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Quest Means Business
Facebook Unveils New Graph Search; Facebook's Public Timeline; Analysis of Facebook Search Decision; German Growth Slows; European Markets; Euro Down, Yen Up; Goldman Sachs Decides No UK Bonus Delay
Aired January 15, 2013 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
NINA DOS SANTOS, HOST: From social networking to social searching. Facebook's new tool leaves investors uncertain.
A crisis to the core. German growth slows sharply.
And confession without absolution, though. Why Lance Armstrong's Oprah Winfrey interview may not be enough to rebuild his brand.
I'm Nina Dos Santos, and this is QUEST MEANS BUSINESS.
Hello and good evening. Mark Zuckerberg calls it a new pillar of Facebook, a feature to let you search the wealth of information that's currently locked up in the world's biggest social media network. Within just the past hour, Facebook's CEO lifted the lid on graph search. He says that along with the news feed and profile pages, it'll be a major new tool.
It uses filters to let you home in on the kind of information that you want to receive, and unlike a search you might do with, for instance, Google, which uses keywords, instead, this option will allow you to select specific criteria.
For example, Zuckerberg says that he could use graph to search for friends in Palo Alto, California who, for instance, like "Game of Thrones." He says that this will give you the answers, not just the results.
Well, it looks like investors were expecting a little bit more, though, this session, because Facebook shares have actually shed many of their early gains ahead of this much-anticipated announcement and are currently dipping in and out of the red.
Maggie Lake joins us now, live from New York, with the latest reaction on exactly what we've heard so far. So, Maggie, this stock has been on a bit of a tear of late, expecting, of course, some kind of big announcement. Was search what we're expecting, though? This kind of graph search?
MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: It wasn't topping the rumor mill, Nina, and that may be why you're seeing a little bit of an erratic reaction. We've seen this stock down, up, down. People are sort of trying to make sense of this.
There have been a lot of chatter that everyone's always thinking they're going to unveil a phone, even though Zuckerberg's ruled that out, at least on a hardware. There was a lot of chat it might be an operating system.
Basically, what investors want to see is something they can sort of immediately monetize, or that's going to really help them continue to monetize the mobile experience. So, when they saw this graph search which, let's face it, it's not the sexiest name in the world, there seemed to be a little bit of disappointment.
But listen, let's not underplay this. As the next 24 hours go by, you're going to have people really start to sort of dig in and take a look at this. And other people who watch it really like this idea. They say it's going to keep people within that Facebook universe.
It has the potential, some think, to generate, ultimately down the line, generate billions of dollars in revenue. They'll figure out a way to monetize it and bring advertising into it, even thought that's not what the announcement was today.
And this is a really interesting take. This is a headline coming from Gizmodo right afterwords. They say "Facebook just declared war on Google." Even though this isn't web search, they do think it's going to steal business away from Google.
And this their take on it. It's an attempt to do what Google's failed to do, pulling all that information that matters to you within the context of your social life. Now you're going to have your friends working for you in search.
If that is true, you can expect to see a lot of stock reaction, maybe a rethink. Maybe investors will come around to the idea that this might be an important pillar of revenue. But Nina, you mentioned it: the stock has had a big run-up. Expectations are very high. So Zuckerberg's going to have to prove that statement, maybe, before investors buy into it.
DOS SANTOS: Yes, given the fact that you're talking about the stock market reaction, do stay with us there for a second, Maggie, because I want to point out that Facebook actually first started trading as a public company all the way back in May of last year, and its performance, as many people who've been watching this show and other CNN business shows will probably know, has been pretty lackluster.
So, let's take a look at exactly how it has performed throughout the course of that period. It's been trading well below its initial public offering price of $38 per share right from the outset since launching in May of 2011.
And just less than a week after this company decided to go public, a group of shareholders actually filed a lawsuit against Facebook itself and also its underwriter, accusing them of selectively disclosing information before the IPO to certain privileged clients.
And then, what we saw was all the way back here in September, its shares closed at an all-time low. That was $17.73, so way below that $38 offering price, down more than 50 percent, if you take a look at the percentage figures.
And then, what we saw was in October, shares falling yet again. What we saw was the number of users, though, rising. This is actually the month when the company said that it finally hit that coveted 1 billion active monthly users worldwide. But as you can see, the share price went in the opposite direction.
And then, what we saw here was in December, as you can see there, it came out with a couple of disappointing news pieces in the UK, not the company, but this time some market research people. It lost about 600,000 UK users, according to the UK media monitoring company, Socialbakers, as you can see there.
And it says that that could be due to saturation in the UK market. Some people might also say that it could also be due to privacy concerns, and that is something that I'm going to address in a second with Victor Basta.
But let's just get back to Maggie Lake for a little bit more about what people on the street in New York, where Facebook is obviously traded, are saying. So, it really has a rocky ride of late. But it has been on a six-month tear. It's at a six-month high at the moment, although coming down from a low base. So, is this a flash in the pan, or what, Maggie?
LAKE: Listen, this is a stock that divides not only users and the general public, but stock investors. And absolutely, Nina, you've had it rally strongly. A lot of analysts have been upgrading this stock, Wall Street has definitely warmed to Zuckerberg.
It went on that sort of real weakness of mobile advertising, being able to monetize as we all move and use it from those platforms, they went from zero percent revenue to now it's 14 percent of their revenue. So, they seem to have really been addressing that problem.
But the skeptics will tell you, they still believe a lot of people want to get out if this thing goes back to break even, they just want to cash out. They don't really want to be investing in this. The competition is fierce.
If you think Google is going to roll over and let Facebook take search, you've been hiding under a rock. And not to mention Apple and all the other behemoths out there who are all now sort of competing against each other.
And finally, that privacy issue. In order to really monetize, it's going to be pedaling our information. How comfortable -- how do they walk that line with users and the government and regulators. That's going to be another huge issue for them and a weakness.
So, the skeptics will put all that out there as saying listen, the stock's been rallying, but they're still worried about it longer-term.
DOS SANTOS: That's an interesting perspective, isn't it? Maggie Lake, bringing us all the latest immediate reaction. Thanks so much for that on a day when, of course, Facebook has made this really interesting and, perhaps by some accounts, rather unexpected announcement.
Now, joining us to flesh things out a little bit further is Victor Basta, managing director of the technology advisory company, Magister Advisors. Victor, great to have you on the show. What's your immediate reaction to this? Because it's not the mobile platform that people were expecting.
VICTOR BASTA, MANAGING DIRECTOR, MAGISTER ADVISORS: No, but it's much more fundamental than rolling out a Facebook phone. It's much more fundamental for the company and for many years to come, and I think people are underestimating just how important it's going to be.
And this is all about advertising. That is what this is about. It's about generating $10 billion, $20 billion, $30 billion in the next few years from advertising revenue that is super-targeted, very high value. And when people are searching, we know from Google that search drives advertising.
DOS SANTOS: So, is this --
BASTA: That's the --
DOS SANTOS: -- a war on Google, then, as Maggie was just saying before?
BASTA: I think it's even broader than that, because the kind of information you get through your friends and friends of friends on Facebook is of a different quality. You're not searching the web overall, you're getting recommendations. You're getting input and advice.
It's like putting the capabilities of Amazon, TripAdvisor, and Google all into the Facebook platform all in one go. It's much broader.
DOS SANTOS: I suppose the financial implications of that hinges on execution, here. But before we attack that, what I do want to ask you is that, as you were saying before, people trust their friends on Facebook, but they might not necessarily trust Facebook.
BASTA: They don't trust Facebook, it's fair to say, as much as they've grown to trust Apple, who has hundreds of millions of people's credit card information, or Google, who has a stated policy to not do evil.
And so, I wouldn't say Facebook has a trust issue, but they need to win people's trust unequivocally. And so, a lot of change to the Facebook platform in a short period of time, and advertising on the platform with greater intensity is going to change it even more.
DOS SANTOS: They don't seem to have done enough, from a public relations point of view, some might say, to win people's trust. There've been a number of blunders. Is that down to inexperience? Because, of course, Mark Zuckerberg is a very young person. He's not your average CEO on Wall Street.
BASTA: Facebook is a very young company, and it's also a very small company relative to people like Apple and Google. And so I think it is, a lot of it, inexperience. But they've started off this announcement talking about privacy, before they talked about the search capability.
DOS SANTOS: Which means they're learning, would you say?
BASTA: Well, they're overemphasizing it for a reason. They're over- steering because they need us to trust them implicitly in order to be open to the advertising that's going to come to us.
DOS SANTOS: So, obviously, the most obvious two questions for me would be A, is Facebook a flash in the pan? Will it be here in two years' time in its current form? And B, will Mark Zuckerberg still be head of the company?
BASTA: With this announcement, it seems like they really have set themselves up for the next few years as a platform to generate tens of billions dollars. And so, it's much more serious as a competitor, now, to Apple and Google.
As far as Mark Zuckerberg goes, well, if he executes really well over the next few years, I think he could be right up there.
DOS SANTOS: We can see. Thanks very much, Victor Basta, great to have you on the show, there, from Magister Investors.
Now, we'd like to hear your thoughts on Facebook's latest move. You can, of course, get in touch with us through the world of social media or either through our Facebook page, you can also use Twitter, and the Twitter handle for the show is @QuestCNN.
Well, Europe's giant is feeling the pinch economically speaking. The pace of German growth is slackening. We'll hear from one of Angela Merkel's very own advisors after the break.
(COMMERCIAL BREAK)
DOS SANTOS: Hello and welcome back. Well, Germany has finally succumbed to the sluggishness that's been gripping the rest of the eurozone. Preliminary figures show that Europe's biggest economy actually grew by just 7 percent -- 0.7 percent in 2012.
As you can see by the statistics behind me, look at how it compares to before. That's well below the 3 percent growth that we saw this time last year. And what's more ist that these kind of figures also suggest a contraction of half of one percent for the fourth quarter of the year, as well, which just makes it even worse.
Just on Wednesday, the German government is actually due to publish its official growth estimates for the year ahead, but obviously, given these kind of statistics, many an investor and economist is a little bit more worried than they were before.
Now, Professor Peter Bofinger is a member of the Council of Economic Experts. Independent advisors, those people are, to the German government, no less. I spoke to Mr. Bofinger -- Professor Bofinger, I should say -- earlier about Germany's latest economic indicators, and he told me that this country is not the locomotive that will eventually pull the eurozone out of its current stagnation state.
(BEGIN VIDEOTAPE)
PETER BOFINGER, CHAIR OF ECNOMICS, UNIVERSITY OF WURZBURG: Well, the growth data from today are disappointing, but on the other hand, they are confirming other data that area already available on industrial production in the euro area.
But I think the most disappointing facts of this data from today is that they show that growth in Germany has come mainly from exports and that the growth contribution from domestic demand has been negative, so instead of being a locomotive of growth for the euro area and the rest of the world, the German economy has been importing momentum from other countries of the world.
DOS SANTOS: But even if you look at the recent export data that was out the other day, that is looking particularly surprising on the downside as well.
BOFINGER: Well, it's not so surprising to me because we know that the situation in the euro area is very severe. The recession has started last year and could continue this year. And Germany is exporting about 40 percent of its exports to the euro area. And so you cannot expect Germany to remain an island of stability in an area which is in a recessionary mode.
DOS SANTOS: So, what's going to happen to the German economy? Presumably, recession is off the cards. May just skirt a recession here. But over the next year, things are going to be looking difficult.
BOFINGER: Definitely. I think the best thing we can hope for the German economy is stagnation. There might be also a downside risk, because in my view, it's not clear that the recession in the euro area will remain as small as it is predicted right now.
I think there are serious downside risks for the euro area. And so, in Germany, we could also see a situation where we do not have stagnation but even a slight recession in this year.
DOS SANTOS: If you take a look at government spending over the period that we're talking about here, it was only up around about 1 percent, and Germany's in a very difficult position, politically speaking, within the EU because its government, having preached austerity to other troubled eurozone countries, can't now start spending on the economy to stimulate it. Your thoughts on that conundrum?
BOFINGER: Well, there's definitely a problem that the adjustment poses that the German government has in mind is an asymmetric one, meaning that the country is with deficits have to bear the adjustment by fiscal austerity, and that from Germany, now fiscal stimulus is offered.
But if the situation continues to deteriorate, I think this philosophy has to be put into question, and I think in Germany we have to ask whether we cannot contribute to more economic growth in the euro area.
One contribution might be that we have higher wage increases this year, at least a temporary additional increase in wages to make the adjustment easier for the situation in the problem countries.
(END VIDEOTAPE)
DOS SANTOS: Peter Bofinger, there, who's an advisor to Angela Merkel's government. He also told me that he thought interest rates for the ECB should be lowered by perhaps even as far as half of one percent.
Let's go over to CNN's Fred Pleitgen, who joins me now, live from Berlin. So, Fred, these numbers are quite worrying, aren't they? Because they come hot on the heels of disappointing export data for Germany, and it's such a big export-led economy.
FREDERIK PLEITGEN, CNN INTERNATIONAL CORRESPONDENT: Well, you're absolutely right, and one of the things that's been particularly difficult for German exporters, especially if you look at the industrial sectors, is that industrial exports have just been down very, very harshly.
Now, one of the things that Germany companies have tried to do is they've tried to export to other places than the eurozone. As Professor Bofinger there said, of course most German exports go to the eurozone. I think he said about 40 percent.
German exporters have been trying to sell more stuff to places like China, places like India, but also places like the United States, as that economy seems to be picking up.
One of the things that we're hearing is that while that's partially been a success, especially if you look at the automotive sector, in total, that could not offset the losses that German exporters had from the eurozone area, Nina.
DOS SANTOS: Then we also so on the downside as well Air Berlin cutting jobs, SAP coming out with --
PLEITGEN: Yes.
DOS SANTOS: -- disappointing figures. We're really getting an indication, aren't we, Fred, that these kind of economic problems are eventually hitting the German corporate landscape, and that of course --
PLEITGEN: Yes.
DOS SANTOS: -- is such an important corporate around the world.
PLEITGEN: It certainly is, and you're absolutely right. It really is the case that German consumers, that the German population is starting to feel the pinch as well.
We just heard that the numbers from Air Berlin coming out today. That airline, of course, has been in trouble for quite a while now. Nevertheless, they're announcing cutting about 900 jobs and also selling some planes, so certainly it doesn't look as if things are going well.
And keep in mind that this is also a very -- I wouldn't say a volatile year, but a very important year for Germany as well, and especially for Chancellor Angela Merkel. She's facing a lot of regional elections that are going to be very important to her power base, and she's also facing a general election.
And then, of course, if she's in a political conundrum, she feels the pinch politically if her numbers aren't good, it's going to make it a lot more difficult for her to lead in the eurozone crisis in the run-up to the election.
And so, a lot of people believe that many big decisions for the eurozone might be postponed until after the German elections, especially if the economy doesn't do well. And as we just heard from Professor Bofinger, it does not look rosy right now for this big German export economy, Nina.
DOS SANTOS: Or, indeed, the rest of the eurozone. Thanks so much for that. Fred Pleitgen there in Berlin.
Well, Germany's Xetra DAX actually finished the session down around about two thirds of one percent, surprise surprise, on the back of that disappointing GDP data. And as I was mentioning before, SAP, the software company, also had a difficult time after its quarterly earnings fell short of analysts' expectations.
As you can see, elsewhere in the eurozone, the CAC 40 in Paris, also closing lower. Out of kilter from the other non-eurozone markets. That was despite gains coming from the carmaker Renault.
The carmaker announced plans to cut 1,000 -- excuse me, 17 percent of its French workforce. That amounts to a couple thousand people, so it is a big, big sign that some of these corporates across the eurozone very much feeling the problems that the rest of the region is facing as well.
Time now for a Currency Conundrum. Germany's Deutschmark ceased to be legal tender back in 2002, but there's still quite a lot of those Deutschmarks around there, hidden under mattresses, perhaps abandoned in coat pockets and stuffed down the back of the sofa.
So, how much does the Bundesbank estimate in Deutschmarks is still in circulation? So, to make it a little bit easier for you, we're going to give you the dollar equivalent here. Could it be A, $15 million worth of Deutschmarks? Could it be B, $600 million worth? Or C, $8 billion worth of this now defunct currency? We'll have the answer for you a little later on in the program.
In the meantime, let's have a look at how the currencies are getting on. The euro is sliding on the back of those weak numbers coming out of the eurozone's biggest economy, Germany. It's currently down around about half of a percent against the US dollar.
The Japanese yen, though, for a change has been going in the other direction after Japan's economics minister issued a warning about the consequences of an overly-weak currency. The British pound sterling is almost unchanged at present.
(COMMERCIAL BREAK)
DOS SANTOS: Goldman Sachs has said that it will not delay bonus payments to its staff after a tax row in the Untied Kingdom. The bank had considered holding off on giving some bonuses to its UK employees so that they could take advantage of a new lower tax rate that comes into force this very April.
Well now instead, Goldman is backing off after it was criticized by people like Sir Mervyn King, the governor of the Bank of England.
(BEGIN VIDEO CLIP)
MERVYN KING, GOVERNOR, BANK OF ENGLAND: I find it a bit depressing that people who earn so much seem to think that it's even more exciting to adjust the timing of it to reduce -- or to get the benefit of a lower tax rate.
Which they will benefit from in the long run to a very great extent, knowing that this must have an impact on the rest of society. Which even now, it's the rest of society which is suffering most from the consequences of the financial crisis.
(END VIDEO CLIP)
DOS SANTOS: Sir Mervyn King, there, not mincing his words. Well, those comments came during a UK treasury select committee hearing. Brooks Newmark, who sits on that panel, gave up a job in the city to become an MP, or member of parliament, and he says that we can't go on living by Gordon Gekko's "greed is good" philosophy.
(BEGIN VIDEOTAPE)
BROOKS NEWMARK, UK MEMBER OF PARLIAMENT, CONSERVATIVE PARTY: What really gets the public's goat is the amount that people are getting paid. I think that banks need to be very sensitive to the enormous pain that ordinary people are feeling today. They've had to sump up the bill.
These are people throughout the whole country, people on very low incomes, to actually bail out the banks, save the financial system, which has allowed these banks, whether they've been bailed out directly by the government or not, the financial system itself was saved by taxpayers both in the UK and in the US and allowed them to sort of get the profits that they do.
Now, I think a much better way to do this is to effectively compensate people through equity, so that they effectively benefit when the businesses do well --
DOS SANTOS: Yes.
NEWMARK: -- over a period of time. Continuing to pay enormous bonuses at this -- even at this stage, four or five years after the initial crash, I think, is still offensive to a lot of people.
DOS SANTOS: Many people are wondering how is it that the UK seems to allow these companies just to get away with it? We've been debating the moral high ground of whether or not legal tax evasion should be allowed, many people saying that from a moral point of view, these companies just should be paying more tax, but they're not forced to. Why not?
NEWMARK: Because the point that you're making. You're trying to give a moral obligation to -- versus a legal obligation. And I think where we need to tackle things is on the legal side. If people are finding loopholes in the system, we have to be tackling those loopholes directly.
And if businesses are making substantial profits in a country, and let's take the UK for example, so if Starbucks and Google and Amazon, take three organizations who are taking advantage of transfer pricing, are making big profits in the UK, there should be a mechanism and laws within the UK to ensure that we capture those profits and make sure they pay taxes on those profits.
DOS SANTOS: So, closing those legal loopholes. Sir Mervyn King, the outgoing governor of the Bank of England, has been rather vocal about all these things, particularly about Goldman's internal debating as to whether to allow themselves to defer those bonus payments. What do you make of his statements and also the motivation for him making those statements?
NEWMARK: Well, I think I agree with his statements. I think nowadays, one can't have the sort of Gordon Gekko "greed is good" culture. That doesn't sit very well. It may have sat very well pre-2008 when there seemed to be this binge on credit that enabled a lot of these banks to make huge amounts of profits.
I think we're in a different environment today, and I think banks should be sensitive to their moral obligations as well as their legal obligations to shareholders.
(END VIDEOTAPE)
DOS SANTOS: The world's most important economy faces downgrade deja- vu. Up next, the head of Fitch ratings of sovereigns explains why the US Triple-A rating is these days in serious doubt.
(COMMERCIAL BREAK)
NINA DOS SANTOS, CNN HOST: Hello and welcome back. I'm Nina dos Santos. These are the headlines this hour.
(BEGIN VIDEO CLIP)
DOS SANTOS (voice-over): France now has 800 troops in Mali to back a Malian offensive against Islamic insurgents there. Well, French warplanes have been targeting the rebels as they push south of the government-held territory. And in the meantime, West African nations are saying that they're sending troops as well. One hundred ninety Nigerian soldiers are expected to arrive there within the next 24 hours.
Syrian human rights activists say that two explosions have killed at least 52 people at Aleppo University. The attack wounded many more as well and the death toll from here on is expected to rise. The Free Syrian Army blames shelling by regime warplanes. But on the other hand, the state media accused so-called terrorists of launching the attack.
Dozens of people staged an anti-corruption rally in the center of Pakistan's capital, Islamabad. The country's Supreme Court has ordered the arrest of the prime minister and a number of others, alleging that they allegedly received illegal payments for projects. Well, Pakistan's benchmark stock index as a result fell by 500 points in response to the unrest there.
U.S. President Barack Obama and the vice president, Joe Biden, will propose a ban on assault weapons on Wednesday. The package of gun control proposals will also address the issue of high-capacity magazine and this design to strengthen federal background checks, too.
The move comes a month after 27 people were killed in a school shooting in Connecticut.
And Facebook has announced a new search feature to help you sort through all of your people, places and pictures on the social network. It's called Graph Search and it's aimed at bringing new users, new content and also more friends as well. Facebook shares fell following the announcement, though.
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(END VIDEO CLIP)
DOS SANTOS: Well, let's delve a little bit deeper into that new feature of Facebook announced just in the last hour or so. Let's get the latest from Dan Simon, who joins us now from the social network's headquarters in Menlo Park, California.
And I might tell our viewers that he spent the best part of the last 30 minutes or more inside that press conference.
So, Dan, what was the atmosphere like and what would this mean for Facebook?
DAN SIMON, CNN CORRESPONDENT: Well, you know you had a lot of people from the press inside, you know, listening to Mark Zuckerberg. People were generally excited to hear what he had to say. And this is a pretty big development for Facebook.
They announced this thing called Graph Search. This is a way for you to ask certain questions and to get certain results based upon your quote- unquote "social grab" within the Facebook universe. So you can ask things like photos of my friends in Paris or favorite restaurants that my friends like in San Francisco.
Those kinds of questions and before you couldn't really get those kinds of results within Facebook. So this is a new thing for Facebook where you can actually ask very pointed questions and get -- and get specific answers, Nina.
DOS SANTOS: And this leverages a lot of their information, Dan, in a way that many people hadn't expected them to do. It takes them down a completely different alley that says embarking on competing with the likes of Google instead of investing in mobile. Is that a good thing or a bad thing?
SIMON: Well, I think there is a lot of potential in this type of business or this new business that they're going into. For instance, when it comes to advertising, I think this could be huge. So if you were to ask, you know, photos of my friends in Las Vegas, well, boom. Then right on the right-hand side of the screen, you might see advertisers for hotels or airlines, that kind of thing.
At this point, they haven't announced a business strategy around the Graph Search. But you can tell clearly that's what the future is going to hold. They did not announce a mobile product surrounding Graph Search. That's going to come later. At this point, you're only going to be able to do it on a desktop computer, Nina.
DOS SANTOS: Interesting stuff. Obviously we'll see, the proof of the pudding is in the execution, isn't it? Dan Simon, thanks very much for joining us there outside Menlo Park, California, which is, of course, Facebook's headquarters.
Well, the United States may lose its triple-A rating with another ratings agency even if it does manage to raise the debt ceiling. Fitch Ratings says that it'll downgrade the U.S. unless Congress manages to come up with a medium-term plan to bring down the deficit.
And I asked Fitch Ratings' managing director, (inaudible) David Riley if he regretted not cutting the rating for the U.S. earlier alongside Standard and Poor's back in 2011.
(BEGIN VIDEO CLIP)
DAVID RILEY, MANAGING DIRECTOR, FITCH: No, we don't, because it's important that we get our analysis right. And it's not something that we would do lightly, to cut any sovereign rating, in particular the rating of what is essentially the world's benchmark issuer of fixed income securities.
And you know, we did view the August 2011 debt ceiling episode as essentially a sort of one-off, that this wasn't typical to go right up to the wire, to potentially threaten to -- or risk a potential payment on the Treasury securities.
So we thought it was right to wait for the outcome of the presidential and the congressional elections and that a new administration, a new Congress would better put in place a plan to address the fiscal challenges.
DOS SANTOS: So let's talk about the debt ceiling as a complex issue. Should the United States really have a debt ceiling after all, because some people, even the head of the Federal Reserve, Ben Bernanke, have hinted that, really, without one, that would be the best option.
RILEY: Well, the debt ceiling as a means of enforcing fiscal discipline clearly doesn't work. I mean, and essentially, what's happening is that the tax and spending decisions that have been made by Congress, those decisions have created a gap.
There's a shortfall between what's been taken in tax and what's been spent on a whole range of programs. (Inaudible) been filled with debt. And that's what's driving the increase in the debt, not increases in the debt ceiling.
DOS SANTOS: So if we take a look at the United States as total debt to GDP, it's still not the highest in the world for a big major economy. You take a look at Japan and Japan's 236 percent of GDP; the United States is 107 percent of GDP. Is it really that indebted?
RILEY: It is by triple-A standards. It's the most indebted of the triple-A rated sovereigns. In fact, our typical triple-A government would have a debt-to-GDP ratio of around 50 percent. Now can the United States sustain, you know, 100-plus percent debt-to-GDP ratio, 120 percent, 130 percent? Yes, it can.
There's a lot of sort of particular features about the U.S. Not the least there is reserve currency status of the -- of the dollar. But that's not, in our opinion, consistent with the U.S. retaining its triple-A rating.
DOS SANTOS: Well, the reserve currency status is exactly what I wanted to come to, because obviously if the United States just goes ahead and prints more dollars, people are still buying those Treasuries. It's the ultimate safe haven. So it doesn't matter, really, whether you cut its triple-A rating or not.
RILEY: Well, if we were to cut the triple-A rating, we would still be saying that the federal government, the U.S. Treasury securities are still very safe assets from a credit point of view.
But the idea that you don't have to take difficult decisions on tax and spending that you can keep on running up debt and don't worry, we'll just keep on printing money to finance that, well, history has told us that ultimately that does end in tears. That's not a sustainable economic policy and certainly not one we'd expect from triple-A or any highly related sovereign government.
(END VIDEO CLIP)
DOS SANTOS: Well, investors seem pretty cautious while we wait for most of the big names to report their earnings on Wall Street. A lot of them will be reporting those earnings with the issue of the debt ceiling and the unfinished business rounding the fiscal cliff also in the back of their minds as well.
JPMorgan and also Goldman Sachs are set to report on Wednesday. They will certainly set the bar for Wall Street in terms of big banks.
But in light of that, as you can see, the Dow Jones industrial average rather flat at the moment, up -- down only six points as you can see about 4/100 of 1 percent at a level of 13 and 501 at the moment, investors also looking to the financial sector for earnings growth, even though the manufacturing sector seems to be doing slightly better some might say than the financial sector stateside.
Let's bring in Felicia Taylor in New York, who can talk us through a latest set of banking earnings and the action that we're expecting.
Felicia, great to see you. Is it going to be a good week for Wall Street in terms of banks, do you think?
FELICIA TAYLOR, CNN CORRESPONDENT: I don't know. The banks were able to pull it off last year, obviously, outperforming the broader market. And this week we're going to get a better idea of the last quarter. As you said, we've got Goldman Sachs, Bank of America, JPMorgan, Citigroup and Morgan Stanley all set to report. You know, those are the big six.
But investors aren't so sure about 2013. So what they're really worried about is revenue growth, low interest rates, reduced lending, not to mention the slew of scandals that you and I have been talking about now over the last few months that could have affected somewhat the bottom line. That's not the big issue, though.
Wells Fargo did kick things off for the financial sector, reporting fairly strong earnings. But the stock got hit on worries about a slowdown in mortgage refinancing. So the big concern is will they issue any cautious guidance for the year? That's the problem. Moving forward, what do things like for the banks? (Inaudible).
Banks have been it the bright spot in what is obviously a slow growing economy. Financials are expected to report growth of about 10 percent compared to overall earnings growth of about 3 percent. So, yes, they're going to do fine. How well and how long it can be sustained is the question.
Large cap banks rallied between 25 percent and 50 percent last year. It's going to be pretty tough to keep up with that pace. There was an uptick in lending and profits got a boost by funds that were released and had been used for loan loss provisions. So that's a good thing. But you know, the question is now where are we going to have growth with interest rates as low as they're expected to be?
DOS SANTOS: Yes, that's a good point. Felicia Taylor from New York, thanks so much. Setting the tone there for the financial earnings season for the really big names on Wall Street that'll be released tomorrow.
Now his master's voice is in (inaudible) we should say, but (inaudible) fat lady hasn't sung yet. We'll take a look at the perils and the situations in the U.K.'s oldest record store is facing next. Do stay with us.
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DOS SANTOS (voice-over): Time now for the answer to today's "Currency Conundrum." Earlier on the show, we asked you how many deutsche marks the German central bank estimate are currently still in circulation out there. Well, the answer to this is C, around about $8 billion. That's right, $8 billion worth of deutsche marks.
The Bundesbank says that people mostly find them tucked away when they move house or when an elderly relative dies. And you can still exchange them, remember, for euros once you get them (inaudible).
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DOS SANTOS: Well, potential buyers are circling the U.K. music store chain HMV a day after this company (inaudible) administration. The "Financial Times" says that Hilco -- this is the owner of HMV Canada -- has shown an interest in some of the firm's stores. As Isa Soares now reports, the 18 High Street company has been so far unable, it seems, to adapt to the trends of the 21st century.
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ISA SOARES, CNN CORRESPONDENT (voice-over): For more than 90 years, HMV or His Master's Voice, as it was known, commanded a strong position on the High Street and loyalty from its customers. Now it has fallen victim to changing consumer habits.
SOARES: It all began here on London's Oxford Street with the first store opening back in 1921. Now HMV flourished for many, many years. But it failed to keep up with the digital times, sticking instead to (inaudible) business model. And that may have cost its place on the High Street.
NEIL SAUNDERS, RETAIL ANALYST: HMV's biggest mistake is when the original trend of online started to emerge, it didn't react. It thought it wasn't a problem. It thought it still was sufficient to pull things (inaudible).
SOARES (voice-over): For consumers outside its store in Oxford Street, this is a sad time. But just like the High Street bookshop, HMV's decline seems almost inevitable.
ACE, MUSICIAN: For me, the MP3 just ruined the whole music industry. You know, it was physical copies anymore. I'll miss HMV, because I had put my CDs in there before. And also I liked to go in there and buy physical copies. So to me, it is a tragedy that it's gone.
SOARES (voice-over): The reality (inaudible) business on life support. Last year, HMV accounted for 22 percent of music and video sales. But more than 73 percent of music and film are downloaded or bought online. And even though HMV has an online offering it simply couldn't compete with the bigger players.
UNIDENTIFIED MALE: I suppose everything is easier when you have an iPod and a computer and it syncs everything and then it's just a lot more convenient.
SOARES (voice-over): HMV's struggles underline the gloom on the High Street. Last year alone, 32 retail chains went into administration here in the U.K. Facing intense competition from online retailers, digital downloads and supermarkets.
UNIDENTIFIED MALE: There are a group of products like books, like music, like film which are easily digitized. And that means that more people will buy those products digitally because it saves space, it often costs less and it's much more convenient for them to do that.
And unfortunately, if you're exposed to one of those sectors, you really have the tide set against you in terms of generating profitable growth over the next 10 or so years.
SOARES (voice-over): It may not be the day the music died, but some fear it may be sympathetic of the demise of the High Street -- Isa Soares, CNN, London.
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DOS SANTOS: Well, even a company that helped to hasten HMV's demise is hitting a few hurdles of its own these days. Take a look at this.
Apple shares are currently down by more than 3 percent in New York trading right now, and it looks as though this stock as you can see there is set to close below $500 for the first time in nearly a year. (Inaudible) actually cut their earnings forecast for this company just today, warning the profit margins, particularly on the iPhone products, are currently unsustainably high.
All of this also comes a day after reports of weaker than expected demand for the iPhone 5, the latest model issued by Apple.
Well, shares in the company are falling around about 20 percent in just the past six months alone. But, of course, keep a close eye on earnings which are due out next Wednesday.
Let's have a look at how the weather forecast is shaping up at the moment. Jenny Harrison is standing by to tell us all at the CNN International Weather Center.
Hi there, Jenny. What you got for us?
JENNY HARRISON, CNN METEOROLOGIST: Hey, Nina, I've got some very cold weather across Europe and, of course, plenty of snow. Let's start out with satellite because it's a very unsettled picture, as you can see, just about everywhere seeing some sort of cloud. We've got some rain in there; we've got some very heavy amounts of snow.
And let's start with the northwest, shall we. The last few hours, look at this, first of all, Marham in Norfolk in the U.K., 8 centimeters then across into Suffolk 8 centimeters. Nottingham in the East Midlands, 4 centimeters of snow. And some pictures to show you as well, because of course it's all very well, the snow coming down but my goodness it causes problems.
So Gainesboro (ph) up in the North Yorkshire, the very, very brave cyclist that has to be said. And then of course the cars doing their best. This is again North Yorkshire, Pickering (ph) up there. You can really see the snow. It's really sticking to the ground. And then across into France, Lyons, again, plenty of snow here. It really is widespread across much of Europe.
And in fact, in the Netherlands, here's a bit of a different picture for you because of social media over 1,000 people actually registered for this massive snowball fight that you can see there. But the temperature's keeping the snow well on the ground.
This is what the wind (inaudible) feels like -10 in Berlin right now, -2 across in Birmingham, -14 in Karlstad (ph) and still some snow flurries along the east coast of the U.K. And snow pushing into the west. We've got some pictures actually (inaudible) show you some of that snow in Scotland because you saw those still images. But it really has led to huge traffic snarlups.
Of course, the accidents as well in the very, very icy conditions. (Inaudible) temperatures staying so below freezing. So everybody's doing what they can to clear the snow. And then across in the Netherlands, some more pictures to show you, not quite so many vehicles around.
Of course, this is Amsterdam, it's all about walking, isn't it, and also about using your bicycle. But again, the snow is sticking to the ground there, even to the boats, the barges there, you can see along the canals.
But as what's going to happen next, well, the snow's going to continue to come down, but not as much as we've seen across western Europe, maybe just another 4 centimeters, though, having said that across into Brussels.
But the really heavy snow just have a look at this, 68 centimeters in Zagreb. That's actually a record for January and Ogulin 76 centimeters, strong winds as well, about 115 kph. Still more snow across this region but in particularly northern Italy and of course along the line of the Alps some very heavy snow, maybe 25 centimeters over the next 48 hours.
So it's going to stay very wintry. We're going to see more of this snow, this system working its way across the south. It'll be rain really across the Med but of course that cold air will stay in place and it means that temperatures will be below average over the next few days. Again you can see that Berlin's doing well below freezing. And then, as I say, widespread snow.
So be prepared as well, Nina, of course for lots of disruption when it comes to traveling and just take care, because it is so very icy and cold.
DOS SANTOS: It is decided chilly out there, I might say. Jenny Harrison, thanks so much for that.
And speaking of people who are facing a bit of a cold front these days, his reputation is at rock bottom; his legacy is in tatters. There's nowhere else for Lance Armstrong to go these days except perhaps (inaudible) televised confession. We'll have all the details of his interview with Oprah up next.
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DOS SANTOS: If true, the reports suggest that Lance Armstrong has finally come clean because in an interview with Oprah Winfrey, the now disgraced cyclist is said to have finally admitted to using steroids. The talk show host told CBS "This Morning" that the conversation took a surprising turn.
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OPRAH WINFREY, TV STAR: I would say he did not come clean in the manner that I expected. It was surprising to me. I would say that for myself, my team, all of us in the room, we were mesmerized and riveted by some of his answers.
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DOS SANTOS: Fascinating stuff. Let's get a little bit more now from Don Riddell, who's over at the CNN Center.
Don, this has been going on for so long, finally, I supposed, we may have the confession.
DON RIDDELL, CNN CORRESPONDENT: Well, we may do. I mean, it's interesting ,apparently Oprah Winfrey and Lance Armstrong had an agreement, Nina, which was that the details of that interview would remain confidential until it was actually broadcast on Thursday night.
But by the time she'd stepped off the plane from Austin back home to Chicago, the details of that interview had been revealed in which he did apparently make a confession. So Oprah Winfrey isn't denying it. But she's not actually saying what he did or did not confess to.
That sound bite we heard from her there, I think it doesn't really tell the full story of what she has said so far. I think when she was -- when she spoke on "CBS This Morning," she said that she went in very prepared for this interview. She went in with over 100 questions. She said she got to ask most of them, and she was very satisfied by the answers.
She said she'd gone in prepared to dig, pull and reference because she really thought he would be kind of quite hard to pin down. But she said he was so forthcoming that, in the end, she just really let him talk by the sounds of it. And it sounds like what he had to say really was quite revealing.
Now the original plan was that this was going to be an interview that was going to be broadcast on Thursday night. It was going to be an hour and a half. But she said they talked for so long that it lasted 21/2 hours.
It was so good they didn't want to drop any of it out, that it's now going to actually be aired across two nights on Thursday and Friday and sports fans all over the world are going to better hear finally what Lance Armstrong has to say.
DOS SANTOS: Yes. I suppose the only question is will the confession come at the start or the end? Don Riddell, thanks so much for that, bringing us the latest there from CNN Atlanta.
Well, QUEST MEANS BUSINESS will be back in a moment's time. We'll take a look at how Facebook uses a reacting to the company (inaudible).
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DOS SANTOS: Hello and welcome back. Well, Facebook shares are currently falling in today's session. They're around about down about 3 percent on the Nasdaq at the last time we looked as you can see there at a price of $30.05 apiece.
They were up nearly 1 percent before the social network actually unveiled its new Graph Search feature a little earlier today. So that's how investors are reacting to this piece of news. Let's have a look at the response in the world of social media itself.
(Inaudible) Pete Cashmore is seeing an opportunity for romance here. He writes, "Facebook search just made dating easier or perhaps creepier?"
Then Zero Hedge also asked this, "So does Facebook search," he says, "sort stalkers by weight?"
And Depressed Darth Vader says that Graph Search, which is the new feature that Facebook has announced, doesn't quite hit the hot spot for him. As you can see here, "I'd be much more excited about Facebook's Graph Search if it could help me find the droids I'm looking for," he says.
Well, investors seem to be pretty cautious while we wait for a whole host of big reports coming out of Wall Street as Felicia Taylor was just telling us before. We've already had Wells Fargo setting the tone for banks across Wall Street, but the really big names, finally speaking in terms of investment banks, will of course be Goldman Sachs, JPMorgan as well, those two companies set to release their earnings tomorrow.
So on Wednesday, in light of all of that investors are going to be looking to the financial sector for earnings growth going forward. But as you can see, the Dow Jones industrial average is still not that much further off the flat line from the last time we had a look. It's up around about 9 points. It was down around about 6 points half an hour ago. And it is up only about 1/700 of 1 percent at 13,517.
On that note, it's time to say goodbye. Thanks for watching QUEST MEANS BUSINESS. I'm Nina dos Santos. "AMANPOUR" is next after a quick check on the headlines.
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DOS SANTOS (voice-over): Welcome back. This is the main news we're following for you here on CNN this hour.
French airstrikes have kicked behind Islamist rebel lines in Mali. France now has some 800 troops to back an offensive against Islamic insurgents in that country. Now West African nations say that they're also sending troops on the way as well. The U.S. State Department says that no decisions have been made as yet on whether they'll contribute any soldiers.
Thousands of people staged an anti-corruption rally in Pakistan's capital, Islamabad. The country's Supreme Court has ordered the arrest of the prime minister and a number of others, alleging that they received illegal payments for projects. Pakistan's benchmark stock index fell by 500 points in response.
U.S. President Barack Obama and Vice President Joe Biden will propose a ban on assault weapons on Wednesday. It's a part of a package of gun control proposals which also will address the issue of high-capacity magazines and strengthen federal background checks.
And finally, as we've been telling you before, Facebook has announced a new search feature that will help you sort through all the people, places on your social network. It's called Graph Search and it's aimed at bringing users new content and also crucially more friends.
That's a look at the main stories we're following for you on CNN. "AMANPOUR" is next.
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