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QUEST MEANS BUSINESS

Rate Increase?; Cloud Computing

Aired June 9, 2011 - 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: Trichet says strong vigilance is warranted. I'll warrant that a rate rise is on the cards.

Premier League, premier wages: Footballers' wages are higher than ever.

And cloud computing is a cloudy issue. We explain on "Q&A".

I'm Richard Quest. We have an hour together. Oh, yes, I mean business.

Good evening.

Tonight there is and we have a green light for a further rate rise in Europe that will probably take place next month. Jean-Claude Trichet, the head of the European Central Bank gave the signal in a speech. He used the code word that has been, it seems, for a rate rise in the future, "strong vigilance".

(DESK BELL CHIMES)

Trichet is saying that inflation is the priority. He now expects prices to rise at 2.6 percent across the Eurozone this year. That is higher than the mandate of 2 percent and is an increase on previous forecasts. President Trichet made it clear, 2.6 warrants action.

(BEGIN VIDEO CLIP)

JEAN-CLAUDE TRICHET, PRESIDENT, EUROPEAN CENTRAL BANK: On balance the outlook for price stability are on the upside, but orderly strong vigilance is warranted. On the basis of this assessment we will act in a firm and timely manner. We will do all what is needed to prevent recent price developments, giving rise to broad-based inflationary pressures.

(END VIDEO CLIP)

QUEST: Now if you thought that was as clear as mud, you need to know the key to the Trichet code. It was drawn up by the Royal Bank of Scotland's economist Nick Matthews. The key seems to be this: When the president of the ECB uses the phrase "strong vigilance" it almost always signals that there will be a rate rise eminent, usually within a meeting or so. He said it in March and in April there was a quarter point rise in rates. However, if President Trichet uses the phrase, "monitor very closely", well then you get more of an amber light. Change is not eminent. The bank is seriously thinking about it. Maybe a month or two further down the horizon. But it is on its way. Finally, if he says "monitor closely" then as we have seen over several months we are probably several stages away from any actual, action. That is a red sign. Probably no rate moves for two, three, maybe even four months. He doesn't want to spook the markets.

But at the moment we are most firmly on a green warning, a rate rise is eminent. Jacques Cailloux is the chief economist at the Royal Bank of Scotland. And I asked him, bearing in mind we had already had one "strong vigilance" some months ago, now there was another. Why didn't the ECB move today?

(BEGIN VIDEOTAPE)

JACQUES CAILLOUX, CHIEF ECONOMIST, ROYAL BANK OF SCOTLAND: That is a very good question. I think that all the information that they had today was consistent with a rate hike, as early as today. But you know, the ECB has used this coded language for some time now. And I think they want to continue communicating to the market this way. So, I think that is what we got today. But they had all the information available on the table and they could have hiked. Markets were not expecting a hike, probably, the ECB doesn't want to create volatility, or additional volatility. There is already quite a bit. And so it was it just decided to go on with its old communication tool.

QUEST: You're right. But the problem is it becomes slightly cloudy doesn't it? Because the economic data, certainly from countries like the United States and the U.K., albeit, non-Eurozone. Show a sluggishness. And those are the export markets for core countries like France and Germany.

CAILLOUX: You are absolutely right. I think we are seeing, we are observing a slowing pace of economic activity across Europe. It is unclear at this stage what it actually represents, whether it is the result of disruptions, whether disruptions whether it is a most significant slowdown on the back of higher energy prices. But it is very clear that the ECB is hiking in a slowing growth environment. We have seen that before and we know how it ends up, so I think, that you know, but still, I think they communicated a rate hike. They were cautious in terms of their projections. Which is probably the escape clause, which tells you that the ECB is not that hawkish going forward in terms of future rate hikes, so what might come down the road is maybe less rate hikes than might be anticipated, if the slowdown proves to be more prolonged than expected.

QUEST: Right. Right. So what we are really looking at is a scenario where we know the end result, it may be six months, nine months, even a year's time. As indeed, Mervyn King at the BOE has said. We now where we are heading, but the journey getting there may take many twists and turns.

CAILLOUX: Yes, I mean, it is going to be a bumpy road. The euro area is facing a its biggest sovereign crisis in history. So they have plenty of room for downside surprises in the system at this stage.

QUEST: But let's just talk about that, finally. Because that sovereign debt crisis, which now seems to be a little better contained, albeit it could blow up at any given point, but at least it is not spreading toward the Eurozone countries. Do you think there is any risk of double dip, or even single dip quarter recession Eurozone wide?

CAILLOUX: There is always a risk. I think what we saw since April is the so-called inflection point, i.e., the euro area reached a peak and it is now slowing. It hasn't been growing very fast so you can't exclude a negative outcome for a GDP out turn. I don't think this is a story about the second quarter. I think the risks are more about the second half. It is very much related about the export sector. You know, the euro area is entirely geared by the global trade cycle and what we are seeing now is global exports are slowing.

QUEST: Right.

CAILLOUX: So that is a more transient environment. It is particularly challenging for the periphery which has only found a source of growth coming from exports. So if you take that off the periphery is certainly facing the risk of a double dip at this stage.

QUEST: I don't know whether you are a betting man, but would you take my bet on whether July raises rates by the ECB? Or is that a racing certainty?

CAILLOUX: Well, you have had only one exception in the history of ECB when they preannounced it and it didn't happen. And it was a pretty serious situation. I don't think that we are facing that. So I think the chances of a rate hike in July remain very high.

(END VIDEO CLIP)

QUEST: Now the euro is down by about half a percent against the dollar. We initially saw a rally when Trichet used the words "strong vigilance". A rate hike, of course, would imply a stronger euro. Going in to sharp reverse, traders have already priced in a rate rise for July. They want to signal that rates will continue rising next year.

Excuse me.

And that they did not get. European stock markets were marginally recovered because of U.S. trade figures. That was the boosting point. The FTSE with a late rally. It was led by strong performers in engineering companies like Weir Pont (ph). CAC 40 up by 1 percent. Germany's DAX led the field with a gain of 1.4 percent. BMW amongst the day's big gainers. Up 3.2 percent.

Now it was a busy day in the corporate world. Interesting, one or two mentions that I do need to bring to your attention over in the library.

Tony Hayward, former CEO of BP, and the financier Nathaniel Rothschild are planning an IPO this month for the oil acquisition vehicle Vallares. They are hoping to raise $1.6 billion and it will target emerging markets. At least Vallares is targeting development of resource management in emerging markets.

The chief technology office Richard Green is taking personal and medical leave from Nokia. He had only been in the job for a year, according to Finnish newspapers he is unlikely to return. The replacement for the CTO will be Henry Tirri, who was the head of research.

And Citigroup, oh, boy. A security breach, hacker has accessed personal information of Citi card holders, and that includes account numbers, contact numbers. It occurred last month. Roughly 200,000 accounts have been compromised, potentially.

If your shirt is red, or it is blue, the real color that happens is green; that what matters to footballer these days. Europe's biggest clubs have huge wage bills. We'll be taking the temperature (UNINTELLIGIBLE).

(COMMERCIAL BREAK)

QUEST: Europe's biggest football clubs are struggling to keep costs under control. According to Deloitte, who presented their annual report, which says the continent's top teams are still spending money faster than they can take it in.

And if you look at the numbers of profit margins, it is somewhat pathetic at just about 4 or 5 percent. In the English Premier League, Chelsea, the biggest annual wage bill, $70 million more than the nearest rival, Man City, which is more than double their wage in the past year to overtake rival Manchester United. Their bank roll by Sheik Mansour said his wage bill is now greater than the club's entire turn over. The English Premier League is dominating the rest of Europe, in terms of revenue.

Join me at the super screen and you'll see what I'm talking about. Now, let's put this into perspective. This is the English Premier League, where the revenues rose 2 percent more. And they rose to 3.5, just over $3.5 billion. Now for the Premier League, the 20 odd teams that are in it, most of those are profitable, but they far outstrip the size and scale of the English Premier League far outstrips the rest of them as you can see.

Ah, there we are. The Bundesliga, with revenues of $2.43 billion. And then you have, I am pretty certain it is-no, it is this one. Ha-ha, proves a point. La Liga, that is at $2.3 billion. You know where I am going next with all of this. This is that one. These Serie A, with $2.22 billion in revenues. And there you have the French at $1.5. So, putting all that together and you really do get quite a remarkable difference in shear total size between all of these. With the most notable that the No. 1, the English Premier league is considerably leaps and bounds ahead of the others.

Is this likely to continue? And, indeed, is the whole thing economically viable, when you have those sort of numbers. I spoke to Dan Jones, a partner at Deloitte Sports Business Group, and I asked him if the big guns of Europe were really in robust financial health?

(BEGIN VIDEO CLIP)

DAN JONES, SPORTS BUSINESS GROUP, DELOITTE: I think it is a bit glass half full, glass half empty. On the revenue side I'd say they are a bit better than OK. I'd say a lot of other industries would kill to have the recession that football had. Revenue growth across the board, across Europe, and in all the different revenue streams, so really, really strong recession. But as ever, the problem with football clubs is the inability to control costs. So, as a result you are left with very, very thin operating margins in the Premier League, or losses in Italy or France, for example.

QUEST: I mean, you are talking-you're being charitable, frankly; 4 percent, 5 percent operating profits, margins, and profit. That is not a business. That is verging on a charity.

JONES: Well, I'd say that is thin profit margins. I say it is making a profit in operating level, but it is concerning, because any revenue shock to that, (UNINTELLIGIBLE) below break even quite quickly.

QUEST: So what is the culprit, in terms of the increased costs? Is it players fees, is it transfer fees, is it stadia renovations?

JONES: It is costs and it is wage costs particularly.

QUEST: They are paying the players too much.

JONES: That is a big challenge and it always has been-well, they are probably paying the guys marginally too much, but I don't mean that in a sort of absolute sense. I understand and I hear the argument about watching footballer gets this and the teacher gets that. But I think it is very market driven. Inevitably the more money that comes to football the more footballers are going to get paid. And that is fair enough. Because that is what people are paying the money for, for TV subscriptions, for tickets, for shirts. They are paying it to see those footballers perform. So that is fine. What we want to see though, is a better balance, whereby the footballers wages are closely linked directly to the revenue. So, if the players don't perform and the team doesn't perform, their wages should suffer as a result. And if a team does fantastically well, balances should accrue. And we are starting to see more of that, but not as much as we'd like.

QUEST: And in terms of the new rules, up to the new UEFA, fair player rules, of course, they will dramatically affect that. I know clubs like Barcelona and Madrid, and many of the English clubs, are getting ready for that. And are trying to put their balance sheets in order.

JONES: Absolutely. And I think the important thing to say, Richard, is obviously there is a lag between when the matches happen and when we get the final results (UNINTELLIGIBLE). So the results we are talking about at the moment predates financial fair play being announced. But, in real time, the clock is already ticking on financial fair play. This season is the first season where it starts to bite.

QUEST: Does it matter, is it still a great drag on the game, that you have the Abramovichs of this world, and the owners of Man City of this world, with their very deep pockets, $800 million, $500 million, they can still subsidize until financial fair play kicks in properly, vast losses.

JONES: Well, they can subsidize vast losses at the moment, and UEFA is not trying to deter people like that from being involved in the game. But they want to be involved in the game in a long term way. So they are not counting money that is invested in stadia, and they are not counting money that is invested in developing young players. What they are trying to stop is people coming in and spending a lot of money in the short term on transfer fees and big wages.

QUEST: So finally, are those clubs that have become addicted to rich man's money in for a shock?

JONES: They're in for a shock but it is a shock they know is coming. It is a shock they have had time to plan for. And I think what we'll see, actually, is for the English clubs this will not be as bad as everybody thinks. Because if the rules are there across Europe and they are enforced across Europe that you have to break even. Then who are the clubs that have the advantage in that situation, the clubs with much revenue, which is the league with the most revenue? The Premier League. So, I think the English clubs should emerge from this in a pretty strong position. It is a big change. It will be fascinating to watch. And we have done this for 20 years, the next five years could be even more interesting.

But it is going to have an effect. And it is going to be very interesting to watch and see what that effect is.

(END VIDEOTAPE)

QUEST: We'll talk more about that of course as those rules come into play. After a short break we will return. Ali Velshi and myself, we go cloud hopping, who rules the skies when it comes to cloud computing? Quest and Ali, "Q&A" after the break.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ALI VELSHI, CNN ANCHOR, CNN NEWSROOM: QUEST MEANS BUSINESS and so do I. We are here together in the CNN NEWSROOM around the world.

Hello, Richard.

QUEST: Hello, Ali. We are actually here together in person, in New York, and each week Ali and I are coming to you around the world, because we have to talk business.

VELSHI: Yes.

QUEST: Travel, we have to talk innovation, and nothing is off limits.

VELSHI: Today it is about innovation. It is all about the cloud, clouding computing specifically. We had a big announcement from Apple this week. It is becoming increasingly popular allowing users greater freedom in an on-demand world.

QUEST: He hasn't even started and he's talking. It is when you store things in a central server, not on your home computer, sites like Flicker, Hotmail.

So, the question, Ali, and you are going first this week.

VELSHI: Yes.

QUEST: Should you ditch your conventional hard drive for cloud computing? Is it time to ditch the drive?

(DESK BELL CHIMES)

VELSHI: All right, let's talk about it first. For people who don't know what we're talking about. This is a hard drive. It could be one that you carry around with you. It could be the one that is in your computer. It is where you used to store data.

This is the cloud. Now what is the difference? The cloud, you still store information on something, it is just not your hard drive, not your computer. And the question is whether or not this is as safe as this.

Now, Richard, this is the same conversation that we had years ago about this. Should you use your credit card to buy things on line? Now, the bottom line, this cloud, you don't have to store it. You can't loose it. It is cheaper. It is more efficient. It is more accessible. So, instead of arguing over the pros and cons of this, versus this, what we need to do is make this safer and more useful.

Look, let me just give you some numbers here. U.S. e-commerce sales last year, $42 billion-not last year, in 2000, $42 billion; last year, $142 billion. And we are going to add another $100 billion next year. This is how we do business. You have got to store stuff. This is old fashioned, this is the future.

(BUZZER SOUNDS)

VELSHI: It is the way I'm going.

QUEST: Answer the question. Is it time to ditch the-

VELSHI: Totally time to ditch that.

QUEST: And that is why you are so seriously wrong.

VELSHI: You've got to be kidding.

QUEST: All right. Here we go.

VELSHI: You've got 60 seconds.

QUEST: Is it time to ditch the hard drive? Absolutely not. Yes, this may well be the future, but the reality we've got a long way to go before-it is too difficult to use the cloud at the moment. There are too many issues. Of course, the cloud will be there in the future, just not yet.

Whether it is companies like Amazon, or SalesForce.com, which are making great leaps and bounds in making us and allows us to use this sort of computing. But when it comes to you, the consumer, you would be a fool to rely on the cloud just at this point. It simply isn't there.

Amazon, Google, they may be-Apple, they may all be offering music services, but at the moment it is simply not reliable. It is not safe. There are bugs. There are viruses. And most important of all, Ali, there are costs involved in using the cloud which ultimately you may find to your detriment.

So I have no doubt in the future-

(BUZZER SOUNDS)

QUEST: You will be bumping along on a cloud, but-

VELSHI: For now, he's going old school.

All right. This is where we separate the men from the boys.

QUEST: Ah!

VELSHI: It is time for the quiz. It is when The Voice comes on.

Hello, Voice.

UNIDENTIFIED MALE: Hello, gentlemen.

Now, both of you may be starting on cloud nine, but one of you will suffer an unceremonious fall to earth.

Our first question, according to Internet World Statistic, which of these is the top language for the majority of Internet users? Is it A., English; B., Chinese; C., Spanish; or D., Arabic?

(BELL DINGS)

UNIDENTIFIED MALE: Ali.

VELSHI: English.

(BELL DINGS)

UNIDENTIFIED MALE: English is correct. Very good, Ali. You are on the board with one. English barely edges out Chinese, even though there are more users in China than anywhere else.

All right, Richard. Get ready, you are way behind.

China-

QUEST: Whoa! Whoa! Whoa!

UNIDENTIFIED MALE: Way behind is one.

QUEST: Way behind?

UNIDENTIFIED MALE: China has the most Internet users, but still lags in so-called Internet penetration. Which of these countries has the highest percentage of their population connected to the Internet? Is it, A., Qatar; B., South Korea; C., Iceland; D., Germany?

(BELL DINGS)

UNIDENTIFIED MALE: Ali, you are first again.

VELSHI: South Korea. South Korea.

(BUZZER SOUNDS)

South Korea.

UNIDENTIFIED MALE: Ali, first is not always best.

VELSHI: What are you talking about?

UNIDENTIFIED MALE: Richard, your chance to steal.

QUEST: Iceland.

(BELL DINGS)

UNIDENTIFIED MALE: That is correct, Richard. Iceland is number one.

VELSHI: That is (UNINTELLIGIBLE)

QUEST: It's not!

UNIDENTIFIED MALE: It is a perfectly valid question.

(CROSS TALK)

UNIDENTIFIED MALE: The U.S., by the way, ranks 16, the U.K., 15.

All right, we are now tied, one to one. This is where we separate the men from the boys.

No. 3, now to cloud we can actually see. Which of these clouds forms highest in the sky? Is it A., Stratus; B., Cumulus; C., Stratocumulus; D., Cirrus?

(LAUGHTER)

(BELL DINGS)

UNIDENTIFIED MALE: OK, Ali, you are shot.

VELSHI: Cumulus.

UNIDENTIFIED MALE: That would be-

(BUZZER SOUNDS)

UNIDENTIFIED MALE: No.

VELSHI: This is embarrassing.

QUEST: Wait a minute.

VELSHI: 10 year old kids know the answer to that.

QUEST: Just remind us again. It is stratus?

UNIDENTIFIED MALE: Cumulus, stratocumulus, or cirrus.

VELSHI: Well, cirrus are those flat little ones that can't possibly be it.

QUEST: It is stratocumulus.

VELSHI: Yeah.

(BUZZER SOUNDS)

UNIDENTIFIED MALE: All right, Ali, you want to take another shot at it?

QUEST: Oh, come on.

VELSHI: Well, OK, I'm going to just go back to my Latin now. It has got to be stratus, because we are talking about the stratosphere.

(BUZZER SOUNDS)

UNIDENTIFIED MALE: This one could be easy for you, Richard.

(VIGOROUSLY RINGING THE BELL)

QUEST: It is the other one.

UNIDENTIFIED MALE: That's right, Richard, it is the other one.

(LAUGHTER)

QUEST: It is cirrus.

UNIDENTIFIED MALE: Congratulations on what we have to call a win, but that is questionable.

VELSHI: Yes, well, I'll get him next week.

QUEST: Ah.

VELSHI: That will do it for us this week.

QUEST: Yes, we are off for lunch on this card.

(LAUGHTER)

QUEST: Remember, we are here each week on QUEST MEANS BUSINESS.

VELSHI: 1800 GMT, or CNN NEWSROOM, 2:00 p.m., Eastern. Keep the topics coming on our blog. CNN.com/QMB and CNN.com/Ali. Tell us each week what you want to talk about. And we'll see you next week.

Richard, have a good one.

QUEST: Have a good one.

(END VIDEOTAPE)

QUEST: I tell you, it may have been a default win but any win against Ali Velshi is good. And that was from when I was in New York earlier this week.

When we come back we'll have more. But let me also tell you he is the former chairman and chief exec of General Electric. He is an author, he's a businessman. He is a guru. Jack Welch talks politics, U.S. economy and more, it is "PIERS MORGAN TONIGHT". Just half an hour from now.

(COMMERCIAL BREAK)

QUEST: Hello. I'm Richard Quest, QUEST MEANS BUSINESS. This is CNN and here the news always comes first.

(NEWSBREAK)

QUEST: Now the markets have been open and are still open in New York. Alison Kosik is at the New York Stock Exchange.

(DESK BELL CHIMES)

Alison, as you and I have been talking a correction has clearly been underway. An 11-week lows we have been seeing on the market; 500 or 600 points have been evaporated in recent days. Today?

ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Today is a different story, Richard. Today we got a decent report. You know sometimes all it does is take a little bit of good news. And the good news was, first of all, yesterday we got the Fed's "Beige Book". It did show that most regions here in the U.S. are growing, but what really got stocks going today, Richard, was a report that U.S. exports hit a record in April.

So, the U.S. trade gap narrowed in April, with the U.S. exporting more and exporting less. What this basically is, and what investors are really happy about is this is a good sign for the manufacturing sector, which had been showing signs lately that it is slowing.

And that that speed bump may not really be such a big speed bump after all. And you know what? This could also mean good things for second quarter GDP. It could mean that the economy, Richard, is growing faster than economists had estimated, Richard.

QUEST: OK, but I am a believer, one swallow doth not a summer make. And just because you have had a good bit of exporting numbers on the back of maybe some dollar weakness that is actually encouraged people to buy. It is far too soon to be off to the races, Alison.

KOSIK: Oh, that is true. But you know, you talk to most economists, Richard, and they think this is temporary. They say, you know, that this weakness that we've seen lately could actually be setting stocks up for a rebound. You know investors, really, at this point they want to see more data. They want to see if the Fed does anything once QE2 wraps up at the end of the month. And then when you think about it. How far down that stocks have come. At some point they have got to go back up and this really becomes a buying opportunity. And you know what, these slumps are actually pretty common during recoveries. So, I mean, we really could see stocks tick back up.

Now, at the same time, there is another perspective. Reuters said that economist Robert Shiller, he is the co founder of Case-Shiller Home Price Index, he says there is a risk of a double dip. His worry is that if the unemployment rate continues to go up higher, that we could be at risk for a double dip. So there are two schools of thought. Glass half full, glass half empty, depends on which camp you sit in, Richard.

QUEST: OK, but let me throw another glass into there. That actually a double dip is unlikely, technically possible, but unlikely. A barn burning, roaring ahead, is not likely either. But what about that the U.S. economy just trudges through the sludge for another six to eight to nine months to a year?

KOSIK: Of course, that is likely. I mean, we have heard that this- even this sideways trade is just going to be the theme of the summer. I mean, let alone the data that we may get. Although, this report on the U.S. trade gap may really prove to power GDP forward in the second quarter. I mean, you may be surprised. I'm hearing things that this trade gap number that came out could actually raise GDP by at least a half a percent.

QUEST: Alison-

KOSIK: We'll have to wait and see if that is in fact the case, Richard.

QUEST: We will indeed. All right, Alison, many thanks.

KOSIK: Yes.

QUEST: Alison is at the New York Stock Exchange.

Now the New York Stock Exchange is welcoming a new high tech addition on this Thursday.

(BEGIN VIDEO CLIP)

(OPENING BELL CLANGING)

QUEST: It was the executives from the data storage company Fusion I- O, which rang the opening bell. It celebrated their IPO, their initial public offering. It was well received on the floor. The trading-the shares are currently up. This is interesting. This shows whether or not it was a well-priced IPO. A gain of 22.3 percent, so nothing like we saw with LinkedIn. And many would say that a gain or a stag price rise of 20 percent is probably right. You want to get an IPO off to a good start.

Fusion I-O is taking a modern approach to storage. Now, this is what we extracted from one of the computers in the newsroom. Somebody will discover that it is missing.

(LAUGHTER)

It is the classic hard drive where data is stored on a spinning magnetic disc. The days may be numbered. This comes from a camera. It is a solid state memory card. Now, this obviously doesn't do the full work of a major hard drive, but pretty much the same thing. It is faster with more energy efficiency than its larger counterpart. If you take these, make them a bit bigger, wrap them all together. Run them in unison, you would get something like Fusion I-O's Chief Executive David Flynn tried to explain. The growth of this solid state technology and it is going to have a profound effect on our computer services.

(BEGIN VIDEOTAPE)

DAVID FLYNN, CEO, FUSION-IO: We are taking the data storage from the era of Thomas Edison's phonograph, of 150 years ago, a spinning platter, into the era of microchips where it is driven by Moore's Law and transistor density growth, as opposed to Newtonian Dynamics and how fast you can spin a platter.

The implications of this is profound. It means having systems be able to process massive quantities of data much faster than ever before.

QUEST: So you clients buy your services? Or do they buy your physical hardware? Are you in the cloud computing business, basically?

FLYNN: We build solutions that include hardware and software as well as some services that go along with those, in support of them, but those are generally embedded into somebody else's infrastructure. A cloud provider, or a social network, or for example, here I'm on the floor of the New York Stock Exchange, where not only are we now traded as a public company but we are actually helping power their next generation trading platform. Because for them time is money. The speed at which you can do it makes a very big difference.

QUEST: Let's just talk, finally, about this concept, of the shift that is underway. We all started with big boxes and small boxes. We then needed more power and we lashed them together. Be we are, would you agree, in the next stage of this industrial, information, revolution.

FLYNN: You know, the next stage is to be finally putting one's data in electrons, as opposed to on a spinning platter made of rust. That is really what this is. It is finally moving it so that the information economy everything is stored now in electrons instead of requiring spinning platters.

(END VIDEOTAPE)

QUEST: Spinning platters, and servers turning, it is all a new world, and one that is very much in the clouds. Silicon Valley in California is home to some of the world's biggest technology companies. There is Apple, AMD, of course, the big chip maker of them all, Intel. You have also got Google that is out there, and HP, along for the ride. Anyone who has been to Silicon Valley will be quite surprised and quite amazed to see how many headquarters. More than a million people work in the region. It is the undisputed cradle of technology. At least it has been until. As Felicia Taylor reports, New York is competing hard for a slice of silicon.

(BEGIN VIDEOTAPE)

FELICIA TAYLOR, CNN FINANCIAL CORRESPONDENT (voice over): Take a look at one of the fastest growing businesses in New York City, Buddy Media. Just four years old and this company that helps firms market their brands on social networking sites is in the midst of a hiring boom, and is running out of desk space.

We had 40 people last year. We are now up to 180 people. We are busting out of this office. And it has all happened because of the growth of the Internet and the growth of Facebook.

TAYLOR: Buddy Media is just one of many Internet firms participating in this year's New York Internet Week, at a time of rapid growth in the city's online community. In just over a year more than 160 startups have opened their doors here after receiving funding. Many of them, close to the Flat Iron Building, in so-called Silicon Alley. New York politicians attending Internet Week are gushing over the possibilities.

SEN. CHARLES SCHUMER, (D) NEW YORK: I think New York can become the Internet capital of the country and even the world within 25 years.

UNIDENTIFIED MALE: We're Meebo. We help people check in to web sites.

UNIDENTIFIED MALE: We're daylife (ph) and we offer a cloud-based publishing solution.

TAYLOR: But amid the optimism comes a reality check.

(OPENING BELL)

After the successful IPO of Linkedin the IPO filing of coupon site, GroupOn and the more than $2 billion venture capital firms sunk into city start ups last year, there is growing anxiety about the possibility of new tech bubble. And many firms, like Buddy Media rely on revenue from advertisers, who may cut spending if the anemic U.S. economy doesn't pick up steam. Still insiders are hopeful arguing that brands desperately need Internet firms to help navigate social media and influence consumers.

DAVID-MICHEL DAVIES, CHAIRMAN, INTERNET WEEK, NY: And brands recognize that people are making-are no longer making these decisions just in front of a television set. They are making it in all these different places. So they are trying to figure out how they can be there and how they can influence those decisions. So to that extent it is still a very, very new space.

TAYLOR: Back at the offices of Buddy Media, CEO Michael Lazerow says it is important for companies like his to thrive.

MICHAEL LAZEROW, CEO, BUDDY MEDIA: If the country is going to get back on track, and specifically the microcosm of New York, how are we going to grow? It is from innovation. It is from young companies that are creating whole new industries. And so these jobs didn't exist two years ago. They are high paying jobs and really fueling the city's future.

TAYLOR: Buddy Media says hundreds of new hires could be added soon. And later this year, they may move to a much larger space. A glimmer of growth in an otherwise summer of worry for the U.S. economy. Felicia Taylor, CNN, New York.

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QUEST: You know what they say, it ain't over `til the fat lady sings. Well, opera delivers a much needed morale boost in Japan.

It was a stunning opening night's performance for the first major international company in Japan since the earthquake (UNINTELLIGIBLE)

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QUEST: And opera tour is boosting moral in Japan, three months after the tsunami and despite an ongoing nuclear crisis, the New York Met decided the show must go on. And Kyung Lah in Tokyo was there to see it.

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KYUNG LAH, CNN INTERNATIONAL CORRESPONDENT (voice over): Opening night in Tokyo. Fans buzzing with anticipation at the production of the year. La Boheme, a stunning opera of love, heartbreak, and untimely death. This is also a show of triumph.

PETER GELB, GENERAL MANAGER, METROPOLITAN OPERA: I would like to say how proud we are to be the first major performing arts company to visit Japan since the disaster in March.

TAYLOR: The very first, all other international arts performances have cancelled citing concerns with the earthquake threat and the ongoing nuclear crisis. Leaving Japanese workers unemployed for months, a theater sector struggling to survive with the rest of Japan's economy. New York's Metropolitan Opera faced challenges of its own. Several big stars canceled at the last minute. Barbara Frittoli stepped into the lead soprano role.

BARBARA FRITTOLI, OPERA SINGER: I had to do-I had to do this role to help them. I think it was the right thing to just come and help them with our singing.

LAH (On camera): At the end of the day this is just one opera, just one production, but they hope by simply showing up they send a potent message. Not just to international companies, but to international individuals about the state of returning to Japan.

GELB: We're not here to impress tourists, but I think that is an important by-product of our visit. I think it is important to demonstrate to the Japanese people that normalcy can return and, you know, in our small way we are trying to do our best.

LAH (voice over): As the curtain falls on opening night, fans would not leave, winding up around the block, a chance to show their appreciation in person.

HIROSHI ITO, OPERA FAN: Thank you very much. I feel so good about this. That is what I want to say.

LAH: More than just theater for these fans, a sign that their country can come back. Kyung Lah, CNN, Tokyo.

(END VIDEOTAPE)

QUEST: Lucky Kyung Lah, going to see the New York Met and seeing La Boheme and that magnificent performance. Anyone who is an opera lover, will of course have enjoyed that. And we are going to stay with the world of opera as we turn to our "World At Work" series. Marina Poplavskaya is a singer at the Royal Opera House in London's Covent Garden. As she was rehearsing for "The Tsar's Bride", a piece that she is performing in, well, we decided this was a perfect place that we needed to experience the opera singer's "World At Work".

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MARINA POPLAVSKAYA, OPERA SINGER: My name is Marina Poplavskaya. I am an opera singer and an actress.

Since I was a little girl I used to record everything from radio (UNINTELLIGIBLE). I loved listening and listening again. It is like an ocean, really. It brings out all sorts of emotions.

(UNINTELLIGIBLE) we call it finding the voice everyday. For me it is more sacred, so it is more involvement and there is more concentration. I try to work on the clear diction. It is like, it is like a good Stradivarius instrument, really.

With the perfect conditions and the good tuning, and a good hand, to play on.

The same song, I can express the joy, or sadness, or surprise, or frustration. While learning the language is really, really important, and whatever it takes, learning-the real sentence of each phrase, or what it means, what is behind, what is the history?

Waiting is the most horrible time for me, before I go on stage.

And when I am finally approaching the stage, I actually I feel very calm and very happy.

There is an exchange of souls, really.

It is your responsibility to stay alert and concentrate and be kind and just accept anything which happens on stage. For one year my rib cage grew from 36 inches to 40. And that is when I'm not breathing. When I breath I expand three or four inches more.

We are like, basically, trained divers or swimmers. This is really hard work. Really, really, hard, physical work.

If it delivers the light to the hearts of the adults who are in the audience, then I feel really, really at home. And it makes me really happy.

(END VIDEOTAPE)

QUEST: Wonderful music, wonderful singing. And the facts that you can use at any dinner party tonight. That the opera singers chest goes from 36 to 40. Well, you never knew that. You don't find out that on other programs.

Anyway, why don't you join us and have a chat and tell us what is on your mind? The Twitter address where you can always find me is @RichardQuest. And it really doesn't matter how many times I say this, but I do read it myself, either on the laptop or on the iPad. So, @Richard Quest is where. We might not always have a dialogue, but we can certainly have a chit-chat with each other. And Quest@ CNN.com. Is the e-mail address, the old brickbats, and your bouquets, we'll be getting to those in the days ahead.

We'll be back with the weather forecast after the break.

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QUEST: The weekend is neigh and a chance of showers in parts of Western Europe. My main concern is in Valencia, in Spain. Where I am headed to tomorrow for filming for "Future Cities". Where I'll be over the weekend. Pedram is at the World Weather Center.

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QUEST: Pedram, we thank you for that. Volcanic ash is no respecter of presidents or paupers, or planes. "Profitable Moment" in a moment.

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QUEST: Tonight, "Profitable Moment", Jean-Claude Trichet blew the dog whistle on "strong vigilance" a phrase that has economists across Europe pricking their ears in anticipation. Interest rate rises, presumably just one month away; inflation, the biggest concern. But in a two-speed Europe concerns are very different for the periphery. And arguably much graver. Raising rates now might make Europe's core happy, but what is that when Europe's periphery needs to stop crisis? Vigilance is needed on interest rates but vigilance is also needed to make sure countries like Greece and Portugal don't bring the whole thing crashing down.

And that is QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. Whenever you are up to in the hours ahead.

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I hope it is profitable. Piers Morgan after the headlines.

END