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Quest Means Business
Galleon Group Sinks; Morgan Stanley Back in Black; Mervyn King Talks Moral Hazard; China to Release Figures on Growth in Third Quarter; Wells Fargo Sees Record Quarterly Profit of $3.2 Billion
Aired October 21, 2009 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ADRIAN FINIGHAN, CNN INTERNATIONAL ANCHOR: Abandon ship, the Galleon hedge funds fall victim to a storm of fraud charges.
Back in the black, Morgan Stanley clocks up its first profit in a year. We've got our earnings index, the Q-25.
And the biggest moral hazard in history, Britain's central bank chief reopens the bailout debate.
Hello, I'm Adrian Finighan, in for Richard Quest. This is QUEST MEANS BUSINESS.
Good evening. One of the biggest hedge fund companies in the business is closing itself down, torpedoed by insider trading charges leveled at the man who founded and still runs the firm. One week ago Galleon Group was best known as a leading manager of hedge funds with assets said to be worth more than $3.5 billion.
But founder Raj Rajaratnam was arrested in New York on Friday and charged with insider trading on a grand scale. The charges are against Rajaratnam and five other individuals, not Galleon itself. But confidence in the firm has crumbled.
Since the weekend, reports say that investors have asked to withdraw more than a billion dollars. Rajaratnam, who insists that he is innocent of the charges has now written to clients saying that Galleon has started winding down its funds, selling of the assets that it holds on behalf of investors in order to distribute the proceeds.
Well, Rajaratnam is free at the moment on bail of $100 million. The charges against him and his co-defendants are raising some nasty questions about the hedge fund business. Josh Hochberg is the former chief of fraud for the U.S. Department of Justice. He now works for the law firm McKenna, Long, and Aldridge. He joins us now live from Washington.
Josh, thanks for being with us. As I understand it, key evidence against the accused in this case came from court-approved wire taps for the first time ever in an insider trading case. What are the implications of that for Wall Street?
JOSH HOCHBERG, PARTNER, MCKENNA, LONG & ALDRIDGE: I think the implication the Justice Department would like to have is that Wall Street is watching their every move -- is that the Justice Department is watching Wall Street's every move.
I think it's not just the court-approved wire taps, there were complaining -- cooperating witnesses who wore wires and made phone calls, this is an extraordinarily lengthy and complex investigation.
FINIGHAN: So, Josh, legally, how does this work? Can the FBI just snoop on anyone or does it have to have reasonable suspicion of wrong-doing before wire taps can be approved?
HOCHBERG: Wire taps are very difficult to obtain. You need a court order. You have to renew that court order periodically, and there are lots of requirements. It's an enormous investment of resources by the Justice Department. It's pretty clear in this case that the Justice Department and the SEC jammed up some cooperators and used those cooperators to obtain further evidence and to get the wire taps.
FINIGHAN: So how do you go about proving insider trading in a case like this given that hedge funds, by their very nature, are incredibly complicated, how does an investigator sift what is a normal business conversation from conversations that are irregular?
HOCHBERG: That's the whole key. You have to prove intent, criminal intent. And I'm sure that's why the wire taps were obtained. In addition to finding more ostensible co-conspirators, you prove that intent by citing the people's own words.
So in the case of hedge funds, they're trading patterns may not reveal anything, because they're in and out of stocks all the time. But if you can catch them in a conversation where somebody tells them, I'm giving you true insider information, nobody else has this, I got it straight from the source, I work for such-and-such company, then you're a long way to establishing a criminal case.
FINIGHAN: All right. So, Josh, what happens next in this case? I mean, we're not talking a Madoff-style Ponzi scheme here. All of the Galleon funds were there right before investors began to take flight after the accusations of insider trading came out. I mean, what if the charges amount to nothing or fall through?
HOCHBERG: Well, I think Galleon has indicated it's going to close shop. I assume it has good assets and it will sell those assets to another firm, and there may be a delay, but most of the investors should work out OK. They should get all of their money back.
When an indictment comes, it will probably seek forfeitures against the participants in this scheme, then there will be a lengthy time period to review the wire taps, to review all of the evidence, and there will be a formidable defense saying, what we did is what hedge fund operators do every day.
They gather information and make trades based on information that they gather.
FINIGHAN: Josh, we appreciate you sharing your expertise with us. Many thanks indeed. That's a lot clearer. Josh Hochberg from the law firm, McKenna, Long, and Aldridge.
Now in many ways, hedge funds are like other investment funds used by millions of savers around the world. They allow investors to pool their cash and trust the financial whiz kids to make it grow.
But as CNN's Jim Boulden explains now, there is a lot about them that is far less straightforward.
(BEGIN VIDEOTAPE)
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Secretive, exclusive, and notoriously unregulated. A maze of complexity, allow me to cut hedge funds down to size. The term is tricky to define because it covers a huge range of risk levels and strategies for investing in just about anything: Companies, bonds, commodities, aircraft, even the outcome of a baseball game.
(voice-over): The hedge fund industry was born on Wall Street in 1949 by pioneer Alfred Winslow Jones. He worked for nearly two decades in almost total obscurity before his success was made public by Forbes magazine.
(on camera): Jones' original strategy was simple compared to the more complex ones you find today. But he did forever change the financial landscape.
(voice-over): Fund managers have become big players. They shift huge sums of money around the world to take positions that anticipate market changes. In case you feel like a flutter, hedge funds are not for the man on the street.
(on camera): Nor will you find them in the phone book. They are the preserve of all but the wealthiest of private or corporate clients, and a six-figure sum investment is a bare minimum.
(voice-over): The huge sums of money involved can generate astronomical profits.
(on camera): But beware, hedging investments are often made with a high degree of borrowed money or leverage, and the risks are great when it all goes terribly wrong.
(voice-over): Short-term risk is often tempered with a more conservative long-term strategy.
(on camera): As the world economy crashed in 2008, hedge funds absorbed heavy losses.
(voice-over): They are in the spotlight, and there are cries for tighter regulation. The heady days of clandestine dealing and easy money may be behind us.
(on camera): Of course, hedge funds are here to stay, but very soon, we all may know a little bit more about them.
Jim Boulden, CNN, Hitchin, England.
(END VIDEOTAPE)
FINIGHAN: So now you know how it works. I hope you were paying attention, there will be a written test a little bit later on.
We've got a packed program on QUEST MEANS BUSINESS for you tonight. We'll be back with more of the day's business stories in just a moment.
But first, let's find out what else is making news right now around the world. Fionnuala Sweeney joins us live from the London newsroom.
FIONNUALA, SWEENEY, CNN INTERNATIONAL CORRESPONDENT: Adrian, some potential movement in the controversy surrounding Iran's nuclear program. Talks at the IAEA headquarters in Vienna have produced a draft agreement that would require Iran to send nuclear material abroad for enrichment. The deal must now be approved by Iran as well as Russia, France, and the U.S. The deadline for signing it is Friday.
The main challenger to Afghan President Hamid Karzai has agreed to take part in next month's runoff election. But Dr. Abdullah Abdullah says the vote must be more secure than the initial election last August.
Newly obtained documents show Swiss authorities tipped off the United States prior to the surprise arrest of Roman Polanski. According to e- mails, the Swiss justice ministry sent an urgent fax to U.S. authorities notifying them that Polanski was traveling to Zurich. The film director is wanted for fleeing sentencing on decades-old child sex charges.
U.K. authorities have launched a huge vaccination campaign aimed at stamping out the spread of H1N1. Millions of health care workers and hospital patients will be offered the shot. Priority will be given to pregnant women, those over 65, and people with asthma or diabetes. The department of health says it ordered enough vaccine for the U.K.'s entire population.
And those are the headlines. Coming up on "WORLD ONE," we'll have more on the swine flu vaccine as it rolls out not just in the U.K., but all over Europe this week. That's on "WORLD ONE" 8:30 p.m. London time.
Adrian, back to you in the studio.
FINIGHAN: Fionnuala, many thanks. We'll see you a little later.
Now on Wall Street, shares are heading, well, gently higher after closing in the red on Tuesday. Some better-than-expected results from U.S. banks are lifting the Dow right now, as you can see, it's up 43 points. The Nasdaq and the S&P 500, broader measures of the market, are also in positive territory right now.
Here in Europe, the markets bounced back towards the end of trade following those gains on Wall Street. London's FTSE, Germany's Xetra DAX both finishing up more than a quarter of 1 percent. The Paris CAC 40 ended fairly flat. And Zurich's SMI also finished slightly up.
All right. So Richard may not be here, but the Q-25 continues. After the break, we'll focus on Morgan Stanley, a green or a red? Find out in just a minute.
(COMMERCIAL BREAK)
FINIGHAN: U.S. stocks are on the rise as traders pore over a mixed set of earnings reports. Banks profits have been in the spotlight this week, and the latest batch of reports includes a return to profit by the U.S. giant Morgan Stanley. It's one of the companies that we picked to be in our exclusive Q-25 index. Maggie Lake joins us once again from New York with the latest on the Q-25.
Let's start with Morgan Stanley then. A return to profit after a dismal year and a big mover in M&As this year. I'm -- I guess I know which one of these you're going to go for, green or red. I'll let you talk first, though.
MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: Yes, yes. Definitely. We're going to start with the positives here, Adrian. And we've got to give this one a green. You know, as you said, I mean, it is great they're back to profitability. But they're really sort of mirroring the results of their biggest rival, Goldman Sachs.
Not only that, you mentioned M&A, they were actually the top adviser on deals so far this year ahead of Goldman Sachs. It's the first time they've sort of beat that long arch rival in something like nine years. So they're definitely doing well in those areas that we know have been strong: capital markets.
The one cautionary note you see up on the screen that we do want to point out to investors, and you and I talked about this earlier, is that the real estate -- the commercial real estate area, the problems there and exposure there do remain a little bit of a problem. But you can't take away how well they did on the trading side. So we've got to give them a green.
FINIGHAN: All right. Here goes there. It's green.
Boeing next up. I know what you're going to say here as well, sales were up, but they've take a huge hit because of the delays to the Dreamliner, the 787. It has got to be a red, hasn't it?
LAKE: Yes. Absolutely a red. And you know, it's interesting, a lot of these days we've been really torn about some of these companies. Today was pretty straightforward. This one, you really had to search around for anything good. And in the end, I don't think we were able to find anything.
I mean, these were pretty horrible results, you know, lost almost $1.5 billion. They missed estimates. They were lowering their guidance. I mean, all around awful. The only thing I would say, if you're searching for some sort of silver lining, it's the fact there are people who were mentioning the fact that they did sort of reaffirm that 787 schedule.
Does that mean people feel very positive about it? After all of the delays, there is a lot of skepticism. But this would have been an opportunity for them to come out and actually announce it was further delayed. And they didn't.
So it could have been -- in the could have been worse category, there is at least that. But really, we've got to give that one a red.
FINIGHAN: All right. And it goes -- we're running out of room in the reds here.
Yahoo! up next. Now I -- I'm guessing you're going to go for a green. I have to admit that this was the tough one for me. I mean, profits were up, but I sense there is an "ah, but" from you.
LAKE: Yes, you're right. This one we had a little bit more discussion about. But we're going to catch up and give it a green because it was hard to sort of really find a lot of fault. I mean, they did OK, you know? The profits were up. They are seeing a little bit of an ad bounce-back. They continue to execute on cost-cutting, which we don't love, because there is a not a lot more room there.
But, you know, it wasn't bad. The one area that a little worrying, I thought, if you dig down in the details, was the fact that they're losing market share in the U.S. when it comes to search. Now that's either a negative or it's the fact that Carol Bartz, the new CEO, wants to redefine exactly what kind of company Yahoo! is.
But that would be something for people to watch as we head out into the next few quarters. But for now, they did pretty good, so I think we'll give them a green.
FINIGHAN: All right. Green. Perhaps I'll let some air out of the balloon, though, Maggie, all right? Many thanks indeed. More Q-25 results tomorrow on QUEST MEANS BUSINESS. It's all highly scientific.
Now for the banks, this season -- this earnings season is about how much profit they are making. But the healthy earnings come after massive levels of support from taxpayers. The governor of the Bank of England says that the U.K. alone has provided assistance well worth over a trillion dollars. And that's not only unsustainable.
Mervyn King says that it has created the biggest moral hazard in history, the problem of banks, knowing that they're too big to be allowed to fail. He is calling for new approaches, such as splitting up big banks to ensure that we don't ever have to bail them out again.
(BEGIN VIDEO CLIP)
MERVYN KING, GOVERNOR, BANK OF ENGLAND: The sheer scale of support to the banking sector is breathtaking. In the United Kingdom, in the form of direct or guaranteed loans, and equity investment, it's not far short of a trillion. That's one thousand billion pounds, close to two-thirds of the annual output of the entire economy.
To paraphrase a great wartime leader, never in the field of financial endeavor has so much money been owed by so few to so many. That is what economists mean by "moral hazard." The massive support extended to the banking sector around the world, while necessary to avert economic disaster, has created possibly the biggest moral hazard in history.
The too-important-to-fail problem is too important to ignore.
(END VIDEO CLIP)
FINIGHAN: Well, the idea of splitting the banks up puts Mervyn King firmly at odds with the U.K. government, which has consistently said it's an approach that won't solve the problem.
(BEGIN VIDEO CLIP)
ALISTAIR DARLING, U.K. CHANCELLOR OF THE EXCHEQUER: The point is that especially at times of crisis, I don't think you can decide right from the start that in bank -- at one type of banking you will intervene, another type you can't. The situation is more complex than that. And the governor rightly recognizes that when he says in his speech there are no simple answers to this. He says, this needs to be looked at, and there is a debate about it.
And of course, the other thing is that both Mervyn King and I know this because we have been at many, many international meetings together, that whatever we do, it has got to be matched by similar action in other parts of the world.
(END VIDEO CLIP)
FINIGHAN: Let's get more on this now with CNN's Jim Boulden, who joins us live in the studio.
Jim, the governor of the Bank of England, very strong language from him.
BOULDEN: Yes, indeed.
FINIGHAN: He rarely says anything in public, least of all anything that's controversial.
BOULDEN: Well, let's be clear, he has no regulation over the banks. So he is asking for someone else to do this. But he is calling for these banks, the big banks, to be split up. And I think what was most interesting is that he said it's a delusion if you think that regulation will be enough to keep the big banks from having this trouble again.
And he says, we can't get back to a point where we have banks that are too big to fail.
FINIGHAN: And I can imagine Alistair Darling there was biting his lip. He seemed very calm about this. It was the Labour government that gave the Bank of England independence and here we have the governor speaking his mind.
BOULDEN: Yes.
FINIGHAN: I mean, that's not very comfortable, is it, for the government?
BOULDEN: No. And it's the Financial Services Authority that actually regulates the banks. So we have to see some kind of agreement between the U.K., different regulators to come up with this plan.
But let's remember, critics say, look, hold on, there are no such things as U.K. banks anymore. There are no state banks. These are global companies. So if you're going to do anything like this, you would have to get a very, very broad agreement that everyone would have to agree to do this. And that's highly unlikely, I think.
FINIGHAN: So basically, what's the Bank of -- the governor saying, the governor of the Bank of England? He is saying that the banks should be split into, what, retail...
(CROSSTALK)
BOULDEN: Boring banks. You and I go into the cash point, putting money in our bank accounts, taking money out of our bank accounts. And investment bank, the casino, as some people will call it, the risky side of it. And there is an argument, of course, is that when these two came together, with Glass-Steagall being taken away in the U.S., the banks were able to do both at the same time.
One side became too risky and jeopardized. The other side, that's a valid point, and that's what all of these regulators are dealing with. But if you can create a boring bank, what will happen to the share price of the bank? How do they grow? What do they do? You know, how does it become something that shareholders would be interested in? And that's one question you'd have to say about what would happen to these banks if they were to be split.
FINIGHAN: So what's your reading of this? Was this just the governor of the Bank of England speaking his mind at a city dinner that -- you know, where occasionally he has to give this kind of -- this speech? Or was it the first salvo in a campaign by him for even tougher regulation and -- you know, which will ultimately lead to the splitting up of banks?
BOULDEN: Well, it's not the first salvo. He had said something similar to this before. He says he said it a lot stronger this time. And it seems that the party that could become the leaders in this country, the conservatives, might agree with them.
Of course, they would say anything to be against the ruling government. So they seem to have agreed with them a little bit. There are people in Europe as well, other financial ministers -- finance ministers, who may agree as well in Europe.
So you could see something happen here in Europe, if you were to decide to have an E.U.-wide regulator who could actually look at these banks and go in their and split up only the very, very biggest.
FINIGHAN: Jim, many thanks, indeed. CNN's Jim Boulden there on the governor of the Bank of England, creating waves today.
Now South Korea is one of the world's most high-tech societies, do you recognize any of these? There are locally-produced phones that dominate the Korean market. Will Apple take a bit out of their customer base? We'll take you to South Korea right after this.
(COMMERCIAL BREAK)
FINIGHAN: Hello again. I'm sure you've seen one of these before. It's one of the world's favorite smart phones. This is mine. Apple sold a record 7.4 million of these things, the iPhone, to the three months to the end of September.
But one market could be immune to its appeal. We're talking about South Korea. Gadget-hungry Koreans show a marked preference for phones made by local manufacturers. CNN's Kristie Lu Stout takes a look now at a market that has been tough for outsiders to crack.
(BEGIN VIDEOTAPE)
KRISTIE LU STOUT, CNN INTERNATIONAL CORRESPONDENT (voice-over): You've probably heard about Seoul's digital natives, they're super wired and wield handsets that seem to come from the future. So what gets them charged up?
UNIDENTIFIED MALE: Samsung.
STOUT (on camera): Samsung.
UNIDENTIFIED MALE: Yes.
STOUT: And you?
UNIDENTIFIED FEMALE: Yes. Samsung.
STOUT: This is a...
UNIDENTIFIED MALE: (INAUDIBLE).
STOUT: Oh, that's pretty cool.
UNIDENTIFIED FEMALE: Really popular, and just in Korea.
STOUT (voice-over): In my unscientific market survey of gadgets in Seoul, I discovered that local brands reigned supreme. No Nokias, a virtual blackout on BlackBerrys, and the iPhone, not an option yet. Just a whole lot of love for hometown favorites, Samsung and LG. Why is that? I checked in with tech analyst Danny Kim to find out.
(on camera): Your company has identified the two most popular handsets in South Korea. One is the Samsung Haptec (ph), which is right here. And the other one is the Lollipop (ph) by LG.
TAEWOO DANNY KIM, TECH ANALYST: LG.
STOUT: Why are these two so popular?
KIM: It's kind of interesting because those two are heavily marketed with some of the most popular celebrities in Korea.
STOUT: It's about marketing, not about technology...
KIM: Marketing.
STOUT: ... or ease of use.
KIM: Well, a little bit of that too. But mostly marketing for now. And the reason is because the biggest consumer targets, our market is actually led by teens.
STOUT: So if I have a Lollipop phone, what does that say about me in South Korea?
KIM: You are a cool person.
STOUT: I'm cool.
KIM: Uh-huh.
STOUT: And if I have a Haptec phone, what does that say?
KIM: Actually maybe a little cooler just because it's a newer model.
STOUT: And if I had a three-year-old phone, how would people perceive me in South Korea?
KIM: You're a practical person.
(LAUGHTER)
STOUT: They don't look at you in a...
(CROSSTALK)
KIM: Not necessarily cool, but, yes.
STOUT: You're practical.
Now we also have another device here, this is called the Blackjack (ph) by Samsung, which looks suspiciously like a BlackBerry.
KIM: Right.
STOUT: Tell me about it.
KIM: It's the most popular smart phone model in Korea.
STOUT: But not many people use smart phones here.
KIM: Not as much.
STOUT: Yes.
KIM: Part of that is obviously the actual data rate plans and stuff that...
STOUT: Because they're too expensive.
KIM: Too expensive, and also there is the culture -- it's not just about sending e-mails back and forth, it's a lot more about actually getting together and having physical meetings together.
STOUT (voice-over): So will Apple eventually take a bite out of the cell phone market? The iPhone is expected to go on sale here later this year. And thought the iPod already has its share of fans in South Korea, Steve Jobs is up against the big two when it comes to phones.
LG and Samsung together control about 70 percent of the Korean handset market.
Kristie Lu Stout, CNN, Seoul.
(END VIDEOTAPE)
FINIGHAN: Now more and more of us are depending upon our phones for all kinds of information these days, for example, I love the motion XGPS (ph) Xtrack (ph) application on my phone, no more wandering around wondering where I am.
I mean, the iPhone can tell you that anyway, but this thing records your route, tells you where you've been. It can upload the route to Google Maps. You can take photographs and attach so that people can see photographs of where you've been and -- I'm sorry, I could go on all day about this. And it's boring.
But there is a lot of buzz around the next generation of apps for mobile phones. The words "augmented reality" keep cropping up. And if that sounds like something out of science fiction, Errol Barnett now to show us what it's all about.
What is augmented reality, Errol?
ERROL BARNETT, CNN INTERNATIONAL CORRESPONDENT: Well, Adrian, it's all about functionality. I'm very impressed, you've got the GPS app, and that's what these applications are about, the useful things that you can use it for.
Now Apple is a standout company making augmented reality available on the iPhone at their app store. It's a big reason why iPhone makes the company so much money, take a look at these numbers. Customers have downloaded more than 2 billion apps in the last year-and-a-half, and Apple says there are now more than 85,000 apps available, which is an increase of about 20,000 from just four months ago.
And that is attracting the most attention in the smart new apps you just referenced, Adrian, called augmented reality apps. What does that mean? You pulled out your phone, let me pull out mine. You essentially take your phone, point it at something real, and more information about what's around you pops up on the screen.
Let me show you some examples. This is a YouTube video demonstrating the augmented reality application called Wikitude, one of the designers is pointing the camera on the phone towards places in Salzburg, Austria.
Information pops up on the screen about what is in view, whether it be historic sites, landmarks, even interesting stories from the area. The makers of Wikitude, Mobilizy, are an Austrian-based company specializing in software for smart phones, and they pull their information for this from Wikipedia. That's the online encyclopedia anyone can edit. So take that for what it's worth.
Here's another demo on YouTube. We've got augmented reality app called Nearest Tube, created by acrossair in the U.K. Hold up your phone, it will show you the closest Underground stations in London, and exactly how far away you are from them.
And from the Netherlands, sprxmobile developed Layar, this, their YouTube demo. It's a free app, blinking dots on apartments show you what's for sale, even the values of those units. You can also pull down reviews of local restaurants and bars or details about nearby sales. And in November they plan to make it 3D.
Now for more on the future of these augmented reality apps, I'm joined by John Sutter, a writer for cnn.com who recently wrote about these apps and spoke with people from these companies that developed them.
Could this mean big business for them?
JOHN SUTTER, CNN.COM: I think these companies hope so. I mean, like you were saying, this really has the potential to sort of merge two worlds of information, the information we see all around us all of the time, and you know, this wealth of information that we're all storing online.
So I think that, you know, these companies, the developers of these apps definitely see this going big places. But one thing to note is that this has been a long time in coming, augmented reality. It has been about a decade or more that researchers have been trying to make this happen.
They started with these giant backpack systems that sort of had these enormous goggles on them to get these two forms of information to merge. So it has been something that has progressed slowly until now. And the phones are what is making it sort of really take off at the moment.
BARNETT: And they're just being made available now. But there is a future use for this -- these applications as well. This could be huge.
SUTTER: It really could be. And I think that we'll see the technology improving quite a bit in the coming year even. This relies heavily on GPS technology. It needs to know where your phone is so it can tell you what is around you. And as that technology improves, it will be able to better pinpoint where these things are.
So right now, if you walk around with that Layar app, for example, the icons that sort of show you what is near you tend to bounce around a little bit and they're not exact. But I would expect...
BARNETT: Much to improve...
SUTTER: ... that to improve as...
BARNETT: ... as time goes on.
SUTTER: ... this thing goes on.
BARNETT: Well, John Sutter with cnn.com, thank you very much.
Adrian, it appears that augmented reality, it's our new reality. So get ready.
FINIGHAN: I'm ready already, Errol. Many thanks indeed. Another favorite of mine is Darkness, it's kind of a -- it's a cool daylight clock thing in graphic form. It says its 19:29 here in London, sunrise was 7:35, sunset at 7:55 here in London today.
Now gold prices have been setting one record after another in the past few weeks. And investors aren't the only ones who have their eyes on the stuff. Stay with us as Charles Hodson sets off on his economic cycle to check out why ingots are the in thing.
(COMMERCIAL BREAK)
FINIGHAN: Welcome back.
Live from London, this is QUEST MEANS BUSINESS from CNN.
I'm Adrian Finighan in for Richard Quest.
Now, it will be one of the most closely watched economic reports in the world. This Thursday, China releases figures on growth in the -- in the year's third quarter, together with a host of other key economic indicators.
CNN's Emily Chang is in Beijing to give us some idea of what to expect.
(BEGIN VIDEOTAPE)
EMILY CHANG, CNN CORRESPONDENT: We're expecting a slew of new economic data here in China for an indication of how the Chinese economy is faring in the global financial crisis. And most everyone's best guess is it's faring quite well.
GDP growth for the third quarter is forecast to be about 9 percent, well above the 7.9 percent we saw in the second quarter. And what this means is that China will likely hit its 8 percent growth target for the year. That is the number the Chinese government has said is necessary to maintain a reasonable level of employment here in China.
Exports and imports are also expected to stabilize after dropping over the last several months. And all of this good news is being attributed to the success of China's massive $586 billion stimulus plan and an extension of lending.
Consumption -- domestic consumption has been the big surprise here in China, even in the midst of the downturn. Car sales, for example, have skyrocketed thanks to government incentives.
But the big question is, is this growth sustainable?
The Shanghai Index, for example, has soared 69 percent over the last year, but is expected to take a big hit when the stimulus package dries out and loan growth shrinks.
So the Chinese government has some big tasks ahead, namely, figuring out how to maintain growth and domestic consumption without simply pumping money into the economy.
Emily Chang, CNN, Beijing.
(END VIDEO TAPE)
FINIGHAN: Well, over in the U.S., the economic calendar may not be quite so active, but it is a busy day for corporate earnings. A huge batch of major companies are posting their results today, including a pair of big banks.
Now, Maggie Lake told us earlier in the show about Morgan Stanley.
Let's head to New York right now, where Susan Lisovicz is standing by with the news, Susan, from Wells Fargo.
SUSAN LISOVICZ, CNN CORRESPONDENT: Hi, Adrian.
Well, you know, we are seeing a record quarterly profit for Wells Fargo -- more than $3.2 billion, nearly double that of a year ago.
Where did Wells Fargo make all this money?
A lot of money in the mortgage banking business and it said its merger with Wachovia is exceeding expectations.
But we are seeing something else that we saw last week with a number of big companies -- big financial companies. Wells Fargo said its loan losses exceeded $5 billion in three months. Those losses, Adrian, were 16 percent higher than those in the previous quarter and up more than 50 percent from the quarter before that.
Last week, as you know, we heard from Citigroup, Goldman Sachs, J.P. Morgan Chase. All topped estimates.
Bank of America missed, and B of A boosted its total loan loss reserves to $12 billion...
FINIGHAN: We're just hoping...
LISOVICZ: -- a theme we've seen, as well, through financials.
FINIGHAN: Absolutely. Enormous amounts of money.
We've also got some...
LISOVICZ: Um-hmm.
FINIGHAN: ...some earnings reports today out of the -- the aviation sector.
LISOVICZ: That's right. And, you know, yet another window into this economy. Just like you see the rising unemployment and how that affects loan losses, we see a mixed bag with some of the big carriers. Continental is considered one of the strongest big carriers. It lost $18 million in the third quarter.
Why is that?
Because business travelers are not flying and they are hugely lucrative. They often upgrade. They book last minute. In other words, they pay a lot more than the average coach fare. And so that's one of the reasons why that loss is really -- is really noticeable on the bottom line.
Still, the loss overall for Continental is narrower than third quarter a year ago. Continental raised cash over the summer to prepare for the slower winter months. That's usually when carriers spend more money than when they take in.
A different story for AirTran. A smaller carrier. Had a better quarter. Managed to profit of $10.5 million. It benefited from its low cost. It's focused on domestic routes where it's believed it can make money. And it marks AirTran's third quarter in a row of profit as most major U.S. carriers struggle. So that's -- that's an accomplishment -- Adrian.
FINIGHAN: Absolutely.
Susan, always a delight to talk to you.
Many thanks, indeed.
Susan Lisovicz live in New York.
Let me walk over here, if I can this time without getting my foot stuck.
Wells Fargo joins Morgan Stanley then in beating estimates today. And the economy may well be on the road to recovery. But jobs in the (INAUDIBLE) outsourcing are few and far between.
Wells Fargo, by the way, said that its loan losses totaled an enormous amount of money, as Susan was telling us.
All right, so back then to the road to recovery and the art of shoeing horses, in particular. Now bear with me on this. It's -- it's a job that lasts.
In our World At Work, CNN's Eddie Cortez (ph) introduces us now to two farriers in the U.S. state of Georgia who do things the old-fashioned way. You'll enjoy this. It's their World At Work.
(BEGIN VIDEOTAPE)
DOUG WORKMAN: Come on, Bernie.
My name is Doug Workman.
I'm a certified journeyman farrier. We file horseshoes on feet. We trim them to aid in the balance, the movement of horses. It's a lot of hard work and sweat, especially in the summer.
NEAL PERVES: Neal Perves (ph) and I'm also a certified journeyman farrier.
And most people think you just get a shoe, nail it on the horse's foot and go on about your business.
WORKMAN: A shoe is a necessary evil. We put them on to protect the feet from wearing or breaking.
PERVES: This is our forge. I'm going to heat them up. This thing will get about 1,800 degrees. And it allows me to shape, bend the shoes very easily. I'll take and shape these up, then I'll actually take the shoes over fairly warm and actually burn them on the feet, stealing the foot up. (ph)
WORKMAN: A little tight on the outside here, so I just need to make a little adjustment to bring that lateral side out and I'll be good. It hasn't really changed. It's still a pretty basic process. The tools are the same. The sweat and everything is -- everything is exactly the same.
PERVES: Horseshoeing or farriering is quite a mix between a science and an art.
WORKMAN: The work is extremely hard -- a lot harder than -- than most people realize. And later they look down and say oh, boy, I'll bet your back hurts and all this. Well, it does. I mean it -- it's tough.
PERVES: Shoeing horses is going to be shoeing horses no matter what we do. It's steel, nailing shoes on. It worked -- it's worked for thousands of years and I don't see it going anywhere.
(END VIDEOTAPE)
FINIGHAN: Fantastic.
And we'll have more of your World At Work a little later -- this time, the job of a TV cameraman in just a few moments.
(BEGIN VIDEO CLIP)
NEIL BENNETT, CNN CAMERAMAN: I have an opportunity to sort of see the real front line of life and also have a front row seat in -- in a lot of historical events.
(COMMERCIAL BREAK)
FINIGHAN: Hello again.
I think we're all pretty used to the idea that the investment landscape has changed in the past couple of years. But here's a case in point. In mid-2007, you could have bought an ounce of gold for less than $650. Today, that same ounce will cost you well over $1,000. The price of the yellow metal is rising again this session, a gain of more than $5, to about $1,060. A steadily weakening dollar is driving many investors to shift funds into alternative assets. Prices have risen 20 percent in 2009 alone.
Now, as an investment, gold is winning over so many new fans and that a famous London department store is getting in on the act.
My colleague, Charles Hodson, investigates in his own inimitable style.
(BEGIN VIDEOTAPE)
CHARLES HODSON, CNN CORRESPONDENT: Well, gold may be the investment that everyone is interested in these days, but it still has a certain exclusive aura. So it's not surprising that if I want to go and buy some just walking in off the street, I have to go to London's top people store - - Harrods.
Good morning.
CHRIS HALL, HEAD OF GOLD BULLION, HARROD'S BANK: Good morning.
HODSON: Charles Hodson from CNN.
HALL: Chris Hall, Harrods Bank.
HODSON: So you're the head of gold bullion.
How does this work?
I mean, here are the coins.
Can I just walk in with a pile of cash or even a credit card and say I'd like a few of those and walk out with them?
HALL: Yes, that's the idea. The idea is that we have a simple service for customers. They're able to come in and purchase gold over the counter. Provided they meet our I.D. requirements, they can come in and purchase in the usual way and walk straight out.
HODSON: Can I -- can I get my hands on some of this gold?
HALL: Certainly, if you would like.
HODSON: OK. (INAUDIBLE)...
HALL: There's a set of gloves there for you.
HODSON: So -- so how much is that particular -- is it an ingot or is that just a bar?
HALL: That's what we call a bar. And that is 12-and-a-half kilograms, which is approximately 400 ounces.
HODSON: That's quite some weight, isn't it?
HALL: That is. Just be careful on that. It's quite big for its size.
HODSON: Right. No, OK. Let's see if -- let's see if I can lift that. Oh, that -- wow!
That is heavy, isn't it?
HALL: It is, indeed.
HODSON: I mean you're not (INAUDIBLE) about -- it's about half -- the size of half a brick, but weighs, I don't know, two or four times as much as a brick.
HALL: Yes. Gym membership would be needed.
HODSON: Yes. Well, supposing I decided it was just too heavy for me or, alternatively, I didn't think the price was going to go up anymore.
Can I sell it back to you?
HALL: Yes, that's a service we offer, as well. And it's something we offer to our customers only. So if they would like to sell that gold, they can come back to us. We will make a non-obligatory offer to them. And the reason we do that is to make sure that they have at least one easy channel to which they can sell.
HODSON: How does the price compare with what, you know, a professional investor would buy gold at?
HALL: Well, for physical gold, it's a very competitive price that you would resell your -- your physical gold at within London. If you were selling a derivative or some other form of gold investment, it would be very different.
HODSON: So what sort of investor are you looking at here?
Is this kind of the average Joe or who?
HALL: We're looking for regular investors. We're looking for people a lot like Harrods' customers or Harrods' bank account holders, who are interested in gold and they need a place where they can come and buy in a prudent matter and they know that they're getting the best possible product from a company that they respect.
HODSON: Does this come with a -- with advice?
HALL: Unfortunately, we cannot provide advice on this. It was evident that there is a demand for gold amongst retail investors now. And for as long as that demand is there, we will continue to service. And we've taken a business decision on this. It is breaking some new ground, but historically, that's what Harrods has always done. And our motto is everything for everybody everywhere.
HODSON: Thank you very much, indeed.
HALL: Thank you.
HODSON: I'm going to give you these gloves back.
HALL: Thank you very much.
HODSON: And, meanwhile, do you do chocolate gold bars, because I think those might be a little bit more in my price range for today?
HALL: Ground floor (INAUDIBLE).
HODSON: OK.
Thanks very much today, Chris.
HALL: It's a pleasure.
HODSON: Well, I've just worked hard. That gold bar was worth nearly half a million dollars. It certainly weighed a ton. A good thing, by the way, that Harrods has a safety box scheme so you don't just have to slip that into your handbag if you want to put it somewhere safe.
But seriously, I'm not sure I would want to bet nearly half a million dollars of my money on the idea that with gold prices where they are, they're going to go much further north from here.
(END VIDEOTAPE)
FINIGHAN: Charles Hodson on his economic cycle.
He brings that thing into the office, you know?
Hurricanes, typhoons, winter storms -- winter storms -- in the Northern Hemisphere we've had all of that this week.
Guillermo, as we know, is at the CNN International Weather Center.
Sorry, I was saying your name with such a flourish there -- Guillermo.
But it's one of those times of the year, isn't it, when the weather is making the news itself?
GUILLERMO ARDUINO, CNN METEOROLOGIST: Yes. And I think that you're not in bad shape, though. The problem is in Ireland. The problem is in Germany. In France right now, we have storms. But London doesn't appear to be that cold. For the next three days, temperatures are not even close to freezing point at all. So it's not bad.
But we are seeing rain, though. You see what's going on in here in France. You see what's going on all over here on this border. The eastern coast is all full of rain right now. And we have reports coming from Cardith (ph) or Cardith, also, with some rain. We are going to see some delays associated with weather in Italy, in Spain. You see Madrid with windy conditions. Marseilles in Southern France is reporting that, as well.
Ostendig (ph) in northern parts of France and in the low countries there. We can see Belgium has some bad weather right now -- rain and rain showers.
And Charles de Gaulle in Paris is reporting, also, some rain at this moment. But the winds will prevail and the rain will prevail in Dublin.
Now, let's see what's going on with the winds. The North Sea, the English Channel on and off; also here, the Adriatic Sea, parts of Italy. But the rain mainly over here.
Now, all the way down where the storms are, in France, we see more storms than rain. So thunder all over here in southern and central and the eastern parts of France. But temperature-wise, it's not bad. You see, 15 in Paris; the high, 19, in Rome; 14 in London. Not bad at all -- still holding up very nicely; 18 in Bucharest.
So we are going to see, in fact, some break -- some break in the weather on Friday in London. But we see rain on Thursday and on Saturday. But look at the low temperature of the day, anywhere between 10 and 13 or 12 degrees. That doesn't look too bad, I think. The high stays moderately at 16, 18 degrees.
Stay with us.
Adrian will be back after the break.
(COMMERCIAL BREAK)
FINIGHAN: Now, here at QUEST MEANS BUSINESS, we think that the financial is also personal. I mean we -- we don't just bring you the economics, we show you the faces behind the numbers. And that means people who are looking for jobs, people in jobs, people like you and me and the cameraman. Paul is behind that one right now.
Neil Bennett has worked here at CNN for some 15 years, getting the images that make the news. He is a fine cameraman. I've worked with him many, many times. This is his "World At Work."
(BEGIN VIDEOTAPE)
BENNETT: I have a -- an opportunity to sort of see the real front line of life and also have a front row seat in -- in a lot of historical events that happen around the world.
Probably the most profound story which I've had to cover was the tsunami. I went to Banda Aceh very soon after it happened. We were one of the first groups of journalists to go in.
And a lot of the places we go to aren't exactly the most comfortable places in the -- in the world to go to and, often, you know, quite hostile.
UNIDENTIFIED MALE: Get out of here!
BENNETT: I was in Darfur a few years ago.
UNIDENTIFIED MALE: Just drive.
BENNETT: And we got ourselves caught up in a -- in some -- some violence there, where we -- we actually got attacked in our -- in our car.
What's happening?
UNIDENTIFIED FEMALE: I don't know. They're suspecting them to be a government spy.
BENNETT: That was a pretty tough experience.
Today we're going down to Dover, because there's a story Paula Newton is doing about drugs being smuggled into England in lorries -- on container lorries on ships from -- from Europe.
How long is the piece going to be?
PAULA NEWTON, CNN INTERNATIONAL SECURITY CORRESPONDENT: This will be about a three minute piece.
BENNETT: OK. That's good.
NEWTON: Yes.
BENNETT: Doing these stories often involves a lot of travel, a lot of carrying equipment, setting up equipment, breaking equipment down. It's not one of the most glamorous things I have to do, but this is all part of -- it's part of the job.
That part of the job isn't really appreciated and, you know, it's -- it's tough sometimes.
OK.
UNIDENTIFIED FEMALE: We're talking about good wine and sleeping (INAUDIBLE), you know, things that we might be...
BENNETT: OK.
UNIDENTIFIED FEMALE: -- that you can use in an open.
BENNETT: OK.
UNIDENTIFIED FEMALE: And then (INAUDIBLE)...
BENNETT: There are a lot of things to think about when filming.
You know, you -- you really have to be sort of thinking how the -- the best way to, you know, put everything inside of -- inside a rectangle. I mean, you look around so you're trying to see the best -- the best angle and thinking about sequences that you need to shoot.
We're trying to find a good vantage point where we can actually see into the -- the port area. But Paula and I, we don't really know the area very well, but we're relying on our taxi drive to hopefully take us to someone who might be able to give a fairly decent review, anyway.
Well, this is a pretty good place to do some filming of the port from, from up on the white cliffs of Dover here. It's extremely windy.
You know, it's a cross between -- you know, you need to be artistic, but you also need to be sort of quite hardworking and -- and -- and adventurous and able to really sort of, you know, do a lot of long hours.
OK. I think we've got to (INAUDIBLE) on the wind.
So let's try and -- let's try and do one, OK?
When you're ready, we're rolling.
NEWTON: Authorities agree heroin becomes as easy as (INAUDIBLE) or vegetables.
BENNETT: It is a privilege and there aren't that many jobs in the world where you get paid to travel all over the world and then when you're there to take pictures which then are going to be seen all over the world.
Recently, I had the most amazing trip to Greenland. The -- the pictures I got were stunning of these icebergs and this huge helahandrasi (ph), which we -- we filmed from a Greenpeace helicopter.
It's one of those a year just -- really just makes the -- the job, you know. That's -- it's really what I live for.
(END VIDEOTAPE)
FINIGHAN: Neil Bennett -- adventurous, hard-working, artistic and strong. That gear is heavy, believe me.
Now, we want to hear how you earn and spend your money. More about your world at work, please. If you'd like to share any pictures and stories with us, then you can find us on Facebook, on the QUEST MEANS BUSINESS page or you can e-mail us here at quest@cnn.com or, of course, Richard is on Twitter at richardquest.
We'll be back on QUEST MEANS BUSINESS with more in just a few moments.
Don't go away.
(COMMERCIAL BREAK)
FINIGHAN: Well, we have to speak about what's happening on Wall Street right now. All the main markets are in the plus column. The Dow holding steady. It's up about 3/10 of 1 percent. The NASDAQ up by more than 1/2 a percent. The S&P 500 is also rising about 1/2 a percent.
And here in Europe, shares closed higher on Wednesday, helped along by those gains on Wall Street. London's FTSE, Germany's EUREX DAX both finished up. And the Paris Cacaron ended fairly flat.
And that is it for the midweek edition of QUEST MEANS BUSINESS.
I'm Adrian Finighan in for Richard Quest.
As the man himself would say if he were here, whatever you're up to in the hours ahead, I do hope it's profitable.
Christiane Amanpour is next, right after the headlines from Isha at the iDesk.
See you again.
END
