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QUEST MEANS BUSINESS

Interview with Warren Buffet; What to Expect from the Markets in October; The market Results; The New Non-Stick Gum; Societe Generale's Rogue Trader Sentenced To Serve Three Years In Prison, Fined A Mind- Boggling $6.7 Billion

Aired October 5, 2010 - 14:00:00   ET

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


RICHARD QUEST, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS: A tale of risk and retribution. It is five years and $6 billion for a French rogue trader.

QE2, is it a ship? Is it a monarch? No, it is printing money.

And put that in your mouth and chew it. A new kind of gum, one that doesn't stick.

I'm Richard Quest. For an hour with you, I mean business.

Good evening.

Tonight, Jerome Kerviel, the rogue trader who took Societe Generale to the bring of bankruptcy, is a convicted criminal. He faces three years in jail and in the ultimate case of payback. He's been ordered to return every penny he lost through his unauthorized trades. It is $6.7 billion. Lawyers for Kerviel have called the sentence unreasonable and say he will appeal against the sentence. Kerviel has always argued that Societe Generale knew about his actions, which led to a loss of around $7 billion.

Now, the court in Paris decided he acted alone. They found him guilty of breach of trust, and forging documents. Kerviel had already admitted to computer hacking.

Soc Gen says the massive fine is symbolic. No one expects him to repay it. A spokesman said it is more important that the bank is publically exonerated.

So those are the circumstances we need some analysis and to discuss this with our Senior International Correspondent Jim Bittermann. He's in Paris and joins me now .

Jim, this was-I mean, regardless of Kerviel's sentence and guilt, a conviction, what did it say about the way the system treated him and Soc Gen?

JIM BITTERMANN, CNN SR. INT'L. CORRESPONDENT: Well, I think from the very beginning his argument has been that it wasn't his fault alone. That he was encouraged, that the system basically encouraged him to take the kind of risks he did, to bend things the way he did, to cut the kind of corners he did, in order to make a profit.

And he argued throughout this case, through his lawyer, basically, that others should be in court with him. The fact is they weren't. The prosecutor only went after Kerviel. He was the only person ever charged with this. Although some of the others have been fired, or have resigned under pressure, like in fact the Chairman and CEO Daniel Bouton, Richard.

QUEST: He'll serve three. He was-two were suspended. Tonight in Paris-in Paris, is this being regarded as a fair sentence and a fair result?

BITTERMANN: Well, there was a gasp in the courtroom when the charges was read out or when the penalty was read out, especially the fine that he has to pay for damages. No one would really expect him to pay that. In fact, he's currently working as a computer programmer for about 2,300 euros a month, about $3,000 a month. They calculate that he'd have to pay it back over about 170,000 years to pay back the damages that are being requested by the court.

So, I think that is what a lot of people were pretty much stunned by. In fact, there was a web site up already, Richard, that says, "Help Jerome Kerviel pay back his $6.5 billion.

QUEST: I think, Jim, finally as seen from Paris tonight, is Kerviel viewed as a victim or a crook?

BITTERMANN: Well, it depends who you are talking to. I'm sure in the corporate realm he is regarded as a crook, and he has been convicted of that. But I think on the popular level he, you know, he is something of a Robin Hood in the sense that he was seen to be taking on the banks. He did exactly what a lot of French would like to do and that is attack the bank and walk away with a little money. And he didn't walk away with any money, but nonetheless he was-he shook to the roots Societe Generale. And it is a symbol for the banking system here which is not very popular, Richard.

QUEST: Jim Bittermann in Paris tonight for us.

The reason I asked that last question: I got an e-mail today from David Buik, our old friend on this program. David was writing in his note, he says, "Many like me feel Kerviel has received his just deserts from the court, five years, two suspended. I suggest Jerome you take you punishment like a man."

We'll hear more from Buik later in the program. But I did ask David Buik, frankly, wasn't he a bit harsh?

(BEGIN VIDEO CLIP)

DAVID BUIK, BGC PARTNERS: I'm sorry I have to say the fact is that anybody who has incurred losses of 4.9 billion euros, when they are a relatively junior trader, without keeping the management in touch to exactly what they're doing, that is a breach of trust, and also an abuse of privilege. And is, frankly, criminal behavior. So, Societe Generale's management didn't come out of this particularly well. But in all fairness to Daniel Bouton, the former chief executive, he did resign in 2008. And I think you'll find that the dams have been shored up. And that the level of regulation in all the banks around the world will be sufficient for this not to happen again in the foreseeable future.

(END VIDEO CLIP)

QUEST: Now, we'll hear more from David on more matters of market in a moment.

But like the proverbial man without any trousers, Kerviel was only exposed when the financial tide went out. He bet the market-excuse me- would go up and as we know they didn't. It is often the case, if you look at financial crisis and financial crooks, that when all is said and done it is external factors.

(COUGH)

I do beg your pardon.

Now, take for example, Bernie Madoff, in prison until 2139. He was exposed in 2008, with his Ponzi scheme. But the reason he was exposed was because markets fell, investors wanted their money back. He couldn't redeem fast enough and therefore it was a crisis, a bit like with Kerviel, that finally put him, unlike Kerviel who got five with two suspended. Madoff go the best part, well the rest of his life in prison. He's seventy-two.

Enron was another one, in 2001, when markets took a big hit after September 11. He had managed to hide-Enron had managed to hide their dodgy business practices quite well. And in fact, over the years, they had managed to massage it so the company looked like it was doing well. But when energy prices moved and interest rates shifted, and suddenly debt and leverage was exposed, Enron went down the tubes. With a healthy dose of crookedness as well.

Finally, of course, the poster child, Nick Leeson. Nick Leeson had taken very complicated derivatives-had taken very complicated derivatives and all sort of complex things in the Singapore market. But what happened was he bet against the Japanese market when the Kobe earthquake happened. Well then, of course, all things when wrong and in that case Nick Leeson finally ended up spending six years prison in Singapore.

Now, Henry Blodget is the chief executive and editor in chief of "The Business Insider". He's also a former Internet analyst for Merrill Lynch and was charged with the Securities and Exchange Commission in a civil suit of giving private assessment for stocks, which conflicted with other materials. Henry Blodget last night appeared on a new CNN program. He faced his nemesis, the former attorney general of New York, the man who prosecuted and was responsible for the case, it is Eliot Spitzer. It was "PARKER/SPITZER" and it was on CNN. Watch them, when they came face to face.

(BEGIN VIDEOTAPE)

ELIOT SPITZER, CNN ANCHOR, PARKER/SPITZER: I don't think Henry Blodget ever thought he and I would be sitting down for a friendly chat. Because when we first met, there were lots of lawyers on both sides.

Back when I was attorney general I went after people like Henry Blodget. He was a super star analyst at Merrill Lynch, earning millions of dollars, but to me, he symbolized everything wrong with Wall Street. Henry was part of a system that knowingly misled investors about bad stocks. And I found the e-mail trail to prove it. One example, an Internet stock called Excite@Home. On the same day his own company rated it a strong buy, an internal e-mail called it, and I quote, "a piece of crap". I prosecuted Henry. He paid a big price, $4 million in fines, banned from the industry for life.

Henry-

HENRY BLODGET, FMR. MERRILL LYNCH STOCK ANALYST: Thank you. Quit an introduction.

SPITZER: It is, you know, not your normal introduction but-

(LAUGHTER)

SPITZER: Let me say this from the bottom of my heart, thank you for being here.

(END VIDEOTAPE)

QUEST: Henry we showed-Henry joins me now from New York. We showed that because, that, in many ways gives you the authority that we now need for you to be joining us tonight and talking about this.

Henry, Henry, we need to understand. In these situations, is it the system? Is it the individual? What causes and what is the effect?

BLODGET: Well, look, I think in this case, sure there are pressures within a system, but there is no sense of logic in which this particular case-and I'm referring to Kerviel, in the trading-where that could be OK. So, I don't-certainly there is pressure in the system. And if there were others who were encouraging this, or ordering him to do this, they absolutely should have been in the courtroom, tried with him. But even so he would still be liable for his own conduct. So, yes, the system creates these pressures, it rewards success, it punishes failure. It rewards people who make a lot of money. But the line is very clear and I think in this case even he is clear to admit that he crossed it.

QUEST: And the idea-do we really have an idea of how many of these types of events take place but of course, the market goes the right way. So they either extricate themselves out of trouble and we never hear anything about it.

BLODGET: That's right. I think in fact there is a smart take that you have on this, where you are showing that a lot of these firms made a huge amount of money when the markets went with them. And I think it is important to remember that in this case, too, that if these bets had worked out Jerome would be a hero and his career would have gone very well, and so forth.

And your question about how much of this goes on? The answer is you never know. Warren Buffet has very famously said it is not until the tide goes out that you know who has been swimming naked. And that is exactly what has happened. And there are many other examples in addition to the ones you named and unfortunately it is going to happen every time we have a major boom like that. When it breaks down a lot of people are going to be exposed and a lot of the fraud and misconduct on the edges is going to come out.

QUEST: So, I mean, you and I are old enough to remember, you know, the '80s scandal. I am old enough to-probably older than you-remember Milken and Bosky.

BLODGET: Absolutely.

QUEST: And then we go through Enron. And then we go through Madoff. And now we end up with Kerviel. Are we doomed and destined to just have this as part of the furniture?

BLODGET: I think absolutely. I think that a good long look at history will tell you that booms and busts are absolutely part of free market capitalism. They cannot be avoided. That is a long conversation as to why that is the case, but the short story is that when you are in the boom phase it is in nobody's interest to stop it, because it is making everybody rich. It is creating jobs, it is creating national wealth and so forth. But as John Kenneth Galbraith, who wrote a great book about 1929 and other bubbles, has pointed out there is always going to be misconduct at the edges and usually when it breaks down that is what happens. Is you see it exposed. And certainly there has been a lot of precedence for this. Somewhere in the world there is now a bubble that is starting to inflate and the same thing will happen.

QUEST: Henry, the only thing is I wish I knew what the bubble was so I could get in and get out-

BLODGET: I know-

QUEST: before it blows up.

BLODGET: As do we all.

QUEST: All right.

BLODGET: A lot of people think it is Treasuries in the United States.

QUEST: If it is a-

BLODGET: I don't, but a lot of people do.

QUEST: If it's a bubble in Treasuries then we have even bigger problems. Henry, come back again and we'll talk more about this on the program in the future. Many thanks.

BLODGET: Thank you very much for having me.

QUEST: Henry Blodget joining me there.

Talking of bubbles, there are a lot of people who say that there is, if not a bubble, at least there is some nastiness taking place in the currency market. In a moment, Japan struggles to pull back the yen; Europe calling China to pull back their yuan. It is all on QUEST MEANS BUSINESS, in just a moment.

(COMMERCIAL BREAK)

QUEST: So in the United States there are new signs that the Fed is to undertake a round of risky stimulus, quantitative easing. The president of the Chicago Fed has called for aggressive action to boost the recovery. It echoes comments from Ben Bernanke, the chairman of the Fed. Markets are expecting a round of QE sooner rather than later, probably in November after the midterms. Maggie Lake is in New York.

Maggie, you and I have done I won't say battle, but we've been over the fences on this one. You know my view QE2 is coming and it is coming before the year is out.

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Oh, it certainly is. No doubt about that now, Richard. You know, there was a fair amount of debate, shall we call it, around the Fed table. And rather open, which was disconcerting for the markets. But we've got a pretty steady drumbeat coming now, from Fed officials, talking about the need for stimulus. And it is not by accident the market absolutely believes it is a foregone conclusion that that is going to come in November.

You only need to look at stock markets to see that today, right? The Dow up 190 points. And this is what it is all about. They believe that we are going to get in November. They would be absolutely disappointed if we were not getting it in December. We also have a figure we're tossing around. Last Friday the very influential New York Fed President Bill Dudley talked about $500 billion. Goldman Sachs out with a research note today saying more likely by the end to be about $1 trillion of additional stimulus; it is expected to be, once again, purchases of long-term Treasuries. Although the door remains open that it could expand to other types of assets, like mortgage-backed securities.

Ben Bernanke, all along, has been defending quantitative easing, saying it helped to stabilize the economy. We're certainly seeing it juice the stock markets, and bond markets, especially today. But there are concerns, Richard, longer term, about what some are now calling competitive devaluation. You may hear people referring to it as currency wars, and a race to the bottom. Long-term concerns about what they mean. But for the moment QE2 certainly is stimulating global financial markets.

QUEST: Let's talk on that issue, of the risks. We'll talk currencies in a moment. Ben Bernanke, in his Wyoming speech, and indeed in an article, has again-has always talked about the long term problems, the unknowns of quantitative easing. Now it is one thing to do QE in the crisis, but long-term QE is something else.

LAKE: And listen, you know, my feeling that if the Fed could have avoided doing this, they would have. But Bernanke is a student of the Great Depression and is very concerned that with the federal government's unable short term-short term-to address this and do anything more to stimulus the Fed got to-the central banks have to step in to keep the recovery on track; although it carries the risk of unforeseen consequences.

What the markets are nervous about, Richard, I mean it is interesting, are really two things right now-or I should say economists-are really worried about, and analysts. One is that this currency devaluation is going to flip over to a political trade war. And Donald Luskin, Luskin has a really good article, an op-ed in "The Wall Street Journal" today, talking about the perils of that and how it would be repeating the mistakes of the Great Depression.

The other thing is that it seems to be unilateral. Remember during the financial crisis everybody was sort of operating in a coordinated fashion, global financial officials. Right now it seems to be every country for themselves. Markets don't like that. And that will be an issue at this weekend's World Bank, IMF and certainly when we talk G20, coming up in November.

QUEST: All right. We are going to talk currencies after the break. Maggie Lake, many thanks, indeed.

We should have had a bet on QE before the year was up.

All right. Maggie Lake in New York.

European markets where stocks closed higher and a six day run of losses is the longest loosing streak since January. There was-sentiment was lifted by better-than-expected U.S. services sector data, and that stimulus pledge from the bank of Japan. The boost help investors shrug off a statement from Moody's that said it may cut Ireland's credit rating by a notch.

We are going to talk currencies. Competitive devaluations and what the longer-term effect is in just a moment.

(COMMERCIAL BREAK)

QUEST: From Asia to Europe, economic matters on Tuesday, and it was currencies that was in the very heart of the issues. Maggie and I were just talking about it a moment ago. If you come to the library you'll see exactly what we're talking about. Japan, overnight news from Asia, effectively cut interest rates from 0.1 to zero, and they promised to do a bout of further fiscal stimulus. The Japanese BOJ said it was because one of the reasons was because of the yen appreciation and the U.S. slow down.

Now remember, Japan has already intervened to try and bring down the value of the yen. And it is not necessarily what one questions of course the whole process of intervention. But the BOJ will maintain rates, zero to 0.1 percent effectively zero. And the $60 billion will be put into some form of stimulus package.

Australia, which has raised rates more than half a dozen times, at the latest meeting keep them on hold at 4.5 percent. Now think about this for a moment. You've got Japan's interest rates at zero. And you've got Australia's rates at 4.5 percent. Economists had expected rates would even rise in Australia. The failure to have another increase, of course, took the shine off the Aussie dollar, as against both the yen and against the U.S. currency.

And a big issue in the currency market, China's yuan pressure. There is pressure at the Asia-Europe summit. There is pressure from the United States, from the U.S. Congress, the administration. The Chinese have agreed to let the yuan appreciate, but frankly it only did by about 1 or 2 percent. So it is still very much a question across the globe at the moment of issues that people believe there are competitive currency devaluations.

Exactly, for example, take a look at the euro and you'll see what I mean; the euro also, these ranges that we have seen against the currencies. Let's talk about this with David Bloom, who joins me now from HSBC.

David, now, we just need to-I need to understand first of all, the fact that currencies are so much on the agenda, do you find that surprising?

DAVID BLOOM, HEAD OF FOREX STRATEGY, HSBC: I have found it quite surprising that this is all blown into the open. And there is talk of currency wars and very alarmist talk. And I am quite surprised at that, most definitely.

But when interest rates are zero, you are talking about QE, you've got no fiscal leavers left. There is only one thing left in the locker and that is your FX (ph) rate.

QUEST: Right. But, short of the sort of Japanese currency intervention, which you and I have talked about before. In many cases, we are just seeing a natural order of events as currency moves on the back of trade flows.

BLOOM: No, I mean, trade flows are absolutely swamped by financial flows, by absolute multiples, so this is the problem that financial flows are absolutely huge. If you look, we are a full trillion a day FX market. (UNINTELLIGIBLE) $4 trillion of trade in the world, you'll be lucky is there is a half a trillion. So, that is really these big financial flows that swamp everything and hence the Brazilians win for another tax ride to try and curb our enthusiasm for their currency.

QUEST: Right but which currencies are people going for? And are they going purely for a carry trade type of transaction, and to have an interest rate to play differential on the interest rate?

BLOOM: No, I don't believe really that interest rate differential. I mean, you spoke about Australia. You pick up 4.25, 4.5 percent of the yen. But the currency moved 2 percent last night. So you are waiting a whole year to get 4 percent and these things are moving 2, 3 percent, 1 percent in a day. So it doesn't really pay.

I think at the moment, as we know the euro is the best-looking horse in the glue factory. But really it is the euro, it is the yen, it is the dollar, it is sterling that people want out of and they want to get into emerging markets and that is where the action is, that is where the sex and violence is.

QUEST: Right. So, OK, but if the sex and violence is in the emerging markets currency Forex, at the moment, what can those countries do? They can't intervene so what do they do to actually release the pressure on their currency?

BLOOM: Well, that is a very good question and they're finding there is not much they can do. I mean, the Brazilians are trying this tax rise. They are trying intervention. And in the end of the day it is a parachute, it stops the speed of the move, but it doesn't stop the momentum of the move.

QUEST: Right.

Final question: Have you ever believed in the success of being able to jaw bone the currency markets?

BLOOM: I think there are certain currencies that can do it and certain countries that can do it. So, if the U.S. came out openly about it, I think it would work phenomenally well. But I don't think that is going to be the case.

QUEST: Ah, come on.

BLOOM: You need absolutely credibility.

QUEST: David, David, you don't-if they came out and said, that a strong dollar, that old phrase-

(LAUGHTER)

BLOOM: I said if they did the opposite, it may work.

QUEST: So you (UNINTELLIGIBLE) we're heading down.

BLOOM: If they were to come out and were to say the opposite to the strong dollar policy, I think you'd feel the earth shake.

QUEST: Right. I was about to say, if they came out and said the opposite to that old phrase, that you and I have heard a million times.

BLOOM: Yes.

QUEST: Then, I'll buy you a pint.

BLOOM: Yes, I'll buy you and your viewers a pint as well.

QUEST: All of them? Excellent. David, many thanks indeed.

BLOOM: Thank you.

QUEST: Indeed, the things we're talking about there, is the line whenever the U.S. Treasury speaks about the dollar policy it always comes out with the same old bromide. A strong dollar is in the best interest of the United States. They've been saying it for decades.

In a moment, Black Monday, the Great Depression, and the current banking crisis, they all started in October. Oh! It's October again, head for the door.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest. QUEST MEANS BUSINESS, this is CNN, and on this network the news always comes first.

(NEWSBREAK)

QUEST: Faisal Shahzad pleaded guilty to all the charges against him in June. He was defiant in court on Tuesday, saying, in his words, "the defeat of the U.S. is imminent." Prosecutors say Shahzad had planned to detonate a second bomb if the first had worked.

Hungary has declared a state of emergency in three western counties because a kind of mud has spilled that is so toxic, it can cause chemical burns. The red sludge has killed four people, including two children. Several people are missing and dozens were injured. The reservoir containing the mud gave way on Monday. The sludge is a byproduct of aluminum production and contains heavy metals.

Thirty-three miners in Chile are marking their second month trapped underground today. Chile's president says he hopes engineers will be able to free the men by the end of next week. They've been down the mine since its collapse on August the 5th.

He is regarded as the world's third richest man. Investors hang onto his every word. You heard him referred to earlier in this program. He's the one who supposedly coined the phrase, "when the tide goes out, you find out who's swimming naked."

He is Warren Buffet, often called "the sage of Omaha."

CNNMoney.com's Poppy Harlow met him at "Fortune's" Most Powerful Women's Conference -- the conference is called The Most Powerful Women's Conference -- and asked Mr. Buffet where he sees the U.S. economy heading.

(BEGIN VIDEOTAPE)

WARREN BUFFET, CEO, BERKSHIRE HATHAWAY: We know the patient is going to get well. I mean the -- the -- the -- the emergency treatment was successful but it was one heck of a -- an attack and one like the patient had very seldom experienced in -- in a long, long lifetime and -- and so the recovery period is -- is long. And we're in it now and we should, in my book, feel extremely grateful. There was only one party that could have treated that patient, and that was -- that was government. They had the ability to stem what was otherwise going to be an implosion of the American economy and they did it.

And but -- it -- it's slow coming back.

POPPY HARLOW, ANCHOR, CNNMONEY.COM: Should we be more grateful to the government than, perhaps, the American public is right now, given the fact that you say they rescued us truly from the brink?

BUFFET: I think so. I mean it -- when that happened, I made the judgment -- two judgments. One, only government could save us and the government would. I mean the -- the -- it was so clear. But I can think of other officials of -- in the past, who really wouldn't have had either maybe the knowledge or the -- or the guts to -- to act.

But we owe, in my view -- and I know a lot of people won't feel this way -- but Ben Bernanke, Hank Paulson, Tim Geithner, Sheila Bair, they're heroes in my book. They -- that doesn't mean they did everything perfectly. Nobody can do everything perfectly. But when -- when we had what I called that economic Pearl Harbor, they were out the next day with the battleships, you know, and whatever equipment they had -- and they got more equipment as they went along.

But they -- they did the right things.

HARLOW: You've been a -- a huge supporter of Ben Bernanke, the Fed chairman, calling him a hero.

BUFFET: Yes.

HARLOW: He warned this week about the ballooning deficit. He also said we can't raise taxes now and we can't cut spending now but we have to be aware of how serious the problem is.

Your take on that?

BUFFET: We certainly shouldn't cut the tax -- raise taxes on anybody except the very rich. I think we should raise taxes on the very rich. And I think maybe we should cut taxes for the middle class, upper middle class, lower middle class.

HARLOW: Cut them more than the Bush tax cuts?

BUFFET: It could well be. I -- I believe that -- that in terms of the -- we're taking in about 15 and a fraction percent of GDP in income in the United States. That isn't enough. We're going to have to get more money from somebody.

Now, the question is do we get more money from the person that's going to serve me lunch today or do we get it from me?

I think we should get it from me and -- and I have a lower tax return, counting payroll taxes, than anybody in my office and I don't have a tax shelter. I just follow the -- I just do it, take the form and fill out the numbers. And I think that's very wrong. And I think that if we're going to get money -- and we're going to need money. I mean we are taking in enough money to -- at the federal government level. And we -- there's spending cuts to be done, I'm sure of that. But we need more revenue, too.

And, you know, there's only a few places to get it. You get it from corporations or you get it from individuals. And there's, you know, if -- if we're going to get it from individuals, it shouldn't be the bottom 98 percent. It should be more from people at the top.

(END VIDEO TAPE)

QUEST: When that man speaks, anyone who's interested in the markets listens.

Warren Buffet, the sage of Omaha.

It is October and already this month, the Dow is up -- whoo, ooh-hoo, 200 points -- a gain of nearly 2 percent.

So what did we talk about when we were saying the October effect, in a moment?

(COMMERCIAL BREAK)

QUEST: So September -- well, September, it was a month of mellow fruitfulness in the stock market. September's gains on the Dow up 9 percent, S&P 500 8 -- 9 -- 7 or 8 percent. Where even the euro bourses were up strongly. Japan even showed gains. Shanghai showed gains.

October, now, traditionally October stirs things up and gives a chilly blast of air. And it wouldn't be the first time. I want you to look at this. Two years ago, "Shocktober" was pretty awful, it became known. It saw wild swings of the Dow. And by Halloween, the U.S. benchmark had lost 14 percent.

'87 -- 1987, the Black Monday of October. I remember it like it was yesterday. The Dow Jones lost nearly 24 percent in a single day in October. It was truly horrific.

And then, go back even further -- no, I don't remember the 1929 October crash. The Dow recorded one of its biggest losses on record. It shed 733 points in a single day.

So, those are the October's past that give us cause for concern. Some fear history could repeat itself. Some just believe October is simply one of those months where things never go quite according to plan.

David Buick again.

And I asked him what we could expect from the markets this month.

(BEGIN VIDEOTAPE)

DAVID BUICK, BGC PARTNERS: Richard, in the last 35 years, since 1975, there have been 23 upturns in October and 12 downturns. And where there have been downturns, they've been normally pretty severe, starting in 1976, when the IMF was all over the U.K. like a bad rash and there were also problems in the United States, as well.

Then we had the 26 percent drop in 1987. And then we had a gain -- an 11 percent drop in 1997 with the Asian crisis. And then we had to wait quite a long time, thank goodness, until 2008, when markets fell by about 12 percent in October 2008 when, of course, we had the banking crisis.

QUEST: Right.

BUICK: Now, having had a good September, which is a very rare occurrence, the S&P 500 up 9 percent and the FTSE up 6.5 percent just for guidance, to be looking for too much for this October might be folly for the following reasons. I think there are too many imponderables out there.

QUEST: Right. Let me -- let me just pause you, so we can -- we can get into those reasons.

There is a difference, isn't there, between a market in October that goes nowhere and just trades sideways, but a market that actually has some momentum up or down.

Which do you think it's going to be?

BUICK: I'm afraid I think we're going south, only temporarily, because until we know exactly what's happening over any increase in quantitative easing, whether it be in the United Kingdom or the United States of America, whether we know that unemployment in the United States has actually stopped going up, we're expecting non-farm payrolls this Friday, but I don't think they're going to be particularly exciting. Therefore, I think we need another two or three months.

QUEST: Corporate...

BUICK: In...

QUEST: -- as we look at the corporate numbers that we're going to get out, whatever Q3 was like, I all -- I'm always reminded of when we talk about quarterly numbers, it's a case of so what have you done for me lately?

It doesn't matter what was before, it's what's in Q4.

BUICK: Absolutely. But Q3 is quite important, Richard, because I think you'll find, next week, when most of the U.S. banks report, I think you'll find that their figures are slightly disappointing in comparison to Q1 and Q2, because the level of M&A activity hasn't been at quite the same degree. And nor has the volatility in terms of trading. And therefore, if you take that as a yardstick, there's just every possibility that we may, of course, not see the quality of earnings all the way through.

I think over here, we're particularly worried about retail in the United States, which, you know, we'll know a little bit more on Thursday, when most of the big shops update us as to what's happening going forward toward Christmas.

QUEST: Right.

BUICK: I think there will be a degree of -- how can I put it -- cautious behavior going into Christmas. I don't think it's going to be a question of gung-ho, fix bayonets and over the top.

(END VIDEO TAPE)

QUEST: David Buick, BGC Partners, on the markets so far, today, up more than 200 particular.

Carter Evans is at the New York Stock Exchange -- 200 points on a Tuesday in October following a strong September.

One swallow a summer may not make, but this is interesting.

CARTER EVANS, CNN CORRESPONDENT: Well, it's very interesting, Richard. I mean if you just took a look at the numbers, a very narrow look at it over the last couple of weeks, man, it seems like a pretty good time to be an invest -- invested in the market.

But, you know, it's still really scary. We've got a lot of stuff going on.

Well, today, we got that news about the Bank of Japan cutting interest rates. That was welcome news here on Wall Street. And I mean any time a government is basically pumping more money into the economy, Wall Street is going to react favorably.

On Monday, though, yesterday, we saw triple digit losses for the Dow. The Dow ended up finishing about 78 points lower. It's certainly a different story today. I think the words heard or the words to describe it is cautious optimism. And people want to be optimistic. I think they're just kind of afraid to.

A lot of traders tell us they're not putting too much stock, so to speak, in this recent run-up. Volume is still very low. But, you know, at least today, things are looking really good.

QUEST: All right...

EVANS: Right now, the Dow up 187 points.

You know, and I want to talk about the S&P 500 for a second. Traders here on the floor really pay attention the S&P 500. Yes, the Dow Jones Industrial Average is something we talk about a lot. But these guys really watch the S&P 500. And the S&P 500 broke through a key technical level today. It broke through 1157. It's currently at 1159, approaching another key technical level.

I was talking to some traders on the floor. The next level is 1163. And if it breaks through that, they say 1200 is not out of the question.

QUEST: I have never fully appreciated the technical level. It always seems to me, Carter, that it's a bit like psychologically important barriers -- it's very difficult to actually understand, merely because you hit a level, why it goes to the net.

EVANS: Yes, it's very difficult to understand that, I agree. But you know what I find really interesting is some of these guys -- and the one I talked to, particularly, they always get it right. You know, they've got their formulas. They work them out every night beforehand. They come here and they give the technical levels out to their buddies and whatnot. And - - and this one guy in particular always seems to get it right. And today, today is evidence of that.

QUEST: All right. I'm sure that the viewers will say, well, they got it wrong this time, but we'll -- we'll look at that

(CROSSTALK)

QUEST: There's always something.

All right, Carter, many thanks, indeed.

EVANS: Yes.

QUEST: Don't touch any buttons. Let's continue with the gains. Let's stay long in the market today, up 186 points.

Carter Evans joining me.

Now, imagine this -- you're suited, booted and you're ready for that big business meeting and one straight piece of discarded chewing gum ruins a whole image. We'll talk about chewing and saviors, in a moment.

(COMMERCIAL BREAK)

QUEST: Now, when I heard about this latest story, I took a particular and personal interest in it and one -- for one very important reason -- it all happened just there. Now, chewing gum may be a tasty breath freshener for some people, but if you get it on your shoes and your clothes, as I did, well, you end up with a sticky situation that, frankly, has taken me hours to get rid of it off me feet.

So when I heard about this next story, well, for obvious reasons, I was fascinated. And if you have any idea how much chewing gum there is out there waiting to end up on my clothes, have a look.

(BEGIN VIDEOTAPE)

QUEST (voice-over): It is absolutely mind-boggling the sheer amount of chewing gum that ends up on the sidewalks and pavements. Think about it, every one of these little circles is a piece of chewing gum that's been dropped that will last weeks, months, years, until eventually, it ends up on my shoe.

Now, the U.K. spends around $240 million a year cleaning the gunk from the streets. It doesn't disappear by itself. And according to London government figures, a piece of chewing gum can take up to five years to degrade. Even though a stick of gum will cost a few cents, removing each piece can cost upwards of 80 cents.

The days of spending hours scrubbing off someone else's chewed gum could soon be over. A water soluble, non-sticky version has been launched in the United States. It was developed at the University of Bristol in England. The research team was led by Professor Terrence Cosgrove.

Terrence joins me now from Bristol.

Terrence, it was -- it was gum on your shoe, too, that got you thinking about this.

TERRENCE COSGROVE, NON-STICK GUM INVESTOR: Gum everywhere, really. I mean I think everyone's had that experience in a cinema or on a train, where your fingers have sort of roved and under the seat, you come across some of this ghastly, sticky mess. You know, so I think everyone has their own personal experience, whether it's hair or stuck to your false teeth or whatever.

QUEST: Oh, but -- but hang on most of us just -- like I did -- had to sort of just scrape it off with a key. We don't go and invent something.

So what prompted you to go the next stage?

COSGROVE: Well, I've always been interested in -- on how polymers, which are one of the materials that make up chewing gum -- stick to things. And I just thought of it sort of the other way around, you know, could I make something that, although it might stick, was easy to remove?

And we don't really call it non-stick. It's easy to remove gum. And maybe another slight misconception, it's not soluble in water, but it will degrade in water over time.

QUEST: Right. So -- so hang on. So it -- you -- you still chew it and you still have a chewing experience, because, obviously, there would be no point in having chewing gum that didn't chew and taste like it.

But what happens when it gets on clothes or -- or under whatever?

COSGROVE: Well, what happens is, there's two things. One, it retains a bit more water, which means -- and -- and if a chewing gum is very wet, which our ones are when they're discarded, they really don't stick to anything. When they dry out, they do stick. But what you can do is get it wet again or just use the household detergent and it can come off really quite easily.

QUEST: All right. We're a business program, so I need to ask you, what sort of interest have you received from the industry?

COSGROVE: Well, the whole of the industry wants to solve the problem of chewing gum pollution, there's no doubt about that. And the goal of a removable gum is something that all -- all of the major players have said they want. And we have spoken to all of them over the last few years. And there is a real concern and interest to solve this problem.

QUEST: Right. But I'm curious to know, I mean quite often, it's a bit like a light bulb that lasts forever. Quite often, you know, you know what the industry just doesn't want that to happen.

But here you're saying that -- that -- that they -- they're on board?

COSGROVE: Yes, they want it to happen, probably under their own terms, you know. Well, the thing is -- the problem with chewing gum pollution is it -- it's the consumer that's causing the problem...

QUEST: Right. Right.

COSGROVE: -- and it's not the mfr. And they sort of think, well, OK, I mean solving litter is -- is clearly a major task in this. I mean we're very much for encouraging people not to drop it but...

QUEST: Sure.

COSGROVE: -- but, you know -- but this is just an added -- added benefit, I think, being -- being removable and degradable.

QUEST: Finally...

COSGROVE: And I should tell you, it's a great tasting gum, as well.

QUEST: Well, I'm looking forward to -- to trying it.

Finally, Professor, have you invented a better mousetrap in this?

COSGROVE: Maybe. Maybe.

QUEST: All right. Maybe a Nobel Prize for -- for cleanliness.

Professor Terrence Cosgrove joining us from Bristol.

And some interesting stuff from you to note.

Did you know the ancient Greeks chewed masticagon (ph)?

Native Americans chewed on a sap-like substance produced from spruce trees.

Well, I didn't know anything about that until I'd read this fascinating article that you can also read. I've posted it at my Twitter account -- Twitter.com/richardquest. And then you can be ridiculously well read on the question of -- of -- of chewing gum -- Guillermo, where were you on holiday?

GUILLERMO ARDUINO, CNN METEOROLOGIST: I wasn't -- I wasn't...

(LAUGHTER)

ARDUINO: -- I wasn't on holiday, Richard. Actually, you know, you should...

QUEST: Yes?

ARDUINO: -- you should watch a little bit later, because they're -- they -- slipped me down toward the later hours a little bit. So tomorrow - - I think tomorrow I'm with you and then Thursday and Friday I'm not with you -- when the weather is going to get better, by the way.

It is getting chillier, though. When I look at these satellite pictures and we see these pellets here, these dots, that's an indication that it's cooling down. But it's -- it has not cooled down that much yet.

There's a little bit of a break for Britain, especially for the southern parts. Only on Thursday is when we are going to see maybe some sumshine -- some sunshine. But before, we'll see rain. The official forecast is rain showers. You see the -- there's a lot of here in the Bay of Biscay, in Britannia, all the way here into the English Channel, the North Sea -- in the North Sea, it's very messy; also, Austria with bad weather.

We have problems in Venice, because the tides are very high -- acqua alta, high water, high tide. And we have practically one meter -- 12 percent of the city of Venice is covered by one meter of water. It's because of the high tide that it's expected to last at least until Thursday, maybe longer.

So we have a problem, that we saw a little rain yesterday. Look at the temps right now -- 24 in Rome, 14 in Vienna, the high. Chios also not so nice in the next two days, in the Aegean Sea.

I was reporting yesterday on the nice weather here, the east man in the Aegean. Well, it's changing now, because that low that went through Italy moved southward and it's going to stay there, bringing some bad weather.

Good early morning if you are watching from Paris. It is 2:52 in the morning and things are not that bad weather-wise. It's much later in New Zealand and it is in the low teens, as you see.

But it's going to warm up nicely and we're going to see 21 degrees in Cambria.

Richard, you should go to Bondi Beach, Sydney, 23 degrees right now. And it's early in the morning. Later on, it's going to be -- well, it's going to be 23 later on. That's a nice day to go to the beach.

Thirty in Cannes and 16 in Wellington, though the place where you shouldn't go right now is in Southern China, because we see some development here. We may see some more rain in Hainan. We had floods in Hainan, a lot of precipitation. You see half a meter or so. And Macau is going to get some rain. Hong Kong may see some rain. We don't think that Guangzhou will get rain, but farther south, we'll see some rain into Vietnam as well.

So Southeast Asia, the South China Sea over there, we see winds and we see bad rains affecting the area. So, unfortunately, it is moving a little bit to the east, but it's good for Cambodia and also for -- for Thailand. Things are clearing out a little bit, and also the western parts of Vietnam.

But you see the southern parts of China where we'll continue to see bad rain. And the winds will affect operations at the Hong Kong airport. Taipei also with windy conditions. And lastly, we see Singapore with thunderstorms. But now, Northern India is clearing, like Pakistan. No more monsoonal flow to the northern -- northern parts of the subcontinent - - Richard.

QUEST: All right. As you know, I -- I'm a great fan of going down to Australia and, indeed, the thought of laying on Bondi Beach is infinitely more pleasant than sitting here chit-chatting with you.

(CROSSTALK)

QUEST: A pleasure.

You're very welcome -- Guillermo, is it too soon for a yes or a no on a nice weekend in London?

ARDUINO: I think it's going to be nice. I think it's going to be nice, because Thursday and Friday...

QUEST: Right.

ARDUINO: -- the weather will be much better...

QUEST: There you go.

ARDUINO: And the weekend appears to be nice.

QUEST: All right, Guillermo, many thanks, indeed.

ARDUINO: Thank you.

QUEST: Actually, that was -- that was rather unpleasant of me, but I always enjoy chit chatting, but...

ARDUINO: Thank you.

QUEST: -- when you have a choice between that and Bondi Beach.

All right, Guillermo.

Let me update you, dear viewer, with the markets and the European bourses. There was a six day run of losses which came to an end. It was the longest running streak since January. Better than expected U.S. services sector data and a stimulus pledge from Japan that we've talked about all gave it a boost. There was some worries from Moody's that said it may cut down its credit rating by one notch. Perhaps that wouldn't be much of a surprise.

You do need to know what's happening on the U.S. market, where we are in October and the Dow Jones up 186 points at 1 -- 10,000 -- oh, look at that. Do you know, I do believe this week you and I might see 11000 on the Dow. Well, that would be a surprise. There's still a couple of days before that.

We'll talk more about what happened in France -- the crooks, the fraudsters and the hucksters, in a Profitable Moment, in just a moment.

(COMMERCIAL BREAK)

QUEST: Finally, tonight's Profitable Moment.

There is an old saying that when the tide goes out you find out who's swimming naked. Warren Buffet, we heard, has actually originated that phrase.

Well, this has always been true of the crooks, the fraudsters, the incompetents and the financial markets in which they do business. These people manage to hide their losses during the good times, when the bubbles are building. But when those bubbles burst, well, the losses suddenly balloon, the misdeeds become very clear. It usually ends up in court and prosecutions and jail.

As we showed you tonight, if you look at all the major cases, there was a moment when something external took place -- an earthquake, a market wobble, a currency collapse. The game was over.

Which is why we were not surprised when more Ponzi schemes came to light after Madoff. It was inevitable.

Well, the long-term goal should be to prevent these things from happening in the first place, not wait for the crises that inevitably shows them up.

And that's QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in London.

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

"WORLD ONE" starts now.

END