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QUEST MEANS BUSINESS

China's Sweeping Reforms; Lew in China; Chinese Reforms; Another Record Day on Wall Street; World Market Surge; Bubble Trouble; Paul Smith Exhibition

Aired November 15, 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: It is a record-breaking week on Wall Street. As we come to the close on this Friday, the Dow once again hits another record. It is Friday, November the 15th.

The birth of a new era. China's making changes to its one child policy.

In tonight's program, also, we've got the bulls versus the bubbles. The markets worldwide, the only way is up.

And tonight, the designer who never changes his stripes. A personal tour from Sir Paul Smith.

I'm Richard Quest. It may be Friday, I still mean business.

Good evening. We start in China, where the leaders are easing the state's grip on society and on the economy. Hours ago, Beijing announced sweeping reforms, setting out the country's road map under the new Communist Leadership.

The major policy changes -- and they are major -- they include relaxing the controversial one child policy. Human rights groups have long-criticized the policy. Economists say it weakens China's future workforce when the population is aging.

But there's more, much more. The shakeup boosts the role of the private sector, the government exploring measures guaranteeing equal treatment for foreign investors in some industries. Our correspondent David McKenzie is in Beijing and now takes a look at the bold Chinese reforms.

(BEGIN VIDEOTAPE)

DAVID MCKENZIE, CNN INTERNATIONAL CORRESPONDENT: Authorities released the news late on a Friday evening with simple statements, but they are about laws that have been around for decades and are some of the most hated policies in China.

The one child policy is extremely controversial and the reaction on the streets was almost immediate.

UNIDENTIFIED FEMALE (through translator): Since the policy now allows it, I will definitely have a second child. It's too lonely for a single child.

UNIDENTIFIED MALE (through translator): When I get married, I would prefer having two children and I'm the only child in my family. My childhood was a bit boring.

MCKENZIE (voice-over): The Communist Party introduced the policy in the late 70s to curb population growth. Applauded by some, but heavily criticized by many for its often horrible consequences: forced abortions, involuntary sterilizations, and a huge gender imbalance. For years, the part resisted calls to relax the law. But faced with a shrinking labor pool and aging population, their hand was forced.

To accelerate growth, couples now can have a second child if at least one of the parents is an only child. But some human rights groups say it's not enough and want it abolished altogether.

But the government has abolished another controversial policy: reeducation through labor camps. Scattered across China, the prisons were used for decades to detain petty criminals, activists, and agitators for up to four years without trial. A recent CNN investigation exposed widespread abuses at one infamous camp. Many felt the brutal system was out of place in modern-day China.

The bold announcements show that the country's new leadership appears ready to shelve old laws in a bid to protect its future.

David McKenzie, CNN, Beijing.

(END VIDEOTAPE)

QUEST: The US Treasury secretary, Jack Lew, says China's reforms are ambitious. He's in Beijing on the final stop of his tour of Asia. Now, Mr. Lew held talks with vice premier Wang Yang and top Chinese officials.

According to the US Treasury, he pressed the Chinese to ensure a level playing field for trade and investment. Now, that's the reference, of course, to the arguments over China's currency and whether they are, indeed, manipulators of the currency.

While many reforms will have immediate effects, the effect of relaxing the one child policy will obviously take time to become apparent. According to a Bank of America report -- this is on the China one child policy -- "Replacing it with a two child rule -- two child -- could see an estimated 10.5 million extra births in just over the next five years after the change."

Ten million, that's a very large number to put into the population in the decades ahead. The report goes on to say the believes "the long-term impact will be limited because families in rural areas are already able to have two children." The BOA, Bank of America, expects a population spike in urban areas as parents there are freed from the restrictions.

Many reforms. Which are the most important in that regard? Let's discuss these reforms with Jamie Metzl, Senior Fellow at the Asia Institute. Good to see you.

JAMIE METZL, SENIOR FELLOW, ASIA SOCIETY: Nice to see you.

QUEST: So, one -- let's get -- the one child policy, the change thereof.

METZL: Yes.

QUEST: Rural could already have more than one.

METZL: Right. And ethnic minorities also could.

QUEST: So, who does this benefit most?

METZL: It's for people in the cities, but the goal is to help China's workforce. As you know, as everyone knows, the Chinese workforce is shrinking. They're already seeing a lot of pressure in their labor markets and they're opening up.

QUEST: But this is a 20, 30 year down the road --

METZL: It will be. But their problem is 20 or 30 years down the road as well. So, it's a smart investment. I think it was inevitable they were going to have to move here. Their population --

QUEST: Right.

METZL: -- the reproductive levels were already shrinking because of education and other reasons.

QUEST: OK. So, now let's look at the economic changes. Parity, or at least some form of equality for foreign investors.

METZL: They haven't committed to that. They say that they're going to consider it. If that happens, that would be a big plus. This whole rubric of indigenous innovation has been used to discriminate against international -- against foreign investors. So, if that happens -- again, it's a big "if" -- that would be certainly very positive.

QUEST: But you don't say you're considering it if you're not going to do something.

METZL: I think they intend to do something. There are a lot of pressures and counter-pressures. Whether they will do enough to have the kind of parity that our investors want, we'll see.

QUEST: And then, this opening up of some areas of the economy.

METZL: Yes.

QUEST: Some telecoms, for example.

METZL: And banking, yes.

QUEST: Banking.

METZL: Yes.

QUEST: Now, one hesitates to talk about public-private partnerships or any form or version. Do we know, are we talking about privatization? Are we talking about a PPI arrangement?

METZL: We don't know yet. What they have done is they've established principles, and they know -- the Chinese Communist Party knows more than anybody else that the system that they have isn't working. They're having massive misallocation of resources, just a lot of waste, waste of human capital, of natural resources. So, they know they need the market, and that was one of the key innovations here.

QUEST: But Jamie --

METZL: Yes?

QUEST: -- to do these massive changes in a relatively short period of time, the United States can't even get a health care law --

METZL: That's a whole other topic.

QUEST: Yes, it's a whole other thing, but it affects one aspect --

METZL: Yes.

QUEST: -- of the economy, an important aspect --

METZL: Yes.

QUEST: China's looking to deregulate or to change --

METZL: Yes.

QUEST: -- vast tracks of the economy

METZL: Yes.

QUEST: It could go horribly wrong.

METZL: It could go right, it could go wrong. It's incredibly ambitious, and they're doing it with one hand tied -- one arm tied behind their back, because they're trying to do everything from the top down.

When the -- for the reforms that they want, for them to work, they need to have some bottom-up pressure, and they're still squashing that.

QUEST: And they still talk about the Marxist guidelines --

METZL: Yes.

QUEST: -- the Marxist importance -- if you read -- I didn't read the whole document, it was 26,000 --

METZL: I did, yes. Yes.

QUEST: -- long or whatever it is. It was huge.

METZL: Yes.

QUEST: But the -- there's no shift in ideology, or is there?

METZL: Well, there's a shift in ideology. There's not a shift in language and rhetoric. So, they talk about Deng Xiaoping thought and the three represents, and they have all of this baloney that they have to say.

But there is a shift, when they talk about the role of the states and the role of market. So the language is there. The question is, can they push through these reforms?

QUEST: I'm going to go on an arm and a leg here.

METZL: Good.

QUEST: Just let's go back to -- the money that the Chinese donated to the Philippines.

METZL: Ah!

QUEST: And the -- well --

METZL: It's a sad story.

QUEST: But it was deliberate to send a message?

METZL: Who knows what their thinking was? But it was really just a terrible message that was delivered, whether they intended it or not. For sure, they were much more generous with Pakistan than they were with the Philippines. It was really awful. If China's going to play this greater role, they need to step up in many ways. Very nice to see you.

QUEST: Good to see you, thank you for coming in.

METZL: Any time.

QUEST: Now, the Dow and the S&P, the NASDAQ, they began the trading day on the cusp of milestones. Maribel Aber is at the New York Stock Exchange. Exciting stuff. We didn't get 16,000 on the Dow. We are getting close, and we are still at a record high.

MARIBEL ABER, CNN BUSINESS CORRESPONDENT: We are, Richard. Lots of records today, right? It puts the Dow and the S&P very close to these historic milestones you're talking about. Blue chips aren't that far off from that 16,000 mark, very close. The S&P 500 is quickly approaching 1800.

But you know what? I've been asked this question about what's going on with the economy, what's going on with the markets. We've got to be careful about qualifying this run that we're seeing in the market as a sign of a healthy economy per se here.

It's improving, but we haven't made back all that was lost, of course, in the recession, at least in terms of jobs, which we talk about all the time, as you know. This market run is all about the Fed stimulus. Janet Yellen says she thinks the QE needs to continue because unemployment is just too high.

And also this week, I want to add, throw in here what the CEOs are saying. Cisco CEO said that global recovery is just inconsistent. Also had that data from the --

QUEST: All right.

ABER: -- Japanese and European economies, too. It's all slowing down, Richard.

QUEST: It's all slowing down. But look at those numbers. You're only 39 points or so from 16,000.

ABER: We'll take it.

QUEST: I was wondering if it was going to do it today. It didn't. Maribel, have a good weekend. Many thanks on that.

We're talking about the markets. The question is, when a bull market turns into a bubble.

(BUBBLE SOUND EFFECT)

QUEST: As Wall Street surges to new highs, stocks are looking effervescent. We're on a QUEST MEANS BUSINESS bubble patrol when I return.

(RINGS BELL)

(COMMERCIAL BREAK)

QUEST: Markets across the world -- we've just been talking about what's happening in the US, but elsewhere, too, they're hitting all-time highs despite weak economic growth, and it's raising serious questions about why markets should be so robust in these economic environments. Investors continuing to pile in, eager to join in on the QE printing money party before it's over.

Let's start with the Dow Jones Industrials, and just look. This is just the one-week graph. All right, ho-hum, I hear you say. But I put in a six-month graph and you start to see, yes, volatility in the summer over tapering. Throw it to a one-year graph and without doubt, you see this impressive line of gains.

And even though there may have been one or two minor corrections on the way -- and they were just corrections on the way -- the trend has been consistent throughout the whole time. In the US, investors are no longer worried about the Fed cutting off the supply of cheap cash flow now.

To the Xetra DAX in Germany. Again, if you look at the six-month gain on the Xetra DAX, you see a gain of about 9.5. But the Xetra DAX has performed over the last 12 months incredibly high. It's now at an all-time high with a gain of 32 percent, 31.9 percent, despite the latest quarter showing growth stalling in Germany. We had that very sharp rise, then, and that very sharp fall on European worries.

Of all the markets that we've really got to look at, and those of us of a certain age will be looking at the Nikkei in Tokyo. Look at the one- year graph on the Nikkei. It's had its best weekly gain in four years despite economic growth in Japan slowing dramatically.

And if you look this gain on the Nikkei of 68 percent, obviously, there's a currency issue going on as well here, a very sharp drop here. We had Abenomics, which continues to push that market higher.

And that, of course, is what we need to discuss. What is going on with these markets? What's driving the force and whether it can continue. Joining me, Professor Ken Rogoff. Ken, good to see you as always. Thank you for coming in.

KEN ROGOFF, PROFESSOR OF ECONOMICS, HARVARD UNIVERSITY: Pleasure.

QUEST: Now, the markets seemingly no reality to the real economy. What am I missing here?

ROGOFF: Well, I think what do you invest your money in? So, the central banks are setting interest rates so low and projecting they're going to be so low for so long that more money goes into equity.

And I think the fact that it's been going up has been gradually coaxing people to come back in. And some stability in the global economy. Not galloping growth, but compared to where we were even a year and a half ago, things seem more stable.

QUEST: Now, Janet Yellen didn't see bubbles, Janet Yellen says that she will continue -- "it's imperative," was the word she used -- and she won't be a prisoner of the markets. That was the sort of economic environment that investors find so appealing.

ROGOFF: Well, absolutely. I think they knew she was going to be dovish, but they didn't know she'd be so effective and articulate. So, they look at her and say not only is she dovish, but she may be able to push her role, push her way in doing that.

QUEST: How shocked and worried were you by what we saw earlier in the week from Europe, this slowdown again? Quite sharp slowdown. Even though Ireland and Spain say they're coming out of the bailout programs.

ROGOFF: Well, I think it's disconcerting in that they had inflation way below 1 percent, which is supposedly their target for the ECB. But on the other hand, it's just a short-term -- I think there has been some stability in Europe. I'm concerned about a lot of things.

QUEST: What are you concerned about?

ROGOFF: Oh, I'm concerned that they just really won't build this structure to get the euro going in the future and eventually have to do something more drastic when there's a crisis.

QUEST: But Paul Krugman writing the "Times" this morning, he still sees great worries in euro land, and even though Greece is doing better, he sees that there are some serious issues that the Europeans will not grasp.

ROGOFF: Well, of course he's right. The euro still is -- the periphery still has unemployment over 25 percent in Spain and Greece, and Italy it's very high. They're doing much better in Germany, so it's very divided.

They haven't figured out how to do a banking union, they haven't figured out how to combine their government spending and taxes. They haven't figured out political union. They haven't figured out much of anything, and so there's a lot to do going forward, and it's sort of hard to see how resilient it's going to be.

QUEST: So, we take growth -- and let's just look at the -- we can put Asia to one side, because obviously so much is dependent on China in that market. But let's just talk trans-Atlantic growth. We're still looking at the US at 2.5 -- would you say, 2, 2.5, 3 percent if we're lucky?

ROGOFF: Lucky next year would be 3.5 percent or more. We've had all the fiscal contraction coming from the sequester and I think it's the -- if we're lucky, no, we could do better.

QUEST: And are you concerned about January and February -- I know it's a bit of a way off -- when we've got -- when we once again have a budget deficit discussion in Washington and a debt ceiling?

ROGOFF: I'm hopeful that it won't be as bad this time, and there are a couple of reasons. One is, I think it wasn't such a win for the Republicans doing it this time. They've got Obamacare that they don't want to distract from by having a shutdown, and also I think the Treasury's been able to take some steps to put off the debt ceiling hitting. So, I think that will pass a little more uneventfully, I hope.

QUEST: And as long as they continue to print the money, the market continues to rally.

ROGOFF: Yes. If they were to say they're going to do something different anytime soon, I would not want to see the consequences.

QUEST: We'll talk about that in a moment. Ken, good to see you. Have a good weekend.

ROGOFF: Same to you, Richard.

QUEST: Thank you so much. Now, we're talking about the continuing printing of the money. Well, there is a side effect to some bull markets. If they last too long -- hopefully this will show exactly what will happen. If they last too long, they produce these -- bubbles! Lots of bubbles!

With the Fed pumping money easy into the economy, investors are piling assets left, right, and center. And some fear we are close to the point where bubbles will form. Janet Yellen isn't worried.

(BEGIN VIDEO CLIP)

JANET YELLEN, NOMINEE CHAIRWOMAN, US FEDERAL RESERVE: Stock prices have risen pretty robustly, but I think that --

UNIDENTIFIED MALE: Correct.

YELLEN: -- if you look at traditional valuation measures, the kind of things that we monitor akin to price equity ratios, you would not see stock prices in territory that suggest bubble-like condition.

(END VIDEO CILP)

QUEST: Now, Janet Yellen knows investors are wondering if what they are seeing is a bubble, not just in stocks, but in the tech industry and the art world and in the property, because wherever we look at the moment, there does seem to be an over-inflation of prices.

The trouble is that we won't really know if any of these things are part of a bubble until it bursts. Joining me is Paul La Monica --

PAUL LA MONICA, CNN MONEY EDITOR-AT-LARGE: Thank you, Richard.

QUEST: -- from CNN Money. Paul, we're going to go through some of the things that you just wrote a splendid article about on the very weird and wonderful things happening at the moment. Firstly, before we look in detail, Twitter up 73 percent for a company that's made no profits.

LA MONICA: Yes, it is pretty phenominaml (sic) -- phenomenal, excuse me -- that Twitter has just surged despite the fact that it isn't profitable. It's not Facebook in that regard which, to give credit where credit is due, was profitable when it went public.

QUEST: And into this environment we have the market, the stock market, at an all-time high. Is it a bubble?

LA MONICA: I'm not so sure I'd say it's a bubble just yet. Valuations are maybe not dirt-cheap, but they are reasonable, so that's something that's in the market's favor. But you do have to be concerned when they're going up this fast.

QUEST: All right, we've got that. And explain why you're concerned with Bitcoin and bubbles.

LA MONICA: Well, Bitcoin is a virtual currency. Obviously, it has no backing from a central authority, so there are many people who wonder why would you buy one of these things when you have no idea what it's really being backed by. 450 all-time high, but people thought it was a bubble in April when the Cyprus fears let it up to 260 or so, and it's obviously well above those peaks.

QUEST: OK. So, if you've got two conventional -- well, conventional -- two odd things. This one, I'm going to push the button over here. This, the three pictures by Bacon of Freud, $142 million. Now, I'm old enough to know the time of sunflowers when that was sold and all those other extraordinary artworks. When you see these sort of prices paid, why do you get worried?

LA MONICA: I don't know if I'd go so far as to say I'm worried, because I think this type of market is really for just the uber-wealthy, as opposed to something like Twitter that the average investor can buy that and lose money on it. If you're going to spend $140 million on a painting, obviously, you're not a retail investor.

QUEST: No, you're not, but also, if you're going to spend a large sum of money -- look at this. The balloon dog.

LA MONICA: Yes.

QUEST: $58.4 million. When we see these prices, don't you start getting concerned?

LA MONICA: Yes, I think they may be a sign of just the bubble-like mentality we have in general with, as you pointed out, the Fed printing money, people feel a lot wealthier because their stock portfolios are obviously a lot higher. So someone that already is extremely rich is now absurdly rich when you look at their stock portfolios, and they can probably afford to buy types of paintings like that.

QUEST: Maybe not this. The tallest building in New York is back again. When you take it all together, Paul, do you get a feeling there's something going on? Something that we need to be very careful about?

LA MONICA: I think you have to be worried anytime the market goes up this dramatically in such a short period of time, but as I mention in my article, this feels a little different than 2000 and 2007 because some of the stocks that are at all-time highs are not your Twitters, they're J&J and 3M, which -- CSX, a railroad.

These aren't 21st century innovators. These are boring blue chips that anyone that's a retiree would happily want to own.

QUEST: But if they are at all-time high, that tells us that there's either an almighty bubble growing or the economy is performing properly and these companies are making profits.

LA MONICA: Well, they are making profits, but that doesn't mean the economy is performing properly. They're making profits because they're keeping costs low. Hiring isn't exactly at a robust pace despite the better-than-expected jobs report we had last month.

QUEST: Have a good weekend.

LA MONICA: Thank you very much.

QUEST: Many thanks, indeed. Paul La Monica joining me. Now, Paul Smith earned his stripes in the fashion industry. No stripes on me today. Now, Sir Paul has earned his own exhibition of his career and work of Britain's Design Museum. You'll hear from Sir Paul in his own words and see the goods after the break.

(COMMERCIAL BREAK)

QUEST: Stripes are to Paul Smith what checks are to Burberry. The Iconic British label is being celebrated in an exhibition at the Design Museum, which opened in London today.

The exhibition recreates his first shop, which measured just three meters by three meters, barely the size of my desk here, and follows the transformation of his business from its humble beginnings into what is now without doubt a global brand personified by the man himself. Sir Paul Smith gave Jim Boulden the tour.

(BEGIN VIDEOTAPE)

PAUL SMITH, DESIGNER: Well, hopefully it's just a chance for the visitors to enter my world, really. And so it's -- of course, it has clothes. I didn't want anyone to be a chronological set of clothes.

I want it to be about -- here, the lovely -- the famous stripes, but how we make them or how we make them with yarn and how the company's still very hands-on, and my photography and my collaborations. And starts with a little room --

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Yes.

SMITH: -- of course, where you walk through a room which was the size of my first shop. This is it.

BOULDEN: What is this tell you, this 12 by 12 shop that's where you started? Everyone has to start somewhere, but what did you learn by starting in this shop?

SMITH: Well, the thing about it is first of all, it's a room, really. It wasn't really a shop.

BOULDEN: Yes.

SMITH: And there wasn't an entrance there. There was no windows. It was a narrow entrance. And what it told me was that about body language, communication skills, and how -- can you imagine when you come in, it's very confrontational?

BOULDEN: Yes.

SMITH: So it's very much about, "Hi. Oh, I found this." Or "Have you seen this?" And starting a conversation. But of course, the interesting thing about Paul Smith, it's never followed the classical business formula or business plan.

And so many businesses today, unfortunately, are very cliche in the fact that they follow this absolutely classic formula. And mine absolutely doesn't, and yet, luckily, it's still OK. No borrowings, own a lot of our free-holds.

BOULDEN: Yes.

SMITH: No borrowings ever.

BOULDEN: You didn't sell yourself and your name to some French or Italian group?

SMITH: There were a lot have been asking --

BOULDEN: Yes.

SMITH: -- but I'm not interested at all in any way ever.

BOULDEN: But why didn't this chap sell his name or his company to an Italian label or to a French label or --

SMITH: Because a lot of people that do that do it because they're short of cash or because they aspire to great celebrity status. And if I suddenly was taken over by one of those guys, it wouldn't make any difference to me at all. I'd have some more money, but I don't need more money. I'm fine.

(LAUGHTER)

BOULDEN: Well, since you're not -- catering to the super wealthy, you must have been affected like everyone else during the economic crisis. What plans did you do? Did you streamline your operation? Did you shut shops? Did you think differently about what you were going to do?

SMITH: I think the interesting thing about the whole financial problems with us as a company is that we've never been over-extravagant anyway. We've not -- we don't have the private jets or the chauffeur- driven cars. Not for any reason other than we don't want them. We're happy as we are.

We've always been quite thrifty as a company. We've never spent money on things that we didn't need to spend money on. And so, when it hit, actually what was interesting is it didn't really affect us hardly at all. A little bit, but not a lot.

Because whereas those heady days of false money and casino banking, people were expanding rapidly and often expanding to cities and countries where they actually were losing money. Next two week's time, we're opening Shanghai. We opened in Beijing earlier in the year. And the Beijing one's doing really well, luckily. We've got seven in Hong Kong --

BOULDEN: Yes.

SMITH: -- and we've been there for a long time --

BOULDEN: Sure.

SMITH: -- and they're very successful. And now, sort of slowly and gently, cautiously, going into the mainland.

BOULDEN: That seems to be your word, "cautious" or "sensible."

SMITH: Yes. At a pace, yes. At a pace. Because that's my nature. That's what you can say, and I'm the boss and I own the company --

(LAUGHTER)

SMITH: -- so nobody can tell me not at a pace.

BOULDEN: Right. Right.

SMITH: Or rush it.

(END VIDEOTAPE)

QUEST: Sir Paul Smith, who once told me that, just remember, we're selling clothes, we're not curing AIDS or world poverty. We'll have more QUEST MEANS BUSINESS --

(RINGS BELL)

QUEST: -- after the break.

(COMMERCIAL BREAK)

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.

China has announced major reforms to its long-standing and controversial polices. State media announced the government will ease the one child policy which has been in place since 1979. Families will be allowed to have two children even if only one of the parents is an only child.

The official number of people who died in the Philippines typhoon disaster has risen to more than 3,600. Crews of people are collecting bodies now for mass burials in the nameless graves. Teams with forensic experts and photographers will be part of a quick system for identifying the dead.

In Libya an anti-military protest turned deadly after gunfire erupted during a demonstration in Tripoli. State media reports at least 13 people are dead and more than 130 more have been injured as fighting continued into the night. Toronto's city council has voted to strip Mayor Rob Ford of some of his administrative powers. The council lacks a legal power to fire him. The Mayor Ford has admitted to using drugs while in a drunken stupor. However, he insists he will not step down.

British prime minister David Cameron was mobbed by both pro- and anti- government protesters on Friday as he visited Northern Sri Lanka as the site of a near three-decade long conflict between the government and the Tamil Tigers. Mr. Cameron was in Sri Lanka to attend the Commonwealth Heads of Government Conference.

It is more than a week since Typhoon Haiyan slammed into the Philippines and now flights are certainly bringing refugees to safety in transporting aid to the hardest-hit areas. These people used to live in Tacloban. They're now at the city's airports waiting to be placed on flights out of the disaster zone. European plane maker Airbus is lending one of its test aircraft to a French NGO delivering supplies to typhoon victims. The A340 aircraft will carry volunteers to more than 30 tons of medical aid. It's making its way to the central Philippines.

Thousands of refugees have fled the decimated city of Tacloban for safe passage to Cebu in naval ships. Anna Coren is at the arrival port. An when they arrive after where they have been, besides a relief just to get away, Anna, there must be a hefty dose of shock?

ANNA COREN, CNN CORRESPONDENT: Yes, absolutely, Richard. We were down at Cebu Port yesterday when that naval vessel brought in about 3,000 refugees from Tacloban. And these people are shell-shocked. You know we spoke to one woman, Richard, and she said 'I'm absolutely depressed. I've lost everything. Yes, I have my family intact, but so many people have lost so much more.' So, there really is a sense of bewilderment. You know, here do these people go from here? They're carrying their belongings - that's all that they have left, so it really is a desperate situation for these people who now have to rebuild their lives. But, Richard, where we are, we're at the Cebu Airbase, and you can probably see the C130 Hercules behind me. These cargo planes dispatching aid to those hard-hit areas, the ones that do have the runways operating. They bring back refugees to the airport here and those people do have horrific stories - every one is a survivor of this awful, awful ordeal.

QUEST: So, when these people arrive in places like Cebu and elsewhere, what is the idea? What is the plan? I mean, refugee camps will be set up, these people will be housed and homed, but what is the medium-term thinking?

COREN: We wish that the Filipino government was thinking so far ahead, Richard. And I have to say that this entire relief operation has just been so disorganized. You know these people got off the vessel yesterday, the people who arrived here as well - it's like where do we go from here? Those with family and friends, they will be sent to those towns and cities around the country. But for those who have no relatives, they have to go to these emergency evacuation centers that are being set up, but from what we understand, there aren't too many of them, so -

QUEST: Right.

COREN: -- you know, the Filipino government has another challenge on its hands in taking care of these people.

QUEST: Anna, on a broader question - a broader issue - because you've covered many of these disasters now and are an experienced at seeing how they're managed. Is it fair a criticism bearing in mind the difficulties of getting logistics into these places - there are no runways, there's no infrastructure. You've got to bring everything in. Surely, from what we've learned from Tsunami, from Haiti, is that it does take time.

COREN: No, you're absolutely right. It does take time. I just think that the people on the ground who've been without those basic necessities for a week you know they're wondering what's going on? You know, why isn't the aid getting to them, but you're absolutely right, Richard. It does - you know it's a process, but we've been here for the past week and you know the Filipino military have been operating with only two, maybe three C130 Hercules. You know, they take aid down, you know, sacks of rice, pallets of bottled water - they bring back 100 refugees. There are two million people who have been displaced. Another example, the Save the Children Foundation, you know they had cargo sitting on this airstrip the other day. It took them six hours to get it off because there's only one forklift operating. I mean, these are basic things that if they were functioning, if they had enough resources -

QUEST: Right.

COREN: -- to actually get the cargo off the planes, to then fly them to these places, you know things would run a lot smoother.

QUEST: Anna, good to talk to you. Thank you for putting it into perspective. Much appreciate that. Anna Coren who is in Cebu where of course it is now morning. One grim reality stands out as the death toll rises. Bodies are everywhere in places like Tacloban. As Nick Paton Walsh reports, dealing with the dead it's an important part, a crucial part, of the recovery process.

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NICK PATON WALSH, SENIOR INTERNATIONAL CORRESPONDENT WITH CNN: This is where it ends for so many without ceremony or even their names spoken softly. The corpses that have littered Tacloban as so much of the city leaves, come to rest here and tell parts of the horror of how they must have died. But they leave many questions too among the overpowering smell of looming disease. It's a cold but necessary process - the accounting of the dead that happens here. And the condition they arrive in after days in the open, and the impact of flood waters, gruesome, sometimes unrecognizable. But for the relatives who come here in search of their loved ones, it's here that they hear the toughest answers.

Some endure the search for mothers or brothers, but find more not knowing. These had ways of identification (cast) witnesses. These didn't. (Feling Bonder) came here to look for her son (Gerald) from the night of the storm, the shared cake and soda before he said the rain wasn't that bad and went out. His brother (George) has the more gruesome task along the roads, and it's clear they have no answers here.

(FELING BONDER), TYPHOON VICTIM, VIA TRANSLATOR: That's all I want. Even if it's a corpse, I'd like to see my son. That's why I'm here every day looking.

QUEST: The death toll officials give may vary but this torturous process won't. Bodies brought in and then taken away, driven to the outskirts of town where young police hesitate over their grim job. About 100 already here. The man said the grave is just temporary, but the holes they leave in the families' hearts and homes of Tacloban is permanent. Nick Paton Walsh, CNN Tacloban.

(END VIDEOCLIP)

QUEST: Now when we come back we will turn our attention to other matters. This is "Quest Means Business."

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(BEGIN VIDEOCLIP)

QUEST: We're in San Francisco on the next CNN "Business Traveller." They're young.

Female: This is my whole life.

QUEST: They're mobile. OK, Glass, nearest Starbucks. And they're the future of business travel.

Male: This is the next generation of hotels.

QUEST: Join me in Silicon Valley learning what millennials like on the road on the next "CNN Business Traveller."

Male: Saturday on CNN.

(END VIDEOCLIP)

QUEST: Earlier in the program with Ken Rogoff we were talking about the issues and problems still facing the E.U. and the Eurozone. Well, today the European Commission said some countries are at risk of breaking the new budget rules and that a fiscal compact among the potential offenders - Spain and Italy, who's finance ministers you see here arriving in Brussels for an Ecofin. It's the first time E.U. officials have been able to review each country's draft budget before it's been approved by the national legislature. It's all part of the stability pact and the so-called fiscal compact. The Commission said Italy could fall short of the debt reduction benchmarks. It predicted Spain's deficit will be just above the agreed target, and warned structural reforms may not be enough. France got the lightest warning. Its draft budget was given the OK with no margin for error.

Well there is anger over the trash that's piling up in Spain's capital which has now reached critical issues. On Saturday Madrid City Hall plans to use national workers to pick up the mess. Our correspondent in Madrid is Al Goodman and he's been out on the streets to see how the cleaners' strike has been going on for weeks and how it's affected the Spanish capital.

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AL GOODMAN, CNN'S MADRID BUREAU CHIEF: Peruvian businessman Jack Falcon and his wife came to the Spanish capital to see the sites. But they didn't expect to see this. The trash is piling up, with the Madrid street cleaners' strike now in its second week.

JACK FALCON, TOURIST: Yes, it's impossible not to notice it. It's very sad. The city looks absolutely dirty.

GOODMAN: What do you think?

Female: It looks horrible everywhere you walk.

GOODMAN: And it comes at a horrible time for Madrid where international tourism has already declined this year for numerous reasons, officials say even as it has increased overall in Spain. The Madrid Hotel Association is worried.

ANTONIO GIL, PRESIDENT, MADRID HOTEL ASSOCIATION, VIA TRANSLATOR: This hurts Madrid's image. Madrid is a great city with a lot of tourist attractions. But this strike, seen from abroad, could give a distorted, unreal image of Madrid.

GOODMAN: An image that's bad for business. The Shop Owners Association says, "This situation will get worse if the strike continues, because we're just ahead of the Christmas holidays, a sales period that is vital for stores." Especially in Spain's economic crisis where tourists are desperately needed, given the sharp decline in domestic demand.

The street cleaners' strike in Madrid is another example of how hard it is for Spain to get out of its long economic crisis. Many Spanish cities like Madrid are in debt and they're trying to cut costs. So they've outsourced street-cleaning to private companies. Those companies say for efficiency's sake, they need to cut hundreds of jobs and reduce salaries for those who remain. The unions say they're not going to take this lying down. It's so tense now that police guard the few street cleaners who are working to provide minimum services. And the blame game is on with City Hall, the unions and the contracting companies pointing fingers at each other. Madrid businesses and residents feel like they're paying the price. Your neighborhood association said you have a right to clean streets. What do you see here?

SATURINO VERA, CITY CENTER RESIDENTS ASSOCIATION, VIA TRANSLATOR: We demand that the City Hall do its job. We mean, take responsibility so that this is not in the street.

GOODMAN: But it is very much in the street. The question is, for how long? Al Goodman, CNN Madrid.

(END VIDEOCLIP)

QUEST: European markets all end of the days - higher and this week was all over the relief from (Johnny Evans') dovish comments which crossed over the Atlantic. Look at the markets - they are over there. Not - Friday's close up a smidgeon there. Up quite a bit more in the middle and the bottom. London's 100 was the biggest gainer. It was (Vivendi) on the FTSE Europe (first 300) rose 2.7% in Paris. The company has compete -- beat quarterly profits.

To the weather forecast. Jenny Harrison is at the World Weather Center. Jenny, obviously with events elsewhere we hadn't had a chance to discuss the normal digest of our world.

JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: We have not and I'm (inaudible) you, Richard. And I have to say you know just at well the weather in Spain is actually well below the average temperature. It is cold this time of year, colder than it should be. With all that refuse on the streets, I'm sure that's probably helping keep the smell down a little bit. But this is what's going on - we've got some pretty wintry weather out there, and also notice this area of cloud. Well this is going to sit there and spin across the central Western Med. It is for the most apart producing rain, but this rain could really add up in the days ahead.

But we've had some snow. This will please the skiers out there. Some new snow - 24 centimeters, Austria. Eleven new centimeters into Italy and there's more of that as well to come in the next few days. You can see in the last few hours things clearing out a little bit. But quite a bit of rain with some snow mixed in across central and southern areas of France.

Here's the low - to the north of here we have got some very cool air coming down of course turning a lot of the moisture to snow. So, again, we'll see more of that. This time across northern areas of Spain, southern areas of France, but the cold air really is funneling all the way down into the southwest. And so, here are some of the accumulations in the next 48 hours. You can see across the Pyrenees and generally mostly the mountainous areas, but it is honestly beginning to stick this time of year.

Now, temperature-wise, not particularly cold it has to be said, but for Madrid the next couple of days, 9 Celsius the high, the average is 13, and also certainly cooler in the overnight hours. And that cold air continuing to (fill) down to the southwest, but then where we have this area of low pressure, very heavy rain expected. It's the morning there, of course you can see them here, but large hail tornadoes. But we do expect to see some quite heavy accumulations. Not so much the next couple of days, but even in the next couple you can see some areas sticking up - about 80 millimeters of rain but as we go into the beginning of the work week. So much so that certainly on Saturday Venice could also be impacted - a high tide. So they've got the yellow warning out and it's particularly (inaudible) to see 9:15 a.m. local time on Saturday and they are expected about 100 centimeters. So that takes it just above the high tide, so flooding is a problem. And of course the different colors corresponding to the amount of city that could well be flooded. So, at times as much as 28 percent even when it's just sort at the high tide area. So, as I say, we've got that continuing across these central areas. Snow to the higher elevations. That cold air across the north, the snow of course across Scandinavia, popping through Western Russia too. Delays certainly at the airport. Barcelona, very long because of some rather windy conditions and we've got quite a bit of fog across Central Europe. We haven't got the weather systems there, so the winds are light, but that this time of year leads to fog, so 45 minute delays quite possible and then a little bit of sleet and snow mixed in to Moscow in the evening hours on Saturday. And then temperature-wise across the continent, 9 in Vienna, just 6 in Berlin and actually mild (inaudible) Copenhagen with a high of 10.

QUEST: Well, hopefully we'll have clear blue skies and pleasant weather here in the Northeast United States. But that's for another story.

HARRISON: I'm not going to answer that question, I'm not sure. I haven't actually checked.

QUEST: Oh.

HARRISON: I can tell it's been rainy here and miserable all day long, but it's not bad. Some severe weather actually, in the southern states on Sunday -

QUEST: Yes, yes, but I'm not there.

HARRISON: -- I'll be talking about -

QUEST: I'm not there.

HARRISON: -- that tomorrow. Oh, we see that --

(CROSS TALK)

HARRISON: -- you see, you don't care because you're not there.

QUEST: Thanks. It's all about me. Oh, you're right. Right.

HARRISON: I know. It is. I've learned this for years, I always know it's about you, I know.

QUEST: No, it's about you.

HARRISON: Have a nice weekend.

QUEST: Thank you. Jenny Harrison at the World Weather Center. It's actually of course about you. When we come back after the break - someone has to you a bit of grief on a Friday. Mexican authorities say it's sunny, it's great for surfing, oh and yes, don't forget, it is safe. It's a (inaudible) city shut down for violence that welcomed its first cruise ship in two years. Back in business..

(COMMERCIAL BREAK)

QUEST: Brazilian football players are joining in the protests which have hit their country over the past year. They say playing conditions are unfair and they are disrupting games to make their point. They're disrupting them in a very interesting way, by standing there doing nothing. Shasta Darlington has more on the protests in Sao Paulo.

SHASTA DARLINGTON, INTERNATIONAL CORRESPONDENT FOR CNN: Brazilian football players literally crossed their arms this week bringing a series of games to a standstill in protest against the country's notoriously overcrowded football calendar. Now, in most cases, the protests started right after kickoff and they only lasted a couple of minutes. They were organized by a movement that calls itself Common Sense FC. They're widely supported by players and what they want are longer vacations, longer pre-seasons, fewer games and really a bigger voice in decision-making. In fact they said that if they don't get some answers from the Brazilian Football Confederation, they could start planning more drastic measures. And according to Brazilian media, those drastic measures could include everything from wearing red clown noses onto the pitch to halting games entirely. Shasta Darlington, CNN Sao Paulo.

QUEST: Should make for some interesting games. For the first time in two years, an American cruise ship has arrived at the Mexican port of Mazatlan. The M.S. Veendam arrived there on Thursday. Gang violence and drug-related violence meant the area had - well, not surprisingly - lost its appeal to U.S. tourists. It took more than $100 million in spending for the Mexican government to make the area safe. Nick Parker has that story.

NICK PARKER, CNN CORRESPONDENT: Long sandy beaches, great architecture and the freshest seafood cooked to order. Mazatlan has long been known as the Pearl of the Pacific. But officials say U.S. and Canadian visitors dropped by 25 percent in 2010 to 2012. The reason, concerns over security. The city is situated in the state of Sinaloa, home to one of Mexico's biggest drug cartels, and violence flared in the surrounding area. Now Mazatlan is making a comeback.

FRANK CORDOBA, SINALOA TOURISM SECRETARY: The concern was security, and I mentioned to you that we invested $58 million in security. Well, see that camera right there? Those cameras are watching us 24/7. They can tell you if somebody is carrying a weapon. The bad guys figured out real, real fast that they don't belong here.

MICHAEL PETERS, AMERICAN TOURIST: I came here a long time ago when I was younger, and coming back seemed easy and having felt nothing but safe and welcome.

PARKER: Another focus for the city was restoration. This is one of Mazatlan's unique selling points. A colonial town on the beach. Many of these buildings are more than 200 years old, and the city has spent $120 million regenerating the area. We took a helicopter ride with the state tourism secretary who showed us the revamped ports where cruise ships full of U.S. tourists will begin arriving this month, the first in more than two years.

CORDOBA: It's probably the most important event we're going to have all year. It's going to show the cruise lines, one, we're ready for them. Two, that we've done everything that they've asked.

PARKER: Winning the confidence of tour operators and airlines has been vital. At an industry event, we found a mood of optimism.

COLLEEN FLAHERTY-REYES, DELTA HOLIDAYS: We have increased air capacities to Mazatlan, there's a lot going on with Mazatlan and the promotions, and the response has been wonderful.

PARKER: To some extent Mazatlan remains an oasis, the only part of Sinaloa without at U.S. State Department warning. As it looks to fill its beaches, the city knows only too well how fragile the perception of security can be. Nick Parker, CNN Mazatlan, Mexico.

(END VIDEOCLIP)

QUEST: Absolutely delightful-looking. We'll have a "Profitable Moment" after the break.

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QUEST: Tonight's "Profitable Moment." Let's pause and just think about the concept of bubbles. The interesting thing about bubbles is everybody sees them just about everywhere. The actual real definition of a bubble in the financial markets is when people jump in to buy an asset for the sole purpose of speculation, believing that that asset is going to rise. When that happens, bubbles are seen. The real difficulty of course is how do you prick a bubble without bringing the house down around your head? Think about that over the weekend. And that's "Quest Means Business" for this week. 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 again on Monday. Bubbles galore.

END