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QUEST MEANS BUSINESS

IMF Meeting Fails to Diffuse Tension; Interview with Nobel Prize Winner in Economics

Aired October 11, 2010 - 14:00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Fears of a currency calamity. The IMF has failed to defuse tensions.

And the Nobel goes to three economists, and we'll be speaking to one of the winners.

Full steam ahead, Cunard's president tell us how the Queen Elizabeth is part of a tradition of years gone by.

I'm Richard Quest. We have our own tradition, because I mean business.

Good evening.

The world remains on course tonight for a possible currency war. After a weekend of talks at the International Monetary Fund failed to reach agreement, despite the talking and the communiques there was little to show for it all. Finance ministers flew to Washington to talk over growing tensions about exchange rates at the annual meeting of the IMF. But they were unable to find common ground on concerted and coordinated action. The best we got was the communique from the fund, which pledged member countries would aim to, in their words, recognize their responsibilities.

For all the talk on the Forex market, it is more intervention by Japan and a fresh shot of newly minted cash in the United States, quantitative easing, to give its full name. These are the measures that feed more distortion into a system that is already pretty unbalanced, according to the Chinese.

The head of the IMF has said countries should not only sign up to the statements, but also take part in the action. He said governments but be prepared to act, adapt their policies to suit the rhetoric. Maggie Lake spend the weekend at the IMF in Washington and spoke to Dominique Strauss- Kahn.

You got back in one piece and you are seemingly in fine fettle.

Maggie, it was-they were never going to actually do the deed of concerted and coordinated action at the IMF. But why were people so disappointed about what happened?

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: You know, it is a good question, Richard. I think there is a big disconnect between many of the ministers and the reaction you're seeing not only in the market, but also in the press. I mean, you are hearing a failure, disarray, discord.

And really when I spoke to Dominique Strauss-Kahn, which was yesterday morning, so it was at the end of the meeting. I said, you know, this is being called a failure. And he pushed back hard. That certainly is not the way he said it. He said, listen, this is extremely complicated. It is not going to be resolved in one weekend meeting.

(BEGIN VIDEO CLIP)

DOMINIQUE STRAUS-KAHN, MANAGING DIRECTOR, IMF: Well, you can only say that that they failed to have an agreement if you were expecting an agreement. I wasn't. We are in a period of tension. Certainly it is too strong to speak about currency wars and (UNINTELLIGIBLE) myself I used the wording, but certainly too strong a word. We have tension, we need to find a way to get out of it. It is not that easy. The discussion weren't very fruitful, but there is no decision to be expected; more to build a consensus on how to strengthen the recovery, which is still very fragile.

(END VIDEO CLIP)

LAKE: And Richard, really, I have to say that echoes the same sentiment of all the finance ministers I talked-there was never going to be an accord, but they feel that there was a move back toward a cooperative standpoint, although they all said, listen, this is very complicated. It is a very difficult time in the global economy. It is not easy to just all get together and agree, but the discussions and the framework is starting happen on that. So a little bit of a divide between what we are reading in the press and certainly some of the impressions coming from Washington.

QUEST: Sure, up to a point, Maggie, but the truth is we've had good examples, as I know you are going to lead me into, now, of what happens if they don't get their act together?

LAKE: That's right. And, but, Richard, not only what happens if they don't but some of the reasons it is so hard to get together. Because everyone is facing such a difficult domestic situation that it is hard to agree on some pain or different sorts of policies for the global good, when you are getting a lot of heat back home. And one of the economies, of course, that is facing a lot of difficulty is Ireland. I sat down with the finance minister, caught up with him in New York, couldn't catch him in Washington. So we sat down, just about an hour ago. And I asked him about the situation with the economy and the banking sector there, fixing it, you know, saying that you know, people are calling for radical surgery. Can they do it? Here is what he said.

(BEGIN VIDEO CLIP)

BRIAN LENIHAN, FINANCE MINISTER, IRELAND: Well, we (UNINTELLIGIBLE) if the bank is ready (ph) for surgery because clearly we've gone in, we've looked at all the toxic assets and we've transferred them to a state agency. And we've bought them at a very, very steep discount. So the bank balance sheets have to be repaired. In the case of the distressed banks, the capitalization means that we will keep our word and ensure that the depositors and the senior bond holders are protected. In the case of the other banks, they will continue to operate in full and meet all their obligations and support the real economy in Ireland.

So, the plan is clear. There is a wealth of information out there for the market to digest and the market can digest it.

LAKE: Given the debt burden that you face because of this, how can the Irish economy grow enough, in order to service that, in order to deal with it?

LENIHAN: Well, one of the great economic strengths of Ireland, in recent years, has been the buoyancy of exports. Despite poor international conditions we've continued to improve on our export performance. And, in fact, despite a lot of public borrowing, our balance of payments remains balanced. We're not suffering from a double deficit. We don't have a trade or payments deficit, but we do have a big public service deficit, in public debt deficit. In other words, we're borrowing more than we can afford to, in public terms. So we're going to address that. And the government will produce, in mid November, a four-year plan to see that the necessary fiscal correction takes place.

LAKE: We know that the fall out from the global crisis is severe. I think people are concerned about why this is happening, at this level, to years on. Especially when the government had said 10 months ago you were turning a corner. And yet, the situation seems to be getting so much worse. Do you have a confidence problem? Why should people believe in your plan and what you are saying now?

LENIHAN: Well, look first of all, last year, 2009, the Irish economy shrank, its national wealth shrank by 10 percent. This year it is stabilized, to zero. That is turning a corner. There are very few economies, in any part of the world, that go from minus 10 percent in GDP, to zero, within a period of one year.

LAKE: I saw a poll that-a recent poll that said that Irish people have more faith in the IMF and EU to deal with Ireland's problem, than the government, than politicians. Is it a concern? Do you have the confidence of the Irish people?

LENIHAN: Well, I have great confidence in the Irish people. And certainly, I saw another poll which suggested that there was more confidence in myself than the IMF to bring us out of our difficulties. So you know, you can have polls-

LAKE: It depends on which poll you are-

LENIHAN: Yes, opinion polls can vary. Though there is no doubt that the government parties in Ireland have paid a huge political price for doing budgetary adjustments, of the type we've done already. And that is a phenomenon we're looking at throughout the world at present, as well. Governments are not popular. When they can't waive a wand and produce a magic solution, electorates become very dissatisfied with their leaders and their governors, and wonder are their other solutions.

And the truth is in most Western countries an unacceptable level of public debt was built up, it has to be dealt with, sooner or later. In Ireland's case it has to be sooner. Because we have to borrow on world markets, so we don't have huge options.

LAKE: I think one of the questions that people ask is, should anyone else share this pain? Should it just be us that carry the burden? What about bond holders? What about, you know, international investors, should they share in the pain?

LENIHAN: Well, in our banking system, certainly when we address the two distressed institutions that were no longer listed on the stock exchange, the Anglo Irish Bank, and the Nationwide, we did-we did insist that subordinated bondholders should share some of the pain and we're implementing a policy in that regard. But for a country like Ireland to in anyway deal with senior bondholders is out of the questions. Because we're clearly dependent on these bondholders to fund ourselves as a sovereign, to fund our other banks, which are viable and have a future. And also, of course, in terms of maintaining Ireland as a good location for international investment.

(END VIDEOTAPE)

LAKE: There you go, it is why they are between a rock and a hard place. Richard, very interesting though, when he was talking about-they just don't have any political capital left, do they? They are so busy putting out the fires domestically. You can understand why it is very hard for them to sell some sort of coordinated global action, unless they're facing a crisis. And I think that is what the markets are concerned about. Will it take some sort of fallout, some sort of crisis, before they are able to enact some sort of reactionary once again, instead of doing it preemptively this time. I think that is the concern out there.

QUEST: Maggie Lake, in New York. Thank you.

Now, the big, overarching theme of the recovery has been that it is a jobless recovery, which has put the spotlight very firmly on the issue of unemployment. One team of economists has been studying exactly how things change on the ground when it comes to unemployment, when governments pull policy levers. And they've been awarded the Nobel Prize for Economics. Professor Dale Mortensen is one of them. He joined me earlier from Denmark. And I asked him in layman's terms how he would best describe what he's achieved.

(BEGIN VIDEOTAPE)

PROF. DALE MORTENSEN, WINNER OF NOBEL PRIZE IN ECONOMICS: I would best describe the contribution as providing a view of the labor market that is very different from the-when you speak of markets, people either think about financial markets, stock markets. Or they think about the grocery store. Those are both examples. But the labor market works in a much different way. People have to acquire a lot-much more information about the transaction before they enter into it. And then even after they enter into it there are issues of, is it a good match, or not?

QUEST: Do you believe, Sir, that we might be in a different paradigm, a new age, as we come out of this recession, as regards, unemployment?

MORTENSEN: Well, it is-I think it is always too risky to say there is a new age. I do think that there is a severe period of adjustment going forward. We haven't had a-a shock to the labor market as related to, you've been reporting for at least, you know, two years, financial market problems. And that is very important on the employers' side. If employers can't find or be guaranteed the financing, they're not going to go ahead. But there is more to it than that. There are many uncertainties that have spilled out, or have been a spill over effect from the crisis, having to do with, of course, now deficits and what governments are going to do about financing their own expenditures.

QUEST: Right.

If you-this is a deeply unfair question, but I ask it anyway.

(LAUGHTER)

MORTENSEN: All right.

QUEST: Do you think the noble art or science of economics has come out of the crisis particularly well?

MORTENSEN: Ah, I think any crisis, an economic crisis doesn't raise the prestige of economists possibly as much as it should. One studies economics, one studies what is going on, markets, but you are always a little bit behind the curve, if you know what I mean?

And in this particular case there were many of us, and I'm probably included, that weren't going to forecast what in fact did happen. That's- and I, you know, I think that shows a lack of knowledge and challenge for future research. I'm not sure we'll ever totally solve it.

QUEST: And was there any moment during this crisis, 2008, 2009, that you became at all seriously concerned at our ability to handle it, without a great depression, or the whole thing going over the cliff?

MORTENSEN: No, it wasn't my area of expertise. I really didn't have a good sense of that. I did have a sense that this was going to have a big impact on the demand side of the labor market. And I don't think we've worked that out. The-one of the major problems in the U.S. is financing the expansion of small business services. That is done by banks, banks no matter what they say, are not lending, to the extent that they did. That means that employers are financially constrained.

QUEST: So, on that thought. Finally, are we destined, do you think, for higher unemployment for the foreseeable future?

MORTENSEN: Well, the foreseeable future, you know, that depends on what you mean by that. I think that we're in for it, for another year or two. Unless there is a quick turn around on the financial side. But even then the uncertainties that employers have about what is going on, for example, in the United States, we have several new social programs that no one has a good idea how they're going to work themselves out.

(END VIDEOTAPE)

QUEST: The winner-or one of the co-winners of this year's Nobel Prize for Economics Dale Mortensen, joining me earlier.

In a moment, we turn our attention in Hungary to toxic red sludge. And whether or not there is a real risk of more spilling, and why the chief executive of the company involved has been arrested.

(COMMERCIAL BREAK)

QUEST: In Hungary the head of the company at the center of the toxic spill has been arrested. And he now faces charges of public endangerment, and harming the environment. The body of the last missing person in the sludge disaster has now been recovered. It takes the death toll, in all, to eight. Diana Magnay, our correspondent, is in Hungary tonight. She joins me now.

We need to go over this quite quickly. Let's deal with the practical first. Is this other reservoir wall, that is at risk, is it now safe?

DIANA MAGNAY, CNN INT'L. CORRESPONDENT: It is not safe, no. But the crack has not widened over the last 24 hours. But we're talking about quite a big crack in the reservoir wall, Richard. It is about half a meter high and about 20 meters long. And there is no way that emergency services can actually fill that crack. So what they are doing instead, in case it does burst, and the authorities have said that they expect it to burst. They just can't say when.

They have built and emergency damn in the neighboring village to where I am, in Devecser. And they are hoping that that dam will be finished by the morning and that that dam would be able to contain a second toxic spill if the reservoir wall breaks. But we're talking about a significant amount of red mud still in the reservoir, that might come out; 500,000 cubic meters of the stuff. That is about half as much as was in the initial spill, Richard.

QUEST: And the arrest of the chief executive of the company involved? Diana, I mean, whatever may have happened, it is very soon for the-to be arresting chief execs, when you haven't even worked out who is responsible. Is this hankering back to old days of doing things, do you think?

MAGNAY: The old days of doing things, well, I certainly think that there is a desire amongst the people to see some sort of justice done here. There was a criminal investigation opened into who was responsible already last week. And we've already heard the prime minister saying last week that the very-the toughest consequences possible would be enacted on whoever was culpable and he said that this was human error. Seeing as this reservoir belonged to the company MAL, that this arrest is therefore, consequentially, it should come as no real surprise that it has happened that quickly.

Also, what the prime minister said today was that he was going to take the company into state control on a temporary basis. And that was really just to safeguard the over 1,000 jobs here in the locality that are dependent on that aluminum firm continuing to operate, Richard.

QUEST: Diana Magnay, who is in Hungary tonight, watching events there.

QUEST MEANS BUSINESS after this short break. "Future Cities" and we are in the City of the Angels, Los Angeles.

(COMMERCIAL BREAK)

QUEST: Many of the world's greatest cities were settled among the banks of a river. That may be hard to believe, but that was the case even for Los Angeles. Early settlers relied on the L.A. river for industry and transportation. Today, it is little more than a trickle for most of the time. After a series of floods in the 1930s, that river was paved, channeled and it was change beyond recognition. In this week's "Future Cities", I've been to visit and see how Los Angeles is trying to bring back life to its main waterway.

(BEGIN VIDEOTAPE)

LEWIS MACADAMS, FRIENDS OF THE LOS ANGELES RIVER: I think of the river the way it reads in the Sam Shepard story, "Cruising Paradise". A huge concrete serpent, a dumping ground for murder victims. I think of the river beside a freeway off ramp as roller bladders bent into it, spandex buttocks-

QUEST (voice over): In the 1930s the Los Angeles river was encased in a concrete coffin. Changed and urbanized in the name of flood prevention.

MACADAMS: Inadvertently it became a kind symbol of Los Angeles. A kind of poster child for trashed rivers, for what humans could accomplish in an engineering way that was inherently destructive.

QUEST: This is the tale of a forgotten river, on the banks of which, Los Angeles was founded.

MACADAMS: When I started Friends of the Los Angeles River, I thought all I had to do was convince people that it could be a better place. I soon realized that we had to convince people there was a Los Angeles River. It had basically been excised from all maps and most maps called it just a flood control channel. It had been excised from public consciousness. And it has basically been relegated to the trash heap of history.

QUEST: Etched through the heart of the city, intertwined with freeways and railways, the Los Angeles river drains the San Fernando Valley. It flows from west to east and curves south to the ocean that at Long Beach.

(On camera): What is fascinating about the L.A. River is that by the time it has meandered 51 miles from Los Angeles in the east to the mouth of the Pacific Ocean at Long Beach, by now it is a sizable body of water.

(Voice over): Upstream things look very different, especially in the dry summer season.

(On camera): I've been coming to L.A. for years and the chance to drive along the bed of the L.A. River is quite cool.

(Voice over): This is the gritty, urban landscape made iconic by Hollywood film studios. The drag race in "Grease", and in "Terminator II" Arnold Schwarzenegger, now the governor of California.

(On camera): The L.A. River is the backdrop of movies and urban myths. Everyone, it seems, has a story about the river.

(Voice over): Perhaps no one has a better story than Lewis MacAdams.

MACADAMS: I cam here like every other schmo, to make it in the movie business and I was taking the bus back to Venice and I saw the L.A. River for the first time. And a knowledge came to me that I could be involved with this river for the rest of my life.

QUEST: A poet by trade, Lewis MacAdams set up the organization, Friends of the Los Angeles River, in 1986. It's mission, to restore the natural and historic heritage of the Los Angeles River.

MACADAMS: I didn't really see myself as an environmentalist. I began to see myself more as an infrastructuralist. I began to describe it as building a better river, because the river has been altered, unalterably. When I called it a 40-year art work, I figured well, it had taken 40 years to screw it up. It would probably take it 40 years to fix it up. But I realized that I assumed that that was going to take a lot longer than just my one lifetime.

QUEST: Lewis MacAdams may not get to see the river of his dreams, but in 2007, the City of L.A. published a grandly titled, "L.A. River Revitalization Master Plan". It is a blueprint for a 50-year commitment that will transform the river, at a total cost estimated at several billion.

CAROL ARMSTRONG, DEPT. OF PUBLIC WORKS: Our dream vision of the future is that the river will become a part of everyone's daily lives. That they will go there and find meaningful time along the river to meet people, to enjoy art, to enjoy nature. And just to get to know their city better and to have it be a great place for the people who live here and also the people that visit.

QUEST: The master plan will on the recent success of existing small parks and bike routes, already offering a glimpse into the river's future. There are also plans to remove sections of concrete from the riverbed.

ARMSTRONG: There is just been an up swell of momentum. When people see what we've done to the river, and we realize how we can bring it back, and the government, through the "L.A. River Revitalization Master Plan," has said, we hear you and we are pushing forward together.

MACADAMS: The river has gone from being ignored to being a really kind of apple pie issue. I mean, all politicians want to restore the Los Angeles River.

QUEST: And that includes the city's mayor.

ANTONIO VILLARAIGOSA, MAYOR, LOS ANGELES: One day the L.A. River will not just be a meandering concrete channel, but a beautiful river. And we want to make our river the center and the connector between the many communities of the city.

QUEST: A once forgotten river has now become the symbol for a better more sustainable future.

(On camera): This concrete channel will never be a river in any conventional sense. But it is deeply engrained in the fabric of the city. And the restoration project has the potential to greatly improve the quality of life for the people who live in Los Angeles.

MACADAMS: The river is a rigorous mistress. But when you tickle her with your deeds, you can hear her laughter from beneath her concrete corsets.

(END VIDEOTAPE)

QUEST: Believe me, you don't get a chance to fulfill any of your little ambitions that often as I did, driving down the L.A. River.

When we come back in a moment, Microsoft, touchy feely, its Windows Phone 7 is out of the bag. Now it joins the smart phones rivals, Apple and Android. The American chief exec, Steve Ballmer, next.

(DESK BELL CHIMES)

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS, on a Monday.

This is CNN. And here, the news always comes first.

I need to tell you, the U.S. military is launching an investigation into a failed hostage rescue in Afghanistan in which the British aide worker, Linda Norgrove, was killed in an explosion during the operation on Friday. Now earlier, NATO and British officials had said Norgrove's captors had set off the explosives that killed her. But now, new information from the field has indicated a grenade was thrown by U.S. Special Forces.

The Afghan president, Hamid Karzai, has confirmed informal talks are being held with the Taliban. He's appearing on CNN's "LARRY KING LIVE." And Mr. Karzai said the talks are countryman to countryman and not official contacts. Mr. Karzai said that now that a peace council has been convened, he hopes the talks can become more rigorous and more official.

The rescue of 33 trapped miners in Chile is on track to get started on Wednesday, perhaps even earlier now that an escape shaft has been partly lined with sheet metal. Chile's mining minister says the capsule, called the Phoenix, built to bring the miners back to the surface, has passed its first tests. It was lowered within 12 meters of where the men are trapped and it was said to fit very well.

China is clamping down on the wife of the new Nobel Peace Prize winner. An attorney says she is under house arrest in Beijing and is being prevented from talking to friends or the media. Meanwhile, human rights groups have called her treatment "outrageous." She was taken to see her husband, Liu Xiaobo, in prison on Saturday when she told him about the prize.

The National Magazine Company is celebrating its 100th birthday. NatMag was founded back in 1910 in the U.S. by the media magnate, William Randolph Hearst. It was the inspiration for Orson Welles' "Citizen Kane." Early titles were "Harper's Bazaar" and "Good Housekeeping." They were launched in the 1920s and many of them -- not all, obviously -- are still around today.

But the company has gone global. Now it's owned by Hearst. It's based in the U.K. And its chief executive is French. Which perhaps explains this potpourri of titles. And there you have just a selection.

In this age of mobile digital content, I asked NatMag's chief exec if the printed magazine, the glossy page, isn't about to become extinct.

(BEGIN VIDEOTAPE)

ARNAUD DE PUYFONTANIE, CEO, NATIONAL MAGAZINE COMPANY: The decline is not inevitable. When you see a market which we operate in, the National Magazine did increase three times in a row, six payer months by an average 4 percentage circulation. So I think that if you take it on a like for like basis, yes, there is pressure in terms of volume which are sold in the market. But if you're talking about magazines and brands and you're thinking about the evolution of the business model, we are moving from printed brands to brands available on the multi-platform.

And if you're thinking about those brands being distributed on tablets, iPhones, we have the opportunity to get a fantastic level of relationship with our readers.

QUEST: Right. But you'd like...

PUYFONTANIE: And to do that with them.

QUEST: But you'd like to move that relationship from the printed page to the -- the digital page.

PUYFONTANIE: Printed pages are the foundation of this strategy and we are going to build on that foundation, which we want to be very solid. And we will, first and foremost, invest in our magazines and in solid brands to be able to go over and above the boundaries of the printed world to get into the digital distribution platforms.

QUEST: So are you going to put any of these magazines behind a pay wall, because, let's face it, you know, don't -- the Web sites are value- added, perhaps, but you want to make value in the bank.

PUYFONTANIE: Yes, you're absolutely right. And I am a bit skeptical that advertising will fund forever what we do on the Web. But what I do think is if we are bringing our customers and readers with added value around "Men's Health," "She," "Good Housekeeping" and the others -- we've got more than 20 magazines here in the U.K. -- part of them are also published in the U.S. for the Hearst Corporation, we've got the opportunity, really, to create the audience, to reinforce the audience and to think about the money we'll make, not thought advertising revenues, but data mining, e-commerce and all the things that people are going to be able to pay for because it's going to add value in what they do in their life.

QUEST: I know, because you've already told me, you will not choose a favorite magazine.

PUYFONTANIE: No.

QUEST: But I'm telling you, you are on the Eurostar from London to Paris.

PUYFONTANIE: Uh-huh?

QUEST: And you're rushing out of the office and you can only grab one of these to read on the train.

The same question a different way, which one are you going to take with you?

PUYFONTANIE: I will take "Cosmopolitan" because I want to understand whether -- as -- what's happening in the young women's market. And there was -- there is always a good topic, especially in the last hard corner (ph), about relationships. But "Cosmopolitan" is a brand in 61 countries. It's all about women from 18 to 30 years old. It's applying things. So that's a great reading. You should try it.

(END VIDEO TAPE)

QUEST: A salesman right until the very end. And, no, I didn't have to buy a copy of it before he walked out of the studio.

The chief exec of NatMag, celebrating 100 years.

There's a new contender in the crowded Smartphone market, the finger friendly Windows Phone 7. This is what it looks like. This is the HTC version of it. It's all about hubs. It's all about a different way of doing things. It joins an extremely crowded area. It's Microsoft's rival to the iPhone, the Blackberry and the phones running the Android from Google, which, according to the latest Nielsen numbers, is leading sales in the United States.

One thing I know because you and I have talked about it on this program many times, we all love our phones. And one of us really agree which is the best when you come to face with the opposition.

This is the silhouette of Steve Ballmer, the head of Microsoft.

And CNNMoney.com's Poppy Harlow had a chance to speak to him earlier today about its push.

(BEGIN VIDEOTAPE)

POPPY HARLOW, ANCHOR, CNNMONEY.COM: A big day, obviously, for Microsoft, highly anticipated.

How important is mobile for you right now?

STEVE BALLMER, CEO, MICROSOFT: Very important. Now, obviously, the three kind of most important information devices in a person's life, in a sense, are the TV, the thing that they can hold, the PC, and -- and the phone. And, you know, the phone is an area where -- where we've got a lot of work to do. And with the introduction of the Windows Phone, I think we've done something that's very different -- a different kind of phone. And we get a chance to go out and change the competitive landscape.

HARLOW: It is different. I -- I spent some time a few months ago playing with it and -- and looking at the versions. If this is not as big a success as you hope it will be, what does that mean for Microsoft, meaning how much do you rely on this?

BALLMER: It's going to be well received, in my -- my opinion. We'll see whether that's this big or this big or this big. I -- I don't know yet. People need to get their hands on the -- on the phone, see the software, see the whole experience, the way the apps come together. But I'm feeling very -- very good, shall we say?

And we just need to keep driving forward.

HARLOW: What do you think the key is, Steve, to a successful Smartphone, not just the launch, but the long-term here?

I mean you guys have talked about the fact, look, this is long-term for us, our strategy is not just the first few months net reception.

What's the key?

Is it actually how it operates or is it also the hype surrounding it?

BALLMER: I think the way it operates is important, the speed with which we do new things and the hype -- what's the reaction?

I mean that a lot of things out there in the market today. And, clearly, one of them's got a lot of hype and the other is a little more chaotic. Now, once you get...

HARLOW: Wait.

What do you mean by that?

BALLMER: Well, you know, you see this and that with Android and RIM and Apple and Nokia. And there's a lot of guys out there. The truth of the matter is we -- we certainly have seen Apple gaining market share. But the chance to be modern, the chance to be consistently, always delightful, that really exists out there, particularly against the rest of the guys. And to be more personal than the market leader, we think there's some great opportunities.

HARLOW: Explain that, because there is a big focus on -- with this software on personalization. But you're also targeting enterprise customers and just the average custom. You want them to take it from office to home.

BALLMER: Sure. People are people. They have a personal side of their life. They have a professional side to their life. They want to be able to pick up the -- the presentation that they need for work and at the same time kick back and find out what's going on with the people who are most important to them.

So I don't believe in really separating those things. Obviously, some consumers will -- will be more one or the other. And that's why we have a range of phones to satisfy them.

HARLOW: How do you stand out in -- in an already crowded marketplace?

And what is it that makes this phone, in your opinion, different and, I bet you would argue, better?

BALLMER: Is looks different than anything else out there. Just start with that -- it looks different than anything out -- else out there. It's more consistent than anything you get from one of our competitors. It's very different than anything you get from some of the other competitors. It's brilliant, it's tailored, it's personal. I think it really pops.

(END VIDEO TAPE)

QUEST: Steve Ballmer with Windows Phone 7, not Windows Mobile 7 -- the Windows Phone 7. And it's something that you and I will talk about in the future.

There's an extraordinary story taking place in New York at the moment. It appears that military grade explosives have been found in New York. But they weren't wired and they've been found in an extremely unusual location -- not that there's any way -- usual way you do find these things.

Allan Chernoff is in New York -- I'm being a little obscure here, Allan, because we really don't know much about this.

ALLAN CHERNOFF, CNN CORRESPONDENT: Well, Richard, it's certainly a very bizarre story. The New York City Police Department telling us that they have found nine bricks of military-grade explosives in a cemetery, of all places -- a cemetery in the East Village of Manhattan. So this is a -- a relatively small cemetery right near the street. You know Manhattan. It's on 2nd Street, between First and Second Avenues.

Now, this is important. The bricks were not wired to explode. Nonetheless, they were found this morning by a caretaker. And they were located inside of a large garbage bag -- one of those large black garbage bags -- nine bricks of military-grade explosives.

What is was doing there, who knows?

This is the New York City Marble Cemetery, one of the oldest cemeteries in the city. The bomb squad went over. They closed off the streets. They didn't evacuate the surrounding buildings and the bomb squad has taken these explosives away. But, Richard, certainly one of the more bizarre stories, not that we don't get plenty of bizarre stories here in New York City -- Richard.

QUEST: I'm going to chance me luck with this question, because I know it just -- this has only just happened.

Is it likely, Allan, that they will discover the source of these explosives, bearing in mind its military grade?

CHERNOFF: You can be sure that the New York City Police Department is going to give its best effort to try to determine exactly how these explosives arrived at the cemetery. Keep in mind, these days, the police department has a growing number of cameras spread all over the city. They'll be looking at those cameras, even cameras from businesses in the area, as well -- might they have captured some video of somebody carrying a large garbage bag into the cemetery?

It's certainly a possibility. I know the detectives from the NYPD are -- are working on that right now.

QUEST: Right.

Many thanks, indeed.

Allan Chernoff joining us from New York.

CHERNOFF: Thank you.

QUEST: We will be back with more in just a moment.

QUEST MEANS BUSINESS.

It's a Monday.

You're very welcome.

(COMMERCIAL BREAK)

CHERNOFF: Welcome back.

We were just talking a moment ago about those explosives found in New York.

Let's go to New York.

Ray Kelly, the commissioner of police, is holding a news conference.

(BREAKING NEWS EVENT)

QUEST: Commissioner Ray Kelly there in New York, giving some more details and background.

Six pounds of explosives and one -- no, more than that, actually, nine bricks. So one and a quarter pounds per brick. There were nine of them. You can do the math yourselves. He says it could have caused serious damage to a building if it had explosives -- if exploded, but there was no detonators with the explosives when they were found. It's military grade explosives not commonly available. It has a number on it -- a product number, which will obviously be investigated.

And it was found by a janitor, a volunteer in the -- in the graveyard -- in the cemetery in the East Village.

So, we'll have more of those details when they are released.

The weather forecast now.

It, in large part -- I'm not doing Guillermo's job for him -- but in large parts of Europe, we all enjoyed a most pleasant weekend.

GUILLERMO ARDUINO, CNN METEOROLOGIST: And what did I tell you was going to happen?

Go CNN, right?

We were right. And we're happy to report that it's still there -- high pressure, you see?

Very nice conditions over Britain. And so we have OK -- OK weather. We're very glad that you got a nice weekend. The problems are in the south. We're going to see some more heavy rain, especially into Sicily and the southern parts of Italy and the Balkan Peninsula again. Unfortunately, Dubrovnik, which is a very beautiful area, may see some bad weather again.

When we look at the overall picture, this is a rarity, but it is happening. Britain, under high pressure, pretty nice. Northern France, the Netherlands here, Germany pretty nice. The change is coming here. Temperatures are going to plunge, especially in the northeastern parts of Europe, you see?

So we're talking about the first snow -- October snow now in the area for Lithuania; Estonia; Latvia; Finland; also here in Russia, St. Petersburg, it's going to be snowy, probably; and Belarus, parts of the Ukraine and certainly Russia.

So look at the temps -- 20 in Madrid; 15 -- these are the highs. So this is the high temperature of the day, right?

Look at the contrast with Stockholm. So I think that we're saying good-bye to the nice weather for Scandinavia, unfortunately.

Much better in Hong Kong. We ended the week with awful weather in Hong Kong, Hainan, in Macau, in Vietnam. Hong Kong and Macau are much better now. We're going to see rain into Guangzhou and the northern sections of Guangdong.

Also, we're looking at something that may have the chance of development into a cyclone in Central America, here in the Caribbean. We're talking about probably 100 percent. So it's going to become more organized as it gets closer into the Yucatan Peninsula and here with Cuba. So watch out, Cancun, Plaza del Carmen and those areas.

And before I go, record highs possible in the United States. You see -- look, 10 degrees above average. And that includes Lampac here. It's going to be like close to about 30 degrees or so.

So, abnormal, but we have it -- Richard.

QUEST: Guillermo, many thanks.

ARDUINO: Thank you.

QUEST: Guillermo at the World Weather Center.

Now, grand, elegant, stately, majestic -- well, I could be talking about QUEST MEANS BUSINESS. But it is the Queen Elizabeth that I'm talking about. And she set sail. The queen will be remaining on shore, but the lady liner begins her reign of the sea, in a moment.

(COMMERCIAL BREAK)

QUEST: Tonight, the crew of Cunard's newest ocean liner are preparing to set sail on their maiden voyage following a right royal launch.

(BEGIN VIDEO CLIP)

QUEEN ELIZABETH, BRITAIN: I name this ship Queen Elizabeth. May God bless her and all who sail in her.

(END VIDEO CLIP)

QUEST: The queen gave her own name to the ship earlier in the traditional fashion, smashing a bottle of wine against the bows. This is the third ship that will carry the name Queen Elizabeth. One former vessel came to a fiery end in the Hong Kong harbor.

I asked Cunard's president, Peter Shanks, if it was just British tourists who were attracted to liners like the Queen Elizabeth.

(BEGIN VIDEOTAPE)

PETER SHANKS, PRESIDENT, CUNARD LINE: We're very strong in the U.K., North American. And, in fact, we have over 200 Japanese guests on the maiden voyage tomorrow. And we appeal to a wide range. And the average age tends to be between 55 and 60, a very cosmopolitan mix. And on the longer voyages, it's a little more expensive. But with Queen Elizabeth next year, we're also doing some five night voyages, which really bring a lot more people into the frame.

QUEST: Between the Queen Mary, the Queen Victoria and now the Queen Elizabeth, are you segmenting your ships to a particular -- to a particular clientele?

SHANKS: No, we're -- we now have, but it's not, the youngest fleet in the world. And for the very first time in our history, we have three ships that are the same. So wherever the ships go, be it Europe, be it the Caribbean, be it around the world, Australia, people can choose between the ships and know that whichever liner they go on, they're getting a very consistent experience. Each has its own personality. And, of course, the Queen Mary 2 will always be the proud leader of the fleet.

(END VIDEO TAPE)

QUEST: And when we come back in just a moment, a Profitable Moment that will compare -- well, you can fly or you can sail. But when it comes to crossing the Atlantic, which is the right way to do it?

QUEST MEANS BUSINESS, in a moment.

(COMMERCIAL BREAK)

QUEST: So tonight's Profitable Moment.

Where are Cunard's former flagships own?

OK. This is the Queen Elizabeth. She was launched in 1938 and she -- this picture here -- served as a troop ship, joined the Second World War. In 1968, sold to a Hong Kong businessman to convert into a floating university. In the renovation in '72, she sank and fire and capsized in Hong Kong Harbor, finally being cut off and towed so she wasn't a shipping wreck.

Well, danger -- the Queen Mary served as a troop carrier during the war, retired in 1967 and the Queen Mary, of course, permanently moored in Long Beach, California -- the hotel and a museum.

And this is the QE2, often referred to as the granddaddy, in many ways, of the recent era -- a transatlantic liner for 40 years since 1969 she was recently decommissioned. She was bought by Dubai World Holdings, which plans to convert her to a floating hotel. The ship is currently moored, rather sadly, just off the coast in Dubai.

The liners of the past.

And that's QUEST MEANS BUSINESS for tonight.

I'm Richard Quest.

Whatever you're up to in the hours ahead -- all aboard -- I hope it's profitable.

"WORLD ONE" is next.

END