Brazilian Government Convenes Special Meeting to Deal with Protests; Stock Volatility Examined
RICHARD QUEST, CNN HOST: Stocks started with a bounce and ended trounced, thank goodness it is Friday. The Brazil backlash the government calls emergency meetings to deal with growing protests. And drive on, plug in, swap out. Tesla drives to persuade users electric is convenient. I'm Richard Quest. It may be a Friday, but of course, I still mean business.</s>QUEST: Good evening. The stock market's bout of biliousness shows no sign of ending yet. Investors are still suffering from a two-day hangover from Wednesday night and the Fed's guidance on QE was released. It continues to turn stomachs on the trading floor. If you join me over in the library, you'll see just exactly what sort of a day it was and why Bernanke's comments saying that the tapering will begin or could begin this year and right into next. What you'll see exactly -- just look at this. It's all very grim at one level, the Dow Jones industrials currently; of course, it's been lurching in and out of the red. The Dow is now just off 0.8 of 1 percent. So just down a bit. But bearing in mind it had a robust start to the session. The Nasdaq was pushed down by weaker Oracle results and the anticipation of this tapering of the bond market, this -- you bearing in mind the tapering only begins when the U.S. economy's growing. But we're already starting to see -- we've talked so much about this over the last 48 hours. If you look, U.S. Treasuries, they're now up at a yield of 2.5 percent. The Fed, through QE3, is the biggest buyer or one of the biggest buyers of U.S. government debt at the moment. It's the fear of what happens. Now you'll remember, of course, yield and price are inverse. So where one goes up, the other goes down and in the opposite direction. So that is why we're now seeing prices being pushed down, yields being pushed up. And for many, of course, who have only seen prices rising, they're now suffering losses. Look at London, Frankfurt, Paris and Zurich. Heaviest losses came in the Paris market, up 1 point -- I beg your pardon -- the German market, 1.75 percent. It's all about less liquidity. You've really got to look at Greece for what sort of a Friday it was, an enormously heavy selloff, the market down 6 percent and the reason that the Athens General fell so sharply, more political turmoil. One of the coalition partners has defected from the government in protest over the closure of ERTF, the Greek public television station. Now the public administration minister's also handed in his notice and the totality of this, bearing in mind also that the troika has said that they are suspending part of the review of Greece, even though Greece has got money to pay the bills. Uncertainty is now back on the table.</s>ANTONIS MANITAKIS, OUTGOING GREEK PUBLIC ADMINISTRATION MINISTER (through translator): After the decision by the Democratic Left to withdraw from the government coalition and to withdraw its ministers, I will submit my resignation to the prime minister today.</s>QUEST: So that gives you an idea of the sort of taste of the markets and how that then transmitted itself through the rest of the world. Angela Merkel says the global market fallout shows that the economy isn't stable yet. She was speaking alongside the Russian President Vladimir Putin at a forum in St. Petersburg. John Defterios joins me now from St. Petersburg. John, am I right in assuming today you're in this very august company? You moderated the panel.</s>JOHN DEFTERIOS, CNN CORRESPONDENT: You are correct, with President Putin and Angela Merkel, Richard, we had about an hour and 40 minutes and about a half of that was spent on a Q&A; session, which included plenty of opportunities to ask some very direct questions from me and from the floor, to be candid. We covered everything from supply weapons to the rebels in Syria to America's Super Bowl rings -- we'll get to that in a moment. But going back to the market theme today, Richard, it's abundantly clear at the G8 meeting that President Obama and his economic team laid down the stones here for this transition of Federal Reserve board policy. I put the question to both President Putin and Angela Merkel about the market response and whether it was an overreaction or not. Let's listen to their candid answers.</s>VLADIMIR PUTIN, PRESIDENT OF RUSSIA (through translator): First, there needs to be a fundamental decision and Federal Reserve adjustment needs to happen at some point. It was not a surprise for us. I think it's a direct -- it's a decision going in the right direction. We need to get out of this situation which happened over the past years. The debt burden of the overall budget needs to be reduced. Other debt obligations need to be reduced and President Obama spoke quite frankly about this during the G8 and I believe it's a healthy decision. So I think that the reaction of the market was also to be expected. I think the adjustment of the policy will happen as soon as there is real awareness that American and international economy is being put on a healthy basis. That is only for the good.</s>ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator): The reactions show that we have not come back to full local balance because when you're talking about the sustainable growth in all world regions, and I would also mean that any announcements of central bankers should not cause this dramatic fluctuations and should not actually cause those price changes. So Italy tells you how much that global economy depends on the action of central banks. And otherwise a calm and sustainable situation that obviously would not happen to that extent. So that shouldn't stop us to return back to the normal and sustainable path of development.</s>DEFTERIOS: So, Richard, very clear here that both Chancellor Merkel and President Putin support this move of trying to start making that transition out from the very generous money. He was speaking about Greece today and the selloff that we had. I posed a question to Ms. Merkel as well about whether it's time to change the policy of austerity and start to readjust here so we can tackle that youth unemployment in the southern half of Europe. She said very candidly we're not competitive enough just yet. The readjustment is not finished yet. And although it is extremely painful, we should not finish the job until it is completely done which she suggests you could kick down, the can down the road for another few years but would boomerang on the European Union, and she didn't think that was the correct strategy, Richard.</s>QUEST: John, what is it like sitting opposite those particular two? Now come on, it's almost once in a career opportunity to actually have Merkel and Putin in front of you at the same time. What was it like?</s>DEFTERIOS: Well, it was actually a once-in-a-lifetime opportunity for sure, particularly as a journalist, to get that chance to pose questions, but what is very fascinating to be blunt here is the body language between the two, to see Vladimir Putin take the stage; he's as tough as he looks up close as he is from a distance, a great deal of personality. He's very forceful with his ideas, laid out a blueprint for Putin 2.0, Richard, because they've had very sluggish growth. So he wants to turn that around. They don't have the best relations between Russia and Germany, but they tried to turn that around today as well. And then watching Angela Merkel. She had prepared remarks, Richard, but when Vladimir Putin was speaking, she pulled out her note pad and wrote a whole final page for her speech there to give. And that was the real substance. And then I was wondering, will they really be that candid when it comes to the question-and-answer and indeed they were. In fact, in Turkey, for example, Richard, there was a lot of discussion that Germany doesn't like to get involved in foreign policy. She thought that the response to the protests by Turkey was too grand. She said it was disproportionate and she said, "I don't want to preempt the German position, but we do have a degree of skepticism about the accession talks with Turkey." And that prompted a response from Ankara today. So there was a very candid discussion indeed.</s>QUEST: And finally, briefly, we also had -- we also had President Putin and this question of the NFL ring that he has supposedly pocketed or it was a gift. Did it -- what happened on that one?</s>DEFTERIOS: Well, we posed the question to him; it happened in 2005. We were in St. Petersburg. Robert Kraft (ph), the owner of the New England Patriots, had the Super Bowl ring, apparently took it off and handed it to President Putin. He perhaps thought it was a gift. It didn't go back to Robert Kraft (ph). It's now in a museum here. So I asked the president, how can we solve this international dilemma, what's his plan? What would be his solution? This is what he had to say.</s>PUTIN (through translator): I don't recall that certain (inaudible) handed over. But there's such a big value for Mr. Kraft (ph) and for perspectives (ph). Things have a different (inaudible). I will -- I will ask our manufacturers to reproduce a really good visibly valuable thing made out of very good metal and stone in it and so that this object from generation to generation to be passed on within a team that is being represented by Mr. Kraft (ph).</s>DEFTERIOS: So a lighter side to Vladimir Putin, but the bottom line, Richard, going back to his very steely approach, the ring is not going back, not the original, to Robert Kraft (ph). We'll make another one for him.</s>QUEST: And we all know what picture will be on your Christmas card this year, you and -- I'm looking forward to getting a signed copy. John Defterios, congratulations, John, very good work with those particular two. Felicia Taylor is at the New York Stock Exchange. Felicia, good evening to you.</s>FELICIA TAYLOR, CNN CORRESPONDENT: Good evening to you. We're here at the New York Stock Exchange where reins has been fairly tight in today's trade, which isn't such a surprise after these last couple of days, where we've seen literally a 550-point drop. We've seen swings from about down 30 to up 40, pretty much all day long. But as one broker said to me, it's like over the last couple of days, we've taken the drunken sailor out of the marketplace. There are no fundamentals to trade on today specifically. So it's a very tight range-bound kind of a marketplace. But it is on very significant volume in comparison to most other trading days, Richard.</s>QUEST: It is -- it's quadruple witching day. Bear with me while I do a bit of explanation on this. This is quadruple witching. It happens four times a year when four types of financial contracts expire. So for instance, we have already the stock index futures which will expire and they will go in. We also have stock index options. They will expire. These are the financial jewels, the gimmicks, the gadgets that traders use to hedge their bets. We also have single stock futures expiring. And whenever this happens, it is always -- creates a volatility. Throw in single-stock options and you can start to see -- look. Ferment that is taking place in the market. This quadruple session is having an effect, Felicia.</s>TAYLOR: Double, double, toil and trouble. It certainly can create volatility. It usually adds to the volume in the marketplace. And that's exactly what you picked up on. It is a high-volume kind of a day. The volatility hasn't really been there. I'm joined now by Mark Newton of Greywolf...</s>MARK NEWTON, GREYWOLF EXECUTION PARTNERS: Execution Partners.</s>TAYLOR: Thank you. That's a long title. OK. So explain to me why this is such a significant day. It happens four times a year, March, June, September and December, always on the third Friday of the month. Well, it's a simultaneous expiration of four different classes of options and futures contracts. And so to have that happen on all one day, as you mentioned, the typical year is a big increase in volume on days like today.</s>TAYLOR: But these are major players. I mean, this isn't for the faint-hearted. This is not for the individual investors. These kinds of contracts are large and are usually by major hedge funds and investors. And that's what creates the volume and the volatility.</s>NEWTON: That's true and it doesn't necessarily have to create more volatility. And that's sort of a misnomer. But oftentimes if the trend has been very volatile leading into days like this then it can serve to exacerbate the already heavy volatility that we've already seen.</s>TAYLOR: Why are these days important for the marketplace? What does it mark? I mean, it's tough to explain what these contracts are. I mean, it's sort of looking into the future. They don't all necessarily have to expire on the same day, though.</s>NEWTON: No, that's correct. It's simply important because typically, way back when, it was only two different classes of options and futures. And all of a sudden they've added another four different one. Hence the term quadruple witching. It's important because they all simply expire at the same day and some of them can be exercised; some of them can out worthless. You might be assigned on contracts. And so traders or investors really get to know where they stand on their existing positions on days like today after expiration. And you see whether these contracts have been closed out or not.</s>TAYLOR: Thanks, Mark. So it's basically squaring your portfolio, whether or not you're able to make a profit on those kinds of trades. And that's why you see the added volume and volatility, Richard.</s>QUEST: Felicia Taylor in New York with double trouble. After the break, Brazil returns to the situation in that country, where protesters win the battle of the bus fares. Now, of course, it's all out dispute (inaudible).