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QUEST MEANS BUSINESS
Rosneft and Exxon Strike a Deal; Politics and the Markets; Wealthy Call for Higher Taxes on the Rich; Fed Governors Meeting; The Value of Gold; Indian Growth; Eye on Mongolia
Aired August 30, 2011 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAX FOSTER, CNN ANCHOR: Rosneft tries to deal with Exxon, leaving BP out in the cold.
Higher taxes may be all very well for the likes of Buffett and Betancourt, so why do others want to pay more, too?
And it's all in the details -- in The Boss, one CEO learns the hard way.
I'm Max Foster in for Richard Quest.
This is QUEST MEANS BUSINESS.
Exxon rushes in where BP failed to tread. A deal with Rosneft is in - - is in the bag to develop oil in the Russian Arctic. Together, the companies will spend $3.2 billion on opening up the Black Sea and Kara Sea in the Arctic, sensitive oil exploration.
Now, Exxon says it is one of the most promising unexplored regions on the planet. Right now, the company's shares are actually slightly off by around 1 percent. But chief executive, Rex Tillerson, says he expects the deal to create substantial value for both companies.
Well, the deal does have some perks for Rosneft, as well. They'll get a piece of the action from Exxon's operations in places like the Gulf of Mexico, for example. But really, this is all about getting a major international oil player into the Arctic. And that's what Vladimir Putin was hoping for.
Now, the Russian prime minister was there when the deal was signed to give the whole deal his blessing. But news of this agreement is the final insult to BP. They had a deal of their own with Rosneft lined up last year. That was then torpedoed by their own Russian partners. They successfully complained to an arbitration panel, forcing BP to pull out.
Shell was also hoping to get involved with Rosneft, but now they've been left empty-handed, too.
Jim Boulden joins us now with more.
This is interesting, if nothing else, because what we're talking about here is an area of the world that hasn't been explored yet and has huge potential.
JIM BOULDEN, CNN CORRESPONDENT: Huge potential, big risk. That's why I think some of the companies have shied away from it. Obviously, BP desperately wanted this, as well.
What -- what -- what Russia needs, what India needs, what Libya needs is a big Western oil company to come in with the expertise in deep water. Of course, we know BP had the disaster in the Gulf of Mexico. But they're still experts in deepwater drilling and in tough places.
And so Rosneft needed somebody to come in and do this deal.
The potential is unimaginable, but you have the controversies with, obviously, green campaigners. You have the potential of how much investment does it take until you get something out of this. But, obviously, Exxon sees this as -- as a real win. And this is why they're going to go and do it.
FOSTER: And what do we know about what Rosneft gets in return?
Because it's getting assets in the US.
BOULDEN: Well, Putin said this in his -- in the Black Sea today when he signed the deal. He -- he made it -- he said that Rosneft will be getting something for this. And there's speculation this would be some assets in -- in the Gulf of Mexico, some things in Texas that Exxon already has.
Remember, Rosneft was going to actually take a stake in BP when that deal had been originally announced. It was very controversial. But Rosneft obviously, most governments now, they're not letting these companies come in, build, take the oil and leave. You've got to give them something, as well.
So Rosneft and the Russian government obviously get this exploration deal in this very, very critical place. But, obviously, they also, Rosneft needs to expand in other places. And so that kind of deal, you could see why they would want to get assets in the Gulf of Mexico.
FOSTER: But it's really about getting the oil out of that region and getting the taxes to come back in from that?
BOULDEN: Yes. It's interesting, Russia is -- is a big major oil player, no doubt about it. But they're stuck at about 10 million barrels a day. They can't seem to get above that number. Now, the oil prices have been very high for very long and they're able to use that money for investment. Oil companies come in. The idea is they need -- they need that next level, at least they want to, when you think of the big players in OPEC, they're much bigger.
Russia wants to get bigger, as well. This is where they need to go. They need to go into these deep, risky areas.
FOSTER: And things didn't seem as though they could get any worse for BP after what happened in the Gulf of Mexico but they just did, right?
FOSTER: They're not one of the big players anymore.
BOULDEN: When the deal fell apart, let's be honest, BP knew they were out of the running. Out of the running. They couldn't go back in and strike a new deal with Rosneft. This is what people tell you, that it was either going to be Exxon or Shell. So BP was away from this deal.
But they said, I talked to them today and they said well, we've moved to another area. For instance, they announced a deal in India today for some offshore with Reliance Oil, one of the biggest foreign direct investments in Indian history, says BP. And so they are -- as they say, they're moving on.
So the deal in India gives them access to oil and gas, deep waters around India. The potential there is huge. And they're paying more than $7 billion for that, for a 30 percent stake in some of these with Reliance.
So, again, BP is saying, OK, we might have lost in Russia, but we're going to get to India and we'll see how we do there.
FOSTER: But the oil industry, no doubt, excited, just to find out what's under that -- what's in that Russian Arctic, right?
BOULDEN: Oh, absolutely.
FOSTER: It's just a very exciting...
FOSTER: -- an exciting moment for the industry.
BOULDEN: Yes. Absolutely. And it -- it -- there's some parts that are explored and we know what's there. It's still hard to get to. To this point, that's unexplored and that we have no idea what's there.
FOSTER: OK, Jim, thank you very much, indeed.
Up next, are European MPs putting their heads in the sand?
A eurozone politician tells her castar (ph) to get off the beach and get her eye on the stock markets.
FOSTER: Europe's major stock indices had a mixed session this Tuesday. London traders missed out on Monday's European rally because of a public holiday. Well, it certainly made up for it today.
The FTSE 100 was the best performer in Europe, jumping 2.7 percent.
Banking and mining shares were the biggest gainers there. RBS rose 8 percent after Deutsche Bank upgraded its recommendation on it to "buy."
Elsewhere, an unexpectedly sharp drop in U.S. consumer confidence had a negative effect.
Frankfurt's Xetra Dax lost almost half of 1 percent.
The Paris CAC managed slight gains, though.
Now, it may be summer in Europe, but it's not the time for holiday. That's the message from one member of the European Parliament, Sharon Bowles, the chair of the European Parliament's Economic and Monetary Committee says too little, to uncertain, too late -- that has been the regular response of EU leaders to the eurozone debt crisis. She says politicians all too often ignore the markets.
And earlier, I asked her why.
(BEGIN VIDEO TAPE)
SHARON BOWLES, CHAIR, ECONOMIC AND MONETARY COMMITTEE, EUROPEAN PARLIAMENT: Well, I think it's always been a mixture that some of what I have referred to as the continental politicians as against U.K.-based have tended to want to do things independently of the markets and disregard the markets.
I take the view that while you can't be a slave to the market and you can't be ruled it, you do have to take some notice of it, because, after all, at the end of the day, many of them are looking after money of investors. And those investors are pension funds and the general purses, people.
So I think we -- we have to keep an eye on the markets and what they're doing, but at the same time, not succumb to their every whim, because markets are a greedy baby.
BOWLES: And if -- if you give them too much, they'll just ask for more, more, more.
FOSTER: Are you suggesting when finance ministers meet up, for example, they said, as one of the considerations, look at the markets that day?
Because it could be a very dangerous route, couldn't it, because the markets on a particular day aren't necessarily what they said be reacting to when they're considering structural reforms, for example?
BOWLES: I don't think that they should be looking at the markets of the day. But I'm sure they do have an eye on the pattern of the markets. But they also do have a job to try and impose the political will, because some things have to be dealt with. And markets do also have to recognize that if you are dealing with a -- a union, whether it's a currency union of 17 or an EU union of -- of 27, that some decisions require ratification by national parliaments. And that is not something that you could do at the drop of a hat.
FOSTER: Is it a concern, though...
BOWLES: You have to...
FOSTER: -- that the market -- that politicians could be rushed into a decision by the markets?
Once you -- once you get into that process of responding to markets, or at least assessing the markets when you're making a big political decision, then that will rush politicians into a decision, because there's certainly a sense among some politicians, as you know, that they don't want to be seen to be responding in any way to the market.
BOWLES: I -- I -- I think that that's the case. And that's why many in the parliament applaud Jean-Claude Juncker yesterday when he said, you know, we can't be ruled by the markets. And on my committee, there are many that have that view.
But I would say I'm not ruled by the markets, although I say you have to take them into account in -- in the essence that they are looking after the money of citizens at the end of the day.
You can't be totally ruled by them. It is a balance. But I don't think to shut your eyes and say dare you is the best response either. But markets can get into a death spiral and be self-defeating. And there is a time at which, you know, the markets themselves have to get real and realize that if -- if they do that's just -- just a test of how deep are the pockets for theoretical reasons rather than sort of real reasons of risk. Then that is something where they'll end up doing themselves harm, too.
(END VIDEO TAPE)
FOSTER: Now, more, more, more -- that's what the world's richest are calling out for. But it's not more money, but larger tax bills they're after. It's a craze that seems to be sweeping the globe.
Now, a group of wealthy middle class Germans want Angela Merkel to temporarily raise taxes on the rich. They call themselves the Wealthy for A Capital Levy and say, actually, they have too much money. They say it could be better spent plugging the inequality gap.
That echoes calls from across the border in France. Yesterday, "The Financial Times" published an editorial from the Publicis CEO, Maurice Levy. Maurice Levy says he's no fan of taxes, but wealthy businessmen like himself can't stand by and watch Europe's economy tank.
Sixteen other executives in France agreed, signing a petition calling for higher taxes on the rich. And that list includes the CEOs of SocGen, Air France, KLM and Total.
Not long before that, Warren Buffet asked for similar treatment. He wrote in "The New York Times" that the government should stop coddling the super rich and raise taxes on millionaires.
Interestingly enough, though, Maurice Levy says he had no idea Buffett was planning to write such a similar article.
It looked like Italy would heed Buffett's call. Silvio Berlusconi was planning a solidarity tax to get more revenues from the country's richest people, but everyone from employers to Italian footballers complained. And today, the prime minister agreed to scrap it.
Well, the Italian plan may be out for now, but the movement has clearly built up a head of steam,
Earlier, I asked the founder of Germany's pressure group how his plans differed from those in France and the US.
DIETER LEHMKUHL: We started at already two-and-a-half years ago to address the public and the government. And our proposals to tax the wealthy goes much beyond what is on the agenda now.
So we asked for an asset tax, a time-limited asset tax of 10 percent of all assets beyond 500,000 euros.
And after this tax, we asked for the reinvention of the property tax, which has given -- been given up by the Kohl government in 1997, for at least 1 percent.
And this would generate to the federal budget, 100 -- more than 100 billion euros and the following asset tax would contribute, on a yearly basis, 10 to 15 billion euros.
FOSTER: So this is different from the other plans that are mooted (ph) because it's not just targeting the super rich, it's actually targeting, we could argue, the upper middle classes and it's got a much bigger catchment.
LEHMKUHL: Yes. Yes, I think it's necessary, because the challenges of the crisis is tremendous. And you just can't ask the -- the poor or the middle class or the lower middle class to pay for the costs for the crisis. You have to ask them to pay where the money is. And it doesn't really hurt them.
So our base would be about two million -- a little bit more than two million people who fall under the line of -- who have assets more than 500,000 euros.
FOSTER: And it's interesting, because it's not an income tax, is it?
It's a wealth tax. So if you're...
LEHMKUHL: It's a wealth tax, yes.
FOSTER: -- and so if you're being taxed 5 percent on your assets, does that mean that people are expected to sell a property or their shares or whatever it is they hold in order to pay the tax, because that doesn't sound entirely workable for everyone?
LEHMKUHL: Yes. Actually, if you have property and the earnings of the property weren't paid, you would have to sell it. But there are a lot of conditions we have already in existing law that you can plunge (ph) the payments. You have to pay so -- up to 10 years without interest. So actually, everybody who is in need could pay this tax for a longer range.
FOSTER: And do you really think you can get the support of all the people that would be affected by this?
LEHMKUHL: Of course not. But we realize that the debate has changed. Nobody anymore justifies now increasing unequality. Nobody asks anymore, except the liberal parties, for a tax reduction, and they are not taken serious anymore. So the debate has changed. And not just we, but other rich people one year go at rest in a public -- in a magazine -- a well spread magazine say as to a higher income tax.
I think you have to tax -- we have to increase the income tax and we have to increase, also, an asset tax. Germany has given up the asset tax. It's one of the -- it's actually, as far as the asset tax is concerned, it's a tax haven. And you also have to tax higher companies.
(END VIDEO TAPE)
FOSTER: Now, whether it's poker, black jack or roulette, it's not what game you play, it's how you play it. For tonight's boss, that requires a different class of customer. Your appointment with the boss is next.
FOSTER: Now, slot machines may keep the coins rolling in, but when you run your own casino, it's the high rollers who bring in the big bucks.
Francis Lui knows he needs to pull out all the stops to keep his wealthiest customers inside his gambling galaxy. And for someone who values attention to detail, that's no easy feat.
It's time for The Boss.
UNIDENTIFIED MALE: (voice-over): Previously on The Boss, room for improvement...
FRANCIS LUI, VICE CHAIRMAN, GALAXY ENTERTAINMENT GROUP: You got a little bit lost and confused when you go over there. And either it's too bright or it's too dark.
UNIDENTIFIED MALE: Francis Lui tells his executive team, they could do better.
LUI: Even though we are achieving great results right now, I still think that we can do better, much better.
UNIDENTIFIED MALE: Festivities are underway at Galaxy Macau as Francis Lui prepares to unveil a new addition to his casino -- dedicated Asian slot machines, which will feature Asian game themes.
(CLIP FROM SLOT MACHINE VIDEO)
UNIDENTIFIED MALE: To help draw in the crowds, Francis has brought on board a familiar face, one of Hong Kong's most recognizable movie and TV stars. And the face of the Five Ghosts slot machines.
LUI: Well, this is the first time we have celebrity that is doing a promotion event for our slot machines. Our celebrity is Eric Tsang.
UNIDENTIFIED MALE: Francis has reason to pull out all the stops. Right there on the casino floor with him are his VIP customers.
LUI: Well, mostly of our customers we have come from Asia, because of the logistics, then I think mostly, the customers would be from China, especially the southern part of China, Hong Kong, Japan, Korea. They would be looking for top notch, first class services.
UNIDENTIFIED MALE: Francis has spent a lot of time and money on this particular customer. He's created 10 VIP gaming salons, so his customers can gamble privately. There's reason for all this attention. These high rollers bring in the big bucks.
LUI: Well, on average, in Macau -- and we have a split between about 80, 70 to about 20 or 30, 80 -- 70 percent VIPs (INAUDIBLE) and about 20 percent, 30 percent would come from the mass revenue, right. And I think in Galaxy Macau, we are no different. Right now, I think the split is about 70-30. But we're hoping that by having such a fully integrated slot, we hope they will be bringing more non-gaming players, as well, into the property.
UNIDENTIFIED MALE: Having them visit once should be easy. The real challenge is getting them to return. And that's where every detail counts.
LUI: I think I am a person who likes to attend to every detail by nature. But I also know that to run a huge property such as Galaxy Macau, when you have 8,000 people working at the same time, that you need to dedicate most of the day to day divisions to your team.
UNIDENTIFIED MALE: Francis may be happy to delegate, but that doesn't mean he's not across every aspect of his business. In fact, he acknowledges he finds it hard to let go.
LUI: I think I am a perfectionist by nature. I like to attend to the details because it's how I think you can do the job properly. I think my team is also a perfectionist team, too.
UNIDENTIFIED MALE: This drive for perfection comes with its own set of challenges.
LUI: Everything is fast track. We make thousands of decisions every day. And most of the time, we always not agree on every (INAUDIBLE). So, of course we have our heated arguments, but it's all good natured.
UNIDENTIFIED MALE: For this boss, this is what teamwork is all about -- discussion, debate and working together through every problem and being ready for the unexpected.
LUI: You really have to look into every aspect of and unforeseeable issues. There are so many issues that we thought would never be an issue, but it was. I'll give you an example. The doormat. We never thought a doormat was a problem, but that doormat could be a problem on a rainy day. We don't have enough.
So this is why we have to say that we have to pay attention to details, because sometimes, if you oversee some of the details, it may hurt you one of these days. You never know.
UNIDENTIFIED MALE: Next week on The Boss, delivering on a promise.
STEVE HINDY, FOUNDER & CEO, BROOKLYN BREWERY: At that time, we were about, I think, about 50,000 barrels or something like that, of production. We said when we get to 100,000 barrels, we'll take everybody on a trip to Europe.
UNIDENTIFIED MALE: So to Europe they went, all paid for by their boss, Steve Hindy. That's next week on The Boss.
(END VIDEO TAPE)
FOSTER: Well, up next on QUEST MEANS BUSINESS, it's been a safe haven in times of trouble, but not everyone thinks gold is a wise investment.
FOSTER: Welcome back.
I'm Max Foster.
You're watching QUEST MEANS BUSINESS.
Time now for the news headlines, though.
Libyan rebels have released an estimate of how many people have died during the country's uprising against Moammar Gadhafi's regime. They say at least 50,000 people, both civilians and combatants, have been killed in six months of war. The rebels are massing their forces for a battle outside Gadhafi's hometown.
We're told Moammar Gadhafi's daughter, Aisha, gave birth shortly after she fled to Algeria. She arrived with her mother, Safia, two of her brothers and several children. The rebel leaders say they want Algeria to return Gadhafi's relatives to Libya for criminal trials.
Syrian security forces cracked down on anti-government rallies in several cities today. Activists say six protesters were killed in Daraa and one in Homs. Demonstrators say they had gathered to mark the Muslim festival of Eid when troops attacked. The U.S. has now extended sanctions to three senior members of President Bashir Assad's government, including the foreign minister.
First the deluge, now the cleanup. Parts of the Northwestern U.S. are still underwater after Hurricane Irene. Hundreds of homes are full of mud and crushed roads have isolated some communities. The storm is being blamed for at least 41 deaths in 11 states.
The manager of the world's largest bond trader has told "The Financial Times" he was wrong to bet against U.S. debt. PIMCO's Bill Gross sold billions of dollars worth of U.S. government related success earlier this year. At the time, he thought that rising inflation would make them a bad investment. Gross isn't the only high profile financier who's wracking up major losses this year.
Dan McCrum of "The Financial Times" joins me now live from CNN New York.
Thank you so much for joining us.
An interesting interview you had in the...
DAN MCCRUM, U.S. INVESTMENT CORRESPONDENT, "THE FINANCIAL TIMES": Well, thanks for having me on.
FOSTER: -- Mr. Gross was interesting, wasn't he, in your interview?
Because it's not often they accept they're wrong, these big players. But he really did do that.
But is he entirely wrong, because the markets are slightly irrational in piling into Treasuries right now anyway, aren't they?
MCCRUM: Well, I think -- I think Mr. Gross he had no choice but to admit that he was wrong, because it was very obvious from the performance of his fund and the fact that he'd been standing up for years saying Treasuries are a bad investment and that we think their price is going to fall and that he had been proved very badly wrong by this rush to safety.
And the big difference here is what's happened is he got his call wrong on the economy. He thought economic growth was going to be stronger than it is. And as with investors piling out of the stock markets in the recent months, he's had to accept that.
And so, as it stands, he looks like he has got this call very wrong.
FOSTER: Has he got through this with his credibility intact, because his record before that had been pretty incredible?
MCCRUM: Well, Bill Gross has been managing money for PIMCO since 1987. And he is one of the most successful investors of the recent era. And I think he has a lot of credibility when it comes to investing.
But you also have to remember that both he and PIMCO, the trading house which he works for, they have made a feature of being very public on their investment calls. They like to stand up and say what they think is going to happen to the economy. And they've built their reputation on that.
And this means, it's a very tricky time for Mr. Gross, because he has also benefited from almost three decades of rising bond prices. And he's ridden that well and he's done a great performance. But as investors start to question what on earth is happening next, it really undermines the credibility of him as a trusted investment professional.
FOSTER: But in many ways, it seems odd that people do pile into Treasuries when the stock market jitters were set off by the fact that U.S. debt was in such a terrible state.
So he's logical, isn't he, in what he was saying?
He just got the markets wrong.
MCCRUM: Well, I think the irony has been lost on anyone in the markets. And it simply comes down to the fact that people now want to be sure that they're going to get their money back. And that one concern overrides everything else in terms of what you might be earning on your investment.
People are just so nervous about the environment with Europe, with slowing growth, that they just want to know, we're going to get our money back and the U.S. government is definitely going to be there and paying its bills.
FOSTER: OK. And in terms of the reaction to your interview, do you think investors respect that he's accepted he was wrong and will stick with him, because I guess the alternative would have been worse if he'd just stuck to his guns when he was clearly wrong?
MCCRUM: I -- I think that would have been worse. He has -- he had been so public in saying -- making this call. Even at the start of June, just before this really big rally in the government bond market, he was there saying he thought it was going to go the other way.
So to have not come out and said this, it would have made him look ridiculous.
FOSTER: OK. Dan McCrum, thank you very much, indeed, for joining us.
We're going to stick with U.S. economy because we're just getting details about the U.S. Federal Reserve's August meeting minutes from the -- the meeting showed that the Fed governors considered a range of actions to help the struggling U.S. economy. One of them would have been unprecedented, in fact, tying the interest rates and policy outlook to a specific unemployment level. We're also seeing a decision to keep rates near zero until 2013 was not -- was not unanimous. It prompted three dissents, in fact. And Fed officials also noted that U.S. economic outlook had worsened significantly, adding that the weaknesses seen during the first half of the year could no longer be dismissed as solely temporary.
Alison Kosik is at the New York Stock Exchange -- and we, I know we always wait for these commentaries to come out, but this was fascinating, wasn't it?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: This was, because this is really a fly on the wall perspective, because what it shows is that this is a Fed that was really deeply divided, especially with the language that you were just talking about, about Ben Bernanke going public and saying we need to keep interest rates at these historically low levels for two years.
It was really unheard of to hear the Fed give that specific time line for interest rates. In fact, as you said, three out of the 10 voting officials dissented with his decision, with -- with this being really the stiffest internal opposition a Fed chairman has ever confronted.
And something else that stuck out with the fact that QE3, a third round third round of asset purchases, it was raised as a possibility. And you have to remember that the Fed meeting that happens next month, Max, it has been moved to -- it has been up to two days. So -- to allow for more discussion.
That could be why we're seeing stocks in the green right now. We have been seeing stocks kind of just in and out of positive and negative territory all day. They are firmly in the green right now on -- on that apparent discussion from that -- those minutes showing that QE3 could be a possibility -- Max.
FOSTER: And what happens about those consumer confidence figures we're expecting?
KOSIK: Yes, this is pretty dire -- downbeat, rather. You know, Americans clearly think that the economy is in really bad shape. Consumer confidence plunging this month, hitting a two year low, down to a level we haven't seen since the recession.
You'll have to remember, though, a lot went on in August to hurt consumer confidence. We had the debt ceiling debate, the S&P downgrade of U.S. debt, all the stock market volatility.
So that really led people to expect that business conditions, the job market and income would only get worse over the next six months. And this is a big worry, because those worries could wind up hitting spending. And that's a big problem because spending is really a big engine of growth in this recovery -- Max.
FOSTER: Alison, thank you so much for that.
And with all those worries, it's no surprise the gold rally is continuing this Tuesday. Right now, a troy ounce is trading for around $1,830 an ounce, up $37 from Monday's settling price. Investors rattled by that sharp drop in U.S. consumer confidence and the threat of a double dip recession are turning to gold as a safe haven.
Gold hit a record $1,912 an ounce earlier this month. It jumped 28 percent since the start of the year.
Well, not everyone thinks that gold is a wise investment at those record prices.
Poppy Harlow joins us now live from CNN New York -- hi, Poppy.
POPPY HARLOW, CNN BUSINESS CORRESPONDENT: Hi, Max.
You know, it's interesting, we had a chance earlier today to speak with John Bogle. Of course, he's the founder of the Vanguard fund, a very well read investor, if you will. He's been doing this for years and years.
And his advice when it comes to gold is very interesting. He certainly doesn't mince his words.
I also asked him how does the average investor handle the very, very volatile market we've had?
I think everyone will agree, investors are very happy to say good-bye to the month of August.
But take a listen to our interview, when he talks about how to deal with the market and also his take on investing in gold at these levels.
JOHN BOGLE, FOUNDER, THE VANGUARD GROUP: Gold is not an investment at all. Gold, to come back to where we started, Poppy, is a speculation. It has absolutely no underlying intrinsic value. You know, bonds are ultimately supported by interest -- interest coupons. Stocks are supported by dividend yields and earnings growth. And gold is supported by, well, the ability to think somebody else is going to take it off your hands for more than you paid for it. It doesn't have an internal rate of return.
So it's a speculation.
Is it a good speculation today?
I don't know that I'd be much of an expert on that, but it's gone so high, so far, that I'd be very skeptical of it. But if you really are bitten by the gold bug -- and it seems like an awful lot of people have been bitten by the gold bug -- and if you want to speculate, you know, maybe 1 or 2 or 3 or even 5 percent of your assets in gold is not the worst idea in the world. But I wouldn't do it myself and I wouldn't advise most investors to do it.
HARLOW: What about corporate bonds?
What's your take on those right now?
BOGLE: Well, I mean I think corporate bonds are, you know, in the A, AA area, have good premium yields over the Treasuries. You want to be very diversified. And I would certainly recommend a bond index fund, a corporate bond index fund, perhaps, or a total bond market index fund, which is dominated by Treasuries and mortgage-backs.
But diversify that corporate division because one bond can cost you a lot if you're on the losing side of the game.
HARLOW: You know, there is this feeling among some just Main Street investors, if you will, who are -- who are telling me, look, I feel as though high frequency trading is really taking over this market and I can't play in that game.
What would you say to them?
I mean how much of the volatility over the month of August would you attribute to high frequency traders and what does it do to the average investor's ability?
BOGLE: Well, average investors should absolutely, as they say, I -- I can't play in that game, is I think the quote you used. They shouldn't play in that game. It's like going to Las Vegas and -- and gambling.
Why would anybody want to do that when you know that the house takes more than -- more than the winnings and the -- than the winners and the losers combined?
It's not a zero sum game. It's a losers' game.
(END VIDEO TAPE) FOSTER:
FOSTER: A fascinating conversation, really, wasn't it -- Poppy?
And he's got so much experience and people want to hear what he has to say.
FOSTER: But I know you asked him about politicians, as well, so I want to get onto that.
HARLOW: Yes, I certainly did, because you cannot separate the economy, the markets and politicians here in the United States. They are certainly one and we would all like them to work in tandem to get this economy back on track.
I did. I asked him what he made of Fed Chairman Ben Bernanke's comments last Friday in Jackson Hole.
He commended them. He said they were very courageous. Bernanke sending a message to Congress, saying the Fed can only do so much. We have tools. We will use them. But politicians need to work together and really activate things here to get the economy going.
Take a listen to what else he had to say on U.S. politicians.
(BEGIN VIDEO CLIP)
BOGLE: Wisdom and courage are not the first two words that come to my mind when I think about our politicians down there in the nation's capital. They're extreme. They're doctrinaire. They won't deviate from party lines on both sides -- on both sides. And it -- it's -- I think that a big risk overhanging our American economy and, for that matter, the United States of America, is that we aren't -- we seem to be losing the ability to govern ourselves.
(END VIDEO CLIP)
HARLOW: And I think that's a very concerning thing to hear from an investor like him, who says the United States, at this point, it looks like, is losing the ability to govern itself. That's a -- that's a scary outlook, of course.
You can hear a lot more from him. Our interview, we've got it right there on CNNMoney. But let's hope -- let's hope he's wrong on that one, right, Max?
Let's hope Washington does get together.
FOSTER: Yes, absolutely. It's been so -- so he was right in the past too many times, wasn't he?
Poppy, thank you very much, indeed.
FOSTER: Now, as relations with Europe deteriorate, a new blow for the Syrian regime. We'll tell you about plans to hit Damascus financially with new energy sanctions.
That's up next.
FOSTER: The brutality of the recent crackdown in Syria has led to the EU planning an embargo on Syrian oil imports.
I asked John Defterios what the European Union was hoping to achieve.
JOHN DEFTERIOS, HOST, "MARKETPLACE MIDDLE EAST": One thing that's quite clear is that Brussels wants to move swiftly, Max. They want to set a deadline for themselves of the close of business on Thursday to put in these energy sanctions, because the EU foreign affairs ministers' meeting taking place Friday and Saturday in Poland. And they want this on the books.
This is the third tier of sanctions. They targeted President Assad and 22 others in the spring. They added another 20, freezing their assets, August 23rd. Now, they're going to after the foreign exchange earner of Syria, the oil exports to Europe.
FOSTER: But what sort of reserves has that, for example, got -- the government got in terms of foreign exchange reserves, which would dictate what impact this had?
DEFTERIOS: Well, it's fair to say, it's not one of the top tier Middle East exporters. For example, Abu Dhabi, the UAE, has 7 percent of global reserves, as does Kuwait. And we know the size of Saudi Arabia.
But at 385,000 barrels a day, it earns them a lot of money. Say at $100 a barrel, they're energy about $14 billion a year, which is 23 percent of the economy. As I noted, most of those exports go to Europe, into the south of Europe, into Italy and France. So this will bite.
It will also hit some of the European oil companies that are operating in Syria, as well, although they're holding off on the sanctions targeting investment into the energy sector. I think they're making a bet that President Assad will topple and the European companies want to be in place when that happens.
FOSTER: I guess this does show the desperation that Europe feels with Syria right now, because they have been encouraging that economy in the past, haven't they?
So a massive change in policy for the European politicians.
DEFTERIOS: A complete about-face, Max, is a fair point here. There was a rapprochement because Syria pulled out of Southern Lebanon. So they had warmer relations in 2008 and 2009. In fact, the EU-Syria agreement that was on the books, but not implemented because of what has now transpired.
Syria started reforms in 2006, completed the first five years in 2010, attracted a lot of foreign direct investment. It was growing at 5 percent in 2010. Actually, a promising market of 22 million consumers. And they thought that the Euro-Med Partnership, jump-started by President Sarkozy of France in July, going back to July of 2008, would move this process along.
But now that we've seen this crackdown in Syria, Europe, along with the United States, have decided to ramp up the sanctions as the Syrian Accountability Act -- Sanctions Act in the U.S. Congress has been passed by the United States. And now Europe is going through its third round of sanctions, as well.
FOSTER: I'm just wondering, John, obviously oil is -- is a -- is a required product for many countries around the world.
Could they find alternative customers away from Europe?
How easy would that be?
DEFTERIOS: Well, it's a phenomenal point, because President Assad has said that he -- in an attack against Washington, said they will look to the east. And right now, this is a very tight oil market. It will be interesting to see if there will be black market buyers for Syrian crude going forward. I would imagine, for those on the receiving end, it would be a slippery slope with regards to the position that both Brussels and Washington have taken over the last six months in terms of their sanctions policy.
(END VIDEO TAPE)
FOSTER: John Defterios.
Now, India's turbo charged growth appears to have shifted down a gear. Numbers out on Tuesday show the nation's GDP grew 7.7 percent. Enviable, of course, by some standards, particularly Europe right now. But still the slowest pace of growth in the last 18 months.
Mallika Kapur takes a closer look at the numbers for us.
MALLIKA KAPUR, CNN CORRESPONDENT: India's first quarter GDP to growth came out this morning. And by most accounts, the reaction has been that the figures are not bad.
First quarter GDP came in at 7.7 percent. That's a little bit slower and lower than the 7.8 percent recorded in the previous quarter.
The main reason we're seeing for the slowdown is because of a long spell of monetary tightening we've seen in India over the last couple of months. India's central bank, the Reserve Bank of India, has raised interest rates 11 times in the last 18 months. And that has created an atmosphere of slowing consumption and slowing demand.
Of course, the RBI, the Reserve Bank of India, has been forced to raise interest rates because India is struggling with record high, double digit inflation. So the interest rate hikes have been necessary to try and keep that under control.
What it has done, however, is affect domestic demand. That has slowed down it's affected spending and it's affected consumption.
And this is really best reflected, if you look at the auto sector. For months, we've been reporting that India's auto sector is booming. Every month, there are new record sales. But in July this year, we saw auto sales fall for the first time in nearly three years. And that is a very good indicator of whether people are spending in India or not.
Now, India's GDP figures come out at an interesting time. The country is dealing, is grappling with an anti-corruption campaign at the moment. We've seen it over the news over the last several days. The Anna Hazare Movement against Corruption.
Now, investors here are calling it Anna Nomisk (ph) and they're waiting to see what impact this will have on India's economy.
Many people I spoke to this morning, some economists and some investors, say that if this anti-corruption bill is implemented properly in parliament, if it goes through, in the long-term, it could really be a game-changer for economic growth in India.
One of the biggest problems India has grappled with has been corruption. And if you look at what's happening in the last couple of months in India, we had a scandal over the Commonwealth Games, over the telecom sector. And all of this has cost India several billions of dollars.
So if we do end up having a corruption-free and more transparent society, it could be the best thing for India's growth.
Mallika Kapur, CNN, Mumbai.
(END VIDEO TAPE)
FOSTER: Cologne, Berlin and Kiev here in Europe are reporting some significant flight delays at this hour. It's down to the weather.
Guillermo can explain to us -- hi, Guillermo.
GUILLERMO ARDUINO, ATS METEOROLOGIST: You know that as soon as I saw it in FlightStats.com, which is this Web site that I have behind me, Guernsey here is reporting that, then in Germany. This would be excessive. But these in Germany is significant and Kiev, too.
I went into the map right away and I said, why do we see that?
If it looks pretty -- pretty fine. And the reason is that we have this jet stream over here. So the winds are quite significant. And also, on north of that, we have this low pressure center. It's the only big storm that we have in Europe as we speak.
Germany is going to get better into midweek, you see. And cold, mild conditions, warmer conditions are going to be coming from the south.
So Europe overall is, including at Kiev, are going to see much better conditions.
So let me get back now to the other map and I'll manipulate it from the computer so you see a little bit. So this is the Cologne Airport. And I went to see exactly what kind of delays we're talking about. And there are some, like six or seven flights, some from Munich and another one from other parts of Europe.
Then Berlin, this airport, and Kiev, as I said, the other case.
So I'm going to go back and tell you also what's going on in Europe, especially with this new low that is coming into the Bay of Biscay.
So if you're watching from Galicia right now, you are going to notice that clouds are on the increase. I mean, typical weather in Galicia, with winds and rain and -- and clouds. And that's the one big change in here.
You know that the weather in Ireland is very similar as the weather in Galicia, right in the northern parts of Spain. So this is what we're going to see.
And then OK, except for some clouds going through Tunisia there in the Mediterranean Sea. But it appears to be fine.
Britain also much better now. In the last three or four hours, we saw some storms going through. But apart from that, looking fine.
Paris, fantastic. So we don't see any big problems.
Look at how the temperatures are going to gradually change. It remains cool where we have the storm all the way into the Baltics and parts of St. Petersburg in Russia and Poland, Northern Germany, Scandinavia, overall.
We may see if this happens, but with that system that we were talking about, Madrid is getting some clouds and eventually some rain. Copenhagen, Zurich with some rain showers, but no significant problems.
Overall, I think that it's -- across the board, the weather is pretty nice.
Now, serious stuff in China going on. We have a tropical storm making landfall imminently, if it hasn't happened yet. I'll tell you exactly where it's (INAUDIBLE). Then we have a tropical storm becoming a typhoon going to Japan in the next three days or so. But back to the main story that brought so much flood and also rain into Taiwan and the Philippines. It is making landfall as we speak in China. And then it's going to continue to bring some rain.
Finally enough, north of Wuzhou is where we are going to see most of the rain, even though the landfall is in between Wuzhou and Xiamen. And it will continue for the next two days to rain both in Taiwan and into the Philippines, where we saw landslides, Max.
I mean a tropical storm can do what we saw in the United States. Everybody, hey, nothing happened. Oh, yes, it did. And we saw the floods. Yes, it did. We saw the landslides in Taiwan and also in the Philippines - - back to you.
FOSTER: OK. Thank you very much, indeed, Guillermo.
ARDUINO: You're welcome.
FOSTER: I want to bring some news just into CNN that we've had here.
The United Kingdom says it's agreed to unfreeze nearly 1.9 billion Libyan dinars worth of U.K.-held bank notes to Libya's central bank. That's the equivalent of just over $1.5 billion at the current exchange rate.
The British Foreign Office says the move follows unanimous agreement by the United Nations Sanctions Committee to the UK's proposal. The Foreign Office goes on to call it, quote, "another major step forward in getting necessary assistance to the Libyan people."
Now, from nomad to president, as his country treads the path toward economic recovery, we join Mongolia's leader on a special journey of his own.
FOSTER: It is a nation that knows poverty, but is rich in natural resources.
All this week, we have our eye on Mongolia. But Mongolia's -- Mongolia says with the potential wealth comes a potential danger, and that is corruption.
As part of our Eye on Mongolia series, senior international correspondent Stan Grant met the nation's leader.
He's welcoming development whilst staying connected with his nomadic past.
STAN GRANT, CNN CORRESPONDENT (voice-over): President Elbegdorj walks in the steps of his country's history. As head of state, he's now favored with bras brands and the trappings of office. But his heart is elsewhere, in the mountains of Western Mongolia and the memories of a boy raised a herdsman.
Flying to his home far from the capital of Ulaanbaatar, the president slips easily into the nomad he once was. For though it's his birthplace, waiting to hear the people who would never have dreamed that the boy they once knew is now leader of his country.
(on camera): Do you remember him?
UNIDENTIFIED MALE: Yes.
GRANT: And can you believe you came from here to be president?
TSAKHIAGIIN ELBEGDORJ, PRESIDENT OF MONGOLIA: Yes. I don't -- I don't, yes. I never imagined that, you know?
ELBEGDORJ: I was like these boys, you know, riding -- riding these horses, you know.
(voice-over): To people here, he's less a president than a nephew or a brother or a long remembered classmate.
(on camera): Was he a good student?
UNIDENTIFIED MALE: Yes.
GRANT: Here, the president sleeps in a nomad's geheree (ph), or tent. How can enjoy the food of his childhood. He shares with us the innards of a sheep.
ELBEGDORJ: We call it chella (ph).
GRANT: The comforts of office have done nothing to blunt his skills as a horseman. To President Elbegdorj, this is not just a way of life, this is his country's soul.
ELBEGDORJ: I think the nomadic way of life, some people think that that is primitive I -- I don't think that. That's not primitive. That's very close to nature. That's very high quality of life.
GRANT: Once prime minister, now president, he sits astride Mongolia's great transformation. Mining companies are lining up to tap the vast wealth of this land, to many, a blessing. To others, a curse.
ELBEGDORJ: There are dangers -- corruption. There are dangers related with the big money. If we think about it every day, there was money, there was where it should not end up, in the pockets of a few, you know, who has power, who has that wealth.
GRANT: His job now is to oversee change to make sure his people, the nomads, are not lost or that in the process, he doesn't lose that bit of himself.
Stan Grant, CNN, Western Mongolia.
(END VIDEO TAPE)
FOSTER: With that, we end QUEST MEANS BUSINESS.
I'm Max Foster in London.
"PIERS MORGAN TONIGHT" is just ahead after the news headlines for you.