Volatility Returns, Dow Loses 470 Points; IMF Says China, Commodities, Fed Shaking Markets; Market Volatility; Oil Prices Fall After Big Gains; Iran Could Add to Global Oil Glut
RICHARD QUEST, HOST: Turkcell ringing the closing bell on a terrible day on Wall Street, the Dow Jones off more than 400 points. Markets across the globe were sharply lower.</s>QUEST: A firm, but not exciting gavel to bring trading to a close on Tuesday, it's September the 1st. Fear is back. September starts with the stock markets around the world all taking a nosedive. There'll be bumpy roads ahead. Christine Lagarde of the IMF warns of more volatility to come. And as oil prices are sinking, Iran's oil minister tells CNN there's even more cheap crude on the way. Look at the markets, they are truly awful. I'm Richard Quest, and I mean business. Good evening. We saw good-bye to awful August, but unfortunately, it's replaced immediately with a stormy September, or at least that's way seems -- things seem to be moving on the first day trading of the new month. The global financial markets can't kick the volatility, and once again, it's China and the slowing economy there that's being blamed. Join me at the super screens as we head towards the Dow. Let's just stop and show you. All the Asian markets were down sharply, 3.8 percent, 2 and 1 percent. In Europe, the same: the Paris, the Xetra DAX, the FTSE, all down more than 2 percent. And in the United States, the broader market down the best part of 3, NASDAQ best part of 3, Dow Jones Industrials 2.8. And look at the chart. You'll see that the market opened lower, never really recovered, and almost at the lowest of the day. It was off 500 points at one stage. The 300 points at the beginning, 500 in the last half hour, and a close of round about 469. And looking around the world, not a single major market has closed in the black, with London hit with the worst losses, all exposed to commodities. After a three-day rebound, oil prices tumbled way down again. Look at that: West Texas off $4, Brent down $5. Joining me now from the New York Stock Exchange, Teddy Weisberg, president of Seaport Securities. Teddy, what happened? I mean, we got rid of August, and we thought September might be better, so what happened today?</s>TED WEISBERG, PRESIDENT, SEAPORT SECURITIES: Well, I think we just -- reasserted the negative trend that actually started a couple of weeks ago. And in fact, if you -- you can go back almost to the last three or four months, we have seen continued weakness in commodities. Certainly in the energy sector. But way beyond energy, which basically was signaling slow growth, no growth around the world. And you know, it just -- things just don't happen in a timely fashion. It took a little time for all the negative things to pile up, and I think today was just reasserting the negative trend --</s>QUEST: Right.</s>WEISBERG: -- which began a couple of weeks ago. And I suspect we're going to be on the negative side of the equation for a while, unless something dramatically changes, which seems unlikely as we speak.</s>QUEST: As I looked at the market, the US market today, it traded in that range for most of the day. It never really tried to get its legs.</s>WEISBERG: Never. Never. I would agree. The screens we watched up in the office and on the floor were basically all red all day. Every once in a while, you'd see a little green, but you could count the green ticks on one hand. And they had them pinned down pretty good. And it was one of those days where there's simply no place to hide. And unfortunately, the way stocks trade now, because of all the rule changes, and there's so much --</s>QUEST: Right.</s>WEISBERG: -- momentum into the trading that it -- they're kind of throwing --</s>QUEST: All right.</s>WEISBERG: -- the baby out with the bath water.</s>QUEST: Now, let's look at the Dow 30. I mean, I know you prefer, obviously, the broader market, but if we --</s>WEISBERG: No, no, Dow's fine, Dow's fine.</s>QUEST: But if we look at the Dow 30 and the stocks that were in the Dow 30, I was very surprised to see Apple down 4.3 percent. Apple's the largest loser, seemingly, of the day. I can understand the China relationship to it, but Apple normally is quite resilient.</s>WEISBERG: Well -- but I think the issue, it's not about Apple. It goes back to just what we were talking about. It goes back to the fact that momentum takes over, there's literally no place to hide, and if people want to raise money, there's a tendency to sell the good stocks and keep the bad ones. Quite frankly, they should be doing the opposite, they should be selling the bad ones and keeping the good ones, because at some point, as history has proven, we'll get through this downdraft and get back into positive bias. But unfortunately, they don't ring a bell, and they don't tell us where that is. So, why is Apple down percentage-wise more than the market? First of all, the stock is over-owned and if you're nervous and you want to raise money, what are you going to do? You'll sell your Apple. Or you'll sell whatever it happens to be. General Motors or Ford. And there is just a tendency when people get nervous and scared --</s>QUEST: All right.</s>WEISBERG: -- and I don't know that we're there yet -- they sell the good ones and they keep the bad ones.</s>QUEST: Teddy, thank you for joining us. Good to hear your analysis. And you even had an audience in front of you as well.</s>WEISBERG: Yes, I know. Yes.</s>QUEST: Charge them money for it. Charge them money. Thank you, very much, Teddy Weisberg.</s>WEISBERG: You were standing right in the shot.</s>QUEST: That -- believe me, I've known Teddy for years on the Exchange, and Teddy's one man you don't want to get on the wrong side of. That's the way the markets traded, you've seen that. And one of the events that took place during the course of the day, the IMF's managing director, Christine Lagarde, has identified three factors triggering the volatility in the global markets. As we go around the world, I'll show you exactly those three that she talked of. The first is China. New manufacturing numbers show that this vital section is deteriorating at its fastest rate in six years, the so-called manufacturing, the PMI, Purchasing Mangers' Index, under 50 we know, but down the best of -- that's the worst performance it's had for some three years. And Christine Lagarde of the IMF says China's growth is slowing and the fallout is worrying.</s>CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: The transition to more market-based economy and the unwinding of risks built up in recent years is complex and could very well somehow be bumpy.</s>QUEST: Bumpy it may be, but if China is the catalyst, now let's get underneath and look at, say, for example, the commodities, and you'll see what I'm talking about. Because commodities are a huge reason. Weak demand in China helped oil prices fall as much as 7 percent on Tuesday. And remember, this time yesterday, you and I were talking about an 8 percent rise in oil prices, and now we're talking about an exact reversal by the same amount. So much oil sloshing around the world. Lagarde says falling commodity prices are here to stay. And to factor in and complicate it, Iran is now to join the party. The Iranian oil minister sat down for an exclusive interview with John Defterios, and the minister's promising Iranian oil will start flowing as soon as possible.</s>BIJAN NAMDAR ZANGENEH, IRANIAN PETROLEUM MINISTER: Can we wait and not produce after lifting the sanctions? Who can accept it in Iran? Do you believe that the nation of our country will accept it, not to produce to secure the market for others? The first oil producer in the Middle East, can we lose our share in the market? It's not fair.</s>QUEST: So, you've got China, you've got commodities, and let us not forget the United States. Signs of the firming recovery, interest rates rise could be coming sooner rather than later. Janet Yellen and the Fed have signaled September at the earliest might happen still. September has begun. The meeting's not until a couple more weeks, and emerging markets are on edge. A rate rise could happen despite the recent volatility. All of this we factor in together to talk to Ed Lazear, the former chairman of the White House Council of Economic Advisors under George W. Bush. Ed joins me from Stanford in California. I don't think I'm being over exaggerating when I say it's a mess.</s>ED LAZEAR, FORMER CHAIRMAN, WHITE HOUSE COUNCIL OF ECONOMIC ADVISORS: Well, it certainly is a mess, and I wish it were easy as listing three factors and using those as the explanation. Unfortunately, I don't think that any of them go very far to telling us what's actually going on and why prices have fallen so rapidly for such a significant amount of time now. Particularly -- let's go back to China. I think -- let's start with China, because it's the one that everybody talks about. Let me say two things on China. First of all, while we get a bit of new news every day on China, it's not the kind of news that is compatible with the kinds of changing that we're seeing in the market. But the more important point is this: if you look at economies like the United States -- and I'll turn to Europe in a minute, let's start with the United States. If you look at an economy like the United States and you say, how much could China contribute to declining GDP in the United States, the answer is about a half a percentage point of growth.</s>QUEST: Right.</s>LAZEAR: So in other words, the slowdown in China, even a very significant slowdown in China, could cost us direct effect and indirect effects about a half a percentage point of GDP growth. Now, that's not trivial, but it's certainly not something that would explain --</s>QUEST: All right.</s>LAZEAR: -- a 7, 8 percent decline in the stock market. So, that just can't be right.</s>QUEST: So, what do you --</s>LAZEAR: It can't -- the arithmetic doesn't add up there.</s>QUEST: What do you believe, then --</s>LAZEAR: Go ahead, please.</s>QUEST: Well, what do you believe is at the core of this? And what needs to happen?</s>LAZEAR: Well, I wish I could tell you what was at the core. Unfortunately, what I'm going to tell you is what actually is not going on. And to my mind, I always hate to outguess markets because I'm basically a believer that the market has better information than about anybody out there. So, I take my cues from the market. But I will tell you that if you look at the market right now and you say what is the market projecting for the United States, the market data are telling us that we have now gone from a projection of about 3 percent GDP growth over the next four quarters to about a 1 percent GDP growth over the next four quarters. So, that's significant. And you could argue that whatever they're seeing out there is causing the future growth to fall, and that by itself could be the thing that is causing the stock market to fall.</s>QUEST: And I -- let's talk about the Fed, because we're getting distinctly --</s>LAZEAR: Sure.</s>QUEST: -- mixed messages. Stan Fischer talks about --</s>LAZEAR: Yes.</s>QUEST: -- inflation.</s>LAZEAR: Absolutely.</s>QUEST: Dudley says there's no compelling reason. Other Fed governors seem to be --</s>LAZEAR: Yes.</s>QUEST: So, we've got an employment report on Friday. Do you believe September is still a realistic possibility?</s>LAZEAR: Well, I think it's a possibility. I personally would be surprised, given the volatility that we're seeing right now, if the Fed were to add new variables to what's going on. So, if I were guessing, I would think they'd push it to the end of the year. But again, you can't forecast what people are going to do very accurately. But I think that's probably what they would do. The reality is, had they done this earlier and had they actually engaged in raising interest rates, say, a year ago or so, they would be in a very different position right now where they could actually slow things down and perhaps reduce the amount of volatility in the market. Right now, they don't have a lot of degrees of freedom. There's just not a lot of room to operate because they haven't taken the steps in the past that perhaps they should.</s>QUEST: Ed, it's wonderful to see you. Thank you for joining us, giving us perspective. We appreciate it enormously. Thank you, sir. Now, as the price of crude oil nosedives down 7 percent, up yesterday 8, down 7, we'll have the rest of that exclusive interview with the Iranian oil minister in a moment. This is QUEST MEANS BUSINESS on a day when the markets, well, were very unhappy.