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Wall Street on Alert; Europe's Reality Check

Aired May 13, 2010 - 14:00:00   ET


RICHARD QUEST, QUEST MEANS BUSINESS: Tonight Wall Street on alert, first, Goldman Sachs, then Morgan Stanley, now it is just about everyone.

Europe's reality check, Portugal tightens its belt and tries to become the next Greece.

And selling a dream, tonight the chairman of Gucci tells this program luxury is still in fashion.

I'm Richard Quest. I mean business.

Good evening.

Wall Street's biggest banks tonight under close scrutiny as U.S. authorities focus on the toxic mortgage linked deals that poisoned the financial system. It is believe major banks are suspected of misleading credit ratings agencies. Not only of them, as well as customers, about the quality of the products they were selling and looking to rate. One media report says investigators are widening their look at whether deceived the buyers of certain investments.

Which ever way you look at it tonight, there are investigations. We will be with Maggie Lake, in New York, in just a moment to look at the rating agency side of this. First though, Jim Boulden is with us for news of how more, four more banks, are said to be facing criminal investigations, or at least certain close scrutiny-Jim.


Of course, first it was Goldman Sachs, then a report that named Morgan Stanley. Now "The Wall Street Journal" says federal prosecutors are looking at whether four more banks misled their own customers.

Who is being investigated? Well, citing people familiar to this case, according to "The Wall Street Journal", J.P. Morgan Chase, Citigroup, UBS, and Deutsche Bank. They have all received civil subpoenas from the Securities and Exchange Commission. Now, none of them would comment to CNN, so far, but J.P. Morgan Chase and Deutsche Bank told "The Journal" they had not been contacted by federal prosecutors and were not aware of any investigation.

Well, what are they looking for? Well, they're looking to see whether banks made proper disclosures when they created and sold complex investments, known as CDOs, and those, of course were tied to toxic home loans. Many of these investments turned out to be full of loans that, of course, went bad. Manhattan's U.S. attorney's office and the SEC are working together.

Of course, let's remember, this all started with Goldman Sachs. Goldman Sachs is already under scrutiny by regulators. Morgan Stanley was named by "The Journal" on Wednesday as the subject of another probe. Morgan Stanley says it has no knowledge of any such investigation, Richard.

QUEST: OK, Jim, come over here and join me because we need to talk more about that. Come over here. While you do that we will have a look at the Big Board in New York. It is currently just off a fraction, virtually unchanged. Maggie Lake joins us now in New York.

Maggie, you heard what Jim-Jim has outlined the scope of the investigations, or the narrowness in one sense. But I need you now to tell us, how many investigations are there out there? And who is looking at what?

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: That's right. It's a lot to keep track of. Jim was talking about what was going on in a federal level, but locally here, the New York attorney general's office, Andrew Cuomo, sources close to the matter tell CNN that that office is investigating eight banks, some of them are the same, as you saw on the screen there with Jim's -we'll put the logos up-to see whether they gave rating agencies misleading information in order to inflate the grades, or the ratings, that these firms were giving certain mortgage securities.

And of course, as we talked about the names are familiar, Goldman, Credit Suisse, UBS, Deutsche Bank, UBS, a lot of the top Wall Street firms. Rating agency Fitch says it is working with Cuomo's office, as does Bank of America, the other banks have no comment. Analysts and money managers I talked to taking this news in stride, just a little bit. It is not clear. These are very preliminary in all the cases. Not clear whether this is going to result in any action. And also, Richard, as you can imagine, a lot of people on Wall Street think this is politically motivated in order to jump start or press the issue of the financial reform that is being talking about in Washington-

QUEST: Whoa! Whoa!

LAKE: -so they're watching it. They're not overly concerned right now, but it is yet another uncertainty.

QUEST: Whoa! Time out, as I think you might say, Maggie. We've got Andrew Cuomo for the New York state attorney general. You've got the U.S. attorney general, you have got the SEC, all investigating.

So, who has primacy? Which way does it go? And when, if any time, to we find out more about it?

LAKE: We don't know most of those things. And the reason I emphasize it is preliminary, in most cases, with the exception of the Goldman news that came before, it is not clear that any sort of formal, wells notice, anything that has been served on any of this. So, the fact that we're hearing about them so early on in the probe is what is causing a lot of the chatter about the political motivation. Of course, they'll say they are just doing their due diligence.

QUEST: Right, right.

LAKE: We're going to have to wait. They are compiling the evidence. So we don't know yet, whether-we don't have a time line and we don't know whether any further action is going to be taken. They are looking into it, is the best way to put it, Richard.

QUEST: Jim Boulden is still with me.

Jim, looking into it, but we know from what happened with Goldman, Jim, we know that once these terriers get their teeth into it, which way it goes, then something comes out of it. Or am I just being previous here?

BOULDEN: Let's not forget that there was only-there has been only one serious criminal charges filed this meltdown, with these CDOs, that was Bear Stearns, with a hedge fund, with two traders. That case collapsed. So, we-the prosecutors have to be very careful here. They have to show that these people knowingly misled the clients in order for this prosecution to happen. And so far they have not been able to prove that with anybody.

QUEST: All right. We've got Jim Boulden with that. Maggie is nodding her head in agreement, that means it is probably time for us to bring this to a close. Jim, thank you, and Maggie, as well.

The Big Board is trading at the moment up-look it is barely-it is barely changed up 2, a fraction of a percent, 10,898.65. And one of the other things, those reports are pulling down the banking sector. Later I will check out how some of the banks are faring.

Investors also reacted of course to the U.S. jobless claims, which were down again on last week. You are up to date with what's happening in the business world. The investigations, there are plenty of them.

And now we need to go to take a short break. When we come back we will look at the bears, the bulls, and more importantly, we will ask where you should put your money.


QUEST: Good gains for the Xetra DAX, up 1 percent on the day. Let's catch the news headlines now.


QUEST: Now Portugal is the latest European Union country who is to take a dose of serious budget medicine. With so much talk of contagion from the debt crisis, nearly every country thought to be at risk is now publicly going on a health kick. Spain announced on Wednesday on how it was going to stop the overspending. Portugal has promised to bring its budget deficit down from 9.4 percent of GDP to 4.6 percent in 2011. There are also 1 percent tax rises in sales tax and VAT. Income tax rises of around 1 percent or 0.5 percent for higher earners. The variety of other taxes for banks and larger companies are going to be put up by 2.5 percent.

So an entire raft and range of measures to stop the contamination; and senior officials pay is down some 5 percent. None of that seems to be making the euro anymore attractive to traders confidence and the currency is dwindling further, which has been the story of the past six months. If you look here today, the euro is falling to a 14-month low. And that is where it was late last week.

The German Chancellor Angela Merkel really got to the grip of it, and to the nub of it, when she said, we have a common currency, but no common political or economic union. And this is exactly what we must change. Now, that is highly controversial stuff. But it seems to go to the heart of exactly what the problem is for the euro.

Factoring equities, and it has been a volatile year so far. Particularly, of course, with flash crash, which we had last week, just that. But let us look from the beginning of the year. And here you have this very impressive rise. So the index is still up 4.4 percent on year to date, with a solid performance by companies, 77 percent of the S&P 500 did report good, as good, or if not better earnings. And we know from the GDP in Q1-I'm sorry about the jargon-but the first three months of the year the U.S. economy grew by 3.2 percent.

Even the London FTSE is still up for the year. It has done rather well. We have had a couple of big hiccups around here. What is interesting, of course, in all of this is if you look at the price of gold and how gold has actually traded, we've had an intraday high on Wednesday, at 12,048. That very sharp rise in gold, that is clearly, of course, the extreme worry of sovereign debt risk. Why should this, of course, all be the case? We need to put more-put more about this.

Joining me now is Portugal's Finance Minister Fernando Teixeira dos Santos, and who is on the line from Lisbon.

Minister, you have introduced some fairly dramatic and drastic budget deficit cutting measures. You know, obviously, you hope this is going to be enough to stop any bond vigilante attacks?

FERNANDO TEIXEIRA DOS SANTOS, FINANCE MINISTER, PORTUGAL: Yes, we are developing a very important effort of additional deficit reduction or almost 5 percentage points of GDP, by the end of 2011. And we see an important element to rediscover (ph) confidence of markets in our sovereign debt market, as well as the euro is (UNINTELLIGIBLE) that.

QUEST: When you saw the attacks on Greece, how much was there a fear for you, and for the government in Lisbon, that you would be next?

SANTOS: It was not clear right in the beginning because we had some other issue relative to this about (UNINTELLIGIBLE) about the information, the problem related to the credibility of the previous authorities, as well as at the same time, they have a much higher deficit and a much higher public debt ratio to GDP, as compared to Portugal.

QUEST: Do you-now I saw-


SANTOS: It was clear that issue was not only risk, but the euro countries -uh, uh, at all.

QUEST: But you had a bond auction yesterday and the bond was well covered. The debt agency pricing it at a favorable rate. So, as I pose the question tonight, the investors are watching, are you out of the woods?

SANTOS: I hope so. And we are working really to build up that confidence. And to make markets believe that we are strongly committed to reduce our deficit and our debt. We did that in the past and we are doing it again. And we want to do it in a very credible way. And we have provided very strong signs with the decisions we have taken today, we are providing very strong signs on that.

QUEST: And when Chancellor Merkel says tonight, or today, that the real issue is that of course that the Euro Zone has monetary union, but doesn't have economic or fiscal union. I mean, technically she is right. So, is the future for a greater fiscal and political union to make the euro work?

SANTOS: Yes, and we are giving steps in that direction. The decisions that we took last weekend are real and important steps forward, sending our economic governance, and fiscal governance, within the euro countries.

QUEST: Minister, many thanks indeed, very much appreciate it.

SANTOS: You are welcome.

QUEST: I know it has been a very busy day for you. But we're grateful that you have taken the time to QUEST MEANS BUSINESS.

SANTOS: Thank you very much.

QUEST: Now, there is one man who is bullish about the U.S. economy. Our dear friend Peter Morici says we're in for one heck of a ride this year.

When I read Peter's e-mail this morning, I thought, hang on, we've got to get him in to talk about this.


Peter, first of all, you just heard the Portuguese-hopefully, you were able to hear the Portuguese finance minister talking about why they have taken their debt measures. Do you believe that the sovereign debt crisis in Europe has now subsided?

PETER MORICI, PROF. OF INTERNATIONAL BUSINESS, UNIV. OF MARYLAND: It has subsided but it has not over. They need to accomplish fiscal union. You know, in the United States we taxed New York to essentially subside Mississippi, so that the social safety net is approximately the same in Mississippi as in New York, not quite as high, but approximately the same. Whereas these Mediterranean countries have to pay for, you know, health care, old age pensions, and everything to populations that in a period of economic integration have expectations of benefits as good as they have in Holland, or Luxemburg or Germany. So, they need greater fiscal union to make this work or the currency won't work. What we're seeing now is the realization of that fact. And a promise to do something about it.


MORICI: So, for the time being, the bandage holds.

QUEST: Right. Now, let's talk about your e-mail this morning.

I mean, Peter, I've never normally accused you of wearing rose colored spectacles but-


QUEST: But you talk about being in for a heck of a ride. And you make a very good case that equities are going to be extremely bullish for the rest of the year.

MORICI: Oh, I think I do. If you look at the basic situation, interest rates are going to be low. The Fed and the European Central Bank are going to have to keep rates low as they move through this crisis, so through-beginning of 2011, low interest rates, a lot of foreign money is coming into the dollar, safe haven, that will keep the yield curve from getting any steeper.

Also, there are a lot of concerns about China. About China's equity market, about China's real estate market, so smart money, smart foreign money is going to come into the United States and invest in companies that can make money in China, without the vagaries of their equity market and real estate market.

QUEST: Right.

MORICI: So, my feeling is that, you know, we are headed-we have a lot of demand for U.S. stocks, a stable interest rate environment, 3 percent growth here, 10 percent growth in China. That really mixes up, for me, to be a good situation for the market.

QUEST: So, all that pessimism-or at least, if it wasn't pessimism, it was at least, you know, grumbling, as we went into the year, that the year was not going to be a good one, and we were going to see sluggish economic growth. You're basically debunking that for the rest of the year, for the United States.

MORICI: Well, all along I have said 3 percent growth for the United States, 10 percent growth for China. So, I haven't changed my basic forecast. And I have been saying for some time now, I wrote about this April 5, and I wrote about it at the end of last year, that we are in a situation that is really nice for U.S. equities. And that they will start going up very nicely as long as we have a gradual measured recovery, which is what we had. We maybe facing 10 percent unemployment for a while. But as long as U.S. companies can grow 3 percent at home, they're profits will rise, and they can take advantage of 10 percent growth in China, 50 percent of S& P profits come from China, U.S. companies are going to do well. The Dow, the S&P 500, the Nasdaq, they'll all go up.

QUEST: And we will talk more about that, many thanks, indeed, Peter for taking time and putting this into perspective. It is good to see you as always. Now, of course, not everyone is as optimistic as Peter Morici. We'll hear from Nouriel Roubini, the man known as Doctor Doom after the break.


This is QUEST MEANS BUSINESS, good evening to you.


QUEST: Welcome back.

You just heard Peter Morici with an extremely bullish account for the U.S. market. The Nasdaq, the S&P and the Dow. Let's try and put that in a different context. We've been talking to Nouriel Roubini, the man who predicted the 2008 banking crisis. He was called Doctor Doom, was his nickname. He's got a new book out called, "Crisis Economics". Nouriel Roubini is extremely pessimistic on the question of sovereign debt. He believes it will be the big crisis for this year and next. CNN's Poppy Harlow asked him what he thought of the response to the down turn?


NOURIEL ROUBINI, ROUBINI GLOBAL ECONOMICS: Whether we have learned a lesson? I'm not sure because many countries are talking about now, reforming the system, or supervision, regulation of the financial institutions. Almost no one has done anything about it. And now we are near zero interest rages and we have the beginning of another asset bubble. And third of all, the crisis started from too much debt of the private sector, out of the financial institutions. Now we socialized these private losses, there is a massive build up of debt, and deficits on the public sector. That is the double problem we are facing today in Greece, Portugal, in Spain. And eventually they are going to happened also in the United States. We can not run a $3 million deficit forever.

POPPY HARLOW, CNN FINANCIAL CORRESPONDENT: The sovereign debt crisis, does that continue to be the out layer, that concerns you most at this point? I mean, what, if anything has been shown to us, in the last few weeks is that this is truly and interconnected global economy and whether you are just investing in the U.S market, you have to care about what happens in Greece, and Spain, and Portugal, etc.

ROUBINI: Absolutely. Even a small Greece can have contagious affect at the regional level and the global level. And as I point out in the book, crisis start from the private sector once they go on the balance sheet of the government, with large budget deficits of public debt. Eventually to solve the risk of rising, and the risk of default in that restructuring. Or if you inflate it away by monetizing the deficit, eventually you are gong to have inflation.

HARLOW: You've spoken a lot about that, you write about that in the book, "Monetizing the Deficit" And government is not willing to make the hard choices. The hard choice being, raise taxes, and cut spending. Do you see any evidence the governments are doing that. Greece is getting $100s of billions of Dollars in aid, as you know, there is the support in terms of that for Spain and Portugal, as well. So, are governments making the hard choices we know that they need to?

ROUBINI: In part, the IMF and the European money, to Greece, to Portugal, to Spain, is going to be conditional on doing fiscal consolidation, so that is a positive. On the other side, the size of these deficits, and that is just so large, in my view. In a case of like Greece they eventually will have to restructure the debt. (UNINTELLIGIBLE) is going to be socially and politically impossible to achieve. And in many countries, now, there is the divided government, like in the United States. There is a gridlock in Congress and in Washington. In the U.K. today we are now a hung parliament.


ROUBINI: In Germany, just over the weekend, the majority of the Merkel, in the parliament was lost. So, it is going to be more difficult for many more governments in the world of that weak government, or divided governments, or countries where there is political gridlock to do the sacrifices, raising taxes, cutting spending, and that means if those sacrifices are not made, eventually there is either a fiscal train wreck or (UNITELLIGIBLE) to finance eventually inflation.


QUEST: It is worth, perhaps, pointing out that Mr. Roubini's views and Peter Morici's views are not mutually exclusive. Peter was talking of course about investing within the U.S. markets, where as Nouriel talks a lot more about sovereign debt else where.

When we come back in just a moment, two papers in New York, "The New York Times" and "The Wall Street Journal", they have serious scoops today about investigations into Wall Street biggest banks. It was probably enough to make strategist spit their cornflakes out. What will it do to the bank shares? In a moment.


QUEST: Hello, I'm Richard Quest. QUEST MEANS BUSINESS, this is CNN.

The man who once controlled the giant Russian oil company, Yukos, is back on trial. Mikhail Khodorkovsky is accused this time, of stealing all the oil his company produced. Mr. Khodorkovsky has already spent years in prison. He now faces the prospect of many more.

The former tycoon has been able to communicate in secret with our correspondent Matthew Chance, who has sent this report from Moscow.


MATTHEW CHANCE, CNN INT'L. CORRESPONDENT (voice over): He's been called the billionaire dissident. For seven years Mikhail Khodorkovsky has languished in a Siberian prison camp, sharply criticizing the Kremlin from his cell. Now, just a year before his sentence for tax evasion is finished he's facing fresh charges and the prospect of another 22 years behind bars.

It is not just family friends up in arms. Human rights activists say this oil oligarch is paying the price for crossing those in power.

(On camera): Every time he appears in court, Mikhail Khodorkovsky here, is greeted by his supporters. This once ruthless billionaire oligarch is now seen increasingly as a political prisoner. Jailed for one reason, his outspoken opposition to the Kremlin.

(voice over): Khodorkovsky says the new charges against him, that he stole all of the oil produced by his now disbanded company are absurd and designed solely to keep him behind bars. CNN was denied access to the prisoner but we managed to get written questions to him in his jail cell and he was able to respond.

"There is not one serious-minded individual in Russia right now who would tell you that this trial is lawful. There is talk of whether such methods of achieving political goals are acceptable, and whether the goals are appropriate in the first place. That the motives are political is no longer a subject for discussion.

CHANCE: Khodorkovskaya was arrested back in 2003, when he owned Russia's then biggest oil producer, Yukos. It had a very public falling out with Vladimir Putin, then Russia's president, now its powerful prime minister. Khodorkovskaya was accused and convicted of tax evasion, Yukos was broken up and absorbed by the Russian state.

Khodorkovskaya's mother, who regularly attends the course to glimpse her son, says she believes his imprisonment is a personal vendetta.

(on camera): Why do you think he'll be released?

MARINA KHODORKOVSKAYA, MOTHER (through translator): You know, it really unpredictable. It all depends on one person. You understand who I'm talking about. And that person is very afraid and whether he can finally get over it, I don't know. It depends neither on the judge nor the prosecutors.

CHANCE: But getting over it doesn't appear likely. In recent public statements, Prime Minister Putin has compared Khodorkovskaya with Al Capone, an American gangster who was connected to murders, but only convicted of financial improprieties. Putin has implicated Khodorkovskaya in a murder of which he has never been formally accused.

MIKHAIL KHODORKOVSKY: Clearly, Putin finds me more than disagreeable. It's difficult for me to say to what extent my persecution and prosecution are based in political calculations, self-interest or emotion.

CHANCE: Whatever the reason, the continuing saga of this oligarch turned dissident and his powerful enemies in the Kremlin continues to cast a dark shadow over Russia's image.

Matthew Chance, CNN, Moscow.


QUEST: Some powerful reporting there from Matthew in Moscow.

And a reminder of our top story today. Wall Street's banks are coming under intense scrutiny tonight, as U.S. authorities are zeroing in on the toxic mortgage linked deals that so poisoned the whole financial system. Major banks are suspected of misleading credit rating agencies about the quality of the products they were selling. One media report says investigators are also widening the probe into whether banks deceived the buyers of certain instruments -- the buyers, the clients and all.

Now, Felicia Taylor is at the New York Stock Exchange.

And Felicia joins me now.

The market is off just a couple of points. And yet these are extremely serious allegations. We saw what happened with Goldman and the SEC. So give me a feeling, if you will, Felicia, for how big this is now.

FELICIA TAYLOR, CNN CORRESPONDENT: Well, I mean there are a lot of questions that haven't been answered yet, that's for sure, Richard. This will take a long time to play out. But in all honesty, this could be vast and very serious. The questions remain, though, are they targeting individuals within these various banks or are they targeting the institutions themselves?

Either way, it's -- it's a dent to the institutions themselves.

You're also talk at whether or not these are criminal cases or civil cases. Those are two very different ideas.

So it will play out over the weeks to come. But as you saw with Goldman Sachs, the shares were down significantly on news of that. This is still under investigation. The banks themselves have not officially been accused, but merely under investigation.

So right now -- actually, Bank of America's shares have now traded back to the up side. JP Morgan, Citigroup, Goldman Sachs still to the down side. Deutsche Bank is off the most, off 2.25 percent right now -- Richard.

QUEST: But the thing that's -- the thing that I -- I'm finding quite extraordinary is the range of investigations, whether it's the U.S. attorney...


QUEST: -- the New York State attorney, the SEC...


QUEST: I -- I mean I can't think of -- you know, Uncle Tom (INAUDIBLE) and all. Everybody's got their -- their mitts in here.

TAYLOR: Well and there's some speculation out there as to whether or not this could be politically motivated. You're exactly right. Not only is it the state, it's the federal level, it's the Securities and Exchange Commission. So it's widespread at this point. So we don't exactly know. And -- and don't forget, when they're accusing the ratings agencies of being involved, that was also, quote, unquote, part of the chain of deception that led many of these financial firms to the point of near collapse.

And when we talk about whether or not it could be politically motivated, don't forget that this is also the time when we're taking a look at whether or not the -- the Congress is going to be able to pass financial reform.

So there's a lot of levels...

QUEST: Well...

TAYLOR: -- levels to this that we just don't have answers to yet.

QUEST: We need to briefly just talk about the jobs numbers or the -- the ones that you saw today, jobless claims. And they are suggesting an improvement -- well, you tell me what they're suggesting.

TAYLOR: OK. There's a slight improvement...

QUEST: Right.

TAYLOR: -- and I do stress slight. Weekly claims fell for a fourth week in a row by 4,000. But if you couple that with the fact that the data was revised upwards by 4 -- 4,000 for the prior week, it's basically unchanged.

So a static job market isn't exactly encouraging. Initial claims have fallen about 2 percent, though, since the beginning of the year. That's good news. Look at the bigger picture. A year ago, they were down -- I mean since a year ago, they've been down 29 percent.

So there's no question that the pace of layoffs has slowed down. There's some evidence of job creation. Back in April, 290,000 jobs were created. However, that's not going to make much of a dent in unemployment, which still remains at 9.9 percent. If we're going to see real job growth make a dent, we've got to see monthly job growth of anywhere between 300,000 and 400,000 jobs.

So big companies may have slowed down their lay-offs, it's the smaller, credit starved companies that are still having a hard time actually surviving. And there's going to be the key to an economic recovery -- Richard.

QUEST: Felicia, many thanks for putting that jobless picture to us.

And amongst all those jobless people looking for work, one man in New York has found out what it's like to be employed again.

Paul Nawrocki's unusual job hunting approach took time. However, anything worth having takes time.

And as Richard Roth reports from New York, it finally paid off.


RICHARD ROTH, CNN SENIOR UNITED NATIONS CORRESPONDENT (voice-over): This was Paul Nawrocki a year-and-a-half ago at New York's Grand Central Station -- the laid off toy industry worker was stepping outside to go public with his job search, wearing a large sign to advertises his plight.

PAUL NAWROCKI: When you're doing something and it doesn't work, you have to do something different.

ROTH: Paul Nawrocki, the sign man, became a face of the recession. The other day, the morning commuter train pulled in and Paul Nawrocki was on it once again. But things have changed for Nawrocki. After collecting 99 weeks of unemployment checks, he was on his way to a paying job.

(on camera): Paul?

NAWROCKI: Richard, how are you?

ROTH: What's new?

I hear you have a job.

NAWROCKI: Yes. I'm...

ROTH: How does it feel?

NAWROCKI: Great. Great. It's -- it's a -- a lot of different from the first time we met.

ROTH (voice-over): He was back on famed 42nd Street, where he used to wear that sign and hand out resumes.

NAWROCKI: Oh, it was my way of networking. But -- but it was tough. And it seems like another life. It was such a surreal thing to go through.

ROTH: When I last saw him, he was depressed and tired. The new job has put some pep in his step.

NAWROCKI: I don't know, I feel very separated from -- from that guy that was with the sign board at this point.

ROTH: Something else was different -- the hair was changed and the mustache gone. Credit his job coach.

NAWROCKI: She said that change -- if you can change the outside, you'll make yourself feel better. And it really did have an exhilarating affect on me.

UNIDENTIFIED MALE: Come on, let's go. Let's go. Let's go.

NAWROCKI: Thank you.


ROTH: Nawrocki doesn't have to comb the newspaper for jobs anymore. That doesn't mean he has stopped thinking about the millions of others.

NAWROCKI: And you look around, who's unemployed?

You don't know.

How many people here are on their way to an interview rather than a job?

You don't know, you know. So that sticks with me.

ROTH: Can the disappearance of sign man indicate an economic recovery is near?

NAWROCKI: Well, you can't say, oh, look, he got a job, everything's hunky dory. I -- I don't think that's the case. But it does seem like it's getting better, I think.

ROTH: You probably want to know where did he get his job?

NAWROCKI: Nobody could play with this here today, huh?

ROTH: Back in the toy industry, working at Fantasma Magic as the operations manager.

ROGER DREYER, PRESIDENT, FANTASMA MAGIC: I was actually surprised that someone today would have the Houdini-like skills to go into the streets.

And you know what?

When it comes to your family, you'll do anything.

ROTH (on camera): Paul, do you feel that you pulled this job like pulling a rabbit out of a hat?


ROTH: I mean had you given up hope?

NAWROCKI: You never give up hope. You can't give up hope.

ROTH (voice-over): Richard Roth, CNN, New York.


QUEST: If you're the boss, you're probably used to giving instructions. But I'm willing to bet even if you're the boss, you won't get a response that sounds as good as this.


QUEST: The conductor is Lorin Maazel. And find out what happened recently when he celebrated a very special birthday.



QUEST: Welcome back.

At the age of 80, most people are more than ready to take things a little easy. Not Lorin Maazel, the conductor, composer and violinist, who is still hard at work, rehearsing with the Qatar Philharmonic Orchestra.

We met with him a few weeks after he celebrated that significant birthday at London's Royal Albert Hall, for his World At Work.



LORIN MAAZEL, CONDUCTOR, VIOLINIST AND COMPOSER: The conductor is to the musicians in an orchestra what a stage director is to the actors.


MAAZEL: Musicians have the notes on their sound, but they depend on the conductor for many things. One, as a technical point of reference, the last down on the first violins obviously can't hear what the tuba is playing. So just from the point of view of cohesion, they need a point of reference, which is the conductor's hand or a baton.


MAAZEL: They need to understand just how the phrase they're playing fits into the greater scheme of things. They need to have a tempo, a basic focus. And they also need to be inspired, to be inspirited. And all of this, the conductor must do, just as the stage director must animate his actors.

OK, let's go back, if you don't mind, to 51 -- two bars before 51.


MAAZEL: There is the music behind the notes implied in the way the -- these dark blotches are laid out on the page.


MAAZEL: But it's up to the performing musician to bring those dots to life. That can only happen in a -- a passionately inspired performance.


MAAZEL: You need a conductor who is truly committed to music, has the technical means to bring that poem (ph). We're talking about one out of 1,000.


MAAZEL: When I was conducting the Meistersinger Overture and apparently the musicians had plotted to break into "Happy Birthday." I was really caught by surprise, because I've seen it all -- or thought I had -- until this moment. And they -- they pulled it off spectacularly well, I must say -- very, very surprised. And I'm usually on the watch out for all kinds of tricks and...


MAAZEL: -- but this one, it's a first. It's a real first.

This inaction with people, with fine musicians, is very, very important to me and I've learned so much. It goes on being a learning experience for me and I think motivates me to keep going in a profession that is very taxing, very demanding in a world which is very fickle.


MAAZEL: I love music and I derive an enormous amount of nutrition, spiritual and probably physical...


MAAZEL: -- which continues, apparently, to being meaningful to the people who attend my concerts.


QUEST: I don't know about you, but I could have listened to Lorin Maazel and the Qatar Philharmonic Orchestra well on into the evening, which would have been a shame, perhaps, on one level, because Lola Martinez is with us, who is going to make some -- some music of her own, pardon the pun.


QUEST: Well, you know what I mean.

Look, I think I'm digging a hole here that I'll just jump into.


QUEST: The weather forecast please.

MARTINEZ: It's -- it's a -- it's a small hole there, Richard. You know, it was a nice little melody and, you know, if you're in those northern parts of Europe, actually, expect to see a little bit of a cool down. It is kind of curious because at this time of year, we're actually seeing those much drier weather conditions, much chillier. It has a little bit -- been a little bit nippy there across parts of the U.K.

We have been seeing all that, especially into portions of Scandinavia.

To the south, though, a very different weather pattern. In fact, here, unsettled weather continues -- a warm-up, also, is a big factor. In parts of Portugal and Spain we've seen now some large hail into the northern and central regions of Italy, across the south vista extending across into the north.

Right now we're just reporting some delays in Madrid's Barajas Airport. By tomorrow, we'll see really green boxes. So really not much impact in terms of your travel, possibly a few scattered showers there into Dublin, but I don't think it's going to be anything massive.

Into Rome, again, some scattered showers into Milan, as well, as we saw that system moving through.

A very different story if you're headed into the eastern parts of China. In fact, the big weather story here has been the rain -- the torrential rains that has affected -- have affected all that south southeastern region. Now, the irony about this is that this is a drought- stricken area. We've been seeing the torrential rains that have come down really fast in such a short period of time -- in fact, a month earlier than they should have.

More rain is expected -- heavy rain across an area that does not need anymore at this moment. In fact, the massive impact that we've been seeing in so many of these areas from Guangdong into Hunan, Xuching (ph), into about seven -- 7.9 million people affected. And over $860 million U.S. in economic losses.

So it's a considerable amount when you think about just those two or three weeks of persistent rain.

Tokyo could see some showers. I do think there could be a potential for some delays, for even some afternoon thunderstorms in Hong Kong, also. A little bit soggy. And that's because of that system moving through Kuala Lumpur, as well, with some snorm -- stormy weather conditions there.

I do want to take you into the Gulf of Mexico, because here, the winds have been shifting a little bit more into the south-southeast. By next week, we're going to see massive changes from the north. So that means the oil could actually be moving away from that coast. And we'll definitely keep you updated -- Richard, back to you.

QUEST: We thank you for that, Lola Martinez.


QUEST: Melodic to the moment.

One other thing to bring to your attention tonight. British Airways is trying to head off flight interruptions next week as the company -- the airline is making alternative plans as cabin crews get ready for the first of four planned strikes. BA says 70 percent of customers who have bought tickets should be able to fly. They're doing it by operating more than 60 percent of its long haul flights, more than 50 percent of short hauls. It's made arrangements with more than 50 other airlines to carry its passengers.

The strike is part of a long running dispute over pay and working conditions. And on this program, on QUEST MEANS BUSINESS, we will be in depth with the troubles that BA has faced in recent months. We'll bring you the latest information on flight cancellations. And if you're flying with BA next week, we want to hear from you. You can visit our blog at, as if you didn't know.

Now, in just a moment, the luxury of an affluent market -- the chairman of Gucci tells me his customers are not the kind to tighten their designer belts, which is just as well at the price.


QUEST: Now, welcome back.

From catwalks like this to the sidewalk, everybody knows the name of Gucci. In the past couple of weeks, it was voted one of the most powerful luxury brands in the world. It's only been surpassed by Louis Vuitton and Hermes. And that's, of course, according to the Forbes survey.

That brand power is what enables Gucci to charge anything from $450 upwards for a woman's handbag. Yes, they are expensive, to say the least.

Some, of course, would suggest that they're not just a handbag, but a way of life.

So I asked Robert Polet, the chairman and chief executive of the Gucci Group how it's performing as we come out of the Great Recession.


ROBERT POLET, CHAIRMAN & CEO, GUCCI: We're doing very well. And...

QUEST: Honestly?

POLET: Absolutely. Absolutely. Honestly. And we have been doing very well, as well, during the recession.

QUEST: What does that tell us?

POLET: Well, that tells us a few things. One...

QUEST: That there are always rich people that will spend money?

POLET: No. It tells us a few things.

One, that our brands were strong going into the recession and are strong coming out.

It also tells us that our strategies that we have and that we didn't waver from, were the correct ones. But if we did adapt our tactics while remaining focused on the long-term -- tactics meaning remember that three years ago, the markets were still exploding?

We were going for high growth. And managing high growth is a particular art. It's a particular way of actually managing your business and leading your people and your creativity.

When the recession struck, we had to go in our mind set completely the opposite and say, OK, no longer for growth, but now for cash flow. So get inventory down, manage your business with discipline.

QUEST: (INAUDIBLE) so just -- just keep the thing moving?

POLET: Keep the thing moving and make it very efficient, but remaining...

QUEST: Right.

POLET: -- the creativity has to remain as the engine of your future growth, as well.

QUEST: The whole gambit is designed whether -- if I could pull the strands together -- whether it is selling ice cream or it is selling a very expensive watch or -- or both, it is designed for desirability.

POLET: Well, it's designed for desirability, because -- but -- but also something else happens, I think, when you are in the luxury industry or in the fashion and the high end of the fashion industry, is that it feels different. If you would own a Gucci suit, you come into a room, you feel different in your Gucci suit. Or a woman that enters a big room, you're wearing Gucci heels and a -- and a Boutique Vinetta (ph) dress, she feels more powerful and she feels more beautiful...

QUEST: Oh, you're -- oh.


QUEST: You're selling that as an idea.

POLET: Yes. Thank you very much.

QUEST: Is it true...

POLET: It's a (INAUDIBLE) idea.

QUEST: Is it true?

POLET: Of course it's true.

QUEST: Do you ever have any embarrassment at the prices that you charge?

POLET: Well, you know what, pricing doesn't really play a role when you're a -- when you're a -- when you're fulfilling a real desire, when you -- when you are having -- when you aspire for something. Price actually, in this type of a business, has the opposite. It actually reinforces the positioning of the quality of the craftsmanship, but also the exclusivity of a certain product.

QUEST: You're -- you're new to this game. If we had to take your business at the moment...


QUEST: -- you can have a red, you can have an amber or you can have a green for what you believe the luxury goods market is as we come out of the recession of 2010.

POLET: I think it's green and I can tell you why. Because there are millions and millions of people in -- in the -- in the emerging markets that are coming into and will be coming into in the coming 10, 20 years, as they have been in the last 10 years, coming into a middle class. And these people will have a need, like we all had when we came into a certain position of wealth, to, one, pamper themselves a little bit, plus have something in their hands or on their bodies that shows to other people that they were doing -- that they are doing well.


QUEST: The chief executive of Gucci.

A friend of mine bought a Gucci belt. He won't tell me how much it costs. But as somebody else pointed out, they'll probably enjoy it for the next goodness knows how many years.

The markets are open and doing business in New York. If you have done well and followed Peter Morici's advice, well, maybe you can afford that Gucci, Hermes or Louis Vuitton trinket. But not if you're short on this one. Down 30 -- or long on this one, I should say -- 37, we're off on the Dow -- 10859. Considering the news on Wall Street, what with the banking sector being under investigation and considering, of course, the jobs numbers, this is quite a muted and remarkably quiet day.

And, indeed, I think we've seen that largely across -- the European markets show a similar sort of a trading session, if you get the idea. Basically, with the DAX being the best of the session, just up 1.1 percent.

But I have to say, it was -- banks were not big in the -- in the market today, for obvious reasons -- other areas such as mines in London. All in all, it was good old-fashioned industrials.

When I come back and we rejoin each other, there will be a Profitable Moment. And that much you can guarantee.


QUEST: Tonight's Profitable Moment.

There are two very distinct views on the way forward in the markets. The first you heard from Professor Peter Morici, who emphasizes things are getting better, the market is set for a rally -- at least in the United States, largely on the back, of course, of China, as well.

The second is expounded by Nouriel Roubini. He says the risk of sovereign default is still on overhang.

So in this environment, what should your and mine investment strategies be?

Well, the evidence of the corporate results from the first quarter, share prices could be getting ready for that strong rally for the rest of the year. The overhang remains, though, from budget deficits. You heard the Portuguese finance minister talking about it tonight on this program.

The prospects of higher taxes to pay down debts -- time and again we're being reminded we're not out of the woods.

Gold has risen to record highs on a wing and a prayer. In this environment, it's a brave person that goes full speed ahead to the market, however attractive the returns might be.


I'm Richard Quest.

Whatever you're up to in the hours ahead, I hope it's profitable.

WORLD ONE is next.