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QUEST MEANS BUSINESS
Global Markets Plummet; The U.S. to Investigate S&P for Overrating Risky Assets
Aired August 18, 2011 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS: You thought it was all over. Not so fast. Another storm sweeps the markets. The numbers tell the tale.
Raising the stakes: The U.S. will investigate S&P for overrating risky assets.
And talk about royalty. "Hello" magazine shows off the Kate effect.
I'm Richard Quest. I mean business.
Case of fact, instead of fear and a heavy dose of foreboding, the noxious cocktail which is bringing global stock markets to their knees, traders are faced with a battery of disappointing numbers and that has absolutely clobbered the markets. A dire warning from Morgan Stanley that the U.S. and Eurozone are dangerously close to a slump. This is the way it looked. These are the two major Europeans, the DAX off 5.8 percent, the FTSE off 4.4, and the markets that are live and open at the moment, we'll come to in one second.
There was speculation European banks lack capital, while hopes for more stimulus are facing. Banks stocks the worst hit. Tonight, in New York, Bank of America shares are down around 6 percent. In fact, every share in the Dow is off. The Dow is off 3.7 percent.
So, now, this is the hostile environment that took place today. This is why it happened. This is what is behind-or at least some of the reasons of what is behind. Let's start with the Morgan Stanley report. They cut the global growth forecast to 3.9 percent for 2011, 3.8 percent for 2012. But that is a number that is weaker.
And the core point is this growth, is primarily coming from emerging markets and for Asia. When you talk about the EU, and European countries, and the United States, they say it is dangerously close, dangerously close to recession. They are blaming slow and inefficient policy responses in the sovereign debt crisis. They are also saying the U.S. debt drama, and they describe the recent Sarkozy/Merkel summit as having failed. And this is the economic number that we had that really gripped the market. First- time jobless claims, they were up 9,000, 408,000. That number should not have been that grim. There were also inflation numbers showing July running at 3.6 percent. Existing home sales fell.
No one factor justifies what we are seeing today. It is the totality of these with others that I will show you that really make the point.
Alison Kosik is in New York to talk more about this and to get the view, actually, of those doing the buying and selling.
ALISON KOSIK, CNN INTERNATIONAL CORRESPONDENT: And to do that, Richard, I'm here with Alan Valdes, he is the director of floor trading with DME Securities.
Was it the Morgan Stanley comments in that note about recession; recession, getting dangerously close to a recession? Is that really what this sell off is all about?
ALAN VALDES, DIRECTOR OF FLOOR TRADING, DME SECURITIES: Well, that surely kicked it off this morning. I mean, when we came in this morning, we looked at the European markets, especially, the DAX. Now, Germany is the strongest market over there. That was down triple digits. That really lead the way for our demise. We knew it was going to be a rough morning, coming in, yes
KOSIK: Do you think after hearing Morgan Stanley, I mean, we have been hearing this sort of litany of economists upping their odds of a possibility of a recession, for the U.S., for the global economy. What are your thoughts? Are we headed for a recession?
VALDES: Well, you know, if you would have asked me that question a month ago, I would have said, ah, it is a 20 percent chance. But now I would say there is over a 50 percent chance. I mean, you look at events in Europe, much weaker than they were even a month ago. You look at the gridlock in Washington, you look at the downgrade of S&P, you look at the housing numbers that came out, and the job number continually getting worse, not better. It is getting definitely more, more than 50 percent.
KOSIK: Is this a market, though, that is being driven by fear more than anything? What is really driving the markets?
VALDES: Well, you know, you are right. If you look at the market, if you step back and look at earnings, earnings have been good; 75 percent of the earnings have beat what we look at. But then if you look at those earnings, in particular, they are down from when the earnings came out, some of these corporations. And it is driven all by news. We are such a global-and we are so technically involved with nations, right away we know what is happening, that they drive these markets instantly.
KOSIK: What is it going to take to turn the markets around for more than one or two sessions?
VALDES: you know, unfortunately, there is no silver bullet out there. There really isn't. The jobs, which really, is the way to the market, is the labor market here in the United States, there is going to be no quick fix. And job and housing are handcuffed together. Those are the catalysts-the last seven or eight recessions it has been housing that has got us out, and that is because of jobs. Without jobs, without housing, it is going to be a long slog.
KOSIK: All right, Richard, you know what that means. It means the volatility that we have been seeing over the past couple of weeks, I think, is going to stick around, hearing that. Richard, back to you.
QUEST: Alison Kosik is very charitable in not reminding me that I said it was going to be a quiet week. Alison, I owe you. Many thanks, indeed. Alison is in New York.
The real issue is that. It is growth and the question of growth. And I want you to look at these numbers and it will make it clear.
Let's take, for example, the United States with its growth number of now in the second quarter of 0.3 of 1 percent, quarter on quarter. But then you have the Eurozone, with its pathetically low, but better than some, barely budging, 0.2 of 1 percent. Throw in Germany, at just 0.1 of 1 percent. The phrase people use there, for Germany, is stalled. And then add in France where you have stagnant markets.
So, on both sides of the Atlantic, all in the Eurozone, and in the United States, you have these growing pains of growth, that are simply very low. And that is why it is not surprising, for instance that one of the most important markets, the DAX has fallen so sharply. This is the high point that we had, of May, 7527. That is its high point. Since May of this year, the DAX has continued and fallen, dramatically. Look at that, down 25.5 percent from its high. The Dow is down now around 14 percent, the FTSE is down a similar amount.
Let's talk about these numbers and how they are actually affected. Bob Parker is the senior advisor at Credit Suisse. I asked him when we look at what has happened and the markets today, and last week, is it justified?
BOB PARKER, SENIOR ADVISOR, CREDIT SUISSE: If we had done this conversation two or three weeks ago, we would have been talking about what the market fears were. What is happened today is that a lot of those fears have been realized. We have the Taiwanese GDP numbers have fulfilled the fear of Asian growth slowing down. The data coming out of Europe, the U.K. retail sales, a weak number; fear of the U.K. slowing down, and then a raft of weak data coming out of the States.
QUEST: But if stocks were already relatively cheap, as a result of the volatility we have seen, and for year highs so far, why would they fall again. Is this just literally, head for the exits?
PARKER: You are seeing them head for what are perceived to be safe havens. Because as we have seen the selling of stock markets, we have seen the buying of the Swiss franc, the buying of gold, and also government bond yields, the yields are exceptionally low. U.S. Treasury yields, 10-years are testing 2 percent.
QUEST: Germany is currently-looking at my numbers-Germany is currently suffering the largest, the steepest loss from recent highs, down some 25 percent. Why should the DAX be so troubled?
PARKER: Well, I think three reasons. The first reason, is indiscriminate selling. We are in the sort of market where there was investor fear, and investors are selling indiscriminately. I think the second reason is confirm will Germany will have to bailout the rest of the Eurozone, and the cost to the German economy. And the third reason, is the German equity market was a top performer up until about six weeks ago.
QUEST: It was indeed, low to high, 105 percent.
PARKER: So there is profit taking.
QUEST: Absolutely. Now, the one excuse I keep hearing in the market is that investors are deeply unhappy at the poor performance of policymakers, their inability to get a head of the curve. Would you say that is what is driving people like yourselves, and your clients? That is what they are telling you?
PARKER: I would put it slightly differently. Investors have been going, as we said, into these safe havens. They have been building up cash. They have been selling equities. If you look at the world economy today the corporate sector is in a very strong position. Consumers in America and Europe are retrenching. Where the problem is, is sovereign debt. And what investors are really worried about is can governments have a policy which deals with those sovereign debt problems.
QUEST: We know the answer to that, seemingly is no, so far. Or at least not a coherent solution?
PARKER: I would say it is not a coherent solution. And I think what we will see in the coming months is increased liquidity injections by the central banks to support the global economy. Don't forget interest rates, both in nominal terms and in real terms are going to stay exceptionally low. Bernanke was very clear the other day. Fed funds stays zero to .25 basis points for two years.
QUEST: So, to pull the strands together then. If those are the worries of the markets, and you are expecting basically QE or versions thereof?
PARKER: Versions, thereof.
QUEST: Versions thereof. Does that do the trick? Or are we, as I hear people say: Whichever way you look we are just going to have to get used to sluggish growth until this is over.
PARKER: Well, I think the answer is, sluggish growth where? In America, yes, our central case is that it is going to be a period of mediocre growth, 1.5, 2 percent growth. Same in the U.K., Southern Europe, the stressed economies are going to be close to zero growth, and some like Greece, who continue to contract.
But growth will still be reasonably good in emerging markets, like China. Chinese growth I think will be held at about 8 percent. Northern Europe, we don't really have economic problems. The German economy is still super competitive. So I think the problems areas are this period of mediocrity, as I call it, in American growth, certain selected European countries.
QUEST: The common sense that you only get from Bob Parker, joining me earlier.
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The pressure is mounting on Standard & Poor's, already under fire for its downgrade of U.S. debt. The ratings agency is now under investigation as part of an even bigger financial crisis. We'll have that story after the break. It's a busy night, good evening.
QUEST: Standard & Poor's downgrade of U.S. debt is one factor in the stock market mayhem that we have seen over the recent weeks. Now S&P is under investigation for its role in the 2008 financial collapse. Sources are telling CNN the U.S. government is looking into allegations that analysts who wanted to give lower ratings to mortgage-backed securities, they had been overruled by S&P managers. We have had no comment from the Department of Justice. S&P says it is cooperating with requests from different government agencies over mortgage related securities. Joshua Rosner is managing director at the research consultancy, Graham Fisher & Company, one of the first companies to spot weaknesses in credit agency ratings. He joins us now, live from New York.
Joshua, I hesitate to suggest that there is a quid pro quo, a tit for tat, but why now? I mean, to investigate something of 2008. Is it related to the downgrade on the U.S.?
JOSHUA ROSNER, MANAGING DIRECTOR, GRAHAM FISHER & COMPANY: I actually don't think that it is related to the downgrade of the U.S. I think that the process probably worked through the SEC, then maybe there were items referred to the Department of Justice for investigation. Even from "The Times" article, which is where the story broke this morning, it appears that the investigation was going on before the downgrade.
I'm surprised, I've been surprised that it has taken four years. As you know, in May of '07 I wrote a paper warning that we were about to have a credit market collapse, and the ratings agency's role in the misapplication of ratings and structured finance was a the very heart of it. I'm not surprised by the allegations that we are hearing, but I don't think the investigation was directly tied to the U.S. downgrade.
QUEST: Let's take this relatively slowly. I can't remember the exact quote from the financial commission about the ratings agencies, I'm sure you can, basically they were cogs in the wheels of financial destruction, rings a bell with me. There is widespread acceptance even by them that they didn't do a very good job. If this turns out to be true, well, it is a different ballgame, isn't it?
ROSNER: Well, if it turns out to be true, I mean, we have seen several cases where their ratings models were wrong and they failed to correct them, even when they knew they were wrong. This is all three of the major ratings agencies have had those type of problems. And yet it hasn't fundamentally resulted in any criminal charges, or any major changes in their practice. We have seen legislative changes driven by Dodd-Frank. Those have been slow in coming. So, unfortunately, I think they are getting away fairly unscathed. And yes, they were more than just a cog, they were instrumental, in my mind, in the creation of these structured products and the problems therein.
QUEST: OK, so it all comes down to the question, which I have not, frankly, heard a satisfactory solution from policymakers. What would you replace them with? Now, the European Commission, and the European Union has fiddled around with an idea of an official ratings agency, which sounds to me like a dreadful idea. Or where ratings are handed out in advance so that people can-all of-what would you replace them with?
ROSNER: Well, look, we have heard this story that the problem is that the ratings are paid for by the issuers. And that results in underrating of risk. I have been a believer that if they were paid for by investors it would result in the over-the over consideration of risk. So the issue isn't necessarily that there is no conflict. There is a conflict. I think what you need to do is structure it so that they have skin in the game and are held responsible for their ratings. That can be tied to the fact that, as example, the ratings agencies get most of their money for the initial rating of a security and in out years, for the ongoing surveillance, for which they get very little money for.
If all of their income was tied to the accuracy of their ratings, on a regular, consistent quarterly basis, then you would really take care of the conflict.
QUEST: OK, just finally, what I'm never sure of, from people like yourself, is whether you believe the ratings agencies were incompetent, negligent, or malicious?
ROSNER: Personal belief, all three of the above. And frankly, I think that, you know, the problem here is that they should be relegated to the role or responsibility, or market power of nothing more than a sell- side equity analyst, which is you can listen or you don't listen.
And Dodd-Frank moved in that direction by requiring that all references to ratings be pulled out of statute and code in the U.S. The problem is the international bank regulatory community is still struggling about how to handle it from bank capital perspective, the Basel Committee.
QUEST: The moment you mention the Basel Committee I'm afraid my eyes start glazing over.
When Basel III is mentioned, it is time for me to say, Joshua, thank you very much indeed.
ROSNER: Thank you for having me.
Good to have you on the program.
QUEST: Now, look at the numbers.
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It arrived before I had even given-they are down 403. And what is fascinating about this number is we are literally bouncing around the 11,000, as indeed we have done-although, we had been off more, more than 500 points. But we bounced around 11,008. All day, sometimes up a bit, sometimes down a bit, and that is the way it has been. To put this into perspective, because I know it is really quite important, that we put this- the Dow is actually down 14 percent from its recent high point, back earlier this year. That recent point was in April, so it is off 14 percent, so far, from the high point.
Share in Hewlett-Packard merit your attention at the moment. They are down around 4 percent. They have been up wildly, down wildly. Bloomberg is reporting HP will spin off personal computer business, and buy the British software developer, Autonomy, for $10 billion.
HP, who sells more PCs than anyone else in the world, wouldn't comment on the report.
Finally, a look at those European markets, across the whole. Continent's speculation of banks lacking capital was what really drove the numbers. At one point the Xetra DAX was off 6.5 percent, but it came back, not much. The markets truly dreadful on the both sides of the Atlantic.
When we come back in just a moment, we may be close to recession. Are we on the brink of a double dip? And if we are what does that mean? Next, Ali Velshi and I talk about what you can do with the money if the worst does happen. It is "Q&A".
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And it is coming after the break.
ALI VELSHI, CNN BUSINESS CORRESPONDENT: Well, QUEST MEANS BUSINESS and so do I, particularly today. We're here together in the CNN NEWSROOM around the world.
QUEST: Good day to you, Ali. On a Thursday we discuss business, travel and innovation, but today there's only really one topic that we need to get to grips with, the potential double-dip recession, Ali.
VELSHI: Something that's feeling a lot more real for people, Richard. Economists disagree on how likely the world is to fall into another downturn, but they generally agree that it could be a bad thing and hard to pull out of. So the question for today, "Q&A," is in the event of a double-dip recession what do you, the viewer, do?
Richard, I'm going to let you go first. You've got 60 seconds.
QUEST: What a day. Wherever we look the numbers, the data, they are simply not good, and they are getting worse. The U.S. is slowing down. Germany is slowing down. France is stagnant. The jobless numbers won't fall. Deficits remain high. Austerity is the name of the game. Morgan Stanley is worried about another dip. Others say the chances have now risen to around 50 percent.
Now, individually, there's not a huge amount you can do. Firstly, slow down spending and make sure financial houses are in order. Truthfully, the real action has to be taken by policy-makers, and there, there is disagreement and cause for panic. Some say stimulus before we go over the cliff. Others say austerity. In the U.S. the first stimulus is over, and the economy is slowing down.
Frankly, when all is said and done, it doesn't really matter whether we go into a technical recession, or we just stay growing slowly.
For you and me it will feel awful.
VELSHI: Richard, there's no one who provides analysis better than you do, but you simply didn't answer the question. The question is what are you supposed to do about it? So let me take a try at this for 60 seconds.
Richard, the great recession of 2008 was exceptional because different asset classes, which normally move in the opposite direction of each other, all went down together. A perfect storm, not a normal recession, and we are unlikely to see that again. Plain old-fashioned diversification is the absolute best protection against a downturn, even like this one.
Do not run from stocks like people are doing today. In fact, if you go into a downturn like this with some cash, could you pick up some great stock bargains, Richard. Growth companies with low price-to-earnings ratios, some of which pay fat dividends, and don't diversity by asset class. Do what you and I do, spread out geographically. Hold funds with stocks that benefit from growing economies. It may be slowing but China and India are growing a lot faster than the United States is, even Africa is.
Now if you're entirely, entirely risk averse, cash works. So do these, Richard, bonds. But be careful about this, gold. Folks call gold the ultimate safety play. It can't be overvalued however; a new record today.
Whatever you do, do not put all your eggs in one basket, Richard, because unlike when you cook eggs, in the real world they all don't come out the same under the same pressure.
QUEST: Ali Velshi, well, what can one say? Buy on the dips, I've heard it before.
The Voice is with us to help us with questions.
UNIDENTIFIED MALE: Good afternoon, gentlemen. Let's jump right into it.
Question No. 1: With the metric being of growth of 3 percent or less, for a recession, how many have there been since 1985, according to the International Monetary Fund? Is it A., three; B., four; C., five; or D., six?
UNIDENTIFIED MALE: Incorrect. Give it a go, Richard?
QUEST: Since 1985 there have been four global recessions.
UNIDENTIFIED MALE: That is correct. The most recent taking place between 2008 and 2009. On to question No. 2.
VELSHI: Well, you didn't say including the most recent one.
UNIDENTIFIED MALE: Well, I said since 1985. I thought it was self- explanatory.
On to question No. 2, please. According to the World Gold Council, which of the following countries has the largest gold reserve? Is it A., China; B., India; C., Russia; or D., Switzerland?
Go ahead, Ali.
UNIDENTIFIED MALE: Incorrect. Go ahead, Richard.
UNIDENTIFIED MALE: Incorrect again. The correct answer is China, with over $59 billion worth of gold.
On to question three.
QUEST: Should have guessed it.
UNIDENTIFIED MALE: A Clemson University project asked undergrads to dip a chip, bite, re-dip and then bite again. What did the double dip the chip test find? Is it A., more germs in the mouth than the dip; B., more germs in the dip than the mouth; C., equal amount of germs in the mouth and the dip; or, D., the quote Costanza, where double dipping the chip was, quote, like putting your whole mouth right in the dip.
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VELSHI: OK, definitely not D, Richard.
UNIDENTIFIED MALE: Go ahead, Richard.
VELSHI: And it's got to be A or B. What do you think?
QUEST: I'm going to go for B.
UNIDENTIFIED MALE: Incorrect.
UNIDENTIFIED MALE: That is correct. More germs are found in the mouth than in the dip.
Huh. Where does one go g from there, Richard?
QUEST: That makes it a tie, which is probably the best way to finish this edition of "Q&A." That will do it for this week. We're here each Thursday, QUEST MEANS BUSINESS, 1800 GMT.
VELSHI: And in the CNN NEWSROOM 2:00 p.m. Eastern. Keep the topics coming on our blogs at CNN.com/QMB and cnn.com/Ali. Tell us each week what you want to talk about. We'll be covering this downturn all day, so see you later, Richard.
QUEST: See you later, Ali. Have a good one.
(END VIDEO TAPE)
QUEST: And, indeed, Ali will be with us at the top of the hour, as we consider more on this special edition and these special days in the markets.
Back in a moment, what it's like to ride out the bust in the middle of a boom -- we talk to a gold trader.
QUEST: Hello. I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN. And on this network, the news always comes first.
And we are in the middle of a major global sell-off. The Dow Jones Industrials is currently down more than 3.5 percent, down 414 points at the moment, under 11000. It follows seismic falls in Europe. Morgan Stanley has warned that recession is dangerously close in the U.S. and parts of the eurozone.
U.S. and European leaders are calling on Syria's president to step aside and make way for a democratic transition. The coordinated response comes five months into the country's uprising and crackdown. The U.S. is launching new sanctions against Damascus.
An outbreak of deadly attacks in Southern Israel might not be over. Hours after multiple attacks targeting a bus and other vehicles from soldiers near the Egyptian border, more gunfire has been reported. Israel is blaming militants from Gaza and has launched an air strike in retaliation.
There were huge crowds in Madrid as Pope Benedict XVI told young Catholics to be proud of their faith. The pope's four day visit coincides with the World Youth Day celebrations. Elsewhere, police clashed with protesters who are angry about the cost of the papal visit at a time when unemployment is running rampant and the Spanish government is in deep financial trouble.
Traders around the world looking for somewhere safe to put their money and it's adding to the signs of distress that we're seeing this session. Bond yields have sunk to pretty record lows, down just around about, let's see, just at 2 percent. That's for the U.S. 10-Year Treasury just slightly higher, at 2.08 percent. Gold also hit a record high, over $1,800, COMEX gold about $1,824, yup 1.7 percent. It's a gain of about 30 odd dollars on the day.
Anthony Neglia is president of Tower Trading, which specializes in precious metals.
Anthony joins me now from the NYMEX.
Anthony, we look at this number and, look, it -- it's too simplistic, isn't it, Anthony, simply to say that gold is a safe haven.
So what's going on?
ANTHONY NEGLIA, PRESIDENT, TOWER TRADING: Well, yes. Too simplistic is very true, Richard. But unfortunately, you know, people are finding no confidence anywhere else. And they're flocking to gold, whether it's a mom and pop, whether it's a mutual fund, whether it's a central bank.
So, you know, all three of those components have been buying gold over these past few months, starting in June with the, you know, cut backs -- the Central Bank of China, the Central Bank of Korea, the Central Bank of Kazakhstan and so on and so forth.
And it's finding its way to these levels. I mean we just posted under $1,830 today, up almost $100 from this time last week's low.
NEGLIA: So from a percentage point, from a percentage standpoint, it's up quite considerably.
QUEST: OK, now most people are -- well, not most people, all of us pretty much, unless you're very wealthy, are not going to go and buy a gold bar. You'll either buy a coin, part of a bar, a mutual fund or an ETF.
So how does those mechanisms feed into your markets?
NEGLIA: Well, what happens is, especially the ETF, because the -- you know, the GLD is a direct reflection of the gold price, all right, albeit that it trades at a 10 to 1 ratio to our gold underlying, it does reflect our upward momentum, all right?
So, you know, depending on what your threshold of pain is for investing, you know, the gold ETF, if you're willing to catch the wave, is a good way to go if you have the stomach and the pocketbook for it.
If not, you know, although the equities have been lagging, some of them, you know, some of the marquis names...
QUEST: But -- but...
NEGLIA: -- have been playing a -- a -- a good role in this gold market.
QUEST: What would you say -- and we're always very careful, particularly on this program, we never give in -- we never give investment advice. That's really up to other people.
But what would you say to the -- that people will say at 1,800 and so, the risk is down, because it's at record highs, if a bubble is being created, now is not the time to get involved?
NEGLIA: Well, you know something, Richard, they said that there was a bubble at $1,000, $1,300, $1,500. Here we are above $1,800, OK?
So how big is this bubble going to get?
Is there room for the down side?
Of course there's room to the down side.
You know, we could have a $100 correction, a $200 correction and we're still above $1,600, OK?
So its something that...
QUEST: Right, but...
NEGLIA: -- at this particular level...
QUEST: I just want to finally ask you, Anthony, can you explain to me, because I've never -- I'm one of those skeptics in the sense that, you know, gold is a useless metal, it doesn't really have many industrial or practical purposes.
So explain to me why gold?
What is it about the gold stuff that's simply so attractive?
NEGLIA: Well, yes. And, you know, it's always had -- it's always had an allure. I mean I've been doing this for 28 years and, you know, at a lot of different prices. Gold has always had some sort of an attraction.
So, you know, right now, you know, the -- the safe haven is somewhat of an attraction. You know, it's -- it's also a -- a tool that the, you know, Middle Easterners use. We're coming into the jewelry, the wedding season. So, you know, that is another, you know, allure. It's...
NEGLIA: It's always been that -- that creative.
QUEST: Anthony, many thanks, indeed, for joining us...
QUEST: -- and putting that into perspective.
QUEST: Good to see you at the NYMEX.
And let me just remind you of what Anthony was saying.
The COMEX gold price, well, it's at just over $1,800, $1,820 odd or so cmxx, up from nearly 1.6 percent on the session on the day. Well, $1,826 is the number.
Where do stocks go and how do you navigate the twists and turns of the current market, in a moment?
QUEST: One of the big challenges for traders in markets like this is when to call a bottom. One known short seller, David Tice, thinks we're somewhere off yet, as he told CNN's Poppy Harlow, the problems we're facing now aren't the same ones we saw during the 2008 recession.
DAVID TICE, TICE CAPITAL: There are different problems today. However, I believe Jeb Nolan (ph), who runs the Federated Freedom Bail Fund (ph), today just wrote a great commentary. And he compares a lot of the issues between '08 and today. And there are certain things that are better. However, now, the issues are sovereign debt and, you know, all the banks were dependent upon sovereign debt.
And what's happened since '08 is we had the central banks around the world come forward and, you know, buy securities that other people didn't want and we provided fiscal stimulus, etc. And it really hasn't helped the economy that much.
But now people are worried about sovereign debt. And that's a huge issue. And there's still tons of debt in the system in terms of carry trades and, you know, maybe the investment banks are not at 35-1 like they were before, but there's still a great deal of leverage in the system.
POPPY HARLOW, CNN BUSINESS CORRESPONDENT: Was last week's sell-off a prelude to a bigger drop?
And, if so, how big do you predict it will be?
TICE: I don't think we're through yet. I -- I do believe that, you know, maybe we rally for the end of this week. I mean my crystal ball was broken a long time ago. And -- and I tend to be too early on these things and I always tend to think that, you know, the authorities aren't going to fix things.
And, you know, I do believe that the authorities never really fix things, they just kick the can on down the road and they perpetuate the bubble when it would have been better for the system if we would have cleansed the system.
Now, I -- I don't think we're done yet. I think that this market is going to fall a long way. And I think the S&P will fall below, you know, below 1000.
Did -- did you anticipate the drop that we saw last week?
And, if so, how short were you in anticipation of that?
TICE: I'm just managing my own money today and I was pointing it through the VIX. And so I'm not short a lot of stocks. I do own some PrudentBear and Federated PrudentBear and Federated DollarBear. But, you know, I've not been heavily short. I still own a bunch of gold stocks. And, you know, I'm very excited about what they're going to do.
But I think the VIX is going to go through 40 and go through 50.
HARLOW: What sector do you see as the most vulnerable right now?
TICE: Well, the banks and the financials have gotten killed already. And, you know, they -- they could still fall further. But I think any of the higher beta stocks, any of the higher P/E stocks are going to fall further. I do think there is risk of a number of commodity stocks, because there's been bubble components to some of the commodity stocks, not so much gold, but some of the cooper, iron ore, zinc, etc. Some of those companies could still be hurt a lot. And just -- just really the -- the high fliers.
But unfortunately, I think it's going to be dangerous for a lot of equities.
(END VIDEO TAPE)
QUEST: So, Poppy Harlow on the question of markets.
And the VIX Index that he was referring to there, of course, is the volatility index. And at its latest reading, the VIX is clearly suggesting that we have many more days and much more of this to come.
Let's take a look at the markets and see what's happening.
And the reason it's important to show you at this point in the session, just an hour and 15 from the close of trade, now it's when you start getting the book squaring. You start getting people sorting things around. Down 434 points, at 3.8.
Tomorrow, Friday, interestingly, it is a double witching session -- triple witching, I beg your pardon. It's a triple witching session, when stocks options all expire between the New York cash market and the futures market in Chicago. And that normally and inherently creates volatility and we could expect, as a triple witching Friday, with this environment, we could expect it to get particularly rocky.
We'll be here, of course, to talk our way through it tomorrow.
So, it rained. It rained rather badly at one particular point.
Guillermo is at the World Weather Center...
GUILLERMO ARDUINO, CNN METEOROLOGIST: (INAUDIBLE).
QUEST: I'm safe -- well, you did. But that was in London. And I'm sure there are places, I'm sure the dear viewer wearies with me banging on about the weather in London. So there must have been somewhere that was nice.
ARDUINO: Yes, in the Mediterranean, that side. We should -- we should move the studios into the Balearics or in Aya-cho (ph).
What about Aya-cho?
Beautiful city in an island, right?
QUEST: What's that?
ARDUINO: That's in Corsica.
QUEST: Where's that?
ARDUINO: Corsica, Ayacho there in the Mediterranean. Or in Malta. If we were on Malta it would be great to have our studio there. OK.
QUEST: Oh, good lord. Oh, I've -- I've started him off. Now he's going to go through every potential option where we might do the program from in the Southern Mediterranean.
ARDUINO: Or in Bora Bora in the South Pacific, Ratatung (ph), Joachim (ph), Rayafaya (ph)...
ARDUINO: -- Tahiti, too many.
OK. Let's go. Let's come here. Yes, the storms in London, I think it's the last phase. And as we said yesterday, Friday and Saturday are going to be nice days. So we see how the rain continues in there. Also, let's take a closer look, in Scotland, the same thing. It's easing now in Ireland, not in Northern Ireland. It's because of this developing low. But it's finally going to move away. It's going to bring some more storms in Germany and finally, into the Baltics and Poland.
But look, behind, it's going to be nicer. So we are in between systems and we're going to see OK conditions.
Look at the Balearics, Corsica, Sardinia, Italy, down there at Cicely, Malta, Crete, what else?
The Aegean Sea. Cyprus. I mean another [place to go. Istanbul looking fantastic.
Romania, Bulgaria, the Carpathian Mountains, everything looks fine, except for this area. And also, remember, the weekend, especially Friday and Saturday, are going to be nice days in London. Berlin is going to get those rains and Copenhagen and all those northern cities are going to get the winds, as this system moves into the east gradually.
And Dublin with some rain showers, but it's not going to be terrible.
There are some spots in the United States where we see extremely hot conditions still. I'm going to show you that. It is getting better overall. So if you're coming to the United States for business, anywhere from Chicago into New York, Washington, Philly, even here in the South, you're going to notice, especially in the evening or early in the morning, that conditions are much nicer. It is cooler. It is pleasant. You'd -- you drive without air conditioning. It's fine.
So New York for the next two days, here and then some clouds. Then the storms, maybe in two days, come back so the weekend may be a little bit stormy.
Michigan looking fine. You know, the last leg of the summer, Lake Michigan there, Travers City or in Cadillac, I don't know. It's going to be fine. The -- the weekend is going to look fine.
So no significant delays, we think, in the United States, except for the weekend some time in New York and the -- the promised graphic is here - - Oklahoma, Kansas, also into Louisiana, parts of Arkansas and Tennessee and Texas. That's where the heat is -- Mr. Quest, back to you.
QUEST: Oh, you finally finished your...
ARDUINO: Three minutes.
QUEST: -- Guillermo...
ARDUINO: Say when.
QUEST: Guillermo's tour of the world.
QUEST: Of the hot spots.
All right. All right, many thanks.
ARDUINO: Thank you.
QUEST: I want a forecast for Chicago for this weekend, which is where I'm going to be filming future (INAUDIBLE)...
QUEST: -- this weekend.
ARDUINO: Nice, nice, nice.
QUEST: Guillermo, thank you.
QUEST: Thank you.
Former Ivory Coast president, Laurent Gbagbo, some news just coming into us, and his wife Simone have been charged with economic crimes and are now in custody, according to the public prosecutor. This is news that's just coming into us here. According to the public prosecutor, they've been charged with armed robbery, looting, embezzlement of public goods.
In a moment, the royal honeymoon is far from over for Britain's "Hello!" magazine. The bride and the groom had a dramatic effect on the competition.
QUEST: Now, do you remember these magnificent pictures from earlier this year?
Yes, of course you do. The wedding -- wedding of the Cambridges. It's now being called the Kate effect. April's royal wedding between Kate Middleton and Prince William has given quite a wedding present to Britain's "Hello" magazine. Sales for the first six months are up 27 percent on a year-on-year basis in the U.K. and Northern Ire -- in -- and Ireland. The Duchess of Cambridge, as she's now known, has been the magazine's on the cover on the sixth best-selling issues. And interestingly, even if you ignore the magazine's royal wedding issues, sales were up 10 percent on last year.
So what's going on with "Hello?"
I headed to my local newsstand with the publishing director, Charlottes Stockting, who told me why Kate has been such an important cover girl for "Hello".
CHARLOTTE STOCKTING, PUBLISHING DIRECTOR, "HELLO!" MAGAZINE: We are a magazine that, principally, we're about royalty, then society and then our low hanging fruit is celebrity. And when I say that, I say that benignly and -- and friend -- as a friend to celebrities.
But royalty has always been where the heart of "Hello" is. And so when royalty is quite as cool as it is at the moment, then people turn to "Hello".
QUEST: There's Catherine.
STOCKTING: Catherine, yes.
QUEST: And there's (INAUDIBLE)...
STOCKTING: OK, yes.
STOCKTING: And what's on back here?
STOCKTING: And the royal family, even without Catherine, before November last year, when the engagement was announced, if you put either Harry or William on the front cover, the sales go up.
QUEST: If we look at the -- the news racks, I mean there you are. "Hello" is there.
STOCKTING: Yes. Yes.
QUEST: But the competition is there also.
QUEST: So what do you think about?
What are you thinking?
STOCKTING: Well, I'm worried about this, obviously, because this is what's called a parasite, you know?
The magazine, the paper, doesn't necessarily appear in the same slot, where what I tend to do and over -- oh, there's one (INAUDIBLE) -- is that we go like that. So actually beautiful. And then somebody else pays and (INAUDIBLE). This is a cutthroat industry.
QUEST: In your experience now and what works and what doesn't?
STOCKTING: What tends to work is really newsworthy stories. So whereas many other celebrity magazines can afford to have five celebrities which they consistently put on the front cover and still sell -- they do a brilliant job -- we don't have our stock cover stars. We have to have what's relevant and in the news at that time. That can be a problem. You know, in the summer when all the celebrities go away and they're on holiday...
STOCKTING: -- it's quite difficult to find a story.
QUEST: If you were walking along here and this is a rainy day, but you just saw your magazine there, would you just sort of move it over?
STOCKTING: Yes, yes, yes. Absolutely. Actually, in this case, I'd probably have words with the lovely gentleman.
STOCKTING: I'd say please, can you put it on the counter so that when people are buying these things, they can just go -- you know, it's (INAUDIBLE) the location (INAUDIBLE) they'll then buy this particular issue.
QUEST: When you have economic problems like we had in 2008 and it looks like we're having now...
QUEST: And do you at ever -- do you ever feel uncomfortable that you are not reflecting the fact that economic times are hard, and, frankly, seeing pictures of somebody sort of in their delightful (INAUDIBLE) their post-baby shape in a stunning poolside shoot?
QUEST: Does that ever sort of strike you as being whew?
STOCKTING: No, it doesn't, actually. We're two pounds. And I think that's a very small price to pay for being cheered up when, perhaps, everything else around us is not quite so rose-tinted as it could be.
QUEST: All right.
STOCKTING: Go on. No, go on.
QUEST: No. No.
Is there any evidence that "Hello" is cyclical or counter-cyclical?
Do people still consider you have com -- you know, they want to be cheered up with this sort of coverage when things are bad?
STOCKTING: There is some evidence of that, I suppose, because the ABC figures which have come out today count a six monthly average. Our average is significantly up at a time when the economy, let's face it, hasn't been a success. The last time that happened, which I think you mentioned being 2008, 2007. That's the last time that our figures were as good as they are now.
QUEST: Do you still enjoy this, this battle every week?
STOCKTING: What do I look like?
Yes, I do. I love it. It's great. It's a real battle, yes. It's, you know, it -- it keeps the adrenaline flowing. It's fun, especially when you're winning.
QUEST: What would your dream front...
QUEST: -- cover have on it?
STOCKTING: Catherine, William and the new baby.
STOCKTING: Of course. That would be great.
(END VIDEO TAPE)
QUEST: William, Kate and the baby.
And now tonight's Profitable Moment.
The Dow Jones Industrials and the terrible number, off more than 400 points. The dramatic sell-off that we're seeing on the financial markets today is quite different from last week's whiplash inducing spasms.
Investors are fleeing the market not because of fear, but because of facts. Manufacturing, jobs, economic growth, inflation -- the evidence is mounting things are getting nasty, both here and across the Atlantic. Policy is another nail in the recovery coffin.
If our world leaders can't sort out this economic mess, who can?
And the truth is, if you haven't pulled out of the market yet. It could well be too late.
In the next hour of coverage here on this network, I'll be joined by Ali Velshi and Brooke Baldwin. We'll be talking about the final hour before New York closes, with a market that is already deeply unhappy. And we'll be analyzing what more can be done. It's fine to say that policymakers have to do something. The only question is, what?
But for the moment, that is QUEST MEANS BUSINESS for this Thursday.
I'm Richard Quest.
Whatever you're up to in the hours ahead, I hope it's profitable.
I'll see you on the other side of this break.