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QUEST MEANS BUSINESS
Future of Stimulus; Fed Leadership; Taper Talk; Control Agenda, Dow and S&P Up; Microsoft Buyback; European Markets Slip; Costa Concordia Righted; SAP's Strategy; European Car Sales Slump; Audi's Ambitions; Lone Star Oil Boom; Texas Fracking Future; Fueling America; Time to Taper; Profitable Moment
Aired September 17, 2013 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: The bell is ringing, the books are closing, and now all investors care about is the Fed's decision on tapering.
It is Tuesday, September the 17th. Tonight, the economist Jeffrey Sachs tells us why he thinks Janet Yellen should lead the Fed.
The chief executives of SAP and Audi, we have their views on the German elections.
And up she comes. Engineers orchestrate the biggest salvage operation in maritime history.
I'm Richard Quest, live in New York, where I mean business.
Good evening. It is the most highly-anticipated Fed meeting of the year, and it is now underway. The expectation that the US central bank will finally decide to begin curbing its bond-buying program, QE, a slowdown in the pumping of $85 billion a month into the markets since September of last year.
The chairman of the Fed, Ben Bernanke, announced in June that tapering could begin later in the year if the US economy continued to improve. Now, as they arrive for the meeting, the height of the agenda will be the issue of whether or not unemployment has fallen enough, GDP growth is OK, and inflation is under control. All these issues are the subject of much debate.
The market clearly believes it's probably time to taper. All private economists suggesting that they will do that after they announce tomorrow's results. Jeffrey Sachs -- Professor Jeffrey Sachs -- says agreed, it's time to taper. He's the director of Columbia University's Earth Institute. A short time ago, he joined me and said the Fed is eager to start pulling back.
JEFFREY SACHS, DIRECTOR, EARTH INSTITUTE, COLUMBIA UNIVERSITY: They're going to start tapering, whether it's this round or in a month, they'll start. Because the signs from the world economy are on the whole pretty good right now. And pretty good across much of the world economy. I think they're eager to start pulling back, but they'll be very gradual.
QUEST: Right. But do you think it'll be in this round of meetings?
SACHS: I think it's quite possible and would be justified if they started.
QUEST: So you think it would be justified?
SACHS: Yes, but careful, slow, moderate.
QUEST: Careful, slow, and moderate. We move quickly to talk about the new -- the person who will take over in the Fed -- at the Fed, and Larry Summers pulled out. Before we go further, I want you to listen to what Bill Clinton said about Larry Summers and the popular view of the former Treasury secretary.
(BEGIN VIDEO CLIP)
BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: I think there's this kind of cartoon image that's been developed that somehow Larry Summers was a one-note Johnny just trying to let big financial titans ravage the land. And it's just ludicrous.
(END VIDEO CLIP)
QUEST: That was the former president talking to Fareed Zakaria on "GPS." Were you pleased that Summers pulled out?
SACHS: I was. And the former president also has apologized earlier for supporting the financial deregulation that Summers and Rubin pushed under the Clinton administration. It was a huge debacle. It cost the world a lot.
What I found amazing was every time that Summers finished his public service, it was straight back to Wall Street, including this most recent round, when he knew that he was going to be considered for the Fed.
QUEST: Well, what's wrong with that?
SACHS: What's wrong with that is almost everything about the revolving door right now. We don't have --
QUEST: Provided we know they've done it, then we're -- then -- it's not like it's not transparent. We know he went back to Wall Street.
SACHS: Well, it's transparent to everybody that Wall Street runs Washington, and people don't like that anymore.
QUEST: So, Janet Yellen. You have to declare a conflict of interest here, don't you?
SACHS: Not a conflict, just a thrill --
QUEST: Come on.
SACHS: No, a thrill, because she was my professor of macroeconomics a long time ago. That I don't have to disclose fully. I don't --
QUEST: Tell me --
SACHS: -- it was 40 years.
QUEST: Tell me what she's like.
SACHS: She is extraordinarily smart. She is very experienced. She's very capable. And she has been dedicated to public service, not the revolving door. She's had exactly the kind of background that one would want at the Fed: chairman of the Council of Economic Advisors, president of the San Francisco Fed, vice chair of the Fed, star academic career. What is holding anybody back on this? There is nothing --
QUEST: Well, you are -- answer your own question. Why do you think it's not a slam-dunk Janet Yellen in for the job?
SACHS: I think it will be here, but --
QUEST: But why do you think president's hesitating?
SACHS: The president wanted Larry, but nobody else did. And the president couldn't get any senators on either side to support Larry. That is a question, why the president was pushing so hard for Larry when the Senate was saying no, no, no.
Finally, it came to a conclusion, the president said OK, we'll move onto the next. But it should be Janet Yellen, should have been Janet Yellen, and I predict it will be Janet Yellen.
QUEST: Jeffrey Sachs talking to me a short while ago. Now, the big issue that everyone's going to be talking about is quite simply the question of tapering. What does tapering mean and how can something from the tailoring world be used in the economic world? Well, this is really, of course, what it is all about.
We're talking about cutting things back, making things look a little bit more trim. The tailor's dummy is the perfect thing to talk about tapering, so when we need to understand how tapering can work in the realms of economics, to make things feel better, where better than a tailor's?
QUEST (voice-over): They're running up the clock with a stitch here and a pin there. It's all in a day's work at this New York tailor's, where precision is everything.
QUEST (on camera): Tod, tell me the principles of tapering.
TOD GREENFIELD, TAILOR: Well, we custom make suits, so if we're going to be tapering, there has to be a reason.
QUEST (voice-over): Like master tailor Tod Greenfield, central bankers are used to making small adjustments. A sluggish economy might need a little more room, more accommodation, and as it grows fitter and stronger, it'll be time to trim back the excess, to taper those bond-buying asset purchases.
GREENFIELD: So, we tighten the suit, and that way, it's closer-fitting. There's a balance between fit and style, and it's a little tricky, because if it's too tight, it's no longer comfortable.
QUEST: If they taper too much, it'll be very uncomfortable for the economy and could squeeze new growth.
QUEST (on camera): But surely if we taper down, we can untaper and let it out again?
GREENFIELD: Well, sometimes you can, but it's possible that the seam will show. So, you can't always count on being able to let it out again.
QUEST: What advice would you give Mr. Bernanke?
GREENFIELD: I'd advise him to do a little at a time and make sure they don't take too much in at one time.
QUEST (voice-over): Like the central banker, the tailor is always on the lookout for those areas where the policy could be revised.
QUEST (on camera): You're being a diplomat, but you're really dying to tell me that my jacket doesn't fit me.
GREENFIELD: Well, it could fit a little bit better. It could be constructed with a little more handwork to conform better to your body.
QUEST (voice-over): So, like me, the US needs a bit of tapering, for that sharper economic silhouette. The hardest bit is making the first cut.
QUEST: And later in the program, we'll hear from the chief executive of BlackRock, Larry Fink, who says the Fed must decide to taper and the tapering must start sooner rather than later.
Jamie Dimon, JPMorgan Chase, has urged staff to roll up their sleeves and help him fix JPMorgan's compliance and control problems. The chief exec told staff in a memo the bank's number one priority was dealing with this.
Alison Kosik is at the New York Stock Exchange. This is all about the London Whale and the expected $800 million fine that they're going to have to pay. Some arguably would say Mr. Dimon's clarion call is a bit late.
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Yes, you could say that. But you've got to start somewhere, right? And here's Jamie Dimon putting out this memo basically, Richard, outlining these steps that the company has taken to address these compliance problems.
And as you said, JPMorgan is involved in many investigations right now, including that disastrous London Whale loss from last year. So, when you look in this memo, and Dimon is saying look, if you don't acknowledge mistakes, you can -- if you -- you can't fix them and learn from them. He says the bank is "rolling up our sleeves and fixing them."
Now, this includes adding 4,000 workers to improve compliance, increasing spending big time -- I'm talking millions of dollars -- on technology. This memo, by the way, is similar in tone to the one that was written to shareholders which apologized for letting regulators down and pledged to improve. Richard?
QUEST: In the markets today, we saw the closing bell. Remind us how the numbers finally ticked at the end of the day for the Dow. And Microsoft, investors in MSFT can look forward to a bumper dividend.
KOSIK: Ah, yes. So first, the Dow ended up another 34 points. The S&P is what we're really watching, up 7 points, getting very close to that all- time high of 1709. It's at 1704. We will be watching for that tomorrow.
You mentioned Microsoft, saying it's raising its quarterly dividend to 28 cents a shares. You know what that is? That's a 22 percent increase over the previous quarter's dividends. The company also, Richard, revealing plans for a $40 billion stock buyback program. The investors liked it a little, with stock up about a half a percent today.
QUEST: Still time for that one to feed through with a buyback in place. I don't think they've given a time scale for that buyback, which is one reason why investors -- it's a bit open-ended, that buyback. Alison Kosik at the New York Stock Exchange, where the markets rose.
European stocks went in the opposite direction. They slipped off the highs and a drop in demand for cars. Auto sales helped push down the market. In Frankfurt, Volkswagen fell 2 percent, Peugeot in France down 2.5 percent.
The UK government's selling of the stake in Lloyd's bank, we told you about it last night, well that, of course, helped the market fall, down just a fraction or so. The UK government sold a 6 percent stake overnight to institutional investors.
Frankly, if you look at the US -- if you look at the European markets, there was no single reason why they were down, and once again, a tension focuses on the Fed.
All in all, when we come back, it was a perfect parbuckling operation. We can call it an engineering feat, the righting of the Costa Concordia when we return.
QUEST: The Costa Concordia is upright for the first time since it capsized, and never before has rolling over such -- been an extraordinary feat. Just look as we see these pictures.
It took 19 hours and 500 people to roll the 114,000 gross tonnage ship off its side. It's been lying off the coast of Italy's Giglio Island since it sank last August -- last January, claiming dozens of lives, 32 people lost their lives in this disaster.
The technical team in charge of the salvage effort says it was, in their words, "a perfect operation." CNN's senior international correspondent, Matthew Chance, watched the unprecedented effort, and he saw how it took place.
MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice-over): It was a painstaking and difficult salvage operation that took more than 19 hours to complete. Inch by inch, the giant hulk of the Costa Concordia, capsized on the rocks of Giglio, was hauled upright.
The technique, called parbuckling, has never been attempted on a ship this large, twice the size of the Titanic. But the results, according to salvage workers, was much better than they hoped.
FRANCO CABRIELLI, HEAD OF ITALIAN CIVIL PROTECTION DEPARTMENT (through translator): We are very happy at the outcome. We are happy because the challenges posed by the project as a whole and everything that the designer imagined and figured out was confirmed in practice.
So, their calculations and their design was very accurate, to the point that the ship really was in the same place as expected, which was surprising, somehow, for us, too.
CHANCE: And this was the reaction when news of the salvage success was announced. With vast quantities of toxic sludge onboard, engine oil mixed with rotten food and detergents, residents of Giglio were clearly relieved, a threatened environmental catastrophe had been averted.
CHANCE (on camera): Well, this is the first time this giant ocean liner has been seen upright since it crashed against these rocks, with a loss of 32 lives, in January 2012. You can see, that dark watermark where it has for months laid submerged on its side.
Two thirds of the Costa Concordia is still underwater, but at least it's now possible for salvage teams to properly assess the damage on its battered starboard side.
NICK SLOANE, SALVAGE MASTER, COSTA CONCORDIA: Sixteen months, now.
CHANCE (voice-over): That's crucial, say salvage workers, as the ship is prepared to be re-floated and eventually towed away.
SLOANE: Last year, we had a really bad winter, and we realized that you can't beat the weather here. So, we're going to be patient. We'll prepare everything we can through winter, and then in spring, we'll start adding the mitigating factors. So by late spring, early summer, she should be out of here.
CHANCE: But first, a proper search is now being carried out for the two bodies never recovered from the wreck. Amid all the praise of the salvage effort, this is also now a chance for closure.
Matthew Chance, CNN, Giglio, Italy.
QUEST: Worth just taking a second or two to look closely at the pictures of this: 31,000 tons of steel were used in the fabrication to actually bring the Concordia up, 33 kilometers of welding, and 13,000 individual dives were used.
Now, what you see from this picture is really fascinating. You saw it in the video as well. Half the ship, of course, was underwater, and this is the damaged part, and you really see the extent of the damage very closely when you look at these other pictures. And you can see as it comes up from the time lapse picture, the depth and extreme of the water and the damage that was caused to this ship.
Now, of course, the search for victims begins. They'll be pumping out the water. That is another crucial thing that has to happen before the ship is towed away and dismantled. And the engineering feat that allowed this to happen, of course, is still quite remarkable.
When we come back after the break, the German software firm SAP is teaming up for a major effort with AT&T here in the United States. We have the co- chief executive, Bill McDermott, who will be joining me. In fact, Bill will be with me --
BILL MCDERMOTT, CO-CEO, SAP: Richard, great to see you. How are you, my friend?
QUEST: -- in the C suite.
MCDERMOTT: Great to see you.
QUEST: Come and join me.
MCDERMOTT: Thank you. Thank you.
QUEST: German investor confidence is at a three-year high, according to the ZEW Center. This month's investor confidence index hit 49.6, well above expectations, and the highest level since April of 2010.
It comes as the country, Germany, prepares for this weekend's general elections. SAP is one of Germany's biggest companies. It's teaming up with AT&T to help business develop apps. It also, of course, is one of those crucial companies because it gets involved in other people's business. SAP's co-CEO, Bill McDermott, is in the C Suite.
MCDERMOTT: It's good to be with you.
MCDERMOTT: Thank you.
QUEST: What are you seeing at the moment in business? We've got the German elections coming up at the moment.
QUEST: If the polls are right, there'll be no change in government. What does SAP want out of the elections if you want anything?
MCDERMOTT: Well, we obviously have a very strong relationship with Chancellor Merkel. In fact, I had an opportunity to be with her at CeBIT, and she's a delightful leader and a person who's done a great job.
But we believe in free elections, and whoever wins, as long as they stand for low trade barriers and growth, we're very interested in their election and their success.
QUEST: OK. So, low trade barriers. You've got the EU-US trade talks underway.
QUEST: Come on, Bill. Do you think that'll ever come to something?
MCDERMOTT: Well, I actually think we have done some amazing things between the United States and the EU, actually. I mean, it --
QUEST: But not enough.
MCDERMOTT: Not enough. There's never enough. That's why we have to go to work in the morning, because we always have to get better. But it's actually very positive. Europe has settled down as an economy across Europe. The Middle East and Africa's doing well.
I think the global economy in general right now is focused on growth and free trade. And for the most part, businesses are feeling a little bit more optimistic.
QUEST: That's really crucial.
QUEST: You say the global economy is focusing on growth and free trade.
QUEST: In that scenario, what are your clients telling you?
MCDERMOTT: Well, there's a big sea change in the world today, and technology is center stage. The big sea changes, look at the millennials. Those individuals born between 1980 and 1993 are now the biggest purchasing class in the world. They're social, they're digital, and they're authentic.
So, companies are having to reframe how they do business by getting completely digital, predictive about what these individuals are likely to want --
QUEST: But just -- I'll interrupt you on that, forgive me, please.
MCDERMOTT: All right.
QUEST: But -- that means it's almost impossible at one level, because you have to be putting your mindset into what's next.
MCDERMOTT: You absolutely have to look around corners. Tomorrow, I'm keynoting a financial conference in New York City with Timothy Geithner, and we're talking about banking and the disruption technology is causing in the banking industry.
Think about it. You need to know your consumer and their behavior cold. Consumers that bank in a digital world spend two thirds more time interacting with your services, whether it's insurance or banking. So you have to be mobile, you have to be digital, and you have to be real time with your consumer.
QUEST: OK. In all those scenarios, you've still got worries. And those worries are, does the eurozone debt crisis blow up again? Does the US debt crisis blow up again? Does the Middle East, God forbid, blow up literally all over again?
QUEST: So, running a company like SAP, your balancing that all the time.
MCDERMOTT: You absolutely are. And that's what I think is so special about SAP. We operate in 188 countries around the world in 25 distinctly different industries, so you're very diversified in your reach. And there's no doubt, the world is not a certain place. But leaders have to run businesses in an uncertain world and have confidence that they can still win.
QUEST: You're saying you seeing Tim Geithner tomorrow.
QUEST: Do ask him why he doesn't want to be head of the Fed.
MCDERMOTT: Well, I'm sure more people with insight in that world have already asked him that question, but I'll try, Richard. Thank you so much.
QUEST: Thank you for joining us.
MCDERMOTT: Thank you.
QUEST: Thank you very much, indeed. When we come back in just a moment, car sales in Europe continue to fall, manufacturers are facing one of their worst years in decades.
Now, according to the European Automakers Association, new car registrations dropped by 5 percent compared to the same time last year. That's a 5 percent fall -- extraordinary -- for the first 8 months of the year. Sales are down to their lowest level since records began.
The PSA Group, makers of Peugeot Citroen were hit hardest, registrations of models falling 17 percent. Germany's Volkswagen group slumped 11 percent, and Fiat dipped nearly 5. So, the Volkswagen's Audi brand saw a 5.6 percent drop compared to the previous 12 months.
The automaker's focusing its attentions on emerging markets, including a growing consumer base in Brazil. I spoke to Audi's chief exec, Rupert Stadler, who was in the capital, Brasilia.
RUPERT STADLER, CEO, AUDI: Brazil is a very rich country when it comes to natural resources, and we are a strong believer that on the long row, the Brazilian market will develop positively.
Of course, as it is in emerging markets, the level of fluctuations is a little bit higher than in stable markets like we see it in Western Europe. But nevertheless, we are prepared to invest here in Brazil, and we believe in the economic growth in the next upcoming years.
QUEST: If we take a look, now, at the Audi world, obviously China, emerging markets have a new and a greater prominence. But how do you balance these new opportunities with the mature, albeit very difficult markets at the moment, say, in Europe?
STADLER: First of all, we have a very clear Audi strategy towards 2020 where we are looking to three main pillars. The one pillar is a stable business in Europe. The other pillar is a growth pattern -- a nice growth pattern in America. And the third one is to be very, very active in Asia.
And January-August, we already sold 1 million cars. The aim in this year is to sell more than 1.5 million cars. And on the long run, until 2020, the target is to sell more than 2 million cars.
And I think, with our strategic decisions, now going to the next factory in China, looking to the ramp-up phase in Hungary with a new plant, or going to America, like say in Mexico, with a new plant, and now in Brazil. I think we have sufficient stability in our strategic plans.
QUEST: What do you now want from European leaders? In your home market, back at home, an election in Germany coming up coming up. What do you now want?
STADLER: Yes, the Western European market is, let's say, a little bit weak. Audi is performing a little bit better than the others, so we are quite satisfied with the situation.
We know that with the upcoming elections coming Sunday, we need once again stability in our country and we believe that the actual government did a great job in the last few years knowing that we went through difficult times and we have the ability, at least in Germany, to have a very, very stable situation.
QUEST: That's the head of Audi talking to me from Brasilia. Coming up next on QUEST MEANS BUSINESS, I'm back in the state where the bears fear to tread.
(BEGIN VIDEO CLIP)
QUEST: Bullish in Texas! How the oil state is leading the American recovery, or will it all end in tears?
(END VIDEO CLIP)
QUEST: Hello, I'm Richard Quest. There is more QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes first.
UN secretary-general Ban Ki-moon is calling on the Security Council to unite behind action on Syria. He says the suffering must end. The council's five permanent members have wrapped up a closed-door meeting. They're trying to agree on a resolution that supports a US-Russian framework for Syria to destroy its chemical weapons.
The Brazilian president, Dilma Rousseff, has called off a state visit to Washington over the spying allegations. Documents leaked by the fugitive former intelligence contractor, Edward Snowden, allege the US National Security Agency, the NSA, intercepted Ms. Rousseff's e-mails and messages. The US president has promised to investigate.
The Costa Concordia is now upright for the first time since the ship capsized. The operation took 19 hours and 500 people to roll the 114,000 gross tonnage ship off its side. It's been lying off the coast of Italy's Giglio Island since it capsized last January, claiming more than 30 lives.
A senior Pentagon official has told CNN that the US defense secretary, Chuck Hagel, plans to order a review of security at all US military sites worldwide. It follows the deadly rampage at the Washington Naval Yard, which left 13 people dead. Meanwhile, a US official says the gunman, 34- year-old Aaron Alexis, had numerous run-ins with his superiors before he was discharged as a naval reservist.
In the Miami Beach mansion once owned by the Italian fashion designer Gianni Versace has been sold for $41.5 million. The business group VM South Beach was the winning bidder, outbidding Donald Trump. The home was originally listed for $125 million.
QUEST: New figures from the U.S. government show that Midland, Texas, is the fastest growing metropolitan city in the United States. Its economy grew 14.4 percent in 2012, according to the BEA, largely because it's the epicenter of the new American oil boom. It's not only oilmen who are reaping the benefits. I had to go and see for myself.
QUEST (voice-over): If you want to find out how good things are in Midland, visit the county fair.
TAMMY DOOLEY, MIDLAND COUNTY FAIR: Texas is a great economic state, but Midland is even better. People are moving in here by the droves. They have great jobs. Midland is booming.
QUEST (voice-over): At $5 each, these rides are expensive. But here they can afford it. Personal incomes are the second highest in the United States. Unemployment at 3.5 percent is less than half the national average.
UNIDENTIFIED MALE: If you don't have a job here, it's because you don't want to work.
QUEST: How are things in Midland at the moment?
UNIDENTIFIED FEMALE: They're great. They're booming. The oil business is great. I work for an oil company. It's great.
QUEST (voice-over): Oil and gas, Midland lives, breathes and sleeps the stuff. This region is being driven by the renaissance in the industry. It's created an economy on steroids and strains are starting to show.
QUEST: Housing is a real problem in this part of Texas. The demand for accommodation for oil workers is so great there's not enough to go around. So the oil companies build their own temporary hotels. They're nicknamed "man camps."
UNIDENTIFIED MALE: Good morning.
QUEST (voice-over): They house workers in these camps, often for weeks at a time.
QUEST: Anything you could possibly need.
UNIDENTIFIED MALE: Oh, yes; this is home away from home.
QUEST (voice-over): All these workers need to be housed, fed and paid.
Oil and gas wealth is rippling out across the region.
STEVEN PRUETT, CEO, ELEVATION: One rig created about 150-200 jobs. But indirectly it creates jobs at restaurants, growth in our schools, more teachers, more roads to be constructed to support all of this.
QUEST: Well, it's quite a big space.
QUEST (voice-over): For homebuilder Mark Payne (ph), Midland is the ultimate, one-industry company town.
MARK PAYNE (PH), HOMEBUILDER: I'm in the oil business even though I'm a homebuilder.
QUEST: Is everyone in Midland in the oil business?
PAYNE (PH): Pretty much, yes, sir.
QUEST (voice-over): No matter how many homes he builds, it'll never be enough.
PAYNE (PH): We'll do probably 70 houses this year, and we could probably sell 300 houses.
QUEST (voice-over): Ironically, there is one house that's empty, but you can't buy or rent 1412 West Ohio Avenue. It was owned by the first President Bush and it's where the second President Bush grew up. And it's now a museum.
If housing is scarce in Midland, then so are workers. Ask Duke Edwards, the owner of The Basin Burger, who has a battle to keep his staff.
DUKE EDWARDS, OWNER, BASIN BURGER: Our biggest problem has been labor. We're paying $10, $11, $12 an hour for basic stuff and (inaudible) they make $30 or $40.
QUEST: How easy is it to find a job in Midland, Texas?
UNIDENTIFIED MALE: Ridiculously easy.
QUEST (voice-over): They all know they could walk out today and have another job tomorrow.
QUEST: Barely has the boom begun and they're already thinking big in Midland. The plan is to pull down the old courthouse and put in its place a 53-story tower, one of the tallest in Texas; appropriately it'll be called the Energy Tower.
QUEST (voice-over): This is classic Texas hubris: talk big, build big on the back of oil, which is surprising since Midland has a long history of boom and bust.
And even more surprising, they expect it to happen again.
QUEST: You don't believe it's here to last?
UNIDENTIFIED MALE: No, sir; it's not here to last. I've done been through two of them. (Inaudible) the bust, so it'll stay for a few -- it just comes and goes. It's part of it.
QUEST: Boom and bust?
UNIDENTIFIED MALE: Boom and bust.
QUEST (voice-over): It's extraordinary, as long as the price of oil stays high, the wells will keep churning. So this is one oil town that will keep celebrating right to the end.
QUEST: Now one of the things that's happening of course with the boom in oil and prices is cheaper energy for American industry, and that's created a resurgence in manufacturing. Google and Motorola, of course, announced that they are now opening the first assembly plant in the U.S. for decades.
Rick Perry is Texas governor and I asked what he thinks is driving the U.S. resurgence in manufacturing.
GOV. RICK PERRY (R), TEXAS: Well, I'll suggest to you one of those is transportation cost. The shale gas phenomenon that has occurred across the United States, certainly Texas and North Dakota and Pennsylvania; it could be happening in New York if they would allow for the exploration of that shale gas.
And the cheapening, if you will, of the energy costs, whether it's the energy to use in a major facility to develop your product, or whether it's the transportation costs.
All of those, I think, are one of the big reasons that you're seeing the manufacturing return back onshore. That and obviously just the cost of doing business in some of these other countries have gone up and so we're going to be competitive in the future.
QUEST: As our report has just shown, the amount of shale gas being withdrawn from the basin now in Texas is quite extraordinary, phenomenal in many ways.
PERRY: Well, George Mitchell was a pioneer and a very visionary man. And folks made fun of him for decades about his concept of being able to use hydraulic fracturing to open up these tight shales.
And the fact is, he was right. And it's that innovation, it's that, you know, free spirit type of innovation that what we're trying to drive in states like Texas to free entrepreneurs to come up with new innovations, things that people say you can't do, well, we've been able to show in the state of Texas is not only does it work, it works well and it's put American back at the epicenter of manufacturing.
QUEST: Your duty as governor on the other side of that equation is to ensure regulatory controls such that the water table is not infiltrated, the earthquakes, if they do, do not happen, and that the correct safety procedures are followed.
How are you balancing that, Governor, with the natural desire for a boom industry?
PERRY: Well, one of the things that we've done in Texas, matter of fact, the first state to make public and to demand and require those companies that do the hydraulic fracturing, that the chemicals that they use in the process of hydraulic fracturing were, in fact, made public so that the public knows and has good confidence that the products they're using.
We have found the way to balance the regulatory world with being able to allow the exploration and certainly have done it in a safe way. And I think by and large, we prove every day with the amount of gas that's being extracted, that we're able to create an incredible economy, but also doing it in a safe and thoughtful way.
QUEST: Now I have one last question and one of the things I discovered when I was in Texas -- and I've been to Midland before, several times. They love the boom and they know that the bust eventually comes.
Do you believe there's a sustainability to this fracking boom that won't eventually go bust?
PERRY: Well, I don't know how far out in the future you want to go before you say there's a decline. You know, there -- our common sense tells us that it will probably come back. There some new innovation out there. There's some new way to do a business.
But the fact is, I think that for the foreseeable future -- and I'm talking about the next decade or even 20 years, that natural gas will be the energy choice that a lot of people choose. It's a way that a lot of world will be powered. So hydraulic fracking is here to stay.
QUEST: That's the Texas governor, Rick Perry. "Fracking is here to stay."
Let's bring in the president and chief exec of the American Petroleum Institute, Jack Gerard, joins me from Washington.
Sir, it may be here to stay, but it's not very popular, is it?
JACK GERARD, PRESIDENT AND CEO, AMERICAN PETROLEUM INSTITUTE: Well, I think it depends on who you're talking to, Richard.
Clearly when we look at new survey work around the country, over a majority of the American public support hydraulic fracturing and horizontal drilling because they see the huge benefits the governor was talking about in terms of creating jobs, bringing energy, low-cost affordable energy.
QUEST: But the one thing that I came away from my trip to Midland -- and then I read the critics, the environmentalists' views and all these -- you have diametrically opposed views on the same science. And it really comes down a question of do you take the risk. Are the benefits worth the potential if it goes horribly wrong?
GERARD: Well, I think, Richard, first of all, let me just clarify something. If you look at the science and the history of this technology, it -- they're really not opposing views. They've got a different interpretation of some of that.
But fundamentally we've been at this, using hydraulic fracturing for over 65 years. We've drilled well over a million wells. And there has never been a case of groundwater contamination as a result of hydraulic fracturing.
Now that's what Lisa Jackson, the head of the EPA, has said and Secretary Moniz, the new Secretary of Energy said just a few weeks ago.
So it's clear the history shows we can do it safely. We can do it and protect the environment, but we can also do it, create jobs, produce the energy the country needs.
QUEST: OK. Now let's talk about the Keystone XL pipeline from Canada. Now five years of delays; the Canadian natural resources minister on this program was talking about the geopolitical shift that all these changes are taking place.
So you want this pipeline and you want it yesterday.
GERARD: Well, absolutely, Richard, and this is one of the disappointments, I might say, on the part of the administration. This Thursday will be the fifth-year anniversary of delay. We wished we could celebrate this anniversary with a yes. Let's build the pipeline, creates jobs, makes us more energy --
QUEST: It's not going to happen. It's not going to happen. The critics won' t let it happen.
GERARD: Well, I think the critics will continue to talk; they'll continue to complain. But the reality is, this is clearly in the public interest. Four comprehensive environment reviews have all concluded there's no significant impact to the environment. We believe the president should make that decision, say yes, let's move on with it and it's good for the country, good for our energy security.
QUEST: Jack, final question to you, sir, the --
QUEST: -- as I -- well, you were surprised -- and tomorrow night on this program, by the way, you'll hear T. Boone Pickens tell us how surprised he was at the fracking success.
Were you surprised at how successful or how productive fracking has been, both in terms of rigs, production and what it's done for the U.S. economy as some people see it?
GERARD: Well, I think, Richard, I think we honestly -- we were all surprised. If you look back just five or six years ago, no one would have expected this opportunity would have come about as quickly and in such magnitudes as it has.
But I think it goes to the last question you asked Governor Perry. Clearly there's sustainability here in terms of a longer term boom, if you will, because it's a technological breakthrough that allows us to be competitive for many, many years to come.
QUEST: We won't take bets on the bust. But in Texas, they certainly believe it's going to come.
Sir, thank you for joining us. Much appreciate (inaudible) on QUEST MEANS BUSINESS.
And of course, we recognize that there have been many different views on exactly this, but we are looking at it this week from the point of view of the U.S. economy and the improvement that has clearly happened, everybody seems to agree, as a result of fracking. @RichardQuest where you have other views.
The Fed needs to begin aggressive tapering and it needs to begin now. That's the opinion of Larry Fink, the BlackRock chief exec talks tapering and energy after the break. QUEST MEANS BUSINESS.
QUEST: Now over the next 24 hours, there is only one word of which we will be hearing much in the financial world. It is of course "tapering."
The head of the world's largest money manager says now is the time for the Fed to begin tapering aggressively. The chairman and chief exec of BlackRock is Larry Fink. He spoke to Nick Parker and he said the American economy is reenergizing.
LARRY FINK, CEO, BLACKROCK: The foundations of where we are today are vastly different than where we were five years ago. So you have a strong banking system, unlike other parts of the world. You have a rising housing market. And then importantly, the game-changer for the United States service is Europe is its energy situation.
The fact that we are producing natural gas -- and right now natural gas is $3.50 -- and in Europe it's $12 -- it transforms the United States as a -- as a mecca for manufacturing. And you're seeing European companies, you're seeing U.S. companies reengage in building manufacturing plants in the United States because we have cheap energy.
NICK PARKER, CNN CORRESPONDENT: The U.S. Federal Reserve is meeting shortly.
Do you think they will begin a process of tapering?
FINK: I think it's essential that they begin as soon as possible. The Federal Reserve in the last year and a half has been purchasing as much as 80 percent of the new debt creation in the United States. So they're buying $80 billion a month. So arguably they're buying $1 trillion. I'm just rounding up a little.
And estimates were that we had about $1.2 trillion worth of private and public debt needs. So they're buying about 80 percent.
Now because of sequester, because of the tax increases, because of a marginally better economy in the United States, the U.S. federal deficits are shrinking. And the last estimates I saw, the U.S. deficits are going to be in the mid-$600 billion range, down from $1.1 trillion of a year and a half -- a year ago.
So if the Federal Reserve doesn't start tapering, they may be buying 120 percent of all issuance. To me, I'm much more frightened on the long-term implications of that type of bubble. That's what I would call a severe bubble.
So if you just calculate the percent that the Federal Reserve is buying and if they say they want to confidently (ph) buy no more than 80 percent, by definition they have to reduce their purchase.
So I don't think it's going to have a severe impact. And I think Chairman Bernanke has done a brilliant job of telegraphing this.
So one can argue that we've had great volatility since he announced this in -- on May 22nd; you've seen severe changes in valuations in emerging markets. That tells me we had a lot of excesses. We had bubble-like investments. And just an announcement, you saw a reduction, but that took out the fast money.
PARKER: Out of emerging markets?
FINK: Emerging markets, out of debt, some other areas. So I actually think he did a good job of getting the excesses out by telegraphing this. I would also argue that it's essential that they lower their purchases in governments, not mortgages, because mortgages still need to support the housing market.
And so I applaud the Federal Reserve and it is -- you know, and I've been asked, you know, it is my belief they should be aggressive in tapering because I think it's not as -- necessary now and importantly because of the reduction in government issuance of debt in the future, it's going to be essential for them to reduce their purchases.
QUEST: That is Larry Fink of BlackRock, talking to Nick Parker.
When we come back, we'll turn our attention to the serious issue of the appalling, dangerous and deadly weather that's affecting parts of Mexico. QUEST MEANS BUSINESS.
QUEST: There is deadly tropical weather in Mexico at the moment. Jenny Harrison is at the World Weather Center.
JENNY HARRISON, CNN METEOROLOGIST: Yes, Richard, at least 30 people have died so far. This is because we've actually seen Mexico hit on both sides of this peninsula, issued from two different systems. And I'm going to show you a satellite, showing you the latest. You can see both of the systems both beginning to lose a lot of their power.
This is the remnants of what was Hurricane Ingrid and this over to the west is the remnants of what was Tropical Storm Manuel. This has actually reemerged out there in the eastern Pacific. And right now it's actually a tropical depression once again.
But let me just show you some of the rainfall totals that have come down, in 24 hours, this first of all from Ingrid, 167 millimeters, which is more than the monthly average, and the same as well in Monterrey, 172, the monthly average is 148.
Let's have a look at some of the pictures, because it's not until you see this that you really begin to get an idea as to how bad it has been.
Now a million people have actually been impacted by both of these storms, 240,000 people are now in shelters. As I said, at least 30 people have died, 40,000 tourists are actually stranded in Acapulco because of these rains.
If you come back to me, I can talk a little bit more about as to what is going to happen next. This is the course that both of these storms took, both landing on these low-lying areas. Within the middle, we have got this higher terrain and landslides and mudslides very much a problem when you have this sort of area.
But just look at this, it is incredible in Acapulco. It doesn't look like a main street; it looks like a huge river. And this is what came through. You can imagine straightaway why 40,000 tourists alone were stranded. The airport was shut for a while; huge backlog. But it is obviously continuing to go on there.
Now moving on from there, this is the rain that's going to continue to come down. You can see that it will begin to taper off. But you'll also notice this. We're keeping a very close eye on this. Right now, it is about here, close to the Yucatan Peninsula. It could continue to push across and develop.
There's still some more rain to come down, Richard. But it is certainly tapering off, although you'll notice under the 72 millimeters in Acapulco in the next 48 hours. So a situation we wanted to very closely indeed.
QUEST: Jenny Harrison at the World Weather Center. Jenny, we thank you for that.
When we come back, I'll have tonight's "Profitable Moment." QUEST MEANS BUSINESS. Good evening.
QUEST: Tonight's "Profitable Moment": the raising of the Costa Concordia has everyone agog. The accident arose out of mistakes and mismanagement on board the ship. It led to crisis, chaos and confusion and terrible loss of life.
How very different has been the salvage operation. Eighteen months of careful planning, engineering expertise, it gave us an example of the world's most prodigious parbuckling -- $600 million it cost and many, many long months spent righting the ship. Ultimately, of course, that ship is going to the scrapyard.
But that mustn't detract from what an engineering feat this was, a ship twice the gross tonnage of the Titanic, slowly, delicately lifted upright - - extraordinary.
What I find particularly remarkable, they said they really didn't know if it was possible. Well, if that's true, then they are truly brave because in this litigious world, when we all sue when something goes wrong, when we all want guarantees that engineers can do this sort of thing and make it happen and still have some doubts, speaks volumes.
And the best part of it, the man who led the salvage operation said last night, it was time for a beer. And that's QUEST MEANS BUSINESS for this Tuesday. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, I hope it's profitable. I'll see you tomorrow.