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IMF Cuts Growth Forecasts; Greek Debt Talks Stall

Aired January 24, 2012 - 14:00   ET


RICHARD QUEST, HOST: The IMF warns of perilous times ahead. We speak to the chief economist on tonight's program.

S&P says where Greece concerned, it's a default, and they're going to call it eventually.

And we talk to the decision makers. Are they behind or ahead of the curve?

In Davos, I'm Richard Quest, I mean business.

Good evening. The snow has just about stopped falling on the eve of Davos. In doing so, it's buried hopes for the global economy. Tonight, there is a blizzard of bad news.

Firstly from the IMF, which has made savage cuts to growth forecasts, forecasting a perilous new recession in the eurozone, and it warns the recovery is frozen stiff. The IMF blames the big economic chill on the deepening crisis in Europe and the chances of a Greek debt deal are slowly melting away.

Let's start looking at the IMF's revised forecast. The report says the eurozone has entered a perilous new phase. It says Europe is at the epicenter of danger, and we're left with mediocre growth.

These are the numbers that they're pointing to, the bleak numbers ahead for Europe. Ever single region, all countries in the forecast had its forecast cut except the United States. The Fund's chief economist says there could be dire consequences for the entire world.


OLIVIER BLANCHARD, CHIEF ECONOMIST, INTERNATIONAL MONETARY FUND: The world recovery, which was weak in the first place, is in danger of stalling. The epicenter of the danger is Europe, but the rest of the world is increasingly affected.

There's an even greater danger, namely that the European crisis intensifies. In this case, the world could be plunged into another recession. This was the bad news. Let me turn to the good news.

With the right set of measures, the worst can definitely be avoided, and the recovery can be put back on track.


QUEST: Now, later on, we'll ask Olivier Blanchard exactly how we get back on track. What are the means necessary to do this?

The epicenter of Europe's crisis is in Athens and, tonight, Greece is no closer to reaching a deal with its private creditors. Standard and Poor's says the deal on the table will likely be classed as a default, and Greece's credit rating will be downgraded accordingly.

In the meanwhile, European finance ministers say creditors must accept lower rates of interest on the new bonds that they will get from Greece. They want both parties to go back to the negotiating table. The European Commission vice president Olli Rehn says he would like to see a deal this month, even though Greece may string things out until mid-February.

Now, Greece -- excuse me -- Greece needs to solve this issue before March the 20th when it must pay 14.5 billion euros.

What an evening. What a day. What a mess. Nariman Behravesh is the chief economist at IHS. Good evening to you.


QUEST: The IMF, perilous, danger, eurozone crisis, what do you think? How bad is the situation at the moment?

BEHRAVESH: Well, there's no question but the eurozone's in recession. It's already in a recession. The big question is, how bad will it be? Our view is it's probably a mild recession, not a horrible recession, unless you start to get a European meltdown, and the chances of that are probably only about 20, 25 percent right now.

QUEST: But if you take, for example, what's happening with Greece, I mean, it's a default, isn't it?

BEHRAVESH: It is. Absolutely.

QUEST: It is a -- it's an absolute nonsense to call it anything but that.

BEHRAVESH: You're absolutely right about that. It's a default. The big question, though, is can they ring fence countries like Italy, like Portugal, Spain? That's the question.

Before about December, I would've been pessimistic on that question. I'm a little more optimistic given what the European Central Bank did in December in terms of putting a lot of liquidity into the European financial system.

QUEST: Full allotment and the likes of that. So, in that scenario, how pessimistic should we be about what comes next?

BEHRAVESH: Well, I think we should be cautious. But I think it's probably too easy to get carried away with the pessimism.

It's ironic, but the fate of Italy -- of Europe may be in the hands of two Italians, actually, the Super Marios, as they're called, Mario Draghi and Mario Monti. And these two gentlemen, very, very intelligent people, very capable -- "In gamba," as they say in Italy -- will probably see us through.

QUEST: OK. So, we look at the United States, now. We look at the US. The IMF says the US is the only country that they didn't downgrade. In fact, if we take a look at the numbers in a moment, you'll see, it's the only country, they say, that didn't downgrade. Does the United States continue that trajectory of growth?

BEHRAVESH: Well, I think certainly in 2012, the US will do fairly well. They may even do better than what the IMF forecast is saying. It could come in at 2.5 percent, as far as I'm concerned.

The real question for the US is 2013 and beyond, what are they going to do about the fiscal problem?

QUEST: All right.

BEHRAVESH: That's a big uncertainty.

QUEST: Let me give you a warning, here. Come over here and join me. And bring -- here we go. This is our curve. You're familiar with the phrase, as economists always say, are we ahead of or are we behind the curve?

BEHRAVESH: Yes, indeed.

QUEST: Now, I'm going to charge you either a Swiss franc or a euro. You can even give me a dollar, if you like. It's all going to charity. Where do you think we are at the moment? Are we ahead of the curve or are we behind the curve?

BEHRAVESH: The "we" being the world?

QUEST: The policy makers, the recovery, the recession.

BEHRAVESH: Well, they're certainly not ahead of the curve.

QUEST: Go on.

BEHRAVESH: Not ahead. I would keep moving it. I would say somewhere between sort of on the curve and -- just somewhere about there. No, no, no, back it up a little bit. There you go. Somewhere about there. That's where I would say.

QUEST: I'll take your money off you in just a moment. Many thanks, indeed.

BEHRAVESH: My pleasure.

QUEST: You figured that out. We'll have more of this in just a moment.

The lack of progress from Greece weighed down on European stock markets. All of the big four finish in the red except for the SMI. Amongst the biggest losers in Paris, Credit Agricole, Soc Gen, both banks downgraded by S&P along with two other smaller French lenders.

As for the Dow, it's a similar picture, solidly in the red since the opening bed -- bell. It's been a big day for earnings. We'll have a round about that later. Also, Apple and Yahoo. The Dow is off 43 points at the moment.

QUEST: The world's top chief execs are predicting more gloom for the global economy. Nearly half of those polled by PrincewaterhouseCoopers, PwC, are expecting a further decline. Remember, confidence levels were close to all-time highs this time last year. Now, just 15 percent say they believe things will pick up.

Here in Davos, I asked PwC chairman Dennis Nally if all this gloom is a real worry.


DENNIS NALLY, CHAIRMAN, PWC: A, I think you've got a whole bunch of issues that are out there that are really impacting CEOs' confidence levels. And it's just not Europe. When you think about what's going on in the United States, debt levels, deficits, inability of Washington to really deal with some major policy issues.

There's a lot of clouds that are out there that are affecting how CEOs think about the overall economic climate.

QUEST: So, in that scenario, whilst they are pessimistic on the global economy and the global outlook, how can they be optimistic, as your survey says, about their own bailiwick?

NALLY: I would say there's one critical reason for that thought process, and that is, last three years, I think the environment has taught CEOs how to deal with all of the issues that are out there.

They're better prepared today, they're more focused on what they need to do to execute their strategy, and they're willing to live with this degree of uncertainty in order to drive their strategies going forward.

QUEST: You spend a lot of your time talking to the chief executives of the biggest companies, of which your own company is one of them, so what is it they now want?

NALLY: I think it's one word, very simple. They want clarity.

QUEST: Come on, Dennis. We're long past that stage.

NALLY: Well, as long as you have the lack of clarity, it creates uncertainty. The worst thing business wants is uncertainty. That impacts how aggressive companies think about investments, job creation, and how they think about their future.

QUEST: So, are they retrenching on investment? Or are things on hold? Do you hear that deals are not being done at the moment?

NALLY: Without question. When you look at the level of planned M&A activity this year versus last year, our CEOs are telling us they'll be down this year.

QUEST: Have we truly now got a bifurcated world, with emerging markets and Asia, southeast Asia, growing faster, potentially continuing to grow, and sclerotic Europe and debt-laden trans-Atlantic?

NALLY: I think we have the exact opposite.


NALLY: I think we have an economy today that is so interconnected. And the reason I say that, Richard, is when you look at the confidence levels coming from CEOs today in India and China, they are less confident today than they were 12 months ago, and it's not because they're economies aren't growing. As we all know. China's growing, 7, 8, 9 percent. India similar, high single digits.

So, it's not their economy that's influencing their confidence, its their concerns about the implications of what could happen in Europe, what that means to their recovery. And so, I would argue that this economy is more interconnected, more intertwined than we ever thought it was.

And for those who thought we were going to see the developing markets go one way and the developed markets go another way, I think the exact opposite is happening.

QUEST: Do you find it a little bit sad that three years after the GFC, Great Financial Crisis, Great Recession, that you and I are still here talking about a failure to get ahead or to deal with it?

NALLY: Well, I think we're dealing with complicated issue. I think you're dealing with political issues amongst economic issues. I think that makes it more challenging to really get the kind of clarity that people are looking for.

But the bottom line is, the longer this continues, the longer this is going to impact and stall what I would consider to be the global economic recovery that we're talking about.

QUEST: Time to put your hand in the pocket. It's a euro or a franc, but the question's the same. Are policy-makers and leaders, are they ahead of the curve in dealing with it, or still behind the curve? Are they leading or following?

NALLY: Well, I think we're definitely behind the curve. I think what we're hearing from the CEO community is they want clarity, they want to know what the plan is, they want to know what decisions have to be made.

And so, most definitely, behind the camp in terms of dealing with some fundamental issues that are going to bring back the kind of confidence levels I think we're all looking for.

Do I have to pony up for this thing? How much is this going to cost me, by the way?

QUEST: Well, it's a euro or a Swiss franc.

NALLY: This really hurts, me giving you any money whatsoever.


QUEST: His money is already in the pot. We've changed it into coins. And he said, Dennis Nally said very firmly that we are behind the curve.

So, you're starting to get a picture, as you will over the course of the week, ahead of the curve, behind the curve.

Business leaders are landing here in Davos almost as fast as the snow, and tonight, you'll hear more from them on this program.

Later in the program, Olivier Blanchard will talk about the IMF's warning, and after the break, our good friend Ben Verwaayen, the chief exec of Alcatel-Lucent.

Also tonight, if anyone knows about rescue plans in Davos, it's the mountain rescue team.


DANY KISTLER, DAVROS AVALANCE SEARCH AND RESCUE: If it's too dangerous, we don't go in. We don't rescue -- nobody.



QUEST: It may be picture postcard perfect now, but it wasn't necessarily like that earlier in the day when it was snowing, and there's more snow in the forecast. With Jenny Harrison, I'll be along to talk about that later in the program.

When it comes to Davos, there's one man's views we always look forward to hearing. Certainly when it comes to the global economy and what they're seeing. Ben Verwaayen, the CEO of Alcatel-Lucent, who joins me this evening.


QUEST: Good evening. So. You were sitting here because you came early to join us. You heard the IMF's forecast, you've heard the Greece. Is this what you're seeing as a chief exec of a company?

VERWAAYEN: Well, first of all, it looks like you have to be a pessimist in order to be taken serious, because doom and gloom is celebrated almost every single day that I've noticed, now, over the last couple of months.

And I'm not so sure that that's the reality in the real world. Yes, we have problems. Yes, we have serious problems. But at the same time, we also have people with new ideas and new concepts and plans and innovation. It happens in the same world.

QUEST: But this balancing act, which really goes to the core of what capitalism is about today, this balancing act. We seem to be unable to get -- to get right at the moment.

VERWAAYEN: So, first of all, there are parts of the world where they will say to you, we never had it this good. If you live in Brazil or you live in India, the world is very different there than if you look here in Europe. So, that's one.

Second, there are loads of people with great new ideas and concepts, and we've pushed them to the side.

QUEST: I need to make it absolutely clear why I'm unable to ask Ben about Alcatel-Lucent and how your company is trading.

VERWAAYEN: We're in a closed period, so unfortunately, I can't answer any of the questions there.

QUEST: Oh! This is a closed period. He's got to get a --

VERWAAYEN: About February 10.

QUEST: On February 10, you'll talk to me then about it?

VERWAAYEN: Absolutely.

QUEST: All right. So, let's talk about the crisis. What needs to be done? Come on. There's enough of the talk. What needs to be done?

VERWAAYEN: We have here in Davos the best brains in the world.

QUEST: What do they need to do?

VERWAAYEN: So, let's talk about growth. Let's talk about innovation. Let's talk about sustainability, but now serious. Let's talk about reform, and not just reform of banks and companies, let's talk about how we take decisions. Why we have no predictability in all the regulation that we load onto the industry.

QUEST: But if we're going to get out of this crisis --


QUEST: -- what do policy makers now have to do?

VERWAAYEN: They have to work together with business, with banks, yes, also with banks. And we have to stop being in our own silo. We have to come together. If there is one indication that there is no alternative, you just saw it on the screen.

QUEST: And yet, they talk, they make noise, and it doesn't get better.

VERWAAYEN: But who is "they?" Because if you ask "them," they will say "they" is the people in the banks, people in the business. If we talk about "they," we talk about the politicians.

QUEST: All right.

VERWAAYEN: We have to bring them together. That's what we do here in Davos.

QUEST: Here we go.

VERWAAYEN: Well, first of all --

QUEST: First of all, I need your money.

VERWAAYEN: You'll need money.

QUEST: It's going to Mountain Rescue, and you will explain more why it's going to Mountain Rescue.

VERWAAYEN: And I'm so confident, that I'll give you a fiver.

QUEST: Oh, pay up. I'll put it in the pot in a minute. Five -- five euros, right. Where do you want to go on the curve? Behind the curve, towards things not getting any better? Ahead of the curve?

VERWAAYEN: So, I'm pretty sure --

QUEST: Oh, you want to bet your own marker.

VERWAAYEN: I'm pretty sure that everybody will be around here. I'm going to be here, because I believe that people have much more power today than just waiting for the institutions to do the right thing.

QUEST: You're either an optimist, a realist? Which is it?


QUEST: Ben, good to see you, as always.

We've talked a lot about what needs to be done in terms of rescuing Europe. When we come back in a moment, we will meet the real expert in rescue. Forget political leaders, we will be out with the Mountain Rescue Service, and they will teach us a thing or two. QUEST MEANS BUSINESS, live in Davos.


QUEST: And welcome back to Davos. In case you hadn't noticed, we've had huge amounts of snow in the past couple of years. The locals say they haven't seen anything like it since the 1960s.

Now, at home, it all looks rather magical. For visitors like us, here once a year, it's getting a little bit difficult. For those whose job it is to rescue people on the slopes and the mountains, it's a genuine challenge.

The Mountain Rescue Team here in Davos know all about how to save people from tough situations. So, tonight, we have asked, and we have been up on the mountains to show you how they go about doing a mountain rescue and whether they could teach Europe's leaders a thing or two.


QUEST: A crisis has happened, and it doesn't matter if it's up a mountain or in a market. The rules are the same. Find the location and get there fast.


QUEST: On the mountains, that means calling emergency rescue, getting help on the way within minutes.

KISTLER: Time is so important with an avalanche accident. We really have to run. Speed, this is what counts.

QUEST (voice-over): In the economic world, it meant quickly deciding who's bankrupt and needed a bailout. Unfortunately, it took them months to make those basic decisions.

QUEST (on camera): Rule number two. Diagnose the problem and set the strategy. Leadership is key.

KISTLER: There's the avalanche. Slide it down, OK? Probably the victim is down here. I need -- I need a dog immediately.


QUEST (voice-over): Calling for reinforcements is an essential part of rescue. What a pity they're still arguing over who will pay for what to get the world economy moving again.

KISTLER: Hey, hello.

UNIDENTIFIED MALE: Hi, what happened?

KISTLER: I have looked. The air is gone, everything is headed down.

QUEST: Protecting yourself to make sure things don't get worse is essential. Economists say they should have let some countries go bust. Instead, contagion has been allowed to spread. Something that will be lethal on the mountains.

KISTLER: If it's too dangerous, we don't go in. We don't rescue -- nobody.

QUEST (on camera): Rule number three, and the one that's the most challenging in the euro crisis, you need a leader, stop talking, get on with it.

KISTLER: It's one guy who's got the lead, and not 20. With 20 leaders, it will end in a mess.

QUEST (voice-over): How very different in the economic world. The G20, the G8, the EC, the ESFS, Merkel, Sarkozy, Obama, APEC, OPEC. All have an interest, and no one seems to be in charge.

KISTLER: Work. Work. Dig. Do something, not just, "OK, it would be up there. Now, maybe we shoot." Go up there and do.


QUEST (on camera): Ah, good man! He found one!

UNIDENTIFIED MALE: The dog's already in there. We've got seven minutes. Let's hurry. Everything's well.

QUEST: Those attending Davos 2012 would do well to remember the principles of rescue and recovery are universal, whether it's on a mountain or the global economy.

QUEST (voice-over): Following these basic principles would have meant the euro crisis, like this rescue, could have had a happy ending.


QUEST: Words of warning and, indeed, advice from the slopes. When we come back in just a moment, more words of warning and advice. The IMF's chief economist, Olivier Blanchard, joins me live on the program. QUEST MEANS BUSINESS, good evening.


QUEST: Hello, I'm Richard Quest, live form Davos. More QUEST MEANS BUSINESS in a moment. First, this is CNN, and on this network, the news always comes first. Fionnuala Sweeney is at the CNN Center. Good evening.

FIONNUALA SWEENEY, CNN ANCHOR: Hi, Richard. Syria is extending the Arab League monitors' mission, according to a foreign ministry spokesman. The observers will remain in the country from another month as the violence continues. Opposition activists say more than 52 people have been killed by security forces.

Meanwhile, a key block of Arab Gulf countries are calling on the UN Security Council to put more pressure on the Syrian regime.

US president Barack Obama is set to deliver his State of the Union address Tuesday night. It is his last one before the election. Sources say he will propose tax reforms and clean energy and incentives and will include a focus on manufacturing, education, and values.

The Hungarian prime minister is offering to change controversial legislation. Viktor Orban has been talking to the European Commission president, Jose Manuel Barroso. The EU is threatening to take legal action against Hungary if it fails to amend the laws. It says they threaten the independence of Hungary's Central Bank.

Egypt's military rulers say they will partially lift the country's state of emergency starting on Wednesday. The decree has been in place since 1981. The move coincides with the one year anniversary of the revolution that ended the rule of President Hosni Mubarak.

Hollywood is getting ready for the Oscars on February 26th, and now we know who the nominees are. Martin Scorsese's "Hugo" got the most nods. It was picked in 11 categories, including Best Picture, Best Director, and Best Adapted Screenplay.

And those are the latest headlines. Back to QUEST MEANS BUSINESS, live from Davos.


QUEST: The Eurozone will slip into a recession this year, even if it's a light moderate recession, it's a sobering prediction from the IMF on the eve of Davos. IMF analysis expects global economic growth to come in anemic 3.3, a sharp reduction on its previous forecast. Only the U.S. escaped a downward revision.

The growth (ph) forecast remains unchanged from the previous 1.8. The IMF's chief economist Olivier Blanchard joins me from Washington, D.C., to help break down the numbers.

Olivier, the -- it's not just the numbers that are sobering, it is your warning of the risk that things could get worse, the perilous risk in the words of the IMF.

OLIVIER BLANCHARD, CHIEF ECONOMIST, IMF: Right, yes, and the forecast you've given based on the assumption that we might all fall (ph) in Europe, (inaudible) the answer is yes. They're not fairly (ph) exciting, but it could be worse. I mean, if some measures are not taken, then we could have a much worse outcome, no question. And so that's really what worries us.

QUEST: So now the managing director of the fund warned a couple of days ago of a potential 1930s' style depression. But I'm wondering, tell me in blunt terms, Olivier, what needs to be done, not only to prevent the worst of your projections, but to put things right?

BLANCHARD: I think in at the conceptual level, it's fairly easy, because in the end, the main problem is Italy and Spain, which are big and have been the source of trouble over the last six months. So what you need to do is first make sure they adopt measures -- fiscal, structural reforms, which basically keep with them back on a path of fiscal sustainability.

In both cases, I will think it can be done. And then once this is done, they have to be able to (inaudible). If they can do this, then they can actually deliver. Once this is out of the way, I think that things will look much better in Europe, could still be accidents, but not of a major scale. And the recovery should be more or less back on strike -- on track.

QUEST: And yet, tonight, we have warnings that Greece will be considered to be a default. You'd got your projections. So I totally go into the question of the failure of the European policymakers to actually get ahead and to deal with the crisis. And this year, are you confident that they might actually do it?

BLANCHARD: Yes, I think that -- I think they are. I mean, you really have two different issues. You have the issue of Greece. It has to be resolved. That's a very tough one to solve. We need to get debt reduction that, you know, is the subject of intense negotiations. We need the adjustment competitiveness. It's going to take a long time. (Inaudible) is going to be needed. That's one thing. I hope it works.

The other is protecting the other countries, Italy and Spain, which have a very different issue. So (inaudible) going to take the right measures, you know, historically they have taken the right measures, but always a bit late, and then it was not enough. It was a bit fuzzy.

I'm a bit more optimistic this time that this may all come in time, that if there are new danger signs, they will really be ready to do what is needed. So I'm a bit more optimistic than I was earlier.

QUEST: OK, let me now back to (Inaudible), we're asking everyone in Devonshire (ph), not in Davos, but you have been known, you know, this (inaudible). So we have a curve. Do you believe that policymakers at the moment are ahead of the curve or still behind the curve, or somewhere in between? Where are they on the curve, do you think?

BLANCHARD: My sense is that they are playing it close. They want to see the curve. I think that there is a good chance that when they are on the curve, they'll do what's needed. I would love to be a bit ahead of the curve, do it before they get there, but my best guess, they'll be in the curve when they do it, they will do it.

QUEST: I'm going to port (ph) you there. I'll lend the franco (ph) euro that we're charging everybody for the (inaudible). You'll be back time (inaudible).

BLANCHARD: Very good.

QUEST: Olivier Blanchard in Washington. Many thanks indeed.

Now, a story I need to bring to your attention tonight. Airbus has confirmed more cracks have been found inside the wings of some A-380 super jumbos. It follows a series of inspections ordered by European safety authorities last week. Five A-380s (inaudible) inspected by this Saturday. The manufacturer, Airbus, maintains the super jumbos are still totally safe to fly.

From Davos to Wall Street, this is the picture on the Dow Jones industrials right now, down 43 points. We'll be live at the New York Stock Exchange in just a moments. QUEST MEANS BUSINESS, good evening.



QUEST: Earnings season is well and truly underway in the United States. We've had results from McDonald's, Harley-Davidson, Verizon. (Inaudible) the companies that released results. Felicia Taylor has been watching the numbers as they come through. She is in New York, at the stock exchange and joins me now.

Good evening, Felicia.

FELICIA TAYLOR, CNN REPORTER: Good evening, Richard. We're going to talk about McDonald's, beginning with the -- how they beat the street and basically it's because a lot of people are eating at these, an Egg McMuffin for breakfast. And I've got to tell you, I had one for breakfast this morning. It stays with you a long time.

So let's go over to the post (ph), where actually McDonald's shares are traded right now. You can see where the stock is. It's at about 98. That's actually down from its all-time high, which earlier was about 101.

I'll tell you the reason why. The problem the company has is with currency fluctuations moving forward. It does most of its business -- about 60 percent -- outside of the U.S. and Europe. So although it had an increase in sales in U.S. and Europe, about 7 percent, other countries, about 6 percent.

So global sales have been great. They're planning to spend about one point -- what it is exactly? Three billion dollars, excuse me, $3 billion updating its existing stores and building another 1,300 more on the already 33,000 that it has. It's incredible.

This company is off the charts. It made profits of $1.3 billion. So right now, the company is a little bit worried about those currency fluctuations, but overall, it's going to be, I'm sure, fine. One problem though is investors are wondering if they can keep this up. So that's also what's hampering stock.

OK. Moving on to Harley-Davidson, and they also beat the street. I have to tell you, this is one very, very cool jacket. Obviously, that's not what they make. They're more into making motorcycles. They also beat the street.

They've been able to hand -- get into what is not their core market of the baby boomer, but attract younger people by producing a much less expensive bike and also attracting women like me. I'd love to drive a Harley. Why not?

Instead, it's going to ship -- the current -- the problem, though, here is they're going to be shipping fewer bikes in this year than they did last year, because they're still concerned about the Eurozone crisis and also the recovery in the United States. So they're only going to be shipping about 240,000 motorcycles, and that's only about a 3 percent uptick from last year. So that's one problem.

OK. We've got Verizon, obviously that is the telephone maker. They missed estimates, unfortunately. They reported a loss of $212 million. But that's only because of some one-time pension charges, even without those items though, profit is down 44 percent from a year ago.

But here's the interesting thing with Verizon. They actually lose money on these iPhone contracts. But the point here is that they were able to attract over a million new subscribers, and that's what they wanted to do.

So that's the good news for Verizon, because they have a greater profit margin on those new subscribers than they do on the actual iPhone. So they're willing to take a loss on the iPhone.

And finally, Travelers, that insurance company is the only insurance company on the Dow, their fourth quarter profit fell 31 percent. It's the least profitable year that they've had since 2004. But here's the problem with Travelers: they were impacted by that bad weather and the severe storms around the world that obviously they took a major hit for.

They had also investment income losses. When their high-yielding bonds come to maturity, they didn't reinvest them in the marketplace and obviously a lower yield. And as we well know, the Federal Reserve intends to keep interest at those low levels until mid-2013. So Travelers Insurance is one of the laggers on the Dow, now off about 31/4 percent at 52 -- Richard.

QUEST: I'm still in shock, Felicia, at the mere thought of you being a Harley-Davidson babe who's still wanting --


TAYLOR: I know.

QUEST: -- I mean -- and I thought -- I --


QUEST: -- I thought you were the sort -- I thought you were the sort of woman who would be more concerned reading the Fed policy minutes.

TAYLOR: I am more concerned about reading the Fed policy minutes, and I'm glad you brought it up, because they began their policy meeting. The Federal Reserve Board members are gathering in Washington for their two-day meeting. And this may be the first time that we actually get a little bit more transparency from the Fed. Take a look.


TAYLOR: At the Liberty Science Center in Jersey City, New Jersey, people come from all over the world to take a look at things that are far, far away. And just like at the Science Center, the U.S. Federal Reserve is about to take a look into the far distance as well, as to where interest rates are headed and what the economy might look like in the years to come.

All about better communication. Communication is important to the people at the Science Center. It is the focus of one of their main exhibits. But it's also a main goal of the Federal Reserve. In fact, the Fed is hoping that better communication could lead to a stronger economy.

The Fed used to give us very little communication about how it made its policy-making decisions. As a matter of fact, for decades, it never immediately announced anything to the markets. Maybe not quite as primitive as a feather pen. Maybe not quite as primitive as this kind of communication, but nevertheless, some people think it actually kept the markets in the dark.

And then in 1994, the Federal Reserve started to use more modern communication tools, almost issuing a hotline to the marketplace by announcing policy changes on the same day as their meeting. By the year 2000, they started to issue detailed policy statements, and this, of course, sent a much clearer signal to the marketplace as to what they thought about where the economy is headed.

And last year, Federal Reserve Chairman Ben Bernanke gave us the greatest vision into the Federal Reserve's thinking by offering to have news conferences and take questions.

BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: Our motives are strictly to do what's in the interest of the broad public.

TAYLOR: And now for the farthest look into the distance yet, as of this week, on a quarterly basis, we're going to begin to hear from Federal Reserve board members as to when they think interest rates should begin to rise. We already know that they plan to keep interest rates at historically low levels until about the middle of 2013.

The Federal Reserve hopes that with greater vision that businesses will become more confident and start building skyscrapers and hiring people and investing more in the economy, sort of an indirect stimulus.

UNIDENTIFIED MALE: I like your shell. What are you doing?

TAYLOR: The fear, of course, is that the economy is going to continue to grow at a bit of a turtle's pace. Hopefully, though, with greater transparency, the economy will pick up speed.



TAYLOR: So the intention, Richard, is that greater transparency is going to help calm the markets moving forward because obviously they will know what the Federal Reserve's intentions is.

Now as of tomorrow, when we get the minutes, what some of the traders here on the floor are looking for is any hint, believe it or not, of further stimulus down the road, especially with the concerns surrounding Greece, whether or not we're going to actually have QE3 and that's what we're going to be looking for in the language.

The thing that's also different about this press conference is that Ben Bernanke is going to be taking questions. That is a historic new for the Federal Reserve -- Richard.

QUEST: All right, Felicia Taylor, who's now virtually donned the Harley-Davidson jacket. Before the end of the year, Felicia, we're going to get you on a Harley-Davidson. I'd pay very good money to see that. Many thanks.

TAYLOR: Oh, no, Richard --


TAYLOR: -- have a late breakfast -- I'm having a late breakfast now. I'm going to go make a phone call, and I am getting on a Harley. See you.

QUEST: I am seriously worried that that is the same Egg McMuffin that you have been broadcasting with all day, and was probably go -- oh, she's gone.


Nice to know. All right. She's off. OK. Preemptive strike. We're going to stay in the United States when we come back in just a moment, one of the GOP presidential frontrunners is attacking Barack Obama's State of the Union address.

It takes a real achievement to attack something before it actually makes it. We'll be in Washington, QUEST MEANS BUSINESS, we're in Davos. Good evening to you tonight.


QUEST: In less than five hours from now, President Barack Obama will go to Capitol Hill to make his State of the Union address. The world will be watching. This speech will take income inequality, and it's being viewed as part of his campaign for reelection.

The Republican President hopeful Mitt Romney is already taking aim at the address. He's calling it a prebuttal. Romney told Florida voters to listen to the hard facts about the economy.


FORMER GOV. MITT ROMNEY, R-MASS., PRESIDENTIAL CANDIDATE: The President will do what he does best. He will give a nice speech, a lot of memorable phrases in it. But he won't give you the hard numbers.

Like 9.9 percent unemployment here in Florida, or 25 percent - that's the percentage of foreclosed homes in America that are here in Florida. Or $15 trillion - that's the size of America's national debt under this president.

Instead, tonight, President Obama will make the opening argument in his campaign against a "do-nothing Congress."


QUEST: Right now, let's go to the White House, CNN's Dan Lothian is there. Dan, it takes real achievement to criticize a speech before it's even been made.

DAN LOTHIAN, CNN REPORTER: Wow, you're so right about that, and it's just not out there on the campaign trail.

We saw that so far over the last couple of days from other Republicans who have been very critical of the president, leading up to his State of the Union address, one Republican telling me that much of what the president is proposing that will require congressional approval will be in this person's prediction, "dead on arrival."

So that kind of gives you a sense of the tone here. There's still a lot of bipartisan division here, even as the president tries to lay out his vision for the future. There's resistance, and it's just more carryover from what we saw last year.

You look back at the president making a lot of different promises that he hoped to achieve over the 2011 year. And many of those were not accomplished because very little of that was able to get through Congress.

QUEST: Dan, how much trouble is Mitt Romney in over this whole tax question? At a time of economic problems, when somebody is having tax issues, if the voters don't like it?

LOTHIAN: Well, look, I think that, first of all, when you're talking about Republicans, I'm not sure that his -- the rank-and-file Republicans have a whole lot of issue with Mitt Romney in the sense that they see this as someone who has been successful, and they don't want to sort of put too much on top of his head, if you will, for being successful.

I think in general, though, it feeds into this narrative that there are wealthy Americans out there who are making money and have, you know, some questionable, you know, things perhaps. They put their money in place where they've been able to not be taxed at the level that ordinary Americans have been taxed at.

But I should point out, the basic here, the basics, when you look behind all these numbers, is that Mitt Romney got taxed at a level on his investments that any other American who makes investment would be -- investments, rather, would be taxed at that same level. It's a different structure if you're being taxed on what you make when you go to your job.

How much this will hurt him? Well, we saw that the, you know, the whole tax debate did hurt him in South Carolina. Will it have the same impact in Florida?

Probably not, because what we've seen from Mitt Romney now, he's been hitting back very hard, putting his records out there and also hitting Newt Gingrich as well. So it probably will not have the same kind of impact in Florida that we saw in South Carolina.

QUEST: Dan Lothian, you'll continue to watch this for us. And we thank you for that. Dan Lothian at the White House.

Now, here we are in Davos, always a good opportunity for us to have some "Tweets from the Top." So the first up is Jeff Joerres, who is the CEO of the Manpower Group, who tweets, "Companies need to unleash the potential of booming young populations in emerging markets to avert a lost generation."

Neil King of "The Wall Street Journal" has tweeted, "Remember when Davos was the place to be in January to celebrate ascendant Europe, the triumph of Wall Street and the free market?"

Finally, Tina Brown, editor in chief of the "Daily Beast," -- oh, "The Daily Beast" -- sorry. She is tweeting, "If Davos can dig itself out from under eight feet of snow, maybe the #WEF can do the same for a gloomy global economy."

Tell me what you think, and of course, we will help that as well -- @richardquest is the tweet address, @richardquest, where you and I can tweet along and have a discussion and a debate.

All right. Time for the weather forecast now. All I can tell you about the weather is that there has been so much of this stuff during the course of the day, absolutely amazing amount.

Jenny Harrison is at the World Weather Center. Ooh, that's cold. Wish I hadn't done that.


JENNY HARRISON, CNN METEOROLOGIST: I was thinking just -- (inaudible) thinking you're going to suddenly feel that. But hey, Richard, I was telling you -- I was talking about this, of course, a couple of weeks ago. Already we've seen a huge amount of snow in Davos. It looks lovely behind you. In fact, take you out of the shot, and it looks beautiful.

But you can see all this (inaudible) as it's been a very, very wintry day. But it does look quite spectacular. And I have to say really the weather's coming at the right time of the week, because things are going to get better as we go through the week.

Right now you've got those fewer (ph) flurries behind you, -7 is the actual temperature. The wind, it's a very, very light wind. So not really much of a wind chill to talk about. I can tell you that, by Thursday, it's going to feel positively balmy with the change in weather conditions.

There's all the snow (inaudible) in the last 12 hours, so, yes, again, you have seen a lot of snow accumulate, about 10 centimeters of it. And of course, we've been talking about the comparisons with the average here, and what we have seen so far this year.

Let's have a look at the lower levels, because that's where most are really impacted, 151 centimeters so far this year, over double what we have usually as an average, so normally just 63 centimeters. So no wonder it has caused a few problems.

If you have a look at this graph -- and I do know how much you do like your graphs, Mr. Quest -- this blue line, here's the lower levels, and this is what we see. This is how we see those depths accumulating throughout the seasons, so-called tapering off by April as conditions actually push into spring.

But the blue dot shows you that already we've had some of the sort of levels at the lower levels, the amounts that are actually on the upper levels. And as for the upper levels, well, almost off our chart, as you can see.

Now there is some more snow in the forecast. A little bit more as we go through Wednesday, and then all that system bringing the snow, that is pushing off into the southeast. If you (inaudible) can see again, of course, some accumulations, but nothing what you have seen over the last couple of days.

So as I say, when it comes to forecast, more snow on Wednesday. And then look at the temperatures, because as the sun comes out, as the cloud and the snow clears off, look at this. By Thursday, daytime high temperature +2 degrees C. So that's what I mean about it feeling positively balmy.

So a bit more snow Wednesday, clearing up nicely Thursday. Friday, a little bit colder, but again, at temperatures just hovering around the freezing mark by day. Now all about snow, though, it hasn't (inaudible) just yet. It's going to push away from Davos, but it's pushing into the southeast, and we're going to see some pretty hefty accumulations here.

Look at this, Sarajevo, getting on 26 centimeters in the next 48 hours.

But, Richard, for you, (inaudible) snow and then it should be lovely.

QUEST: Jenny Harrison, stay with us. (Inaudible) snowman, I'm going to call the snowman -- well, I was going to call him Jenny, but maybe that's not appropriate. But Jenny, Jenny, as we get more snow -- no, seriously. As we get more snow during the course of the week, he's going to grow even bigger and bigger, so we'll be able to put your predictions to the test.


HARRISON: (Inaudible) more snow. You've seen the snow. You've had (inaudible) the snow. He's going to start to shrink.

QUEST: He is -- he is not. I'll thank you not to rain on my parade, or snow on my parade.

All right, Jenny, let's look at Davos and the snow all the time. When it's not the only part of the world, figure skaters (ph) figuring out to do with so many snowflakes, hark back to 2008, when the folks in Bethel, Maine (ph), spent a month building the world's tallest snowwoman. Guinness World Records say she stood at more than 122 feet high.

Last year, more than 5,000 people in South Korea ended up being part of the world's biggest snowball fight, and for endurance in the white stuff, a man in China got his kit off -- (inaudible) -- got his kickoff and spent more than 46 minutes risking hypothermia. Let me assure you, Jenny, which of those records would you like us to try and break tonight?

HARRISON: Not the last one. (Inaudible) -- no, I think, you know, I think perhaps if you do anything in your mackintosh, man in his mack in the snow, I think you're probably already in the world's -- Guinness Book of Records (sic), aren't you, for something? Man who's done the most outside broadcasts in the snow in the cold, wearing a mackintosh?

QUEST: OK, that's enough of that, Jenny Harrison, more from you tomorrow and the snowman. "Profitable Moment" next.


QUEST: Tonight's "Profitable Moment" -- tonight, we showed you how the professional mountain rescue men and women save lives, following basic rules: speed, strategy, leadership. It seems to me in the financial crisis, politicians have managed to ignore just about every one of those principles. When they should have been fast, they dithered.

When they should have had strategy, they changed their minds and allowed contagion to take hold. As for the question of leadership, it's only recently that Merkozy (ph) has given the direction required. And even now, other countries are disagreeing.

So I ask you this simple question: bearing in mind the job the leaders have done so far, if you were stuck on a mountain, would you want any of them leading your rescue? And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in Davos.