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QUEST MEANS BUSINESS
OECD Cuts Growth Forecast; Obama on the Economy; Debt Limit Reform; US Markets Down After Hitting Record Highs; European Markets Down; JPMorgan $13 Billion Fine; Russian Economy Worries
Aired November 19, 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: After all the hoopla and hurrah of 16,000, the market doesn't manage to get gains. As we head to the close, the market town just a tad. It is Tuesday, November the 19th.
Tonight, the global economic engines are sputtering. The head of the OECD says we're living with a brutal legacy.
It may break records, it won't break the bank. JPMorgan takes a $13 billion fine.
And me, my selfie, and I. The war and the word of this year that's a snapshot for our times.
I'm Richard Quest. I mean business.
Good evening. We start tonight with the global recovery, which has been downgraded as the engines of growth continue to sputter. The head of the OECD, Angel Gurria, tells me on this program that the world economy isn't firing on all cylinders, and his organization is pointing to a new set of concerns threatening that recovery. Consequently, the OECD has lowered its forecast. Join me at the super screen.
The OECD has cut its forecast for growth to 2.7 percent this year. Now the significance there is it's way lower -- it's over nearly half a percentage point lower -- than just six months ago. 2014 was also revised downwards to 3.6 percent, and it was quite a reduction that they made.
The OECD cited political brinkmanship in the United States, Washington's debt issues and the debt ceiling and budget debacles. And then, of course, you've got the wind-down, the tapering on the Fed bond- buying program. Also, the emerging markets have given us reason for the downgrades.
Now, with these numbers, 2.7 and 3.6, the OECD -- there's a consensus starting to breed. Look at the International Monetary Fund. The OECD is in line with other bodies, which cut forecasts. The OECD -- the IMF predict 2.9 percent. So, slightly more cheerful than the OECD, but remember, their forecast was a month or two ago. That was down from 3.2, emerging market weakness.
Then you've got the World Bank. They are at the lower end, 2.2 percent for global growth, slower than last year, and it's weak confidence. And even private economists like PWC, their forecast is a contraction in the eurozone and a 2013 forecast of 2.2.
So, whether it's 2.2, 2.2, 2.9, or indeed for next year's forecast, 3.6 for 2014 from the OECD. I spoke to the secretary-general, Angel Gurria, and I said a sizable reduction that they were now forecasting was especially worrying when we'd hoped growth would speed up.
ANGEL GURRIA, SECRETARY-GENERAL, OECD: Richard, the legacy of the crisis is brutal. It left us low growth, it left us high unemployment, it left us growing inequalities and a very great loss of confidence in all the institutions that we built over a hundred years.
Now, what is the diagnosis today of the economic engine? Well, that the proverbial four cylinders are not working, are not firing. And what are the cylinders? Well, trade is growing at 2 to 3 percent. Normally it should be growing at 5 to 6 percent at least, and the recovery should be growing even faster.
GURRIA: So, then what about investment? That's important for tomorrow, OK? Well, investment is growing at less than 2 percent, and that, again, is only a fraction of --
GURRIA: -- what the normal cruising speed should be for investment. Then you have credit. Credit is flat in the OECD, negative in Europe, therefore that is not helping to create speed. And last but not least, our typical big engines of growth, the BRICS, they're slowing down.
QUEST: But those cylinders have been misfiring for some time. What is the reason for your concern now? Is it principally the issue of the US budget and Washington shenanigans? Is it Europe's inability to get growth going? Or is it the worry of tapering ahead?
GURRIA: It's all of the above, Richard. You mentioned a number of elements. The brinkmanship in the United States is not allowing the vigor, the vibrancy of the US economy to come through and to make it possible to lead the world economy.
Why? Because, well, forget about the shutdown. Just think about the sequestration. This is -- that's taking 1 to 1.5 percent growth away from the US economy, so I hope that one of the things that they can fix come December is that they can smooth out this adjustment so that the United States can grow a little faster.
QUEST: Janet Yellen says she'll keep the gas pumped for as long as is necessary, but we are looking at some form of tapering, probably in the early part of 2014. If and when that happens, do things get worse on global economics?
GURRIA: Richard, already we had a taste, OK? Because when Mr. Bernanke mentioned in May that they may taper, there was a turbulence. So already a little bit of the mystery or a bit of the pressure has been taken off.
What Janet Yellen has said, she's being perfectly consistent in the Fed, don't we owe a lot, because they have kept the trains running on time and they've allowed us not to have such a deeper recession.
But what the Fed is doing is what they said they would do. They said when employment -- when unemployment goes down to 6.5 we will consider it - - not automatically, but we'll consider reducing the support.
And we're still at 7.2, 7.3. Inflation is not a very great concern. In fact, in Europe, disinflation is a great concern now. So basically what the Fed has done is surprised us by doing exactly what they said they would. They're being consistent.
Tapering was predictable. You can't put a trillion dollars on the books of the Fed every year forever. And second, it was inevitable. And third, it's in a way desirable because it means your doctor just told you you're off the cortisone. You're no longer going to be on steroids. And that should be a good news.
QUEST: Unfortunately, you may no longer be on steroids, but you're not making that strong a recovery, and that's the problem at the moment.
US president Barack Obama's just been speaking at a "Wall Street Journal" event in New York. A few moments ago he said that the health of America's economy may depend on fixing the country's health care system.
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BARACK OBAMA, PRESIDENT OF THE UNITED STATES: When we talk about our deficit and debt problems, it is almost entirely health care costs. You eliminate the delta, the difference between what we spend on health care and what every other country -- advanced industrialized nation spends on health care, and that's our longterm debt. And if we're able to bend the cost curve, we help solve the problem.
Now, one way to do that is just to make health care cheaper overall. That's, I think, the best way to do it, and that's what we've been doing through some of the measures in the Affordable Care Act.
(END VIDEO CLIP)
QUEST: That's the president. Earlier at the same event, the US treasury secretary, Jack Lew, said that the American Congress needed to ask in a businesslike way and extend the debt ceiling before the clock starts ticking down.
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JACK LEW, US TREASURY SECRETARY: I think that if you look at the things that Republican leaders have said since October, it's clear that this was not a good experience either for the country or for them politically. I know the right answer. The right answer is they should just extend the debt limit way in advance and not have any sense of crisis at all. I hope that will happen.
They said February 7th is the date when the debt limit expires. We do have extraordinary measures that will last about a month after that. So, they have some time. I hope when they resolve the budget, when they start moving forward, they just do the debt limit in a businesses-like way and give some certainty to the US and the global economy. That would be the right thing to do.
(END VIDEO CLIP)
QUEST: Now, with so much economic pessimism around today, the OECD, these comments, it's not surprising the US stocks lost a little bit of their momentum a day after hitting record highs. The Dow Jones Industrial average -- we'll still very close to 16,000, but the session was -- I want you to just look at that graph. Up a bit, down a bit, up a bit more, down a bit, up a bit.
And that was the way -- and what that tells us is the uncertainty, the profit-taking, the worries, this is a classic psychologically important barrier. Try it and pull back. Try it and pull back. Well, the S&P 500 is down slightly as well after it surpassed 1800 today, and the NASDAQ was also lower. It remains close to these 13-year-high of 4,000. This is a classic scenario that we're seeing in the markets.
To Europe, now, where the stock markets dropped back from their five- year highs, not surprising once again. All the major markets were down. Paris CAC 40 was off the worst of all, it led the region, falling more than 1 percent.
The Frankfurt DAX slipped from an all-time high. There it was the ZEW Survey -- the ZEW Survey, a reading of German economic confidence that came in lower than expected.
Pulling it all together, Valentijn van Nieuwenhuijzen is with us, the head of strategy at ING Investment. He joins me from CNN London. We'll do markets in a moment. The economic scenario, Valentijn, it ain't good and it should be better.
VALENTIJN VAN NIEUWENHUIJZEN, HEAD OF STRATEGY, ING INVESTMENT MANAGEMENT: Yes, and I think it's getting better, and I think after all this somewhat cautious talk about the state of the global economy, I think we need to continue to monitor that.
Actually, the cyclical dynamics are pointing upwards, and that the likelihood of both potential growth in the large majority of the developed world for next year is actually higher than it has ever been in the last five years.
So I think despite some ongoing problems in the emerging world, which will have somewhat of a depressing effect on the global economy, for a large part of the developed world, I think the upside risks are higher than we've seen over the last couple of years --
QUEST: Well, you say that --
VAN NIEUWENHUIJZEN: -- so we shouldn't be only talking about structural issues.
QUEST: You say that, but the OECD today, you heard Angel Gurria, very pessimistic on issues of tapering, of European growth, on all these areas. So what are you seeing that he's not?
VAN NIEUWENHUIJZEN: Well, what I'm seeing is that generally forecasters have a very hard time in forecasting the cycle when we're turning. And that is something we've seen throughout all economic cycles for a very long history. And I think right now what you're seeing is signs of turning up in Europe. You're seeing it in Japan. You're certainly seeing it in the private sector in the US.
So I think, actually, a lot of these institutes and also in the private sector, a lot of forecasters are underestimating the upside risks for next year. It doesn't take away the ongoing structural issues. But this is, I think, pretty normal behavior at this stage in the cycle.
QUEST: Classic testing of limits we're seeing at the moment, aren't we, in the market? Hit 16,000. Could -- it breached it, but it decided that was a little too rich for the blood.
VAN NIEUWENHUIJZEN: Yes, well, absolutely. If you look at the markets, it's pretty clear that a day of correction is pretty natural. But what we've seen in recent days again and again -- or in recent weeks, I should say -- is that that is seen as a perfect time to enter the market.
The market is really seeing relatively event risks ahead of itself, and it's seeing increased likelihood of better corporate earnings heading into next year. We would anticipate double-digit earnings for next year. And if the politics --
QUEST: On both -- let me just interrupt you on that --
VAN NIEUWENHUIJZEN: -- get a little bit more calm.
QUEST: When you say double-digit growth, corporate earnings, is that on both sides of the Atlantic?
VAN NIEUWENHUIJZEN: Well, it's actually most notably on this side of the Atlantic in Japan. I think to some extent the degree to which corporate earnings can surprise on the upside is highest here in Europe, in the UK, or in Japan, and less so in the US.
QUEST: So, is it time -- and we're not giving investment advice as such -- is it time for another rotation on equities?
VAN NIEUWENHUIJZEN: Well, I think you're already seeing that equities is by far the favorite asset class amongst investors. I would argue at this point it is time to sort of stay with the consensus on that trade, wait for a couple of weeks and probably even a couple of months, and then start to think about positioning yourself in a more contrarian way.
For now, I think there is upside for a further support coming from a gradual rotation, not so much a great rotation --
VAN NIEUWENHUIJZEN: -- but a gradual rotation out of fixed income instruments into equities.
QUEST: Valentijn, good to see you as always, joining us tonight. Thank you for a late evening joining us from London.
A deal has been done on what could be a record fine -- the highest fine in corporate history. JPMorgan has settled with the US Department of Justice. It's an eye-watering sum: $13 billion. And it's going to also help struggling homeowners. It's QUEST MEANS BUSINESS.
QUEST: JPMorgan Chase and the US Justice Department have finalized the worst secret in the market. It's a $13 billion settlement, and you'll remember in October, the bank agreed to pay the enormous fine over its mortgage practices in the run-up to the financial crisis -- $13 billion.
The deal includes $4 billion to help consumers. More than a quarter of it will go to help reduce loan payments for homeowners whose mortgages are well and truly under water.
Now, the total -- the total fine is roughly 12 percent of JPMorgan's annual revenues last year. A criminal investigation against the bank is still ongoing in California. The lender's agreed to cooperate with that probe.
The fine could be the biggest in corporate history. The settlement's more than three times -- look at this -- and this really does put it into perfect perspective. It's more than three times the amount that BP paid over the Macondo, Mexico oil spill in 2010. The oil company agreed to pay only $4 billion in that deal.
And then, with GlaxoSmithKline, then you had a $3 billion fine for failing to report safety data on some of its most popular drugs. Again, a much greater question. Now, Paul La Monica is the assistant managing editor at CNNMoney.com.
PAUL LA MONICA, CNN MONEY MANAGING EDITOR: Thank you, Richard.
QUEST: You tweeted about this, and I tweeted back to you, Paul.
QUEST: Why -- I don't understand. These were misdeeds by WaMu -- Washington Mutual -- by Bear Stearns. Chase didn't own the banks when these deeds happened. Why should Chase hold the bag?
LA MONICA: Well, I think it's a case of buyer beware. A lot of people, I think, feel that Chase did know what it was getting into when it bought Bear Stearns and WaMu in 2008 on the cheap because it was during the financial crisis.
QUEST: They got them on the cheap because nobody else wanted them and the government wanted to get rid of them.
LA MONICA: That is true, but JPMorgan obviously still benefited somewhat, the Bear Stearns deal helping its investment banking business, WaMu getting them an even bigger player in the mortgage business, which they're obviously paying for those sins now.
But I think really when it comes down to it, there aren't going to be many people shedding tears for JPMorgan, because even with this whopping $13 billion fine, they can easily absorb it. The stock was up today. The stock has had an amazing year --
LA MONICA: -- pretty much on par with all the other bank stocks.
QUEST: All right, I'll stop doing -- I'll stop passing the tin hat around for Jamie Dimon. Let's talk about instead, does this bring an end to their illegal problems? Because if you're going to pay $13 billion, you pretty much hope that you're not going to have to get the checkbook out again and again and again and again.
LA MONICA: Right. And they have been nickeled and dimed, so to speak. There have been a series of fines: obviously, the London Whale one as well. So, I think there's a hope that this is the worst of it, but as you just pointed out, there's still the possibility of criminal investigations as well.
So, I don't think JPMorgan's legal headache is over just yet, but investors clearly think that the worst is over, even if that many not necessarily be true.
QUEST: And as a cash cow and as a machine for generating revenues and profits, this bank is just about par excellence on Wall Street.
LA MONICA: Oh, definitely. JPMorgan was the star of the industry even through the financial crisis.
LA MONICA: Really, what this has been more than anything else is just sullying the reputation of Jamie Dimon, the golden boy of banking. I don't think anyone now looks at JPMorgan as this --
QUEST: Except its investors, maybe, and the board of directors.
LA MONICA: The investors do, that is definitely true, and yes, he still is the chairman of the board, so if he has any problems, he can go to himself to figure out whether or not he should fire himself.
LA MONICA: But really what it comes down to is that JPMorgan is no longer, I guess, this sainted bank anymore in the way that it used to be held in high regard. This was Obama's favorite bank, so to speak.
QUEST: $13 billion is a serious amount of money.
LA MONICA: It is unquestionably a serious amount of money. It's nice when you have the luxury to be able to pay it, though.
QUEST: Without having to worry about it. Thank you very much, good to see you.
LA MONICA: Thank you.
QUEST: Thank you for coming and talking about it. This is Paul La Monica.
And now, one programming note for you this evening. Tonight on "Amanpour" after this program, Christiane has an exclusive interview with two living legends, the tennis icon Billie Jean King and the rock star Sir Elton John.
They'll be discussing their work to stop the spread of HIV-AIDS as well as their views on gay rights and same-sex marriage. Viewers in Europe see the interview in about half an hour from the top of the hour.
We'll be back in just a moment. This is QUEST MEANS BUSINESS.
QUEST: So, the countries that had their forecasts cut by the OECD, amongst them was Russia, both this year and next, and the problems may not end there yet. A recent report from the National Bureau of Economic Research paints, in their words, "a disturbing picture for the economy with major cuts or tax rises needed to fix the deficit in Russia."
Joining me now is the head of Barclays bank in Russia, it's Bob Foresman. Do you agree with that assessment, fundamentally, whether it's a disturbing picture, but there'll have to be major cuts or tax rises?
BOB FORESMAN, COUNTRY MANAGER, BARCLAYS RUSSIA: I think what they need is they need to privatize more of the economy, lessen the role of the state, and get more productivity in the economy.
QUEST: See, this is a fascinating point. Because that's exactly what they did post-Yeltsin. They privatized the economy. They got it so horribly wrong, they undid it with oligarchs, and you ended up with an economy that was run by a few people corruptly.
FORESMAN: It's amazing to think that 20 years ago I wrote my thesis in graduate school on the politics of Russian privatization. That was 20 years ago, and here we're still talking --
QUEST: What did you say?
FOERSMAN: I beg your pardon? Oh --
QUEST: What was it --
FORESMAN: Well, actually at the time -- and as a Monday morning quarterback you can have a different view, but at the time, our view was that the most important thing was to get the state out of the economy or it could have gone back to a Communist system.
So, mass privatization, get it into the hands of private entrepreneurs. Obviously, we didn't predict the oligarchs buying things, but just get the state out of the economy, and then let the private sector figure it out.
Remember, 20 years ago -- 23 years ago, you couldn't sell an unsharpened number two pencil for a profit in Russia. It was all state- owned.
QUEST: Right. So, now you have this situation. But you want more privatization.
FORESMAN: Yes, we want more privatization. The market wants more privatization, faster privatization, to lessen the role of the state and put it more in the hands of the private sector.
QUEST: How do you ensure proper transparency in that privatization so that you don't end up with the TNK BP type of debacle. You don't end up with a gas problem, you don't end up with all the sort of stories that we hear about where shareholders basically say, shareholders' rights are trampled upon. How do you get over that problem?
FORESMAN: Well, it's a -- there's a very different situation in Russia today than there were 20 years ago -- then there was 20 years ago. You had real chaos with the Soviet Union collapsing and new institutions being formed.
Today, there's a much more credible and much more transparent system in place when they do their privatization. They have done privatizations, including this year. Just not as quickly as we'd like to see.
QUEST: Do you get the feeling that the way the oil and gas and the natural resources industries is viewed by administrations and by government in Russia is different because it is considered to be of national security significance?
So therefore, anybody, pardon the French, who screws around with that is likely to feel the wrath of the Kremlin in a way that won't find in other parts or sectors of the economy?
FORESMAN: I agree with that. That is a strategic asset, obviously, for the government, and it is true that if you are in a non-natural resource -- so in a technology company, in retail, consumer, media, non- news, non-national news media --
FORESMAN: -- then really, the state really stays out of that. And we've got many, many success stories of strategic investors and financial investors that have been successful in Russia, particularly in those areas that don't involve the state ownership.
QUEST: If we wouldn't -- it would be stretching it to call it a frontier economy at the moment, or some people do say Wild West. And some people say emerging market isn't strong enough. What would you describe -- how would you describe the current Russian investment scene?
FORESMAN: It's mixed. But I would emphasize the fact that they've only been doing this for 23 years.
QUEST: So, it is frontier?
FORESMAN: It's emerging. No, I wouldn't say it's frontier. It was frontier maybe 12 years ago. Now I would say it's not yet emerged, but it's emerging.
Remember, from a macro-fiscal situation, Russia has a fantastically strong macro-fiscal situation. They've got something like $700 billion of reserves. So for fixed-income investors who are buying instruments from the state or from the top companies, it's a very, very good credit. I think you're referring more to corporate governance issues.
QUEST: Thank you very much, indeed. Good to talk to you.
FORESMAN: Thank you.
QUEST: Thank you for coming in.
FORESMAN: Good to see you.
QUEST: I appreciate it. Now, when we come back, United Airlines chief executive Jeff Smisek says costs at United have become way too high. He announced plans to streamline the business this morning, and he rang the opening bell at the New York Stock Exchange.
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QUEST: The chief exec.
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.
The Iranian president, Hasan Rouhani, has wrapped up a rare phone call with the British prime minister David Cameron. According to President Rouhani's Twitter feed, the leaders discussed improving ties between their countries. They also talked about Iran's nuclear program on the eve of renewed negotiations in Geneva.
A radical Sunni group has claimed responsibility for two suicide bombings outside the Iranian embassy in Beirut, 23 people were killed, including Iran's cultural attache, according to media reports. The Abdullah Azzam Brigades threatens further attacks until Hezbollah stops sending fighters to the Syrian civil war.
At least one person has been killed in a construction site collapse in South Africa, dozens more are feared trapped in the rubble. It happened near Tongaat near the city of Durban. The site is a 1500-meter shopping mall that is due to open next April. Reports are saying that the roof fell in. Search and rescue teams are, of course, on the scene.
At least 16 people were killed in a storm that struck the Italian island of Sardinia. In just 12 hours, the island received six months-worth of rainfall. Italy's prime minister has declared a state of emergency and cleared $27 million in immediate aid.
JPMorgan Chase has agreed to a $13 billion deal to settle a case with the US Justice Department. The US bank will pay the enormous fine over its mortgage practices in the run-up to the financial crisis. It could be the largest fine in corporate history. So three years ago they took the name from one airline, they took the logo from the other and United and Continental became one -- the new United Airlines. Now United's chief exec Jeff Smisek tells me the airline has allowed costs to get too high, and now is the time to do something about it. Mr. Smisek rang the opening bell of the New York Stock Exchange this morning, the United's Investor Day Conference. He announced plans to cut costs by $2 billion over the year. United hopes to double or quadruple earnings over the next few years by doing things like reducing fuel costs and bringing in more so-called ancillary revenue. The goal is to offer a dividend by 2014.
Well, whichever way you look at it, the pressure is on. Rival Delta has announced dividend plans with shareholders, and as you and I have talked about on this program, we've seen many mergers in recent years that are fiercely -- this is the way it used to look. American, America West, U.S. Airways, Delta, Northwest. And then they all start to come together. And then they come together a bit more and that is the scenario that we are going to have very soon in the United States. American Airlines, Delta, Southwest and United.
Not surprisingly, United now wants to strip out costs and improve ancillary revenues. I spoke to United's chief exec Jeff Smisek about the details of the program to cut costs.
JEFF SMISEK, CEO UNITED AIRLINES: We've announced a $2 billion reduction in costs. The program's very clear and I'm highly confident we can achieve it. That's an annual reduction in cost, and as well we'll have hundreds of million dollars -- of dollars -- of additional revenue including a pretty sizable amount of ancillary revenue which has a high margin. And with that, I think we ought to be able to earn multiples of what we earn today.
QUEST: Oh, ancillary revenues. That means charging passengers for extra things and things in options and the like.
SMISEK: Well, a lot of our ancillary revenue comes from our Mileage Plus program for partners. For example, we have partners with Marriott, we partner with Mercedes Benz. We have a huge credit card with Chase today, and that's a very profitable line of business for us and we intend to expand that.
QUEST: But is the goal to increase ancillary revenues for things like baggage or food or any of the other things where you can charge passengers extra?
SMISEK: Not necessarily increase but to offer different products and services. For example, we can now -- we've unbundled a lot of things and we can rebundle things into packages -- for example, a combination of premier access, a club pass and a ticket -- we can rebundle that into a price that is very attractive to customers. So we can find ways and we have new products like FareLock which is basically locks the price of a ticket for a period of time. So we have lots of -- lots of additional goods and services that we'll be able to offer customers if they want, and they'll want to pay for them.
QUEST: The fact that you're talking about cutting costs out of the airline and getting costs down again, did you allow costs to get too high? Did you allow this merger to slightly get away?
SMISEK: Yes. We allowed costs to get too high, there's no question about it, and we understand why we did it. I think doing it was the right thing at the time to make sure we could get the things integrated. But clearly we need more efficiency, we need to drive quality in our operations.
QUEST: All this -- I can hear what you're saying but they're inconsistent. How can you lower costs and keep quality up?
SMISEK: Oh you can absolutely do that because we -- you can stop doing things that you don't need to do, you can do things more efficiently, you can integrate processes in a more effective manner. There are many things you can do -- let me give you a good example of a huge cost savings in fuel burn. I mean, fuel burn is a huge number. We'll be able to save a billion dollars on fuel burn over the next four years. A billion dollars a year. That's a huge cost saving because we're investing in a modern and fuel-efficient fleet.
QUEST: Ultimately, you now have to make United more competitive at a time when you're about to face a very new competitor with American and U.S. Airways, aren't you, with the new American?
SMISEK: Sure, it's going to be a formidable competitor, no doubt about it.
QUEST: This is going to get extremely brutal.
SMISEK: It's a very competitive business. On the other hand, consolidation, Richard, has been very, very good for this business. We've had for too long way too many business (plans) chasing way too few customers, and we're constantly pricing below our costs, and that made no sense.
QUEST: Viewers'll say it's a chance to put up the fares.
SMISEK: I'm sorry?
QUEST: Viewers will say consolidation is a change to put up the fares.
SMISEK: Consolidation's the chance for us to exercise capacity discipline so we're not having far too much supply against the given amount of demand. If we match better our capacity to the demand, we can revenue manage the airplane better. That is not necessarily at all raising fares, just having higher yielding passengers onboard the airplane.
QUEST: That's Jeff Smisek. He is the chief executive of United, joining me in the C Suite. Coming up, we will unwrap the story of Amazon. It won the business book of the year. Of course you know that not all readers were happy with their purchase.
QUEST: An account of the rise of Amazon and its founder Jeff Bezos has been named the business book of the year by Goldman Sachs and the "Financial Times." "The Everything Store" -- you'll be familiar with it -- it was written by the journalist Brad Stone. (Judges) said, and I quote, "It was compelling and enjoyable" so much so that they awarded him the $48,000. Of course, Brad Stone will go to this book knowing what Jeff Bezos' wife MacKenzie said when she posted a critical review on Amazon, giving it a single star out of a possible five. In response, Brad Stone says he'll own up to subtle biases in his story, and he says that no matter how hard we strive for objectivity, (rises) our biases towards (tensions) those moments which characters forged and revealed. Brad Stone joins me now from London. And I'm guessing there's an element of poetic justice in winning the prize after MacKenzie Bezos pretty much said you'd done, with her view, a lousy job writing the book.
BRAD STONE, AUTHOR, "THE EVERYTHING STORE": I don't know that I would put it that way, Richard. I knew going into it that I wasn't going to please everyone with Amazon's story. You know, Amazon has its loyalists, obviously customers love it, and there are plenty of detractors. Talk to anyone in the publishing business and very likely they're seething a little bit of venom. You know, my job was to try to tell the story. You know, I talked to hundreds of employees, current and former, Amazon executives. It's a company that's changed our world and I wanted to tell the tale.
QUEST: When I first interviewed Jeff Bezos in the 1990s -- at the beginning of Amazon pretty much -- he personified that phrase "(Past) profitability," and over the years I was quite convinced that company would never make a penny. Of course, you know, I've never made a penny in investing in anything except a pair of socks, so what do I know about it? But what I get from your book and from you is there is a grudging respect for what they've done, but you won't go further than that.
STONE: Oh, I have tremendous admiration for what Jeff and his team have accomplished. And I'll concede, I'm a happy Amazon customer. I'm a Prime member, I'm an owner of an Amazon Kindle e-reading device. I think, you know, I think it's a tremendous accomplishment. It'll probably be the first retailer to -- the fastest retailer -- to do $100 billion in sales. I mean, I think as with all discount retailers, there's a cost to low prices and consumers/shoppers should be aware of that, but I think he's built a tremendous business for his customers.
QUEST: Right, and when you see for example, in the United States they're now announcing seven-day delivery with the U.S. Postal Service. And you see, for example, it's a very weird arrangement with local book shops where you can buy the book and the local book shop gets a cut of the sale. Do you think that Amazon is feeling the pinch in the sense of criticism?
STONE: No, I don't think so. I think that this is you know their instinct is to leverage every possible advantage that comes with great scale and to try to you know deliver to customers when they want their products and to match the instant gratification of the bricks and mortar -- you know, the physical store. That's what seven-day delivery is about. You know, as for the Kindle and their enticement to small book sellers, that's a hard sell. They might have a problem getting bookstores to do that as Waterstones has done in the U.K. to sell the Kindle. Perhaps one day you know they're building the case for one day to create Amazon physical stores and to sell their hardware and an assortment of products.
STONE: We'll see.
QUEST: And, I've got to ask, when you read the criticism because -- of Mackenzie Bezos -- I mean, besides excoriating you for saying that you knew what he was thinking, feeling or the emotions, did -- what did you initially think when you read her criticism that when she basically said you were factually incorrect on some things?
STONE: Well, you know one of the -- one of the themes in the book, or one of the things that I demonstrate in a couple of anecdotes is that Amazon and Jeff in particular will find creative ways to address competitors and perceived critics. And so the thing that I immediately thought of is that this is a great demonstration of what I draw out in the book -- the way he's dealt with critical analysts in the past. You know, it was a very well-written you know, review. Mackenzie Bezos is a novelist, but ultimately think it probably reflects how Jeff feels about the book. You know, I was sorry to read that, but I wasn't trying to make him happy, I was trying, you know, to tell the story -
STONE: -- based on the research I had done.
QUEST: Very good to see you. Thank you, sir, and many congratulations. It's an achievement -- the Goldman Sachs/FT book of the year. We appreciate you joining us on the program tonight, thank you.
STONE: Thanks for having me.
QUEST: Now, Nokia shareholders -- let's stay in the tech world -- they have brushed aside objections of a small minority of investors in Helsinki to approve the sale of its mobile phone business to Microsoft. You'll remember Nokia agreed in September it was a $7.2 billion sale. It failed of course to catch up with rivals in the Smartphone business, and there really was nothing else left to do. Stephen Elop's selling the company basically to his old employer Microsoft and then deciding he's going back to Microsoft himself. CNN's Maggie Lake reports on the end of a national asset in Finland.
Female: You want a go?
Male: I see --
MAGGIE LAKE, BUSINESS ANCHOR AND CORRESPONDENT FOR CNN INTERNATIONAL: It's getting nasty out there in the Smartphone war as Apples and Androids battle it out for global supremacy. (New Ed) by Nokia and Microsoft say there's room for a third contender. Microsoft is betting big that Nokia phones loaded with Windows 8 software will one day be a knock out. And as it moves to complete its $7.2 billion purchase of Nokia's handset and services units, it believes momentum is on its side.
STEVE BALLMER, OUTGOING CEO, MICROSOFT: Windows Phone has grown over 78 percent in the last year and is now clearly the number three offering in the marketplace. And sales of Nokia Windows Phones have gone from literally zero two years ago to 7.4 million units.
LAKE: Microsoft still has lots of ground to cover. More than 80 percent of global Smartphones now run on Google's Android software. Apple has an almost 13 percent market share. The phones like the Lumia that run Windows 8 have an only 3.6 percent slice of the market. Some analysts believe the Nokia purchase is too little too late and a Hail Mary pass by Microsoft. Others say it could finally add muscle to the software giant's mobile strategy. On the low end, Nokia has seen increased sales of cheaper handsets that appeal to emerging markets. Nokia now has a best-in-show camera built into its flagship 1020 phone and Windows 8 has a growing portfolio of apps that will help that camera show its stuff.
PETER PACHAL, MASHABLE: For the longest time Instagram and Path and Vine, these popular social apps, weren't on the platform. Vine'll either come into Windows Phone which is another indicator that they're getting traction. There's going to be an extra boost of momentum. Because when you had this 41 mega pixel camera, but you didn't have the most popular photo-sharing app -
LAKE: As it makes its biggest move yet into hardware, Microsoft is in a scrappy mood, poking fun at Apple's Siri.
Female: You have a real keyboard too. This isn't going to end well for me.
LAKE: Former Nokia CEO Stephen Elop who is set to join Microsoft overseeing hardware is also feeling feisty.
Male: I have a iPhone.
Male: Oh, how embarrassing.
LAKE: He tossed away an iPhone during a recent interview.
Male: It's gone.
LAKE: Throwing punches at the big boys may sound delusional, but Microsoft and Nokia believe this is one partnership that has a fighting chance. Maggie Lake, CNN New York.
QUEST: Good grief, there's absolutely no rest at the CNN World Weather Center. Jenny, barely is one over and the next is beginning. This time it's deadly storms in Europe.
JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Yes, this is a particularly sudden system actually, Richard, it's a big area of low pressure. It's been sitting across the central and western Med for the last several day also around the weekend. It is now showing some signs of actually pulling away, but this is it. All of this that you can see here, and in fact if we go straightaway to the pictures, the video, then you'll see exactly what happens. So, in particular in Sardinia. As we know, at least 16 people have died from these rains. I mean, just look this. Very (mass) this region, the rain came down in a very short space of time.
In fact, locally, the officials there are saying they think they had as much as 450 millimeters of rain in just 12 hours. And in fact that, if that is so, that is as much rain as Sardinia normally sees in about six months of the year. So, just a tremendous amount of rain. It's caused widespread damage, and of course as we say, at least 16 people known to have died and the officials there also say that they think that toll might actually go a little bit higher. The Italian government is planning to send $27 million in aid to help the storm victims there. Now that system as I say is pulling out of the picture but it's very, very slow moving and warnings have been in place for the last several days as well. And in fact we've had heavy rain elsewhere. And also to the north in Corsica a wind gust of 114 kilometers an hour and on the north coast of Africa in Algiers, 120 millimeters of rain in just 24 hours. And that is much more than the monthly average of 90. And another total here in Sardinia of 208 millimeters of rain. So this is the system and throughout the weekend it's been sitting in the same -- pretty much the same region. The warnings have been out. Very heavy amounts of rain.
Now, edging its way across the Adriatic towards the southeast of Europe, very cold air behind this, and so with all that moisture there and this very, very cold air, we're seeing quite a lot of snow developing. That very cold air also now streaming in across the northwest of Europe, so, again, quite a mix of sleet and snow there. But the warnings as we continue Tuesday into Wednesday, particularly on all these west-facing coasts of the southeast of Europe throughout the Adriatic. More heavy rains, strong winds, the threat of tornadoes, even some larger damaging hail could be in the forecast. You can see some of these accumulations here, about 80 to 100 millimeters in the next 48 hours.
North of (inaudible) what's going on still in Venice -- the Acqua Alta -- yes, another day, Richard, on Wednesday. High tide expected 11 a.m. local time, 125 centimeters. That puts it into the very high tide category and of course when it comes to the scale, here it is. And a lot of the 50 -- maybe 70 percent in some areas could actually be flooded. Now at the same time, we've got this bitterly cold air coming down in and (inaudible) coming in across to the north and the northwest. Temperatures already hitting the freezing mark in London, zero, four in Paris. Feeling colder than that though the winds are very strong. Taking the temperatures back and you can see quite a mix of both in the last few hours. As I say, certainly the snow will be accumulating, temperatures staying well below the average for the next few days. Lyon barely making it above freezing, Richard, and ten centimeters of snow expected there in the next 48 hours. So there is a lot going on and I'll tell you about it again tomorrow (inaudible) then.
QUEST: Absolutely, and not only that, we'll soon be very soon with those sort of accumulations of snow -- talking about the ski report which I'm -
HARRISON: We -- we will. I've already been looking into that, Richard. Yes, plenty of good (inaudible) skiing, certainly for the higher resorts of the Alps anyway.
QUEST: That's going to get better as the season moves on, but nothing to detract of course from the very serious storms. Jenny, update us tomorrow. Thank you very much indeed. Jenny Harrison at the World Weather Center. Now the Oxford dictionary's word of the year. Why was it selected? Because its usage increased 17,000 percent just this year. We'll tell you what that word is in just a moment.
QUEST: Now, the selfie has become a word that has been recognized with the rise of social media. It is now enshrined in the English language. The Oxford English Dictionary's word of the year is the 'selfie.' "A photograph that one has taken of oneself" -- usually with a Smartphone or a camera. Now, the Oxford editors say the word has skyrocketed 17,000 percent in one year. That's a lot of selfies as you can tell. Because we all like to take a selfie, let's face it, a selfie at the Taj. Look -- a selfie in Beijing, and what would it be if it wasn't a selfie at the Golden Gate Bridge. Now I can't necessarily say I'm terribly proud of these selfies and this artistry in photography, but Samuel Burke joins me now. Put the selfie down, Samuel, this selfie phenomenon. First of all, is it still cool to take a selfie?
SAMUEL BURKE, BUSINESS CORRESPONDENT: There's a very thin line between cool and bad. If you get it right, it looks really great. But if you have the wrong angle, it's not good.
QUEST: OK, who's taking selfies that make it popular?
BURKE: You thought I was going to make fun of you for your selfies -- (inaudible)
QUEST: My selfies are pretty cool.
BURKE: They're not bad and you've joined the line of CEO selfies, let's say. You have Mark Zuckerberg for example, CEO of Facebook. He has some good selfies and -
QUEST: Right, well -
BURKE: -- you enjoy that one.
QUEST: Mark Zuckerberg -
BURKE: That's right. There he is.
QUEST: Oh, come on. That's hardly an impressive selfie.
BURKE: Oh, I think it's quite good. Look at that background. One of the key factors you need in a good selfie, the background like you just showed -
BURKE: -- all those places you visited. Jack Dorsey, when he was promoting Vine, the co-founder of Twitter, the CEO of (Square), he had a selfie there with people walking by in the background so he -
QUEST: He's cut him -- he's cut himself out of the picture.
BURKE: That's true. He had a -- that's a big thing, getting yourself not editing yourself correctly or cutting yourself out of the picture. But I think the best one, Richard -
BURKE: -- is the CEO of Foursquare Check out his selfie on his engagement night. Look how cool he looks -- champagne, the girlfriend -- now, you know -- soon to be wife. That's the winner I think of the CEO selfies.
QUEST: He did it by mirror.
QUEST: Now, but I'm told -- because I tweeted about this -
QUEST: The do's and don'ts of the selfie.
BURKE: OK. The most important one is the duck face. You've seen that -- the Kim Kardashian -- the duck face, like that. You don't want to do that one. You're not guilty of that, are you? People do it. When you see yourself in the mirror, when you see yourself -- all of a sudden, people do the duck face. That's when it's not cool --
BURKE: -- that's when people make fun of them -
BURKE: -- on Twitter. The other one, it's the chin. You've got to watch out. A lot of people -- not the duck face, the chin -- when they're doing it from down here and then all of a sudden, you have one, two, three chins. Even when you do it from up here sometimes, you get this type of thing, so you've got to get straight on like that and make sure you don't have the chin. And the other rule of selfies, you have to edit. Don't just accept the picture as it is. Use the iPhone ability, the Android ability --
QUEST: But that defeats the -- No, come on -- that defeats the object. A good selfie -- look at those -- look at my selfie over there.
QUEST: That selfie. That's what it's all about.
BURKE: You didn't edit?
QUEST: No, of course -
BURKE: OK, because you didn't need to, but you've got to edit. Doesn't mean you have to put an Instagram filter on it, but just crop the sides a bit. If you have somebody in the picture that you don't want to be in the picture, crop a little bit. Use your edit tools.
QUEST: The best self -- the best advice that somebody tweeted when it says come to selfies is don't publish them.
BURKE: Oh, no, no, no. If it's good, publish it. But I like I said, there's a very thin line -- you walk that when you're using -- when you're doing a selfie.
QUEST: I'm going to look at your selfies. Not real. Thank you very much indeed. We will have a "Profitable Moment." Send me you selfies @ richardquest. Another "Profitable Moment" after the break.
QUEST: Tonight's "Profitable Moment." There is really something rather delicious about taking the selfie. That moment when you just have captured that point in time, and you know, frankly, that actually it's not a very good picture and nobody really wants to see it because you're basically boasting you've been somewhere and they haven't. But when it comes to actually taking a selfie, well it doesn't really matter. Because what you are doing is rubbing it in -- rubbing it into the skin of others and down the throat of your friends that you've traveled and you experienced something and you're there, and they were not. Oh, the selfie is a new phenomenon to be sure, but it's no different from the old Polaroid that you sent 'round or the letter that you wrote saying, 'Look at me, look where I am.' A selfie's just a bigger, brasher, nastier version of the same thing. Best of all, you can post it online. And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead (RINGS BELL), I hope it's profitable. I'll see you tomorrow.