepares to Launch New Tunnel Technology; Google Launches New Shopping

Service in India; Alan Greenspan: Bull Market is Folding. Aired 3-4p ET - Part 1>

<Sect: News; International>

<Byline: Richard Quest, Julia Chatterley>

<Guest: Paul Krugman, Jay Walder, Ravi Agrawal, Ian Bremmer >

<High: Angry North Korean editorial blasts U.S. over sanctions. EU

suspends Polish law lowering retirement age of judges. Manchester United

face PSG in last 16 of Champions League. Protests against Hungary’s

government turn violent. Brexit debate resumes January 7th. Paul Krugman

teaches economics new master class. Dow drops 500 points in final hour of

trade. Google to invest $1 billion to double workforce in New York. Elon

Musk prepares to launch new tunnel technology. Google launches new shopping

service in India. Alan Greenspan says bull market is folding.>

<Spec: North Korea; U.S.; EU; Poland; Manchester United; PSG; Hungary;

Brexit; Paul Krugman; Stock Market; Google; Elon Musk; India; Alan


<Time: 15:00>

<End: 16:00>

RICHARD QUEST, ANCHOR, QUEST MEANS BUSINESS: We are entering the last hour of trading on Wall Street and it is a pretty unpleasant situation. Early losses, an improvement, and then a very sharp loss right through the afternoon, we’re virtually at the worst point of the session with a loss of nearly 2%. It’s no different if we look at the broader market and the tech which is now down 2% and the RUSSELL 2000 which is the broadest market of all that is now a bear market. We need to understand why. What’s been happening? Well, today this is what’s been moving the markets.

New sign of a slowdown pulls the market ever lower. I’ll be joined in a moment by the Nobel winning economist, Paul Krugman. Goldman Sachs is the Dow’s worst performer of the year. Now, it’s facing criminal charges in Malaysia. And Theresa May is threatened with a new confidence vote. We’re live in the world’s financial capital, New York City on Monday, December 17th. I’m Richard Quest. I mean business.

Good evening. Once again the stock market selling has accelerated in the last couple of hours. Continued fears of a slowdown in 2019 are weighing heavily on the markets on the eve of the Fed’s policy meeting. In a moment, I will be speaking to Paul Krugman about that.

The Dow is also being pulled lower by its worst performing stock of the year, of its second heavily weighted and that is Goldman Sachs. Now join me at the trading post and you’ll see exactly the sort of sorry situation.

There’s no doubt it’s a red in today’s post because we have all three markets that are lower. The Dow, S&P, and the NASDAQ, so we call that as a red, most definitely not a green and no sign obviously of any records, and not even near sign of any records.

A midsession recovery gave way to thig late session route. And of course at this time of the day, the last hour, while it’s always extremely dodgy because you will suddenly see - you can suddenly see, it’s not a definite, selling accelerate.

And it’s the last full trading week of the year, so U.S. stocks have now given up all the gains for the year so far and now, everyone is watching the Feds. Some suspect, it could still raise interest rates on Wednesday. And in case there was any doubt about Donald Trump’s views on all of this, the President tweeted, “It is incredible with a very strong dollar and virtually no inflation, the outside world blowing up around us. Paris is burning and China way down. The Fed is even considering yet another interest rate hike. Take the victory.”

Paul Krugman in the C-suite, good to see you, sir.


QUEST: Well, what did you make - I mean, should the Fed listen to the President and not raise rates?

KRUGMAN: Okay, I’m in the peculiar position of thinking that the Fed should not raise rates, but it should not listen to the President, which is hard position.

QUEST: No, not only that. We will allow you --

KRUGMAN: No, it’s a hard position because I think he’s put the Fed in a difficult position because there’s a pretty good case for not raising rates now. But to not raise rates in this beating would look like they were allowing themselves to be bullied.

So he actually - that was an extremely counterproductive tweet. There’s a lot of arguments to say that the Fed really, on a pause for quite a while here, but it’s very important for them not to be seen, to be politicized so he may have put them in a very awkward position.

QUEST: When we look at what - I mean, today is just another day of volatility in the market. But there comes a point when this level of losses does become a self-fulfilling prophecy towards a slowdown and a recession.

KRUGMAN: Well, always - what you have to remember; first of all, the stock market is a pretty poor predictor. The old gold stock is the line, the stock market predicted nine of the last five recessions. And it’s also - although the stock market is a source of wealth and if it goes down that hits people, but it’s not nearly as important as say fluctuations in housing prices.

Stock are held even now, by - most are held by real estate - a small number of people, but not all that liquidity because we’re not all that sensitive to prices.

So the stock market in itself is not that big a deal. There is this - I’ll try make sense - there is this pessimism that you’re now seeing in the business world all of a sudden, and I don’t know whether that CEOs know something or it’s just, they’re blowing off steam, but something is happening.

QUEST: Right, and we saw that with the CFO survey, we saw it this week with the CEO survey. And I’m wondering whether they are merely reacting to lower asset prices because they are the ones who feel obviously the fullest effect.


QUEST: And they’ve got this trade issue, the trade problem.

KRUGMAN: Yes, now, the trade thing, I mean, I’ve been pooh-pooing all of this a little bit. Moderate pooh-pooing because the biggest trade issues are - NAFTA has essentially been saved. It’s been slightly relabeled but it’s been saved. There’s not going to be a trade war within the E.U. except for Brexit which is whole other thing.

The rest of the world does not - it’s really U.S.-China is the flash point right now and that’s not that big a deal from the world point of view.

QUEST: To those who say that - and I’ve read your articles, your columns, but to those who say, well, actually the President is doing a half decent job when it comes to his trade negotiations, NAFTA, or actually, it came out of TPP, but he’s got NAFTA and China is slowing down and he’s got it where they want him.

KRUGMAN: Well, the thing is, on NAFTA, I mean, he has essentially just repackaged an existing agreements with a few changes that actually make it a little bit worse. But on China, the trouble is, what does he want from China? It’s not clear -there are some real issues with China, but those aren’t being addressed -- intellectual property, technology transfer -- and the bilateral trade balance is actually getting worse.

So I’m not sure what’s going on with China, but it doesn’t look like a - I mean, it’s creating a lot of turmoil and a lot of uncertainty for no clear objective there.

QUEST: The global economy is slowing down, you would agree on that.


QUEST: The U.S. has the fastest engine of growth, slowing it down further or at least not being the engine pulling it along. How serious is that?

KRUGMAN: So far --

QUEST: So far.

KRUGMAN: So far, there’s nothing I see that looks like a recession. Now, it might give me some pause, but all of these executives have ears closer to the ground than I do are suddenly warning about recession. But at least, I can’t see it in any of the available data, but if there is a - the thing that always worries me is we don’t have any shock absorbers.

The U.S., in the average recession, we cut the Fed funds rate by 500 basis points. The Fed only has 225 to cut right now. Europe has none, less than none to cut because ECB rates are below zero. So if something does go wrong, what do we do?

QUEST: But that was exactly the warnings that people like you said as the rates came down that in the future, there wouldn’t be any maneuvering room.

KRUGMAN: Right. Exactly.

QUEST: So what do you do?

KRUGMAN: Well, I wanted the Fed to raise its inflation target, get people some expectation, let it rip, but they didn’t. Now so the alternative, I mean, if we do have a global recession, even a mild one, monetary policy is not going to be there for us. So we could have intelligent fiscal policy and that’s where you look and say who are these people who are going to make intelligent -- Steve Mnuchin, Larry Kudlow? So this is where you start to get worried about the situation.

QUEST: Are you worried about the situation at all? I mean, and let me preface what I was saying, we are obviously not looking at 2008 or 2009 because the banking system is at least more robust, one would hope.

KRUGMAN: Yes, I think we might be looking at 1990. I’ve using that as a precedent. There was no one big thing. We had a recession in 1991. There was no one big thing. It was a smorgasbord recession that we’ve seen. There was commercial real estate, there was the savings and loans, there were a bunch of things, none of which in itself was all that big, but they came together and even then, our ability to respond was limited and it’s much more limited now.

QUEST: If we are looking at economic difficult times, you’re master class, I mean it’s a perfect opportunity because you’re going to be giving these master classes which people can subscribe to.

KRUGMAN: That’s right, I have done it.

QUEST: Yes, yes. What theme?

KRUGMAN: Well, I suppose it’s about economics.

QUEST: You have a lot of economics and ...

KRUGMAN: This was a chance for me to - I didn’t think of it as being about current events, though they come up. But this was non-economics for - to study for college but economics - what you and the intelligent and interested citizen wants to know.

And this is where I started, a little bit of conveying my love for the subject. Because actually, no one will believe it, but economics is a beautiful thing.

QUEST: And the response?

KRUGMAN: It’s very hard to know. I actually - I mean, I hear people who, you know, are talking about it, but I have no metrics. I don’t know how many people are watching.

QUEST: The whole art or science of economics, whichever way you which to view it on any given day, the general population learned more about economics than perhaps they’d ever wish to following the financial crisis. And suddenly those of us, even like myself who weren’t us - had to dredge up quantitative easing and the like and the economic experiments that took place.


KRUGMAN: That’s right. We performed - I mean, we used to say, we don’t have a lot of evidence on fiscal policy because you basically only get fiscal policy during - you know, discretionary fiscal policy during wars which are very bad laboratory for ordinary times.

But then we get this austerity mania, so we got to see what major fiscal contractions actually do in an environment where monetary policy doesn’t have traction and actually the models work pretty well. We’ve learned a lot. If there’s any saving grace from this nightmare we went through after 2008, it is that we learned a lot about how the economy works.

We’ve got a lot of confirmation. A lot of things that people like me were saying have - did in fact come true. And this provides a basis for policy makers to make much better policy, which they will ignore.

QUEST: You’re certain? You’re pretty sure about that?

KRUGMAN: Yes. I mean, there were two great lessons I thought from the whole crisis. Macro works pretty well, policy makers don’t.

QUEST: We will talk more about policy makers but on the political side in just a moment if you’ll be kind enough to stay.

KRUGMAN: Okay, sure.

QUEST: Thank you. We’ll hear more from Paul Krugman later in the hour including on Brexit, the future of the British Prime Minister is in question once again and the opposition Labour Party tries to drive a nail into her administration and her Brexit deal. It’s a vote of confidence not in the government, it’s in her. In a moment.

The British Prime Minister Theresa May faces a motion of no confidence which was triggered by the leader of the opposition. Just days after winning a confidence vote from her own Party, now the Labour Party leader, the opposition leader, Jeremy Corbyn says it’s unacceptable. The Parliament’s vote over her Brexit withdrawal plan has been delayed until mid-January.


JEREMY CORBYN, BRITISH LABOUR PARTY LEADER: I’m about to table a motion which says the following. That this House has no confidence in the Prime Minister due to her failure to allow the House of Commons to have a meaningful vote straightaway on the withdrawal agreement and framework for future relationships between the U.K. and European Union and that will be tabled immediately, Mr. Speaker. Thank you.


QUEST: Bianca Nobilo is in London, Bianca, I’ll save you the breath of saying that this is largely symbolic since it’s in the Prime Minister, not the government. But it does allow me to ask you why hasn’t he gone for a vote of confidence in the government instead?


BIANCA NOBILO, CORRESPONDENT, CNN: Because the Labour Party, well, the front bench at least have set out their strategy which is to try and force a general election. Now, that is what could result if they called a vote of no confidence in the government and then the government lost that that could then precipitate the general election.

But if that fails, the Labour Party have committed themselves to exploring the second referendum option. So Corbyn needs to be careful now because if he does go whole hog with a no confidence vote and that doesn’t succeed, then he has essentially pledged his Party towards supporting the second referendum.

But what is interesting is politically, this seems to have benefitted the Prime Minister at least in the short term because the euro skeptics that really opposed her last week, the ones within the Conservative Party that called for that vote of no confidence have come out and said we’re supporting the Prime Minister, so essentially they are saying we are allowed to call a no confidence vote, but not you.

QUEST: Hang on - I was just about - surely, those members of her own party risk being hypocrites, well, no, not risk, they are hypocrites if they voted against her last week in a confidence motion for leadership, but for her as Prime Minister.

NOBILO: I think many people certainly in the Labour Party would say that that would be true, but they have nevertheless come out, figures like Jacob Rees-Mogg, very influential Brexiteers in the European Research Group and said that they will support the Prime Minister. Some of them have changed their tune since Theresa May won that confidence vote last week saying if she can command the confidence at the Party, then she has our confidence now, too, that’s their line.

QUEST: Right, now, if there was a vote on her deal now, she’d lose, so what makes anybody think it will get better between now and mid-January?

NOBILO: Theresa May maintains she’s still seeking assurances from the E.U. over the backstop, but Richard, as we discussed earlier, there’s no reason to think that she’ll be able to get enough in order to convince people to support her deal and the numbers that she needs. There is some strategy to running down the clock and presenting this binary choice between a no deal and her deal.

But then, Parliament have said that they won’t allow a no deal to happen. So this is Brexit for you, Richard. It’s just rumbling on. Everybody is confused, nobody knows what’s next. But one thing I think is clear, is Brexit doesn’t seem as much a forgone conclusion, this is what MPs tell me as it once did, let’s say three or six months ago.

QUEST: Bianca, thank you. The chances of a hard Brexit that Bianca was talking about need to escalate before there is a chance of a smooth exit from the European Union. In other words, things have to get much worse, the pain get greater before there’s any likelihood of a solution.

I spoke with Ian Bremmer, the President of the risk consultancy Eurasia Group. The time running out for an agreement, I asked him if Theresa May will have it done and dusted by the March deadline.


IAN BREMMER, PRESIDENT, EURASIA GROUP: It’s hard to imagine she is going to be able to get all of these MPs to come out and favor of a deal that meaningfully is close to identical to what she already had to pull the vote for.

QUEST: It is going to be the same deal effectively?

BREMMER: You know, I mean she can certainly talk about an interim political declaration that looks more like this Norway plus, in other words that would provide more economic opportunity for the Brits.

Of course, losing sovereignty as they do so. But the backstop is still going to be there. That’s a serious problem for many of her Conservative members of Parliament supporters, as it were. While Labour is not going to give her a win.

QUEST: Is it your view that the U.K. is moving ever closer to a no deal, or at some point does Parliament take control?

BREMMER: I think that we are moving closer to a resolution, but very slowly.

QUEST: But what does that resolution look like?

BREMMER: Right, I think that - until you - let’s go back to the Grexit. Grexit - it was very hard to know until the last possible moment whether that you were going to get the Greeks to accept terms, stay in the Euro and be willing to deal with serious like depression inducing austerity or not because there had to be immediate consequences.

You had to create a real possibility of serious downturn to get them to make those concession. That is exactly what needs to happen in the U.K. We are not there yet. And so the likelihood of no deal needs to go up in order to make it meaningfully plausible that we can ultimately get to a smooth transition.

QUEST: Which is exactly what the Prime Minister I am guessing, is hoping for.


QUEST: That by the time we get to mid-January with only six weeks away from Brexit and it fails, if it fails then it’s game over.

BREMMER: I’m not sure it’s game over. I mean, you have until the end of March. You have the ability for the Parliamentarians to ask for an extension until May at least even without Theresa May supporting that. So it doesn’t feel to me like game over in January. We’re going to talk about this for a while still.



QUEST: The Brexit uncertainty continues to ruin the European markets. Another rough session for retail stocks. The British online retailer, Asos, plummeted almost 40%. And in Frankfurt, it was shares in Europe’s biggest online retailer Zalando that was that was down 11%. All in all, you can see the sorry sort of sight on the screen.

Tonight, for the first time, Malaysia has filed criminal charges against Goldman Sachs. The investment bank and two former employees are now directly accused of grave violations in a scandal involving billions of dollars in missing Malaysian money.

Goldman is down 25% since this scandal began to break in early November. Last month, I sat down for an exclusive interview with Malaysia’s Prime Minister-in-waiting, Anwar Ibrahim. He said his country will stop at nothing to hold Goldman accountable.


ANWAR IBRAHIM, PRIME MINISTER-IN-WAITING, MALAYSIA: In every country possible where they were involved, either over here in Malaysia, in the United States. Sure.

QUEST: So you’re determined to make as much trouble for them as you can?

IBRAHIM: No, we want enough resources back to serve our people. I don’t believe that the country must suffer or the people must suffer just because of the greed of some of these corporate leaders.


QUEST: Now, you’ll be forgiven for not having kept track of this scandal, 1MDB. So consider this your crash course in what may be the biggest financial scam in history.

1MDB was basically Malaysia’s sovereign wealth fund and the goal here was to raise money for the nation -- energy, tourism, doing good -- instead, police say government officials, particularly the Prime Minister, Najib Razak, used it as their own personal piggy bank, taking the money themselves.

And we’re not talking one or two dollars here, not even hundreds of millions. We’re talking over $2 billion, possibly more syphoned off. The former Prime Minister, Najib Razak is amongst those who have also been charged, he pleads not guilty.

Now, it’s not just government that is also, investors like Jho Low allegedly used the fund’s money as his own slush fund for lavish spending on yachts, parties, buildings and the like. Now, he’s believed to be in China in hiding. He says he’s innocent.

And this is where Goldman Sachs comes in. Because Goldman was the bank that did the bond issuances for 1MDB. Goldman raised the money for the fund.

Malaysia now says Goldman was part of the problem, ignoring the obvious that the money was going elsewhere. According to those charged, Goldman not only misled investors as to where their money was going, but also that they were part of the scheme that diverted more than $2 billion of what they raised.

Goldman Sachs says the charges are misdirected. It’s worth just looking at that and pondering the size and scale. Christina Alesci is with me to say how serious is this for Goldman?

CHRISTINA ALESCI, CORRESPONDENT, CNN: It’s a really damaging development. As you mentioned, Richard, Malaysia filed the first criminal charges against Goldman and two of its executives and essentially the Malaysian prosecutors are basically alleging that these Goldman executives and the bank itself lied to investors, that they knew what was going on, and they essentially misrepresented these bond issuances that they did in 2012 and 2013.

And because of that, the Malaysian government now wants $2.7 billion back from Goldman Sachs in addition to the $600 million fee that the bank charged Malaysia. And this is going to do a lot of damage to Goldman’s reputation. It has the gold standard reputation as the investment banker to the world.

QUEST: Let me just jump in there and put 1MDB - that will rumble on for many months, put that to one side. The market is down 522 points. We’re off over 2% now. So we’re always at that point of the day where things can turn funny or rather unpleasant and it looks like it is happening.

ALESCI: Yes, it is happening. And I think that investors are waiting to see what the Fed does. This is a nervous market. This is pessimistic market. Everybody’s looking for some bad news, and the bad news - all it has to be is the expectation of the Fed raising interest rates and potentially not giving investors enough information to determine what it is going to do in 2019, which is the big question mark at this point.

Most investors assume that a rate hike is coming this week, that the Fed will announce that. The big question is what happens in 2019 against the backdrop of slowing global growth not just here in the U.S. but around the world?


ALESCI: And that’s going to impact demand, and that’s going to impact equity prices at the end of the day, Richard.

QUEST: Christina, thank you. Christina Alesci at the Stock Exchange. A look quickly at the Dow 30. There’s no real rhyme or reason, they’re all down. Everything from AmEx at the worst at 3.78 to Boeing at the best, which is down just 0.5%. But everybody is down for one reason or another. This is broad-based mass selling.

As we continue, we’ll have more from Paul Krugman on exactly what is going on and we’ll talk about international areas, Hungary and Brexit. And Brexit is government on the brink in Britain.

There are violent demonstrations that are continuing in France. Hungary becomes the latest nation struck by a crisis as anti-government protests turn violent. The global economy is slowing down and we need to talk more about why.

Hello, I’m Richard Quest. There’s more “Quest Means Business” in just a moment when Paul Krugman is back as Hungary joins the list of E.U. countries in turmoil, we’ll get his views and the man who’s run New York’s subway, London Tube and Hong Kong subway is now in charge of Virgin Hyperloop. He will be with me in the C-suite. As we continue, this is CNN and on this network here, the facts, they always come first.

A new political hurdle for the British Prime Minister and her Brexit plans. The opposition leader Jeremy Corbyn says his party will introduce a motion of no confidence in Mrs. May, after she delayed the vote in Parliament on her Brexit deal. The vote will now take place in January.

North Korea says all the progress towards denuclearization over the past six months has been undone. In a fiery editorial on Sunday, state-run media condemned new U.S. sanctions against three senior North Korean officials and said the U.S. was pushing the two countries back towards conflict.

[15:30:00] A EU’s top court has suspended a controversial retirement law proposed by the Polish government that would have forced out nearly 40 percent of the country’s Supreme Court judges.

The ruling is delayed just in a series of disputes between Warsaw and Brussels. Poland argued the measure is needed to rip the courts of remnants from the communist era. The critics claim it was an attempt to gain greater control of the judiciary.

Manchester United faces a tall order in the knockout round of the Champions League. They’ll play PSG in the last 16 who are looking for their first Champions League trophy. Meanwhile the defending champions Real Madrid will face Ajax, Barcelona faces Lyon.

In Hungary, tensions over new labor laws boiled over onto the streets. The controversial new rules include changes to working hours, and for days, thousands of people have marched against the country’s right wing government. The situation came to a head on Sunday night, riot police clashed with protesters when they tried to storm the state-run television station.

Two Hungarian lawmakers were ejected from the network’s headquarters after they tried to broadcast a petition protesting against the new laws. On the streets of Budapest, one protester explained his frustrations.


UNIDENTIFIED MALE (through translator): This is now not about opposition politicians, about who stands on which side. But this is about the discontent of the Hungarian society, that we have had enough. We both young and old, and I feel something is coming together, which has not happened in the past eight years.


QUEST: The Nobel Prize-winning economist Paul Krugman is with me. You have written -- you’ve written on more than one occasion about Hungary and you’ve been most concerned about it. Is this the moment that Viktor Orban faces down?

PAUL KRUGMAN, ECONOMIST: Well, God knows. I mean, it’s -- there’s a tremendous amount of accumulated power. But it’s hopeful, I mean, it’s good to see that this regime which has tried this kind of soft covert destruction of democracy has not managed to completely crush public opposition.

So I mean, we saw the same thing in Poland where the elections were a big defeat for law and justice. So maybe this sort of white nationalists rule is not an end state.

QUEST: You’ve been sort of critical of the European authorities for not being stronger and not doing so quicker. Today, the European courts ruled against Poland, but the feeling is that this should have been dealt with at a political level much sooner.

Update hourly