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EARLY START

Holy Fire Prompts State of Emergency in Southern California; Prosecutors Expected to Rest in Manafort Trial; U.S.-North Korea Reach Impasse on Denuclearization; U.S. Military Flies Over South China Sea Islands. Aired 4:30-5a ET

Aired August 10, 2018 - 04:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(BEGIN VIDEO CLIP)

[04:30:27] UNIDENTIFIED MALE: Anybody else?

UNIDENTIFIED MALE: No, nobody's here. We need fire trucks.

UNIDENTIFIED MALE: Yes.

(END VIDEO CLIP)

CHRISTINE ROMANS, CNN ANCHOR: Forced evacuations overnight as homeowners wage a desperate battle against a raging wildfire.

PHIL MATTINGLY, CNN ANCHOR: NFL players seen kneeling during the national anthem last night. How will President Trump respond?

ROMANS: The so-called Manhattan Madam testifies in front of Robert Mueller's grand jury in just a matter of hours.

(BEGIN VIDEO CLIP)

MIKE PENCE, VICE PRESIDENT OF THE UNITED STATES: The time has come to establish the United States Space Force.

(END VIDEO CLIP)

MATTINGLY: The Trump administration, well, it's shooting for the stars. But what would this brand new branch of the military actually do?

Welcome back to EARLY START. I'm Phil Mattingly.

ROMANS: Nice to have you here again today. I'm Christine Romans on this Friday, 31 minutes past the hour. Let's begin here.

Breaking overnight, California's governor declaring a state of emergency as the raging Holy Fire inches closer to homes in the southern part of the state.

Here is what we know at this hour. The inferno is only -- only 5 percent contained. More than 21,000 people are under a mandatory evacuation and so far more than 10,000 acres have burned. These images emerging overnight. Massive flames from the Holy Fire

bearing down on this neighborhood in Lake Elsinore. Firefighters urging a man here, seen here, to leave as they saw him using a garden hose to put out embers on his roof. Earlier in the evening a man captured flames burning right in his backyard. He eventually left and told CNN he's not sure if he'll even have a home when we returns.

CNN's Stephanie Elam brings us the very latest from fire-ravaged Lake Elsinore, California.

STEPHANIE ELAM, CNN CORRESPONDENT: Christine and Phil, this is the concern. We are here at the Holy Fire and take a look at how this hillside is going up right now. And if you look downhill, if you slowly find your way downhill you will see that firefighters are taking a stand here. These blazes going up right behind these homes. It is casting so much dark smoke in the sky you can't even tell how bright it is here right now.

They are fighting this and one of the huge problems that they have right now are the winds, and these winds are not expected to let up anytime soon. So with that in mind, firefighters are saying that they are nowhere near containing this fire here -- Phil and Christine.

MATTINGLY: Yes, Stephanie Elam making a key point. The weather already today showing that it's not going to getting any easier any time soon.

All right. The national anthem controversy, kneeling controversy is alive and well in the NFL.

A full schedule of pre-season week one games last night. And take a look at Miami Dolphins' wide receivers Kenny Stills and Albert Wilson taking a knee during the anthem before taking on the Tampa Bay Buccaneers. Four members of the Jacksonville Jaguars and three players with the Seattle Seahawks also made statements by waiting in the tunnel during the anthem before taking the field last night.

And the NFL says no punishment will be handed out while it continues to work with the players' union on a mutually agreeable policy.

ROMANS: Later today, the Manhattan Madam, Kristen Davis, appears before a federal grand jury in Washington. That grand jury is hearing evidence in the Special Counsel Robert Mueller's Russia probe. It is not clear what prosecutors actually want to ask Davis. She interviewed voluntarily last week with members of Mueller's team. One possible line of inquiry is her longstanding connection to Roger Stone, a veteran political consultant and Trump adviser who has become a central subject in the Russia investigation.

MATTINGLY: The ubiquitous Roger Stone.

All right. The prosecution is expected to rest its case today in the fraud trial of former Trump campaign chairman Paul Manafort. Over the last eight days, the court has heard testimony about Manafort's extravagant wardrobe, secret offshore bank accounts, fake loan applications, and doctored bank accounts. His longtime deputy Rick Gates flipping to become the star prosecution witness. And as the defense prepares to offer its case up, a court filing from Special Counsel Robert Mueller is sending a clear signal that Gates is also assisting with the Russia probe.

We have more now from CNN's Kara Scannell.

KARA SCANNELL, CNN CORRESPONDENT: A new detail in the special counsel's investigation was revealed not in court but in a filing. Prosecutors asked the judge to seal a portion of a sidebar that took place when Rick Gates was on the stand.

Paul Manafort's attorney had just asked Gates about any interviews he had with the special counsel's office concerning his time on the Trump campaign. Gates worked as Paul Manafort's deputy on that campaign and continued on working with the inauguration. Now the judge agreed to seal it after prosecutors said that it revealed substantive evidence of an ongoing investigation.

[04:35:01] Now inside court the jury heard a lot of details about bank fraud allegations, specifically focused on one $3.4 million loan Paul Manafort had taken out from a bank. He had told the bank that it was a second home and prosecutors say that that was a lie and provided the bank's false information when it was actually rental property.

They showed Airbnb records indicating that Manafort had rented out the property and they also had one of the mortgage bankers testify. She said had she known it was a rental that Manafort would not have gotten as much money. Instead, he exceeded the bank policy by $2.4 million.

Now prosecutors have four more witnesses they plan to call. Two of those have immunity deals. And then prosecutors say they intend to wrap their case today -- Christine, Phil.

ROMANS: All right. Kara Scannell for us. Thank you, Kara.

A federal judge threatened to hold Attorney General Jeff Sessions and other top administration officials in contempt if they did not immediately return two deported asylum seekers to U.S. soil. District Judge Emmett Sullivan erupted in court when told the woman and her daughter were on a plane to El Salvador. Government lawyers had promised no one in the immigration case he was hearing would be deported until midnight Thursday at the earliest. Sullivan fumed, quote, "I'm not asking, I'm ordering." By nightfall, the deportees identified only as Carmen and her daughter had been returned to Texas.

MATTINGLY: An investigation under way right now in Texas after allegations surfaced that a child died after being released from an ICE facility. The spokesman for the Texas Department of Family and Protective Services tells CNN they now have the child's name and have opened a probe into abuse and neglect. The DFPS official testified to state lawmakers on Thursday that they couldn't investigate the alleged death which surfaced earlier this month. The official said despite repeated attempts, officials could not get the child's name or other key information. ICE tells CNN they do not have any information on the matter at this time.

ROMANS: Big questions about that story.

President Trump's in-laws are now officially citizens of the United States. Viktor and Amalija Knavs took the oath Thursday. They gained their citizenship through a category of family visas that the president had sought to end. Like their daughter Melania, Mr. and Mrs. Knavs immigrated from Slovenia. A source with direct knowledge says they have been living in the U.S. with green cards sponsored by Melania. The president has often denounced family-based immigration like, calling for an end to what we refers to as chain migration. The first lady's office declined to comment.

We offer our congratulations. It's the best gift American can give, citizenship.

MATTINGLY: Absolutely. Somebody (INAUDIBLE).

ROMANS: They are. And they really are. Best story.

MATTINGLY: All right. Kansas Secretary of State Kris Kobach says he will recuse himself from overseeing the still undecided gubernatorial primary race between himself and incumbent Governor Jeff Colyer. Kobach leads by a razor thin now just 91 votes after discrepancies were found in vote totals from at least two counties. He is expected to officially recuse himself today after Colyer made the demanded in a letter last night.

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KRIS KOBACH (R), KANSAS GUBERNATORIAL CANDIDATE: The counties did the counting of ballots so it's -- there's really no point to it but I said if my opponent wishes me to I'd be happy to. But it's fairly symbolic. I don't think he understands the process.

(END VIDEO CLIP)

MATTINGLY: All right. Thousands of provisional and mail-in ballots still have to be counted. Election officials are blaming a clerical error in one county where Governor Colyer was shortchanged 100 votes.

ROMANS: All right. The U.S. economy could grow by 3 percent in 2018. The first time in 13 years. But many economists think the boom won't last thanks to trade tensions and the fading effects of tax reform. According to a "Wall Street Journal" survey, economists predict 3 percent annual growth this year. That's much higher than previous predictions and thanks largely to a strong second quarter.

The U.S. economy grew 4.1 percent in the spring. That's the highest rate since 2014. Now that was fueled by a few temporary factors like tax cuts, boosting consumer spending and business investment. Also trade. Now a looming threat Tariffs prompted a rush in exports. Particularly soybeans. But economists expect tariffs to drag on growth after that. Just as the effects of tax cuts begin to fade and higher interest rates could depress consumer spending.

So by 2019, economists in this survey say the economy will grow only by 2.4 percent. Slowing to 1.8 percent in 2020. Now the Trump administration disagrees with these projections, predicting 3 percent or better. Higher growth rates are necessary to upset a looming trillion-dollar budget deficit.

A budget deficit, by the way, that is spiking here because of tax cuts among other things.

MATTINGLY: Corporate spending as well. Yes, look, trade. It's all about trade at this point.

ROMANS: Right.

MATTINGLY: You made the point earlier this week. The current economy is so robust.

ROMANS: Yes.

MATTINGLY: The recovery now on its decade mark, I guess?

ROMANS: Yes.

MATTINGLY: It's still continuing but trade is the big wild card.

ROMANS: It really is.

MATTINGLY: All right. Tense moments in the skies. China warned a U.S. plane on a mission over some hotly disputed islands. A live report just ahead.

ROMANS: And a teenager, this teenager recovering after being pushed off a bridge by her friend.

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[04:44:10] MATTINGLY: The U.S. and North Korea in a verbal standoff this morning. Pyongyang insisting some, quote, "high-level officials in the administration are thwarting President Trump's will by amping up international pressure on the Kim regime to denuclearize." On the other side, diplomatic sources tell CNN the U.S. has made specific proposals for a fully verified denuclearization. All of them to this point have been rejected by the Kim regime as, quote, "gangster like."

For the latest on the latest impasse, let's bring in CNN's Will Ripley live in Hong Kong -- Will.

WILL RIPLEY, CNN INTERNATIONAL CORRESPONDENT: Phil, this really is a surprise to almost no one that this process is turning out to be extraordinarily difficult and slow and frustrating. The North Koreans are simply not going to be willing to give up a large amount of nuclear weapons right away. They want it to happen over a long period of time. They want relief from sanctions with each small step that they take.

[04:45:03] And so when Secretary of State Pompeo traveled to Pyongyang in early July and basically asked repeatedly for North Korea to make this big move in terms of denuclearization and the North Koreans repeatedly said no, the tension escalated. And then there is this public kind of spat, this back and forth between the U.S. and North Korea, you have Secretary Pompeo, Nikki Haley at the U.N., National Security adviser John Bolton, all kind of making this case that North Korea is not living up to its end of denuclearization.

Sanctions should be enforced or perhaps even stepped up. The U.S. apparently told the countries not to send high-level delegations to a major National Foundation Day ceremony that's scheduled to happen next month. And now you have North Korea coming out with this statement. Questioning U.S. intelligence that says they're not denuclearizing. They say it's fabricated. Does that sound familiar?

They continue to praise President Trump's vision and say it's lower- levels in the United States government that are trying to undermine the denuclearization process. This is really teeing up what I believe is going to be a North Korean push for a second summit with President Trump. We had a source earlier in the week tell us there was a strong possibility everything in the North Korean messaging right now indicates they want President Trump to negotiate directly with Kim Jong-un. They don't want to do it at a lower level because they feel frankly it will get a more favorable deal in the end -- Phil.

MATTINGLY: Yes, Will. It's a fascinating dynamic. You've been talking about it now for weeks. They're going straight to the president trying to essentially cut out his team. We'll see if it works. There's actually a legitimate possibility.

Will Ripley, in Hong Kong, thank you as always, my friend.

ROMANS: All right. Tense moments in the skies over the South China Sea just moments ago. The Chinese military warning a U.S. surveillance plane six times as it flew over the hotly contested area where China has built up extensive military bases on manmade islands.

CNN's Ivan Watson aboard the P-8 Poseidon spy plane and now joins us from Okinawa. What happened?

IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: Hi there, Christine, yes, I just got off this reconnaissance plane and we got a very rare look, basically an exclusive for a U.S. news organization on board this plane at China's controversial manmade islands in the South China Sea. It staked its claim in a huge body of water that other countries in the region like Vietnam and the Philippines have also claimed by just building these giant islands that have airstrips. They've got radar domes and towers and practically cities out in the middle of the sea.

A four and five-story high concrete buildings. That's what four of these manmade islands during our tour. And while we were flying, we were challenged at least six times by the Chinese military which instructed our Navy crew to leave immediately to avoid a misunderstanding. At which point the Navy crew responded with a scripted answer arguing that this is international air space. And the Navy plane has a right to be there just like a plane from any other government or country in the world. That said, the planes were staying about 12 nautical miles from the

perimeter of these manmade Chinese islands. But the sheer scale of the investment that China has made in these manmade islands is really somewhat staggering. Again these are airports in the middle of the sea. Virtual cities, one of them had a manmade harbor. The Navy crew counted at least 85 ships in its manmade harbor.

And one of the concerns is that by building these islands, China could try to lay claim to any energy deposits that could be beneath the sea floor, which could be very lucrative and that other countries that are much closer like the Philippines would definitely want for themselves. So the standoff continues over this. The U.S. government has accused China of militarizing the islands. And China claims that it has right -- the right to defend its own territory.

What's very clear, Christine, is that the Chinese don't look like they're going to be going anywhere away from these manmade islands they spent so much to build any time soon -- Christine.

ROMANS: Clearly making a big investment there, the Chinese are. And the U.S. -- the point of the U.S. mission there that you were on was to promote the freedom of navigation, right, under international law.

WATSON: Those are technically a slightly different mission that are typically conducted by U.S. Navy war ships and ships from other governments like Australia. This was described to me as a routine patrol conducted frequently by planes like this to survey the extent of the construction and developments on islands like this. And the Pentagon has accused the Chinese military of placing war planes on these islands. Placing surface-to-air and surface-to-surface missiles and electronic jammers on these islands as well, suggesting that they could be used as forward-operating bases.

[04:50:08] And Secretary Mattis, the U.S. secretary of Defense, has highlighted the fact that the Chinese leader Xi Jinping during a visit to the White House in 2015 vowed there would be no militarization of the South China Sea. The way China responds to these accusations, it goes, hey, you're flying warplanes here. That's militarization as well. So you've got competing narratives here in what is a dispute over maritime territory as well.

ROMANS: All right. Ivan, great access. Thank you so much for bringing that to us.

Ivan Watson for us in Okinawa.

MATTINGLY: Incredible real-time --

ROMANS: Yes. Really interesting.

MATTINGLY: A story that, meantime, if you talk to people in the Pentagon, you talk to people on the Hill is far more important --

ROMANS: Yes.

MATTINGLY: -- than people are really giving any credit for it. ROMANS: This is a big -- this is a big story.

MATTINGLY: No question about it.

All right. Vice President Mike Pence is calling for the establishment of a Space Force by the year 2020. He laid out the preliminary plans for President Trump's space force during remarks at the Pentagon on Thursday. In June the president directed the Pentagon to establish this new military branch to oversee war fighting in space. Hence echo the president's sentiments saying the new move would ensure American dominance in the final frontiers.

(BEGIN VIDEO CLIP)

PENCE: Previous administrations all but neglected the growing security threats emerging in space. President Trump stated clearly and forcefully that space is, in his words, a war-fighting domain just like land and air and sea.

(END VIDEO CLIP)

MATTINGLY: Now the new military branch would require congressional approval. But the Trump re-election campaign has already launched its own effort. It's calling on supporters to help select the Space Force's official logo. I don't think that's actually what's happening but, you know, campaign stuff. It will be displayed on merchandise on the president's re-election campaign site.

All right. NASA is set to launch a solar probe in the next two weeks that will fly closer to the sun than any previous space mission. The Parker Solar Probe will come within 3.8 million miles of the sun's surface. Trying to unlock the mysteries like why the sun's corona is up to 100 times hotter than the surface. The mission is expected to take about seven years.

ROMANS: All right. Buffalo Wild Wings wants to add something new to its menu. Sports betting. Will you wager with your wings?

MATTINGLY: I love it.

ROMANS: CNN Money is next.

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[04:57:03] MATTINGLY: A teenager in Washington State pushed off a foot bridge by a friend is recovering and now speaking out. The video of 16-year-old Jordan Holgerson being pushed has gone vial. Speaking from the hospital she described what it was like to plummet about 50 feet.

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JORDAN HOLGERSON, PUSHED OFF BRIDGE: In the air, I think I might have fainted, but when I hit the water I was definitely awake and aware. I was trying to push myself forward so I could be like straight up and down so that my feet hit first, but that didn't really work. (END VIDEO CLIP)

MATTINGLY: Holgerson broke a number of ribs and damaged a lung. It will take weeks to recover. Local media report the friend that pushed her may face charges.

ROMANS: All right. Let's get a check on CNN Money this morning. Global stocks lower today. Weighed down by trade fierce and those new sanctions against Russia. It was a mixed day on Wall Street. The Dow and the S&P 500 close lower. There was a drop in energy and financial stocks. But the S&P 500 is still less than 1 percent shy of a record high. And the tech heavy Nasdaq closed higher for the eighth session in a row after Amazon hit a record high. Amazon is up 62 percent his year. Tech is the best-performing sector so far this year. Tech companies make huge profits and they're largely immune to trade fears.

Investors having serious doubts of Elon Musk's plan to take Tesla private. Tesla stock fell again yesterday by nearly 5 percent wiping out all of the gains fueled by Musk's original announcement -- Twitter announcement. Remember on Tuesday he tweeted that he had secured funding $420 a share. Well above where the stock rate is right now. But he offered no further details.

Investors are kind of skeptical now about this. Adding to that doubt, a possible probe of Musk by Wall Street's top regulator. The SEC looking into whether that statement was true and why he announced it on Twitter.

All right. Buffalo Wild Wings wants to add something to its menu. Sports betting. Will you wager with your wings, Phil Mattingly? In May, the Supreme Court allowed states to legalize sports betting. Three states, New Jersey, Delaware and Louisiana have already done so. So the chain of sports bars says it is exploring ways to offer sports wagering at its restaurants. Buffalo Wild Wings has about 1200 restaurants nationwide.

That story just makes hungry, that's it.

MATTINGLY: The important thing to note is that on Sundays, you don't ever want to leave Buffalo Wild Wings anyway. Right? Like you get there at around 11:00, to pregame for the 1:00 then you've kind of move through all the meals. So if have the gambling right there?

ROMANS: There you go.

MATTINGLY: One stop shop. It's perfect.

ROMANS: We know what you do on the weekends, though.

MATTINGLY: I -- if you gamble allegedly. If people gamble.

All right. Here we go. One more hour. Get ready for it. EARLY START continues right now.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Anybody else?

UNIDENTIFIED MALE: No, nobody's here. We need fire trucks.

UNIDENTIFIED MALE: Yes.

(END VIDEO CLIP)

CHRISTINE ROMANS, CNN ANCHOR: Forced evacuations overnight as homeowners wage a desperate battle against a raging wildfire.

PHIL MATTINGLY, CNN ANCHOR: NFL players seen kneeling during the national anthem last night. How will President Trump respond?

ROMANS: The so-called Manhattan Madam testifies in front of Robert Mueller's grand jury in just a matter of hours.

(BEGIN VIDEO CLIP)

MIKE PENCE, VICE PRESIDENT OF THE UNITED STATES: The time has come to establish the United States Space Force.