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CNN "Quest Means Business" features Stephen Pope and Spotlight Ideas

Friday December 27th 2013



Turkey Political Crisis; Turkish Markets Tumble; Turkey's Financial Troubles; Stocks Flat; Twitter Shares Fall; Bitcoin Warning; Defending Bitcoin; Target Woes Widen; How to Hack; Extreme RC Iron Man

Aired December 27, 2013 - 16:00   ET


RICHARD QUEST, HOST: The closing bell his rung, the hammer has fallen, the market is flat as the fizz fades from the Christmas rally. It's a flat close for the Dow on today, Friday, December the 27th.

Tonight's headlines: we will be in Turkey to find out the latest developments on the crisis facing the Erdogan government. 

Also tonight on the program, a matter of speculation. The bitcoin backlash spreads to India.

And swag bags all around while Britain is beating the bank robbers.

I'm Richard Quest. It may be a Friday, but I mean business.

Good evening. Tonight in Istanbul, a fierce battle is underway between protesters and the police. The protesters have been trying to take Taksim Square, a famous landmark in the city. They've thrown fireworks at police vans and have shouted "Government resign."

The prime minister remains defiant as a corruption probe expands. Speaking to supporters who had gathered at Ataturk International Airport, he denied the allegations of corruption and bribery against top officials, and he accused forces of trying to undermine his government.

Our correspondent Mohammed Jamjoom joins us now from Istanbul. The situation -- when we were talking earlier today, we talked about how Erdogan was ensnared in this and getting more so. What's the situation tonight?

MOHAMMED JAMJOOM, CNN INTERNATIONAL CORRESPONDENT: Yes, that's right, Richard. And at a time when so many in Turkey were expecting that perhaps, for once, Prime Minister Erdogan would show some type of remorse for the fact that many people that were close to him and his party have been ensnared in this scandal.

And at a time when this scandal seems to be getting closer and closer to him, and possibly threatening his stewardship of this country, you heard yet again a very defiant and very entrenched Erdogan.

Now, you see behind me Taksim Square, seems relatively calm right now. That was not the scene earlier tonight. Protesters kept trying to converge upon the square, up and down Istiklal Street, which is just to the side of it and is the main pedestrian thoroughfare here in Istanbul, there were several clashes. We were out there in the middle of it. 

You had protesters trying to put up barricades so that the water cannon trucks couldn't get to them and try to disperse them. Well, that didn't keep the anti-riot police from getting to them, from dispersing the crowd several times. You had teargas being dispersed numerous times.

What was amazing about this very heavy-handed show of force is that at the beginning of the evening, you really didn't have all that many protesters out there calling for Erdogan's resignation. As the evening wore on, more protesters started to come out.

At the height of it, it seemed like there were hundreds of protesters, but every time they would really start to rally together and march up that thoroughfare and towards Taksim, then the heavy-handed police force would come in and disperse that crowd.

At the same time, amidst this backdrop of turmoil, you had Prime Minister Erdogan, who arrived in Istanbul earlier today, he gave a speech first at the airport here in Istanbul to a throng of supporters. Then, he gave a speech that lasted well over an hour in front of his residence here in Istanbul in which again, he sounded completely defiant.


QUEST: Mohammed, let me jump in here.

JAMJOOM: He's been unapologetic. Once again --

QUEST: Let me --

JAMJOOM: -- he said.

QUEST: Excuse me, I'm just going to jump --

JAMJOOM: Yes, go ahead, Richard.

QUEST: I must jump in here, because a thought occurs to me. Talk me through how this moves forward. Does it fade out and just sort of disappear into the -- into the realms of scandals we've known? Or does it get worse for Erdogan?

JAMJOOM: Well, right now, the anger in Turkey is growing, but we must remember that Erdogan still has a lot of support in this country, and he is counting on that. And at a time when there have been resignations in this country -- you had three members of the cabinet resign the other day, one of them calling on Erdogan to resign.

Today, you had three members of the government also resign. At a time when there seems to be cracks appearing in his AKP Islamist party, the question is, will this get to Erdogan. Because he is surrounding himself with loyalists. He is trying to insulate himself, but at the same time, this corruption scandal is widening.

And also what you have happened is you had the judiciary today come out and say that a ruling that was made last week by the Interior Ministry that any implications by prosecutors going forward would have been signed off on by superiors. They ruled that unconstitutional. 

So, the sandal is widening, anger is growing, but at the same time, Erdogan still very powerful. And even though there are protests, he is as defiant as ever and says he will remain in power. Richard?

QUEST: Mohammed Jamjoom in Istanbul this evening, obviously watching events over the course of the weekend. The Turkish lira has it a record low against the dollar as the political crisis deepens.
If you join me at the super screen, you'll see exactly how things have followed.

Now, the lira, well, this is the way it's gone. This is the lira to the dollar, so obviously, it seems to -- because this the way it goes down. It was -- you were -- 44. Sorry, you were getting 57 -- 0.573 US cents to the lira. And now, of course, you're down here considerably less, 0.448. 

The lira's fallen 18 percent since the beginning of the year. In the summer, the currency plunged after the Federal Reserve -- that summer plunge there -- let me put a bit of telestrating on. That was the sequester. Sorry, that was the tapering worries that hit all emerging markets, like Brazil, India, and Turkey. 

But this is the political crisis that happened now. And that fall overall, of course, we're looking at an 18 percent fall in the last few weeks and days alone in another downward spiral.

Let's talk about this with Stephen Pope, who joins us from CNN in London. How dangerous economically and financially is this crisis in Turkey? Bearing in mind NATO member, difficult relations with the European Union, but an emerging market that everybody's jumping onboard.

STEPHEN POPE, MANAGING PARTNER, SPOTLIGHT IDEAS: Yes, certainly everybody's been taking Turkey as one of their popular choices over the last few years. However, this particular crisis seems to have put the currency path, as you were just illustrating, the stock market path, and also two year bond yields into not just a trading channel, but they look like corridors of uncertainty.

If we start having questions about the leadership of this country, then really, the anchor that supported the economy is coming under big questions. And so, all assets are being deserted in very quick time.

QUEST: Right. But the core, of course, when we've seen these crises -- we saw it in the summer -- they can reverse just as quickly as they have begun providing there's a feeling of certainty and a way forward.

POPE: Yes, and I think your previous correspondent in Turkey was correct to say that Erdogan has this very large support, around 50 percent or more of the people still support the party, the AK party. I think you'll see that he is surrounding himself with loyalists.

He's not going to have any truck with questions inside the party that he should resign. So, he's padding himself with loyalists, and what he wants to do is ride this out, get to the March municipal elections, and show that there is no coordinated opposition to his party overall. 

And then, he wants to get through the summer, because he's looking to ascend to the presidency in August. That's what he's after.

QUEST: But is there a danger that with the fall in the lira coupled with a rise in bond rates, either Turkey ends up with a financing crisis at over 10 percent or a balance of payments crisis?

POPE: Well, certainly I think the balance of payment crisis could be a big issue, because yes, it's a floating currency, but at the moment, that's not helping it at all. And Turkey's terms of trade are suddenly going to take a big turn to the south.

Otherwise, I think the financing -- Turkey's in not too bad a state, and we have seen the central bank actively trying to sell dollars to prop up the currency, but we know you can only do that for so long. I'm more concerned about the trade balance in the short term --

QUEST: Right.

POPE: -- than I am Turkey's ability to access markets.

QUEST: We're going to stay with markets and we're going to just quick -- stay where you are, please, Stephen. I just want to point out what's been happening in the US markets with US treasuries. Look at the graph for how treasuries have moved up from the beginning of the year, where the rate was just over, I don't know, 1.8, 1.9 percent.

Now we have a rate on treasuries of 3 -- over 3 percent on the ten- year bond. Now, Stephen, this is -- this 50 percent increase on rates happens at a time when official rates haven't moved, but this is obviously a reflection of tapering.

POPE: Well, clearly we have seen some view over the last few months that the economy is improving, so people tend to desert bonds in that regard. The tapering, we know, is going to be slowed down to $75 billion from January onwards, and that means that the appetite to buy long-dated securities has evaporated somewhat.

And I think, really, you're finding a big push back to the front end. It's typical at this time of year, but overall, going into January, I think you're going to find the front end of US will fare better, and that means there is further upside pressure upon the ten-year.

QUEST: Well -- right, but at 3 percent at the long end, does that start to crimp economic growth? And does that start to be exactly the problem that Bernanke and in the UK Mark Carney warned about, that this rise in long-term market rates is not justified or predicated by official policy?

POPE: Well, certainly if the rate were to creep too much higher than around, say, 3.25, we would begin to see some concerns regarding the sustainability of the economic growth. However, whatever the Fed might decide to take away, they can easily give back to the market. 

So, I think you've got to trust in what Bernanke will do in his last days of office, and then what Yellen will do when she takes over in February is going to be with the best interest of the US economy at heart. They will not play fast and loose with the security and the integrity of this US economic recovery.

QUEST: Stephen Pope, thank you for joining us. Have a good weekend and a happy New Year when 2014 arrives.

POPE: Thank you.

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