BUSINESS-01
Earnings Miss; Samsung Kills Off Exploding Galaxy Note 7; Trump Attacks
Republicans on Twitter; "The Apprentice Creator": I Can't Release Trump
Tapes; South Africa Finance Minister Faces Corruption Charges; Students
Clash with Police in South Africa. Aired 4-5p ET - Part 1>
Stelter, Eleni Giokos, David McKenzie, Richard Quest, Ivan Watson, John
Defterios>
Market Strategist, Wunderlich Securities; Pete Pachal, Tech Editor,
Mashable.Com; Nicolas Petrovic, CEO, Eurostar; Luis De Guindos, Economy
Minister, Spain; Bob Dudley, CEO, BP>
mix in some politics for good measure. The result is a 200-point loss for
the Dow. Samsung's flagship phone is dead, but the company's problems are
still very much alive. Samsung has now permanently halted production of
the Galaxy Note 7 and advise customers to switch off their devices. Donald
Trump says the shackles are now off him and he's now free to fight for the
White House the way he wants to. The Republican presidential nominee was
referring to Republicans who have pulled their support of his campaign.
The creator of Donald Trump's reality show "The Apprentice" says he is not
legally allowed to release footage from the show. But despite his looming
court appearance, Gordhan says he will continue to do his job including his
fight against corruption. African students say the fight for free higher
education is their generation's cause. They argue that students' debt and
rising costs of education are keeping many South Africans from
participating in the economy. The CEO of Eurostar says it's crucial for
politicians to offer as much certainty as possible leading up to the
British exit from the European Union for the benefit of all businesses.
Cholera fears are now on the rise in Haiti in the wake of hurricane Mathew.
The country's president says the destruction left by the storm has
accelerated the country's epidemic. The CEO of BP says what matters most
in the oil business is the long-term balance of demand and supply, not
short-term price volatility.>
Crime; Education; Energy; Government; Protests; Race Relations; Technology;
Consumers; Products; Television and Radio; Trials; Youth;>
[16:00:00] HANNAH VAUGHAN JONES, CNN ANCHOR: The closing bell on Wall Street and it's not been a happy start to earnings season. It's Tuesday, the 11th of October. Tonight, traders are hitting the sell button hard. U.S. markets have just closed sharply lower. Samsung stamps out the flames from its flagship smartphone by killing off the Note 7 entirely. And the rand is left reeling as South Africa's finance minister faces corruption charges of his own. I'm Hannah Vaughan Jones and this is QUEST MEANS BUSINESS.
Good evening. Tonight take a miss on earnings, add in a falling oil prices, and mix in some politics for good measure. The result is a 200- point loss for the Dow. It started before the open as Alcoa kicked off earning season by failing to meet investor expectations. Well, the selloff then continued throughout the day before pulling back slightly in the last hour of trading.
Joining me now Art Hogan, is director of research and chief market strategist at Wunderlich Securities. And also from the floor of the New York Stock Exchange, Tim Anderson, is the managing director at TJM Investments. Gentlemen thanks very much to both of you for being on the program. Tim, I want to start with you. Just give us an idea of the mood on the exchange floor then. What seem spooking investors and traders today?
TIM ANDERSON, MANAGING DIRECTOR, TJM INVESTMENTS: Well there's no doubt that investors are starting to get concerned about the earnings season. You mentioned Alcoa. We had a couple significant downgrades at the end of the week last Friday from Honeywell and PPG. And biotech was particularly hard today. Alumina is down about 25 percent. The IBB biotech ETF is down 4 percent and that has been one area that did have some traction during most of the third quarter certainly giving up a lot of that move today. Going into tomorrow if could be a significant Fed day. We've got a couple of major Fed speakers early in the day and then we've got the September Fed minutes at 2:00 in the afternoon.
JONES: Yes, everyone got their eye on the Fed, as well as possible a rate rise before the end of the year. Art, over to you now. Talk us through the bigger picture here. Is politics to blame here? Or is it oil? What's the bigger picture?
ART HOGAN, CHIEF MARKET STRATEGIST, WUNDERLICH SECURITIES: Yes, a little combination of both. I think politics, Tim mentioned the biotech's, but think about the incredible possibility of Hillary winning this election. Those odds seem to be increasing in her favor over the last week or so. And she's certainly spoken numerous times health care costs, reimbursement costs, things of that nature. Biotech's always come under pressure when it looks like there is a Democratic administration. But certainly, you know, some buzz around the fact that the Democrats might even have a sweep here if things continue in the trajectory that we've seen in polling.
So that makes it even more uncertain that some pressure would come into the health care group. I think in terms of energy, we've got a strong dollar, and the dollar continues to be strong over the last three days, the last three trading sessions. That doesn't help commodities. They're dollar base commodities. And the price for a barrel of oil is finally reversed a bit here today. It was down 2 percent at one point in time. Close down at about 1.25 percent. So the energy sector came under pressure as well. So a combination of Alcoa, healthcare stocks coming under pressure, and certainly a strong dollar forcing commodities down here a bit are taking its toll on markets today.
JONES: And Tim, we heard early in the week, of course oil was starting to gain a bit after OPEC announced that they would be putting a freeze on production. Now it seems like that's trailing off a bit. What kind of impact is that going to have in the week to come?
ANDERSON: Well look, just in the last two weeks, oil has gone from the bottom end of the range in the low 40s up to the higher and of the range just above 50. It looks like it's going to have a really hard time getting to 55. There has been some recent chatter about it may be hitting 60 before the end of the year. But I really think we've just gone from the bottom end of the range to the higher end of the channel of the range and oil. And without something definitive, we're probably going to trade back into the high 40s.
JONES: Art, I want to ask you one last question, sticking with oil really as well. Putin and Russia have been accused of already playing too much of a part in the U.S. election, presidential election. Now it seems there also playing a part in the U.S. economy as well. It's not yet clear whether Russia will play its part in OPEC's oil production freeze. And I guess all eyes now on Moscow.
[16:05:00] HOGAN: Well, you know, understand this. They've been part of the conversation all along. So the informal meetings have actually included Russia, and they'll continue to be a part of the conversation. They need higher energy prices. So anything that gets them there, whether it's a production cut or a production freeze is going to benefit Russia. They're still very energy dependent. So to me I think we won't know what is going to happen in terms of the production cut until November. So in the interim I think that Tim's point we're probably going to work our way back down. I think the good news though is this talk of a production cut has put a higher floor on the price for a barrel of oil. So I think I knew floor is 45 and we have around the 45 to 53 level for a period of time. Even exiting the year or at least until we get that results out of November OPEC meeting.
JONES: Gentlemen, great to have you both on the program. We appreciate it. Tim Anderson, Art Hogan, thank you.
Samsung's flagship phone is dead, but the company's problems are still very much alive. Samsung has now permanently halted production of the Galaxy Note 7 and advise customers to switch off their devices. Reports of phones catching fire force to recall just last month. And now reports of replacement phones bursting into flames caused the company to abandoned the device entirely. Samson stock fell 8 percent and so that is the biggest drop since 2008. Analyst estimate a fallout could cost Samsung nearly $10 billion in lost sales and more than $5 billion in profits. Well, Samson's response has left many customers pretty confused. This photo taken today at a Samsung store here in London shows Galaxy Note 7s on display and plugged in. Staff said though they have been instructed not to sell the model despite it being on display for customers to see.
The crisis is a major blow of course for Samsung. The Note 7 was the company's effort to take on the Apple iPhone 7. The recall threatens Samsung's balance sheet and of course its reputation. Paula Hancocks has our report.
(BEGIN VIDEOTAPE)
UNIDENTIFIED MALE: The true Galaxy Note 7.
PAULA HANCOCKS, CNN INTERNATIONAL CORRESPONDENT (voice-over): The Galaxy Note 7 is not more just two months after its triumphant launch Samsung's flagship smartphone has been relegated to a disastrous footnote. A refund or a completely different Samsung phone the only options for customers. Cases of the phone overheating and bursting into flames followed by reports of replacements with the exact same problems proved too much for the South Korean tech giant. Samsung says, it's putting customers it's putting customer safety as top priority. But has the damage already been done?
BRYAN MA, VP OF DEVICES RESEARCH, IDC: The problem is last week, the allegedly fixed devices still had problems and suddenly this whole issue of trust has been compromised. Now were not sure whether we can believe what Samsung says.
HANCOCKS: Customers in South Korea are notoriously loyal to their greatest export. A company that's believed to account for up to 15 percent of South Korea's GDP. Many vowing to stick by the company no matter what. This man who owns a Note 7 said, "I don't think they lost credibility, I always used Samsung products. It's too difficult to move to another brand."
This woman tells me, "Competition with Apple is fierce already and this could mean they'll now be chasing them one step behind. It's really regrettable." Patriotic support of a company that doesn't translate to the rest of the world. Weeks of announcements on board flights asking Samsung Note 7 owners to turn them off and keep them off during the flight. A negative message reaching beyond even their own customers.
HANCOCKS (on camera): We have repeatedly asked Samsung executives for an interview. They have declined once again this Tuesday as they have been declining for many years now. It is a famously secretive company, which now finds itself being talked about the world over for all the wrong reasons. Paula Hancocks, CNN, Seoul.
(END VIDEOTAPE)
JONES: Well joining me now is Pete Pachal, he's Mashable.com's tech editor, Pete, great to have you on the program. These sort of product recalls are not unprecedented, but nevertheless, this is undoubtedly an uphill struggle for Samsung now. What does the future look like in terms of its financial viability?
PETE PACHAL, TECH EDITOR, MASHABLE.COM: Well, it's a disaster obviously. I mean there's been recalls, as you said, of many products. But one that's a very clear safety issue. A product that can actually kill you. This is virtually unprecedented. There certainly been fires on consumer products, but in mobile in the last 10 years it's been very isolated incidents.
[16:10:00] For Samsung it's really like the direct financial consequences here are relatively small. They've only shipped a couple million of these phones and the hit to the bottom line of those sales is going to be significant but not crippling to the company. The bigger issue is the reputational cost, which are immeasurable and vast.
Every Samsung phone for several years now, everyone's going to be thinking about this incident. When the Galaxy S8 which presumably will come out in early next year, you can bet there are going to be -- everyone is going to be wondering. Is this thing going to blow up? Even if it is a good phone and certainly the fix the QA problems by and then. This will taint the brand for years to come.
JONES: With the reputation in mind, can one flawed product bring down an entire brand?
PACHAL: In the Samsung's case, no. Simply because as your report points out, it's a vast conglomerate that is incredibly huge in South Korea. And they make everything from air-conditioners to tracks, to tons of other products, and the componentry in a lot of electronics including the iPhone. So all of that business will continue, but the thing about smartphones and especially Samsung's Galaxy brands is the mind share there -- the amount of the reputation the company depends on for that product is so outweighs everything else then it's really going to chip away at the brand over time if they can't restore consumer trust.
JONES: The problem as we understand it with the Galaxy Note 7 is that it is something to do with the battery, but the products that they replaced the old products with used the same battery manufacturers. So how are Samsung customers supposed to have any sort of faith in the company that when they go and replace their replacement phone with something else it's now also going to blow up.
PACHAL: I know, yes, without knowing specifically what happened behind the scenes in their production process, it does seem very clear that they rushed out the replacement program. They probably made some assumptions based on which battery suppliers the troubled phones were from without doing a very thorough analysis of exactly what the process defect was. Those assumptions turned out to be wrong. The phones are probably blowing up for some other reason. Perhaps there's an inherent design flaw. We don't know. What we'll find out is how transparent is Samsung going to be about this. Because up until now they have been fairly secretive about the exact details of what went wrong. And I think everyone is going to judge them in the future based on what they say about what exactly happened. What went wrong with this phone? We need to know if we're going to have any trust in the brand in the future.
JONES: Yes, a famously secret company, we'll see if that changes in the coming days and weeks. Pete Pachal, great to talk to you, thanks very much for joining us on the program.
PACHAL: My pleasure.
JONES: Up next on QUEST MEANS BUSINESS, Donald Trump takes to Twitter. This time to criticize Republicans who are speaking out against his campaign.
(COMMERCIAL BREAK)
[16:15:04] JONES: Welcome back, Donald Trump says the shackles are now off him and he's now free to fight for the White House the way he wants to. The Republican presidential nominee was referring to Republicans who have pulled their support of his campaign.
Most notably, House Speaker Paul Ryan, said he'll no longer defend or campaign for Trump. In response, Donald Trump tweeted, "Our very weak and ineffective leader, Paul Ryan, had a bad conference call where his members went wild at his disloyalty." And it didn't end there. Trump also tweeted, "Disloyal Republicans are far more difficult than Crooked Hillary. They come at you from all sides. They don't know how to win -- I will teach them!" Mark Preston joins me now. Good to see you. Let's talk about Donald Trump and his tactics to start off with. And Civil War seemingly within the Republicans at the moment. How angry are Trump's core base of supporters with the Republican leadership?
MARK PRESTON, CNN POLITICS EXECUTIVE EDITOR: Certainly, Hannah, they have been angry from the outset of his candidacy. That's what really has fueled his primary win over the past year and of course into the general election. But it is very, very dangerous for Donald Trump just to play to this core group of supporters, because it's not a recipe for winning. Right now if you look at the most recent poll that has been released following the release of the video that showed him showing crude comments or saying very crude comments. He is down to 35 percent right now. That's at least five or six points below what his base would be. Which means that it is starting to erode underneath his foundation. So Donald Trump in a lot of trouble. His supporters are sticking by him by and large, but as we had into this final month of campaigning, Donald Trump is not in a good political position.
JONES: Paul Ryan though, when he said he wasn't going to campaign or defend Donald Trump any more. He was effectively waving the white flag on the oval office. This is effectively Hillary Clinton's election to lose now, and she is pulling out big guns tonight, I understand.
PRESTON: She is. Just as we're speaking right now, we have Al Gore down in Florida. We haven't heard a whole lot from the former vice president. Of course he was a vice president back in 2000 that loss that razor thin margin, if our viewers remember. There were the chads, the ballots that weren't counted. The fact that he won the overall vote but yet lost the electoral college. So Al Gore has been largely silent on political issues except for the issue of climate change. And he stood beside Hillary Clinton down in Florida today and she noted that when she's in office she's looking for Al Gore to stand by her side to help her with the whole issue of climate change. So certainly returning to the old to try and spring into the White House in 2016.
JONES: When we look to the possible future make up of Congress now, if it is the case there will be a sweep not only of the oval office, but also across Congress of Democrats. What does Donald Trump have to gain by alienating himself from the rest of the party? If he is successful? If he does win? He would not have any support within Congress.
PRESTON: So that's the interesting part right now. He is at 35 percent in this poll. He has alienated so many Republicans that they are leaving him right now. Given what he has said today, his comments today, I would expect in the next couple of days, you will see more Republican office holders denouncing him and disavowing their support for him.
Donald Trump for him to win, it would be almost a miracle at this point. I say that because it's the math at this juncture. It would be very difficult for him to win the states that he would need to win in order to get to the 270 electoral votes. But here point, if he did get there, he would have a very contentious relationship with Republicans on Capitol Hill let alone Democrats. But that's what we've seen throughout Donald Trump's whole candidacy. Quite frankly in his business life, he has always been contentious. And I think he's been combative in a way that he would look forward to that fight.
JONES: OK, Mark Preston, thanks very much for your analysis.
PRESTON: Thank you.
JONES: The creator of Donald Trump's reality show "The Apprentice" says he is not legally allowed to release footage from the show. Denying claims that he's blocking videos that may harm the Republican presidential candidate. A statement from Burnett and MGM said, "Mark Burnett does not have the ability nor the right to release footage or other material from The Apprentice. Various contractual and legal requirements also restrict MGM's ability to release such material."
Brian Stelter joins me now with more on this. Donald Trump himself has suggested that there were more videos that would indeed come to light.
BRIAN STELTER, CNNMONEY, SENIOR MEDIA CORRESPONDENT: Yes.
JONES: What are the chances of these being leaked?
STELTER: I think they are a very high probability that were going to see some tapes of Donald Trump from some sources. Whether it's "The Apprentice," or other interviews he's given in the past. They may not be as damaging as what we heard last week from Access Hollywood. But just think about how thousands of hours Trump has appeared on television, Ben wired up with microphones and been in front of cameras.
[16:20:02] It's inevitable. There's going to be more tapes. It's a question of how damaging they will or won't be.
JONES: And women as well. More women from his past coming out from the woodwork. Talking about their handling, at his hands, if you like.
STELTER: Certainly, we've heard a story, an account by Jill Harth, a woman who says that she was assaulted by Trump. These stories have been challenged. They have been scrutinized in the past, and they'll continue to be scrutinized. Trump has denied that some of the allegations in the past. But it certainly the case that he has interacted with female contestants on "The Apprentice," and staffers on "The Apprentice," who have said, that he would be inappropriate behind the scenes. That he would make sexual remarks. That he would make vulgar remarks.
The "Associated Press" has done good work covering this last week. And whether there are tapes or not from "The Apprentice," remains to be seen. They are locked away in a vault. And the producers who own the footage say they are not allowed to release it. So will it come out in more of a leak fashion? Will there be a hack? In some ways this entire election feels like it comes from hacks and leaks. So we'll see what comes in the next four weeks.
JONES: Brian, what do you make though of Trump's tactics now? He seems to try to appeal to his base. He can do no wrong as far as they're concerned. But he's certainly not broadening that out with 28 days to go. What's going on?
STELTER: He's not just doubling down. He's now tripling and quadrupling down on his base. If you look at this as a media expert, you might say, is he preparing the ground work for Trump TV? Is he thinking past the election and trying to cultivate an audience for a future media enterprise?
The reason why raise that is because he is a reality TV star. He is a businessman, and he is an entertainer. He has talked, or his aides have talked in the past, about possibly launching a network, or some sort of streaming service. Recently he's denied any interest in that. Says his soul focus is on winning this election. But now that were only four weeks away from this election, and as Mark Preston just said, it would be a miracle and if Trump were able to mount a comeback and actually beat Hillary Clinton.
You have to wonder if he's thinking beyond the election. Thinking about some sort of media enterprise. Because some of his behavior, some of his actions, again, quadrupling down on his base. The kinds of things he would do if you are cultivating an audience for a subscription streaming service like Netflix, or if you were thinking about launching a network of your own.
JONES: Very, very interesting. Brian, thanks very much indeed.
STELTER: Thanks.
JONES: We're on to South Africa now. And the finance minister, Pravin Gordhan is set to face charges of fraud stemming from his previous role at the countries tax office. The news was immediately felt through the financial markets sending the rand almost 4 percent lower against the dollar and hitting share prices as investors are worried. Gordhan's legal troubles could hurt investor confidence in the country. The finance minister is seen as a reliable figure in a country plagued by corruption. In fact, Gordhan believes the charges of fraud may be stemmed from his efforts to root out corruption.
Just last week, Gordhan spoke to Richard Quest about the possibility of looming legal troubles ahead.
(BEGIN VIDEO CLIP)
PRAVIN GORDHAN, SOUTH AFRICAN FINANCE MINISTER: We are not worried because I have not done anything wrong. Secondly, I've already described it this week as political mischief. And thirdly, hopefully these storm clouds will pass and some sense will come to those who think that they want to make the case against and about nothing in particular.
But these are parts and symptoms of political conversation in our own country and political noise as well. So, right now, I'm focused on my job as finance minister, running the treasury, and in three weeks' time, delivering what we call the region term budget policy statement.
(END VIDEO CLIP)
JONES: But despite his looming court appearance, Gordhan says he will continue to do his job including his fight against corruption. CNNMoney's Africa correspondent, Eleni Giokos is in Johannesburg for us tonight. Eleni, how important is this man, this finance minister, for South Africa's overall economic viability?
ELENI GIOKOS, CNNMONEY AFRICA CORRESPONDENT: Well I mean, Hannah, what you're seeing now is something that investors market forces hoped wouldn't actually come to fruition. Where even Pravin Gordhan, had said just last week that he cites this as political mischief that is coming to the fore.
And it's pretty important, because we've got a couple weeks to go before medium term budget policy statement. And then just a week after that, Pravin Gordhan, is expected to appear in court on these fraud charges, which is interestingly relating to him illegally offering a pension package to his former deputy when he was working at the Revenue Services. So it's all really just starting to hit home. Especially for the markets where you got the rand currently setting down around 4 1/2 percent. And remember the national prosecuting authority for the last year has been investigating Gordhan for different reasons.
[16:25:00] And in fact, every rogue unit that was established within the Revenue Services, and in the press conference today, we actually heard a lot about this rogue unit. And then towards the end we heard that Gordhan now faces charges on a very different matter. So this is creating quite a lot of confusion at a time where Gordhan has been trying very hard to allay investor fears about South Africa. Ensuring that people are now investing in the country. That investors don't sit on the sidelines anymore. So these are the things that are currently kind of going to be discussed. And I think it's really going to be a very big issue, hot topic until the medium term budget policy statement comes to the fore.
JONES: Eleni, we've already heard from President Jacob Zuma. He said that he gives Mr. Gordhan his full support. But how much of this really is political mischief and just a sign of inner turmoil within the ANC?
GIOKOS: What is interesting is the national prosecuting authority says this has got nothing to do with any kind of political mischief or perhaps political interference at well. And in fact this is the NPA acting as an independent body without fear, without favor as well. But we've actually seen Pravin Gordhan, being very vocal about corruption in the country in the so-called issues about state capture, which of course are allegations that a very wealthy family has been involved in inappropriate business relationships with the presidency.
So these things are now also starting to bubble underneath the surface in a country that has been plagued by a lot of political worries, and turmoil, and scandal. That has of course affected the economic situation as well. Remember, South Africa is expected to come through at 0 percent GDP, which again is exacerbating the situation further.
JONES: Eleni, we appreciate it. Eleni Giokos is live for us in Johannesburg.
Like many politicians in South Africa, both President Jacob Zuma, and the finance minister, Pravin Gordhan, began their political careers fighting apartheids. Now South African students say the fight for free higher education is their generation's cause. They argue that students' debt and rising costs of education are keeping many South Africans from participating in the economy. Now university campuses have been turned into literal battlegrounds. CNN's David McKenzie has more.
(BEGIN VIDEOTAPE)
BUSISIWE SEABE, STUDENT LEADER: They shut down the west campus effectively.
DAVID MCKENZIE, CNN INTERNATIONAL CORRESPONDENT (voice-over): There is frustration in these faces, anger, too.
SEABE: Comrades we're asking for moral and high discipline.
MCKENZIE: So student leader, Busisiwe Seabe, calls for calm. For more than a year they say their protest movement has been ignored. They want free education in South Africa. The government wants them back in class.
SEABE: It is something the youth have been calling for over 20 years now. We want more black students to be able to come to university and to have a better chance at participating in the economy.
MCKENZIE: Seabe says black students feel cheated by the government. Student debt continues to rise. Government subsidies for students declines. More than 20 years after the end of the apartheid, they say they are the lucky few that can go to college, even then it is a struggle.
KENEILWENEO MAHAPE, STUDENT: What kind of person is supposed to be learning while they're hungry. While they're living in the library. And it is an everyday situation. It's a lot of people. It's a lot of students.