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Quest Means Business
Markets Up on Good Earnings Expectations; Insider Trading Arrests Made; Inside Brawn GP's Winning Formula
Aired October 19, 2009 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: There are great expectations, investors hope for some tasty earnings from Apple, and the market is giving its reaction.
Cracking down on insider trading, Wall Street on alert after a top hedge fund manager is arrested.
And business brains behind Brawn, the Formula One team (INAUDIBLE) after world-title success.
I'm Richard Quest, you and I start a new week together, because I mean business.
Good evening. A critical week for corporate America, the financial world is hungry for signals as to the state of the U.S. economy.
(RINGS BELLS)
This is the way the market is trading. An ebullient market and a new bell to boot. Look how shiny it is. We broke a lank (ph) and got a new bell. Up 108 points, over 10,000, 10,104 at the moment, a gain of more than 1 percent so far on the session. And that's pretty much the way it has been trading for most of the session.
The next few hours could give another boost to the Dow, or indeed it could kick the legs from underneath them. Some big companies report at the close of trade, and Apple is at the top of the menu. Here on this program, we're putting it into context, helping you navigate your way along the road to recovery, and we're focusing on the results of 25 major U.S. corporations.
These are the Q-25, as we're calling. You'll be familiar with them. And they are the way in which we are explaining to you exactly what is taking place, how the market is responding, and, of course, the significance of this.
We are seeing green on Wall Street, it is the 22nd anniversary of Black Monday. Earnings dominate all week. Over the next three days more than a quarter of the companies in the S&P 500 will release their quarterly reports. Let's bring in Maggie Lake in New York. Maggie is with us.
Good evening from London. Good afternoon to you in New York. Bring us up to date. We've got the Q-25. We've got three green balloons. We've got five red ones. At this early stage in the reporting season, the reds have them.
MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: They do, Richard.
But you know what's sort of interesting, as we were just starting to get under way here, that the greens that we have, some of them are really moving away from the pack. The people that are winning are winning big. They're really blowing past expectations. They're taking market share away from their competitors.
Then there is sort of the rest of the pack, right? And they're sort of a much more mixed picture, a little bit harder to get a handle on what's going on. Well, maybe we'll get some clarity this week. We've got 20 -- over 25 -- 27 percent of the S&P 500 reporting, and we're going to get really a section across the whole economy.
Of course, in the Q-25, we're going to be focusing in on a couple in particular, and you're going to -- you see some of the names there on the screen: Caterpillar, Coca-Cola, Yahoo!, AT&T, McDonald's. As we sift through those earnings, of course, we're going to try to take a look at the quality of the earnings.
You know, are they just getting the gains from cost-cutting, or are they seeing final demand pick up? And hopefully, at the end of that, we'll get a little bit more clarity on where we stand. Of course, all going to be with -- start off with Apple, which is going to come in just a little while after the close.
QUEST: But as I look at the market at the moment, we're up over 108 points, Susan Lisovicz will be with us later in the program, putting some perspective into that. But as I look at the 25 so far, you know, we -- admittedly, those that we expected to do well: Goldman, IBM was a bit of an unusual -- and you and I had a battle about that. Google.
But looking at the corporate bank, looking at the banks like Citibank and Bank of America, I'm not sure at this point we can say anything generally about the reporting season.
LAKE: That's right. Although with some of the banks and some of the regional ones, which we haven't covered, we're still seeing that the credit environment, the consumer is still under some stress. That may be a theme that starts to come out as the week goes on.
But you're right, you know, again, with Goldman, the best of breed are setting themselves apart, but with the rest of the bunch, there is not a clear message yet. As we start to get more of these names filtered through -- you know, what are they saying about the future? Are they seeing demand really pick up?
So far, there is a lot of caution there, which is why a lot of people worry that there is a disconnect between this very powerful rally that we see, and some of the concerns that are still out there about the sustainability of earnings.
You know, can they continue to come through? Are we going to see the improvement that people are really starting to expect? That's not clear yet.
QUEST: Finally, Maggie, you summed it up. There is a rally under way. It is a powerful rally, and it is one that is seemingly, at the moment, I cannot see the force of fuel behind it.
LAKE: Well, you know, Richard, I asked so many people this, because I can't sort of get my head around when I hear all the worry. The one thing I've heard people say again and again is that there is a disconnect from fundamentals, and a lot of this, first of all, is professional, very few retail, very few mutual funds are participating in this.
In fact, there was a net negative flow out of equity funds. So it's professional and they say it's because of all of the liquidity that these central banks are pushing into the system. It has got to find itself somewhere. They're worried about the bond market, so it continues to find its way to the equity market.
So it's sort of a Fed-driven rally, it's not really about the earnings or about the future. And that has some people worried.
QUEST: We'll have more balloons, a lot more balloons to be blown up in the next few days as we get (INAUDIBLE). Maggie Lake in New York, many thanks.
The other story they're following closely on Wall Street, where investigators are said to be gearing up to target a wave of insider trading cases. Bloomberg is reporting that a crackdown based on two years of investigation, they're targeting hedge fund managers, lawyers, and other Wall Street workers.
On Friday, the authorities arrested the billionaire investor Raj Rajaratnam, founder of the U.S. hedge fund firm Galleon Group. Six managers and executives arrested for insider trading. The authorities allege they pocketed more than $20 million in illegal profit.
That is the headline, if you like. Let's get more details on the story, Richard Roth is in New York.
RICHARD ROTH, CNN SENIOR CORRESPONDENT: Well, you know, Richard, director Oliver Stone is filming the sequel to the hit movie called "Wall Street" right now. And in what seems like a blast from the past, the federal authorities seemed to be ready to return to cracking down on alleged insider trading.
On Friday, the arrest of a major a hedge fund figure, a billionaire, Raj Rajaratnam, a co-founder of the Galleon hedge fund, it stunned many on Wall Street. Galleon made its name in technology investments in the '90s, and according to many, prided itself on intensive research and pursuing rumors to get an edge on upcoming corporate earnings.
Born in Sri Lanka, the hedge fund leader and other accused co- conspirators are accused of earnings more than $20 million from illegal trading. It's reportedly the biggest hedge fund insider trading case to date. Also curious is that two of the others arrested used to work at Bear Stearns, the failed investment operation.
This month two different Bear Stearns hedge fund managers went on trial in New York, accused of securities fraud. In this latest case, the two Bear Stearns former managers face charges based on wire taps and informants, people who turned witnesses for the government.
It is not known yet if there is any link. However, one former investment manager at Bear Stearns told us that there is a lot of insider type trading at the really big funds with clout. This person also says that Wall Street is very curious where all of this is going, and how many people will be pulled into all of this because of Raj Rajaratnam, who was wiretapped, according to authorities, for a few years, and probably talked to a lot of people.
Attorneys for the arrested deny any guilt -- Richard.
QUEST: Now, the two -- two points on this, Richard. Firstly, there will be those viewers out there saying tonight, and these are allegations, well, we all knew that they were up to something, to no good on Wall Street. And this merely confirmed that which we thought. And there will be other people saying, how deep and how far?
ROTH: That's right. Perhaps with a beefed up Securities and Exchange Commission in Washington under a new administration, we may see more of this. It may be a natural fallout from the big financial collapse. There may be further zeal. Of course, Madoff and other scandals were totally missed by the authorities, or not aggressively pursued.
In this case, it would be interesting to see, how many informants? Where does the trail continue to lead? Nobody wants to do prison time on the wire taps, according to authorities. One of those who was detained on Friday talks about not -- avoiding what happened to Martha Stewart, who was eventually given time because of a trading operation she was -- did not come clean on.
So it's going to be interesting in the months and years ahead. We always see this type of bubble, you might say, almost with the investment - - investigations following a market crash, it seems.
QUEST: Richard Roth, it's not many correspondents that end up covering insider trading stories on their birthday. Happy birthday to you, Richard Roth...
(CROSSTALK)
ROTH: Thank you, I'll expect a gift shortly.
QUEST: I would too, but (INAUDIBLE). In the post. And there is a postal strike in Britain, so you'll have to wait until it gets across the Atlantic. Thank you, Richard Roth...
ROTH: Don't buy me any shares in anything.
(LAUGHTER)
QUEST: We'll be reporting on ourselves. OK. Richard Roth in New York.
The news headlines now. And Fionnuala Sweeney is with us at the CNN news desk.
Good evening.
FIONNUALA SWEENEY, CNN INTERNATIONAL ANCHOR: Richard.
An election monitoring group says Afghan President Hamid Karzai did not win enough votes to avoid a runoff. This is according to election data analysis by Democracy International, after a U.N.-backed commission tossed out ballots from 210 polling stations. Democracy International says the move strips Mr. Karzai of an outright majority in the August 20th vote.
European Union naval forces shadowing a Chinese ship hijacked in the Indian Ocean, the bulk carrier was seized Monday off the coast of Somalia. There are 146 people on board, including the 25-person Chinese crew. The ship was spotted towing a pair of skiffs similar to the ones used by Somali pirates.
The father at the center of the balloon boy incident in the U.S. reportedly discussed a similar stunt with an associate earlier this year. That's one of the allegations that surfaced as police investigate Richard Heene. Last week Heene told authorities his 6-year-old son Falcon might have been in an experimental balloon aircraft that drifted across the state of Colorado. It was later discovered the boy was hiding in the house all along.
In the U.S. state of Louisiana, an interracial couple is fighting to get a justice of the peace dismissed for refusing to marry them. Keith Bardwell says he didn't grant the couple a marriage license out of concern for their future children. Beth and Terence McKay eventually got a license from another justice of the peace.
Those are the headlines. Don't forget to tune in for more of the day's biggest stories, "WORLD ONE" at 8:30 p.m. London time. In the meantime, back to you, Richard, in the studio.
QUEST: We thank you for that, Fionnuala Sweeney. "W1," that's one coming up later.
A new financial order and a warning to the West. One of the world's biggest banks says emerging economies are taking over. The chief economist of HSBC, we'll hear from the (INAUDIBLE) in just a moment.
(COMMERCIAL BREAK)
QUEST: Welcome back.
About a week into earnings season, and investors are looking very much on the sunny side of the street. You've been hearing from Maggie about Wall Street's latest rally. And European shares have had a third winning day in the last four.
Let us take a closer look at what has been going on and what has been moving the markets. You've got the CAC in Paris, the DAX, and the London FTSE. Gain of 1.76 percent for the FTSE. Copper prices rose, and that, of course, gave mining shares a good, strong boost, whether it was Xstrata, Anglo, they all did rather well in the London market.
Interestingly, the London market had a variety of issues that were affecting it. So not only did you have that copper price, you also had National Express potentially being bid for by Stagecoach. You had William Hill, the betting shop, rising sharply on the back of possible more betting with an economic recovery.
In Frankfurt, with the Xetra DAX, 1.9, 2 percent. Two issues of importance to bring to your attention: Daimler. Although we don't get full results from Daimler until late in the month, they had EBIT results, and they were better than expected.
Also General Motors. Now General Motors and the sale of Opel, Volkswagen, and all of its European subsidiaries, that might be in trouble. Late last weekend, the European Commission had fired a shot across the bows of General Motors' plans to sell off to Magna.
Watch out there, the German government might have done the deal, but at the cost of the Spanish and the English. And that will be against E.U. regulations.
Paris and CAC 40, interestingly, LVMH was up even though sales were not that strong. LVMH gained because of a couple of brokerage reports which suggested luxury goods were surely going to return into favor in the not-too-distant future.
Quickly bring you up to date. Oil hit a year high and then fell back. Gold, well, you know all about the gold market as things traded during the day.
Now one of the world's biggest banks says economic power is shifting. It is a shift from West to East. HSBC says we are at a tipping point, and it's painting a picture of a new world order. Developing economies are set to emerge from the downturn with vigor. Richer economies remain on life support.
The growth rates will diverge and emerging markets will see growth of 6 percent next year. Economies in the developed world will grow just 1.8 percent. That's a huge difference at this point in the recession. The reasons, developed economies are mired in debt and spending their way out of the recession. Debt will crimp growth in the future.
All in all, it's adding to the tipping point. I asked Stephen King (ph), the chief economist at HSBC, to justify why he uses this phrase, "the tipping point."
(BEGIN VIDEOTAPE)
STEPHEN KING, CHIEF ECONOMIST, HSBC: What we're seeing is a quite momentous change, I think, in the global economy. We've been used to many years now, of course, of an idea of the U.S. leading the world and every other country following suit after a while. What we're now beginning to see is a world economy becoming dominated, really, by China, India, by the emerging nations in general.
And we've seen over the last few months a very clear recovery in those economies, well ahead, really, of anything that has come through in the states, or in Europe. So the idea we have to wait for the U.S. consumer to kick in before countries like China and India can recover just doesn't seem to fit with the facts.
QUEST: No. But -- it may not fit with the facts, but as long as -- or surely once the developed countries have got over their structural changes, then they once again become the prime economic actors.
KING: Well, they clearly will be important. But I think the big question here is, when will they get over these difficulties? The big problem that the states and Europe face is a huge problem associated with debt, both household debt and, of course, increasingly, government debt as well.
The difficult here is that over the next few years we'll see higher taxes, big cutbacks in public spending, attempts by consumers to repay their debts. That all means that the Western world will grow pretty slowly. It's not just a case of recession and recovery, it's about the idea the secular trend rate of growth is beginning to come down in the States and in Europe, a bit like Japan experienced in the course of the 1990s and beyond.
In one sense, it's their weakness, which simply highlights the success and -- of many of the emerging nations. The only think I would add is that in the light of all of this weakness in the West, we'll end up with these very, very low U.S. interest rates, continuing over a number of months, possibly a number of years, and with those low interest rates, investors inevitably will look for decent returns elsewhere in the world.
And the obvious place to look for there is the emerging nations.
QUEST: Now on your monetary money-go-round, as you call it, that monetary money-go-round could be fueling a bubble in Asian equities at the moment, one that by the time we get to the back end of next year, is a bubble fit to burst.
KING: Well, it's clearly the case that if you've got very low interest rates, and that's driving up asset prices, the risk of a bubble begins to grow. And it's certainly true that with a strong secular growth, and with a link to the U.S. dollar that many Asian countries have still, the dangers of a bubble building are quite considerable.
But if you go back to the 1990s, we had bubbles building in the emerging markets back then, but they went on for year after year after year before they finally went wrong. So the fact that we're seeing the beginnings of bubble now doesn't necessarily imply that you're going to see things going wrong within the next six, 12 months.
We could see quite a long period of successful Asian growth, possibly eventually with higher inflation and wider current account deficits, but not yet.
QUEST: I notice your chief exec seems to think that there is a possibility of double dip. That the risk of, at least, a downturn. Reading your economic report, you specifically say that you don't see a chance -- much of a chance of double dip. What's the difference there?
KING: Well, there is always a chance of a double dip. I don't think one can possibly rule it out. And I think one important point I would stress is that whatever your view about what happens to the global economy over the next two or three years, the very fact of the matter is that the Western world, at least, is very much on life support.
And being on life support means that as that life support is withdrawn, whether it's through higher interest rates or public spending cuts or tax increases, the Western world will still be vulnerable. So the risks of reversals from this more encouraging we've seen over the last few months are still pretty great.
QUEST: Time to talk traffic lights. Red -- if we talk global economy, and then we'll break it down, red, amber, or green?
KING: Well, I think at the moment it's green, but you have to break it down into the emerging nations, which is definitely green. And I would suggest that the Western world is still very much on amber.
(END VIDEOTAPE)
QUEST: So we have an amber -- a green and we have an amber, depending, of course, on where you stand in the world. And I will have a profitable (INAUDIBLE) thought at the end of the program on this.
When we come back, a sensational season, Formula One's new team, like a grand prix racetrack, there were plenty of twists and turns on the way to the checkered flag. How did team Brawn regroup and make off with the title? When we come back in a moment.
(COMMERCIAL BREAK)
QUEST: That price of oil at $79.04, a year high to date, will be giving cause for concern as the price inches up ever more.
Even more so, if you've got to fill an expensive vehicle, how about a Formula One car? I bet that's a bit of a gas guzzler. The actual Formula One itself has a new champion driver, a winning team that didn't even exist a year ago. Brawn GP has emerged into the F1 spotlight giant car-maker Honda pulled out of grand prix racing to save money.
Financially it has been a tough road for the team, with a fraction of Honda's muscle, or perhaps money. Star driver Jenson Button even took a massive pay cut. Though he will probably get a bonus now. CNN's Alex Thomas is with us.
An extraordinary -- I mean, even though all the people involved have been racing for many years, to race as a cohesion under a new umbrella is pretty impressive.
ALEX THOMAS, CNN INTERNATIONAL CORRESPONDENT: And I think the experience of the personnel was the key there, Richard. And of course, Jenson Button is the man who is going to make all of the headlines, but drivers steal the plaudits, they're the stars of the show. But really, this is back to basic stuff as far as Formula One is concerned, and really it all goes back to when Ross Brawn himself picked up the pieces after the company became the latest victims of the global downturn.
(BEGIN VIDEOTAPE)
THOMAS (voice-over): Against the backdrop of a global recession and plummeting car sales, Honda announced it was quitting Formula One in December last year. It was a setback for the sport and an even bigger blow for the 700 workers at the team's factory in England.
After months of uncertainty, and hundreds of job losses, a new team, Brawn GP, was formed just in time for the start of a season. When CNN filmed there in June, the team told us it had been a difficult time.
NICK FRY, CEO, BRAWN GP: We were really up against this -- you know, first we tried to find new owners for the team, you know, weren't successful over the Christmas and New Year period, and eventually came to an agreement that the management would own the team. That only happened actually 23 days before we had to be racing in Melbourne, Australia.
THOMAS: The management buy-out was led by team principal Ross Brawn, the man who helped mastermind Michael Schumacher's record-breaking period of success at Ferrari. Brawn had developed a new car with an innovative design after giving up on last season's underperforming model.
He gave us this assessment after the season got under way.
ROSS BRAWN, TEAM PRESIDENT, BRAWN GP: So forget 2008, focus on 2009, understand the new regulations, take full advantage of them, and that's the car we've arrived at. And that's what would have been very frustrating over the winter, because that -- having put in all of that commitment early, for it to have not come to fruition would have been very frustrating.
THOMAS: After Honda's withdrawal, Brawn's skill was to make the most of his more limited resources. A deal was struck with Mercedes to supply engines and companies like Richard Branson's Virgin were persuaded to invest money.
TONY JARDINE, FORMER F1 TEAM BOSS: What the team did was they found extra marketing and sponsorship money and funding, some on a race-by-race basis. Even as late as Brazilian Grand Prix they got local sponsorship, which helped them with their costs from grand prix to grand prix, which are enormous.
THOMAS: Although their preparations were less than ideal, Brawn GP won six of the first seven grand prix, and claimed the Constructors' title as the best team in Formula One with one race to spare.
ED FOSTER, MOTORSPORT MAGAZINE: To come through and not know whether you're going to have a drive, not know whether you're going to be on the grid, to winning a world championship, I mean, it's huge, it's monumental.
THOMAS: It's valuable too. One media analysis company has calculated that Brawn GP has generated three times more publicity this season than Honda did last year, the equivalent of $163 million worth of brand awareness.
(END VIDEOTAPE)
QUEST: One hundred and sixty three million dollars' brand awareness.
THOMAS: One of those figures plucked out of the air by these media analyst companies.
(LAUGHTER)
THOMAS: But you know, I mean, certainly Honda will be thinking, oh goodness, what have we done here? We pulled out of the sport because of the global recession, you know, our car-makers and the people that work in them, wouldn't like to see spending lots of money on F1, which -- and there's a hobby for a car manufacturer if, you know, we're not going to do any. But -- I mean, and they won the championship, so.
QUEST: Now Max Mosley and Bernie...
THOMAS: Bernie Ecclestone.
QUEST: Bernie Ecclestone must be delighted. Jenson Button, fresh- faced, young, good-looking, energetic, the whole team has got a great feel about it, there is not a whiff of anything?
THOMAS: No, total pin-up boy and, you know, a marketing man's dream, certainly, as far as that was -- he was actually written off as too much of a sort of classic sports person...
(CROSSTALK)
QUEST: Even cried to his father when he won.
THOMAS: He did, and he was looking around for people to hug. There were too many people to hug. I think he hugged the same people time over because he wasn't actually finishing on the podium on the race where he clinched it. He was actually fifth in the race, but it was enough to win the season with a race to go.
QUEST: What does this do for F1?
THOMAS: Well, F1 must be patting themselves on the back, made a lot of rule changes. Ross Brawn, with his technical hat on, exploited that, and in the process, has turned a very new team into financially certainly a real potential bargain for investors into F1, if it can retain its glamor.
QUEST: Remind me -- I don't think it's the glamor that's the problem, I think it's whether or not they can -- you know, the sleaze factor.
THOMAS: Well, there has been all of that controversies, haven't there?
QUEST: Yes, so let's just go to who -- I mean, what are the big problems facing F1 at the moment?
THOMAS: Well, cost is the huge one...
(CROSSTALK)
QUEST: Right. And Mosley's plan to...
THOMAS: They want to cut it -- some of the bigger teams resisted that, but now they see the need for it.
QUEST: But that's still a live issue...
(CROSSTALK)
THOMAS: Yes.
QUEST: That's still a live issue. We've still got teams, some of them, pulling out.
THOMAS: Absolutely.
QUEST: Is the...
THOMAS: Changes at the head of the company, a new FIA president -- FIA is the governing body.
QUEST: Yes. Yes.
THOMAS: That is going to be elected.
QUEST: Is the whole scandal at Renault over and done with?
THOMAS: I think we're not going to see any more drivers crashing after being asked to, on purpose.
QUEST: Right. But there will be...
(CROSSTALK)
THOMAS: It's silly. It's dangerous.
QUEST: But the whole thing is over and done with?
THOMAS: Well, there are still ramifications because, of course, Flavio Briatore has now taken the FIA -- or that ruling, to a French court, a civil court.
QUEST: As a business does it makes sense? As a business is it still viable?
THOMAS: It's still attracting a lot of big, big names, sponsors. There is still huge global exposure, you know, reaches every single continent. There are fans across the demographic width and breadth, as far as, young and old, rich and poor.
So I think it's still attractive, and even Brawn GP found that when they attracted Virgin as sponsors with only three weeks to go before the start of the season.
QUEST: Never...
THOMAS: But what do I know?
QUEST: I mean, I just never seem to see (ph) it? You know? Yes.
(CROSSTALK)
THOMAS: Yes, watch it on the telly, don't go in person.
QUEST: Never seem to (INAUDIBLE). All right. Many thanks. Many thanks indeed.
Need to update you on the market.
(RINGS BELLS)
Wall Street is shrugging off the 22nd anniversary of Black Monday. I remember that day, when the Dow closed down 20-odd percent. Susan Lisovicz remembers it as well, she probably claims she doesn't remember a bit of it. I'll bet she does. When we're in New York in just a moment, we'll find out why the market is bucking the trend.
(COMMERCIAL BREAK)
QUEST: Good evening.
I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN.
The market in New York is having a very strong session. It all comes on the 22nd anniversary of Black Monday, when the markets fell by more than 22 percent. I remember it well.
Susan Lisovicz joins us from New York.
Before we get to grips with why the market is rising today -- and I somewhat inadvertently suggested that you might remember Black Monday, but I suspect you don't.
SUSAN LISOVICZ, CNN CORRESPONDENT: I wasn't working as a business journalist then. I certainly remember it as being a huge news event and I certainly know some of the effects of it, which means that we can't ever see something like that again. That theoretically, we shouldn't, because the New York Stock Exchange said it would simply halt trading if a sell-off accounted for 10 percent of the level of the Dow.
So to my memory, there's only been one time that's happened, where trading has actually been halted. And, of course, on Black Monday, it was 23 percent. That was actually the biggest one day percentage drop ever.
There was just a panic. There was panic on the trading floor. I was talking to, Richard, interestingly enough, one of the nurses who was there. The NYSE has a medical department. It made a whole lot of sense that day, because people were having heart attacks and some -- they were actually on the floor. Medical staff was on the floor because it was such a stressful day.
QUEST: I know it sounds amazing at this particular point, but I can remember watching the market close and in that last second, it ticked on. We used to use a machine called a Quotron in those days...
LISOVICZ: No.
QUEST: ...(INAUDIBLE) some people. Yes, that's right. And I remember watching the Quotron tick down by 100 points.
Let's talk about Ben Bernanke, the chairman of the Fed. And earlier in our program, we heard Stephen King of HSBC saying all the economic action will be in Asia. That seems to be Bernanke warning about that in a speech.
LISOVICZ: That's right. I think some folks might have been hoping that he could tip his hand on -- on interest rates and he stuck to the script. He was talking about global balances in this recovery that Asia is leading the way. That's not a complete surprise.
One of the things that he was talking about specifically is that Asia should be -- depends less on export-driven growth and the U.S. should save more. So the global imbalance is here that -- that China, for instance, should encourage its citizens to spend. The U.S. of course, which just -- just released its jaw-dropping $1.4 trillion deficit, should save more.
That's an interesting -- an interesting imbalance.
QUEST: All right, many thanks.
Susan Lisovicz in New York.
We'll talk to you as the week moves on and as we get more results from -- from this week's earnings season.
And as we were talking about, Ben Bernanke seeing Asia leading the economic recovery. We can bring you up to date now on one of the stars of Asia's corporate scene.
Infosys is India's leading provider of I.T. ) services. The company says it's hiring staff, it's increasing revenues and generating rising profits. Earnings were up more than 7 percent for the second quarter, to $330 million.
Earlier, I spoke to the Infosys chief executive about the latest results and where he's looking for further growth.
(BEGIN VIDEOTAPE)
S. GOPALAKRISHNAN, CEO, INFOSYS TECHNOLOGIES: We are seeing improvement for the first time in the last few quarters, we had sequential growth, which is good. So we are seeing improvement. And we have also guided for sequential growth for the next two quarters.
The sectors where we are seeing growth are financial services. You know, it's come back strongly; to some extent in retail. Manufacturing is still weak.
QUEST: You specifically talk about programs and projects and investments within Brazil and China. Well, if I add India in, that's a BRIC -- you know, it was -- so is the engine of growth that you're seeing, has it shifted to emerging markets and BRIC economies?
GOPALAKRISHNAN: We expect future growth to come from these economies. Right now, the BRIC countries are a very small percent, less than 3 percent of our revenues, actually.
But as we look at future growth, these are very, very important economies for us.
QUEST: They're important individually, but are they important collectively?
Do the BRIC economies actually make up a body?
GOPALAKRISHNAN: No, because each country is different and the way the business is conducted is different. The types of work we do are very different.
In India, for example, we are primarily selling to public sector, government. In China, we are selling to multinationals who are entering into China. So each country is very different.
QUEST: What about the Indian economy?
I was there last week. Growth could be between 7 and 8 percent this year, possibly more next year.
Are you reasonably content?
GOPALAKRISHNAN: No. If you ask me am I content, no, because we have to get the growth rate back up to 9 percent.
The interesting thing about India is that the easy thing which is, you know, the middle class taking advantage of the growth has happened. Now it's the most difficult thing because there are 65 percent of the population who are living less than $2 a day. They have to see the benefit. And that means faster growth.
QUEST: From my experience, that disparity and that gap is still fair -- it's not -- it's not just huge, it is enormous.
GOPALAKRISHNAN: Yes, it is.
QUEST: And one question is whether 65 percent in the aggregate economy is ever going to come up.
GOPALAKRISHNAN: No. I'm optimistic. So in that sense, I feel that if we can sort -- if we can get this growth as, you know, sustained, then it's possible.
QUEST: I think you're new to this, but the traffic light.
If we take your business and what you're seeing in the general economy, so it's your results extrapolate into the economy, red, amber or green for you?
GOPALAKRISHNAN: Amber, because I feel that we are seeing signs of recovery and I'm hoping that it will be sustained and we can say green in maybe a couple of quarters.
(END VIDEOTAPE)
(COMMERCIAL BREAK)
QUEST: Chief executive of Infosys with an amber light. And, of course, we're getting more and more of those ambers. We -- we are going to stick with traffic lights probably until the end of the year, when we start to get more greens and until we get a preponderance, then we'll start moving on.
OK, from big corporations to commodities -- where is a good place to put your hard earned cash?
Investment guru Jim Rogers is in the Biz Clinic, talking to Eunice Yoon about where he's putting his money.
(COMMERCIAL BREAK)
QUEST: One of the things about the whole question of Black Monday 22 years ago and how it all puts into perspective is the fortunes that have been made and lost in the years ever since.
Back in 1987, the markets recovered fairly sharpish. They did the same again after the next collapse in market prices.
Jim Rogers made a fortune in the early 1970s when he and George Soros started the Quantum Fund. Over a decade, the fund grew in value by 4,200 percent -- around 4,000 -- yes, 4,000. And since then, Professor Rogers has traveled the world dispensing investment advice.
Lucky for us he's in the Biz Clinic, where he sits down with CNN's Eunice Yoon.
(BEGIN VIDEOTAPE)
JIM ROGERS, INVESTMENT GURU: You should only buy things that you yourself know a lot about. Everybody watching this show knows a lot about something, whether it's cars or sports or hairdressing or fashion or whatever it is. Do some research, do some homework and if you see something really dramatic changing that's cheap, buy it. That's how you're going to make a lot of money.
EUNICE YOON, CNN CORRESPONDENT: Let's say I have $10,000.
What should I do with it?
ROGERS: If you've got $10,000, let's go to Paris.
(BEGIN VIDEOTAPE)
YOON: OK, I have $10,000 in the bank, I want to invest it somewhere.
What should I be doing with it?
ROGERS: I would put new investments into commodities or into sound currencies -- the Canadian dollar, the yen. If you know anything about agriculture, buying farmland in this day and age is probably one of the best investments you can make, above commodities this year, because if the world's economy is going to get better, commodities are going to lead the way out, because there are shortages developing.
And if the world economy is not going to get better, then commodities are still a better place to be because they're printing so much money.
YOON: What's the best way to invest in commodities?
ROGERS: You could invest in commodity countries, such as Canada. Canada is going to have a better economy than the U.S. because it's a commodity country. You could buy commodity companies because the companies which produce commodities will probably do better than companies which don't produce commodities. You could invest in commodity currencies.
So, the best for most people is to buy -- if they want to buy commodities, if they've done enough homework to know they want to buy commodities, they should buy a comedy index.
YOON: So do you think it's a mistake to buy stocks today?
ROGERS: I wouldn't buy stocks today. No, not with your money or not even with my money would I buy stocks today. No.
YOON: Nowhere in the world?
Not even in the China market, the India market?
ROGERS: No, I haven't bought any stocks anywhere in the world in a year or two, except China. I bought China in the fall of -- of '08. I wouldn't buy Chinese stocks. They doubled in 10 months. I don't like to buy anything that doubles in 10 months.
YOON: How many of your investments are in dollars?
ROGERS: I have sold a great -- a large percentage of my U.S. dollars. I am an American citizen, but I've been selling U.S. dollars because it's - - and I don't like saying it, it's a terribly flawed currency. I think Mr. Bernanke and Mr. Summers and Mr. Obama, they have an active policy to debase the U.S. dollar.
YOON: What's the biggest mistake that investors make?
ROGERS: Being overactive is usually a mistake, investing in things you don't know what you're doing. And it -- it always leads to problems. People don't like it. They want to jump around all the time. That's not the way to succeed as an investor.
YOON: What's the best piece of advice that you've gotten from anybody else?
ROGERS: Buy low and sell high.
YOON: As simple as that?
ROGERS: It's as simple as that. Nobody likes to hear it. That is so simple and so easy, but you cannot believe how difficult it is to buy low and sell high. That's the hard part. Everybody knows what to do. The hard part is figuring out exactly how to do it.
(END VIDEOTAPE)
QUEST: Jim Rogers. And for more thoughts on investing today, head to our Web site, CNN.com/bizclinic. We want to hear from you and send us your thoughts on any questions you have on the financial landscape today.
Just before we -- we go to the Guillermo, well worth pointing out that Jim there gave a lot of advice, whether it was in commodities or currencies which to invest in. Needless to say on this program, we don't take a stand one way or the other. We put it all on the table for you.
I suppose I could put it slightly less politely. When it comes to investments, we'll tell you what's out there, but you make your own decisions.
The weather forecast -- it's a bit like putting a wooly sweater on or a -- a mack when it's raining.
Guillermo tells you the weather, but whether you choose to put on that sweater is up to you.
GUILLERMO ARDUINO, CNN METEOROLOGIST: I think that we're going to get a little bit of a break, if we look at Europe as a whole. So remember, this last week was extremely cold. Of course, you know, you were in India for part of it, so you didn't feel it. But London was pretty good.
Well, this was the pattern last week. So we see, still, some intense rains into here and also snow in Scandinavia, in Finland and Sweden especially. But this is what's coming up right now. This week, we'll see this high prevailing. You, Richard, are going to see again not so cold in the morning, but chilly and definitely not cold during the day.
So England is in better shape. We're going to see rain showers in a couple of days, probably Tuesday and Wednesday or Wednesday and Thursday. But it's going to be cloudy.
This area is going to clear very soon. We have thunder right now in Bursa, in Istanbul here in Turkey, the Marmara Sea over there and also lots of rain in here, not so much snow. But Bosnia-Herzegovina is seeing some snow and rain showers. Also Romania here seeing rain. Macedonia and Northern Albania are seeing rain. And certainly in Hungary is where we see rain in many spots. In Kekkenat (ph), in Schuldnacht (ph), in Budapest, we see some rain -- some rain, too.
But what's going to happen with Ireland?
I think it's going to be very windy and then we get heavy rain, especially in Wales and in Northern England and in Scotland. But I think that London is going to be OK for the next two days. Nevertheless, we'll see winds, the rain kicking in, winds all over, Paris, Amsterdam, Dublin -- especially Dublin.
You know, the Farley Group (ph) to the east -- to the west is where you have more problems, because that's where the fronts are coming from, right?
Brussels also with windy conditions. Barcelona and that area. But elsewhere, it's going to be much better. As we go to the east, even in Germany, even though Schleswig-Holstein in the north is expecting winds, the winds are going to be here, in the North Sea. The low countries, in England especially, in Scotland. So that's pretty much what's going to happen.
But it doesn't look that bad in terms of temperatures -- 17 in Paris, of the high 18 in Rome, 22 in Athens; London, 14, 15 degrees.
Let me tell you, in Finland, I mentioned that we see some rain in Kimmi (ph), also some snow in Enanteccio (ph) and in Vasa (ph) we see some rain showers. Everything is going to switch a little bit that way.
Italy, Southern France, get ready. We said Barcelona is going to get winds, well, that area then is going to get the stormy weather conditions. And again, it's going to clear as we move into Turkey and Cyprus.
All right, the beginning of our week.
Richard will be back after the break.
(COMMERCIAL BREAK)
QUEST: Welcome back.
At CNN this week, we have our eye on South Korea, where we're going to be charting the road to recovery -- finding out which industries will be driving growth in the future. We're going to be exploring how different sectors in South Korea are dealing with the downturn, which are thriving and which are dying and what lessons other economies can learn by using South Korea as a lens.
It's all extremely relevant stuff, because the intricacies of the South Korean economy are truly global.
Today, we're taking a look at the auto market. A country that's just starting to make high end super cars.
Kyung Lah took a test drive and it looks like she needed a seat belt.
(BEGIN VIDEOTAPE)
KYUNG LAH, CNN INTERNATIONAL CORRESPONDENT (voice-over): They call her "The Tiger" -- 0 to 100 kilometers per hour in 3.8 seconds, 500 horsepower. This is not your mama's Korean car. And Han-Chal Kim is not your average car junky.
(on camera): Is this your dream?
HAN-CHAL KIM, GENERAL MANAGER, OULLIM MOTORS: Yes. This is my dream.
LAH: Kim is the creator of the SPIRRA, Korea's first super car. He took me for a spin -- quite literally -- showing off that all parts are all Korean, built with Korean hands. The engine is a souped-up Hyundai engine, the body engineered by Korean designers like Cha Young.
YOUNG CHA, DESIGNER, OULLIM MOTORS: It's very -- it's very cool and it's a very exciting car. It's really fast and really fun to drive.
LAH: "Korea didn't have a super car," Kim tells me, pointing out that other developed car markets produced the Ferrari and the Porsche. For 10 years, he dreamed of building the car he calls his baby, studying super cars in Italy. Believing in the Korean ability to produce a high end car, Kim was determined to build the SPIRRA on his home soil. But it wasn't until he partnered with Oullim Motors, backed by the wealth of a high tech company, that he began production.
Now, Europe is his first major customer. A dealer in the Netherlands ordered 145 of his handmade cars.
(on camera): When you think of a Korean car, you think of something like this -- sensible and fuel efficient.
But a serious super car with sex appeal?
Economists say this is a sign the Korean auto industry has come of age.
UNIDENTIFIED MALE: These guys, I think they've got the message, that they want to say is, hey, we can make a super car, too; a high performance car, too; and we can do it with all Korean components. It stirs the pot a little bit and -- and shows that, you know, auto making is not just about Germany or Japan, but, you know, Korean automakers have a valuable contribution to make.
LAH (voice-over): Kim admits he feels pressured to succeed. With a price just under $100,000 U.S. in these lean economic times, he believes his car will give other super cars a run for their money.
Kyung Lah, CNN, Paju (ph), South Korea.
(END VIDEOTAPE)
QUEST: You'd think they'd get the woman out from behind the driving seat before there's a nasty accident.
All this week, we're in South Korea. No, I'm making no comments about women drivers. It could get me into deep trouble and I probably won't survive the week.
All this week, we are in South Korea to bring you in-depth coverage of the recovery and about the ideas of the entrepreneurs -- Eye on South Korea only on CNN.
When I come back, a "Profitable Moment." And we're returning to this idea of whether the action is in Asia -- an economic (INAUDIBLE) in a moment.
(COMMERCIAL BREAK)
QUEST: Finally, tonight's "Profitable Moment."
The report from HSBC that we talked about earlier, it makes sobering reading. It says clearly the shift in economic relevance from the West to the East is pretty much unstoppable. Stephan King on this program you heard say the tipping point has been reached. It's not surprising that Mr. King's boss, the chief exec, is moving his office to Hong Kong from London.
In other words, the HS in HSBC is becoming the truly important bit. The chief executive will, no doubt, be followed by many less experienced companies, anxious to establish a strong presence before it's all too late.
All Asian lights seem to be flashing green. The more developed economies are still somewhere around red.
In the U.S. and Europe, we have little to look forward to other than sluggish growth, higher taxes, lower spending and digging ourselves out of debt.
Emerging markets will enjoy faster growth for the foreseeable future.
Should we be depressed?
No, absolutely not. Whether we've reached a tipping point or not is not the question. It's how we make the best of what we have. And then, don't count us out just yet.
And that's QUEST MEANS BUSINESS for Monday.
I'm Richard Quest.
Whatever you're up to in the hours ahead, I hope it's profitable.
Christiane is next after the headlines from the I Desk.
END
