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Dow Drops at Open; Dow Regains Ground; Pence Puts Pressure on North Korea. Aired 9:30-10a
Aired February 6, 2018 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:30:00] CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: For a stock market we haven't had one in so long.
STEPHEN MOORE, CNN SENIOR ECONOMIC ANALYST: Doesn't feel healthy.
ROMANS: I know, I know, I know, but we haven't had one in so long.
RANA FOROOHAR, CNN GLOBAL ECONOMIC ANALYST: Yes, but this is the problem (ph), it's normal.
ROMANS: Absolutely. So I think you're going to see several hundred points off the Dow here when we finally start seeing the numbers come up. Yesterday was pretty ugly, 1,100 Dow points lost yesterday. That's a record. Never have seen that many points.
But, remember, that's 4.6 percent.
ROMANS: That's not even in the top 20 of percentage declines. You think back in 1987, that was 22 percent.
FOROOHAR: Yes, it's really important to talk in percentages. When you talk about just big point drops that can seem incredibly scary --
ROMANS: There's your correction.
FOROOHAR: You know, 10 percent -- yes, 10 percent drops back in -- as Christine is saying, you know, 30 years ago, very, very normal. We may be going back to normal here.
ERICA HILL, CNN ANCHOR: Well, and you two just both brought up that point, both you and Stephen, in saying we're not used to this anymore because we have seen this gain and we've seen this rise for so long that it's been sustained and we're out of practice a bit.
MOORE: The other thing is, I've lived through a lot of these. I remember the '87 crash. I remember what happened in 2008 and 2009. And what's strange about this -- let's call it a correction --
ROMANS: OK. MOORE: Is that the fundamentals of the -- I mean I'll read you this headline from yesterday's "Wall Street Journal," "corporate earnings shine amid turmoil. Eight percent of companies exceeded revenue expectations." So the companies seem to be healthy.
I mean profits are the mother's milk of the stock market, right? If profits go up.
So, you've got that. You've got a good jobs report on Friday.
What seems to be spooking the market right now -- and you guys can rack (ph) me if you think I'm wrong -- is this fear of inflation.
MOORE: But I just don't see it out there. I mean there's been some increase in energy prices. The gold price went up a little bit, partly because when people get afraid, they go and buy gold.
MOORE: But, you know, companies tell me they don't have pricing power. They can't raise their prices.
FOROOHAR: You know, this is actually a really good point and I think that this is one of the reasons that we're going to see a lot of volatility in the next few days.
There's two storylines here. One is that, yes, we are getting more inflation. Last Friday we got wage numbers saying, you know, finally wages are rising. And that's actually bad for corporate profits because it's a strange juxtaposition between Wall Street and main street.
MOORE: That's for sure.
FOROOHAR: But there's -- but there's another story, and Stephen's right on this, there's another story that actually -- if you look at kind of the longer trend month by month, we're still not seeing enough inflation to be worried about.
Now, this puts the Fed and the new Fed chair, which is a whole nother thing --
FOROOHAR: You know, the market --
HILL: Talk about trial by fire.
FOROOHAR: I know your first day you come in and you get like what --
HILL: Welcome to the job.
FOROOHAR: You know, the markets may be testing him as well.
MOORE: But, you know, look, I mean -- I want to get back to this point, though, about Wall Street versus main street because --
MOORE: You know, we got -- look, we've wanted, as economists -- the weakness of the economy for the last decade or two has been wages.
MOORE: They've been stuck.
MOORE: Now we get a good -- you know, decent wage report and Wall Street freaks out about it. I mean --
FOROOHAR: That's a good point.
MOORE: Workers making more money and more people working does not cause inflation. And prosperity doesn't cause inflation. I mean I just think there's a mindset that's wrong on this.
ROMANS: But the -- but the stock market is not -- is not reflecting the economy.
ROMANS: The stock market can be wildly distorted from the economy, right?
MOORE: That's true.
HILL: Right. But I think it's important to point out because oftentimes that gets lost.
HILL: People look at the Dow, they look at -- and they look at one index here too and they say, oh, my gosh, here's what's happening.
HILL: We're tanking. And the fundamentals that we talked about are strong.
ROMANS: And we have not -- there's been FOMO, fear of missing out, for so long. And now it just turned into fear. You could see fear of missing out again.
ROMANS: You could find people find a buy point here and say, finally, after three years of the stock market being -- FOROOHAR: Ray Talio (ph), one of the big -- you know, big -- world's biggest investors is saying buy the dip. I think a lot of people are going to buy the dip.
MOORE: They're not doing it yet.
FOROOHAR: It depends on --
FOROOHAR: (INAUDIBLE) first. You know, we're still -- we're still going.
MOORE: The other thing is the interest rate -- the interest rate story because, obviously, inflation and interest rates parallel each other.
MOORE: But, you know, I'm old enough to remember in the '70s when we were worried about, you know, 15, 16 percent inflation rates. Right now we're talking about whether, you know --
ROMANS: Yes, 2.8 percent on a 10-year note.
MOORE: Yes. and, you know, a mortgage -- you know, what's a 30-year mortgage now, 3.5 percent?
MOORE: Now it might go to four. I mean those are hardly numbers for people to be jumping out a windows over.
FOROOHAR: I think complacency is a big issue here. We have been in a bull market.
MOORE: Yes. I agree with that.
FOROOHAR: We've been -- you know, for so long. If you look back 20, 30 years ago, 10 percent a year drops were totally normal. This market actually, if it had grown at an historic level, it should be about 25 percent lower than it is now. So, we may have farther to go to get back to normal.
MOORE: Well, how do you say -- why do you say that? I mean because earnings are pretty big.
FOROOHAR: Well, because if you look at historic -- well, if you look at historic growth in this market --
FOROOHAR: And you -- and you, you know, take out the kind of incredible, unconventional policies that we've had over the last few years --
MOORE: Right. FOROOHAR: The Fed throwing $4 trillion into the market, a lot --
MOORE: Right, right, right.
ROMANS: Which is not happening anymore.
FOROOHAR: Which is not happening anymore, which is another part of this. The Fed's actually pulling back. We knew this was going to happen.
FOROOHAR: Christine and I have been for the last several months saying, watch, there's going to be a correction, there's going to be volatility this year. And here we are.
MOORE: But for people watching this show who are worried about their 401(k) plan, as we all are --
ROMANS: Stephen's (INAUDIBLE).
MOORE: I mean now is not a good time to sell, you know? You don't want to sell on a dip.
ROMANS: You make the worst mistake.
MOORE: This is the first mistake of investors.
ROMANS: This is when you make a bad mistake. You should be rebalancing like every year for how old you are, how far you are to retirement and what you -- I mean that's what regular people should do.
I will say one thing, though, you used to advise the White House -- the Trump White House, the Trump team. And the president has used the stock market as a popularity test. And I think that is something that they're going have to shift away from because if we're going to see --
MOORE: Well, certainly last week. But it's still up 35 percent.
ROMANS: No, honestly, I mean, this is why presidents don't say, hey, look, the stock market's great because I'm great.
ROMANS: You know, they don't brag about stock markets for a reason, because this can happen.
FOROOHAR: It's kind of a rookie mistake. I mean presidents don't -- frankly, and to be fair, this is true of any president, they don't deserve as much credit or as much criticism as they get for the market.
HILL: Yes. No. But should they be. But if they are going to take some ownership, if you're going to own the rise, you have to own the fall. [09:35:03] FOROOHAR: Absolutely.
HILL: At the same time, even if you're not going to own the fall, Stephen, this is also a good opportunity to come out and say, look, I want to calm your fears. We heard a little bit of that messaging from the White House, but not directly from the president. Is that a missed opportunity?
MOORE: You mean to talk about -- I'm sorry, I'm missing your --
HILL: Just to talk about, hey, you may be seeing the dip and I've been telling you how strong the economy is.
HILL: Touting it yesterday in Ohio on the road, right?
MOORE: Well, we'll see if he makes a statement today because, you know, if we do get that correction --
HILL: Right, but would this be a smart move for the president to come out and say, hey, don't worry, this is a correction --
HILL: And this is happening because wages are strong, we had a strong jobs report.
MOORE: I agree with you. I mean he should say exactly what I said, you know, the fundamentals of the economy, wages, jobs --
ROMANS: They're buying the dip.
FOROOHAR: They're buying -- people are buying the dip now. You can see it.
MOORE: All right. Yay.
HILL: And, Abby -- and speaking of the White House, I want to bring in Abby Phillip, who's at the White House.
And, Abby, as you were pointing out earlier, we were hearing a little bit from folks within the administration, not so much from the president himself. What was the word this morning?
ABBY PHILLIP, CNN WHITE HOUSE CORRESPONDENT: Well, Erica, the White House is just cautioning that this is going to be a little bit of a correction, that the market needs to absorb some of the economic news that's been out there. And you're hearing from senior administration officials a lot more temperance in the message than you typically hear from President Trump, who has been, in recent weeks, touting the stock market very aggressively at every opportunity, arguing a recently as a couple of weeks ago in Davos that if his opponent in the 2016 election had won, the stock market would have been down.
So what you're seeing from the administration is a little bit of what you've been hearing from economists frankly that some of this news is simply just the market absorbing some changes to interest rates, the wage numbers. You're hearing them just say, hold on.
We haven't heard from the White House -- from the president today on this yet. He hasn't said anything on social media about the stock market. But we'll be looking to see -- we have a couple of opportunities to potentially ask him some questions today. We'll see whether he weighs in and how he weighs in. If he's able to strike the right balance and perhaps not say anything that might further spook the markets anymore and perhaps calm some of the fears of people who are actually looking at their 401(k)s and wondering what's going to happen next.
ROMANS: Looking at the market right now, it's down just 63 points.
MOORE: Just since we've been on the air. I see --
ROMANS: It's Stephen Moore. It's loving Stephen Moore.
I would just like to say, if you are now scrambling today for your 401(k) log-in information, this is not the time to do it.
FOROOHAR: Yes, don't.
ROMANS: Can you just do it around your birthday or like in July or something. I mean that --
FOROOHAR: Don't look at your portfolio.
ROMANS: If you are very close to retirement, you should not have all of your assets in the stock market. That's risk -- that's risk capital when you're -- when you're toward retirement.
FOROOHAR: I think that, you know, people have been complacent about that, too. And, you know, I'm the same. I mean everybody's been saying, look, you've got to be in stocks. You've got to ride this market. If you had rebalanced, you would have lost money.
ROMANS: You would have lost money.
FOROOHAR: But it's to what Christine is saying is true, you've got to look at, when do you need your money? What should the balance be? And I think a lot of people are going to be doing that now.
HILL: There is a lot of that going on because there is that -- there is that fear. And it's often tough for people to not have that knee- jerk reaction.
FOROOHAR: Of course.
MOORE: What's -- you know, what's the old saying about the stock market, it's driven by fear and greed, right?
MOORE: And when you get these sell-offs, people get in this fear mode, oh, I've got to sell everything I have. And this is the -- I mean, look, if you look at historically the dips in the stock market over the last 50 years, you know, in most cases they correct themselves pretty quickly.
ROMANS: The buying opportunity. Yes.
MOORE: And, you know, buying the dip, I don't think, while, you know, right now the market's down 100. It was down about 300, you know, an hour ago. But either hold -- if you're in the stock market for retirement purposes, you don't want to try to day trade. You don't want to time these things.
FOROOHAR: Yes. Yes.
FOROOHAR: For sure.
ROMANS: These moves are not mom and pop investors. These moves are derivatives traders who are betting against volatility.
MOORE: That's true.
ROMANS: They are program traders who are --
MOORE: They're computers.
ROMANS: All of a sudden there's a spike in the 10-year note yield and that corresponds with they have to sell some stocks. I mean that's how that works.
ROMANS: I will say, half of Americans don't -- are not in the stock market, too. You know, they care about their paycheck. And we have seen wages start to slowly creep up. The story of this year, I think, is going to be the wage story.
ROMANS: Does wage growth really kick in there. And if it does, we've hear -- we're hearing from companies that they can't find workers. What's the worker story going to be in America? You know, how are we going to get more workers to chase after the jobs we needs.
FOROOHAR: Well, that's -- that's a crucial point because when you go back to basics, growth is two things. It's the number of workers you have and how productive they are. And we actually have, you know, a lower population growth than we did when growth was much higher several decades ago. That's kind of a crucial fact that people forget in all the noise here.
HILL: Let me ask you a question before we let you all go, too. We were watching a lot overnight what was happening in the international markets. How can that be --
MOORE: Falling, falling, falling.
HILL: Volatility there. And that was the question of, what could that have as further impact now on the Dow? What we saw in international markets and what we're seeing now, are we starting to see that sort of level off a little bit too?
ROMANS: So the --
HILL: How connected is that?
ROMANS: So the international markets were reflecting what happened in the Dow yesterday.
ROMANS: So now the Dow is setting the stage again. Now we're watching U.S. stocks and U.S. fundamentals again. And so we're sort of resetting, right? So if you see the Dow close higher today, which could happen -- God knows what's going to happen today, right?
HILL: Right. We're ten minutes in.
ROMANS: You could see -- right, you could see European markets come back too.
But the European markets overnight, and the -- and the Asian markets all, I think, hit their 10 percent correction, right?
ROMANS: So everyone's had that correction. You know, on Wall Street they call it the pause that refreshes, you know, so maybe that's what it is.
[09:40:00] MOORE: Oh, what's the old saying, when we sneeze, the rest of the world catches a cold.
ROMANS: Oh my gosh, we have so many Wall Street sayings that --
FOROOHAR: We don't have to get them all out.
HILL: That will have to be another segment, though. But I've been -- I've been keeping a list here and they're all very good.
ROMANS: The trend is your friend. Don't try to catch a falling knife. FOROOHAR: Oh, man, Christine, I've got to raise my game.
HILL: OK, you have to save them for the next hour.
Christine, Rana, Stephen, thank you all.
North and South Korea may be cooperating at the Olympic games. Vice President Pence, however, is not letting that stop him from putting pressure on the rogue regime.
HILL: We keep following the Dow here. And as you can see -- well, it's fluctuating a little bit, but we are in positive territory. And the big question, of course, this morning was, what would happen after the opening bell. Well, just about 15 minutes into trading now, and, again, the Dow flirting, staying in positive territory for the last couple of minutes there. We did open down.
I want to bring back now Stephen Moore.
We did open down obviously a couple hundred points. And then we saw it drop to down some 400 points. Now, pretty quickly, after we hit that correction, I mean we're flirting here. So -- and, again, we're 15 minutes in.
[09:45:07] MOORE: Nice to see green, isn't it? A (INAUDIBLE) green arrow. Isn't that a beautiful thing?
HILL: It is very nice to see green. How much should we read into this, though?
MOORE: Well, it just went red again. So, you know, fluctuating.
HILL: And now we've back in the red. So, there you go.
MOORE: I think everybody's trying to figure out this market right now. So there are a lot of people that were buying on the dip, but there's still this fear out there. I'm just looking at the numbers as we talk.
MOORE: So, look, I do think that the economy is fundamentally healthy. I think that, you know, we've going to see -- when we reach the bottom, I don't know. But when you look at the structural elements of the economy on earnings, on employment, on hiring, on wages, they're all pretty strong. And you've got capital investment by businesses. So I'm bullish on the U.S. economy, not necessarily for the next few weeks but over the next six months.
HILL: Right. You -- also you didn't mention there in that list you didn't mention consumer spending, which obviously is a major driver of the U.S. economy because it's --
MOORE: Right. Well, consumer spending has been strong.
HILL: So when we add all of that up, and you were saying when we hit the bottom, give me a -- give me a sense of what a bottom is going to look like when we have all of these, as you point out, the fundamentals are all strong here. So what does that mean a bottom in this case?
MOORE: Well, that's a great question. I mean it means when people start getting back to normal. And, look, there's -- any time you get a big drop like we've seen, almost 2,000 points over the last week, people get afraid. They call their broker and say, sell my stock. I can't afford to watch this. I mean they have a mini heart attack.
And that's always -- you know, historically, that's the worst thing to do because then you're selling your stock at a low price rather than a high price.
HILL: Right. Right.
MOORE: And so I've been perplexed by the -- frankly, I've been perplexed by the -- by the depth of this decline. I think the economy has made -- it overshot -- go on the upside, but it seems to me that it's overshot now on the downside. And so I'm still -- I'm still thinking, this is not a bad time to own and buy stocks.
HILL: When we -- when we look at the dip that we saw too, the numbers are scary when we see them. When you talk about over 2,000 points in two days of trading.
MOORE: Great point. Great point.
HILL: Percentagewise, however, it's really important to look at the percentage and not necessarily at those four-digit numbers.
MOORE: No, I'll give you -- you know, that's a great point.
I mean so yesterday we lost, what was the number, like 1,200, 1,300 points.
HILL: Eleven hundred, yes.
MOORE: And people are saying, oh, this is the biggest point decline in, you know, history and so on.
HILL: Single day.
MOORE: But if you compare that, for example, with, in 1987, when the Dow fell by less points, in percentage terms it was about a 5 or 6 percent decline yesterday, but it was like a 15 percent decline, you know, before. So you've got to look at the percentages declines, not the number, because not -- you know, when you're Dow 25,000, a thousand point decline is a lot less important than when you're a Dow 10,000.
HILL: Right. Exactly.
MOORE: These are sort of math --
HILL: Right. That basic math always gets in the way, doesn't it.
I also want to bring in Christine Romans, who's with us now.
So, Christine, as we're watching this, and I know you're listening to the discussions, a lot of -- a lot of which you and I have talked about both on and off the air. As we're watching this, I mean is there a sense that this is what the day will be, back and forth between red and green?
ROMANS: Yes, it could very well be or you could find a whole bunch of buying here because I was talking to you about FOMO, fear of missing out. Just a couple of weeks ago the story was, I didn't get in the stock market. It is too late to buy? You know, there was just this complacency and this -- this greed. This need to get in the stock market. And it switched really, really quickly and turned just into fear. And it's switching again. I mean you're finding buyers here right now.
I will say that I think a lot of this is not mom and pop investors. It's not you and I tweaking our 401(k). This is a big, huge market. There are people computer trading. You saw a big move in the bond market. That sparked selling in the stock market. There was -- there were derivative bets against volatility, in the -- against -- with the direction of volatility. That was something we saw play out and make things a little more magnified yesterday.
The fundamentals of the economy are strong. And I want to say that. I mean this is the year to get a wage increase or a raise, right? This is the year where you're going to have an unemployment rate that could fall below 4 percent. So the economy here is strong. Corporate profits are strong. And I think we should just remind people of that.
HILL: Right, and we're going to --
MOORE: You know, Christine -- can I make a quick point on this?
HILL: A quick one.
MOORE: You know, because she knows the fundamentals very well.
I mean people are worried about interest rate increases, right? That's one of the reasons we had the stock market fall.
ROMANS: Yes. Yes.
MOORE: And yet, you know, the interest rates are still very low. I mean you're not going to make a lot of money buying bonds right now, right? And so I think people are starting to realize, wait a minute, shifting into bonds and getting a 3 percent interest rate, you know, you're not going to make much money on that. And so I think that's another reason you're starting to see a mini recovery here.
I mean whether it stays green, I sure hope it does. But, you never know. This has been such a volatile market over the last week or two.
MOORE: But we're up 70 right now and I'm praying that we stay in the green because, you know, a lot of people lost a lot of money in the last few days.
ROMANS: I would -- right.
HILL: We are going to have to leave it there. We'll continue to watch, though.
ROMANS: I would not bet on how it's going to end.
MOORE: Yes, that's right.
HILL: Yes, that is not where you want to put your money, is a bet on what happens today on Wall Street. There we go.
HILL: Christine Romans, Stephen Moore, appreciate it.
We will continue to watch this throughout the day.
A quick break here. We're back on the other side.
[09:54:23] HILL: Vice President Mike Pence is on a mission at the Winter Olympics in South Korea. The White House says he wants to make sure the pressure on Pyongyang intensifies and that Kim Jong-un isn't able to normalize his regime through propaganda at the games. Pence, though, is not ruling out talks with North Korean officials.
Ivan Watson is in Pyeongchang, South Korea.
IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: That's right. Mike Pence on his way here and trying to create a counter-narrative, saying he's going to be telling the truth at every stop. He tried to do this in Alaska. He's just landed in Japan. He basically said that he's going to be highlighting North Korea's dismal human rights record, and saying don't be fooled by the fact that they're cooperating, that they'll be attending the upcoming Winter Olympics here in Pyeongchang, that the international community must continue to isolate North Korea, to force it to give up its nuclear weapons.
[09:55:16] But he did leave the door open. He said, we haven't requested a meeting with the North Korean delegation that will be attending the Olympics, but we'll see what happens. So kind of sending mixed messages, a tough line, but also saying he might be willing to talk if they bump into each other, say, at a skiing event here.
Meanwhile, the North Koreans are coming in large numbers. A ferryboat just landed in South Korea with 140 member orchestra that's going to be performing here. There will be a high level North Korean delegation. And North Korean state media has been firing back at President Trump's State of the Union speech with some really insulting terms, calling him an old lunatic, as they have in the past, and then going one step further saying, quote, he cannot deodorize the nasty smell from his dirty body woven with fraud, sexual abuse, and other crimes.
What's interesting in this is that aside from the insults, that North Korean state media really didn't like the fact that President Trump highlighted the bad human rights record, that he profiled and brought forward defectors who talked about terrible human rights abuses and North Korean state media insisted that the system in North Korea is just and dignified.
HILL: Ivan Watson for us in Pyeongchang. We'll continue to watch that.
Ivan, thank you.
We are following breaking news out of Washington. Moments from now, we will hear from House Republican leadership.
Also, Treasury Secretary Steve Mnuchin on The Hill today. Will he have anything to say about the markets? We're on top of it all.