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Quest Means Business
U.S. Stock Markets Fall Sharply
Aired August 04, 2011 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAX FOSTER, CNN ANCHOR, QUEST MEANS BUSINESS: The dam breaks: U.S. stock markets fall sharply, their gains for the year are wiped out.
In Europe, leaders try and fail to restore confidence.
And a funding fiasco leaves tens of thousands out of work all because Congress is on holiday.
I'm Max Foster. This is QUEST MEANS BUSINESS.
Good evening.
On Wall Street panicked investors are in the middle of a sell off. The Dow Jones index is currently down by more than 300 points. Maggie Lake is following the story for us from our New York bureau. But first we are going down the road to Alison, who is at the New York Stock Exchange.
What a fortnight, Alison.
ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Oh, you said it, Max. The heavy selling is tied to fears of a new recession and worries that Europe's debt problems are spiraling out of control. We are watching the numbers now, the Dow down 367 points.
FOSTER: What happened to the monitor?
KOSIK: One analyst telling us there is total fear in the market right now. The Dow industrials, when you look at them broadly they are down almost 1,200 points in just two weeks. We are right in correction territory. Correction territory just literally 12 (AUDIO GAP) point, and that is defined actually as a 10 percent decline from a recent cyclical high. We are also watching the S&P 500 that has already fallen into correction territory with today's losses. This is a broad based sell off. We are watching the oils, gas, and basic materials. (AUDIO GAP)
FOSTER: I'm missing the sound.
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: I lost it, too.
FOSTER: OK? We are going to go to Jim now. Sorry about loosing Alison. We'll get back to her in a moment. We got Maggie as well, on standby. But let's visit (ph) with Jim in a moment on the European picture.
Maggie, put this into context for us. Because as I say, it has just a terrible fortnight, so now we're in really bad territory aren't we?
LAKE: We certainly are, Max, when it comes from a confidence perspective. I do want to say that it is a worrying sign that we are returning to those session lows. We had a come back about 100 points off the lows of the day. But we are now, once again, deteriorating. So that is not a good sign, but it is important to point out this is not panic selling. People are nervous. Cash is king right now. They are-it is all about liquidity. They are pulling money out of winners, like gold, like some of the stock winners and building up cash reserves. So that does point to serious concern in the market.
The catalyst from today is what we saw in Europe, because of fears that the European officials are behind the curve. I'll let Jim tackle that subject. But people here do not have confidence in what they are hearing out of European officials and the conflicting signals they feel like they are hearing out of Europe.
But put that on top of the fact that we have seen a string of weak data here in the U.S. pointing to a weakening U.S. economy; fears about a global economic slowdown at a time when the system is so fragile. That is what has got people so worked up and headed for the exits today, Max.
FOSTER: And there is the holidays, of course, does that mean that volumes are lower and things are a bit more exaggerated? Or is this a very real trend?
LAKE: Yeah, no, I think this is real. I don't want to put the holiday spin on it. First of all, very few people were allowed to go away on holiday because of what we had happening last week and earlier this week with the debt ceiling. So holidays were pretty much canceled. And you know with technology people are connected even when they are not. So this is real. The fear is real. People are worried about counter-party risk again. And so soon after we found ourselves in that situation '08, you know, that has got to be a worry. So again, they are building up cash positions.
Confidence is important here, Max. And we are getting to sort of a point where people are starting to get concerned about that. I was talking to retail brokers. Their phones have been ringing off the hooks with investors who took such heavy losses back in '08, who are clearly concerned about the numbers we're seeing.
FOSTER: OK, Maggie, thank you very much. It is clearly global concern. Because it is interesting looking at all the main indices and all the markets, the main Western markets, we are moving in a similar direction, to a similar extent. And Jim can tell us more about Europe.
Jim.
JIM BOULDEN, CNN FINANCIAL CORRESPONDENT: It was a terrible day, Max. There is no doubt about it. And the last 30 minutes, particularly, really nasty on European stock markets. Let's look at some of the numbers. You will see here, London FTSE down nearly 3.5 percent, Xetra DAX nearly 3.5 percent as well, for the second day in a row, in Germany, no share ended the day higher in the DAX 30. Paris, by far the worst, nearly 4 percent lower; a lot of the automakers, of course, the banks doing terribly as well. Zurich SMI down more than 3.5 percent, luxury goods makers hit really hard.
So, I'll show you a representative example of what happened. These are some of the ones we picked out. BMW, obviously exports a lot, down 6.5 percent. Swatch, they were complaining yesterday about the strong Swiss franc. Look at that, nearly 7.5 percent lower. Burberry, luxury goods maker, does a lot of sales into China, down more than 8 percent.
The banks, the banks have been terrible all week. We have seen some good results, some terrible results, writing off the debt in Greece, but also worries about the global economy. Lloyd's, here in the U.K., down more than 10 percent, just today.
Now we thought we would look at some of the averages. Just an example of what we have seen over the last couple of weeks. You see here, the Dow, 12,500, heading closer to 13,000, we were, in July, but then, steadily falling and then today another bad day.
In general, the European markets today suffered from two things. They suffered because the Dow was down sharply at the open. And they suffered because they didn't see anything out of the European Central Bank that really pleased investors, Max.
FOSTER: OK, Jim, and all of this will be in the minds of policymakers as well.
Europe's central bank is once again lending a hand to Portugal and Ireland. It is all about confidence building in a way. Today it restarted a bond-buying program. Stopping up sovereign debt of those countries, it will also maintain unlimited lending to European banks until the end of the year. Policy makers have decided now isn't the time to raise interest rates to tackle inflation. The bank held its benchmark lending rate at 1.5 percent. ECB President Jean-Claude Trichet warns that economic growth is slowing and that future growth is uncertain.
(BEGIN VIDEO CLIP)
JEAN-CLAUDE TRICHET, ECB PRESIDENT: As expected recent economic data indicate deceleration in the pace of economic growth in the past few months, following the strong growth rate in the first quarter. Continued moderate expansion is expected in the period ahead. However, uncertainty is particularly high.
(END VIDEO CLIP)
FOSTER: Joining me now is Julian Callow. He is head of international economics at Barclays Capital.
Thank you so much for joining us. Wherever we look, in terms of economics, and markets, it seems negative today. Can you link all of this together for us? Is it just about confidence?
JULIAN CALLOW, HEAD OF INTERNATIONAL ECONOMICS, BARCLAYS CAPITAL: It has a lot to with confidence. I think if we start off with Asia, the Chinese economy and industrial sectors have been cooling down in the first half of this year. We have seen some reduction in Chinese imports, particularly coming out of Europe. It remains to be seen how far that process has got to go, but clearly we are still in a monetary policy tightening environment for China and India, and indeed, many emerging economies. So that is the first thing. The emerging economies are clamping down here in response to inflation concerns and overheating economies.
And then you have had the disappointing news out of the United States. And there has been a general feeling that the Fed won't be resuming asset purchases. It concluded that. Let's not forget, I think QE is a very powerful tool. Whenever we have had QE we have had surges in commodity prices. We have had a more positive momentum in equities. That hasn't been going on recently. The Fed has stopped the asset purchases.
And alongside that then, of course, you had the big debate in Congress going right down to the wire. So you have had nervousness out of the United States, soft economic news out of the United States. We think it will get better by the way. That is the important point. But so far, not so good.
And then, of course, in Europe, you have had the acknowledgement that private sector debt holders of Greek debt are going to have to share some pain, in what is called PSI. That is private sector involvement, as part of the latest Greek package. And the concerns have been spreading. The problem that you have in Europe, on the fiscal side, is that these budgets are based on economic recovery. And at the moment the global economic momentum and the European economic momentum, which has been very based on exports, particularly exports to Asia, is fading. And that is potentially going to create a lot of difficulties with the process of budgetary consolidation outside of Greece.
FOSTER: So, as an economist, when you look at what is going on in the markets are they reflecting the economics, or is this just a bit of fear setting in?
CALLOW: Whenever you see price actions such as you have been seeing today it is clearly getting much more driven by sentiment, rather than by fundamentals.
FOSTER: And slightly irrational?
CALLOW: Well, I tell you, what could be the way out of this? Well, we are seeing downwards pressure starting to emerge on commodity prices. If commodity prices do continue to go down, that means that the Fed could step in with more asset purchases again without a credibility issue. So could the Bank of England, for example, as well as the central banks in emerging economies could lessen off the tightening. And that could then set the stage for renewed expansion in demand. So I wouldn't actually, myself, still be looking for recession, even though there are many Cassandras out there who are starting to talk about it.
FOSTER: I know it is not necessarily your area, but just what is your idea-when we talk about correction on the markets?
CALLOW: Uh-huh?
FOSTER: How would you define that? Are we there yet?
CALLOW: Well, clearly on some measures, we are typically, it would be considered something like a 15 percent downwards move (UNINTELLIGIBLE)
FOSTER: So we are at about 10 percent at the moment.
CALLOW: Yes, yes.
FOSTER: So we are not there yet?
CALLOW: But the market is concerned, because certainly if you look at technical analysis you are breaking through some of the 200-day moving averages at this stage, yes.
FOSTER: OK, thank you very much, indeed, for joining us.
CALLOW: Thank you.
FOSTER: Coming up, the safe haven, or a speculative bubble? We will be looking at why investors and central banks are rushing to gold.
(COMMERCIAL BREAK)
FOSTER: Concerns over U.S. debt and the crisis in the Eurozone have seen investors rushing to gold. It was trading this afternoon at near record highs of $1,677 an ounce. But it has come down a bit. Gold is seen as a safe haven in times of economic uncertainty. Mining companies across all sectors have been doing well. Rio Tinto saw its net profits jump by 30 percent in the first six months of the year. Its earnings were a record $7.6 billion, although, even this fell below market forecasts. African gold miners Randgold increased profits by over 250 percent compared to last year. They made $128.4 million in the last quarter. Up from just over $36 million in the same period a year ago.
Joining me now is the Chief Executive of Randgold Mark Bristow.
Thanks for joining us. We have all this gloomy economic news and financial news, but not for you, aye?
(LAUGHTER)
MARK BRISTOW, CEO, RANDGOLD: No, no, not for us.
FOSTER: Incredible figures. So are people rushing to gold as an investment? Is that what you are seeing? Does that explain these figures?
BRISTOW: I think so. I think there are a lot of stars aligned. We have an industry that is ex-growth. A lot of safe haven buying. At the same time there is a growing demand in jewelry out of Asia, as Asia you know emerges and people have disposable income. So an interesting industry to be in and if you can produce at the low end of the cost curve, and a rising revenue stream, you make money. As you can see.
FOSTER: So when we talk about investors and governments dipping into your product, have you seen something different this year? Is it governments increasingly?
BRISTOW: Yes, I think, we have definitely seen an increase in Asian central banks, you know, managing their foreign exchange. I think, you know, you listen to the panic in the market. You have got, you know, take yourself for instance, you have a lot of paper money. You see a lot of this quantitative easing and no growth in the current economies, and so everyone is fighting to devalue the currency. And, you know, people with money want to protect that.
FOSTER: It is unbelievable. If you look at the figures you can't imagine gold prices continuing to go up in this way. It is extraordinary isn't it? If you go back 10 years in your career, would you expect gold prices to have reached this level?
BRISTOW: Well, when I started gold went from $400 to $250, so it was a battle.
(LAUGHTER)
BRISTOW: But I think if you look at a relative basis against, you know, a ratio to oil or a ratio to copper, or a ratio to platinum, you know, gold has got a long way to go. And when you look at the cost of producing gold and the fact that it is a precious metal, and it is, you know, it is the only currency where you don't have somebody, you don't have write an insurance policy against.
FOSTER: And everyone understands it don't they? It is like property.
BRISTOW: Absolutely.
FOSTER: You talked about gold prices having halved, in the past, are you worried that this-that there maybe some speculation involved here and you could see the same again? It should hit you hard?
BRISTOW: Well, there is always speculation in the gold market. Just like there is in any currency. The currencies are, you know, people speculate against them as you have seen today. There has been a big drop in the markets because people are worried about the actual underpin behind their currency. Gold is-you know, what we have seen in gold for the first time post-2002, up until then the last 70 years there has always been an over supply of gold. We have seen a tightening in that market.
As growing demand is driven by investment demand, or panic buying, or insurance buying, at the same time we have seen for the first time, normally, when the gold prices goes up, jewelry goes down. Jewelry demand goes down. For the first time out of Asia, we have seen the jewelry demand go up. So you have got an increased demand, a number of drivers. So there are some fundamentals that are driving the gold price, as well as the speculative side.
FOSTER: And on the supply side are you restricting the supply?
BRISTOW: I think it is not like oil, you can't just turn the taps on. You've got find it.
FOSTER: You can't?
BRISTOW: No you can't. You know, it is a precious metal.
FOSTER: Will you mine less?
BRISTOW: You could mine less.
FOSTER: Knowing that there is still-
BRISTOW: Yes, why mine less at $1,600 gold? The key is what you have got today is really a product of the investments you have made in development in the last five to 10 years.
FOSTER: OK, thank you very much indeed, for joining us.
BRISTOW: (UNINTELLIGIBLE)
FOSTER: Interesting stuff. See what happens next year?
Safe havens are what investors are looking for right now, of course, but where else can you put your money in times of crisis. There is only two people who can tell us. And it is almost time for "Q&A".
(COMMERCIAL BREAK)
FOSTER: It is time for a spot of "Q&A", I feel. Each week Richard and Ali square off with your choice of story, and this week it is the question that every investor is asking. In times like these where do you put your money? It is Quest versus Ali, "Q&A".
(BEGIN VIDEOTAPE)
ALI VELSHI, CNN FINANCIAL CORRESPONDENT: QUEST MEANS BUSINESS and so I. We are here together in the CNN NEWSROOM and around the world, literally. Richard is on The National Mall in Washington, D.C. watching the spectacle that is the U.S. debt debate and deal. As we do every week we are here to talk business, travel, and innovation, nothing is off limits.
So today we are talking about investing in the face of uncertainty, Richard.
RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS: And that is the problem because in this market, with so many issues, we had a viewers question that said, Where does the smart money go? How do you invest in these uncertain times? It is clearly a question from Ong Jun Wee. "How should people invest with the American debt crisis, the Eurozone financial crisis sprouting, should we look towards Asia?"
Ali, you have 60 questions (sic) on where does the smart money go, this "Q&A".
VELSHI: Very good. Richard, diversification typically means investing in stocks, bonds, cash, some precious metal, throw in some so- called emerging markets. These days it is different, Richard, if you are not global, you are not diversified. And, Richard, being global doesn't just mean having a funny British accent and jet setting around the world in first class like you do. It means understanding and participating in global growth.
China is growing economically at a rate that is several times that of the United States. So is India, Richard, even Africa's GDP growth is three times as fast as U.S. growth is right now. That creates huge demand for goods, services, infrastructure. Now, look if you invest in big national and multinational companies in the United States, in Europe and Great Britain, you will have some exposure to these regions. Obviously, General Electric and Coca-Cola all sell all over the world. But the smarter play, I think, is direct investment in actively managed mutual funds, in exchange traded funds-
(BUZZER SOUNDS)
QUEST: Oh!
VELSHI: That trades stocks of companies, whose names you can't even pronounce, Richard. I think you have got to get into Asia and other places.
(BUZZER SOUNDS)
QUEST: Agh, thank you.
VELSHI: I got doubled beeped.
QUEST: Typical, typical. Give him an inch and he'll take the whole mile.
Ali, once again, I have to point out that you have got half the answer, but you are not all the way there.
Yes, a decent investment strategy does require that you have a balanced portfolio; a bit of this, a bit of that, and a bit of the other. And, yes, it requires to have some defensive stocks, some cyclicals, some counter-cyclicals. Because you want to make sure that when things move you are in a position to take advantage of them. But-and this is the core point-only a fool makes their investments and goes to sleep. You have to manage your investments, move a bit here, and a bit there. You have to read the business pages of the major newspapers. And invest in some of those companies that Ali can't even talk about.
Ultimately, though, what you have to do is be prepared to take a little bit of risk. Why? It is because with risk that comes the best rewards. We can all lock up our money and go to sleep for a rainy day.
(BUZZER SOUNDS)
QUEST: But who wants to do that, in the long run?
VELSHI: I have to say, I agree with you. You are right. You can't put it on autopilot.
QUEST: Ha!
VELSHI: All right, Richard, time to separate the men from the boys.
QUEST: Here we go, The Voice joins us to make sure we know where we are.
UNIDENTIFIED MALE: Thank you, Richard. Thank you, Ali. Welcome, gentlemen.
Let's get right to the game.
What is the world's oldest recognized stock exchange? Is it A., Amsterdam; B., London; C., New York; D., Rome?
(DESK BELL CHIMES)
UNIDENTIFIED MALE: Richard?
QUEST: I'm going to take a guess on this with, Amsterdam.
(BELL CLANGS)
UNIDENTIFIED MALE: That is correct, Richard. Very good. It was established in 1602. The bourse was actually established in Antwerp, but called Amsterdam. The first shares were sold in a shipping company.
Richard, you are up one-nothing as we go to question No. 2.
Which industry has the top three companies on CNNMoney.com's list of worst long-term investments? Is it, A., Paper products; B., Brewing; C., Airlines; or D. Farming?
(BELL DINGS)
UNIDENTIFIED MALE: Ali?
VELSHI: I'm going to go with airlines, which haven't been profitable since-
(BUZZER SOUNDS)
VELSHI: -the Wright brothers.
UNIDENTIFIED MALE: That would be wrong. Richard?
QUEST: I'm going to go with farming.
(BUZZER SOUNDS)
UNIDENTIFIED MALE: Also incorrect. Oddly-
QUEST: Paper products?
UNIDENTIFIED MALE: No, it is also wrong. Brewing is the right answer.
VELSHI: Ha! Really?
UNIDENTIFIED MALE: The top three, Kieran, Carlsberg, and Asahi, are all on the top of the list. Google and McDonald's are the best investments.
VELSHI: Wow!
UNIDENTIFIED MALE: Now to question No. 3. Ali, you still have a chance here.
What do people across the globe spend more money on? Is it, A., Lottery tickets; B., Casino gambling; C., Sports betting; or D., Self help books?
(BELL DINGS)
UNIDENTIFIED MALE: Ali?
VELSHI: I'm going to go with sports betting.
(BELL CLANGS)
UNIDENTIFIED MALE: That is correct, Ali. Sports betting accounts for $350 billion in both legal and illegal betting. That is $100 billion more than lotteries, which is number two. So you end up tied, one/one.
Good job.
VELSHI: I have saved face, Richard. Finally, on my own turf I couldn't loose to you.
QUEST: And so a score draw which is probably better than either the Europeans or the American economy can do at the moment.
That's it for "Q&A" this week. Join us each week, and of course, send us your questions.
Ali?
VELSHI: And we will be in "Q&A" 1800 GMT, or NEWSROOM 2:00 p.m. Eastern Time. Keep the topics coming on our blog, CNN.com/QMB and CNN.com/Ali. Tell us each week what you want us to talk about.
Richard, see you next week.
QUEST: I'll see you next week, when I'm back in London.
(END VIDEOTAPE)
FOSTER: Meanwhile, the markets continue to fall. Let's have a look at the Dow, over n Wall Street. Down nearly 3.5 percent now, more than 400 points, continuing to fall as we head to close. A grim day on Europe, as well, we were talking about that earlier on. We will bring you an update on the close later. We'll be talking to a trader, though, after the break.
(COMMERCIAL BREAK)
FOSTER: Welcome back. I'm Max Foster. You are watching QUEST MEANS BUSINESS. This is CNN, the world's news leader.
New York traders are staging a major stock sell off. Right now the Dow is down more than 3-well, more than 3.34 percent, as anxious investors move their money out of the stock market and into bonds. This after major losses in Europe where all the major indices fell by at least 3 percent.
(NEWSBREAK)
FOSTER: As we mentioned earlier, the government's crackdown in the Syrian city of Hama -- Hama, seems to be -- to be growing even more intense. Residents say snipers are stationed across the country and people who try to leave are being shot. We're also told that people are dying because hospitals have no electricity.
CNN's Arwa Damon has been watching developments from Beirut. It certainly seems to be getting worse.
ARWA DAMON, CNN INTERNATIONAL CORRESPONDENT: It most certainly does, Max. And we heard that from an eyewitness, a resident of Hama we were able to reach by a satellite phone just a short while ago. He was also telling us how two people who he knew, he claimed, were shot when they went out of their home looking for food.
But he was certainly painting an incredibly bleak and desperate picture of what is happening inside Hama and incredibly difficult because the Syrian government cut all communications yesterday morning, when this military offensive began.
The death toll, according to the global human rights organization, Avaaz, 109, at least, confirmed dead today. That is in Hama and the surrounding villages, according to the LCC Syria -- this is a local Syrian activist network -- 30 people were killed in Hama yesterday.
Avaaz also saying -- citing a medical source in Hama that there were scores of people dead and injured in the streets, that people -- ambulances, civilian vehicles unable to reach them because Syrian security forces were firing at them.
Hama, of course, has been considered, up until now, a beacon of this uprising. We had been seeing massive demonstrations taking place there regularly on Friday, following Friday prayers. Friday the Muslim holy day.
It seems as if right before Ramadan and during Ramadan, as well, the government -- the Syrian government -- has decided to deal Hama a final and a lethal blow -- Max.
FOSTER: Arwa, thank you very much, indeed, for that.
We'll stay across it, of course.
There's been nothing short of a nosedive, meanwhile, days and days of losses have finally caught up with the markets. Now, all this year's gains have gone and we are right back where we started.
Let's get some more analysis now from Kevin Craney.
He's from RJO Futures.
He's at the Chicago Mercantile Exchange.
We're talking futures here.
So what do you expect to happen going forward, even tomorrow?
KEVIN CRANEY, TRADING ADVISOR, RJO FUTURES: Yes, you know, my -- my - - my estimate on tomorrow's numbers is 60,000 for in on the unemployment claims. That's below the consensus right now at 85,000. But you know, I mean, I think it's going to put further pressure on this market. This is a pretty orderly sell-off. It doesn't feel like any capitulation. I mean, in order to really even see a good number, even if it came in at 85,000 or even something bigger than that, surprising, I don't think it's going to have a huge effect on the market. It's going to take more than one data point at this -- at this particular time to really get things turned around. This is more of a trend change overall.
FOSTER: I think it's down about sort of 10 percent, isn't it, over the last, you know, in this last period. Fifteen percent is the correction.
Do you expect us to hit that?
CRANE: I think it's certainly very possible. You know, I mean, when you look at what's going on around the globe, it's really a flight to liquidity and a risk off at this point. No questions asked. Money flowing into the treasuries. Whether it's the long end of the curve or whether it's the short end, you're seeing both of it today. You're seeing markets over in Europe sell off big, markets over in Asia sell off big, as well.
So I don't think that it can hit that 15 percent correction level pretty easy.
FOSTER: And you -- you talked about this being an orderly sell-off. It does seem to be, doesn't it?
The thing sort of falls regularly every day. But if you get a sharp sell-off one day, you get into panic selling, don't you?
And that's what we want to avoid.
Are you factoring that in at all?
CRANE: I think that's what we have to look for at this point. Again, it feels very orderly today. It's an across the board sell-off. Trist one particular sector of the market that's not experiencing it. And that's what I'm looking for, the capitulation, throwing the baby out with the bathwater, as you will, then looking to come back into this market and try and reposition myself.
But for now, it's a complete risk off.
FOSTER: We're -- we're there, in a way, aren't we, in a mild form?
We were speaking to an economist earlier, saying, actually, these sell-offs no longer reflect what's going on in the economy. So it's already a bit irrational, isn't it?
CRANE: Yes, well, I think it is a -- it could -- you could classify it a bit irrational. But when you step back and look at the macro side, you know, a lot of big funds, a lot of -- and a lot of different managers were positioned more for growth. And you've really heard a lot of people talking about going in and buying equities more for the growth potential.
But when you come back -- when you step back and look at Q1 GDP that was brought down to .4 of a percent here in the States, you've really got to scratch your head and ask yourself, going forward, are we going to see the 3, 4 percent GDP that was forecast?
It doesn't look good going into the second half. And that's why I think while it may look a little extreme, it really is just dissecting the growth that we actually are going to see in the second half.
FOSTER: And how much of this that's going on in Wall Street is reflective of what's going on in Europe?
Is that the main factor, would you say, away -- I know you've referred to the unemployment benefits and concern about the domestic economy, but Europe is playing a bigger role, isn't it, in the sentiment there?
CRANE: Europe is having a big effect. And I -- I think a lot of people in the markets today, they've known that Europe has a big effect, but they're really waking up to that today, particularly after you have Jean-Claude Trichet really reversing his stance and becoming more dovish, particularly on his interest rate policies. And I think that's really kind of moving the markets here this afternoon.
FOSTER: OK. We'll wait to see what happens tomorrow, at the end of the week.
Thank you very much, indeed for joining us from Chicago.
Now, it's a lose-lose situation and that's how Barack Obama sees the shut down of the FAA. We'll hear why his transport secretary needs Congress to get off the beach in just a moment.
(COMMERCIAL BREAK)
FOSTER: Now, just when Congress thought it had sorted out all its budget issues for the summer, the U.S. Transportation secretary is calling on lawmakers to stop their holidays and sort out a funding crisis at the Federal Aviation authority. There are thousands of jobs at stake in this particular problem.
Now, the problem is similar to the budget crisis that nearly shut down the entire government earlier this year. The FAA needs extra funding, but it can't get it without Congress passing an extension.
Sound familiar?
Well, arguments between Republicans and Democrats mean the extension - - that extension hasn't happened in time. In fact, Congress has since gone on holiday for the month. So, for the past week, there's been a partial shutdown. All staff that it needed to keep planes in the air are still at work, so that's not the biggest problem. But 4,000 FAA workers have been told to stay at home. Two hundred airport construction projects, for example, have also been put on hold.
It's also had a effect on government revenues. One of the FAA's biggest jobs is collecting taxes on airline tickets. And that brings in $30 million a day. So do the math.
If this situation doesn't get fixed until Congress comes back in September, those lost taxes alone will have cost the U.S. economy over a billion dollars.
Just to rub salt into the wounds, for passengers, airlines aren't passing on the savings they're making while taxes aren't being collected. They've actually put ticket prices up.
Anyway, the U.S. Transportation secretary, Ray LaHood, wants senators to get off the beach and get back onto sealing a deal in Washington.
Earlier, he spoke to CNN's Ali Velshi.
(BEGIN VIDEO TAPE)
RAY LAHOOD, TRANSPORTATION SECRETARY: We have 4,000 employees furloughed because Congress didn't pass the 21st extension the way they had done on 20 other occasions. They left town on their vacations. They're receiving their paychecks. Over 70,000 Americans are not receiving paychecks because Congress left town without taking care of providing the money to the FAA, so construction projects could continue and so FAA employees could continue to do their jobs.
ALI VELSHI, CNN ANCHOR: I want to let people know that we're talking about $25 million to $30 million a day in lost revenues. It could add up to a billion dollars if this thing does, you know, wait for Congress to come back.
But let's just -- help me understand what this is about, because some people say it's that Congress left and didn't get anything done. Others say that it is -- it is about funding for certain smaller airports. And then Harry Reid came out yesterday and said that it's about unionization rules.
Can you give me some sense of what -- what's behind why this didn't get done?
LAHOOD: Well, look it, there are these controversial items that have been put in bills, but that didn't stop Congress on 20 other occasions from passing the extension. And that's what we want them to do now. Pass the 21st extension. If you've got issues with labor provisions, if you've got issues with money going to small airports to help airlines fly in and out, work that out. Don't hold American jobs and the American people hostage over controversial issues that were not a problem on 20 other times when Congress passed an extension.
Come back from your vacation, come back and put Americans to work the way that you would do for your friends and neighbors, so they can receive a paycheck like Congress is receiving it.
VELSHI: You -- you're -- you -- you know these people. You've got a good relationship. You served with a lot of them.
Are you gaining any traction in asking them to come back?
LAHOOD: Well, we're going to find out. The idea that they've left town on their vacations and they're receiving a paycheck and they talk a lot about jobs, they give good speeches about it. I want them to walk the walk. Come back to DC, walk up, cast their votes, put Americans back to work. If they want to talk the talk, then walk the walk and let's put our friends and neighbors back to work. This is not fair to American workers. In a very, very hard economy, a tough economy, people trying to figure out how they're going to make their house payment, how they're going to make their car payment, how they're going to take care of buying school supplies for their kids as they head back to school.
This is not fair to American workers. Come back, Congress. Pass this extension and then you can go on your vacation.
(END VIDEO TAPE)
FOSTER: Let's get more on this from Athena Jones.
She's on Capitol Hill for us -- so, Athena, are they going to come back?
Is Congress going to come back?
ATHENA JONES, CNN CORRESPONDENT: Well, we'll have to see. The fact of the matter is they don't actually all have to come back in town. The House and the Senate, if all the leaders agree, they can pass a bill funding the FAA, extending this funding, by something called unanimous consent. It sounds kind of technical, but it -- what it means is that people don't all have to come back flying in from all around the country.
But let me just tell you, you know what's at stake here, as much as a billion dollars in tax revenue that could be lost at a time when the U.S. economy is struggling to really speed up this recovery. Not only do you have this -- this money loss in taxes, but you also have these thousands of workers who aren't getting a paycheck and, therefore, aren't spending their paycheck. And the U.S. economy is a consumer-driven economy.
What they're fighting over, though, is -- is a few issues. The House Republicans passed a bill that attached to it some provisions that limit the number of subsidies that rural airports get, so that people can fly to these rural airports in small towns. But the Democrats say that that -- that provision is really just a way for the Republicans to try to force the Democrats' hand when it comes to union organizing.
So it's somewhat complicated. But the bottom line is the president and the Transportation secretary want to see Congress work this out by Friday. And so the -- the issue here is we'll have to wait and see if that happens.
FOSTER: The money involved, you know, this -- you know, they're not collecting the taxes that they would normally collect. That's enough of a spur, isn't it, right now, with the current conditions of the debt ceiling and all that?
JONES: Well, that's certainly one of the arguments that people keep making on the Democratic side, is that we're -- we just had this huge fight over the debt ceiling. We're at a -- a difficult time in terms of trying to reign in our deficit.
Can we really afford to lose a billion dollars in this uncollected tax fund just because people can't come together?
I did speak with a Democrat Senate aide here this morning and they -- he expressed optimism that these conversations are ongoing, things could be resolved in the next couple of days. I should mention that both the House and the Senate, while they're in recess, people are off on vacation, they go into these pro forma sessions, which means every few days, they open a session, they gavel in. And so something really could get done tomorrow. The thing is, we just don't know if it will happen as soon as tomorrow -- Max.
FOSTER: Athena, thank you very much, indeed, for joining us from Washington.
Well, coming up, it could be the world's worst oil disaster. A new report says that some parts of the Nigerian Ogoniland are so badly polluted, it could take 30 years to clean up.
(COMMERCIAL BREAK)
FOSTER: Keeping you across Wall Street's movements, there have been some business today. It was down 400 points just a little earlier in the show.
Let's see where it is now. It's come back a bit, still down 345, though, nearly 3 percent down, but picking up a bit, which is certainly the only positive sense that you can get right now. A very grim day for Wall Street and Europe today, a grim couple of weeks, in fact.
Oil prices are also tumbling this Thursday. Brent crude is trading at just under $108 a barrel. It's down more than $5 from Wednesday's closing price. That's five -- that's a five-and-a-half week low.
Let's see if the weather is looking a bit better -- Guillermo, give us some hope.
GUILLERMO ARDUINO, CNN METEOROLOGIST: Where?
(LAUGHTER)
FOSTER: Anywhere.
ARDUINO: Oh, wait...
FOSTER: Give us some sunshine.
ARDUINO: Well, let me start with the other -- with the nasty stuff. Nasty but sometimes we can look at this as a relief, Max, because we're looking at what's going on in the Caribbean. So we have this tropical storm that continues to move toward Cuba. So watch out Santiago de Cuba, Baracoa, Guantanamo, Olgein (ph), all these cities in the eastern part of the island are going to see the rain and also the impact -- direct impact of the system.
Haiti, we're looking at it very closely because of the conditions there after the earthquake, especially.
But when I say positive, especially here near Miami, it may become a hurricane, but we don't expect it to make landfall.
You know what?
Miami is under a drought, that area of South Florida. So maybe we'll get some rain there. It's not going to be direct, but it's going to be refreshing.
This is pretty much the scene off the coast of Santo Domingo. And you see, of course, high waves and also wind. Most of the spaghetti models are in agreement. We may see hurricane formation here or hurricane winds near Florida, but not directly impacting the area. And then, boom, moving away.
So probably this is the worst case, the best case scenario that we have.
Watches and warnings are in place. Watch out, Nassau, the capital of the Bahamas, because we're going to see direct impact there, as well.
And the weather is going to continue to be bad in China.
And do you know what?
It is going to be worse than in the Caribbean and in Florida, because we are expecting a direct impact of this typhoon that, in two days-and-a- half, is expected to go straight into the Shanghai area. The winds are going to be really strong. And also, we will see a lot of rain. To have an idea, hurricane force winds in Shanghai. That's a fact if the forecast continues to be like that. So we are expecting severe weather in that area.
In Europe, in the meantime, France especially, Scandinavia, the Low Countries, Northern Germany with some bad weather. England not in bad shape. It's not going to be sunny and gorgeous but not in bad shape.
Ukraine, much better now. Delays at the airports not very likely, Max. We see some rain in Amsterdam, as I said, Paris and Copenhagen, Zurich. But nothing extraordinary. You see, you're not going to have any big issues when it comes to delays. Temperatures are very comfortable, except for Madrid, that continues to be extremely hot. Twenty-three in London. That's pretty good.
And we continue to emphasize that into August, this is the -- the forecast that we can expect. Warmer than normal in Scandinavia -- I mean in Russia -- and cooler in Spain.
It hasn't happened so far, Max, but that's what the forecast is saying -- back to you.
FOSTER: Guillermo, thank you very much, indeed.
ARDUINO: You're welcome.
FOSTER: we're going to get back to the story about the FAA right now, because thousands of people have been left out of work.
Mark DePlasco is one of tem. He's a furloughed FAA employee.
He joins us now from Washington.
Thank you so much for joining us.
Just tell us about your job and how you've been affected by this.
MARK DEPLASCO, FURLOUGHED FAA WORKER: I'm a air traffic controller. I have been an air traffic controller for about 30 years, currently at the FAA headquarters as the manager of terminal requirements. We basically determine suitability on different types of systems that are used throughout the United States...
FOSTER: Pretty fun...
DEPLASCO: -- for air traffic control purposes.
FOSTER: Pretty fundamental to the system. But we're told the aviation system isn't being affected by all of this.
Is it?
DEPLASCO: Well, not yet. I mean I think -- I think it's still the safest system in the world and in my office, there are 11 of us. Three of us are on furlough. So the rest of the crew is picking up the slack and -- and getting the work done.
FOSTER: OK, just give us your perspective, then, on what's going on in Washington, because, effectively, you've got a load of politicians on holiday whilst you're not getting paid, right?
DEPLASCO: Well, that's correct. Four thousand FAA employees are now furloughed. Seventy thousand related contractors that are working on aviation projects are out of work right now. Numerous. And I don't even know the number -- other contractors that support us throughout the country on projects for the next generation of the air traffic system.
It's -- this is devastating. It's devastating to my colleagues. It's devastating to my employees. We're -- we're on our second week, starting tomorrow. And it just -- it's time to fix this. It's time to take some action and get this fixed, because we're dealing with people's lives here and people's livelihood and -- and it's very, very difficult.
FOSTER: And it's purely because politicians can't agree on how to fund this.
They're not disagreed on the funding, are they?
But they're just -- it's just politics, right?
DEPLASCO: It appears. It appears to be politics. And -- and it's -- it's affecting so many people and so many ways -- so many families. I am the chapter president of the FAA Managers Association, which is a professional organization. And -- and so I deal with my members who are affected by this and their employees who are affected.
I have received e-mails of folks telling me that they wake up in the morning in tears, not knowing how they're going to pay their mortgage or how -- where they're going to get money for -- for rent. And it's disturbing. And it's unnecessary. It's just absolutely unnecessary.
FOSTER: How are you helping those people cope, because, you know, many of us do sort of go from paycheck to paycheck, don't we?
We don't have the savings to back us up.
How are they coping?
DEPLASCO: We have -- we're looking at many different ways of providing some kind of assistance. Of course, we've encouraged folks to apply for unemployment benefits. We are working with the Federal Employee Emergency Assistance Fund. And they are taking contributions and providing low interest or no interest loans to the furloughed employees. And we're deficit that through our FAAMA.org Web site. So we're encouraging anybody to donate and we're encouraging our furloughed folks to get some help.
And I've identified some different types of things they can do to get some cash on them. So we're -- were trying to -- to help people find money and get by and pay the rent and pay their car payment and eat.
FOSTER: Yes. And meanwhile, the -- you know, the system is still up and running, isn't it, because the crucial workers are there, as you said. But it does get to the point, doesn't it, maybe next week or the week after, where the -- the system does start to suffer from not having the usual support it has?
DEPLASCO: The only things that are really going to suffer are the research and development projects that are very important, that we're working on, in what we call our next generation air traffic system. Many of those programs are stopped right now. There -- there is no movement, so there will be delays.
But I can assure you that from an air traffic perspective, our system is the safest. It will be safe two weeks from now or four weeks from now, regardless of whether we're back at work, because the folks that are there now will pick up the slack. And they're very professional. They love what they do and they do it very well.
FOSTER: Mark DePlasco, thank you very much, indeed.
And good luck on getting it resolved.
Now, pollution in Nigeria could require the world's biggest ever oil cleanup. A U.N. report says that the devastation in the Niger Delta is so great, that it could take 30 years to recover.
CNN's Christian Purefoy is in Lagos for us.
(BEGIN VIDEOTAPE)
CHRISTIAN PUREFOY, CNN CORRESPONDENT: A new U.N. environmental report on oil pollution in Nigeria's oil rich Niger Delta region has reached some condemning conclusions against both foreign oil companies and the Nigerian government. Specifically, the report focuses on Ogoniland, where Shell is the main operator. But many people are already extrapolating the report and its conclusions for other oil companies and the region as a whole.
Researchers found in one community, families drinking from a well contaminated with benzene, a well known carcinogen, at levels 900 times the recommended guidelines by the World Health Organization.
And in another area, they found eight centimeters of refined oil floating on groundwater serving local wells. It was linked to an oil spill that was supposed to have been cleaned up six years ago.
Amnesty International say the report shows Shell has had a disastrous impact on the human rights of people living in the Niger Delta and that Shell has been falsely claiming to work to international standards in the region.
Shell say they welcome the report, are studying its content and will comment once they have done so.
But it comes at a time, when, for the first time, Shell may be paying hundreds of millions of dollars after accepting liability for an oil spill in Ogoniland in 2008.
The court case, together with the damning conclusions of this report will have many oil companies in the region wondering if just a few hundred million dollars is just the beginning.
Christian Purefoy, CNN, Lagos, Nigeria.
(END VIDEO TAPE)
FOSTER: Well, we're going to have a look at the markets for you after this.
Everyone looking ahead to the close. A lot of traders hoping to go home, I'm sure.
(COMMERCIAL BREAK)
FOSTER: Look at those numbers on Wall Street for you then. At this point in the program, we're seeing a major sell-off in all the major indices. The Dow is currently down around 350 points. Let's have a look at where it is right now, down 3 percent.
The NASDAQ down, as well. They're all down similar amounts. All of these indices pretty much wiped out all the gains that they've made this year. We're seeing losses across all sectors, as well.
Aluminum producer Alcoa, is the Dow's worst performer, currently down 6.25 percent.
Oil prices are also tumbling. Brent crude is trading at just under $108 dollars a barrel. That's down more than $5 from Wednesday's closing price and a five-and-a-half week low.
In Europe, deep losses across the board are erasing all of the year's gains. The big four all finished at their lowest levels of 2011, as well.
In the case of the CAC 40 and the SMI, they're at their -- their worst finishes since 2009.
For the second day in a row, there was not a single share that made gains on the DAX. It was the same story in Paris. Banking stocks took the brunt of it. One of the notable losers was Lloyd's here in London, which shed more than 10 percent on the FTSE.
Emerging markets weren't spared, either. If we take a snapshot of markets across the rest of the world, they are broadly in the red. In the case of the Brazilian Bovespa, off by more than 5 percent. The Indian SENSEX also down by 1.3 percent. The Seoul KOSDAQ the worst performer of the major Asia-Pacific markets, falling sharply by more than 2 percent.
Only the Dubai exchange managed a modest gain.
That is QUEST MEANS BUSINESS.
I'm Max Foster in London.
Do stay tuned.
"PIERS MORGAN TONIGHT" is just ahead, after a check of the headlines for you.
Thank you for watching.
END
