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QUEST MEANS BUSINESS

Israel Blasts; Air France-KLM Profit Warning; Airlines' Currency Dispute With Venezuela; Dow Falls 117 Points; European Markets Down; Cleaning Up Europe's Banks; Garth Brooks Cancels Dublin Concerts; The Cupcake Bubble

Aired July 8, 2014 - 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: So, the closing bell is ringing, but the Dow is under 17,000. It's a large fall of the day, off 112 points. Korea Power

and Energy is ringing the closing bell. Hit the bell! Only got two there. It's a down day on the market. It is Tuesday. Good evening to you.

Tonight, buckle up.

(AIRLINE SEATBELT PING)

QUEST: Air France-KLM are warning on profit.

Also, it's five shows or nothing. Garth Brooks says he's not performing in Ireland.

And New York cupcakes have gone into crumbs. We'll explain more.

I'm Richard Quest, and of course, I mean business.

Good evening. We begin tonight with breaking news. There are explosions in Israel near Jerusalem. An eyewitness says at least three

rockets have just been intercepted by Israel's missile defense system.

A CNN team in Jerusalem heard several blasts. Our correspondent Diana Magnay is in Ashkelon in Israel and joins me. Diana, what's the situation?

What's been heard, and where?

DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT: Well, Richard, just an hour ago, there was a barrage of rocket fire over our heads here. The air

raid sirens sounding. On their way north towards the cities of Ashdod, Tel Aviv.

At the same time, the air raid sirens went off in Jerusalem, and that was when our producers heard the explosions there. It seems that Iron

Dome, the Israeli missile defense system, is being put to very effective use right now.

It has intercepted two rockets, which -- one of which was intercepted over Tel Aviv itself. And we've seen pictures of that on Israeli media,

one of which was intercepted just south of Tel Aviv, also over Jerusalem.

So, what we're seeing now is that Hamas is stepping up its operations, sending long-range missiles as far as Tel Aviv and possibly also beyond.

And this is what the Israelis were scared of. Up until now, they've been using much shorter-range missiles --

QUEST: Right.

MAGNAY: -- but they did threaten that if Israel was going to continue its airstrikes into Gaza that they would extend their range, and that's

what they're doing, Richard.

QUEST: Now, from the Israeli side, how far is this operation, that's now got a name, how far is Israel in its own military action pushing

forward?

MAGNAY: Well, this -- today has been an extremely aggressive assault by Israeli defense forces on targets within the Gaza strip, something like

150 airstrikes on what the Israelis say is -- what the Israelis say are terror infrastructure targets, so terror tunnels that Hamas has supposedly

been digging out towards Israels, weapons stores, also the homes of Hamas militants.

But also, there have been casualties here, not just of Hamas leaders, but also, for example, seven people on a roof of a family home belonging to

one of those leaders, two children killed in that attack. So, there have been some extremely aggressive action by Israel.

And we're also hearing that they -- well, we now know the Israeli government say that they want to call up 40,000 reservists --

QUEST: Right.

MAGNAY: -- for possible ground maneuvers within Gaza. Now, that's still a hypothetical, but literally every hour here, Richard, it feels as

though the situation is becoming graver and graver. So it would seem as though the possibility of using ground troops to really clear out Hamas

infrastructure, which airstrikes can't reach, is becoming a closer eventuality, Richard.

QUEST: Diana, I just wanted to finish on that note and talk to you about that point. Because to anybody watching tonight, hearing the

increased Israeli effort against Hamas in Gaza, hearing tonight of Hamas's rockets heading toward Tel Aviv, sirens in Jerusalem, one's left with this

undeniable scenario of a deeply-deteriorating situation.

Well, absolutely. And clearly, one day of airstrikes is not enough to paralyze Hamas's "rocket terrorism," which is the way the Israelis describe

it. In fact, it would appear as though Hamas is going on the offensive.

Just down the road from us here, along the coast, there was an incursion. We don't yet know whether the militants came by dingy or

whether they swam. They were armed with Kalashnikovs, they were armed with grenades. Five were killed by Israeli defense forces.

But think about it: this is astonishing that militants can leave Gaza, make a raid into Israeli territory via the sea. Things are ramping

up a notch. And last time, in 2012, that was an -- there was nine days of airstrikes on the Gaza Strip, trying to take out their rocket-making

capabilities, but Egypt then mediated a cease-fire.

So, things basically were kept on a keep-the-status-quo as it is. Egypt this time around does not have such good relations with Hamas.

They're not probably going to be able --

QUEST: Right.

MAGNAY: -- to broker that kind of cease-fire. And nothing was eradicated in terms of Hamas's terror infrastructure, and perhaps now, the

Israeli government is turning around and going, we're going to finish the job that we didn't finish then.

QUEST: Diana Magnay, who's in Ashkelon tonight. Thank you, Diana. We have full team coverage, of course. Ben Wedeman -- we have our teams

across the region, and as developments happen, we'll bring them to you.

Now to our main business story this evening. There's been a profit warning from one of the world's largest airlines. Air France-KLM says

earnings for this year could be 12 percent lower than expected.

The airlines blamed poor demand for freight and too many empty seats on North American and Asian routes. It follows Lufthansa's warning last

month that profit could miss forecasts by as much as 33 percent.

If you wonder and doubt the severity of this, come and look at the super screen. Airline stocks fell on Tuesday on the news. You've got Air

France, which is down a whopping 8.75 percent on the day to 8.5. Delta in the US, of course, which is a partner of Air France, down 1.25. Lufthansa

down nearly 4 percent. And IAG, that's British Airways and Iberia and Vueling, that is down 5.74 percent.

Tony Tyler is the chief exec of IATA. He joins me now. Tony, we're going to talk Venezuela in just one second, but I do need to discuss these

profit warnings, over-capacity. Earlier, IATA had said things are OK, your latest forecasts. Are you now in a position where you may have to revisit

your forecast down?

TONY TYLER, CEO, IATA: Well, Richard, as you know, we revisit our forecasts regularly through the year. But I think what these results are

telling us is that the conditions for European carriers are very, very difficult. And they're difficult for several reasons.

The industry in Europe is particularly highly-taxed. It's particularly heavily regulated in areas apart from safety, of course, which

of course a very important area for regulation. The European industry carries a lot of other regulation.

Its infrastructure is very expensive and generally inadequate. And it's hardly surprising, therefore, that airlines in Europe struggle when it

comes to profitability.

QUEST: Are you saying, then, to some extent, as I understand you, Tony, that basically many of these issues are Europe's own problems? The

US has consolidated and is now showing profits. Asia, there are difficulties but there are signs of hope. In Europe, it's just one bit of

misery after another.

TYLER: Well, you've got a large market. It's a mature market, not growing fast in Europe. And it's struggling with, as you say, a lot of

self-imposed or government-imposed problems.

And these are things that governments in Europe and, indeed, the European Commission at a trans-European level, can do something about, if

only they will see aviation as what it really is, which is an engine of growth and value and economic development rather than just as simply a

target for taxation and over-regulation.

QUEST: Now, Tony, stay where you are, please. Don't go anywhere for the moment, because we're going to come back to you in just a second.

Nearly a dozen airlines are involved in a currency -- a nasty currency dispute with the Venezuelan government.

The industry says Caracas is holding back around $4 billion owed to international carries. The government's restrictive foreign exchange

regime prevents them from simply converting local currency to dollars. Airlines have responded. They have slashed services.

So, Delta currently flies seven flights a week. Delta seven weekly flights has been cut to one flight per week at the weekend. American

airlines -- American had 48 flights from three US cities. That's been cut now, down to 10 flights a week, and only between Miami and Caracas.

Alitalia, the Italian, or maybe Abu Dhabi airline, that has cut all flights on its Rome-to-Caracas flight. Air Canada has cut back flights

between Toronto and Caracas. And Lufthansa has cut back flights, suspended ticket sales for flights as well. So, Tony, I've gone through the litany.

What needs to happen, besides the obvious of please pay the money?

TYLER: Well, Richard, you haven't gone through the whole litany, because pretty well every carrier operating to Venezuela, and there's about

24 of them, have cut back flights over the last few months. Because if you can't be paid for doing something, then obviously you can't keep doing it.

And as we've been trying to explain to the Venezuelan government that this connectivity that they're losing is vital for their own economic

recovery. And so, what they're doing by refusing to let airlines repatriate their money -- and look, it's the airlines' money, it's not the

government's money, this is the airlines' money.

So refusing to let them repatriate it, what they're effectively doing is cutting themselves off from the world and from the economic activity

they need so badly. And understandably, if the airlines can't be paid for providing a service, they're not going to be able to operate that flight.

QUEST: How does this get resolved? Because there have been various attempts to mediate. The Venezuelans have said they'll provide a certain

amount of money, it's not the full amount. They want to do it at certain exchange rates, which is uneconomic. So Tony, how does this resolve

itself?

TYLER: What needs to happen is the Venezuelan government needs to sit down and negotiate in good faith with the airlines. We at IATA, I've

written to President Maduro three times, and I haven't had a response yet, but I've offered to come and help to try to do a deal.

What this needs is a sensible deal being done between the government and the airlines, a deal that the government will stick to. So far, they

haven't stuck to the deals they made with several airlines last week -- last month, I'm sorry -- under which they were supposed to make certain

payments, which haven't yet been made.

But this -- what we need is a credible deal, enforceable deal that the airlines can live with and accept, and the government can play its part on.

QUEST: Tony Tyler, thank you for joining us, sir. Good to see you as always on QUEST MEANS BUSINESS. I appreciate it.

When we come back, Garth Brooks was hoping to find friends in Ireland later this month. Instead, thousands of country fans are in low places

right now. The full story, with a big hat. It's QUEST MEANS BUSINESS, yee-haw.

(RINGS BELL)

(COMMERCIAL BREAK)

QUEST: US stocks closed down on Tuesday, having hit 17,000 last week on the Thursday, the last session before July the 4th. As you can see, the

market opened lower. It fell even further, and it sort of ended up a little bit of a middling sort of day down, 117 points.

I can honestly say having read a variety of reasons why, none of them make much sense, other than the basic fact that perhaps the market is

slightly over frothily-bought.

Alcoa has beat second quarter earnings, the first of Q2. The estimates EPS of 18 cents a share, the estimate was 12 cents. So, second

quarter off to a strong start.

European markets sank sharply, closing lower for the day, second day in a row. Those airline shares that we talked about a moment ago, it was

after the Air France warning, dragged the market, everybody off there by more than 1 percent except the Zurich SMI.

Shares in Commerzbank fell almost 6 percent on reports that US authorities have German banks in their sights. Last week, they handed a

record fine to BNP Paribas of France. Jim Boulden's in London for us tonight. Jim, what are the allegations against the German banks?

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Well, it's the same thing. It's the same thing that happened with BNP Paribas. It's about

dealing with countries that were on the banned list in the US. Commerzbank is in negotiations, of course, like many other banks are, with US

authorities.

But it's interesting, Richard. This report that was brought out by Reuters says that Commerzbank is in this negotiation and might this summer

pay a $500 million fine, a half a billion dollar fine.

So, it's kind of odd, I think, that the share price would fall 5.6 percent. Deutsche Bank shares also down as well. And even, of course, BNP

shares down 2 percent. You remember, of course, their fine was $9 billion.

QUEST: Right.

BOULDEN: So, I'm not really sure why Commerzbank would fall so heavily, but it is a very skittish time for these European banks because of

the US authorities investigating them for so many reasons.

QUEST: I guess it's the classic, if the rumor is right and it's $500 million, the stock will rise. If the rumor is wrong and it's $5 billion,

then that does it.

BOULDEN: Yes.

QUEST: Jim, look, I've been reading a lot lately about the question that the French are raising. Are the markets -- is global trade too

dollar-denominated? Should there be this shift to more euro trading. The classic example is given, Airbus. Why a European airline should buy

European planes and pay for it in dollars. But is there any thrust, any heft to the idea that the dollar is too hefty?

BOULDEN: Well, we know where this has come from. It's because BNP was fined $9 billion. And it's an interesting concept. It's a discussion

that's going to happen within the European Union in the next couple of days. Because we used to say the euro is going to rival the dollar as a

safe haven currency.

Because oil is traded in dollars. As you said, airlines parts and aircraft manufacturers charge in dollars. And the reason of that, of

course, is because the US dollar has been seen as such a safe haven.

But that meant, of course, that these European banks had to play ball when it came to US sanctions. So these were sanctions in the US that

weren't the same in Europe. Those banks weren't necessarily breaking European law.

They want to do business in the US and they want to do business in US dollars, they had to follow the rules that were passed by Congress, whether

you liked them or not, when it came to trading with Cuba, with Iran, with Syria, whomever.

And so, it's an interesting discussion, but I don't see the euro becoming the safe heft as the US dollar. We talked about that a dozen

years ago, it still hasn't happened.

QUEST: That's the point, isn't it? That's the point. The French can want it all they like, but it may not happen. Jim Boulden --

(RINGS BELL)

(LAUGHTER)

QUEST: -- good to put it in context. Thank you.

BOULDEN: Yes.

QUEST: Now, when we come back after the break, food fads are on the turn here in the US. We'll talk about it in a moment. Join me in the

kitchen.

(COMMERCIAL BREAK)

QUEST: It's the stuff of country music lyrics. Think about it. There's 400,000 broken hearts, a town without pity, and a dream that died a

cruel death.

(RINGS BELL)

QUEST: Ooh, you can put it to music, and a big guitar and a hat. Why? Well, the country star Garth Brooks has canceled a string of eagerly-

awaited concerts. It was his big comeback concert in Dublin.

(GARTH BROOKS MUSIC)

QUEST: The city council said three of the planned shows could go ahead and refused permits for two more after local people raised

objections. Brooks said five nights or none. Now, about 400,000 ticket holders, equal to nearly a tenth of Ireland's total population, must be

given refunds.

Ticketmaster tweeted this: "The scale of the operation is unprecedented in the Irish entertainment industry. We would ask customers

to continue to be patient while we finalize our plan."

Brooks said choosing to play some of the shows and not others would be like choosing between your children. Some of his fans in Ireland are now

complaining they weren't given a say.

(BEGIN VIDEO CLIP)

SUSAN MANGAN, DUBLIN RESIDENT: There's 373 submissions went into Dublin City Council against these concerts. We weren't offered to any. We

weren't invited to any of their meetings. We got no leaflets. And when we went onto the Facebook page, we were blocked because we voiced our opinion.

SANDRA REID, DUBLIN RESIDENT: We have the traffic, we have the people, and I haven't got a problem with that. I've absolutely no problem

with that whatsoever. If it's bringing money into this area and it's the economy, well, so be it. Let it go ahead.

(END VIDEO CLIP)

QUEST: Adrian Cummins is the chief executive of the Restaurants Association of Ireland. He joins me now from Dublin. Who do you blame?

The local council for not giving Brooks five dates, or Brooks for being a bad sport and not taking what he was offered?

ADRIAN CUMMINS, CHIEF EXECUTIVE, RESTAURANTS ASSOCIATION OF IRELAND: Well, Garth Brooks put his faith in the Irish people, the Irish country, to

hold five concerts to start his world tour, to sell 400,000 tickets, which he did, to bring in 70,000 tourists into our country. That's one percent

of our overall tourism numbers, to spend a lot -- about 50 million euros in revenue into our country, into Dublin. And I think the country has let

Garth Brooks down.

And we could have stepped up to the plate and we could have gone ahead with these concerts, but for -- just for a few residents that just didn't

want --

QUEST: Well --

CUMMINS: -- this to go ahead.

QUEST: Right, you say that, but Garth Brooks originally wanted two concerts. He then took it up to five. He was offered three. I could make

an argument that says local councilors and regulators have to balance public interest.

CUMMINS: And the local elected councilors voted in favor of holding the five concerts. But unfortunately, our local authority overturned that

democratic decision. And now, we're at a situation where we won't have five concerts going ahead.

We have 400,000 disappointed fans, and we've over 70,000 tourists that have specifically bought tickets to come to Ireland, and the image of

Ireland has been tarnished because of this.

QUEST: So, to use a phrase of which you may be familiar, how on Earth does such a dog's breakfast take place? How does Ireland in this situation

get itself into such a mess?

CUMMINS: Well, the first thing we need to do is make sure that this never ever happens again and put the systems in place that this type of

event, this type of fiasco never happens in the future. We're well capable of holding international events, and we have done so in the past.

International concerts -- U2 had over three major concerns here in a row. We've had international sporting events. And we need to make sure

that this never happens in the future --

QUEST: Right.

CUMMINS: -- and that we make sure that our brand is reinstated.

QUEST: Adrian Cummins, thank you for joining us, sir. Look forward to attending a concert with you in Ireland in the future. Thank you, sir.

Now, there was not a sprinkle of luck as the bakery chain Crumbs Bakery closed all its stores today. Join me -- ooh, look at that!

(KISSING SOUND)

QUEST: Come over into the kitchen. The company, Crumbs, grew big by riding the wave of cupcake mania. So, the wave has now past, and with a

cupcake or two in hand, I've been on the trail of icing to find out what happened.

(BEGIN VIDEOTAPE)

QUEST (voice-over): It all happened so quickly. Some customers were caught unaware. This was the first Crumbs to open on Manhattan's upper

west side in 2003. It's now one of 65 across 12 states that's closed its doors.

QUEST (on camera): I would show you some Crumbs cupcakes. Of course, with the stores closed, there were no cakes to be had. So instead, here

are some I made earlier, so to speak. Let's start with the finances, and the loss of some $18 million. In other words, there was red all over the

balance sheet.

That led investors to have a nasty taste in the mouth, and the shares dropped to 11 cents before finally being de-listed. Take a bite out of

that.

Of course, the icing on the Crumb cake, with all these events happening underneath, was the default on debt -- $14 million. The banks

called in the loans. When all is said and done, the cakes may have been fresh, but the finances were stale.

QUEST (voice-over): Cake watchers are now looking closely to see if there's another cupcake calamity coming. For this competitor, Magnolia

Bakery, nothing of the kind. Their cupcakes are selling like -- ha ha -- hotcakes.

UNIDENTIFIED FEMALE: As long as there's a good cupcake and the price is right, people will always buy them. It's an American staple.

SARAH JESSICA PARKER AS CARRIE BRADSHAW, "SEX IN THE CITY": I have a crush.

QUEST: It's 15 years since this scene in "Sex in the City" put Magnolia and cupcakes on the map.

SARA GRAMLING, MAGNOLIA BAKERY: We don't consider it a trend or a craze, because it's been such a significant amount of time since the first

launch. We're not worried, no.

QUEST: Magnolia has survived by diversifying from the humble cupcake and going international.

UNIDENTIFIED MALE: I feel like for me, at least, sometimes I don't want to eat a whole cake --

UNIDENTIFIED FEMALE: Yes.

UNIDENTIFIED MALE: -- and I don't want a piece of cake. And the cupcake is just --

UNIDENTIFIED FEMALE: Yes, you can get it --

UNIDENTIFIED MALE: -- just enough.

QUEST: A cupcake, just enough for some, not quite enough for Crumbs.

(END VIDEOTAPE)

QUEST: Well, if you insist. Just a little crumb cake. It would be rude not to after such a day.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes

first.

Israel's warning its war on Hamas could turn into a ground invasion of Gaza. The Israeli defense forces said it's bombed 150 terror sites in

Gaza, part of a major offensive to stop rocket fire on Israel.

The rocket fire appears to be escalating dramatically. An eyewitness says an Israeli missile defense system intercepted three rockets over

Jerusalem in the past few hours. Air raid sirens have sounded, and the CNN crew heard several explosions.

Somali officials say they've regained control of the presidential palace after heavily-armed militants stormed the building. The president

wasn't in the palace and is said to be safe. Militants from the al-Shabaab said it was part of a siege they orchestrated for Ramadan. Reuters quoting

Somali officials as saying five militants were killed.

The defense has concluded its case in the trial of Oscar Pistorius. Closing arguments are set to begin on August the 7th. The athlete's

accused of murdering his girlfriend Reeva Steenkamp. Pistorius says although he did shoot her, he mistook her for a burglar.

The powerful typhoon heading for central Japan after lashing Okinawa with heavy winds and high rainfall. This video is from Okinawa, where

people are starting to assess the damage done by the storm. Half a million people there were advised to get out of their homes.

Now, those of a nervous disposition should sit down with a strong cup of tea -- or more. Germany's leading five-nil over the host Brazil in the

first of the World Cup semifinals. All five goals have come in the first 30 minutes of the match in Belo Horizonte. The second semifinal, between

Argentina and Netherlands, takes place on Wednesday.

President Barack Obama is asking Congress for almost $4 billion in emergency funds. He says it's needed to deal with the flow of illegal

immigrants across the border into Texas. The White House says it's creating an urgent humanitarian situation. It wants to strengthen border

security efforts and combat the misinformation spread by human smugglers in Mexico and Central America. Michelle Kosinski's our White House

correspondent joins us now from the White House. Michelle, how much of this $4 billion in emergency funds is just going to get bogged down in

politics pure and simple?

MICHELLE KOSINSKI, CNN WHITE HOUSE CORRESPONDENT: That's a big question. I mean, it's not even guaranteed at this point that Congress

will pass this funding even though there's been a lot of rhetoric on both sides. I mean, Republicans in Congress - even just a few minutes ago -

slamming President Obama for not doing more, for letting the crisis get to this point. So the White House is saying, 'OK, if you care so much about

this problem, then let's pass this funding and let's work together.' But it's possible that Congress will ask for some things in return - something

along the lines of immigration reform, maybe certain items like let's use the National Guard as the Speaker of the House has called for dealing with

this crisis. Maybe even budget cuts.

The White House's response though has been, 'Hey, we've been pushing for immigration reform in this country for a long time. It passed the

Senate in a bi-partisan manner, but that bill has been held up by Republicans in the House.' So the Whitehouse day after day has still be

pushing for comprehensive immigration reform, Richard.

QUEST: And as the dreaded midterms and then the election gets ever closer, there's no real incentive to actually do a deal other, Michelle, --

other than the fact that there's a worsening situation.

KOSINSKI: Right, and also immigration reform is such a touchy issue that for some, whose constituents would support something like that, -- I

mean, you could say that now the midterms is a time to embrace that. For others, though, in places where it is much more sensitive - and you know

some people will want immigration reform but not this element or not that element. For them it's better to just stay away from it right now. So

there are obvious reasons why this hasn't been able to go through with such a divided Congress -

QUEST: Right.

KOSINSKI: -- and such a rift between Congress and the White House. But, at the same time, you know, both sides are clamoring for it and then

we have this issue now with the border. It really is an extremely complicated problem that nobody seems really positive at this point how to

solve.

QUEST: And on that note, you and I aren't going to be able to solve it this afternoon, but thank you for joining us.

KOSINSKI: I bet we could, Richard. I bet we could.

QUEST: Actually - thank you - we - well put it this way - we couldn't do much worse than making progress (ph). Thank you, Michelle, good to see

you as always.

KOSINSKI: Sure, you too.

QUEST: Lovely day in Washington. Now, Indonesians are going to the polls in the next few hours. They're going to vote in presidential

elections. It will be the first time the country transfers power from one elected leader to another. President Susilo Bambang Yudhoyono has served

two five-year terms and now cannot run again. The economy's one of the biggest election issues as our correspondent Anna Coren explains.

(BEGIN VIDEOCLIP)

ANNA COREN, INTERNATIONAL CORRESPONDENT FOR CNN INTERNATIONAL, BASED IN HONG KONG: Thirty-two year old Jamila (ph) is cooking away on the

streets of Jakarta, filling fried snacks to provide for her family of five. (AUDIO GAP?) The host to the Indonesian economy alike so many others. "I

want my business to grow for more job opportunities and lower food and fuel prices, she says."

Indonesia's next president is stepping into an economic quagmire, dividing President Susilo Bambang Yudhoyono leaves a slowing economy with

huge trade and budget deficits. But it's not all bad.

NDIAME DIOP, WORLD BANK LEAD ECONOMIST FOR INDONESIA: It has the people, it has the resources, it has a favorable demographic, it has rapid

organization and it has a rising middle class and it has a very good microeconomic management. I think those are ingredients that really can

lift the country.

COREN: The two candidates, former military General Prabowo Subianto and Jakarta Governor Joko Widodo have both promised economic growth - more

jobs, roads and funds for education and healthcare. But analysts want to know how they'll pay for it and if they'll make unpopular cuts.

The next president's first order of business according to many analysts is to make further cuts to the nation's roughly 30 billion U.S.

dollars in annual energy subsidies, which means hiking fuel prices.

FALIZI ICHSAN, SENIOR ECONOMIST, STANDARD CHARTER: It's leaving a fiscal time bomb to the next president. And the longer the time bomb, the

bigger the explosion will be. And therefore the bigger the magnitude of the fuel price hike will be.

COREN: Indonesia was a major exporter of raw minerals, but with the global commodity market down, it now needs to rebuild industry and

manufacturing. But foreign investors are worried about the rise of protectionism. But candidates have promoted policies aimed at adding value

to the country's exports and protecting natural resources -- sparking controversy.

ICHSAN: These deficits have to be funded (inaudible) by foreign investors. So, when a country is running a big current account deficit,

the country cannot be jingoistic, nationalistic at the border (ph) because their country needs foreign investment.

COREN: And those are just the immediate challenges. The new president will also need to focus on employment. A recent World Bank study

says Indonesia will need growth rates well over its current five to six percent to provide jobs for the 15 million Indonesians expected to enter

the workforce by 2020. Without that, a new generation of Jamilas (ph) will find it hard to make ends meet. Anna Coren, CNN Hong Kong.

(END VIDEOCLIP)

QUEST: We stay in Asia where a powerful typhoon is on course for Japan's main islands after Okinawa has already been battered. CNN's Will

Ripley's in Tokyo and reports what's happening.

(BEGIN VIDEOCLIP)

WILL RIPLEY, TOKYO-BASED CNN CORRESPONDENT: Round one of Typhoon Neoguri is just about over with Okinawa now beginning the process of

assessing the damage and cleaning up. We know a number of roads were closed because of debris. At least one building collapsed, a number of

injuries and more than half a million people received voluntary evacuation notices. Not to mention the fact that the main airport was closed,

grounding more than 100 flights and stranding some 14,000 travelers. All of this just the first round of this storm which is now on a collision

course for mainland Japan, specifically the southern island of Kyushu, home to 13 million people and an area in the middle of rainy season where every

day since last week - since last Thursday to be specific - this area has seen heavy rains, people have been evacuated because of flooding and now

you have the potential for a large typhoon with a lot of rain to move in, not only bringing with it storm surge, waves and wind, but also a lot of

rainfall over already soaked ground which could be very problematic and very dangerous in the days to come. Will Ripley, CNN Tokyo.

(END VIDEOCLIP)

QUEST: Now, I may be pretty dab hand at interpreting the stock markets and graphs on P/E ratios. When it comes to something as

complicated as this - where this is moving and what it all means - I do need to turn to Tom Sater at the CNN World Weather Center. It looks a very

difficult - it's a difficult scenario.

TOM SATER, METEOROLOGIST FOR CNN INTERNATIONAL: It really is, Richard. What at one point was a storm with the strength equivalent to a

category five is still hanging on to category 3 strength. But it really does not matter if the system makes landfall as a small tropical storm.

It's about the rainfall that is going to fall with this system. So, winds mean little really. There will be a bit of a storm surge. The history of

the storm was something -- looked like it was going to fall apart yesterday. Kind of gathered its strength, now dry air as you see here

trying to break the system down.

But, again, it doesn't matter what the status is of the strength. Already rainfall has been moving into Kyushu and we still have some time

before it even makes landfall. Local time it would be between maybe 4 and 6 a.m. Thursday morning. So we've got, what - 30 hours or so of rain to

occur. Now these dry slots are good, that's nice, it won't rain for all 30 hours, but it is going to rain for a while.

A cold front to the north is pushing down towards Japan. Good news here - it's changing the path of onset where it will make landfall and it's

going to speed right through the country. So an increase in the forward motion means less in the way of rain, but, again as mentioned, it's already

raining there now. The path has changed. Instead of just making its way directly over the center of the country, taking it more toward the southern

coast which means most of the rainfall, even though it will affect Kyushu where they've had the flooding, most of it from mainland Japan should stay

just offshore.

Now, the system is still large in size, we're still getting reports of wave heights that are 37 feet - that's 11 meters. So it's hard to see the

waves flatten out. In fact, even if the system continues to lose strength which it will, you're not going to lose that storm surge just yet, it's

going to take a while. We're still within 700 kilometers from - that Kyushu or we're going to have landfall. Winds are down from 250 kilometers

per hour down to 175, but it has been producing some pretty good winds as we mentioned. It was past west of Okinawa, and yes they did sustain winds

that are equivalent with a strong category 2, the winds are not going to be the factor when it reaches mainland Japan.

Rainfall rates - this is in Naha, 234. They're still seeing the rain on the outer bands, but again as we mentioned, Richard, rain is already

falling, the good news here is that the path has changed. Instead of having to slide over Nagasaki and everyone getting heavy rain, it drops a

little bit to the south. But we're going to be watching this closely because they've had so much rain in the last week, any shower activity at

all is going to aggravate the situation. The rivers are already swelling in over their banks.

QUEST: Tom Sater, thank you very much indeed. Keep an eye on that please. There'll be more for you to talk about. Well, what does one say

about a World Cup - a World Cup where semi-final where Germany's currently leading Brazil by 5 goals to nil? These pictures are live from World Cup

viewing. The viewing is in Rio, so we can imagine that most of those fans are Brazilians. It looks more like a wake and a mourning expect it's sort

of - it's almost - it sort of looks like it's raining. Alex Thomas is with us in Rio. Alex, can you remember a semi-final at this point where one

team is 5-nil up?

ALEX THOMAS, CNN SPORTS CORRESPONDENT: No, Richard. I've been broadcasting for more than 20 years. I have never, ever, ever seen

anything like what we've witnessed at Belo Horizonte in the first of these two World Cup Semi-Finals. A wake is exactly the right word to describe

the mood of Brazil right now. This is the host nation that when they last staged this football's biggest tournament in 1950, they lost in the final

to Uruguay, and it was described as a national tragedy, and (Phyllis) talked about that today. This is far, far worse. This was supposed to be

a meeting of fellow football giants - Brazil the most successful team in World Cup history with five titles against a Germany (side) that've won

three World Cups --

QUEST: Right.

THOMAS: -- in their history. Instead, this looked like men against boys. Absolutely astonishing stuff.

QUEST: How've they done it? I mean, to do five in a short period of time? Is it - I don't mean to seem too naive. Is Brazil playing badly or

is Germany playing brilliantly?

THOMAS: Sorry to (fudge) it, but it's going to be a mixture of both, isn't it, and this is going to be treated to a long, long - so much

analysis is going to come on this and -- . Let's just set a bit of the background in that Brazil went into this game without their two best

players -- their captain, Thiago Silva, whose a defender, which might explain why Germany's attackers have torn them to shreds. And also their

best creative player, Neymar, one of the three big poster boys at this World Cup along with Argentina's Lionel Messi and Portugal's Cristiano

Ronaldo.

There was so much emotion going into this game. Win it for Neymar. He had a broken bone in his back from the last game, he's out of the

tournament. He said, "They can keep my dream alive, my teammates can win it for me and win it for the country." Maybe they just overplayed that

emotional card and they didn't let it control them and control their performance. We know the Germans particularly at sports - sorry to be

cliched about it - can be cold and ruthless. They've really shown that today, Richard.

QUEST: Alex, thank you very much for your insight. Twenty years you've been coming. You don't look a day over. Bearing up well after all

these years.

THOMAS: (LAUGHTER).

QUEST: Alex Thomas joining us from Rio. When we come back, electronic currencies are making waves. Next, we debunk the myths

surrounding like Bitcoin.

(COMMERCIAL BREAK)

QUEST: Now, they're used for everything from ordering a pizza to gambling, even, it's believed, for sending funds to terrorists. They're

called crypto-currencies. You'll be familiar with Bitcoin. Now, they are catching on with a great number of people for all sorts of reasons, mainly

legitimate, some nefarious. In doing so, it's changing the way we spend and invest. In this week's edition of "Future Finance," we take a look at

the crypto-currency. (RINGS BELL).

(BEGIN VIDEOCLIP)

Male Narrator: When you look into the future, what do you see? Not so long ago the thought of reaching into your digital pocket for a digital

currency might've seemed too far-fetched. Not anymore. Crypto-currencies are digital money, and they're on the rise. It's a method of payment which

cuts out the banks. It's peer-to-peer, person-to-person and it's all done digitally. The most popular is Bitcoin. It was the first of its kind in

2009. Now there are many others like Litecoin and Feathercoin. Even the small northern English city of Hull has its own crypto-currency, HullCoin

for local people to send in their local shops and on local services.

But back to Bitcoin. You can't hold it in your hand, it's a long stream of numbers and letters stored on a computer or on your phone. Now

more than $1 million is being traded in Bitcoin every day. The currency is decentralized which means there's no central bank or person controlling

everything. The transaction history is hidden or encrypted into the long chain of letters and numbers that is each coin's identity. Hence the name

crypto-currency. Just like real cash, they can be divided up. Instead of cents or pennies, you can spend or purchase down to one-thousandth of a

Bitcoin.

Powerful computers create new Bitcoins by solving complex equations. It's called mining, and it involves billions of calculations per second.

When there are 21 million Bitcoins, the process will stop. Friends of crypt-currencies like the fact that no single person or institution has

control, something which has appealed to internet criminals. This lack of regulation means users aren't protected if something goes wrong. Crypto-

currencies are worth whatever the market is willing to pay for them. That can make the system volatile, meaning prices can rise and fall very

suddenly. The idea is still very new when you think that the first-ever bank notes were traded in China in the seventh century.

(END VIDEOCLIP)

QUEST: The crypto-currencies. In Brazil the hosts are struggling without their injured star, Neymar in an all-action World Cup Semi-Final.

I can't - I don't know who wrote that but they're doing more than struggling. The ship's going down. We'll find out what the fans make of

it in Rio. If that's struggling, I hate to see a bad day.

(COMMERCIAL BREAK)

QUEST: Oh, I've got a bit of a dance then which you don't normally see me do, I have to say, when we had that at the beginning. Now, these

are live pictures from a World Cup viewing party that's taking place at the moment. You know the results so far - where are those pictures? Oh, there

they are. They are in Berlin and if you want to know the reason why, just look at that score. Brazil nil, Germany 5. I think they've been playing

now beyond halftime, but they started at 4 o'clock, so they started 53 minutes ago was when the game started.

Before - while we look at those pictures, let's just also remove some flags, and of - well that one comes out -- because over the weekend since

we were there, or since we went to - oopsie daisy - there we go, some teams sort of fell by the wayside. This is their last hurrah of a flag.

Meanwhile, Belgium comes out as well, and - let's just get rid of (inaudible). There we go. And this is what we've got left. So, you've

got Brazil and Germany, Argentina and then France (ph), and of course the winners of these two --. It's tempting to make a premature judgment and

say one of these can come out already. But as we know, it's not over until it's over. And it's not just four countries doing battle at this stage of

the World Cup, it's two companies too. Because while the players are tussling on the pitch, so are the mighty sportswear brands Nike and Adidas.

The semi-finals - there's a perfect split between the two.

Tonight, Brazil wear Nike and of course - and tomorrow the Netherlands will be dressed in Nike and play, and Adidas branded Argentina. You're

getting the idea. You've got Adidas, you've got Nike, you've got Nike, you've got Adidas. And these two teams are going to go hell for leather.

In terms of individual players, it's been a rough tournament for Nike. Brazil's star player and Nike's star marketing force was dropped out of the

tournament with an injury. Cristiano Renaldo and Wayne Rooney limped home in the first round. Poor old Nike. Now, Adidas has had a much better time

of it. Here we go. There's Adidas. Lionel Messi and Thomas Mueller still have everything to go for. Mueller could win the Golden Boot for the World

Cup's top goal scorer. But there's been a downside to it as well. Let's not talk about Luis Suarez. The less said about him, the better. Adidas

versus Nike, the corporate part of the World Cup.

And meanwhile, we await the results of Brazil and Germany, and while we do so, what's happening in Berlin?

(COMMERCIAL BREAK)

QUEST: Tonight's "Profitable Moment." By the time this moment is over, playing will have restarted in the World Cup Semi-Final between

Brazil and Germany. You'll be aware that Germany's already 5-nil up. Think about it. There must be those moments when you wonder what on earth

you do. The celebrations are underway in Berlin already. They think it's already over, and frankly, it will be extremely difficult for even the

magisterial Brazil to come back from that sort of failing. Perhaps what they need most of all is a cupcake. I say that of course because that was

our other story this evening - Crumbs Cupcakes have gone out of business. It just shows you pulling football and Crumbs cakes together, -- it just

shows you that's what's popular once might not be popular in the future. Brazil is going to find out tonight that sometimes things just don't go

your way. Crumbs Cupcakes in New York have already find that. Never mind, as this proves, there's always another game and always another cupcake.

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. Have a cupcake.

END