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Quest Means Business
Is Global Economic Recovery Stalling?; EU Tries to Stop Mobile Price Shock
Aired July 01, 2010 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: From bloom to gloom, the economy may be growing, so is fear.
Fomenting, roaming and groaning, the EU tries to stop the price shocks.
And after Spain put Portugal out of the World Cup, off the pitch, they're both in the same economic boat.
I'm Richard Quest-I mean business.
Good evening.
Growing indications that the economic recovery is stalling. It has stock markets well and truly on the ropes. Traders are starting the second half of 2010 in a state of seemingly high anxiety. On Wall Street the Dow industrial average is losing ground and it's on course for its sixth consecutive loss. This is the Dow, at the moment, off 0.5 percent, down 41 points. Today's reporting on manufacturing, jobs, housing, they've all been worse than expected. On we go to European bourses where shares plummeted for the second time in three days as traders took in those disappointing numbers from the U.S.
So, to put this in perspective, the FTSE is now at a 10-month low. Bank stocks were taking the beating. You don't need to know the reason- well, you do need to know the reason-but I'm sure you do, of course, its all about sovereign debt. It is all about refinancing of debt through the European Central Bank. Barclays is off my more than 5.5 percent. The ECB said, on Thursday, called in loans worth some $540 billion. And Spain has been threatened with a credit rating being cut by Moody's.
This is one of the other big reasons. The PMI, the Chinese purchasing managers index, dropped from 53.9 to 52.1. That showed growth in manufacturing is slowing. The PMI fell in June compared to May. And of course, China is the economy that is supposed to be the engine of growth; 12 percent growth, perhaps down to 7 percent, or 8 percent growth, in the result. This is the reason why markets are unhappy.
I spoke to Bob Parker, senior advisor at Credit Suisse Asset Management. Why did he think markets were so grumpy?
(BEGIN VIDEOTAPE)
BOB PARKER, SR. ADVISOR, CREDIT SUISSE ASSET MANAGEMENT: I would highlight, Richard, three major factors. We have had an initial weakness in the Chinese economy with the purchasing managers' index. Personally, I think that is misleading and I think the Chinese economy will moderate but it is not going to reverse sharply.
The second factor is European bank risk. Investors are still very concerned about can the European banks refinance themselves and to what extent are they still relying on liquidity, loans from the European Central Bank?
And the third factor is we've had a range of data, over the past two to three weeks, indicating that certainly the month of May and possibly the month of June as well. We're seeing some weakness in the U.S. economy. Therefore people are concerned, is the U.S. economy about to reverse back into recession? And if you have that concern, then you don't want to be in equity markets.
QUEST: Where do you stand on those risk and those rewards? What do you believe?
PARKER: I believe the first factor, the Chinese economy, is moderating. It is moderating from 12 percent growth to 9 percent growth. That is not a problem.
Second factor, European banks, I think that over the next two to three months we will see recapitalization of those weak European banks, notably in Spain, and to some extent in Germany. I think that is going to calm down.
QUEST: And on the U.S. front? And the European front?
PARKER: Well, on the European front, I don't think you describe Europe today as one economy. We've got strong economies in France and Germany, and the weak Mediterranean countries.
QUEST: But if you have a PMI, in China, that goes from 12 to-or growth in China from 12 to 9 percent?
PARKER: Correct.
QUEST: And you have Europe coming off, and you have the U.S. going down slightly. Even if it is only 3.5 to 2.5.
PARKER: Yes?
QUEST: The net-net effect, Rob, is that the global economy, or at least the OECD is slow.
PARKER: The answer is it-my answer is, it is slowing down, but it is not going back to what people call a double-dip recession.
QUEST: It won't-is there a real difference between a double dip and just tepid growth?
PARKER: I would argue there is a significant difference, because let's not forget that in 2008 we had the worst recession since the 1930s.
QUEST: Yes.
PARKER: I regret to forecast that over the next two to three years, yes we can still have very good growth in emerging markets; Brazil, 6 percent, plus; India, 8 percent, plus; China, 8 to 10 percent. But in the G3 major economies I'm afraid the medium-term outlook, the best word to describe it is probably mediocre.
QUEST: If we have that, where do asset allocations go at the moment? Where do you put your money, if it is between, cash, bonds, equities and risk?
PARKER: Well, I think the first point to make is that the yields on money market accounts and in government bonds, and Treasuries, and German government bunds, are exceptionally low, and they're unattractive.
I think much more attractive is to go back, now, into emerging equity markets, where we've got the growth, where they have reversed this year, and the valuations are cheap. The second area is in the G3 economies, those sectors, those companies which are very under-leveraged, have very high dividends, are defensive and also have a lot of their business in emerging markets.
QUEST: Traffic lights time.
PARKER: Yes?
QUEST: I'm trying to think of this-so, let's taking the markets, let's do the markets, all right?
PARKER: OK.
QUEST: Taking the markets as they are today, and this unease, this volatility that we are seeing, red, amber or green?
PARKER: The last time I came on your show, I was very clear I wanted a green for corporate earnings. This time I'm afraid its amber.
QUEST: An amber?
PARKER: And that implies markets are in the process of forming a base, but the recovery is going to be fairly feeble.
QUEST: Bob, thank you very much.
PARKER: Thank you.
(END VIDEOTAPE)
QUEST: Bob Parker, and as you can see, as we move into this next phase of the recovery where it is could be slow, it could be double dip, our traffic lights have been pressed back into action. And in the weeks ahead we will be seeing a lot more on what people make of what's taking place.
The markets in New York, I alluded, you saw, they are down by about 50 points. Alison Kosik is on the floor of the Exchange.
Alison, we know the markets are unhappy. We know the jobs report is a factor in all of this. Is there anybody who showing optimism?
ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: You know there is optimism here to the right of me, and to the left of me. These traders are really optimistic for tomorrow, at least. You know, if the private sector shows that we added $100,000 jobs the chances are we are going to see the market go up tomorrow. Because Wall Street is really looking for, is they are looking for some good sign that the economy is improving. Because what's been happening lately, as you know, Richard, we have been getting litany of down beat reports from housing, in construction, to jobs, we got as you said, the second of three jobs reports, we're getting this week. It is this constant drumbeat of disappointing results that is really bringing the market down. But let's look at the positive for a moment. We were down as far as 120 points. People are buying back, we're only down 57 points right now.
QUEST: Jeffery Immelt, the chief exec of General Electric, GE, some extraordinary comments he made in Italy, today. In which he basically called into question the Chinese government's commitment, if you like, to helping to see companies succeed, a surprising statement.
KOSIK: You know, there is always this love/hate relationship with China, don't you think? Especially here on Wall Street there is that love/hate relationship, Richard.
QUEST: There is. And we saw it at Google, and we've seen it with many other U.S. corporations. But, Alison, this is GE that makes $5 billion of revenue. And here you have the chief executive almost tweaking the tail of the Chinese.
KOSIK: That is true. I'll tell you we're not getting much reaction on that report today. The big focus for these traders today, really, is the jobs report and the housing report. I didn't even get to that. The fact is, pending home sales, these are sales from May that people sign contracts on. They plummeted 30 percent. One analyst says this report is a disaster. And the National Association of Realtors expects the next month to be just as downbeat. I mean, you know, for these traders here, for investors, Richard, the focus really domestic this week. It is on jobs, it is on housing. They kind of forgot about China after all that talk about the yuan, you know?
(LAUGHTER)
QUEST: Good point. And it's July the Fourth, and I suspect that you'll be just about on your own on the Street, tomorrow. Have a good one. Many thanks, Alison Kosik joining us from New York.
KOSIK: My pleasure.
QUEST: So, in just a moment, when you and I get back together again, smart phones on the information superhighway. It is an expensive mix when you go overseas. And you go abroad (ph) and roam. The EU believes it is stopping superhighway robbery. We'll talk about it in a moment.
(COMMERCIAL BREAK)
QUEST: Now we were just talking there, a moment or two ago, about General Electric and the comments made by Jeffrey Immelt, as he criticized the Chinese government, and wondered whether or not the Chinese government officials actually wanted major Western companies to succeed in China. In this week's "Impact Your World" segment, we're showing you how small loans are making a big difference in the lives China's rural poor. Emily Chang explains how a small American, non-profit is using the Web to connect donors and borrowers.
(BEGIN VIDEOTAPE)
EMILY CHANG, CNN INT'L. CORRESPONDENT (voice over): In the lush valleys of Sichuan Province, Fu Yajun marvels at her latest crop.
"These mushrooms are beautiful, and nutritious," she says.
Her modest mushroom farm was made possible by a small loan that changed her life. A typical Chinese peasant, Fu used to make less than $150 a month in a factory. Then she found Wokai, an American micro finance firm based in Beijing, also known as Facebook for farmers.
CASEY WILSON, CEO, WOKAI: So you can see borrowers photos, their names, their loan requests, and learn a little bit about their background.
CHANG: All loan candidates are rural Chinese, with a small business plan. Founder Casey Wilson says donors can choose who to fund, giving as little as $10 to help their business grow.
WILSON: What we're trying to do is enable people to create a long- term impact. So they get to track each borrower's progress overtime and once the capital is repaid, they get to decide who it goes to next.
CHANG: So far, Wokai's reviving loan fund has helped more than 350 Chinese farmers, with more than 1300 contributors. But the question remains: Why give to China when its economy is soaring?
DAN TOUFF, WOKAI LENDER: There is actually two Chinas. If you look at eastern China, yes, there is a tremendous capital appreciation, there is a lot of money. They're awash with cash. But China also has the second largest number of poor people in the world.
CHANG (On camera): Hundreds of millions of farmers live deep in China's countryside, many of them surviving on less than $2 a day. Typically the only way they can access more cash than that is from large banks that are reluctant to lend to the poor, or loan sharks who charge exorbitant rates of interest.
(voice over): Wokai charges zero interest. Working with Chinese partners on the ground to screen loan candidates.
"We go to their homes," this loan officer says. "We research their situation. We talk to neighbors to see if they are the right kind of people."
Wokai says so far the default rate is less than 1 percent. Fu has turned her original $600 loan into almost $15,000.
"We can send our children to a better school. We eat better food. And we can even expand our farm," she says.
A new standard of living and a new career to be proud of . Emily Chang, CNN, Sichuan Province, China.
(END VIDEOTAPE)
QUEST: In just a moment, roaming charges in Europe, and the chances are you'll avoid what austerity looks like in just a moment. But the high cost of going overseas.
(COMMERCIAL BREAK)
QUEST: Welcome back.
The European Union has come up with an antidote to bill-shock. Now, that is the sweaty sensation, you're familiar, it gropes-it gropes? Well, it does grope. But it certainly grips-and gropes-it gripes you when you have been traveling and that monthly statement arrives, showing how much you have spent on your phone, either with a voice call or through data roaming. Join me in the library and I'll show you what the new EU rules are. There is a data cap that has been brought in, which basically says there will now be a warning. So, you get a warning when you have used $50, or so, just about $55-$60, of data so far. And the service provider then cuts you off, ding, ding, ding, once you get to $62. Now, this is the EU proposal-this is the EU law that came into force today, when it comes to data roaming.
Of course, the idea is to stop bill-shock, because the costs can rise so far and so fast. And I want to show you exactly what I'm talking about. Let's take, for example, this is the T-Mobile Web site. Now, T-Mobile, we have just chosen them, it could have been any other Web site, it could have been any other company. All the charges are pretty much the same. For example, Videophone is roughly $1.50 per megabyte, the other companies are the same.
So, last week I'm in Hungary, and I roam on my phone and the cost per megabyte is 1.50 pound, that is about $2.25 nearly $2.00 per megabyte. So that is exactly what they're intending, when it comes to the European Union. But if you go somewhere, like, for example, the United States, let's just call that up and select that, and you'll see exactly-now, you're 1.50 pound, charges become much more heavier, 7.50 pound per megabyte; 1.50 pound to 7.50 pound. The EU by the way has nothing to do with this.
Now, why is all this important? Because as we travel more, we are using gadgets, for example, like smart phones, we are using Blackberries, we are using my-fi. And when you add into this toxic equation, things like iPads, where simply bringing in any app can cost up to 2 or 3 pounds at a time, you start to see why this is such an expensive and serious issue.
People traveling outside, of course, their home countries are really now discovering the horrific costs of using machines like this. Earlier I spoke to Jonathan Todd, he's the spokesperson for Neely Close (ph), the EU commissioner, for digital services (ph). And I asked him, why bother with the caps, when actually you should just trim the charges.
JONATHAN TODD, EU, SPOKESPERSON: Well, we didn't take the same approach to data roaming as voice calls, because we felt the market was less well developed. And we wanted to see how it developed before we brought in more specific caps on retail prices. Obviously the best outcome would be that operators now compete more effectively and lower, of their own volition, the charges to consumers for data roaming.
QUEST: Jonathan, you know as well as I do that that was exactly the argument that was used for voice calls, and it failed. And there is an inevitability that eventually the commission is going to have to impose price caps as they did with voice calls.
TODD: Well that, we will see. I mean, what is clear is that the commission did determine-
QUEST: But why wait? Why wait? I mean, this halfway house, that the commission has come up with. Why not just grasp this nettle, once and for all?
TODD: We may well do that in the future. As of today, what is of real interest to the consumer is they're not going to get that horrible shock at the end of the month. You know, it is particularly with the growing use of smart phones, it is very easy for people to wrack up a huge bill, even if they just consult their e-mails, for example. They're going to be protected from that, as of today. And if the operators don't get their act together, then they are likely to face more stringent rules.
QUEST: Jonathan, with respect, the proposals are a halfway house in a muddle. In the sense that, yes, they're not going to get the shock, but it doesn't address the problem, which is the overcharging by the operators, which leads to the high bill in the first place.
TODD: Richard, these are not proposals. This is legislation that enters into force as of today.
QUEST: You're basically say-you're basically saying they are-
TODD: They are reality. They are reality as of today.
QUEST: Yes.
TODD: And for the future, then, we will look at how they-how the market develops and if the market doesn't become more competitive, then we will consider other measures. But I mean, what people are actually interested in, as of today, is that they will no longer get those horrible bill shocks at the end of the month. And if in future, we have to do more, then we will non flinch from doing more.
QUEST: I disagree. I think what people are interested in now, is action from commission that actually reduces bills. Not just gives a warning flag that you may get a big bill, if you don't watch out.
TODD: Well, it is not just a warning. There is a cut off. The operator cannot charge you more than $50 euros a month, unless you have agreed to it. So it is not just a warning. It is the specific cut off at $50 euros. And people are interested in being protected. They're interested in having that safety net, which in the past they've not had.
(END VIDEOTAPE)
QUEST: The spokesman for the European Commission. Some people think, though, the EU is not doing enough. I spoke to Ernest Doku from Uswitch.com, a Web site that helps you compare charges by mobile operators. I asked him if the networks are now charging for data reporting the same way it used to be with voice calls?
(BEGIN VIDEOTAPE)
EARNEST DOKU, uSWITCH.COM: I would say that it is definitely the direction that networks are going in. They used to like to charge a lot more for calls, but once every one was competing on that sector, giving 600 minutes, 1,000 minutes, 5,000 minutes for free, data was the direction that everybody went to. Manufacturers, they made handsets that were very much geared to using that data, and the net was very quick to pick up on that and then definitely exploit that to consumers.
QUEST: And when we look at the roaming charges, they are really quite prohibitive in some cases, in Europe.
DOKU: Precisely, in Europe the roaming cap that the EU has legislated is a 50 euro cap, and it doesn't take more than a few Web site's browsing and a bit of streaming video to reach that cap. When you get to 80 percent of that, they now send you an alert, but it is still very quick before you reach that limit.
QUEST: So what do you think of this 50 euro limit? What do you think-well, first of all, you obviously don't think the 50 euros is a good number, but the idea of having this limit?
DOKU: The idea of having a cap is definitely a step in the right direction. There are far too many travel makers, or holiday makers, that were traveling overseas, making a few calls, going on line, and before they knew it they had sailed way past that and were getting 1,000 pound bills. This is definitely a cap that lets the consumers know that they can't any longer-they can take their phone out and use it to their heart's content, without going near that limit.
QUEST: But surely the answer is, as with voice data, to actually cap the costs of using it, rather than just this limit on it?
DOKU: Well, it is-
QUEST: Cut the costs, rather than just have limits.
DOKU: Well, it is a nice sign that they are trying to do something. The telecoms commission have been trying for five years. They've got-they asked the networks to volunteer caps, but they definitely didn't listen.
QUEST: So, do you believe that we will end up with a situation with data, like we have had with voice calls, with mandatory caps?
DOKU: I think it definitely needs to be done. With the case of this, it's only applicable to within the EU. When people travel outside the EU, these caps are no longer in place, and so any data that you use, they will happily let you sail past those limits.
QUEST: And when you talk to the operators, why have they kept roaming charges so high. Because, frankly, we asked every major U.K. operator to come on this program and discuss this issue, and every single one, turned us down.
DOKU: Precisely, we're getting the same think back from our customers; 85 percent of them say that these roaming charges are too high. With word that they are making between 200 and 400 percent profit, on these roaming calls and data charges. It is definitely where the profit lies. And what they're doing now, now this legislation is in place, they definitely focusing on all the further afield places, U.S.A., Australia, the Far East. And this is where they are raising the costs again. So whereas there is a cap in the EU, outside of that is definitely where they are going to target the consumer.
(END VIDEOTAPE)
QUEST: The issue, of course, of data roaming is something we will follow very closely here on this program. And I have a "Profitable Moment" at the end of the show.
Right now unemployment in the U.S. is close to 10 percent. For a million people without jobs, it could get much harder. In a moment or two meet a man who admits he doesn't know how well he'll cope when it does.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS, this is CNN, where the news always comes first.
(NEWSBREAK)
QUEST: The defendants are among 10 people who have been arrested in the U.S. and accused of spying for Russia. An eleventh suspect has jumped bail in Cyprus and is still missing.
Israeli Prime Minister Benjamin Netanyahu says his country is ready to free around 1,000 Palestinian prisoners for the release of Gilad Shalit. Hamas militants captured the Israeli soldier four years ago. The German media had suggested the swap. Mr. Netanyahu says the ball is now in Hamas' court.
Egyptian authorities have arrested two police officers in the death of this businessman in Alexandria. Witnesses say he was dragged from a cafe and beaten to death. Officials previously claimed he died from asphyxiation after swallowing drugs. The officers are facing charges including torture. And the case has become a rallying cry against government emergency laws giving police broad powers.
Finally, a war crimes tribunal has ordered the supermodel, Naomi Campbell, to testify on July the 29th in the trial of the former Liberian president, Charles Taylor or show, indeed, why she cannot turn up. Prosecutors plan to ask whether she got a blood diamond from Taylor. There's no response yet from Campbell's lawyer on the support -- on the subpoena.
So, as evidence is stacking up the global recovery is running out of steam, world economists are fundamentally divided. You're familiar with the debate. On the one hand, those who believe austerity and those who want stimulus. We won't know if we've got the mix right and properly until it's too late.
Raghur Rajan is a professor of finance at the University of Chicago, a former chief econ at BIMF (ph).
I asked him if he thought governments were taking unwarranted risks with their austerity measures.
(BEGIN VIDEOTAPE)
RAGHUR RAJAN, PROFESSOR OF FINANCE, UNIVERSITY OF CHICAGO: Yes, I think that some of it is -- is probably excessive. There are concerns for some countries about the size of public debt. And you don't want to go to the point where the markets totally distrust the capacity of governments to pay because then there's lots of consequences. For example, your banks also start coming under the -- under the scrutiny of markets and people start worrying about their debt. And there are -- there are contagion effects.
So I think governments have to be worried given the amount of public debt there is outstanding. But, of course, too soon and too dramatic a contraction is a problem.
QUEST: Right.
But, unfortunately, in your answer there, you've sort of stood and -- and given me both sides of the argument.
Where do you stand on this argument?
RAJAN: Well, I stand more in the nature -- in -- in the camp of those who say we've done a lot. And we have to worry about the kind of growth that we're getting now. If it was simply a problem of too little demand, then pumping up growth is certainly a reasonable thing to do. But we have to think about what got us into this place. We have too much finance, too much housing, too much, say, cars manufacturing in the United States.
Do we want that all to come back or do we want the economy to change?
QUEST: What would it change like?
RAJAN: Well, the U.S., in many ways, is an economy which does very well on the knowledge side. Now, in the long run, producing more knowledge goods is the way that an economy has to go.
QUEST: But there's also the argument that says the U.S. doesn't save enough and Japan and Germany doesn't spend enough, doesn't it?
So it's a -- it's a structural rebalancing that has to take place.
RAJAN: That's precisely the point and that's the point of my book, that we have these structural problems. In the United States, political forces that make it spend too much; in Japan and Germany, structural forces that make them export too much.
How do we actually move to an economy which is more balanced when we are all the time worrying about the short run?
Our policy is never looking to the wrong -- long run.
QUEST: No, because we're more worried about if we're going to be in double dip recession by Christmas.
RAJAN: Right.
QUEST: And the structural changes you're talking about can take a generation to work through.
RAJAN: Well, it will take time. But every time, if we pump up the economy worrying about Christmas as opposed to 10 years from now, we'll never get to the 10 years. So, yes, in the long run, we're dead but we always focus on the short run and we never reach the long run, where we need to go. That, to my mind, is the problem with our policies nowadays. We're not thinking enough about the long run. We're not paying enough attention. No doubt, the short run important.
QUEST: Right. And, of course, I am going to be the stereotype in the sense that I keep wanting you to talk about the short and you keep wanting to talk about the long.
RAJAN: Absolutely. I mean there -- that's the nature of the beast.
QUEST: Because I am concerned about whether Angela Merkel's policy of exporting Germany out of -- out of trouble -- good growth in Germany at the moment...
RAJAN: Right. But take -- take a problem. Her problem, in some ways, is that Germany is the backstop for Europe. If, you know, Greek -- Greece defaults, if Spanish banks get in trouble, where does all this end up?
It will end up in -- it ends up on Germany's bounty. Germany is insuring Europe. For Germany now to say we don't care about the medium term, we don't care about our balance sheet, we don't care about whether people trust German bonds is to put Europe, in some sense, in jeopardy.
Now, I think the wrong thing for them to do right now is to spend more. I think the right thing for them to do is to focus on increasing their growth rate. And that, to my mind, will help Europe much more.
QUEST: Traffic lights -- you've done these before with us. Red, amber and green -- red is double dip. Red is we need to be very careful. Amber, painful but slow. Green, we should -- we're OK as we are.
Where would you like it, global economy or the OECD economies?
RAJAN: Global economy, amber. I think painful, but we will avoid a double dip in most parts, maybe not in Europe.
QUEST: Oh. So you're going to go for a double dip in Europe?
RAJAN: Not necessarily. I think there's greater risk -- great risk. But I think, in general, we will avoid a double dip.
QUEST: I shall try not to take you back to the short-term.
Many thanks, indeed.
RAJAN: Thank you very much.
(END VIDEO TAPE)
QUEST: The good argument of the short versus the long-term and the flashing amber as our traffic lights return to the program.
Whether or not you agree it's happening, we're now entering an era of austerity and people in some of the Europe's most indebted nations are already feeling the pinch. You heard us talking about some of them in that interview. Both Spain and Portugal are carrying out massive cost cutting plans.
And as our correspondent, Al Goodman, now tells us from Portugal, life is tough for the people caught in the middle.
(BEGIN VIDEOTAPE)
AL GOODMAN, CNN CORRESPONDENT (voice-over): The Medieval town of Elvas in Eastern Portugal has weathered many battles, but the global economic crisis is a new threat. Just a 10 minute drive to Spain, Elvas is feeling the financial crunch on both sides of the border. Streets nearly deserted in a town that lives off of tourism and trade. Local businesses waiting for customers who don't show up.
NUNO MOCHINHA, ELVAS DEPUTY MAYOR (through translator): Besides the economic problems on this side, we also suffer from Spain's. Some people who live here but work in Spain have lost their jobs.
GOODMAN: But, the deputy mayor says, unlike the big budget deficits gripping Portugal and Spain, the town of Elvas has a budget surplus and it's funding some public works jobs so the crisis here is really not so bad.
But Brigitte Santos begs to differ. She and her sister Sara (ph) run the family restaurant, trying to cook up recipes to combat the drop-off in clients. So far, they've avoided cutting jobs.
BRIGITTE SANTOS, RESTAURANT OWNER (through translator): Here, people are coming and they are spending less because people are afraid. They don't know what's coming next.
GOODMAN: Seafood may be the specialty here, but at lunchtime this day, few takers.
(on camera): Tourism is down 17 percent in Elvas this year. It's easy to get a seat anywhere in town, including on this tourist train.
(voice-over): We were the only customers on the train all day long. City hall has been running it for six years, but this date, service ended early.
JOSE MARIA CAMOES, TOURIST TRAIN DRIVER (through translator): There are no tourists now because everybody is talking about the crisis and each day, there are fewer tourists.
GOODMAN: If you look hard in Elvas, you can still find some bargain hunters with Portuguese textiles and small numbers of tourists taking in the Medieval sights. But they are not enough to fill the many seats at cafes and restaurants across town -- an old border town waiting for an economic turnaround.
Al Goodman, CNN, Elvas, Portugal.
(END VIDEO TAPE)
QUEST: So now, as we consider this worsening economic situation, we cross the Atlantic. You heard already earlier in the program, on Friday, the U.S. releases its employment report for June. Congress has failed to reach a deal that would allow the paying of benefits to the long-term unemployed to continue. In the weeks to come, a million jobless Americans stand to lose benefits. And that threatens to deal a new blow to the economy.
So, to New York City, where we caught up with a man who fears it won't be long before the unemployment checks stop coming.
(BEGIN VIDEOTAPE)
JAVIER HERRERA, UNEMPLOYED: My name is Javier Herrera. I live in Lower Manhattan. I've been working in health care for over 15 plus years. This is the first time in a long time that I find myself unemployed.
Initially, it was a blessing because I could -- I needed a break. But now, during the summertime, you'd rather be an air conditioned office.
Usually in health care, for the past 15 years, I've generally switched from one job to another within a week or two. This is my 13th week collecting unemployment.
I felt a bit about my industry. We are usually insulated from the recession. You know, there's always health care. There's always going to be a need for health care. But to my amazement, it's been very difficult. If it's hitting health care, it's -- the -- the recession is very deep.
I've been watching Washington with the talk of extending the bill. Now I heard it's on hold. I'm a little worried about that because this is crunch time for me. It's a, you know, 13 -- 26 weeks is just around the corner for me. This is the first time I've been in the Department of Labor looking for work. I came here today to learn about the 599 Program, which is a training program. It would allow me to learn a new trade while there might be a possibility that my unemployment may be extended.
EMILY APONTE, NEW YORK STATE DEPARTMENT OF LABOR: How do you feel like your resume is?
We are starting off to see people kind of at their midway point through unemployment, like Javier, who have been collecting for 10, 13 weeks and where, in the past, they would have found something within a month or maybe two months at the most out of -- out of work, they're not moving along. And their sense is kind of, OK, I've been out of work for almost half of what I'm going to get for my unemployment. Extensions aren't really moving along like they had been maybe a year ago.
What's my next step?
HERRERA: I live here. I live on -- on a tenement building. I'm not eating as much. My family seems to -- my mom calls me every day and tell - - tells me to come over to eat, you know. Everyone's been (INAUDIBLE). I'm OK. I'm just -- I'm -- subconsciously I'm worried, yes. Consciously, I'm doing the best I can.
As I get closer, I don't know, to be honest with you, I don't know what to -- what I plan to do. I don't know what's going to happen after the 26 weeks. And that's what scares me the most, wondering what my future will -- will hold for me, actually.
(END VIDEO TAPE)
QUEST: The plight of the unemployed. The unemployment numbers come out tomorrow.
Is it perverse that we spend half the program talking about recession and the economy and when we come back, we'll be getting away from it all with luxury holidays with places like this -- talking to the man who runs the Sandals holiday empire. How his luxury holiday has been impacted in just a moment.
QUEST MEANS BUSINESS.
Good evening.
(COMMERCIAL BREAK)
QUEST: All this talk of austerity, many of us are supposed to be cutting back -- we will be as tax rises finally start to bite and spending cuts are imposed.
Where does that leave people who are selling luxury vacations?
Joining me now, Gordon Stewart, chairman of the Sandals Resorts International, specializing in the high end hotels in the Caribbean.
Good evening, Gordon.
Many thanks for being with me tonight.
Now, look, all right, I'm sure you're going to tell me things are going gang busters and brilliantly for you. But surely you must be hear -- having more difficulties with recession.
GORDON STEWART, CHAIRMAN, SANDALS RESORTS INTERNATIONAL: Oh, no -- no question. But I think we -- we are doing very well. In fact, we had our best year last year. And we're having a better year this year as well. Simply by being more aggressive at marketing, putting more services in, taking advantage of whatever concessions we could -- we could get into tight upon our costs. We've been buying harder. We've been able to get a lot -- a lot more product and improved product at better pricing. And as an organization, we have managed -- managed to pull it together and (INAUDIBLE).
QUEST: One of the core things that I've always discovered in my reporting -- in economic reporting is that no matter how bad things get, people still value a vacation and they still will put resources into that vacation.
That seems to be true, doesn't it?
STEWART: Absolutely. I mean people get married. They're not going to stop getting married. And the other thing is, more than ever, people are going to look for a product they can rely on. They're going to what a brand and they're going to want product that people recommend and they can rely on. And they're going to want the best value they can get on the (INAUDIBLE).
QUEST: Now, what -- in Jamaica, the reputation of the island where you're so familiar with has been well and truly bloodied by the drug gang warfare and the arrest of the gangster -- the alleged -- alleged extradition to the United States.
How worried are you that this is going to sully your business?
STEWART: We -- we took a -- we took a bad hit, no maybe about it. There are -- sometimes out of bad comes good in that that -- that whole gang situation, it really exploded in front of all of us. But, at the same time, I think the government took a particularly good position where they went after everybody. Now crime is down, believe it or not, by about 80 percent. And the business had went down pretty badly. I think we were down by about 30 percent for the last five or six weeks. It's actually back right -- back to normal. It's hard to tell, but it's right back there.
We went out and -- and, in fact, we want to get the message out, that the crime has gone right down. It's quite extraordinary...
QUEST: Why...
STEWART: Sorry.
QUEST: No, I was going to say, Gordon, thank you very much, indeed.
It just -- it just really does prove this point, finally, doesn't it, briefly -- it just proves this point that it -- that the vacation, the tourism industry is amongst the most resilient in the world, isn't it?
STEWART: That's right.
QUEST: In a word.
STEWART: Sorry. And I tell you, you know, we are -- we are all flabbergasted because Jamaica has had its share of crime and, you know, in the Kingston part of Jamaica, which is far from the tourism part of it. But it has had -- had its problems. And...
QUEST: Right.
STEWART: -- and with the government going after the criminals in the way they have, has been an example to all of us. We were all unbelievable. We didn't know it could happen. So it gives us a far bit more secure platform to sell and provide the kind of comprehensive vacation that we want to do.
QUEST: Gordon, many thanks, indeed.
Come back again.
Maybe we'll come and see you in one of your places.
Gordon...
STEWART: (INAUDIBLE).
Thank you.
QUEST: -- of Sandals Resorts...
STEWART: Thank you.
QUEST: -- of Sandals Resorts International, joining me there.
The weather forecast. It's at that moment -- Guillermo, I'm telling you, Guillermo, you know, we -- we can't go on meeting like this with the weather.
Tell me, what -- please tell me what -- I'm -- listen, I'm going to be in New York for the weekend for the July the 4th weekend.
Please tell me there's nice weather in that, at least, part of the world.
GUILLERMO ARDUINO, CNN METEOROLOGIST: I think it's going to be nice. It's going to be warm. And I was actually hoping that you were going to ask me about the Caribbean, because I have it here behind me. And -- and...
QUEST: Even better. Even better.
ARDUINO: Your guest is going to be pleased that the weather is going to be nice for days to come. Now, we have some clouds here and there, but no tropical systems. The Caribbean looks fine. So go there to Sandals Resort. It's fine.
And where we have the problems, of course, is in the Gulf of Mexico. And I'm going to show the temps first. Twenty-nine in Kingston; San Juan, Puerto Rico, a beautiful place, 31; Cartagena, Columbia, 31 degrees here; Cozumel now, after the storm, 29 degrees and looking fine, because we had that storm in Mexico that now is fizzling out.
But let me tell you about Europe and also what's going to happen in Britain. The rain is coming. The rain is coming tomorrow. Remember, the heat will continue. In fact, we're going to see a lot of hot weather into Spain -- it feels to 38 degrees. And then we have the cooler conditions in Britain here with the arrival of this new front.
Also, Poland may see a little bit of a change, part of that country. Germany still warm in the area.
Well, let's see, the clouds prevail in the north. We're going to see a quick rain shower event into London. There you go, the forecast. Dublin with some windy conditions still, because we saw the rain. Milano with thunder. All this -- these green boxes mean that you are now going to be impacted by weather, therefore, delays at airports in those cities.
So here you have it. France looking fine so far, still warm. Madrid, 33 now. But the weekend it's going to continue to be even warmer; 26 in London; 31 in Berlin, or so; 27 in Istanbul. A nice time over here.
OK, the Gulf of Mexico in the clear. And that -- that is Alex. A category two hurricane when making landfall. Now a tropical storm fizzling out here over the mountains, the Sierra Madre in Mexico. Monterey is in the north and there are some mountains. Those mountains helped the cyclone weaken because of the rugged terrain, the interaction with the land actually causes the system to weaken.
But it is still alive. We are going to see, for some hours to come, it cause some problems. It was the strongest system in the month of June since 1966. So it is going to be a very busy season this year.
And this is, Richard, what we look at. They usually start as sandstorms and then they jump into the waters here of the Atlantic Ocean. They become tropical waves. For instance, we're going to be looking at this one. And then, if all the conditions are perfect, they may become tropical systems. And they come here to the Caribbean and North America and so on and so forth.
QUEST: Very interesting.
Good stuff, hey, Guillermo.
Many thanks.
I drove through a hurricane once, actually, and -- Brownsville to Matamoros. It was Hurricane Gilbert and it must have been 1988.
ARDUINO: Oh, a big one. Yes.
QUEST: It was. It was.
ARDUINO: Yes.
QUEST: And I'll tell you, I wouldn't want to do that again.
All right, many thanks, Guillermo.
ARDUINO: Thank you.
QUEST: In just a moment, just don't do it.
Can your choice of sports shoe turn you into a world champion?
No. But it could turn a world champion into a flop, in a moment.
(COMMERCIAL BREAK)
QUEST: An event like the World Cup could be marketing gold. Companies pay hundreds of millions to be associated with the kind of sports that people recognize just about everywhere. If you check out the stars on the World Cup payroll at Nike, the sports company, it's odd. Many of them have been snuffed out.
Is there a curse of Nike?
CNN's Justin Armsden reports.
(BEGIN VIDEOTAPE)
JUSTIN ARMSDEN, CNN CORRESPONDENT: The World Cup has brought with it much gripping football, but also an ad campaign by sporting giant, Nike, where it said it wanted to write the future -- a three minute extravaganza with the world's best footballers who were dreaming of what might have been.
(voice-over) But for most of the players in the campaign that were seen weaving their magic, the World Cup was a nightmare that ended with an early exit from the tournament. Marketing experts wonder whether the ad brought with it more than just global exposure.
NIGEL CURRIE, MANAGER, BRAND RAPPORT: They sign up the best teams, the best players. You know, they've got Brazil. They've got Ronaldo. They've got Wayne Rooney. They've got Tauristen (ph). They do cherry pick the very best teams and players. So it's pretty bad luck when it -- when it doesn't work. You know, so you've got to think they've been pretty unlucky in this World Cup.
ARMSDEN (on camera): In fact, bad luck might be an understatement. If you look down the list to who's out of the World Cup, you might be thinking that many of them were, in fact, cursed.
(voice-over): Italy's Fabio Cannavaro ousted in the group stage; Didier Drugbar (ph), a great African -- he's gone, as well. Frank Ribery - - many are wondering whether he was even there. And Wayne Rooney -- well, maybe life can imitate art after all. Christian Ronaldo his impact as the tournament so minimal, Homer Simpson might not even open the door next time he passes by.
(VIDEO CLIP)
CURRIE: When you take the unofficial route off of backing individual players and -- and individual teams, there's always a lot risk involved, because you're -- you're dependent, to a large extent, on those teams getting to the latter stages of events.
ARMSDEN: Nike's response?
"We are very pleased with the success of the campaign. It's amazing that four weeks after its debut, fans are still talking and debating about it."
As for the featured players, that's the beauty of sport and why we watch -- it's unpredictable.
(on camera): Well, of course, the ad can't be that cursed because Spain Says Fabbergast (ph) is still in the World Cup and Nike says it's had 17 million hits on the Web. So their marketing campaign has certainly had an impact there.
But it's not the footballers who might be frowning on the campaign, as well. Spare a thought for Roger Federer. He makes a cameo in it, as well.
And guess what happened to him at Wimbledon on Wednesday?
He's no longer taking part.
Justin Armsden, CNN, London.
(END VIDEO TAPE)
(COMMERCIAL BREAK)
QUEST: Tonight's Profitable Moment.
There are few business travelers or holiday makers who haven't had a shock upon returning home and seeing the size of roaming charges, especially if you've been using the Internet on any of the new gadgets that are around today.
The E.U.'s plan to have a monthly cap is not a solution. It merely lets you know you've spent a lot of money. It does nothing to cut the charges, as eventually they had to do with voice calls.
On our program tonight, we asked all the major U.K. operators to appear to justify their roaming data charges. All said no. Even the GSM Association wouldn't come on.
Look, the future is gadgets like this, but as long as the charges are so high, then the mobile information superhighway is destined to remain in the slow lane.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest.
Whatever you're up to in the hours ahead, I hope it's profitable.
END
