BUSINESS-01
Tower; Lagarde Lawyer: Case Against IMF Chief is "Bizarre"; Alaska
Airlines Completes Virgin American Deal. Aired 4-5p ET - Part 1>
Pleitgen>
of Floor Trading, DME Securities; Anil Dash, CEO, Fog Creek Software;
Randall Kroszner, Professor, Chicago Booth School of Business; Chris Baker,
Lagarde's Attorney; Bradley Tilden, CEO, Alaska Airlines>
confidence in the American economy. The President-elect has just finished
a summit with the top tech executives. The Amazon founder Jeff Bezos was
among the CEOs at the table. One of the lawyers for Christine Lagarde,
says he is concerned that her trial is becoming too political. Alaska
Airlines has now completed its $2.6 billion acquisition of Virgin America.
A fragile cease-fire is reportedly back on again after collapsing and
putting evacuations in jeopardy in Aleppo.>
Lawsuits; Aviation; Mergers and Acquisitions>
[16:00:00] RICHARD QUEST, CNN ANCHOR: .is but a memory. The Dow is down today on the back of a Fed rate rise. Only 120 odd points that the Dow fell, but even so, time for the closing bell. Oh. Well it might a hundred women in finance, but that was a very wimpy gavel that brought trading to a close on this important day. On Wednesday, it's December the 14th.
Yes, the Fed is raising rates. Janet Yellen is calling it a vote of confidence in the American economy. The other side of that coin, but Trump rally retreats. The Dow is off in his biggest drop since the election.
And call this the ultimate Internet chat room. The biggest names in tech sit down with the President-elect and his family.
I'm Richard Quest, we start a new week together and I mean business.
Good evening, it is the moment that investors have been waiting for all year. Some thought it was going to happen in the summer, but it didn't because of China. And then later because of Brexit. The first and only rate rise of 2016, and a decision with ramifications for consumers, savers and traders to say nothing of government. The Fed says the move is justified as unemployment is falling and the economy is growing at a steady pace.
Now if you look at the market they give a different reaction. The Dow ended the day with the biggest fall since before the election. It's not the worst of the session. That was about 3 o'clock, just after three this afternoon, but it pulled back and then dropped again. A short time ago the Fed chair, Janet Yellen spoke, and she said that the rise was a sign of confidence in the U.S. economy.
(BEGIN VIDEO CLIP)
JANET YELLEN, CHAIR, U.S. FEDERAL RESERVE: our decision to raise rates should certainly be understood as a reflection of the confidence we have in the progress the economy has made and our judgment that that progress will continue and the economy has proven to remarkably resilient. So, it is a vote of confidence in the economy.
(END VIDEO CLIP)
QUEST: now it is only the second rate rise since 2006. Rates continue to rise until '07, when of course, they started to fall as a result of the great recession. But it wasn't supposed to go this way at all. A year ago, the Fed projected in its called dot plot that there would be four rate rises in 2016. Now that was derailed by low oil prices, China, and a week jobs report. So, this is how you see -- just let's remember this is the rate rises that take us into the crisis. This is when the crisis, the subprime crisis and the housing crisis and the debt crisis, and then this dramatic fall once. And then again, and this is where we've been for all those years. Go over here and you'll see that rate rise last year. And there'd been expected to be four along in 2016, but nothing of the sort happened. Instead now investors focusing on the pace of interest rate rises to come.
So, if you had the Feds advent calendar, better known as the dot plot, see where their projections are, you get an idea. If you look at 2016, the Fed now believes 0.6 percent by the end of this year, which is pretty much unchanged from September. And that's just roughly where we are, between 5 3/4 and that's roughly where we are. But in the later years you do start to see projections higher. Starting in 2017 three rate rises are projected for next year, and the rates are projected to rise by up to 1.4 percent. That will be the limit at the end of 2017.
And then in 2018 we get to 2.1 percent in rates. And the same again in 2019, the same number of increases to 2.9 percent. Put it all together, they believe the longer run is 3 percent. These are just the projections. Obviously, the elephant in the living room is the Trump presidency. And Janet Yellen says she doesn't yet know how that will affect the Fed.
(BEGIN VIDEO CLIP)
YELLEN: We're operating under a cloud of uncertainty at the moment and we have time to wait to see what changes occur and to factor those into our decision-making as we gain greater clarity.
(END VIDEO CLIP)
QUEST: Diane Swonk is the founder and CEO of DS Economics. She joins me now. Look Diane, I look at the dot plot and I see a set of projections particularly on GDP that bear no relation to what the President-elect has said. He wants to hit 4 percent. But in the dot plot over the next three years, I don't see anybody putting 4 percent.
[16:05:00] DIANE SWONK, FOUNDER AND CEO, DS ECONOMICS: Absolutely not and that gets to the issue of -- the Fed is ultimately reacting to policy changes not promises. And the sausage making a Washington and those policy changes could be very different than what the President-elect is promising. Which does underscore a disconnect between what financial markets are betting on and the big rally we've seen since the Trump election. And what the Federal Reserve sees, and it has to be very cautious, because it really can't price that in. Although, I do think it's interesting that you really saw one outlier in Fed presidents participants in the meeting, it was a bit higher out there. And moving up that dot plot Chair Yellen clearly not comfortable with that, but admitted that in fact some participants in the meeting had factored and more fiscal stimulus, even though the overall projections on GDP had not moved up. There clearly is a lot more concern about inflation than there was just six weeks ago. And I think that's something that Chair Yellen is not comfortable with at this stage of the game.
QUEST: So, I've got the numbers behind the plot here. Nobody has really got their economy going gangbusters. I mean, there are one or two that have got -- well once got 3 percent on economic growth, but really that's just about it. Nobody's got it really moving that direction. Are they ignoring the obvious here?
SWONK: No, I don't think so. I mean I think the uncertainty -- and what you said, a cloud of uncertainty. We've got a President-elect whose promise a lot of things, both pro-growth and protectionist, which could inhibit growth. And so, there really is no clear answer to what his policies will actually mean. What will be implemented. And what he can do is things that are with Executive Order that can be much more damaging to growth and raise inflation, like raising tariffs. One of the things that he can't do quickly are actually moving the dial on fiscal policy and opening the spigot. The House of Representatives hasn't gotten the memo on that infrastructure spending bill he'd like to do.
QUEST: OK, so I look at the markets and the way the market took what it saw today. Now, I guess one could say for most of the session, anticipating today's decision, it was only down a smattering of points. Why should it have accelerated, the selling, when we get to the actual result?
SWONK: You know, I think it was really small, it was a small movement. What the Fed intended to do was try not to surprise the markets at all. Try not to move the markets at all. You know, the press conference was really something that I don't remember seeing Chair Yellen ever as uncomfortable as she was. She was clearly practiced. She had practice the kinds of questions she was going to get about the Trump presidency and the President-elect, but you know, the fact that she has to questions about how she's going to respond to tweets by the President-elect. I mean, this is clearly an alternative universe for the Federal Reserve.
And this is at the same time that their independence is being attacked even more aggressively in Congress. And they think they can get a bill passed that could inhibit the Feds independence under a Trump presidency. Whether that's true or not, we don't know. But the skittishness was clearly there. It was almost like a cat on a hot tin roof.
QUEST: Diane, good to see you. Thank you. Thank you so much. Nice to have your analysis with us today.
SWONK: Thank you.
QUEST: Now traders can put the champagne back on ice, some would say. The Dow failed to hit the 20,000 Mark. Alan Valdes is the director of floor trading at DME Securities. So, dear Alan, I need to know. Why did you hold your nerve? Why did the market hold its nerve throughout the session? The rumor was there -- it wasn't a rumor it was almost a fact. But when it actually happens the market goes down.
ALAN VALDES, DIRECTOR OF FLOOR TRADING, DME SECURITIES: Yes, we knew it was going to happen. It's been telegraphed for weeks now. But yes, we sold off, but it was a small selloff. And actually, volume under 400 million, very light for us down here on a Fed day. So overall quiet day. We knew it was going to happen. But you know, you are just seeing some profit-taking. It's the end of the year. These guys had a good excuse to get out. They got it out and it may just hover here for the next few weeks until after the first.
QUEST: So, we have now a clearing, if you like, of economic mists. The Fed does believe that rates will go up next year a touch faster than previously thought.
VALDES: But you know, let's be honest, you're talking one year out, two years out, three years out. It's kind of a stretch. I can see the first six months, but after that who knows what's going to happen. Like Diane said, the implementation of all Trump's plans could take years, never mind just the first few quarters. So, we don't know how it's going to go.
[16:10:00] So, it's a little bit of a stretch to say, OK, we're going to have three hikes next year. I could see maybe two hikes, but to go out three hikes could be a little much.
QUEST: The Trump rally, if such we call it, relies on those policies. At what point -- and I'm asking you to call the market, and that's always a dangerous thing to ask anybody to do -- at what point does that skittishness kick in towards the end of the year and people decide to take money off the table, either for book and squaring or just because why not take a profit.
VALDES: You know, you bring up a good point. And I think this year you might see a lot of tax selling. You usually have what they call tax rolls down here at the end of the year. But they may hold off if you made money, because if we are going to get a tax cut, which looks like that is going to come through. Why would you sell now, when you can sell may be in February or March at a different tax rate. So, I think you'll see a lot of losers selling taxes this year. But I think the winners are going to wait until next year before they make that sale. So, it might not be as big a turnover as usual.
QUEST: And finally, would you say the market held its nerve? Or did it just take it all in its stride?
VALDES: They took it all in stride. I mean, like I said, we knew it was coming. The volume was light. Nothing spectacular, energy down 2 percent, utilities down, we knew that they'd probably get hit in that kind of arrangement.
QUEST: I hope next week or the week after we shall be seen you singing, wait until the sun shines Nelly.
VALDES: I'll be here.
QUEST: I expect to hear you in good voice, Sir.
VALDES: I think so.
QUEST: Good to see you.
We will be having a Christmas tradition. It happens on Christmas Eve and on New Year's Eve when the traders sing, "Wait Until the Sun Shines Nelly."
I'll explain more about that with Paul La Monica in a moment. Shares of most U.S. banks fell along with the rest of the market. Goldman Sachs notched up a small gain. The bank is the biggest gainer on the Dow since election day. It's up more than 30 percent.
Paul La Monica, oh, I wish I'd bought Goldman Sachs. Not that I could, when it was 50, but I wish I'd bought Goldman Sachs.
PAUL R. LA MONICA, CNNMONEY CORRESPONDENT: I want to buy a QMB advent calendar. I like what you guys did there.
QUEST: Back to this. All right, the banks, Goldman Sachs is up because, what? It's got a lot of people going into the administration?
LA MONICA: I don't think that really is it. Of course, there are a lot of people who will sarcastically point out that all this change, nothing has changed, you still have Goldman as kind of a revolving door.
QUEST: So, why is it up?
LA MONICA: Goldman is up because all banks are up. The Fed is going to raise rates. That is good for Goldman. It's good for B of A, Citi, J.P. Morgan Chase. Pretty much every bank but Wells Fargo had a nice rally today. Wells Fargo has rallied though sharply since the election even despite its scandals. So, I think --
QUEST: It's latest insurance scandal, which is hitting the company. I just want to refer to Rex Tillerson, who is going to leave the company early. He was due out next March, when he hits the mandatory retirement age. In a statement, Exxon basically says they are going to let him go early, here you go, "given the significant requirements associated with the confirmation process, it was appropriate to move the retirement date."
LA MONICA: Yes, I don't think any huge surprise here with Rex Tillerson now needing the appropriate confirmation from the Senate to be Trump Secretary of State. It would probably be a distraction for him to stay at Exxon when he now obviously has this very important role if confirmed, with the Trump administration then he needs to repair for.
QUEST: Two very different views on the Tillerson nomination are starting to come out. Those who say he's got no foreign-policy experience and shouldn't be anywhere near it. And he has conflict of interest with Russia, Indonesia, Nigeria, and wherever there's oil. But the other saying, yes, but to get those deals, he had to have superb diplomatic skills and a steel core.
LA MONICA: Yes, I think it is a great point to note that all of these deals at Exxon Mobil had done under Tillerson with people and countries that may not have always been friendly to the U.S., shows a certain amount of diplomacy. Certain critics would point out that Exxon hasn't really done all that much to capitalize on the shale boom. That maybe they should have looked inward. Which is ironic, because Donald Trump is obviously looking very inward with all of his policies.
QUEST: One quick question, since we've got you here. We're going to be talking in a moment or two about the tech summit that he had today. But I noticed when I saw the pictures and the video of the tech summit, that his children were there at the table again. Now, at what point does this become weird?
LA MONICA: It already is.
QUEST: Well, they're going to be running the company, and they seem to be attending just about every -- one of them even interviewed the interior secretary as a perspective nominee.
[16:15:00] LA MONICA: I don't know how one could with a straight face say that a blind trust to be set up with this arrangement seemingly in place. I mean, where talking about -- forget about blind -- we've got like Superman type 20/20 vision, if this is really the case. There can't be a blind trust if Donald Trump is going to entrust his children to be in charge of his financial empire and still give them a seat at the table when business leaders and heads of state come along.
QUEST: Paul La Monica, thank you, sir.
Now we're going to talk about that tech summit, which has Amazon, Alphabet. They were all tech giants and they had one thing in common, they'd been on the receiving end of Donald Trump's wrath in the past. And today, Donald Trump said, he looked forward to working with them, and frankly, that they all had a line to his office whenever they needed it.
(COMMERCIAL BREAK)
QUEST: The President-elect has just finished a summit with the top tech executives, really top tech executives at Trump Tower. The Amazon founder Jeff Bezos was among the CEOs at the table. The meeting had been called by Mr. Trump, and he focused on jobs, trade in the economy. Amongst the others, the Alphabet's chief executive, Larry Page, the Apples, chief executive, Tim Cook, of course. Facebook's COO, Sheryl Sandberg, and Microsoft's Satya Nadella, Elon Musk of Tesla, and another one who is notably absent is Uber's Travis Kalanick, who's travelling. And Twitters, Jack Dorsey, who wasn't invited. It is all extraordinary when you think about it, bearing in mind that Twitter seems to be the President-elect's main form of communication over the press.
Musk and Kalanick are the newest additions to the Trump business advisory Council. The group which has announced earlier this month which includes J.P. Morgan's CEO, Jamie Dimon, and the Disney, chief, Bob Iger. So, you've got the tech, adding to the old school, adding to the financials, and we've yet to see with what that committee or roundtable is going to do.
Today his meeting began with the President-elect telling the tech leaders they are in his words, "a truly amazing group of people," and he said, "they're welcome to phone him anytime."
(BEGIN VIDEO CLIP)
[16:20:00] DONALD TRUMP, U.S. PRESIDENT-ELECT: I'm here to help you folks do well. And you're doing well right now, and I'm very honored by the bounce. We're all talking about the bounce. So right now, everybody on his own has to like me at least a little bit. But were going to have to try and have that bounce continue. And perhaps, even more importantly, we want you to keep going with the incredible innovation. There is nobody like you in the world. In the world. There is nobody like the people in this room. And anything we can do to help this go along and we're going to be there for you. And you'll call my people. You'll call me. It doesn't make any difference. We have no formal chain of command.
(END VIDEO CLIP)
QUEST: CNNMoney's Laurie Segall joins me outside Trump Tower. No formal chain of command. That's a different. We haven't heard that one before. But many of those people around the table did not support Donald Trump.
LAURIE SEGALL, CNNMONEY SENIOR TECHNOLOGY CORRESPONDENT: No. If you look at Silicon Valley and the tech community, they were actually very anti- Trump. There was, I remember, a petition that went out not long ago saying that Trump would be a disaster for innovation. You had even in light of this meeting, I was just in San Francisco last week, Richard, and you have people who have a lot of anxiety. I met an engineer who is caring around his passport. He's worried about the immigration policy. So, there's a lot of anxiety still in Silicon Valley. And this is kind of a meeting of the minds. It lasted two hours. And you're right, Jack Dorsey, the Twitter, CEO, notably not invited, which is interesting. I was told there was talk of jobs and economic growth and will begin to get some of those details trickling in. We don't have too many right now. A source told me before the meeting that the main focus would be on jobs.
Now, if you think about it, Donald Trump has been very critical of a lot of the people behind me in Trump Tower, who are there for that meeting. He criticized Apple, the CEO, Tim Cook, for manufacturing over in China. He said at one point he would boycott Apple for not opening -- giving the FBI access to the San Bernardino iPhone. He went after Jeff Bezos, the Amazon CEO, accused him of antitrust violations. Went after Facebook for their immigration policy. So, you can imagine it was probably a spirited conversation that will get more details on, Richard.
QUEST: So, why did they turn up?
SEGALL: You know, I think, if you're asking me from talking to a lot of folks in the tech community, you know, this is the president for the next four years, whether or not they were supportive then, they've got to have a conversation. You look at a lot of the regulatory issues they're going to be facing. And also, you know, you look at something like tax reform, what they're talking about with trade. Some of these things might not be so bad for the tech community. But it's this idea that the next four years are the next four years and these companies are businesses at the end of the day, whether or not they believe politically, and they do actually need to have a productive conversation at the table, Richard.
QUEST: Laurie, even as I ask that question, I realize what a stupid question it was. Sometimes I open the mouth and I should think a bit harder before I actually asked the question. Obviously, they're going to turn up if the President-elect invites them. Laurie Segall, thank you for being gracious, and not pointing out my idiocy to world. Thank you, Laurie Segall, at Trump Tower.
The Trump relationship with the tech industry has been fractious, as Laurie was saying. He feuded with Apple and Amazon during the crisis. Anil Dash is the tech blogger and chief executive of Fog Creek Software. I shall try and avoid any silly questions with you, sir. So, instead of why -- what do they what? What's their agenda?
ANIL DASH, CEO, FOG CREEK SOFTWARE: The tech industry agenda is very simple. We want to be able to continue to innovate. We want to be able to get the talent we need. The number one request, every single one of these CEOs across the board is, we can't get enough people. We can't get enough coders. We can't get enough talent. That is the primary concern.
QUEST: So, with that second one, we're talking about HB1 visa's --
DASH: That's certainly a component.
QUEST: -- and you're talking about visa's for people who've been at University here for years.
DASH: Even what they're calling the innovator visas, or the inventor visas that they want to be able to open up, but we look at a more fundamental aspect. We look at something like, Andy Grove, legendary cofounder of Intel, Hungarian refugee. We look at the father of Steve Jobs -- the biological father of Steve Jobs -- and that's a Syrian immigrant. We look at Larry's cofounder, Sergey Brin, at Google and Alphabet, and there somebody who is a Russian refugee.
QUEST: But assuming that the President-elect is in a fool, which he's not, then clearly his immigration policy is going to have to account for that. That if there isn't the skill set in the U.S. they're going to have to be imported.
DASH: But think about the fundamentals of business, you have to be able to trust the leaders decisions. You have to be able to understand and predict the way somebody's going to behave. Markets hate uncertainty.
[16:25:00] I don't think there is any idealistic, motivated, inspired, creative person on the world who thinks, I want to come to the U.S. and be an inventor in those molds who feels they have confidence and trust in what our immigration policy is going to be, and whether they'll be welcomed. Especially if they're a refugee and immigrant, somebody on the margins.
QUEST: What about, for example, issues of the supply chain? Take for example, Apple. Any of those that require goods, particularly Apple though, to be brought in. If Donald Trump starts trade disputes -- let's not call this a war -- a trade dispute with Asian countries where their products are either manufactured or assembled. That will disrupt the chain.
DASH: A 100 percent. There's going to be unpredictability. And the question is, is that going to mean a $3000 iPhone? Does that mean there's no iPhones for Christmas? Is that going to mean Apple can't innovate? Or is that can mean danger -- in the case of Apple, and even Google and some of these other companies -- the ability to control the supply chain and have that secrecy and that control to do the dramatic reveal, do the marketing events and all the things they do. Those are all threatened along with the ability of workers to flow and do all the other things were talking about. If there's not predictability. And so, we have a danger to that fundamental ability to execute a business.
QUEST: Do those companies have the ability to create more jobs in the United States.
DASH: Absolutely, yes.
QUEST: But are the skills here?
DASH: Not yet. And this is the fundamentals. If we look at a number of people getting a computer science degree. A number of people getting trained in advanced mathematics and the fundamentals of these businesses, we don't have that investment happening in the U.S. It's not happening in our educational system.
QUEST: Just pause one second. I just while we're still talking to you, let's see Donald Trump Jr. has just tweeted, "Honored to have sat in on this meeting. The most impressive group of minds I've seen assembled all looking to fight for America and U.S. jobs."
DASH: I'm glad that it's bring your child to work day, at Trump Tower, but I don't know what that has to do with being able to build tech jobs. There is no qualification -- I don't know Donald Trump Jr.'s background that well --
QUEST: You see him there.
DASH: -- I know that is not the peer of these other creators. Most of whom I've met and had conversations with or worked with. And so, there's a question here about respect for the business, respect for the work.
QUEST: Do you find it odd -- do you find it odd that his children are in that meeting?
DASH: I don't find it odd, I find it fundamentally disrespectful. I think they're probably all very talented people in their own way. If this were actually a meeting about the fashion business and about creating clothing lines, Ivanka's presence might even make sense. But for the most part these are people, titans of industry, the best at what they do and there is not one peer to them on the policy side, outlining the policies for the Trump administration, who is being met with. That's fundamentally disrespectful. So, you can't pretend to say, we care about these innovators, we care about the businesses they built. We want to help them support new jobs and new creation. And then bring your kids with you, who have no background in this.
QUEST: Get used to it, sir. Get used to it.
DASH: No, we're not can accept it. We're going to keep pushing.
QUEST: The test is whether or not the results follow the actions.
DASH: Hopefully so.
QUEST: Thank you for joining us. I much appreciate it.
Donald Trump feuded with the Fed during the campaign. He criticized Janet Yellen for keeping rates too low. Now today, Janet Yellen broke her silence about the Trump presidency. We'll discuss that and more after the break. It's a brave world.
(COMMERCIAL BREAK)
[16:30:42] QUEST: Hello, I'm Richard Quest, there's a lot more QUEST MEANS BUSINESS in just a moment, when Christine Lagarde's lawyer tells me the charges brought against the managing director of the IMF, in his words, "They are bizarre."
And you can try cheating on your partner, cheating the regulators is another story. Ashley Madison is paying a seven-figure settlement.
Before we get to those stories, this is CNN. And on this network, we guarantee the news always comes first.
In Aleppo in Syria the cease-fire aimed at evacuating civilians has crumbled after less than a day. The fighting has restarted. Activists say government forces have resumed their bombing. Casualties have been reported on both sides. It's believed some 50,000 people are still trapped in that last rebel hold pocket of the city.