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Quest Means Business
BP Fends off Rumors of Hostile Takeover; Spain in the Middle of Great Economic Debate; Oil Reaches Lake Pontchartrain
Aired July 06, 2010 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAX FOSTER, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS: Digging deep, can BP drag its finances out of a hole.
Slash or spend? Spain sits in the middle of the great economic debate.
And four becomes three, Uruguay and the Netherlands meet on the pitch, but who takes the prize in our Economic World Cup?
I'm Max Foster in for Richard Quest. This is QUEST MEANS BUSINESS.
Hello, there.
BP is defying the speculation over its future. Tonight its shares are up in New York and up here in London. The oil giant says it won't issue new shares to raise money, reassuring investors that their equity will not be diluted. Analysts at the Royal Bank of Scotland raised their recommendation on BP shares to buy. They say the market is overestimating the cost of the incident, to BP.
But there are still huge question marks over its fate. According to one unconfirmed report in "The Times" newspaper, the British government is working on what to do if the company goes under. The paper cited an anonymous source as saying ministers were preparing for any eventuality.
On Monday the paper said the spill has cost more than $3 billion so far. At the current share price the cost of taking over BP would be around $99 billion, just over half what it would have been in mid-April. That is probably why there is so much talk about a hostile takeover bid, right now.
Well, let's look at where BP goes from here. Well, it is already saving money by not paying dividends to shareholders this year. But it doesn't know how much the disaster in the Gulf is ultimately going to cost. And it does certainly need options, one of those is borrowing. Well, it might be cheaper to borrow from banks than on the bond market. Citigroup estimates BP is $25 billion in debt. Not too much a problem, though, when your cash flow is over the next two years-well, it could be as much as $70 billion over the next two years.
You could consider assets sales. BP has a lot of attractive assets it could sell to raise money. It might take a long time to complete, though. Would BP get the price it considers realistic? Well, selling the family silver might not be good in the long run, even though it is an attractive immediate solution.
There could be a large investor bailout, for example. BP won't confirm or deny reports that it is seeking a white knight, as it is called. It says it welcomes an investment. Speculation that a strategic investor could come from the Middle East. But the Libyan oil chief, interestingly, said BP shares are interesting, right now. Stephen Pope is the chief global market strategist at in equity research at Cantor Fitzgerald, here in Europe. And I asked him how much BP could make from selling the assets first of all.
(BEGIN VIDEOTAPE)
STEPHEN POPE, CHIEF GLOBAL STRATEGIST, CAN FITZGERALD, EUROPE: One could make a list of all the potential assets that BP can sell, and they'd be able to raise substantial money. Certainly enough to fill the escrow fund amount and certainly a facilitate to allow them to settle what we know is the current cost of the oil leak, and perhaps go partly toward settling some of the environmental clean up costs. Trouble is, though, people know they are a distressed seller. So, whilst there might not be a fire sale price it would have to get assets away from, it is going to be very hard at the first go round of negotiations to get the very best price.
FOSTER: But they are good assets, and they are being sold for not other reason than the company is desperate. So won't other companies will be fighting over it? A lot of competition pushing the price back up?
POPE: It may very much depend what type of assets and where the location is. Also, you'll look at the physical situation of the asset. So, if it was a deep sea, deep water located oil bed, then given that we had this difficulty in the Gulf, and people still reviewing the safety operations. What needs to be in place to make sure this does not happen again. People might be hesitant to go and buy that sort of thing. If there were, say, easy access oil facilities. Then maybe those would be proving more popular.
FOSTER: OK. And in terms of the borrowing option, lots of different ways for a company to borrow money, going to the bond markets, going to a bank. That's difficult though, isn't it? Because they are not seen as a good bet for lending because their credit rating is down, basically?
POPE: That's right. In terms of going out to raise actual raw money from the capital markets, it is proving very tricky. What I think you'd find they could possibly go and find this white knight that might come through and put a very strategic investment in. But do the oil states really want to go and buy into another oil asset?
FOSTER: So this is another country, another company, buying a stake in BP?
POPE: That's right. My understanding is that the Kuwaitis were not very impressed because one time before they tried to buy BP and were rebuffed by the British government. Qatar possibly could-
FOSTER: (UNINTELLIGIBLE) now would it?
POPE: No, not at all. Not even the British government were talking about should they make a rescue package in the same way they helped out some of the banks, because this is an iconic British institution and-
FOSTER: And the state pension fund?
POPE: Absolutely right. The pension fund exposure is huge. What I think you might find is the wrote out a rights issue of new shares. I think they could go to bonds, but it would be tricky, because it is almost as though the boat has sailed. They had that chance to get into the capital markets early on. Wasn't taken really at the time it should have been done. So they are not as heavily endowed with cash as they need to be.
FOSTER: The other option that companies can look at in these situations is cost-cutting. But that is really an option for BP is it? Just purely in terms of PR, if they seem to be cutting costs, that is what is being blamed for this crisis in the first place.
POPE: That's right. And the whole issue behind this crisis was they were thinking about the bottom, i.e., profits as against safety. And if you start mentioning cost cutting, particularly in the context of BP, people will think what else is being cut? Is it the safety that is being cut, rather than any refinement of operations that they are going through.
FOSTER: OK, so what is the most likely option for BP right now, to get out of this hole?
POPE: I think what they're going to find is a combination of perhaps a white knight coming through, making a reasonable investment, but whether that is enough to help them out, I don't know.
FOSTER: They may have to sell the assets?
POPE: Yes. Then they have to start looking at certain asset sales. But of course if they have taken money from a white knight, they've given up a degree of independence. They'll probably have to listen to what that large shareholder will say is an appropriate asset to sell, and what they need to retain.
FOSTER: Stephen, there is an interesting piece in the "Financial Times" today, talking about the relief well, which should be going in, over the next couple of weeks, or so. Uh, suggesting that BP is doomed if that relief well doesn't work. Do you agree with that?
POPE: Yes, I think that probably is the case, because a few weeks ago they made a big sort of fanfare about they were two weeks ahead of schedule. Now we accept 40 such wells have been used in the past, at difficult sites around the world, but never to this depth. Let's don't forget. We are talking about 18,300 feet below sea level. And the pressures there are extreme. Rock is not rock as we know it. It becomes like a semi-solid. The pressure is high, the temperature is high. And one thing that could be a real danger is that they get closer to the actual incident site, they might create fissures in the rock bed. And that allows oil to get out from other sources. If that happens-
FOSTER: That is a bigger problem.
POPE: End game for BP, yes.
(END VIDEOTAPE)
FOSTER: Strong words there from Stephen Pope. Well, with every hour that passes, BP's problems get worse. As oil continues to pour into the Gulf of Mexico from its broken well, BP says it is collecting or burning about 25,000 barrels of oil a day, in the area. Scientists say the volume of the spill could be as much as 60,000 barrels a day.
Look at those live pictures. It really is the iconic image of this entire disaster. The work to drill two relief wells continues.
The impact is now being felt some way away from the site of the spill as well. Deposits of tar have now been found in two new places. One, on the Texas coast, west of the broken well. The other is in Lake Pontchartrain, near New Orleans. Our Brook Baldwin is there. I began by asking her why this area is so important.
(BEGIN VIDEOTAPE)
FOSTER (On camera): The story that you are covering today it is a relatively new story for us, around the lake. Just tell us why it is important.
BROOKE BALDWIN, CNN CORRESPONDENT: It is significant because this story is now really officially personal for so many people here, in and around New Orleans. When you see this-this is what tar balls look like that is now caked up within this lake, Lake Pontchartrain. It is has really driven this point very much so home. The fact that this oil has traveled some 160 miles up from the leak site, all the way inland is significant, both literally, in terms of livelihood, and also psychologically for the people here of New Orleans.
FOSTER: Yes, so having a huge impact, I guess, on the local businesses there. The boats behind you, they are all intertwined with the local economy.
BALDWIN: Absolutely. Just to put it into perspective, this lake here is the livelihood, serves as the livelihood for so many people. Because fisherman, both commercially and recreationally come out here each and every day and try to make a living. And what's happened as a result of this washing within this lake, they have had to shut down the commercial fishing for at least a third of the lake. And I spoke with one young man, he referred to himself as a bait boy. And it is his job to fuel up some of these boats and to bring the bait to the fisherman. And he's pretty much worried that his job, he can pretty much kiss it good bye. Take a listen.
JARRETT COCRAN, BAIT SALESMAN: You can't get live bait. So that is pretty much were we make most of our money from is that live bait.
BALDWIN: Because they shut down the commercial fishing?
COCRAN: Yes. From the Highway 11 Bridge, all the way back to Lake Borgne, and Biloxi Marsh, all the way back through Hopeville and out through the Gulf, pretty much. And all of that is shut down.
BALDWIN: I also spoke with Jarrett's father, Jeff, who has been fishing in these waters, he told me for the last 35 years. And while some of this tar and oil is certainly concerning he also recognizes that oil here, for a lot of people along the Gulf Coast, oil means big business.
JEFF COCRAN, RECREATIONAL FISHERMAN: Hopefully they'll like, you know, they'll eventually degrade, over time they don't seem to be that bad. There really no old sheen. The tar balls are whether they are part of the multiplication process that BP, that they're doing offshore, and they're getting up here because there is heavy tidal movement through the Rigolets Pass. And therefore, it doesn't surprise me that it is here.
BALDWIN: At least today, for now, the sun is shining. There are all kinds of clean up crews helping lay boom, and make sure these barges are in place so they can keep the oil out of these precious waterways.
(END VIDEOTAPE)
FOSTER: Brooke Baldwin at Lake Pontchartrain there.
Now, a warning to travelers. Flyer beware. Airlines are not all the same when it comes to safety. Find out who has fallen foul of Europe's airplane police in just a minute.
(COMMERCIAL BREAK)
FOSTER: Safety first, the European Commission is slapping more restrictions on Iran Air, the state-owned Iranian airline, saying it is a safety issue. Two thirds of airlines' fleet is now banned from landings at any EU airport. Some of its planes were already on the European black list. The European Commission says it will continue to monitor Iran Air and work with the company to improve standards. The ban is part of the latest update of airlines subject to EU restrictions. European officials say there will be no compromise when it comes to air safety. Isha has been following this story for us.
Isha, what have you found out?
ISHAY SESAY, CNN INT'L. CORRESPONDENT: Well, Max,
(CONTROL ROOM CROSS TALK)
FOSTER: We have a mic problem for you? So, I'm going to come over here and you can borrow mine.
SESAY: OK, fine.
FOSTER: Just take us through this again.
SESAY: So, there are 278 airlines currently on the blacklist.
FOSTER: Yes?
SESAY: And the European Commission updates this every three months. And if you take Iran Air as an example, they were put on the list in March. And three months later, in May, after safety inspectors visited Iran they unanimously agreed that the restrictions should be expanded to include their Boeing 747s, their Boeing 727s, and their Airbus A-320s.
FOSTER: Some suggestion there is some politics at play here. Do you think there is anything in that?
SESAY: Not really, but the industry experts that I've spoken to have touched on the fact that they are-that the-that there are U.S. sanctions imposed on Iran, so it makes it very hard for them to buy the spare parts they need for their aging aircraft. But European Commission has told me that that is just one factor and that it really comes down to the basic maintenance procedures of specific airlines.
FOSTER: OK. So, if I'm invading your space, I have to near the microphone.
(LAUGHTER)
Because yours is broken.
Just explain then, how you actually get on this list? Or the airlines get onto this list?
SESAY: Well, it comes down to resources and expertise. And the countries and airlines need to be able to demonstrate that. And so it is from having the right engineers and maintenance staff, down to the pilot training. So it is a combination of having the right foundations, coupled with the safety orders and incidents reports that could raise a few red flags. And so if flags are raised, then the airline in question would be brought before the air safety committee, to explain themselves.
FOSTER: So a thorough process, but then that raises a question, is it as easy to get off the list once you are on it?
SESAY: Well, that's the thing. When, uh, when airlines are on the list, then they work very closely with the European Commission and EASA, the European Aviation Safety Agency. And they actually send experts to that country to monitor the airline and to assist them and for them to observe their maintenance procedures. And they will stay there until they are happy that safety measures are, safety standards are being met. And that is what happened with the two Indonesian carriers, Metro Batavia and Indonesia Air Asia, who got the thumbs up, the all clear. That they were doing everything that needed to be done and they have been taken off the list.
FOSTER: OK. Isha, thank you very much indeed. Thank you very much for that update. It is a fascinating story that one.
Now, elsewhere two teens and two sets of very zealous fans. Last week the Dutch watch their team beat Brazil to make it into the World Cup semifinals. Uruguay's fans are just as excited as kickoff approaches. There are the Dutch fans gathered there, huge amounts of them. Very nervous. We'll go live to both countries, though, in just a moment.
(COMMERCIAL BREAK)
FOSTER: Now, in a matter of minutes Uruguay take on the Netherlands for a spot in Sunday's World Cup final. Today's game is the first of the semi-finals. Of course, Uruguay will need to be a their very best against Holland. Who have won all of their five matches so far. Even though Diego Fallon (ph) is in fighting form, the South Americans will be without one of their to scorers. Striker Luis Suarez is serving his suspension for the handball that got his team into semis.
The Netherlands is relying on Wesley Sneider (ph) who's double against Brazil sent his team into today's match. Relatively few people outside the Netherlands thought the Dutch would do so well in South Africa. Back home, it is a different matter though. Diana Magnay joins us from Amsterdam.
An incredible scene, Diana. It must be amazing to be there.
DIANA MAGNAY, CNN INT'L. CORRESPONDENT: Hi, Max. Well, I can hardly hear you, but it is an incredible scene. I'm going to get out of the way so you can see it a bit better. A sea of orange if ever you've seen one. And the organizers say there are about 40,000 people here, right in the heart of Amsterdam. They are still jubilant about their victory over Brazil and they are very excited about defeating Paraguay. They're pretty confident that they will. And, of course, they haven't lost a single game this tournament, as you said, Max. And if they win this one it will make up a winning streak of 24 games dating back to September 2008, so pretty impressive.
It hasn't quite been the perfect tournament, that has taken place, it is a very stable football (ph), but not necessarily the most beautiful. But the question is, can they make it through this semi-final. And in this finals, do they really have the killer instinct to take on whoever it is, Germany or Spain, if they do manage to beat Uruguay this time around. The fans are telling me, Max, that they can. They are going to beat Uruguay at least 2-nil. That is what I've been hearing from some very confident fans behind me, Max.
FOSTER: Diana, thank you so much. I hope your voice holds up for the next couple of hours.
Uruguay takes a backseat to no one when it comes to support. And you can see, you can be sure the fans back home, there, won't miss a minute of the action in Cape Town. Brian Byrnes joins us now from a mass of fans there.
What do you have behind you there, Brian?
BRIAN BYRNES, CNN INT'L. CORRESPONDENT: Well, things here right now in Montevideo are chaotic, Max, I can tell you. You can see in the Plaza Independenzia (ph) behind me, there are literally thousands of people lined up watching the match. Getting ready to watch the match, I should say, on the big screen. They've been throwing confetti. Throwing fireworks, chanting-you probably hear the fireworks behind me right now. They've been singing the song, "Soy Soleste" (ph), "I Am A Sky Blue".
Now Uruguay is really happy to be here. No one really expected them to advance to the semifinals. Of course, they are going to have a major match in front of them today, against the Dutch team. But really, when it comes down to it, South American football usually means Argentina and Brazil. The fact that Uruguay has advance this far has really made the people here in Montevideo, throughout the entire country of Uruguay, very, very proud, Max.
FOSTER: Yes, a new form of rivalry, perhaps. Tell us about Luis Suarez, how worried are people about him not being in the match?
BYRNES: Sorry, Max, I can't quite hear you, but let me tell you they are going to have a major challenge in front of them today. Of course, Luis Suarez had a red card in the last match against Ghana. He will not be playing today. He was responsible for three goals already in the tournament. Because of his hand ball he is out of this match. So, really Uruguay is going to be looking to striker Diego Fallon, who also has had three goals in the tournament so far. They are really going to look to him to score some goals today. I can hear the chants getting louder and louder. We are just minutes away, Uruguay is ready to win, Max.
FOSTER: Makes you want to be there, doesn't it? Brian Byrnes in Montevideo. Thank you very much, indeed.
If there is a World Cup match on, we have to ask who is taking the lead in the Economic World Cup? Between Uruguay and the Netherlands, of course. Jim joins us now.
Lovely table. So we can play?
JIM BOULDEN, CNN INT'L. CORRESPONDENT: Lovely little set up here.
Here we go, I've already got one.
FOSTER: And I'm at an advantage here, because you have to talk while we do this.
BOULDEN: I've got to talk, of course, about the economics of these two countries.
Well, Uruguay a much smaller country, much higher unemployment. You look, here, unemployment rate for Uruguay, nearly 8 percent. That is going on recession numbers. We saw a lot of places like the U.S. and certainly here in the U.K. Unemployment much lower in the Netherlands. Of course, a much bigger economy.
But look at this, budget deficit for the Netherlands, going on over 6 percent this year. It is estimate Uruguay will have nearly, just about, little bit over 1 percent. And growth in Uruguay, much, much stronger, expected this year. Of course, South America, very different economy. Didn't go through all the huge trouble last year and the year before, that we had.
FOSTER: Now it is benefiting.
BOULDEN: It is benefiting. When you think about how well the Brazilian economy is doing, even the Chilean economy. We've been talking about it a lot when we've been doing all of this.
FOSTER: Yes.
BOULDEN: Despite the earthquake, there. So, Uruguay, as far as unemployment numbers not great, deficit much better and much higher growth.
FOSTER: And reflecting a lot of what you said throughout this series, because you have a situation where bigger countries come out worse, because they've not got the growth. They've got the problems ahead. And it is going to last for years.
BOULDEN: Yes, and I think if you look at that number, 8 percent unemployment, not really that bad. I mean, it is not great but we're not talking Spain, for instance, with a 20 percent unemployment rate.
FOSTER: I know you are a football fan, Jim. Did you expect to be at this point, with these two teams, in the semi-finals?
BOULDEN: No, I mean, you know, Uruguay has won it twice. Hasn't been around as a serious football nation for a long time. The Netherlands, you wouldn't have even dreamed of thinking they would be here. And so that is, you know, really exciting for them.
FOSTER: OK, well, next time you are going to have to play this whilst-
BOULDEN: I'll try.
FOSTER: Whilst doing all of that. For the next semi-final. Even the final, what will you do for the final?
BOULDEN: That will be Sunday.
FOSTER: Jim, thank you very much, indeed.
Don't forget you can follow both semi-finals lie with CNN on Twitter. The Netherlands against Uruguay, right now and 24 hours later, Spain versus Germany. Follow World Cup CNN, on Twitter, for match commentary. Then after the final whistle, we have results interviews and video reports at CNN.com/worldcup. And the highlights on the TV, of course.
Well, Spanish football fans keep their fingers crossed for the second semi-final on Wednesday. The government has been looking for support in the financial markets. Find out if they scored a winner, in just a moment.
(COMMERCIAL BREAK)
FOSTER: Welcome back. I'm Max Foster in London. More QUEST MEANS BUSINESS in just a moment, but first let's check the main news headlines this hour.
(NEWSBREAK)
FOSTER: All this week on QUEST MEANS BUSINESS we are holding the great economic debate. Is it time for governments to cut spending to sustainable levels, or to stimulate their economies, for all they're worth. On Monday we heard from some of the world's most noted voices on economics. Nobel-prize winning economist Paul Krugman, he is an advocate for more government stimulus. But Harvard Professor Ken Rogoff, a former chief economist at the IMF, said, "Prudence was the order of the day."
And Joseph Stiglitz, another Nobel-winner, and former chief economist at the World Bank, agreed. I also spoke to the Swedish Finance minister, Anders Borg, he told me now is the right time to rein in spending.
(BEGIN VIDEOTAPE)
ANDERS BORG, FINANCE MINITER, SWEDEN: Terrible fiscal policy in Europe. Our households will start to save, and -- and the companies will not invest. So the best thing we can do to safeguard recovery is to clarify that we have a long-term sustainability when it comes to public finances.
(END VIDEO CLIP)
FOSTER: Well, Spanish debt is in demand, easing fears that the country will near -- need a bailout. Spain raised more than $7.5 billion by selling 10-year bonds on Tuesday. Demand was such that it could have sold twice as much paper as it did. The interest rate on the bonds will give buyers a return of around 4.9 percent a year.
Earlier, I spoke to Gayle Allard.
She is a professor of economic environment and country analysis and vice rector of research at I.E. Business School in Madrid.
I asked her about where Spain stands in the debt -- in the debate between cutting and spending.
(BEGIN VIDEOTAPE)
GAYLE ALLARD, I.E. BUSINESS SCHOOL: Well, they're -- they're cutting less than other countries. They -- they're raising the value-added tax. And they've had -- they've cut public sector salaries so you can't really say that they've done a sort of British thing, where you're really -- really cutting back on programs in a major way and reorganizing the public sector. You don't -- you haven't seen that yet.
FOSTER: Is this a compromise, then, something between the British and the American ways of dealing with things?
ALLARD: I think, actually, it's a -- it's actually sort of hiding their heads under the sand a bit because they do need to -- to face this head-on, the way the British are. But -- but they're -- they're touching just what's easy, right, raise -- cut the salaries of your public employees rather than reducing ministries and, you know, really cutting some of the wasteful expense; raising the value-added tax instead of -- instead of, again, cutting spending, which is not a very good option in a country where unemployment is at 20 percent and -- and consumption is really suffering.
So probably -- probably exactly the wrong thing to do, I would say.
FOSTER: But as we learned today, government bonds are still selling pretty well, from the Spanish government, unlike what (INAUDIBLE)...
ALLARD: They are selling well.
FOSTER: -- the Greek example. So they can continue on this chart (ph), can't they, whilst they're a good bet to lend to?
ALLARD: Well, the good thing about Spain is they did their -- at least on the fiscal side, they did their homework before the crisis. So Spain was in -- in a pretty good state before the crisis started. Debt was only about 40 percent of GDP. So that's -- that's the best card they have to play.
Where they didn't do their homework was on the other side of the -- the economy, the productivity/competitiveness side. But definitely on the fiscal side they -- as they prepared for masterage (ph), they cut spending.
So, yes, there's some room there.
FOSTER: Another criticism of the homework, though, is that they -- they want to cut the deficit, don't they, to 3 percent by 2013, I think it is. But Spain is based on...
ALLARD: Well...
FOSTER: -- unrealistic growth forecasts, a lot of economists are saying.
Is that something you agree with?
Did they go wrong there?
ALLARD: Oh, the growth forecasts are unrealistic, yes. I mean I think it's hard for me to figure -- and I don't know how other economists see it -- but it's hard for me to see where the growth could be coming from in the Spanish economy right now, because we've got such high unemployment, you've got, you know, your foreign markets, 70 percent of them in the euro area, so the weaker -- the weaker euro is not helping your exports at all. And there's no possibility for devaluation.
Government isn't going to do major spending. Investment is still in the doldrums because of the -- the crisis in the construction sector.
So I don't think -- I don't think we're coming out of this one very quickly.
FOSTER: Are you in the camp that believes there will be another recession by the end of the year?
ALLARD: No, but I think we're going to be basically stagnant for some time, which means unemployment continues to climb -- not as fast as it has been, but it keeps going up there. Which then, again, affects your consumption.
So this is a pretty bad downward spiral -- a slow ski downwards spiral.
(END VIDEO TAPE)
FOSTER: Again, well, tomorrow on QUEST MEANS BUSINESS, we continue the debate -- it's stimulus versus austerity. On Wednesday, I'll be talking to David Branchflower, a professor of economics at Dartmouth College and a former member of the Bank of England's monetary policy committee.
Up next, though, the economy is facing a lot of headwinds. We'll look at where it's good to park your money in the current climate.
Stay with us for that.
(COMMERCIAL BREAK)
FOSTER: Let's take a look at the numbers on the stock markets this session. The European markets finally broke out of that long losing streak, making up some of the ground they've been giving up recently. Mining shares did well here in London and banks rallied right across the region, as concerns eased about the health of the financial sector. Spain's successful sale of 10-year bonds helped to boost confidence in the Eurozone.
BP also helped to lift the FTSE 100 after the management told investors it won't dilute their wealthy by issuing new shares.
Traders on Wall Street are back at work today. In just the first minute of trading alone, the Dow jumped by more than 100 points, though the rally has since fizzled out.
Alison Kosik is live at the London -- London? -- New York Stock Exchange.
It hasn't moved yet, I don't think -- Alison, a new report on the economy shortly after the opening bell, which affected things slightly.
ALISON KOSIK, CNN CORRESPONDENT: It did, Max. You know, we got a mixed picture with that report that you mentioned. But it's really in line with the theme that we've been seeing where we get these results that show these baby steps forward but really not much beyond that.
We found out that the service sector grew in June, but the pace was slower than in May. Now, the service sector is the biggest part of the U.S. economy. It overtook manufacturing years ago. It actually accounts for 80 percent of all employment. I'm talking about at places including restaurants, hotels and retail workers.
It also gives us some clues into consumer spending. Of course, if we see growth in the service sector, it means people are spending money at these places and that could lead to hiring more in the service sector.
But the bottom line with this report, Max, it was good but not great, because what it does show is that the recovery here is slowing down -- Max.
FOSTER: At one point, I think the index was up 170 points, wasn't it?
So what happened after that?
KOSIK: You know, it was. And we thought that we'd keep that rally going. But I think reality set in about these reports that Wall Street has been getting one after the other and then, you know, the stocks lost momentum. Right now, the Dow Jones Industrial Average only up about 36 points. You know, you think about it, looking back, you know, just recently, we found out that GDP grew in the first quarter, but it grew at a slower pace. The private sector is adding jobs, but not enough jobs. And -- and those reports have actually sent the S&P 500 tumbling 16 percent, just hitting its April highs.
And we're now getting close to that bear market territory. And that means that when we hit that bear market terror -- territory, if we do -- that's when markets are at 20 percent off their recent highs. And that was in April. But the good news is that means stocks are cheap, which is why we saw a lot of bottom feeding earlier today. We're still seeing a little buying, as well. We did get a positive report on Australia's economy. That boosted overseas markets.
But, Max, don't be fooled by the blue chips gains that we saw earlier today. It doesn't mean our economy is any better than it appeared last week. But many traders are telling me that the selling may have been over done. And that's why we saw all that buying at first. Now we're seeing profit taking -- Max, back to you.
FOSTER: Alison, thank you so much for that.
Well, a return of investors' appetite for stocks, perhaps, today, but if you have cash that's looking for a home, what should you be looking at?
Frank Cochran is the founder of FSC Investment Services.
He helps people decide where to put their money, including a few celebrities. I'll be a client of yours one day.
FRANK COCHRAN, FOUNDER, FSC INVESTMENT SERVICES: Well...
FOSTER: Once I've made it.
COCHRAN: We help people to make it, as well.
FOSTER: OK. We're talking there about the stock market. It's such a roller coaster. You've got to be a real expert to be on top of matters in the markets right now, haven't you, to be in stocks?
COCHRAN: Well, the -- the old saying is that information is king and certainly in stock market terms, that is definitely the case at the moment. We're watching a number of indexes -- it was interesting what Alison was saying there. One of the main indexes we use is a fairly spurious (ph) one called the Harley Davidson Index, because in the States, the more Harley Davidsons are sold, the more affluent people are able to -- to go out and buy things.
FOSTER: And it's been fairly accurate over the years, hasn't it?
COCHRAN: Yes, it has. It's been quite accurate because the -- the sales drop, at the moment, it tells you that the people in America aren't spending money. So they're trying to sort of feel their way through the recession, as well as the -- the people over here are.
FOSTER: And for people that are just worried and they perhaps haven't got a financial adviser because they haven't got enough cash, what -- what would you suggest they do right now?
Are you suggesting -- it's not a time to take risks, to stay with cash -- or are you suggesting they should be investing somewhere?
COCHRAN: No, it's actually the opposite because if we look at the -- the markets as they are today, most people will troll the banks and (INAUDIBLE) to get the best rates. But those rates aren't going to really give them a real return for their capital, whereas at the moment, we are seeing a -- a bottom feeding situation, where stocks are cheap. So if they're buying them now, the trick is to spread your risk, buy the best you can and really, advice doesn't cost a lot of money, because if you get it right, it will last you for a lifetime.
FOSTER: We've got some examples here of people -- I'm not saying these are the people watching, but they're good examples to consider. Someone who's just retired will have a lot of cash and they've got to invest it somewhere to get an income. And these are really tough times for that right now, aren't they, because the annuities, as they're called in this country, are difficult?
COCHRAN: Annuities aren't really the only way forward. I mean that - - the -- the -- the basic starting off block from a pension point of view, but if they're talking about spending actual physical cash, the investment bond market can give them a good return for the capital. It's all about the level of risk they want to take and really choosing the right funds to put the money into and gleaning the best return you can.
FOSTER: OK, footballers, they are the envy of the world -- I'm sure you love having footballers on your books, don't you?
COCHRAN: We -- we've -- we've got a good spot for the footballers...
FOSTER: Because they have cash but the beauty of it is that it comes in regularly every week, every month. So they're in a great position right now.
What are you advising them to do?
COCHRAN: Well, we -- we use a term called pound cost averaging, which means that at the moment, they're buying a large number of units in funds which, in the future, when the prices to rise, will benefit them. And, as you say, with a football player, because they can accumulate a lot of money over a period of time, they're doing very well.
But remember one thing -- their career is very short, so they need to...
FOSTER: OK. And a lottery winner -- you know, we all want to be a lottery winner. I'm sure I'm speaking for everyone watching.
COCHRAN: Nice.
FOSTER: It's very easy to loose that huge amount of money that you get, isn't it?
And they often come to people like you for advice.
And what do you -- what would you suggest to a lottery winner coming to you right now?
COCHRAN: Well, the lottery winner, there's a number of funds out there in the marketplace at the moment -- and contracts -- which give a guaranteed underpinning to the capital. So we can actually invest the money in the equity markets so they can get the best return from the money.
But should there be a period of time where the markets do turn sour, their capital is secured and they're not going to lose it.
FOSTER: OK. Good stuff.
Thank you very much, indeed for joining us with that.
COCHRAN: My pleasure.
FOSTER: And the advice continues as the markets go up and down.
Let's check on the weather advice for you.
Jenny has that for you from the Weather Center -- hi there, Jenny.
JENNY HARRISON, CNN METEOROLOGIST: Hello to you, Max.
I'm going to start out with conditions, actually, in the U.S. this time around. I'm going to start by showing you the satellite. Quite a bit of activity across the Central and North Plains; also, you'll notice, in the Gulf of Mexico. So let's have a look at what's going on there.
But I'm going to come back to this big gap of nothingness across the Mid-Atlantic and the Northeast.
Now, meanwhile, across the South, you can see the onshore flow with all these showers and scattered thunderstorms and you can see where they are, as well. All this activity is really impacting those areas where the oil is at its thickest.
The winds over the next couple of days still coming in with that east- southeasterly flow, so pushing all of that oil, of course, toward the shore. And you add onto that the currents and the tides. And you'll also notice how it's really pushing it now out toward the coast of Texas. So that is actually fairly significant given the tar balls that have been reported.
And as we go through the next two to three days, you will see the spread of that oil that's known as the jeffe (ph), again, along those beached areas that are beaching here, the areas shown in red. And this line worth mentioning. This is where there is also the sheen on the surface. And, of course, out toward the west here we have got the coast of Texas.
So not looking good in terms of the weather conditions there in the Gulf of Mexico.
But what is going on across the Mid-Atlantic and the Northeast?
Well, I can tell you, some record breaking temperatures already. If we look at the current temperatures right now, New York at 38 degrees Celsius. In fact, it's reached 38 in Central Park. It has reached 4 -- 39 degrees Celsius in Newark. And that, of course, is well over 100 degrees; in fact, about 102.
But New York, it feels like 40 degrees Celsius because of that really humid air, because of that area of low pressure. It's pulling all the moisture off the Atlantic and so it feels like 40 Celsius. That is 108 degrees Fahrenheit.
So, how are people coping?
Are they coping?
Let's have a listen.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: (INAUDIBLE) what they are doing (INAUDIBLE) to keep my family, you know?
UNIDENTIFIED MALE: I hear it's supposed to be, you know, 101, 103. So like I say, we just keep on working. We're -- we're very busy right now with work. So it's not that we can stop.
UNIDENTIFIED MALE: (INAUDIBLE).
UNIDENTIFIED MALE: It was like a (INAUDIBLE).
UNIDENTIFIED MALE: I'm waiting for a storm.
(END VIDEO CLIP)
HARRISON: Oh, I think we can safely say that...
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: It's very hot.
(END VIDEO CLIP)
HARRISON: I think we can safely say people are pretty happy about it. They seem to be coping pretty well out there.
But let's have a look at what's going on in the next few days, because one of the up sides to all this heat is that we will actually not have any rain in the forecast. I say that because it just tends to make it feel more humid and obviously very miserable at the same time. But we've go this big gap still, with the high pressure in control. But we are keeping an eye on what's going on in the Gulf, because, actually, as well as the showers right now, there is the possibility of a new storm system developing. Now, it doesn't look as if it's going to develop there. But even so, the National Hurricane Center giving it about a 30 percent chance. It's still producing very heavy rains across the Yucatan Peninsula. All the models pretty much in agreement, heading across the Gulf of Mexico. Very warm waters here, remember. That's why it could develop and pushing across into the southern areas of Texas.
There's not many delays to report at the airports on Wednesday. Dallas probably is seeing the longest with the thunderstorms. And just before I head back to you, Max, temperatures, well, look at the Middle East. We've got temperatures here about 8 degrees above average. So if you thought it was hot in New York, 50 Celsius in Kuwait City on Wednesday. That is 122 degrees Fahrenheit.
FOSTER: It never ceases to amaze, does it?
It happens every year, but it's still the most incredible thing.
HARRISON: I know. You're right.
FOSTER: Thanks so much.
Thanks, Jenny.
Now, if you're looking forward to the arrival of the latest social networking gadget from Microsoft, we're sorry you're going to have to be disappointed. The company won't now be releasing the new Kin, its new Smartphone. We'll tell you why that's not happening now.
(COMMERCIAL BREAK)
FOSTER: And it is day 78 of what is called the Gulf oil crisis, that leaking BP oil well and a potentially powerful weapon in the fight to clean up the ocean is on the spot but has yet to be put into service.
CNN's Allan Chernoff looks at the problems besetting the "A Whale" -- a ship that's equipped to suck oil out of the sea.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: The "A Whale," so far, has been more of a minnow when it comes to cleaning up oil. Rough seas have harpooned its ability to skim oil near the BP gusher.
(BEGIN VIDEOTAPE)
CHERNOFF (voice-over): Test of "A Whale's" abilities so far are inconclusive -- meaning the massive converter oil tanker, three and a half football fields long has yet to prove its Taiwanese owner's claim that it can skim between 15,000 and 50,000 barrels of oil off the sea in a day.
(on camera): It's supposed to be able to skim greater quantities than any other vessel on the planet.
CAPTAIN BRIAN KELLEY, COAST GUARD CHIEF OF STAFF: That's what they claim.
CHERNOFF: That's what they claim.
KELLEY: Yes. And that's why we're testing...
CHERNOFF: So far?
KELLEY: -- testing right now.
CHERNOFF: So far...
KELLEY: There are...
CHERNOFF: It's delivered?
KELLEY: They're -- right now, they're under a testing evaluation. And we haven't completed that yet. As a matter of fact, the ship just asked for an extension to their -- their testing evaluation period, which we accepted and approved. So they're going to be able to continue that test until Thursday morning.
MARK WILCOX, COAST GUARD COMMANDER: We haven't seen a very large amount of product. Early indications indicate that -- that not a lot was collected.
CHERNOFF (voice-over): That so-called product, crude oil floating in the sea, hasn't been concentrated enough, according to BP, for "A Whale" to skim effectively, even though it appears the ship has been surrounded by pools of oil just a few miles from the gusher.
HANK GARCIA, BP SPOKESPERSON: We've got oil coming up from over a mile below the surface. And it doesn't always come up in one spot.
CHERNOFF: "A Whale" may still prove itself, but the vessel will have to do so before BP officially hires it to join the cleanup fleet. And if that's to happen, the sea will need to cooperate.
GARCIA: And when you've seas six foot, eight-foot seas, it's not going to lend itself to -- to a good capture of the oil.
CHERNOFF: As crude continues gushing into the Gulf, skimming has been scant. Only 1,100 barrels of oil were skimmed in a 24 hour period from Sunday to Monday -- less than the amount pouring out of the blown out well in an hour, using the most conservative estimates.
UNIDENTIFIED MALE: We see two barges.
CHERNOFF: The Coast Guard has been able to pinpoint traveling pools of oil from the sky.
KELLEY: The aircraft get on top of the oil. They can identify what type of oil it is and then they can vector in the skimmer vessels right to the spot.
CHERNOFF: The Coast Guard anticipates seas will soon calm, which should give skimmers, including "A Whale," an to more effectively do their jobs
Allan Chernoff, CNN, New Orleans.
(END VIDEO TAPE)
FOSTER: Well, that's the picture from New Orleans.
We're going to take you to New York now and the United Nations, because Queen Elizabeth is due there in the coming moments. And these are the live pictures of the -- of the doorway that we understand she will be coming through. Lots of security.
And actually there within that building is our very own Richard Quest -- Richard, this isn't unheard of, although it's a pretty rare occasion.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: It is, indeed.
Good evening from inside the General Assembly.
Now, I'm in Booth 13 overlooking the G.A. Building. You're looking at pictures of where the queen, having arrived in New York, will be driven down and into the delegates' entrance at the United Nations.
From where I am standing at the moment, looking at the G.A. Building itself, I can see one chair -- one long, big chair where the queen will be sitting as she's introduced by Ban Ki-moon, the secretary-general. He is going -- in the remarks that we've seen, in the early remarks that we've seen, he makes some very modern remarks about the ma -- Her Majesty, "People's to Beckham," for example, is one of the phrases I believe he's going to use.
In the delegate hall itself, the chairs are now filling up. The public area is full. It is about, Max, 10 minutes before we are expecting the queen in here. It will be a short speech, but clearly an important one for the United Nations and the queen.
FOSTER: Just to let you know, Richard, I know you're within the building, but we can see Ban Ki-moon there, gathered at the door with him is other officials. So he's going to welcome her in.
She's a representative not just of the U.K., I reckon -- I suppose, Richard -- but the whole of the Commonwealth, so a whole list of countries represented there by her.
QUEST: Yes. Well, the U.K., in many ways, the least of it. There are 16 realms, Max, from Antigua and Barbados to the Solomon Islands and the UK-Australia-Canada in between.
In addition, the 54 members of the Commonwealth of Nations. And that is why, for 60 years, she has had the wisdom and -- and talks to people. And what the powers are telling me is that what this speech is going to be about is drawing the strands of all those years of experience. That's what she wants to talk about today. It's not a -- an elderly woman with silver hair. It's a leader who has been there for 60 years.
FOSTER: Just to inform viewers, what you're seeing here is an image of the entrance to the United Nations in New York. Queen Elizabeth due there any moment. And the welcoming party is lined up, headed, of course, by Ban Ki-moon. And he's there on the right. And we're going to see her coming through the doors at any moment.
QUEST: Yes.
FOSTER: Our very own Richard Quest has been following the queen.
She's been to Canada already, hasn't she, Richard?
QUEST: Nine days in Canada, what one person described as a, you know, absolutely exhausting trip. And one little fact for you here, as the queen arrives. It is now the hottest July the 6th on record. Apparently as of 2:22 in the afternoon, temperatures hit 102 degrees in New York City.
So the queen is here. It's a roasting day. But she, of course, is used to Africa, so she won't be too fazed by that.
FOSTER: And she'll be going to Ground Zero, I understand, which seems to be a formality these days when heads of state do visit New York.
QUEST: Oh, it's more than just a formality for Her Majesty. Yes, she will be going to pay her respects and to lay a wreath at Ground Zero. But -- but the -- the -- she will then go on to the British Garden of Remembrance in -- in Hanover Square, where Prince Harry laid the branch of a tree. She will dedicate that particular British garden. She will also meet some of the families of the 67 British citizens who lost their lives in 9/11.
You know, this is an institution -- and I'm just back from the UN, briefly, Max. This is an institution which has seen presidents, it sees prime ministers. It sees foreign ministers. But only once in the last 60 years has this woman been here and addressed it before. So there's a festive and an interesting atmosphere in these buildings that actually they're watching a little bit of history in a building that's seen so much.
FOSTER: And Ban Ki-moon lined up there at the entrance to the United Nations, getting ready to -- to welcome Queen Elizabeth -- Richard, the -- the key difference, of course, between the queen and the -- the presence of the prime ministers is that she hasn't got any political power.
So, really, what can she achieve by speaking there?
QUEST: Oh, I think that, as the Japanese ambassador -- the Japanese ambassador speaking to us just here in a short while ago, said to me -- said to Richard Roth, our correspondent, we've been waiting for a long time for Her Majesty. Her experience along time will be interesting and inspiring.
The United Kingdom is one of the founding members of the UN.
Now, also, as Ban Ki-moon will remind us in his speech, four of the largest contributors to United Nations peacekeeping forces come from the Commonwealth. That obviously includes the United Kingdom, Canada and Australia. So the links -- the -- the United Kingdom is a member of the Sec -- is a permanent member of the Security Council, as well.
So she comes here not just to kick a couple of boxes (AUDIO GAP)...
FOSTER: We seem to have lost the signal there with Richard.
He's on his phone within the United Nations.
We're going to endeavor to get him back for you.
But what we're waiting for here is the arrival of Queen Elizabeth at the United Nations.
Richard, we were talking earlier how she -- she hasn't been there for many decades. But she was there more than 50 years ago, which I guess is a sign of the sort of history that she's seen during her reign.
QUEST: And (INAUDIBLE) '57, Max. The queen referred then to the difficulties that they'd had setting up the United Nations from the charter to its -- to its actual getting underway.
From that, we will now hear her today talking about the challenges in this millennium for the United Nations. I can see they are talking, Max. But the delegates are now taking their seats. There are a few areas where there aren't any delegates. I can't see which country is completely -- for example, Guinea Bissau doesn't seem to be sitting at its desk. Mexico looks a little bare at the moment. But, obviously, every Commonwealth country is represented. And I would imagine that we will see the queen walking in here any time now.
FOSTER: It certainly looks that way, Richard. I can see through the doors of the United Nations that some cars have pulled up. And it does seem as though there is something going on there. Some people hovering around outside. Security obviously extremely tight, Richard. But they're used to that at the UN. I mean they're accepting these heads of state all the time.
But is there added security because the queen is there and this added interest, Ban Ki-moon representing that right now?
QUEST: No, I think -- I think what they've had to do is they've had to accommodate the interest by closing off...
(CROSSTALK)
FOSTER: Let me interrupt you. Sorry to speak over you, but the Queen Elizabeth there arriving at the United Nations for an historic visit. There being introduced to Ban Ki-moon, who heads up the United Nations, of course. And we're expecting her to speak to the General Assembly for the first time in more than 50 years.
There she is speaking to the various people lined up there at the United Nations for her -- her to greet. And a keenly anticipated speech, Richard.
It won't be political, but she will give some -- some broad messages, I guess.
QUEST: And that is exactly what the queen does. It is her right under the British constitution in the U.K. to advise, to be consulted, to advise and to warn. And I think that after 60 years of doing that, she knows a thing or two about coming to an organization like the UN.
Now, that's not to say, look, people have said why now?
She's been there for 60 years, clearly, her reign is coming -- it's in its twilight, if not sunset, years. And that is why, I think, she does have these messages that she believes is important.
Was she invited to speak to the U.N. or did they solicit the invitation?
It doesn't really matter. The British authorities and the palace authorities knew she was in Canada. They wanted her to be able to put her mark on this organization in this new millennium.
FOSTER: The queen standing next to Ban Ki-moon at the United Nations. She's just arrived. These are live pictures. The queen there due to hold a speech to -- to give a speech there for the first time in more than 50 years.
END
