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QUEST MEANS BUSINESS

China Accused Rio Tinto of Overcharging; Economic Technical Recovery; Asia Severe Weather

Aired August 10, 2009 - 14:00:00   ET

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


Byline: Richard Quest, Becky Anderson Guest: Bob Parker

RICHARD QUEST, CNN INTERNATIONAL HOST: Bright recovery, the stock market's powerful rally suggests it's in the bag, but what's happening to the bag?

The job market blues, the former U.S. Labor Secretary Robert Reich on tonight's program tells me rocky roads ahead for jobs.

And stealing through a fight, the fight between China and Rio reignites.

The start of the week, I'm Richard Quest and I mean business.

Good evening. In Europe, stock markets sank gently into the red after a strong performance over recent weeks. They were trading at the highest levels of the year, just on Friday, but that rally has generated some attractive gains and investors are probably selling futures, pocketing the profits.

In London, it was Lloyds Banking Group which lost 4 percent. Just remember, they did extremely well of course when it was revealed that they thought the worst was over. Unconfirmed newspaper reports said the bank planning a huge sale of new shares to try to raise up to $25 billion, aiming to avoid government's insurance scheme.

Frankfurt VW tumbles, Telecom's Alcatel-Lucent lost ground in Paris. Zero declines for the Swiss banks, the SMI was down. Now the markets, the numbers, well we're in the red and some traders are betting that we could be stuck there for some time. That is the consensus after one of the steepest rallies in share prices for years, the voices say we've gone too far, too fast, and are growing -- those voices are growing louder.

The last three months, this is the scenario. London's FTSE, good place to start, up 6.5 percent in three months. And if you take March 9th as being the low point, we're up 36 percent since that post-credit crunch low. According to Bloomberg, some companies share prices have far overshot their value, relative to earnings. And yet, others say PEs are still on the low side. Look at New York, 11.3 percent over three months. Bloomberg points to the so-called gauge of fear, the Vix gauge of fear. Traders say volatility, going to be the hallmark of the next few weeks. And the Nikkei, the Nikkei at a 10-month high, 11.5 percent in three months, now about 10,500. All three markets, the graph tells the same tale at the back end. Of course, the bit we need to know about is what happens next? And for that, we need to turn to Bob Parker, vice chairman of asset management at Credit Suisse.

Bob, good of you to come in, thank you.

BOB PARKER, CREDIT SUISSE ASSET MANAGEMENT: Thank you.

QUEST: And you've just heard the synopsis. Do you agree basically with where we are or where we're going?

PARKER: There's a very clear market consensus which has emerged in the last three or four days that we are due for quite a sharp correction, and I would say the consensus is that share prices will be flat at either end, relative to where we are now. That's the consensus.

QUEST: What do you think that is based upon? Is it just simply too far, too fast? Earnings not supporting it?

PARKER: I think there's a concern that the improvement in earnings has been due to cost reduction and revenue generation for companies is still weak. I think there is also concern that the economic recovery in the developed world, not in the emerging world, but in the developed world, is going to run out of steam in 2010.

QUEST: Do you subscribe to the consensus view of a sharp correction?

PARKER: No. I think that there is a high probability that over the balance of August and probably in early September, we trade sideways in equity markets. We may trade down very slightly. Thereafter, I think equity markets will rise again.

QUEST: On what basis though? Hot air and a prayer?

PARKER: I think a number of key factors. The first factor is that according to our surveys, there is still very significant cash sitting on the sidelines.

QUEST: Private equity or?

PARKER: Private equity, certainly, retail, mutual funds. If you look at the surveys of for example, U.S. money markets, the cash in money market funds is still near a historic high. If you look at the data for mutual funds and equities, it is still at a very low level. So money has only crept back into markets. So there's this wall of cash sitting on the sidelines. Also, look at the correlation, the connection between credit markets and equity markets. That's still a very strong correlation. And credit markets, bond yields in for corporate debt, still support equity markets.

QUEST: So far so good, except until there is a demand led recovery, at best, stock market gains have to fragile, because until you and I and everybody else goes out and starts spending...

PARKER: Well, I agree with you on the fragility, looking out for 2010. I think actually we could have a problem in 2010 because my thesis is that the economic recovery in the states, in Europe, will actually be quite strong over the balance of this year. But the risk and there are numerous factors why this could happen, is that recovery fades in 2010.

QUEST: We were talking in the office earlier about the PE ratios, traditional PE ratios. Now we're now seeing in some sectors, PEs, price/earning ratio -- it doesn't get a more traditional barometer of share prices. There in some areas of markets, they are now starting to look good.

PARKER: There are -- you have to look at the defensive sectors and I would highlight for basic consumer goods, construction materials. Some sectors where they're not so cheap and where I think they can become more expensive are infrastructure stocks, IT stocks. I think there's powerful rally in IT can continue. I think one area we have to be slightly careful about is where we have seen the strongest rally this year, in China. The Chinese domestic equity market is up year to date about 80 percent. If you worry about negative factors or risk factors in markets, the Chinese could be the first central bank to tighten rates. That could be a problem.

QUEST: All in all, we're better off than we were...

PARKER: Correct.

QUEST: ... but not as good as we should be.

PARKER: It depends very much on how the recovery develops in 2010. I think structurally you need to stick to emerging markets.

QUEST: Let's turn -- I'm never sure whether people look forward to this or not, but we're going to turn -- Bob, you know how this works. Red, amber or green, and it depends -- you can choose to do it on markets, on the economies, sort of tell us what you're doing it on.

PARKER: Let's do it on corporate earnings growth.

QUEST: Corporate earnings growth?

PARKER: Yes.

QUEST: You're a brave man.

PARKER: Yes.

QUEST: Brave man. All right, what do we have for corporate earnings growth?

PARKER: Well my view on corporate earnings growth is that for at least the next two quarters, you go for green. Because I take the view of the corporate earnings growth having declined for 2.5 years is now forming a base and you're going to see better than expected numbers over the next six months.

QUEST: You believe that, corporate earnings growth?

PARKER: Yes.

QUEST: There was not really a nod-in. There wasn't an enormous amount of evidence other than cost cuttings and the numbers, which have soared.

PARKER: Right, but I think a lot of people are underestimating the extent in the second half of this year of economic recovery and that's going to result in some better corporate earnings numbers.

QUEST: Green from Bob Parker. Bob?

PARKER: Good seeing you.

QUEST: Good seeing you. All right, now I wasn't quite expecting a green. I thought we might get an amber. Didn't think we'd get a red. Becky Anderson is at the CNN news desk to bring us up to date with the world's headlines.

BECKY ANDERSON, CNN CORRESPONDENT: Thank you. There is pain and anguish across Taiwan, which has the island's worst flooding in 50 years. It's followed heavy rain from Typhoon Morakot. Officials say at least 14 people are confirmed dead in Taiwan, but that is expected to rise. In China, more than a million people are being forced from the coast as the remnants of another storm move in land.

Well, a day of death and destruction. In Iraq, a series of bombings left at least 48 people dead. In Baghdad, car bombs and a roadside bomb killed 18 people. In Mosul, two truck bombs killed 30 people and destroyed 32 homes. Some in Iraq say these incidents renew fears of renewed religious and sectarian violence.

Well, he says he was out to kill as many American soldiers as possible and it's a confession from a Muslim convert who admitted to planning a series of car bombings in Germany. Fritz Gelowicz told a Duesseldorf court that he was the mastermind between a 2007 plot. He and three other men are on trial. Lawyers say the men who showed no remorse are able to get reduced sentences by admitting their roles.

And the Spanish government is hoping to reassure tourists who may be fearful of visiting Mallorca after a string of weekend bombings in the popular tourist destination. No one was injured by the three explosions. Police are searching for a group of Basque separatists believed to be responsible for the attacks.

Those are your headlines at this point. Richard, back to you.

QUEST: I'm exactly the same as you are, feeling a little bit on the - - there's a lot of it about. But we're back with you in about 15 or 20 minutes more CNN news then.

In just a second, joining the suit, straightening the tie, brushing up the ceiling and putting on a smile. After the break, job quest, we'll be looking at our job hunters. They're in New York and Dubai. How are they getting on in just a moment. This is CNN.

(COMMERCIAL BREAK)

ANNOUNCER: We know it. You know it, for the very latest pictures, catch in with Hala Gorani on the International Desk.

HALA GORANI, INTERNATIONAL DESK: Your world up to the minute.

ANNOUNCER: Only on CNN.

RICHARD QUEST, QUEST MEANS BUSINESS: Here in the UK, analysts are warning of a fresh wave of jobseekers that's with pool cold's water on a nation's economic recovery. The nations are poor from the employment expert says the number of people out of work it's like a top 3 million in the UK in the 2010. The numbers are out on Wednesday.

This week on JobQuest, one man search for work is about to reach a turning point. Didier Picard or you're will be well familiar with in Dubai and the other jobseeker, Thomas Hein, tells us how they are getting on.

UNIDENTIFIED PARTICIPANT: Last week on JobQuest.

JASON, ATLANTA: As I look into this I'm suppose to meet like I'm crazeless (ph) or look on some of the MIU (ph) resources they have online, or if there's like a company that I'm really interested, I'd look directly on that say.

JENNY, HONG KONG: Already end of July and I've just completed my first four weeks (INAUDIBLE) in my new full time job which is quite dread. Yeah, I'm really happy that it's 358. I found out that actually during the week that a lot of my friends that they only last first three months, so you know we're pushing on that month of August, so I'm like, "Hey! It's July." So, that's good.

DIDIER PICARD, DUBAI: So, let's recap the situation. I've decided a few months ago in agreement with my employer that I would leave them to be more virtuary (ph) after having kind of other little business to my sister's health, and I will start something new.

Now, the something new has taken different forms, one that I really, really like now which is the edge of creating my own company, finally being my own boss, and I kick in the retail business, e-commerce. I'm really working (INAUDIBLE) on this.

UNIDENTIFIED PARTICIPANT: Have you got any specific ideas that you want to explore?

PICARD: I am considering starting my own business. It's just something that you witness in the bus in case like mine. Absolutely, especially in markets like this where there is turmoil. People really think about starting their own business and very often innovation comes out of a recession.

UNIDENTIFIED PARTICIPANT: Aha.

PICARD: That people take step back and think about the next step in that room, and so they think all of that experience that you've gained to doing your own thing which I they don't see very fulfilling.

Well, the saga continues and today I'm actually going to meet the gentleman at Europe were very large international company who sells jewelry and watches. (INAUDIBLE) I have to discuss with him the participation of some of their branch to the project that I'm working on, but later this afternoon I'm meeting with one of the free agencies that I've actually identified which will hopefully develop my websites. So, I'm meeting with this guy to see what kind of technical solutions he can bring.

UNIDENTIFIED PARTICIPANT: You know, in terms of looking at this project, we going to break short technical operation.

PICARD: We went through the thought phase. We went to the paper phase. Actually, I've put numbers together, and we have this stage now where I've identified priorities. One of the priorities is to develop the websites, so I've identified a few agencies who could help me set that up. It's all about promoting the website itself, so, how do you do marketing. So, I'm all learning about these things and I think that's another direction. It's about moving products around a region that is very complex, so it's all about logistics taking shape actually, got secured of few things. I mean those relatively comfortable situations from a financial standpoint.

So, today, I don't have to worry. I might be very different six months down the road. Who knows? So, that's one, but having secured the financial project was important then assessing the risk, and I don't think I'm going crazy.

THOMAS HEIN, NEW YORK CITY: (INAUDIBLE) isn't too bad. It usually take about 20 or 30 minutes, but you know, you like so many and you're just like, "Where am I sending this to, you know? (INAUDIBLE) actually reading them?" I'm e-mailing different contacts of communities of people like friends and families have told me, "Hey, you know, this might be a good opportunity. I've heard that you know this company might be hiring. Check into this. E-mail this person." Just making sure that I'm staying on top of that, e-mailing this people and just kind of like introducing myself a little bit. I have two cover letters straight and just to make sure that my resume could be going. So, I'm often - I don't know. I feel like I was being pretty (INAUDIBLE), an evening after a nine hours of working all day, you know?

Leaving in New York is so stressful. There is always so much going on, switch around in, noise around people, and you just feel grossing up the city all over you. So, it's kind of really like I said you've got to be really motivated, push yourself just like sit down and focus, send out those kind of letters, make sure that resumes are perfect, and hope for the best.

UNIDENTIFIED PARTICIPANT: For the past six months, we've seen success for Jason in Atlanta and Jenny in Hong Kong, and the fresh start for Didier in Dubai. September when JobQuest returns. You catch up with Thomas in New York and introduce you to a whole new round of jobseekers.

QUEST: The tapes out of JobQuest which now takes a break for a few weeks until September when, of course, jobseekers will be back.

Meanwhile, in the US, employers have cut staff numbers by a quarter of a million last month. You remember that from our Friday program. (INAUDIBLE) statistics represented a smallest number of job lost in a year. We want to talk about this in more detail on JobQuest. We turn to Professor Robert Reich, a Professor of Public Policy at the University of California. He was the US Labor Secretary under Bill Clinton, and I asked Professor Reich whether it was too set pessimistic to say the situation is dying.

ROBERT REICH, PROFESSOR OF PUBLIC POLICY AT THE UNIVERSITY OF CALIFORNIA: And now, I wish I could you're being too pessimistic Richard. Actually, you're being quite realistic. The job situation in the United States continues to deteriorate. The good news is it's getting worse more slowly, but that small consolation to the 14-1/2 million people who don't have jobs.

We have a record number of people who have been jobless for six months or more, and because the United States consumers no longer have the power to buy. Imports are way down which is causing chaos around the world because of the rest of the world has depended on the United States consumer to be the vehicle that creates jobs around the world.

QUEST: On programs like this, I remembering talking to marketing economist, they often sort of dismiss the unemployment numbers by saying, "Well, unemployments are logging indicator. We must concentrate on the early high or we must concentrate on the stock market," but that surely ignores the very real social cost and destruction of society of unemployment.

REICH: It ignores not only the social costs, and as you put destruction to society of unemployment, but it also ignores a very fundamental economic fact and that is that business investment is not going to be made unless businesses are convinced that there are consumers out there to buy the goods and services the businesses are investing in. They're not going to be consumers unless people have jobs that pay enough or unless they have jobs to begin with, and so consumers are absolutely critical.

In the United States, consumers comprise 78 percent of the American market of the American economy, and so without consumers with money in their pockets, we just don't have an economy.

QUEST: But surely, you wouldn't necessarily support a whole sale job creation program by the state which would merely transfer the burden if you like going to the public payroll. You could perhaps support people in bad times, but a massive job creation program that long term is neither realistic nor peaceable.

REICH: Not long term, no. The stimulus program we embarked on in the United States, $787 billion really has had a positive effect. We now know that much of the slowdown and the lost of jobs is due to the fact that that stimulus program has been creating jobs. The problem is the stimulus program probably is not large enough. We're going to see very, very bad job situation in this country I guess for another two or possibly three years, but Richard even when that clears up there's a big question mark hanging over the American economy which is where is the demand going to come from when consumers can no longer get the kind of credit, borrowing that they have got over the last few years when their homes are no longer piggy banks in terms of getting refinancings and home equity loans.

We have a huge problem on the demand side of the economy, and the American demand side also affects the rest of the world's economy.

QUEST: In my studio here in London, I have a set of traffic lights which we adapt regularly on economic issues. We find it up in the helps of people and so understand which way we're going.

Well, at the moment in economic returns, red, amber, or green Professor which would you like to be lit up? Red? Amber? Or green?

REICH: Well, I would -- I would call for amber, at least in the United States. It's not green at all, although some optimists would like to think that it is green. The red light, I'm tempted by, Richard, but -- but actually, a good kind of amber caution is the -- is the most appropriate right now.

QUEST: And to make it a good one, I'll even have it flash for you. Professor, many thanks, indeed, for joining us.

REICH: Thanks very much, Richard. Bye-bye.

QUEST: Professor Robert Reich, joining me earlier from Berkeley in California.

And not often, I'll have to tell you, in the course of one program, that we get a green on markets from Matt Parker (ph) but an amber from Robert Reich (ph). So I guess the only good part is perhaps that we haven't had a red so far the last couple of months.

What's acceptable when you're negotiating to get the best prices in a business deal? It depends on where you do business. The latest on the row over the secrets in the steel industry in just a moment. We'll return (UNINTELLIGIBLE).

(COMMERCIAL BREAK)

QUEST: Welcome back.

Now, China has leveled new allegations against Rio Tinto's employees, claiming that they overcharged by some hundred billion dollars over six years. Shares in Rio were dragged lower after the accusations were made against the mining company. These accusations appeared today on a Chinese government Web site. China's been holding four Rio staff in custody for several weeks.

The latest claim, as John Vause reports, is that Rio engaged in commercial espionage for many years and overcharged by tens of billions.

(BEGIN VIDEOTAPE)

JOHN VAUSE, CNN CORRESPONDENT (voice-over): What is now becoming clear is the growing connection between the price of iron ore and the detention of Australian national Stern Hu, a top iron-ore negotiator with Rio Tinto, one of the world's biggest mining companies. In the mundane world of ore trading, Hu and a handful of others are accused of stealing state secrets.

DEREK SCISSORS, HERITAGE FOUNDATION: What's happened here is the stakes have gotten so high that they trotted out their heavy artillery, and the heavy artillery is state secrets. You've taken state secrets. It's a very vague charge. It can mean anything the party wants.

VAUSE (on camera): Each year, the big iron-ore suppliers and consumers negotiate over price. And for the past few months, China has been locked in an intense behind-closed-doors dispute with some of the world's biggest mining companies, including Rio Tinto. The Chinese want a big drop in prices, much bigger than the 33 percent being offered by producers, even though that offer was accepted by some other countries, like Japan and South Korea.

(voice-over) But China, the world's biggest producer of steel and so biggest buyer of iron ore, has much more at stake.

XIANFANG REN, ANALYST, GLOBAL INSIGHT: Last year, since October, the Chinese (UNINTELLIGIBLE) suffered very hefty losses because of the plunging of steel prices, but they still have this high inventory cost.

VAUSE: So how does that involve Stern Hu and the others, being held without charge?

(on camera) Beijing isn't saying much, but reports in state media allege that Rio Tinto employees illegally obtained sensitive information about dozens of steel makers' inventory, production plans and sales figures, information which could have given Rio Tinto the edge during those at times acrimonious negotiations.

When contacted by CNN, an official at Rio in Australia said the company had no comment.

(voice-over) And then, there were last year's Olympics and recent reports in state-controlled media that members of the Chinese iron-ore negotiating team were invited by one mining company to enjoy the games from an expensive corporate box. Not illegal, say analysts, but questionable.

REN: The line between entertainment, public relations, and government relations and bribery, commercial bribery is kind of blurry here in China.

VAUSE: It's called "guanshi (ph)" in Chinese. Quite literally means relationships crucial to doing business.

The Australian prime minister, who often speaks of a special relationship with China, is warning both countries have much at stake.

KEVIN RUDD, AUSTRALIAN PRIME MINISTER: A range of foreign governments and corporations will be watching this case with interest and be watching it very closely. And they'll be drawing their own conclusions.

VAUSE: And that is perhaps precisely what the Chinese intend.

John Vause, CNN, Beijing.

(END VIDEOTAPE)

QUEST: Now in a moment, a collision in mid-air on a crowded stretch of air space above New York City. Search teams are continuing to look in the Hudson River for clues about why the accident occurred. We will bring you an update in just a moment. This is CNN.

(COMMERCIAL BREAK)

QUEST: Good evening. I'm Richard Quest. This is QUEST MEANS BUSINESS. You're watching CNN. It's the start of our week.

It's going to be an interesting week when it comes to the markets. Having reached year highs over the past few days in the last sessions of the previous week, now all the talk, pretty much wherever you look, is that this consensus is that the correction, or at least a trading down, is like the -- oh, my word. They're a bit previous (ph) there. I'm waiting for the bell. Down 67 points. And it's hard to say that's a correct (UNINTELLIGIBLE), 9,300 looks a little bit dodgy tonight. But this is what we are being told by certainly -- well, it might be that the order (ph) of the week for the next few weeks.

Bob Parker earlier on this program of Credit Suisse upper management doesn't hold with the view that the markets will take a tumble. He believes it will trade sideways. So this is one to watch over the next few weeks.

Year up to date, the market, now you know where your investments are standing. What about the news headlines that might affect them?

Becky Anderson is at the CNN news desk.

BECK ANDERSON, CNN ANCHOR: I am. Thank you for that.

Is Venezuela on a collision course with Colombia, with tensions rising between Venezuela's Hugo Chavez and his Colombian counterpart, Alvaro Uribe? Mr. Chavez is accusing the Colombian military of trespassing and says Colombia plans to expand the U.S. military presence in its bases could threaten Venezuela.

Well, divers in New York are hoping to recover two victims from a weekend air crash. They are hampered because the Hudson River is too rough. Nine people died when a small plane and a sightseeing helicopter collided on Saturday and plunged into the river. The chopper's wreckage was pulled up on Sunday. Seven bodies have now been recovered and investigators say that divers are hoping to get the plane out after recovering all of the victims' bodies.

Well, a cast of 100,000, many of them school kids, are turning up in the (INAUDIBLE) North Korea. This performance, scheduled to run for at least another six weeks, is popular with international tourists. It's celebrating North Korea's plan to achieve prosperity by 2012, the year Kim Il Sung, the country's founder, would have turned 100 years old.

A dramatic attempt at a rescue in Florida. Hundreds of people are scrambling to help two whales that are stranded in shallow waters. Local reports say that the two whales are a mother and her baby.

And just what is that in the skies over Britain?

It's not a bird, it's not a plane, it's a bike. A teacher from England is raising money for diabetes while flying from one end of Britain to the other on a tricycle. The airborne three wheeler is called a Flyke. And this chap is cruising from land's end in southwest England to the northeastern tip of Scotland. Good luck to him.

Those are the headlines -- back to you, sir.

QUEST: Do you know I'd love to have a go at one of those.

ANDERSON: Oh no you wouldn't. You're terrified.

QUEST: No, I wouldn't be. Absolutely not. Well, I'll send you up and you can tell me what it's like.

ANDERSON: OK.

QUEST: Thanks. Meg Anderson at the CNN News Desk.

In the next few days, we'll find out more about what shoppers are up to as recession squeezes budget. Big names in retailing, including Wal- Mart and Macy's in the U.S. Are going to give us earnings and numbers.

Here in London, there is one group of buyers who don't seem to be curbing their spending habits, as Leone Lakhani reports.

(BEGIN VIDEOTAPE)

LEONE LAKHANI, CNN INTERNATIONAL CORRESPONDENT (voice-over): The U.K. has long been a traditional summer haunt for visitors from the Middle East. This year, in a global recession, businesses in London want to ensure they don't lose that lucrative Middle East dollar.

JACE TYRRELL, NEW WEST END COMPANY: But the Middle East has been a really strong market for us. And it's been growing from strength to strength in the last five years and (AUDIO GAP) pounds. That's almost $400 million at the moment. And it's only been growing.

In fact, this year, the Middle Easterners are expected to spend 11 percent up from where they were last year.

LAKHANI: And USN Company represents 600 businesses along three of London's main shopping streets -- the largest concentration of retail in Europe. Each year, this area attracts 200 million visitors who spend more than $9 billion annually. This summer, West End companies launched a marketing campaign to target the Middle East shopper.

TYRRELL: We've had to really look at our customer service. We've packaged our deals. We were out there in the Middle East about three months ago, when everyone was planning their trip, talking to the agents. We can give special promotions, offers, exclusive privileges and we also targeted some of the airlines out there to Eckyard (ph) and Emred (ph), working with their first class lounges and ticket buyers and also the hotels (INAUDIBLE) a combination of retail efforts together.

LAKHANI: Restaurants and shops in the area, like the high end department store Selfridges, are taking some extensive measures to bring in those Middle East buyers.

SUE WEST, SELFRIDGES: We extend our trading hours. They like to shop later on into the evening. So for the summer months, we extend our shopping hours to 9:30 every evening. And we also make sure that we've got the majority of our Arabic speaking salespeople available during our summer months.

LAKHANI: Central London hotels have been known to introduce special menus, adjust their meal times and add extra cable channels to accommodate their Middle East guests in the summer months.

ALVARO REY, G.M. (PH) INTERCONTINENTAL: While a Westerner stays an average of five or six days per month, they are -- are during the summer, Middle East stay four weeks. During a typical month like May, the Middle East presence is between the 18 to 22 percent. During the month of July, it goes to 45 percent.

They have been very loyal customers of this city and even in the bad times, as we are right now, they are present. So it is important for us to take good care of them.

LAKHANI: There were concerns that the Middle East visitor wouldn't be visiting the U.K. this year, but spending is already up about 50 percent from this time last year -- just a sign of the enduring buying power of the Middle East consumer.

Leone Lakhani, CNN, London.

(END VIDEO TAPE)

QUEST: Now, on Friday, we had an interesting discussion on this program about AIG's shares and how they were now trading at 27 or something dollars a share. And he -- I wasn't expecting that discussion and in the heat of the moment, of course, we completely forgot to remind you that the reverse split had taken place of AIG's shares -- a 20 -- a 1 to 20 reverse split, which, of course, meant that any gains that people were showing, that you were showing as a result of this, was completely negated by that split.

It was a silly mistake that I made, entirely in the heat of the moment, and it's just one of those things that I completely forgot about.

Felicia Taylor is in New York.

You know how you -- I was so gob smacked when we were -- when the price came up that I completely...

FELICIA TAYLOR, CNN CORRESPONDENT: You were.

QUEST: I know. I was. I completely forgot. Well, I'll tell you what would have been even worse is if I'd gone off and spent money that I might have made. Now, that would have been...

TAYLOR: Well, see, that's the thing, you didn't -- you didn't make or lose as much as you thought you did, see?

So that's a good thing, right?

QUEST: Well, even more so, since I don't even own any AIG shares, and if I did own them, I'd have to declare them to you anyway.

Anyway, my apologies if I misled you on -- on Friday's program -- Felicia, there seems to be a consensus...

TAYLOR: There was, yes.

QUEST: ...amongst economists, market watchers, that some form of -- be it correction, be it slowdown, might be underway in the market.

Is that what you're hearing in New York?

TAYLOR: Yes, absolutely. And it's not really a surprise. I mean we've seen stocks pull back a little bit after what was really a very healthy rally on Friday. And a little profit-taking is pretty normal considering the gains that we've seen of late.

Keep in mind, stocks have been on a steady climb now pretty much since the lows that we saw back in March. The Dow itself has risen in each of the last four weeks and actually it's up about 43 percent since its all time low on March 9th. So that's a pretty healthy gain.

No kidding people are going to take some profits off the -- off the table in the beginning of the week, and especially before we hear from the Federal Reserve, which begins its policy meeting tomorrow. And we're likely to see the interest rates remain unchanged, at their target level of between 0 and .25 percent.

So let's take a look at where the markets do stand right now, with just about an hour and 20 minutes left in the trading day.

The Dow is off pretty much at its lows of the day, about 2/3 of 1 percent. The NASDAQ Composite is off 3/4 of 1 percent. And the S&P is also off about 2/3 of 1 percent.

So the markets -- I'll be taking a look at some headline comments from a Nobel Peace Prize winning economist. Paul Krugman saying that the aggressive stimulus spending by governments around the world has helped the world to avoid a second great depression.

However -- and this is probably something that you were referring to a little bit earlier -- Krugman also believes that the true story about this recession is far from over. We're not going to have a real recovery for about two years. And Asia is likely to recover faster than either the United States or Europe, because of that recovery in manufacturing exports.

So, there you go, a quick look at the market -- back to you.

QUEST: And as I look at what's happening in -- in New York at the moment and -- in terms of the markets, let's be honest, we are in the dog days of summer and, really, there's not a lot of corporate stuff out there.

TAYLOR: It's August.

QUEST: Yes.

TAYLOR: Yes. There's not that much coming up. I mean this week we've got retail sales numbers. Wal-Mart is going to be reporting. But that's pretty much it for the week. I mean we don't have a lot of news to trade on, except -- oh, but this is -- this is pretty interesting. Freddie and Fannie -- shares of Freddie Mac nearly doubled today. That's after the mortgage finance giant reported a quarterly profit. And it says that it won't need anymore financial help from the government.

So that's some pretty good news.

Shares of Freddie Mac right now are up about 70 -- 79, 81 percent and it's trading at $1.34.

QUEST: I'm not touching that with a 10-foot pole. Once bitten, twice shy.

Felicia Taylor, many thanks, indeed.

Now, (INAUDIBLE) Felicia was just talking there about the Nobel Peace Prize winning economist, Paul Krugman. He says the worst may be over. That's been moving the markets -- a cautious outlook. You're going to hear from Professor Krugman in just a moment, because he's in The Biz Clinic.

(COMMERCIAL BREAK)

QUEST: The Nobel Prize winning economist Paul Krugman says the world is avoiding a second great depression. His writing in the "New York Times" said, "Government spending, of course, is driving the recovery. We invited him to what we call the "Biz Clinic." We get the experts to put the economy under the microscope.

Asia business editor Eunice Yoon asked Professor Krogman what signals we should be looking for as we wait for the recession to come to an end.

(BEGIN VIDEO CLIP)

PAUL KRUGMAN, NEW YORK TIMES COLUMNIST: Jobs, jobs and jobs. Because there's other stuff that we have -- we could have sort of a technical recovery where GDP is growing or, you know, industrial production is growing, but that's not going to matter for most people.

For the last year, a lot more people have been being fired than being hired, and so, the total number of jobs out there has been shrinking. We need to start adding, and states we need to probably add more than 100,000 a month before you start to feel any relief. You know, we're still losing.

EUNICE YOON, CNN INTERNATIONAL BUSINESS EDITOR: What cold hold up a rebound?

KRUGMAN: First of all, the financial system is not in great shape. The banks are still troubled. You know, they don't look like they're about to go bust, but they're not in good shape, they can't actually do a whole lot of lending. I'm worried about oil. It's amazing that oil is sort of, I don't know what it is right now, but it was $70 a barrel. With the world economy in a deep slump, that's telling you that we still have got -- we've got a lot of pressure on oil supplies and if the world economy starts to come back, oil prices will probably come up a lot and that's a big break on recovery.

YOON: For those working on a trading floor, how is the world of finance going to change for them?

KRUGMAN: It's going to become simpler and more boring. That is, I think what's going to happen, when all is said and done is there's going to be more regulation because everybody knows, got real second thoughts about whether what's good for the trading floor is actually good for the economy and so we're probably heading at least part way back toward the kind of system we had 30 years ago, which was much more regulated, much less exciting, much safer.

YOON: But part of the job of a banker is to take risk.

KRUGMAN: Well, it's not really the job of a banker. We use to think that were people who would, you know, speculate in stocks, that was fine, but banking, which, you know, was offering people liquid assets, offering people ready access to their cash, was only supposed to be invested in relatively safe things. And this idea that bankers should be, you know, borrowing trillions of dollars in the repo market and then investing it in securities that nobody understood. That's a relatively new development and it's almost destroyed the world.

So, there's an argument that says that, you know, we had actually -- we need bankers to be a little bit less interesting than they've been lately.

YOON: A lot of people, these days, are talking about a China recovery. What does that mean for your average person in Chicago or Berlin?

KRUGMAN: Less than you might think, because although China is enormous and China is the economy of the future, it is not yet the economy of the present. China is still substantially small that the European Union or the United States. It still, actually, doesn't have as much purchasing power in the world as Japan does, even now.

And so, even though China is pushing along, they've had a much bigger stimulus than anybody else, it's not -- China isn't a big enough player yet to be the world's locomotive.

(END VIDEO CLIP)

QUEST: That was Professor Paul Krugman calling, pretty much, an end to, if you like, a bottom to the recession, but also warning of what's likely to come in the future.

Now, you are key to the "Biz Clinic," we want to hear from you about what's puzzling you in the world of business and finance. And there's a Web site, it's CNN.com/bizclinic. And you can send us your thoughts and questions while you're there and read more about the interview -- Eunice Yoon's interview with Paul Krugman. That's CNN.com/bizclinic.

The weather, at the moment, well, there's one particularly very serious storm, tropical storm, area of concern. Guillermo Arduino is at the "World Weather Center."

I'm grasping for the correct words, here, Guillermo exactly as to how one would describe this, but help me out.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Well, the tropical cyclones, now they are weakening, fortunately, so from now on, things are going to start improving from the meteorological point of view, but at -- still we are going to be getting more dramatic footage from Taiwan, from China, I'm sure, Japan, probably here Taiwan, it's lost here, because of all the cloudiness.

Taiwan is where we get the most sever, most dramatic images, because there's a town in the mountains that it's covered, imagine, with all that rain and then all the mud and trees that come rumbling down from the top of the mountains, covers towns and that's what's going on right now. We're talking about over two meters of rain in many instances.

So, this is what we have, right now. Close to Shanghai (ph) moving into the Korean peninsula, we have here remnants of one system, still some humidity and moisture in the south in Taiwan, so it will continue to rain. And then in Japan, the other tropic cyclone that we have that continues to bring the rain.

(AUDIO GAP)

...vicinity of Hong Kong, we will see severe storms, also. Let me move to the other side. You will see -- that probably will see delays at airports where there is the same in the Korean peninsula. Look at the charts, here. Seoul with delays at airports, Taipei, Hong Kong, Tokyo, two -- those areas, southern China -- three areas, Taiwan and Japan, with some more severe delays. Then Sydney, Australia, Singapore, Mumbai with some delays, as well.

This is the pattern in Europe, right now high, high in the middle in Germany, here, the low countries. Northern Italy is where we see the rain showers that are going to be moving toward the east, here, more or less in the same fashion, but we are going to have the rain from the Baltics all the way down into southern parts of Balkan Peninsula.

Elsewhere, you're going to notice in Britain the weather will improve, it will continue to be very warm, indeed, in Spain. Look at the stormy weather, that's -- it's going to improve in London, particularly, but as we move to northern England we still have the chance of showers. The weather continues to be warm in Madrid, but better than last week. Then Rome, 32 degrees and Berlin 23 degrees. Do we have any delays? No, significant delays in here.

The rain showers in Germany still and in Denmark, as you see, Vienna, with some thunder, so we are expecting some weather, there, but nothing compared to the dramatic conditions that we see in Asia.

Stay with us, QUEST MEANS BUSINESS is coming back.

(COMMERCIAL BREAK)

QUEST: Welcome back. Hotels of the future. Now what is essential and what would you like to get rid of when it comes to hotel of the future? You're right, of course, I've Tweeted and I've talked about in the future, get rid of the dreaded breakfast buffet. Well, it was my Tweet question and e-mail question to you.

And Jose Sar (ph) says, "I would get rid of the hotel coffee." I think what you mean is probably to them to make real coffee and better coffee.

P. Price (ph), "Swimming pools that are large enough to actually swim in, free WiFi."

And I thing this one change, (INAUDIBLE) says, "One change would to be have bigger Olympic-sized swimming pools, deeper."

I'd settle for more hotels that actually have swimming pools.

Anyway, that's what your views of what hotels of the future will be. But, a bet that rocks you to sleep, inferred rating that's kind to your skin, younger and sensor or operated floor lighting. It sounds too good to be true, but these are the sort of things that may well be in the hotel of the future.

CNN's Jim Boulden has been to Germany to try them out.

(BEGIN VIDEOTAPE)

JIM BOULDEN, CNN CORRESPONDENT: This is my hotel room today -- comfortable bed, nice mini bar, wide screen television. But fast forward a few years and a hotel room could look like this.

UNIDENTIFIED MALE: Welcome, Jim, to the hotel room of the future.

BOULDEN: (voice-over): This is a mockup of what could be -- what we travelers might want in our hotel rooms by 2020. It's part of a research project in Germany where hotel chains can test new ideas.

The first one -- voice commands.

(on camera): Well, with all these white walls and curves, this room certainly has a futuristic feel.

But what's so special about it?

What can it do that's so different?

UNIDENTIFIED MALE: Well, Jim, if you lay back, the bed of the future can rock you to sleep.

VANESSA BORKMANN, FUTURAHOTEL: We started the Future Hotel Project about two years ago. And the purpose is to find out what do guests like in hotels at the moment and how do they want to be a hotel -- the perfect hotel, today and in the future.

BOULDEN: The accent here is on living well rather than just looking good. The result has to be as soothing to the mind as it is pleasing to the eye.

(on camera): So where are all the light switches in this room?

UNIDENTIFIED MALE: In the hotel room of the future, there will be no light switches. Instead, we will use censors.

BORKMANN: For example, we have to use this intelligent floor -- the (INAUDIBLE) floor. There are censors all over the floor (INAUDIBLE).

BOULDEN: These censors could also be used to monitor heart rate and temperature.

UNIDENTIFIED MALE: And, Jim, if you don't like traditional white lighting in the hotel room of the future, you will be able to change the color, depending on your mood.

BOULDEN: But maybe most practical for hoteliers -- movable walls.

BORKMANN: We -- we talked to a lot of hotel operators that are very interested in the idea to bring two business rooms together to one suite for the weekend or to use two single rooms as a conference room.

BOULDEN: They don't expect any one hotel to have all of this, but there could be a floor or two in top hotels with some of these options.

(on camera): And apparently behind these walls, you could have infrared lighting, which could rejuvenate the skin. You could actually look younger while you're staying in the hotel.

So, fast forward to the hotel room of the future. I don't think I would be checking out any time too soon.

Jim Boulden, CNN, Duisburg, Germany.

(END VIDEO TAPE)

QUEST: (AUDIO GAP) a bed, a pillow and a shower that knows my preferred settings; an alarm clock linked to my calendar to wake me up -- now that is interesting. And, of course, I'll -- what else have we got in terms of the room of the future?

Or to make it be a refill," says Callion (ph). "I think you're more of a motel person than a hotel person. No fake smiles, no boring buffets. Yes, we like that Asian steak. We wouldn't get rid of the buffet breakfast, but would make improvements to it.

There is more on the high tech stuff this month's Business Traveler. We're all about technology, especially issues that I know are of concern; for example, PDAs and synching them up with your various computers, all those sort of issues; wi-fi on the road, the sort of things you need to know were invented on Business Traveler.

The time is 1830 in London.

Now, finally, tonight's profitable moment. And I want to continue the theme that we've just been talking about.

Jim Boulden has just shown us the hotel of the future. It was very nice. There's more I want to see before I check in.

I want to know that there will be no daylight robbery with a mini-bar that requires a mortgage when you buy a packet of Pringles.

I want to be able to make a telephone call from the hotel phone and not incur costs worthy of a federal bailout.

I want to be able to have my breakfast safe from the horrors of that breakfast buffet. The breakfast buffet -- I've said it before, I'll say it again and I'll never tire (ph) of beating it -- needs to be banished, never to grace any decent hotel again. I know some of you like it. I think it's a particularly horrendous form of torture.

I want a city center hotel that doesn't charge as much for parking my car as for eating my evening meal.

I want a desk lamp that allows me to work and a decent chair that I can actually use.

In other words, I want to banish designer furniture. It all looks good, it's a menace to health and safety.

Tomorrow's hotel has to remember the first and only requirement -- remember, it's simple, you make sure the guest has a good night's sleep.

And that's QUEST MEANS BUSINESS for this Monday.

I'm Richard Quest.

What an interesting program. We had a green (ph) from -- from Bob Parker, we have an amber from Robert Reich. But, as always, Hala Gorani is up next at the International Desk.

And whatever you're up to in the hours ahead, I hope it's profitable. Please make time for us to get together tomorrow.

END

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