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Quest Means Business

Bank of England Prints more Money; Opel Workers Walk Off Job; Cisco Sales Up

Aired November 05, 2009 - 14:00   ET


ADRIAN FINIGHAN, CNN INTERNATIONAL ANCHOR: Printing its way out of the recession, the Bank of England throws another $41 billion into the U.K. economy.

Walking out in anger, a mass rally as thousands of Opel workers down tools.

And sales joy for Cisco, the boss says it's a sign the U.S. economy is on the mend.

Hello, I'm Adrian Finighan, in for Richard Quest. This is QUEST MEANS BUSINESS.

A very good evening to you. The Bank of England is throwing more money at the same problem. It's pumping another $41 billion into the U.K. economy, hoping that this extra cash will put Britain back on economic track. Tonight, former U.K. Finance Minister Norman Lamont tells me the life support machine can't run indefinitely.

Well, the Bank of England then stepping up the fight against Britain's worst recession in decades. It's giving the U.K. economy another shot in the arm. Here is what it has done. It has pumped $41 billion into the economy. It is essentially buying government debt. It's a process that recalls -- or that everyone knows as "quantitative easing."

Basically that means it's going to print money. It brings the total quantitative easing in the U.K. now to $330 billion. And that's a clear sign that the U.K. economy is not yet out of the woods.

Also today, the Bank of England said that it was keeping interest rates on hold. That's for the eighth consecutive month. Interest rates here in the U.K. at a record low of 0.5 percent. Now these decisions were widely expected, especially given the latest GDP figures.

You'll remember, in quarter three, the figure was a contraction of 0.4 percent from the previous three months. It's pretty clear that the U.K. economy is still stuck, well and truly, in recession. Let's get more now from Jim Boulden, my colleague who joins me in the studio.

Jim, at a time when we've got nations like Australia putting up interest rates, and other nations hinting that they're going to ease back or withdraw stimulus, quantitative easing. Here we've got the Bank of England putting more money into the economy.

It goes to prove we're the sick man of Europe, aren't we, at the moment, here in the U.K.?

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Yes, it's very -- well, at least that's what the Bank of England thinks. I can tell you, even though this was expected, this certainly is not a universally popular decision. There are plenty of people out there writing in blogs this afternoon who are saying, wait a minute, the U.K. is getting addicted to this cheap money. They're out there. They're giving the people another dose, instead of doing what other countries are doing, which you said. OK. Maybe not raise interest rates, but starting to think about budget deficits, starting to think about cutting spending.

A lot of people are saying the U.K. is going to have to do that next year, but what do we have next year in the U.K.? We have an election.

FINIGHAN: We have an election, of course.

BOULDEN: So this -- you know, OK, the Bank of England is independent, but there are people out there saying, you know, this is a shot for the government.

FINIGHAN: But there were economists who were calling for as much as 50 billion pounds Sterling. And we got 25 billion Sterling pumped into the economy. I mean, that must be a sign that the Bank of England thinks that perhaps that first reading on GDP that we got, the 0.4 percent -- down 0.4 percent, things aren't really that bad, that there are other indications that the economy could be turning a corner.

BOULDEN: Well, there are those who don't believe that number at all, who say that that 0.4 is a preliminary number and may actually be revised upwards. And of course, that's looking backwards. The Bank of England is now looking forward and they don't see inflation as a problem here.

Now those people out there who think that inflation will become a problem, whether here or somewhere else, are worried that this is putting yet more money into the system. It's the classic thing, we've been sitting here for a year talking about this, when do you start to draw it back? When do you decide enough is enough?

Now there is a lot of people out there, and obviously the Bank of England who think better too much than too little, and that better now than to pull it away too soon?

FINIGHAN: And I know you're going to laugh at me when I ask you this, I mean, interest rates at record lows here in the U.K. at the moment. When are we likely to see a rise in interest rates here in the U.K.? The government -- the Bank of England, rather, is obviously not worried about inflation at the moment.

BOULDEN: Yes, I mean, if I had to put my money on something -- or you hear people say toward the end of 2010. But we saw the Fed saying no time soon. The European Central Bank kind of hinting that they may start thinking about things later next year as well.

FINIGHAN: Yes, we'll talk about the ECB in just a moment. Thanks, Jim. Jim Boulden there, gazing into his crystal ball.

Well, our next guest on the show knows just what it's like to be at the helm of an economy in crisis. Norman Lamont, now Lord Lamont, was U.K. finance minister between 1990 and 1993 as part of a conservative government.

Black Wednesday will be forever etched on his mind, to try to defend the sinking pound, interest rates were raised as high as 15 percent, ouch. And it didn't work. The government was forced to withdraw the British currency from the European exchange rate mechanism, and here is the reaction at the time from then-Prime Minister John Major.


JOHN MAJOR, U.K. PRIME MINISTER 1990-1997: I take full responsibility for the actions and policies of my chancellor.


FINIGHAN: An extremely difficult and turbulent time for the government of the day. Well, earlier, I spoke with Norman Lamont, I asked him what his view was on the Bank of England's decision to keep rates on hold and expand the quantitative easing program.


NORMAN LAMONT, FORMER U.K. FINANCE MINISTER: I think we are in unknown territory, and there must be a limit to quantitative easing. At the moment, over 20 percent of outstanding gilts are owned by the Bank of England on behalf of the government. How high is this to go? Is there no limit? Can you go to 40 percent, 50 percent? I would have thought not. I think that would be a very precarious situation indeed.

So I think we are coming to the end of this process. And of course, it will have to be reversed at some point in the future. So I think we're in a very precarious situation in the economy. I believe that quantitative easing has been effective through asset prices through the capital markets, which has probably spread -- or will have spread into the wider economy.

But we are still very much on a life support machine. And unfortunately that life support machine cannot run indefinitely. And at some point we're going to have to try actually to see how the economy can stand on its own feet.

FINIGHAN: The Bank of England says that we are indeed in a slow recovery, which is what you're saying. Inflation then not -- it's not going to be a problem for some considerable time. But when do you see an end to the problem, is it possible to make a prediction about when the economy will recovery and that rates may have to go up?

LAMONT: Well, nobody knows. Hopefully the next quarter will give us perhaps a slight positive. But I myself think we're going to see very slow growth for two-three years, possibly with some negative quarters. And although I understand the fears of people who think quantitative easing in the end may cause inflation, I think currently, the risk of deflation is greater.

FINIGHAN: When you were chancellor, we didn't have an independent Bank of England, it was you calling the shots. On the whole, has Mervyn King and the policy committee, do you think that they've got it right, that they've called the right shots here?

LAMONT: I think they have. You can argue that they should have seen the recession coming earlier and that unemployment was creeping up, particularly in the United States. And there was one rate hike which now looks a little bit foolish. But I think it's very easy to argue with hindsight.

I believe that the Bank of England has basically operated extremely well since independence was given, something I always favored but wasn't actually able to alas deliver -- although we took a big step in terms of openness towards having independence for interest rate decisions.

FINIGHAN: Of course, you were chancellor 1990 to 1993, and inherited the policy of membership of the ERM, which obviously made things very difficult and controversial for you as chancellor. However, economists today are saying that the regime of fiscal tightening and inflation targeting that you introduced ultimately led to the years of economic stability and low inflation that we all enjoyed.

Do you think that history will be so kind to the current incumbents at Number 10 Downing Street -- at Number 11 Downing Street, rather, at the chancellor's residence. And who, of course, himself has inherited this difficult and uncontroversial period.

LAMONT: Well, I don't think the blame for where we are, if there is blame, can be laid at the door of Alistair Darling, I think a lot of criticism, and I think there is justified criticism that should be laid at the door of Gordon Brown.

And the biggest criticism of all is, of course, that public spending during the last two-thirds of his period as chancellor grew at what many people said at the time was an absurd rate, higher than the underlying trend rate of growth of the economy.

And for a long time one wondered how he got away with it, and one wondered what would happen if we got into a difficult situation. And I'm very sorry to say that unfortunately that has proved to be the case. And we haven't had any great room for maneuver. And the stability and the prudence he talked about has proved to be just a lot of hot air.


FINIGHAN: Norman Lamont, now Lord Lamont, the former finance minister here in Britain, talking about, well, the Bank of England's decision on quantitative easing today, and on interest rates.

The ECB also made an interest rate decision, we'll tell you about that in a few moments' time. But right now, we're going to take you to Berlin. The stars are out in Berlin tonight, the city readying for a huge party, the MTV European music awards start in a little less than an hour from now.

Bill Roedy is the CEO MTV International, an old friend of the program. He joins us now live from the red carpet. He has just walked in.

So we couldn't resist an opportunity to talk to you, Bill. Before we talk to you about tonight and what a special night it is, I just want to take the economic temperature with you. Of course, a lot of media companies finding the going pretty tough at the moment. How is life at MTV?

BILL ROEDY, CEO, MTV NETWORKS INTERNATIONAL: Life is great. Never been better. We're -- business is booming. Music is great. And hey, what's not to like. MTV, a party, and great artists. And we just did U2 at the Brandenburg Gate. What's not to like?

FINIGHAN: Fantastic. I was going to mention U2 at the Brandenburg Gate, all right. So that's one part of tonight done. We've got the awards ceremony getting under way and it really is, as far as stars are concerned, a glittering night. Everyone who is anyone is there, aren't they?

ROEDY: Well, you know, I think so. We had Gorbachev coming here almost. We had -- we've got all of the artists. I mean, we've got Beyonce. We've got Jay-Z. We've got Foo Fighters. In fact, Dave is over there, if I can get him, get his attention. We've got Green Day. We've got Tokyo Hotel, the biggest group in Germany.

Very interesting thing. We're celebrating the 20th anniversary of the Wall coming down. And you see my hat, '89, '94, '09. Eight-nine we were here when the Wall came down. Missiles became music, and the Iron Curtain became the red carpet. Ninety-four we came back for our first show at the Brandenburg Gate. Curtains drew, George Michael sang "Freedom."

Tonight magical, '09 we had which U2, Bono, and Edge, wrote. They wrote here in East Berlin, and it's about the power of one and the power of people and that's what the Wall and the freedom and you can't -- you can't resist all of this great people power.

FINIGHAN: And, Bill, the music industry has weathered some storms over the past 20 years. I mean, it has been a really tough year for the music industry itself and those associated with it like your TV station. I mean, what is your outlook now -- economically for both the music industry and the TV industry.

ROEDY: Well, the economic -- you know, it's a tough situation, it's no secret, everybody is affected by it. But I've got to tell you, music -- there has never been more music experienced ever, ever, ever. I've been doing this for over 20 years. We have more music channels than ever, we have more people watching and listening to music. We have more people experiencing music.

So music, as an art form, has never ever been stronger. So you know, we feel good about that. And remember, music lifts the spirit.

FINIGHAN: Bill, great to talk to you.

ROEDY: Music can change the world.

FINIGHAN: Bill, it's great to talk to you. Many thanks, indeed.

ROEDY: Nice to talk to you.

FINIGHAN: Yes. Have a great night tonight. Bill Roedy, the -- from MTV, of course, an old friend of the show. It's always great to talk to him, isn't it? I hope you don't mind that we slotted that in as Bill became available, away from the glitz and glamor of the MTV awards.

But still in Germany, a lot of people there are having to deal with the grim reality of the economic crisis. Thousands of workers at Opel walked out earlier today over possible job cuts. Fred Pleitgen is standing by to update us on the latest. We'll do that next.


FINIGHAN: Now thousands of Opel workers are waiting to see what GM's next move will be. It's after workers in Germany walked off the job today and held a mass rally in protest at threatened redundancies. GM is keeping hold of its European arm. We told you that yesterday after it abandoned plans to sell it to the Canadian company Magna. Around 10,000 jobs are on the line, and CNN's Fred Pleitgen joins us now live from Berlin.

And we should point out immediately, Fred, I suppose, that you're not standing in front of an Opel product there.

FREDERIK PLEITGEN, CNN INTERNATIONAL CORRESPONDENT: No, I'm absolutely not. We're actually doing fall of the Berlin Wall coverage, 20 years later. So tonight we're at a different venue. But still, I mean, this story, of course, the Opel story, is the one that is captivating Germany right now.

And you mentioned it, there were massive protests here in Germany today, not only at the main Opel plant in Russelsheim where there alone 10,000 people walked off their jobs for over an hour and held a mass rally.

Rallies happened at all Opel plants in Germany. There are four Opel plants here. And the big fear that the Opel workers have after this GM and Magna deal fell through, is that now under a new GM restructuring plan, they believe Germany could bear the brunt of those 10,000 layoffs that you were mentioning.

They fear that layoffs will be very large in this country. They also fear that there could be plant closures in this country. So certainly the German workers here are not happy at all. There is one quote from the head of the Opel workers union saying that at this point, the workers have absolutely zero trust in General Motors America. And that is something that they showed today.

Right now they are very averse to a GM restructuring plan that was put forth earlier in the year. But however, they do say they are willing to go into negotiations with General Motors, but they say those negotiations are going to be very, very tough -- Adrian.

FINIGHAN: Yes, we talked last night, Fred, about how angry people were there. I mean, how would they respond to the argument that by walking off the job, they're not doing their cause much good?

PLEITGEN: Well, I think, you know, at this point we're still so close to that announcement that I think that the anger probably outweighs a lot of the clear thinking that some people might put to the table right now.

However, it was clear that when you heard the speeches of the Opel labor unions today that they did say that they would go into talks with General Motors. However they said that it would be very, very tough.

On the other hand, of course, Adrian, there is still the reaction of the German government, which was also extremely angry at that General Motors decision and is demanding back some $2.25 billion in loans which it has already given to General Motors Europe just to keep Opel alive to this point.

It wants that money back by November 30th. However, today, the German chancellor, Angela Merkel, says she had a phone call with Barack Obama about the issue, to ask him what actually happened there. And Obama apparently said that the American government played no role in the decision-making at General Motors.

Of course, currently the U.S. government owns a 61 percent stake in General Motors. So certainly there was some very bad feelings among the German government. And one thing that the German government has consistently not ruled out, even after this decision, and this is very important, they have consistently not ruled out potentially at some point in the future giving a government bailout to General Motors for a new restructuring plan.

However at this point they say they want to see what that restructuring is. And the German government also says at this point, their trust in General Motors, not very big -- Adrian.

FINIGHAN: All right. Fred, many thanks, indeed. CNN's Fred Pleitgen reporting live there from Berlin.

Now while the future is full of uncertainty for Opel workers here in Europe, the outlook is improving for the world's largest car-maker, Toyota said that it made an unexpected net profit this quarter of $241 million. Now the automaker says its end-of-the-year numbers are also expected to be better.

It's now forecasting a loss of $2 billion this year, almost half what it was expecting to lose. Toyota's executive vice president credited the strength of the markets.


YOICHIRO ICHIMARU, EXECUTIVE VICE PRESIDENT, TOYOTA (through translator): We had initially forecast the sales of 6.6 million cars for the coming fiscal quarter. But we will add the sale of 0.43 million cars on top of that. So we forecast a total sales of 7.03 million cars in the coming quarter. The hike is due to the recovery of the market thanks to the various government incentive packages and increasing sales of eco- friendly vehicles such as hybrid cars.


FINIGHAN: Well, Toyota's results are perhaps a sign that the global auto industry may be getting back on track. My next guest takes that view. Mike Jackson is the CEO of AutoNation, the largest retailer of both new and used cars in the U.S. And he is forecasting a gradual recovery in U.S. car sales toward the 16 million unit market over the next year. Let's bring him on right now. Mike Jackson, CEO of AutoNation is with us live from New York.

Mike, last night we were talking to a Chrysler dealer who said that they had not really been consulted about the changes that Sergio Marchionne wants to bring in that he was announcing yesterday. And they didn't have much confidence in him. Do you share that view?

MIKE JACKSON, CEO, AUTONATION: I absolutely categorically disagree with that view. I met with Sergio months ago, shortly after his arrival in the United States. We sat down with a few double espressos, and immediately launched into a discussion of our industry, products, branding, recovery strategy, turnaround, production push, every issue you want to name.

And he displayed an astounding astute capability to understand our business. And I absolutely felt he was the right man to lead the turnaround of Chrysler.

FINIGHAN: OK. So, I mean, perhaps that is as we said, you are the biggest car dealer in the United States, then maybe you would get special treatment from the man at the top. But what do you think about it, his plans in general, his plans for the product line and whether guys like you will be expected to sell Fiat cars under the Chrysler brand?

JACKSON: So they presented the product plan and the financial plan that goes with the turnaround plan yesterday. And I've seen a gazillion turnaround plans and I've seen them meet the marketplace and blow them to smithereens.

So I have a very jaundiced eye when I look at these plans, and here is the litmus test that I apply to it. First, the market is in an absolute bottom, depression levels of sales, and they've stopped the cash burn. They have $5 billion worth of cash and another $2 billion in reserve, and on an EBITDA basis they're going to break even next year.

So that gives them time. Second, they know it's a turnaround and they know their existing product offering is weak, and they can't wait until they get all new products. So they're intervening dramatically on existing products and upgrading those products to buy them time until they can bring new products in.

And they're absolutely not depending on the Fiat brand or the Alfa Romeo brand to lead the turnaround in the U.S. What they are taking is Fiat technology and car platforms, engines, diesel technology, merging it with existing Chrysler corporation technology to give a better offering to consumers across the entire spectrum under their existing brands.

And Fiat -- like bringing in the Fiat 500, would be icing on the cake, or if an Alfa Romeo, it's an icing on the cake. Because I think if the turnaround plan was based on the Fiat brand or the Alfa Romeo brand, I would be extremely skeptical. But that's not the plan they put forward yesterday.

But clearly Sergio is all-in on this turnaround plan. Fiat is all-in as a corporation committed to this turnaround plan. And what I also liked is they put their financial goals for the next coming years, publicly it's a stake in the ground. And every quarter, even though they don't have to, they're going to issue their results.

So that shows a level of commitment, and let's face it, Sergio has led turnarounds before. That's why it's ambitious. There is risk. There are challenges. I think he's going to do it.

FINIGHAN: Mike. I really appreciate you airing your views with us at QUEST MEANS BUSINESS. Many thanks, indeed, for being with us. Mike Jackson, the CEO of AutoNation there, live in New York.

Now, Cisco Systems was one of the first firms in the world to herald the start of the recession. Now the boss says the U.S. economy is on the way up again, even though his profits are down. Find out why next on QUEST MEANS BUSINESS.


FINIGHAN: Welcome back. They haven't shown it yet, what's going on on Wall Street right now. Take a look at this. Stocks are up. The Dow Jones up 169 points right now. Why is that? Well, it has partly to do with what Cisco's CEO has told the world today, and we'll tell you more about what exactly he said a little later when we speak with -- when we check in with Maggie Lake in New York.

The European Central Bank didn't touch interest rates today. The ECB keeping its key lending rate on hold at a record low of 1 percent. President Jean-Claude Trichet hinted that the central bank is getting ready to take back some of the crisis measures that have helped to prop up the banks during the economic downturn.

But he said the future remains uncertain.


JEAN-CLAUDE TRICHET, PRESIDENT, EUROPEAN CENTRAL BANK: The latest information continues to signal an improvement in economic activity in the second half of this year. The governing council expects the world (ph) economy in 2010 to recover at a gradual pace, recognizing that the outlook remains subject to high uncertainty.


FINIGHAN: Well, stocks in Europe ended the day higher. Investors pleased with those decisions from both the ECB and Bank of England, to leave rates on hold. Data out of the U.S. also boosted optimism. A government report showed fewer Americans than forecast filed claims for unemployment benefit last week.

Financial stocks were among the top gainers in Europe. Shares in BNP Paribas finished up over 3 percent today after it reported strong profits. In Frankfurt, Deutsche Telekom closed higher, that was after the company said that it was on track to meet its full-year earnings targets.

Now let's find out what else is happening in the world. Max Foster joins us live now from the London newsroom.


The United Nations says it's temporarily relocating around 600 members of its international staff in Afghanistan, because right now the security situation is just too dangerous. The move follows a militant attack late last month that killed five staff members and wounded another nine. The U.N. says the evacuations will not interfere with its mission to help stabilize the country.

The chief prosecutor for the International Criminal Court says he's sure crimes against humanity were committed in Kenya following the disputed elections of December 2007. Luis Moreno-Ocampo plans to formally open an investigation into the violence. More than 1,000 people were killed and hundreds of thousands displaced.

War crimes suspect Radovan Karadzic says he doesn't want a lawyer, but the international tribunal trying him says he is getting one anyway. The former Bosnia-Serb leader has been boycotting his trial, saying he needs more time to prepare. He is accused of masterminding the Srebrenica massacre, Europe's worst since World War II. Karadzic is charged with genocide and crimes against humanity during the Bosnian War.

Palestinian President Mahmoud Abbas says he won't run for reelection in January due to the stalemate in the peace process with Israel. Speaking just moments ago, Mr. Abbas said peace is more important than any government coalition if that coalition was to push the region towards destruction. It's not clear if the January vote will even happen since Hamas said it won't participate.

Those are the headlines -- Adrian.

Back to you.

FINIGHAN: Many thanks, indeed, Max.

Now, if you want to know if the economy is getting better, we're hearing pretty mixed signals from some of the world's top businessmen right now.


JOHN CHAMBERS, CEO, CISCO SYSTEMS: You are seeing a pretty broad basis starting to spend on capital, where people see productivity. So this is typical of an early phase of an economic recovery.

WILBUR ROSS, W.L. ROSS & COMPANY: We think the recovery will be very bumpy, at best; not so much because of the real estate (INAUDIBLE), more because of the consumer.


FINIGHAN: So who's right?

We'll be asking that question in just a moment.



FINIGHAN: Welcome back.

Live from London, this is QUEST MEANS BUSINESS from CNN.

In for Richard Quest, I'm Adrian Finighan.

So, Wall Street is riding a wave of reassuring economic and corporate reports, as we head toward the final hour of trading today. It's just the latest dramatic upswing that could have some investors feeling a tad seasick this week.

Let's get ourselves onto some firmer ground here by bringing in our very own Maggie Lake from New York, our seasickness pill -- Maggie, you've been speaking to John Chambers of Cisco today.


You know, this market is surprising a lot of people with it -- with a rally like this ahead of a big jobs report. It's very risky.

A couple of things going on we had a drop in weekly jobless claims, signs of life coming from some higher end retailers, like Nordstrom and Cisco's results that beat the Street. That was after the close yesterday, but traders really getting a chance to react to it today. It beat the Street.

And not only that, John Chambers, the CEO, who's known to be a fairly conservative guy, was sounding absolutely upbeat about the overall economy.

Have a listen.


CHAMBERS: You are seeing a pretty broad basis starting to spend on capital, where people see productivity. So this is typical of an early phase of an economic recovery. Those areas that people view they can get payback on, you see CEOs, whether they're in business or in government, starting to spend.

So the trends looks right and we saw it across large global multinationals in the U.S. We saw it across large companies in the U.S. We saw a major improvement from (INAUDIBLE) from last quarter to this quarter and medium size accounts.

So it was pretty broad in terms of the initial phases of the recovery.


LAKE: And it sounds encouraging.

Do you think it's sustainable?

It's the question everyone is asking.

CHAMBERS: Well, Maggie, no one knows for sure. But my view is the numbers are almost undeniable. And I tend to be a person that listens to customers but also watches the numbers.

The numbers that we're seeing -- and I've been in this role for 15 years.

When you see this type of trend, it almost always continues. So some hurdles we've got to get over. I'm sure there's some slippery spots in the road we haven't anticipated. But I think if you begin to follow typical economic cycles, you'll see jobs following in two to three quarters.

We, clearly, are betting that it will. We acquired four companies last month. We made a major investment in the data center with EMC and VMware. So we're also hiring. We've got our foot not only off the brake, we've got the pedal all the way down and we're going for it.


FINIGHAN: John Chambers speaking there, Maggie, in one of his (INAUDIBLE). I -- I've tried that out, you know, on -- on CNN. It's a bit like what we're doing -- we're doing here right now. It's fantastic.

LAKE: Right.

FINIGHAN: But as you said, he's a pretty conservative guy normally and there he is being very upbeat about the economy.

But for every optimist, of course, there is a pessimist.

LAKE: That's right. And this is what is making this so confusing and so difficult for investors, Adrian. Because, I also spoke to another veteran on Wall Street, a widely followed billionaire investor, a bit of a contrarian, Wilbur Ross, who had been making a lot of headlines and waves saying that we are about to experience a crash in the commercial real estate area -- property area. It's not a word people throw around lightly.

And I asked him about it, whether he really thinks it's that bad and what it means for the overall economy.


LAKE: You made some waves when you mentioned that you thought commercial real estate was at the beginning of a crash.

Is it that bad?

ROSS: I think so, for several reasons. First of all, resents have been going down, not up. Occupancy rates have been going down, not up. Periods of free rent are going up, tremendous overhang of sublet space in the market. You're not putting people out of their homes. You're not terrifying their neighbors.

But I think where it will have a big impact is in the regional commercial banks. Almost all of the banks, particularly Sun Belt banks, if you look at their assets, it -- it's loans to the local shopping center, loans to the local office building, loans to the local motel. That's why a lot of those banks are failing.

LAKE: There's more problems in the banking sector because of commercial real estate.

What does that do to your outlook for recovery?

ROSS: Well, we think the recovery will be very bumpy, at best, not so much because of the real estate problems, more because of the consumer. For years, median income in this country has gone nowhere. So the only way people could live up to their dream of living a little better each year was to borrow more. That's what crashed residential real estate.

What people haven't focused on, though, is property values for homes have gone down by $7 trillion since then and the indebtedness of families has only gone down a couple of hundred billion.

So families are actually more leveraged now than they were at the peak.

LAKE: Is that what's needed to kind of rectify the economic problem we have in the U.S. just time?

Or is there something else...

ROSS: Well...

LAKE: ...that should be happening?

ROSS: Time plus the government programs. I think it will be very good if they extend the first time homebuyer credit to April or even later and it will also be good if they add on that anybody who buys a home should get a credit, because you have to fix the housing market, I believe, before you can fix the consumer and the consumer is 70 percent of our economy.

LAKE: Something a lot of people pointed out, we're losing the middle class...

ROSS: Right.

LAKE: America. I can't see, from anything you just said, that's going to get better any time soon or -- or could it?

ROSS: I don't think it will. I think the flip side of this is the unemployment. And the unemployment is only partially cyclical. Part of it is secular (ph). American businesses are learning to operate with fewer workers -- (INAUDIBLE) fewer workers in this country. So the end result is corporate America is in better shape than Mr. and Mrs. America.


LAKE: And that last line, Adrian, may explain the discrepancy. John Chambers is seeing the improvement in corporate America. What Wilbur Ross is worried about is the bad state that -- that the average American is in. And that comment that they're more leveraged now than at the peak is something I haven't heard a lot of people talking about and it worries me deeply.

FINIGHAN: Absolutely.

Maggie, I'm with you. I -- I'm still not feeling any less seasick.

Many thanks, indeed.

Maggie Lake in New York.

Now, 14 more people have been charge in connection with the Galleon Group scandal. It's part of an investigation into an alleged $20 million insider trading scheme -- the biggest hedge fund related fraud in history. Now, the probe seems to be widening. The accused include lawyers and people from other hedge funds.

The founder of Galleon Group, Raj Rajaratnam, was arrested last month.

Now, the global recession has been a slap on the wrist for the luxury watch makers. But now some CEOs are seeing light at the end of the tunnel. We'll tell you who and why, when we come back.


FINIGHAN: Hello again.

Now, luxury watch maker Hublot is opening a new factory outside Geneva in Switzerland, creating new jobs in the region.

Earlier today, I spoke with Jean Claude Biver.

He's the CEO of Hublot.

I asked him about the outlook for the luxury market.


JEAN CLAUDE BIVER, HUBLOT GENEVE CEO: We have record in three -- we have three different ways. Number one, we have increased research and development, because in the crisis, what can -- what can make the customer move?

What can make the consumer buy?

Innovation, creativity. So that's the first element which we increased. We increased budget for research and development.

The second one is marketing. When the consumer doesn't want to buy, you have to shout louder. You have to make an event. You have to make him want to buy. So we increased our promotion and marketing costs.

And number three, we increased our travel costs, because when you are in a crisis, what can you do in your office?

The solution is not going to be in the office, the solution comes from the market and you have to be on the market. You have to motivate the market. You have to instruct the market. You have to help the market. You have to assist the market.

So that was our reaction. Thanks to this, we had a decrease that was much less than the general decrease of 26 percent. And I believe we have gained market shares. And today, we feel the recovery. We have started to feel the recovery.

FINIGHAN: You had a head start on everyone else because you were in a particularly good financial position, weren't you?

I mean, you know, look at this factory that you've built and you've opened today.

BIVER: We are in a very good financial situation because we have no debt. We are a cash company. We have paid the factory, we have paid the machine. We have no -- no bank relations whatsoever. The only relations we have is we give some of our cash to the bank, who try not to lose too much money with our cash.

But besides that, we have no relations. So we've had a very good and very strong position in -- in the crisis.

FINIGHAN: You are, of course, Jean Claude, a master marketer.

How much do you think of the success of -- of the company in weathering the economic storm, is -- is down to you and your skills?

BIVER: I think -- I -- that's very difficult. You know, the most important element in -- in our industry, in the high end industry, nobody buys a watch -- an expensive watch -- to look what time it is. That's over. People are buying for many other reasons, watches. Watches have become a communicating tool that communicates who you are.

Are you a sporty type man?

Are you elegant?

Are you an exclusive person?

Are you a unique person?

And all these elements are now very important. And we were very good at playing on this theme and giving up the fact that the watch -- an expensive watch should be an accurate watch. We have created a watch that was called black -- all black. It was black, black, black, black. You could not read what time it is, but it's looking (INAUDIBLE). It has a great emotion. It's a great innovation.

So I believe the product, the promotion, the marketing is 50 percent. The other 50 percent is the credibility, the substance and the quality. So you still need both today.


FINIGHAN: Jean Claude Biver, the CEO of Hublot.

It's great to see a CEO so up about everything, isn't it?

I mean he's in a -- in a great position, his company, financially. And he says that nobody buys a watch anymore to tell the time.


I'm wearing a Swiss watch and, well, I use it to tell the time.

Oh, well.

Now, this time yesterday, we were speaking with meteorologist Ivan Cabrera at the CNN Weather Center about an earthquake off the Azores. Today, another dramatic event, weather-related -- a late season hurricane - - hey, Ivan.

IVAN CABRERA, CNN METEOROLOGIST: It is a late season hurricane, hey, Adrian, you're absolutely right. From seismology we transition here to a tropical season that, I must tell you, as you may know, has been very quiet in the tropical Atlantic. Normally, we get about 12 storms a year. So far, Ida -- the letter, we're at nine here.

But this one is going to be a potent storm. It made landfall earlier today along the coast -- the east coast of Nicaragua. Tasbapone was the town there. And it continues to move in.

Now, it did reach hurricane intensity, so we had winds over 120 kilometers per hour out there. It is weakening, as you expect. Of course, with a landfall and a hurricane now, it is downgraded to a tropical storm.

But notice the satellite presentation. What I want you to pay attention to here, this thing is not moving all that much. And my concern here for Nicaragua and for Honduras is the potential for mudslides, landslides. We're talking significant flooding, because I think we're going to get anywhere from 300 to 500 millimeters. I would not rule out, in some areas, upwards of 600 millimeters. That would be catastrophic for some of these areas here.

Now, you see the track from the National Hurricane Center. It does reemerging over water. You know what that means. Once these systems do that, that is where they get their fuel, per se. So we are going to see this intensify back to a tropical storm over the next several days.

And I must tell you, the long range outlook does take it into the Gulf. All bets are off at that point. We'll continue to monitor that for you and see what happens.

But look at the accumulation here along Nicaragua and Honduras -- significant amounts. And that will continue over the next 12 to 24 hours.

I'm also forecasting rain, as I was yesterday. We have a cue of storms. This one about to move into the British Isles. You got a bit of a break today, but that is now the sign of things to come. In fact, we are going to be slammed here with another cold front, this one also bringing lots of moisture. So the scattered showers will continue and also bringing cooler temperatures, as well. Look at the radar presentation here through the Midlands, down toward London. We continue to see some rain.

Ireland and heading into Northern Ireland, getting a bit of a break. But, again, it's because that system is still off the coast. But it's coming and it will get you more rain. (INAUDIBLE) rain in France. Our general accumulation map across Europe -- I'm not expecting anything too significant as far as the amount, but it is going to be a nuisance for any -- if you want some sunshine. You're going to have to wait a while here across Western Europe.

As far as the temperatures, Copenhagen 9; 9 in Berlin; 10 in Munich; temperatures further south, Madrid still holding into the mid-teens -- not bad there at all; 21 in Lisbon; and again, a rainy pattern through London.

QUEST MEANS BUSINESS continues after the break.

This is CNN.


FINIGHAN: Hello again.

Just yesterday, we told you about Toyota announcing its decision to drop out of Formula 1 on financial grounds. Well today, sources close to Renault have said that it could be about to pull out of Formula 1, too.

The car manufacturer held an emergency board meeting in Paris earlier to discuss its future in the motor sport.

Renault CEO, Carlos Ghosn, says that the team will announce its decision by the end of the year. Renault's reputation, of course, recently damaged by a crash scandal that led to them -- led to team principal, Flavio Briatore's indefinite ban from the sport. The current economic climate is yet another reason for Renault to consider its future in what is one of the most expensive sports on the planet.

Now, we've been talking extensively about the state of the motor industry today. And now we're going to take you to what's become the world's hottest high performance luxury car market.

CNN's Emily Chang introduces us to members of a most exclusive club in, of all places, Beijing.


EMILY CHANG, CNN CORRESPONDENT (voice-over): They call it the Supercar Club -- Porsches, Ferraris, Lamborghinis driven by China's super wealthy.

XIONG WEI, SUPERCAR CLUB MEMBER: Well, let's just say my father is very rich. That's all I can tell you.

CHANG: The son of an iron and steel magnate and a self-made media tycoon are among the princes and princesses of China's industrial kings. "Most girls drive automatics," this woman says, "but I think a manual is more interesting."

(on camera): So cars are their toys and this is where China's millionaires come out to play. On this race track, they can go up to 160 kilometers per hour.

(voice-over): They're part of a growing class of young elites riding the miracle of China's economic growth. China now has more known billionaires than country besides the United States. The average age is dropping and their tastes becoming more refined. China is now the second largest market for luxury goods in the world.

This one of a kind Ferrari sold for $1.8 million at auction in Beijing. It was painted in Song Dynasty style porcelain to woo a Chinese buyer.

MARCO MATTIACCI, CEO, FERRARI ASIA PACIFIC: This is a young market. The average age of the (INAUDIBLE) worldwide is 45, 50 years old. In China, it's 34 years old.

CHANG: Other luxury car brands are revving up in China, too, thanks, in part, to government stimulus. Sales of BMWs, Audis and Mercedes are all way up.

Including China's hefty luxury and import taxes, these cars cost up to three times what they would in other countries.

RAY ALLY, LANDER ASSOCIATES: What they're doing is they're displaying their wealth, they're displaying their social level in society, but also, they want to just have fun. And they believe that they've earned it.

CHANG (on camera): All right, now it's our turn. Needless to say, this is my first time in the Lamborghini, let alone an orange Lamborghini. Here we go.

(voice-over): "When people see us in these cars, they think we're cool," says this man. "When I'm driving, I feel cool."

Showing off?


Shifting into high gear?

Definitely. For better or for worse, this is life in China's fast lane.

Emily Chang, CNN, Beijing.


FINIGHAN: And good luck to them. I mean, be honest, if you had the money, would you buy one -- especially if the only place you could drive was on a race track -- or at least drive that quickly.

There's something of a rally going on today on Wall Street. We'll take you through the numbers right after the break.



FINIGHAN: On Wall Street, where the Dow Jones is up nearly 2 percent higher. Jobless claims and worker production figures beat expectations today. It also go -- also, Cisco's CEO came out and said how upbeat he was and said that his business had gone through a bit of a recovery.

As you can see, the Dow Jones up 186 points at the moment.

In Europe, all the main stock markets finished higher. Investors pleased with that news from the States. They're also happy with the decision to keep interest rates on hold in both Europe and the UK. Of course, low interest rates mean that companies spend less on borrowing, so their profits are higher. You find that stock markets always go up as interest rates go down or are on hold.

And also today, the ECB continued its policy of quantitative easing. It injected another $41 billion into the British economy. We really are the sick man of Europe in the U.K. at the moment.

That is it for the Thursday edition of QUEST MEANS BUSINESS.

In London, I'm Adrian Finighan.

Whatever you're up to in the hours ahead, as the man himself would say if he were here -- he's back next week -- I do hope it's profitable.

Christiane Amanpour is next on CNN, right after we take a look at the headlines, which are coming up right now from Pauline, who is at the I Desk.