Impact of rising tensions with Saudi Arabia on Middle East

This is a rush transcript from "Your World," October 18, 2018. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

PRESIDENT DONALD TRUMP: We're making a statement, a very strong statement. But we're waiting for the results of about three different investigations. And we should be able to get to the bottom fairly soon. And I will see you on the plane.

(END VIDEO CLIP)

NEIL CAVUTO, HOST: All right, the president making it clear just moments ago something is up and there will be reaction that will be a follow-up to all this.

Welcome, everybody. I'm Neil Cavuto, and this is "Your World."

Stocks selling off amid indications that the battle royal with Saudi Arabia is on. What they knew and when they knew it, and who was part of this coordinated attack on the Washington Post columnist Jamal Khashoggi?

Increasingly, signs point to Saudi Arabia, but, again, the president wouldn't tip his hand what he knows or what his secretary of state knows.

Let's go to Kevin Corke at the White House with the very, very latest.

Hey, Kevin.

KEVIN CORKE, FOX NEWS WHITE HOUSE CORRESPONDENT: Neil, a lot of people were wondering if the treasury secretary, Steve Mnuchin, would make his way to Saudi Arabia for the FII.

And, if I might, just to quote Paulie from "Goodfellas," you got to keep up appearances. Of course he couldn't go, especially given what the administration obviously knows based on preliminary information that may have been picked up by the secretary of state, Mike Pompeo.

So, today, Mr. Mnuchin took to Twitter to tell the world what precipitated his decision.

He said: "Just met with @realDonaldTrump and Secretary Pompeo." And note this, Neil. "We have decided I will not be participating in the Future Investment Initiative summit in Saudi Arabia."

Of course, Secretary Pompeo had just returned from his trips to Turkey and Saudi Arabia in search of answers into the apparent murder and possible dismemberment of journalist Jamal Khashoggi, who obviously is a Saudi national, but had been in this country for quite some time, his work often appearing in The Washington Post.

Secretary Pompeo making it clear today this issue will not go away anytime soon, as the investigation continues both on the ground in Riyadh and in Istanbul and elsewhere.

I should also point this out for you, Neil. You may have mentioned this on your broadcast earlier today. But FBN, we understand, has also canceled its involvement in the Davos in the Desert event. As we get more information, certainly, we will pass this along to you. But it seems apparent from everything we have seen both on the record and off something's up.

And we should be learning a lot more about what happened in the days ahead -- Neil.

CAVUTO: All right, buddy, thank you very, very much, Kevin Corke.

A lot of people have sent their regrets, but a lot of people are not the treasury secretary of the United States, the highest-ranking representative from the United States slated to go to Saudi Arabia for this big financial summit.

I want to show you the inflection point at that point, where you see that rounded dot to the left of your screen on this chart, for those of you listening. We were already down 200 points at that point. We quickly cascaded south, and then were rocky the rest of the day, finishing down about 326 points.

The concern being here that if we get up with the Saudis, could there be an impact on oil? There was a measurable impact on defense and defense- related issues, amid growing concern that that contract that many of them already signed and thought was sealed and delivered with the Saudis last year totaling more than $110 billion, that that could be unwound or just canceled outright, and that things could go from bad to worse.

So, that was weighing on the markets appreciably.

Let's go to Deirdre Bolton, who is keeping track of it all -- Deirdre.

DEIRDRE BOLTON, FOX BUSINESS CORRESPONDENT: Certainly keeping track.

And, Neil, I was looking at intraday chart, and the statement was right before midday, right when the treasury secretary pulled out of going to that conference in Saudi Arabia. But it is also worth noting that even before that, as you just mentioned, the markets had gotten out of the gate with a very slow start.

So, overnight in Asia, Shanghai, that composite dropping by close to 3 percent, trading at a four-year. A Macquarie economist putting out a note about China's continued slowdown in its credit growth. There's really a lot of worries about Chinese economic growth.

There's going to be a figure coming out, third-quarter numbers for China on Friday. And, of course, as many cynics say, you can't really believe what data is being published, but there are more and more people concerned that actually the trade tariffs are hurting the Chinese economy and that it will be growing at a much slower pace than many global investors had factored in.

It's not just Asia. We turn our attention to Europe. Most investors taking a look at some of those comments from the ECB president, Mario Draghi. Essentially, he said, one of the biggest risks for the global economy was countries trying to circumvent E.U. budget rules.

Essentially, everyone took that to mean Italy. And there are more and more concerns about whether or not Italy will actually make its debt payments.  And, in fact, if you look at Italy's benchmark 10-year notes, they were at their highest in four-and-a-half years.

So if stocks have sold off around the world, as they did, where did money go? In the U.S., they went into treasuries. So we saw our own yields trade around multiyear highs, short-term two-year, highest level since 2008, and even the 10-year, that went above 3.2 percent. That 10-year yield, of course, used as a benchmark for mortgage rates, at its highest level since 2011.

So there are even others who begin to worry this pressure will eventually even affect our housing market, as well as others -- Neil, back to you.

CAVUTO: All right, thank you very much, Deirdre Bolton.

Here's the worry here. We just don't know where this ends. We know the administration is planning some response, or they wouldn't have shelved the treasury secretary and his attendance at that -- at that Saudi Arabian investor conference.

What we don't know is exactly what they're going to do. It's all in response to these charges or suspicions that the crown prince, Mohammed bin Salman, might have been behind or even orchestrated this interrogation either gone bad or an interrogation that was a planned murder of Jamal Khashoggi, The Washington Post columnist.

Be that as it may have, what would it take to satisfy American officials?  Would they be satisfied with just replacing the prince with another prince?  He has 12 other brothers. The king can decide on that.

But in this kingdom where a lot of the leaders are sort of seen as princes in a PEZ dispenser, will a different character change the character of Saudi Arabia? A lot of people fear it will not and that this could escalate.

Let's go to Gary B. Smith and Larry Shover on all of these developments.

Larry, what would it take for markets to calm and think an adequate retribution has been gained?

LARRY SHOVER, SOLUTIONS FUNDS GROUP: Well, I think it's just going to take time. It's going to take -- the micro-factors have to shift as well.

I mean, obviously, what's going on in Saudi Arabia a huge deal, but one thing I have learned in 35 years is that fundamentals will eventually dictate the duration of a market cycle. And our fundamentals are really solid.

Keep in mind, look at the oil market. It took eight weeks for oil to come back to earth. It went up on momentum and nothing else. A lot of what- ifs. There was nothing really there. And then, when they realized that spare capacity is there, it's getting online, we're back to where we were in the middle of the August.

CAVUTO: No, no, you're right. We're getting into -- that's a whole 'nother story here.

SHOVER: Yes.

CAVUTO: But what's interesting, Gary B., is this idea that an entire sector, like the defense sector, could be impacted by this, technology could be impacted by this.

These are the same industries that were drawn to and benefiting from a relationship with Saudi Arabia. Now the fear seems to be, whatever you think of the character of the royal family, or lack thereof in the royal prince's case, it's going to get -- it's going to get worse, or they could go elsewhere, or they could escalate the tension with us in a -- in an unending tit for tat.

What do you think?

GARY B. SMITH, FOX NEWS CONTRIBUTOR: Well, I tell you what, Neil.

You and I have lived through these scares many times. And what normally happens is, the rhetoric gets to the market first, and entire sector sell off almost without discrimination.

And I think what we have learned is, when that happens, when the -- kind of the sell first, look for the facts later, it's probably time to buy that industry. It was going to be that the China trade war, for example, was going to pretty much decimate the entire U.S. economy.

And yet it was really only and still maybe 0.2 percent effect on our GDP, if all the tariffs are collected, which is unlikely. So if you bought on the first sell-off on the China tariffs, you're probably in the money right now.

I expect the market will go down, because we don't have facts yet or full facts on Saudi Arabia. China obviously has not been -- fully disclosed what's going to happen, what's going on there.

But I think at this point, I agree with Larry. You got to first look at the fundamentals. Then, what are we selling on? We're selling on the news. That probably means it's time to buy.

CAVUTO: Larry, you could look at this as well and start surmising that, truth be told, you said the fundamentals are good. The economy is very good. Earnings are really good.

We got more proof of that today with the likes of Philip Morris. Look at the airlines. Businesses are booking these business class and first-class seats like crazy. These guys are making money hand over fist, even in the face of higher jet fuel prices.

So that is the wind at the market's back, the economy's back. I get all of that.

But I'm curious what you think could -- could push it. I mean, earnings are better than expected. Earnings are coming in stronger than expected.  But any bumps like this are a worry going forward. So how do you guide your investors?

SHOVER: Hmm.

Well, I tell them and I tell myself, look at the long term and try to avoid the speed bumps that come on day to day. I mean, yes, what's unfolding here could be absolutely enormous, but it seems like it's always -- it's always better than fear.

And I think we just need to fade that first move and just look at the long- term projections in the market, be completely diversified at all times, and just hope for the best.

I mean, it seems like so often the news is much worse than reality. We don't have all the facts. And markets just react to momentum and emotion, not fundamentals.

CAVUTO: The fundamentals sound for you, Gary B.? What do you think?

SMITH: Yes, I agree.

I think it's always easiest to look -- everyone should go and figure out what they're doing every day, what companies they're using. I watched Netflix last night, I ordered from Amazon today, and stopped off at the local T.J. Maxx. Those companies are not going away no matter what happens with China, no matter what happens with the Saudis. They're going to keep growing.

I think you saw Netflix like leaps and bounds.

CAVUTO: Right.

SMITH: I think there's still a lot of great, safe pockets out there.

CAVUTO: All right, gentlemen, I want to thank you all very, very much.

Again, for those just tuning into, the Dow down about 327 points on all of this. Most of it had to do in Saudi Arabia. Is that fair? Is that right?  Is that overdone?

Claudia Rosett is not a stock market analyst, but she is a darn good foreign policy expert. She joins us right now.

You always wonder whether markets overreact. Are they overreacting?

CLAUDIA ROSETT, FOREIGN POLICY FELLOW, INDEPENDENT WOMEN'S FORUM: Neil, I'm not even sure how much of what they're doing right now is due to this.

But I do certainly think that the media at the moment is overreacting.

CAVUTO: OK.

So, when it comes to Saudi Arabia, everyone, it seems -- we're going to do something. I don't know what that ultimately will be. We're going to demand something.

ROSETT: Yes. Yes.

CAVUTO: And then we wait to see what the Saudis do in response. What do you think?

ROSETT: Yes.

Well, you know what? Look, something apparently quite terrible happened here, if what we're -- the bits that we're hearing turn out to be accurate, it was a gruesome, horrible assassination, and not a good thing for any country to be doing.

At the same time, we're hearing these calls for America to completely change its foreign policy, to -- that this should now become the signal event shaping American policy in the Middle East.

And the problem in the Middle East is, pick your poison. We're up against right now Iran, where, remember, we still don't want them to get a nuclear bomb. And the Saudis have -- this is the way that the Trump administration has been shaping this, is to go to the Saudis as a counterweight.

And there has been an opening between the Saudis and the Israelis. That's -- that's useful. And the problem with just saying, OK, let's completely shun the Saudis, make them a pariah, pay whatever price it takes in the markets, let's just stand here and -- is, you have then the problem of, this becomes a gift to Iran, which, if we're worried about horrible killings, has its own juvenile executions.

Ambassador Nikki Haley was complaining to the U.N. today that Iran recruits child soldiers. So it -- we should absolutely be condemning this, if it turns out to be the story we have heard, but, no, this is not the time to reshape American foreign policy.

CAVUTO: You also think of those who have embraced the deal with Iran that the president canceled and said, I'm going to start from scratch here.

And there were -- there was anger on that, with a proven regime that has done awful, awful things.

And I'm just wondering whether we get our perspective screwed up.

ROSETT: Yes.

The answer is that perspective right now is pretty off the charts. This is a gripping story. Again, we wait to -- we don't even know yet if it's accurate.

And Karen Elliott House had a good piece in The Wall Street Journal the other day. She said it's a story with a victim and villains, but no heroes. Look, the Turks, who are the world leaders in jailing journalists, Released Pastor Brunson, as they said the Saudis did this.

And here we get into a home mess in the Middle East, the Turks' friendly relations with the Iranians. The Turks have been big helpers with Iranian sanctions evasion in the past. Remember, Iran is getting a whole new batch of sanctions from the U.S.

CAVUTO: Very good point.

ROSETT: And Iran benefits if we then shun the Saudis.

So, I say, by all means, Steve Mnuchin shouldn't -- our secretary of the treasury -- fine with me if he wants to skip the Saudi investment conference. That sounded like something of a farce anyway.

(LAUGHTER)

ROSETT: But, no, do not change foreign policy. We actually are dealing with some very bad actors here. There are a lot of other lives on the line.

CAVUTO: Yes, this is not exactly a Boy Scout neighborhood.

Thank you very, very much, Claudia.

ROSETT: Yes.

CAVUTO: Good perspective on all of this.

Then there is the oil factor and the gas factor. Are you prepared to go to the pump and pay more because of this?

After this.

(COMMERCIAL BREAK)

CAVUTO: All right, oil actually going down today.

That's a supply issue. There is a lot more supply out there than was earlier thought. It could be disrupted by these Saudi developments, if they pull some supply and all of a sudden you change the math on this.

But it's a remarkable kind of turnaround amid earlier fears that we were going to see oil prices spike, in light of what's going on in the oil kingdom.

We have got Susan Li of Fox Business Network. We have got oil watcher Phil Flynn as well.

Susan, what happened?

SUSAN LI, FOX NEWS CORRESPONDENT: Well, today, we had the safety trade on.

So it looks like Treasury yields actually dipped a bit, because people were looking to get into the safety of U.S. bonds once again, and also utilities, which is, yes, a defensive play, because you get a lot of yields on a lot of these names, and people were rotating money into those and selling out of tech.

CAVUTO: All right, Phil Flynn, a very subdued reaction in the end from the oil market.

So if there that skittishness that typically comes with this, and people are fearing higher gas prices, we didn't see any of it. Why not?

PHIL FLYNN, PRICE FUTURES GROUP: We did.

And it's the calm before the storm, potentially, mainly because of what Susan said, weakness in the stock market, concerns that maybe this brouhaha with Saudi Arabia could hurt demand, and it could be bearish.

Initially, Neil, when this story broke, most analysts said, hey, this is going to be bearish for oil, because Saudi Arabia is going to want to make nice with the U.S., pump a lot of oil.

But if it goes the other direction and they get really tough sanctions from the U.S., it could go the other way, and that's when you will see oil spike.

CAVUTO: On that thought, Phil -- and I will take this up with you as well, Susan, but first Phil.

LI: Yes.

CAVUTO: The New York Times is reporting tonight that Saudi Arabia is considering blaming a top intelligence official close to Mohammed bin Salman, the crown prince, for the killing of Khashoggi, and that might be sort of saying, all right, it's not on the prince, it's on this guy.

What do you think?

FLYNN: Well, I mean, that's going to be to their advantage, because MBS is really the face behind the Saudi economy. He's the man that's created the Saudi Vision 2030 to modernize the economy. He's the guy that talked about this huge Saudi IPO, which potentially was going to be the biggest IPO in the history of the world.

CAVUTO: You're talking about Aramco, this energy...

(CROSSTALK)

FLYNN: Aramco, Saudi Aramco.

And if the market or the people don't believe that -- that this intelligence guy is the bad guy, and Mohammed bin Salman, the crown prince, is, that could be all off the table.

CAVUTO: Well, obviously, we're talking about Mohammed bin Salman, but I'm telling you, Susan Li, I don't know if that will wash with a world that has serious suspicions...

LI: Yes.

CAVUTO: ... this is going to be reacted to correctly by the Saudis. But your thoughts?

LI: I think sentiment is so fragile right now, just from the global effect.

You had a huge sell-off in China last night. Italian bond yields have spiked the highest in four-and-a-half years.

CAVUTO: Right.

LI: I think investors and traders are using any excuse to take money off the table right now. So any admission of guilt, I think, will be a negative for the markets.

CAVUTO: You know what's interesting about that, Susan? We used to ignore these foreign developments. Now we get wrapped up in them. We are the world now. And it used to be us despite the world.

LI: Right. That has completely changed. Obviously, it's a globalized world. Dollar here means a dollar there.

And, as you know, that means trades also go across borders as well.  Selling, buying, it has to be an equal equation, right?

CAVUTO: You're right about that.

Phil, I guess it's all how this sort of lands in the markets and how they react to these developments, Saudi Arabia, by extension, China. How do you think it's all going to go?

FLYNN: Well, I think, if the Saudis get angry about this, and it goes the other way, remember, Neil, we're going to be putting sanctions on Iranian oil in a couple of weeks.

We're looking to Saudi Arabia to make up that difference. If they decide that they're not going to or they make a half-hearted attempt, then you better watch out. These oil prices could really spike.

CAVUTO: All right, guys, I want to thank you both very much.

The president is en route to Montana, a big political rally. He says that things are going well, try not to pay attention to all this other stuff, the fundamentals in the economy, the markets, all of that going just fine - - after this.

(COMMERCIAL BREAK)

CAVUTO: All right, the president is on his way to Montana for a big campaign event tonight.

Peter Doocy is already there.

Talk about a day, a backdrop of big news events, Peter.

PETER DOOCY, FOX NEWS CORRESPONDENT: And I just had a chance to ask Senator Jon Tester about the president's taught on Twitter concerning Tester's role in helping to tank Ronny Jackson as the president's VA nominee a couple months ago.

The president wrote this. He said: "Ever since his vicious and totally false statements about Admiral Ron Jackson, the highly respected White House doctor for Obama, Bush and me, Senator John" -- it should say J-O-N - - "Tester looks to be in big trouble in this great state of Montana. He behaved worse than the Democrat mob did with Justice K."

But Tester told me, it wasn't him.

(BEGIN VIDEO CLIP)

SEN. JON TESTER, D-MONT.: I didn't see the president's tweet, but I didn't make those statements.

Those -- those were accusations that came from military people, both active military and retired. And he withdrew his name from -- his -- from the nomination process after those accusations were made.

(END VIDEO CLIP)

DOOCY: Tester said today he wants to leave the Ronny Jackson saga in the past, so he can focus on the future and the current VA secretary, Robert Wilkie, who he voted for.

But Matt Rosendale isn't ready to let it go. And he now says the Tester's treatment of Ronny Jackson gave Democrats a road map to disrupt the Kavanaugh proceedings month later.

(BEGIN VIDEO CLIP)

MATT ROSENDALE, R-MONTANA SENATORIAL CANDIDATE: Jon Tester came out several months ago and performed the same type of character assassination on Ronny Jackson.

And so he invented this -- this smear tactic that the Washington Democrats are using. And Dianne Feinstein perfected it when she came out and performed her character assassination on Judge Kavanaugh.

(END VIDEO CLIP)

DOOCY: So Republicans are really counting on talk about Ronny Jackson motivating midterm voters here in Montana, a state where one out of every 10 residence is either an active-duty member of the military or a veteran - - Neil.

CAVUTO: All right, Peter Doocy, thank you very, very much, my friend.

Well, what if I told you, that report notwithstanding, it is not an issue for a lot of voters? A FOX News fall out today that seems to show the biggest worry for voters right now is health care. And one of the things that they have been riding very hard and high on, and that is taxes, dead last in that.

Well, one of my next guests, Antjuan Seawright, the Democratic strategist, said that, and a lot of people were laughing at him.

I don't know if I was laughing at him, but I snickered. I'm not snickering now.

Shelby Holliday of The Wall Street Journal, Ned Ryun, the American Majority CEO.

So, Antjuan, if this poll is right -- and, remember, I put more credence in it than you -- but if...

(LAUGHTER)

CAVUTO: I'm kidding.

(LAUGHTER)

CAVUTO: But, if it's right, that could be bad news for Republicans.

ANTJUAN SEAWRIGHT, DEMOCRATIC STRATEGIST: Neil, as you know, I have been the one voice on the Cavuto choir singing this song for a very long time, health care would be the issue that impacts voters the most come Election Day November 6.

And I said this yesterday to you, and I will say it again today. Quality of life issues are going to run the day for the midterms. You see Republicans running around...

(CROSSTALK)

CAVUTO: Well, it was the cost of health care, more to the point, right?

So Republicans have said the cost is high because Democrats screwed up with Obamacare. But it doesn't matter, right?

SEAWRIGHT: But, Neil, the bottom line is, the Republicans have done everything they can to repeal and -- quote, unquote -- "replace Obamacare."

Now we see these record high numbers about how popular Obamacare is. And I'm so thankful that President Obama did care enough to give us a health care plan that wasn't perfect by the least bit, but it was a road map to continue to work upon. The Republicans have tried to repeal it

And now here we are. They're committing political suicide.

(CROSSTALK)

CAVUTO: I'm sorry.

Ned, you're shaking your head. I mean, did it help or hurt for Mitch McConnell to come out yesterday and say, we get another crack at this, we're going to try to repeal it?

NED RYUN, PRESIDENT, AMERICAN MAJORITY: Well, first of all, I think Democrats are completely misreading this poll.

If you look at question 23 on that poll, Neil, it's still the number one issue, health care is, but only 13 percent of likely voters said it's the one issue that's going to motivate them to come vote in the midterms.

You look at question 36, the reason that health care is the number one issue for 65 percent of the respondents is affordability. It's about cost.

SEAWRIGHT: That's right.

RYUN: Obamacare drove up costs.

And, Neil, the response -- Democrats' response to this, hey, let's have Medicare for all, let's socialize medicine...

SEAWRIGHT: That's not true.

RYUN: ... which will cost $32 trillion over 10 years.

The last -- the last thing about that, the reason that health care is the number one issue for 40 percent of respondents is because they are extremely concerned about government takeover of the health care industry.

If Republicans keep Congress, they need to come back. They need to start implementing policies that bring about pricing transparency. I have been writing about this, Neil. I think they bring about pricing transparency and drive down costs.

(CROSSTALK)

CAVUTO: We get into pricing transparency. And you might be right there, by making sure the drug companies let us know where -- where the drugs are.

RYUN: Nonprofit hospitals.

CAVUTO: All right, that's fine.

But the president tweeted on this earlier today, Shelby, saying that: "All Republicans support people with preexisting conditions. And if they don't, they will after I speak to them."

(LAUGHTER)

CAVUTO: "I'm in total support."

(LAUGHTER)

CAVUTO: "Also, Democrats will destroy your Medicare. And I will keep it healthy and well."

What do you think of that?

SHELBY HOLLIDAY, THE WALL STREET JOURNAL: Well, he's trying to stay on message, apparently.

But I think both sides care about this issue for different reasons. Cost is a big concern. Preexisting conditions are a major concern.

CAVUTO: Right.

HOLLIDAY: When you step back and look at all polls across the board, health care is a very top priority for voters.

One thing that is concerning for Republicans is that women on both sides of the aisle care more about keeping those protections for preexisting conditions. And women, as we hear time and time again, are going to be a big swing vote in this election.

And that sort of shows you the risk of taking a vote on health care back in 2017, when it was unknown how that vote would go. And now you have a lot of Republicans on the record voting for a bill that would essentially roll back some of those protections for preexisting conditions.

That is what people are talking about. And you can debate the merits of Obamacare, but I'm not hearing voters say, we love every aspect of Obamacare. I'm certainly not hearing voters say, we love the higher premiums and the high costs.

But they are saying, we like the fact that preexisting conditions are protected.

And that's -- Democrats have done a very good job of making that a big issue here.

CAVUTO: All right, Antjuan, real quick on that? Real quick reaction to that?

SEAWRIGHT: Neil, I'm waiting for the day for Republicans to cut their ad to say, you know what, vote for us because we're going to protect Obamacare.

You know what? Because they have been doing the opposite the entire time since President Trump took office. And the bottom line is, they have blood on their hands for their failure on this issue of health care.

CAVUTO: Oh, now, Antjuan.

RYUN: That's absurd.

CAVUTO: See, now you're getting just silly. Now you're getting silly.

RYUN: That's absurd.

HOLLIDAY: I'm never going to say that.

CAVUTO: The blood on their hands. This is when it just goes off the rails.

RYUN: Come on.

CAVUTO: All right, I'm sick of this. I'm now sick of it.

No, I'm kidding. We are coming to a break here.

(LAUGHTER)

CAVUTO: All right, when we come back here, we're going to get the consequences of what the president plans to do, in light of the fact that the Saudis seem to be behind this attack on this journalist.

We don't know the degree of that response and what the president discovered that is warranting this response.

Stay with us.

(COMMERCIAL BREAK)

CAVUTO: All right, the crown prince and what he knew and didn't know.

Clearly, we have discovered and the White House has discovered and the president has discovered more than he is admitting. What's in store and the impact -- next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

QUESTION: What are you considering for possible consequences for Saudi...

(CROSSTALK)

TRUMP: Well, it will have to be very severe. I mean, it's bad, bad stuff, but we will see what happens.

OK? Thank you.

(END VIDEO CLIP)

CAVUTO: OK, what is that bad stuff? What is the president hinting at?  And how soon can we expect some clarity on this, and then how the Saudis respond to all of this?

Benjamin Hall is in Istanbul on this investigation and where it is still going -- Benjamin.

BENJAMIN HALL, FOX NEWS CORRESPONDENT: Yes, hi, Neil.

Well, we talk about an investigation. It seems like, for the last two weeks, we have had one investigation. And that's been run by the Turks.  They have been really thing CCTV images, leaked recordings from the consulate.

Now we seem to be getting that second investigation run by the Saudis, only over the last couple of days or so, since Secretary Pompeo visited Riyadh.  And what we're hearing from them, their tactic at the moment seems to be looking for holes inside the Turkish narrative, holes in their timeline.

Here in Turkey, at least for today, investigators finally finished a search of both the consul general's residence and a secondary search of the consulate. Turkey continue to claim that they have evidence which proves Khashoggi was killed inside, but they have not yet released that hard evidence.

Now, from the Turkish point of view, there is growing focus on one man, claims to be Saudi intelligence. His name is Maher Mutreb. And he'd been seen pictured in the entourage of Crown Prince Mohammed bin Salman in a few different countries, part of the same international tour.

And now new CCTV stills released by Turkey puts him at the consulate the day of Khashoggi's disappearance, apparently entering shortly before Khashoggi, another tie to Crown Prince Mohammed bin Salman.

As for the Saudi investigation, well, that has now picked up pace following Secretary Pompeo's visit. I'm told that the men who were named by Turkey have now been interrogated in Saudi Arabia, and that some deny having been anywhere near Turkey.

In fact, according to Saudi media, one claims have been in New York at the time, and another died a couple of years ago.

One other new name is emerging too, General Ahmed al-Assiri. He previously served as the spokesman for the Saudi-led military intervention in Yemen.  He's a V.P. of the Saudi intelligence service. And now there are reports he may have been the man who ordered the interrogation on Khashoggi.

And that would feed into the narrative which Saudi Arabia has been considering for a few days, that this was an interrogation gone wrong, that it may have been sanctioned by Mohammed bin Salman himself, but certainly there was no intent to kill him, that the intention was to rendition him.

That may be the story we see coming out of Saudi Arabia in the coming days, but for now at least, the narrative being controlled by the Turkish side -- Neil.

CAVUTO: Interesting. Very interesting, Benjamin Hall.

All right, if that's the case, that it was an interrogation gone wrong, and it's not on the prince, it's on a top intelligence official, is that enough to make this thing go away or just reignite?

After this.

(COMMERCIAL BREAK)

CAVUTO: All right. So, who do you believe?

It's going down like this in Saudi Arabia, that the crown prince is going to pin it, or at least the royal family, on a top intelligence official about an interrogation of this Washington Post communist that went horribly awry, and it's not on the prince, it's on the intelligence guy.

Is that good enough to sort of get things on and back to normal, whatever that is?

Former FBI Special Agent Chad Jenkins.

Chad, the only problem with that narrative, I guess is, it's the Saudis investigating themselves and then reporting their findings. Your thoughts?

CHAD JENKINS, FORMER FBI SPECIAL AGENT: Yes, we should let them be a scapegoat in this and just wash it under the table.

Obviously, when a journalist from The Washington Post is murdered inside a consulate, we have to have a just system, for international purposes, to protect journalists and why they're -- what they do.

So we cannot just allow this to go swept under the rug. And a fear of mine is that we're going to let them off the hook because now we're proclaiming that the Saudis are such a great alliance to the United States in the global war on terrorism. And I have serious reservations about making such a strong statement in defense of the kingdom of Saudi Arabia.

CAVUTO: You know, and I have a problem too -- and you're the expert here, Chad -- but trusting the Turks, who have a vested contempt for the Saudis, and, of course, are certainly no friends to journalists or protesters or dissidents themselves.

And they're the ones giving us a lot of the information that news organizations have quoted. I guess I'm back to what a reporter once asked the president back in the Oval Office a couple of days back. Should, could an FBI person be dispatched to sort of help with an investigation to calm our doubts?

Or is that our purview, especially since Khashoggi wasn't a U.S. citizen?  Your thoughts?

JENKINS: I think, with the tie to The Washington Post, we absolutely should have the FBI investigating, from the legal attaches either in Ankara or in Istanbul.

We already have FBI agents, analysts, support personnel there. There's already working relationships through other means, other investigations, other just open international liaison purposes. So we could definitely use those resources to get the bottom of this and try to find what the truth is, because you're absolutely right.

We're looking at Turkey, looking at Saudi Arabia. Where does the truth lie? Well, let's use our own intelligence and investigators to try to narrow that down and find out, so that we can use it for intelligence purposes on the global scale and then also bring it to justice on the -- on the scale for the journalist as well and his family.

CAVUTO: Well said. Chad Jenkins, thank you very, very much.

JENKINS: Thanks, Neil.

CAVUTO: All right.

And then there's the issue of the caravan coming our way, all illegal immigrants, and Mexico apparently doing little to stop them. What do we do?

After this.

(COMMERCIAL BREAK)

CAVUTO: All right, the caravan is coming on, working its way through Central American, up through Mexico.

And we are concerned that this thousands-person-strong caravan -- and hard to quantify those numbers or make sure that they are what they are touted to be -- well, the Mexicans are going to let them march right through.

Then they get up to the border. They're processed. And many of them sneak into this country. You have heard that again and again. But a lot of folks are saying that it comes at the worst of times and indicates a pattern of behavior that Mexico does little to stop.

Former ICE agent Claude Arnold joins us right now.

Claude Arnold, what do we know about this caravan?

CLAUDE ARNOLD, FORMER ICE SPECIAL AGENT: Well, we know that it's -- as you said, it's several-thousand-strong.

And it's likely that people are being encouraged by the smuggling organizations and the news that ICE just doesn't have detention space to detain them. So they know that likely, they get into the U.S., they're going to be released.

CAVUTO: And what is -- if you can bring up to speed on, what is our obligation when they get to a border?

There obviously are checkpoints or points they should go. But oftentimes they bypass those, right?

ARNOLD: Right. Yes.

They don't want to wait at a port of entry, because the port of entry is going to process a limited amount of people. So it's advantageous for them to illegally cross the border and be apprehended. If they are family units that have minor children, they know that those children have to be released, ultimately.

And, as I stated, but, right now, ICE is running out of detention space.  So these smuggling organizations get this intelligence. They know that people are being released because ICE doesn't have detention space. And that encourages these mass migrations and these smuggling organizations to increase the amount of people they are bringing into the United States.

CAVUTO: I'm curious. When this happens, the difference now is that a new president, a far left president is coming in to office, I think in December.

Do we know where he stands on this? It's one thing to talk to the outgoing administration, and they will just give you lip service, and then quite another to talk to the new guy who is going to run the show.

How do we play that?

ARNOLD: Well, I think you bring up an important point.

Based on the fact that the Congress has not acted to close the loopholes in the law to take away the motivator for people to come here and try and take advantage of the asylum process, there's something else that needs to be done.

And that's why there's legislation pending, for example, to take money out of the remittances from these countries that are going back, take a percentage of the money, and also take a percentage of the foreign aid from these countries to fund a wall, so that this kind of behavior can be stopped.

CAVUTO: We just secured this trade deal first with Mexico, and then Canada came in. And so we presumably have very good or better relations with Mexico.

But they don't seem to be forthcoming on at least putting out the yellow lights or slowing this caravan down. What do we do?

ARNOLD: Well, I think you have to hit them where it hurts.

And that's financially. A huge percentage of the contributor to the GDP of Mexico is remittances going back.

CAVUTO: Right.

ARNOLD: And that goes for the Central American countries from which these people are coming.

Cut foreign aid. I mean, President Trump has already threatened that. And I think that's what it's going to take, because if we can't get Congress to close the loopholes in the laws and fund building a border wall, something's got to be done, or people will just keep coming.

CAVUTO: And they know it's going to be tested in the media, where it's going to look heartless. They're trying to stop. We have got to go process all of you. And we're going to look inhumane and all that stuff.

And you can't win.

ARNOLD: No, you absolutely can't win.

And, again, they know that they're going to be released, so they're going to continue to come, when there's no deterrent. And it's important to note that the asylum process is already being abused, because about 80 percent of these asylum claims end up being denied. So these are economic immigrants.

They're coming here, understandably so, because they can make more money, have a better life here. But they're not -- the overwhelming majority of them are not bona fide asylum claims.

CAVUTO: Yes. And life could be a lot easier if the economy in Mexico, Latin America were improved enough that they didn't feel compelled to leave. But that is the crux of the problem, you know?

ARNOLD: Yes.

And part of problem is too that it's not just building a wall and changing the law, but we have to have an interior enforcement strategy...

CAVUTO: Absolutely.

ARNOLD: ... that holds employers accountable, so we don't have that magnet for the illegal immigration.

CAVUTO: Well said.

Claude, thank you very, very much.

ARNOLD: Thank you.

CAVUTO: A message for this president from past presidents -- after this.

(COMMERCIAL BREAK)

CAVUTO: The midterms are still 19 days away, but we already know who the president won't be blaming if they don't turn out well for Republicans: himself.

(BEGIN VIDEO CLIP)

TRUMP: If they don't go out and vote, then they have themselves to blame.

(END VIDEO CLIP)

CAVUTO: You know, last week's crazy stock market -- forget about today's - - is not his doing, the Fed's doing.

(BEGIN VIDEO CLIP)

TRUMP: I think the Fed is out of control. I think what they're doing is wrong.

(END VIDEO CLIP)

CAVUTO: Or the budget deficit soaring 17 percent to $779 billion, not his end of Pennsylvania Avenue. Try the other end of Pennsylvania Avenue.

Or discord in the White House, don't pin it on the guy who lives there.  Pin it on a lot of snakes who work for him there.

Or like the Puerto Rico hurricane recovery efforts that were all him when they were going well, then not anything to do with him when he discovered maybe they didn't go so well.

It is human nature to shift blame, but it is second nature to this president to shift so much blame.

And now the shift has really hit the fan, because the president is shifting so fast, owning a strong stock market when it's going his way, then pointing a finger when it is not going his way. The Fed is loco. The president is not. Fed Chairman Jerome Powell is the biggest threat to this economy, not the once zero percent interest rates that candidate Trump bemoaned were being kept artificially low in that other president's economy.

Just like it's not the former presidents bull market, it's his, even though it started many years earlier, before his.

It is clear, though, that markets go up and markets go down. And it is very clear that markets under Donald Trump have gone a lot more up than they have ever gone down. Touche to him.

But would it kill this president to heed the words of another president when another market was going really down?

(BEGIN VIDEO CLIP)

RONALD REAGAN, THEN-PRESIDENT OF THE UNITED STATES: All the other things I have told you about the economy are as solid as I have told you.

So, no, I have no more knowledge of why it took place than you have.

(END VIDEO CLIP)

CAVUTO: You know, it's tough to blame for something you didn't do, but it is tougher to take a bow for something you might regret.

Just ask John Kennedy, who really could have blamed his military advisers, even his predecessor, for the Bay of Pigs fiasco, but, in the end, admitted, as president, it was his fiasco.

(BEGIN VIDEO CLIP)

JOHN F. KENNEDY, THEN-PRESIDENT OF THE UNITED STATES: There's an old saying that victory has 100 fathers and defeat is an orphan. And I wouldn't be surprised if information is poured into you in regard to all the recent activities.

(END VIDEO CLIP)

CAVUTO: Lesson learned.

You see, the trouble with pointing fingers at others is some of those others then feel tempted to point a finger right back at you.

Why should I stick by you, if you're only going to stick it to me?

You see, that's the thing about loyalty. It works both ways. It takes a big man to acknowledge a mistake.

But here's the real dirty little truth on this. Those who do almost always see a big jump in the polls, whether it was JFK and the Bay of Pigs or Ronald Reagan and Iran-Contra.

(BEGIN VIDEO CLIP)

REAGAN: I take full responsibility for my own actions and for those of my administration.

(END VIDEO CLIP)

CAVUTO: Or Barack Obama and his own midterm drubbing.

(BEGIN VIDEO CLIP)

QUESTION: What happened on Tuesday?

BARACK OBAMA, THEN-PRESIDENT OF THE UNITED STATES: We got beat.

QUESTION: Yes.

(END VIDEO CLIP)

CAVUTO: Or Bill Clinton acknowledging the obvious after the Newt Gingrich Republican Revolution.

(BEGIN VIDEO CLIP)

BILL CLINTON, THEN-PRESIDENT OF THE UNITED STATES: The era of big government is over.

(END VIDEO CLIP)

CAVUTO: You see, Clinton wisely learned you can spite the parade, or maybe you can try and lead it, and so he did.

It is tough when things don't go your way, but, Mr. President, they're only going to get tougher when you keep putting yourself in the way.

There is nothing wrong with being human. There is everything wrong with trying to convince other humans that you are not.

So, let me put this in terms I'm sure your legions of loyal supporters will no doubt share with me right after this show -- in fact, they're doing so now.

It would be like me blaming my being a tad overweight on a thyroid condition. Fat chance any of them would ever let me try it, because I can look in the mirror.

What I'm asking, Mr. President, can you?

Good night. 
 
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