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Quest Means Business
Fed Keeps Rates Unchanged; London Police Brace for Another Night of Looting, Rioting
Aired August 09, 2011 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS: They are bagging a bargain and it is brought on a bounce. U.S. stock markets are up at this hour. But for how long? The U.S. Fed rides to the rescue. Ben Bernanke is due to announce what the FOMC has decided in the next 15 minutes.
Meanwhile, in London, it is the police to the rescue, but will they be able to stop looting, rioting on the streets of the British capitol.
I'm Richard Quest, once again live from New York, tonight, where I mean business.
Good evening to you from the world's financial capital New York, where it is a difficult day ahead for the Fed, where we are expecting the decision of the FOMC, the Federal Open Markets committee. There has been bad economic data and the loss of its AAA rating. And the market collapse of course on Monday. Well, have we seen the bottom of the market? That seems to be what might be suggesting.
In half an hour's time we'll be speaking to the billionaire investor Wilbur Ross to see what he has to say on the subject. Does he believe that things have come to an end in terms of uncertainty? He says that perhaps, buying opportunities; we'll wait and see. Fifteen minutes, exactly. The Fed is always pretty punctual and at quarter past 2:00 New York time, they will announce the latest decision of the FOMC. And we are watching to see whether or not America's central bank does step into the action. And if so what it can do to try and soothe markets for the time being.
Look at the Dow Jones industrials at the moment. Right now, the Dow has gained just over 1 percent. It is a gain of around 126 points. It follows the Dow's worst day for points losses since 2008. Now the Fed policy makers may decide or make an announcement about quantitative easing. No full scale QE is expected but they could say they are going to carry on with asset purchase protect, or shift those that they are buying.
This was Fed Chief Ben Bernanke earlier; he's been in meetings with fellow policymakers all day. They obviously been discussing the downgrade of by the U.S. sovereign debt. It was one of the things that triggered 630 points, 634 points off the Dow.
Measured gains across Europe on the back of a strong opening on Wall Street, a slight loss for the Xetra DAX, which really has borne the brunt of all the major European markets; a welcome pause. Russia's RTS gained ground. The Russian Prime Minister Vladimir Putin says policy makers could inject cash into the system. They would do that, of course, not only to soothe the nerves but to prevent a credit seize up, the sort of thing we saw in 2008.
There are those who do believe that what we do believe that what we are seeing might be a buying opportunity. One of them is Robert Doll, the chief equity strategist for the fundamental equities at BlackRock, here in New York. Earlier he joined me to discuss exactly the fall, what he calls the waterfall. But what happens next?
(BEGIN VIDEO CLIP)
ROBERT DOLL, VICE CHAIRMAN, BLACKROCK ADVISORS: No question about it. During big changes in market prices in short periods of time, in either direction it is always about emotion. And we have seen some fear and panic set in around a bunch of fundamental issues.
QUEST: If you accept that to be the case and that the actual economic fundamentals, although poor have not changed in the last seven days. You would expect the rebound to basically take us back to where we were?
DOLL: No, not necessarily. Markets don't behave that way. Markets, when they get damaged, since this one has been on the downside, tend to have pretty vicious reflex rally, but then turn around and come back and test the lows to make a foundation before they are able to move back higher. And it will take a verification of the prior fundamentals to get there. And that is going to take some time, we're not looking to restore back to the old highs anytime soon.
QUEST: That is a-that is certainly a forthright view, but it does mean that the traditional view of, you know, buy on the dips, one would be perhaps foolish to move into the markets and buy, unless you really are a professional at the moment.
DOLL: Our view is anyone has money earmarked for equities, should be nibbling here, dollar-cost averaging. Don't be a hero. No one can pick tops and bottoms. But with valuation levels down 18 percent from the high, at least here in the U.S., and the fundamentals only changed marginally, in our view, from a couple of weeks ago when this waterfall decline started, that is probably a good thing to do. I might point out that the U.S. stock market now has a yield as high as that of the U.S. 10-year Treasury.
QUEST: Now, pull the strands together for me. The economics of the United States at the moment are showing an economy that is weakening, or at least slowing down. And the jury is out whether the volatility does provide a double dip.
DOLL: Yes, we would argue that the mainline scenario is a continue muddle through, less than satisfactory growth rate, but one whereby, as we saw in the first half, corporate profits can grow. We can't have the U.S. corporate profits picture and stock market do well if the U.S. is in a recession. But if the U.S. economy is muddling through, as we saw in the first half, stocks can do reasonably well. So we need to get past this stage where we are worried about recession and the only way we will is if we get some economic statistics like the employment report of last Friday that show that things aren't great but they are good enough. We just need more evidence of that. And of course, the peripheral issues, some would call them essential issues, the U.S. government and what they are going to do and the European credit situation.
QUEST: Mr. Doll, if there is one thing, as an equity strategist, if there is one thing that you are now looking for and seeking, more than anything else, what would it be?
DOLL: What I'm looking for is some evidence that the economy is not in recession. IF the economy is in recession, the decline we just witnessed was an appropriate one. If not, this will have been a good buying opportunity. So we are watching those economic statistics very carefully.
(END VIDEOTAPE)
QUEST: Oh, dear. Watching the economic statistics very carefully, says BlackRock's Robert Doll, in which case, the signs are not encouraging. Take the latest numbers, productivity is falling in the United States, though not as much as perhaps had been feared. Hourly output per worker dropped at an annual rate of 0.3 percent in Q2. Labor costs grew, that is inflationary at 2.2 percent the slow down in productivity mirrors America's sluggish economic growth.
When we come back in just a moment, it is 10 past 7:00 in the United Kingdom. in British capital, darkness is falling and that is raising concerns over whether the rioting will begin once again on London streets. We'll be in London for a report after the break. QUEST MEANS BUSINESS tonight from New York.
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(COMMERCIAL BREAK)
QUEST: Parts of London resemble a ghost town tonight as extra police are being deployed to cope with the continued unrest. Stores have closed early after looting spread like a virus overnight. Areas in all corners of the city saw pockets of violence. The U.K. Prime Minister David Cameron returned from his Italian holiday early. He promised twice as many police would be out in force tonight. Mr. Cameron has recalled Westminster, the parliament back from its summer recess to discuss the situation. Our Correspondent Dan Rivers is on the streets of London and has been seeing what has been happening.
The first and most important question tonight, Dan, it is early, I know. But are there any signs of unrest starting up again?
DAN RIVERS, CNN INTERNATIONAL CORRESPONDENT: I'm afraid there are, Richard. Yes, we are in East London, in Canning Town. We are just off, kind of next to an estate, through there, where there is trouble brewing. I don't know if we can just pick up the helicopter, the police helicopter circling above. And this whole area is just being flooded with police officers. We are not sure exactly what is happening. We are told that there were some bins set on fire. And certainly large gangs of several dozen hooded youths at various intersections.
But so far it is not as bad as it was last night, when we really did see complete anarchy in the streets. These police officers are just walking over here, have been fanning out across this park, trying to drive the people out of this park and through into the neighboring estate. So as we are walking, we can talk with you and we'll follow them. But certainly so far this is, you know, it is tense, but it is not anywhere near the level of disturbance we had yesterday, when there were cars and buildings and factories being set on fire.
Where we are now is quite near City Airport, which you know well, Richard. It is also near the Olympic venue, as well, it is not the best image, it must be said, that London is putting out a year before those games start.
QUEST: Dan, I heard the British home secretary earlier today refusing to accept that the police had lost control of the streets of London. But the fact that the prime minister's returned and parliament has been recalled. Where at the moment is the blame laying? Besides, obviously, the criminal and hoodlums that cause the mayhem in the first place. But who is getting the blame for not stopping it?
RIVERS: Well, it really depends who you ask. I mean, some people on the left here are saying this is evidence of how social policies have let down young people for a generation. And they have fallen through the cracks, if you like. They have been failed by the system, failed by their schools. Other people are putting the blame squarely with the young people themselves, with poor parenting, and they are saying that, you know, this is evidence that the police must get tough. Certainly the Prime Minister David Cameron, today, has called for more police on the streets and more robust policing. They haven't ruled out the use of plastic bullets, rubber bullets today, tonight, which would be very unusual in Mainland Britain. But we are being told that there are some 16,000 police officers on the streets today, as against about 10,000 yesterday-sorry 6,000 yesterday; so an increase of 10,000 extra officers on the street. So they are flooding areas like this with the police.
We can see the police are sort of making their way up there. Hence, I'm talking while we are walking, Richard. But this kind of characterizes what it is like, actually. It is very fluid and dynamic. You know, you can be in one place and there suddenly be a tense standoff, and then for reason at all it evaporates and the gang disappears, melts away into these estates, only to pop up somewhere else to cause more trouble in a different neighborhood.
QUEST: OK, the final question to you, Dan. Anybody watching this tonight might honestly say what on earth is going on in London? Is it safe to go there? How much of the city is actually under rioting? All the sorts of question, maybe if you are in the city sound a bit ridiculous, but when seen from afar and when you look at the pictures, you do start to wonder: What's happening in London?
RIVERS: Well, I think it is important to stress London is a massive city of, you know, some 10 million people. There are-it was widespread last night, Richard. It was unprecedented, but there were also areas that were completely untouched. Much of the central part of London, the tourists would know, around, you know, Big Ben, the Houses of Parliament, Trafalgar Square, you know, Bond Street, all those areas, were completely untouched. It was in the peripheral suburbs, if you like, around the edges of the city where trouble was bubbling up, and that was I think important to stress.
That it wasn't the entire city that was in flames. It is very often easy to give that impression when you see footage on the TV, that the whole city has been affected. That wasn't the case. But it was widespread in those suburbs. It was very, very intimidating and scary for us on the streets, for the people that lived there. And also for the police, I think. I got a real sense last night that they really did feel out numbered and they were really struggling to cope with what was going on.
QUEST: All right. Dan Rivers, who is there in London, Central London, for us tonight. And will keep us informed on what is happening.
We are waiting for the Fed decision. The markets have been up roughly, some, I don't know, 200 odd points at some one point, but those gains largely have evaporated. As we do wait for the Fed to make a decision.
Maggie Lake-Maggie Lake, come and join me over here while we do wait.
Because the way things always go with these, the Fed has to balance this interesting line, doesn't it? Between on the one hand, not appearing to panic, but on the other hand it must give some form of confidence?
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: That is absolutely right, Richard. And you are right to bring that up, because people everywhere might be calm, knowing that the Fed is watching, but market participants don't want to see them overreact. It would give the indication that things are much worse off than they thought, and sort of set off a new round of panic. So that is very important to keep in mind.
But they do want to let everyone know that they are vigilant, that they are watching and that they have a handle on the situation. And I think you were right before when you were saying, they also want people to know that they do have more than they can do, should they need to.
QUEST: Right. We'll take a very quick break. When we come back, Maggie is here. Felicia is with us, as well, to talk about the announcement from the Fed. We're back in just a second.
(COMMERCIAL BREAK)
QUEST: Welcome back. QUEST MEANS BUSINESS tonight we are in New York. The New York Stock Exchange behind me-as you can a dreadfully overcast, hot, muggy, humid, thoroughly unpleasant day to be standing outside. And also one where the rain is threatening. And what we are waiting for is the U.S. Fed, for its latest announcement.
Felicia Taylor, the Fed has now just made its announcement. Rates are unchanged. That is not a surprise. The Fed's announcement, rates are unchanged, but what we are waiting for, of course, is to see the actual detail of what they may have said. Felicia Taylor, is in the stock exchange, joins me now.
Felicia, I'm working on two tin cans and a piece of string. And I think the string is fraying on the connection. People are looking at it. What do you see at the moment? Anything of interest?
FELICIA TAYLOR, CNN FINANCIAL CORRESPONDENT: Well, what is interesting about what is happening right now, Richard, is that traders literally are standing still waiting to get more information about what is coming out of the Federal Reserve.
But we did see, as soon as we saw that rates remained unchanged, which of course, is not a surprise that was completely expected. We saw the market tick up 200 points, and now it has backed off again, to 114. So the action is swift.
I'm here with Ken Polcari of ICAP Securities.
What does this mean? I mean, is there any certainty in what the Federal Reserve is issuing now?
KENNETH POLCARI, MANAGING DIRECTOR, ICAP SECURITIES: It doesn't appear-and I'm only reading the headlines, like you. It appears that the market originally liked what they saw, but now as they delve into it, the market is certainly backed off again. It is churning right here. It is certainly not collapsing.
So, I think on the one hand, they recognize the fact that the Fed has acknowledged a slowdown in the economy, which is important. I think that is very important. A lot of people needed them to do that. And I think as rates are unchanged everyone expected that and the Fed stands ready in the event that they really need it. The market is kind of liking it. It has certainly backed up it is not collapsing by any stretch. So at the moment I'd say that it is really what everyone expected.
TAYLOR: But was this enough? I mean, weren't we really looking for more significant direction from the Federal Reserve, in terms of maybe QE3, or some kind of stimulus? Whether they are going to be buying longer term maturities or something?
POLCARI: Well, I think that, you know, the announcement of a QE3 might have actually could have cut both ways, right? People could have thought, if we announce a QE3 that the economy was much worse than expected. And that in fact now it seems to be backing off. So I don't know what other headlines are coming out-
QUEST: OK, Felicia, I'm interrupting you.
POLCARI: But it does not look like they are liking what he's saying.
QUEST: Felicia, Felicia.
TAYLOR: Go ahead, Richard.
QUEST: Felicia, I'm going to tell you, we have-there is-I'm reading the statement now. And what is says here is: "inflation subdued for the medium term, exceptionally low levels for the Fed funds rate", now that much we have known, "at least through mid-2013."
Now, unless I am-Maggie Lake is with me. Felicia Taylor is with me. Ken Polcari is with me. Unless I'm mistaken, that is the first time we have seen a date for long exceptional levels of the Fed funds rate.
LAKE: That is absolutely right. They are being more specific. I should also mention, highly unusual for them to give this sort of target range. But they want to make it clear that they are going to do nothing. They are going to keep the floor on the gas pedal (UNINTELLIGIBLE) for the foreseeable future. The market has started to think that an economic recovery maybe sometime next year. They are pushing that way out now, Richard.
QUEST: Felicia, what do you make of the "committee discussed the range of policy tools available to promote a stronger economic recovery". So clearly we have a date for how long now this exceptionally low rate of Fed funds is going to be Felicia.
TAYLOR: But what is missing in the statement is any kind of a direction as to what kind of stimulus could be possible for this economy. Keeping rates low isn't enough to satisfy the markets. And the drop has been swift and fast. We are now down 39 points on the Dow. The S&P is up just two points. I mean, the market doesn't like what it is seeing. It really was looking to the Federal Reserve to have greater direction, especially considering what is happened in the last three or four trading sessions. This is not enough for the markets to be satisfied. Wouldn't you agree?
POLCARI: I would agree based on what I'm seeing the market reaction. I think the market expected a little bit more. But once again, we are going to see if the market completely falls out of bed, or whether or not it seems to stabilize.
TAYLOR: It was a case, a little bit of damned if he does, damned if he doesn't. This is a very sort of precipice that Ben Bernanke was standing on, as to whether or not he was going to be able to calm the markets sufficiently. But evidently this just isn't enough. We are now down 83 points on the Dow. And the selling looks like it is going to continue for the-well, now we are back up 57-I mean, we are only down 57. So, the market is interpreting this as just not enough direction, once again, from what are the leaders in Washington. And that is really where we really needed to see some kind of a direction.
QUEST: Oy!
POLCARI: You know, we just had a 200 point swing in the last minute and a half. You know, right before the announced it we were up 200. Now we are down 50 and we seem to be waffling here. So, I think as they start to dissect this news, they are going to pull it apart, they are going to listen. They are going to interpret everything he said. And then the markets is going to make a decision. But based on kind of what we are seeing right now it is completely thrilled with what they heard.
TAYLOR: So, Richard, unfortunately we have a market down 59 points right now.
QUEST: OK, Felicia.
TAYLOR: So clearly this needs to be unfolded.
QUEST: Maggie Lake is with me. Felicia, stay there, don't go too far away. Maggie Lake is with me with the best economic team around.
What did the market want from the Fed? Ken is saying, and you can ask Ken this, after Maggie's answered me. Actually, Felicia, ask Ken in a moment. What did the market actually want the Fed to say? Maggie, what do you think they wanted?
LAKE: Perhaps they wanted something more specific. But they weren't going to get it. They knew they weren't going to get it. Two weeks ago they were clamoring for the Fed to get out of the way. This is a market that is still feeding on fear. I don't think it is necessarily disappointment over the Fed. If they had something more extreme every one would have panicked.
It is one of those situations where nothing they did was going to stop the selling, if there was more to come. The uncertainty is Europe, it is the economy, it is not the Fed.
QUEST: All right. Felicia, ask Ken for me, what did he want Bernanke to say? At the end of the day, the man can only say so many things. Put that to him.
TAYLOR: Well, you are right. I mean, his tool kit is not as full as it used to be. So, Ken what did the market need to hear from Ben Bernanke to be satisfied this time around?
POLCARI: I think needed to hear, and I didn't hear the headline myself, but it needed to hear that it acknowledged the weakness and that they stand ready. I don't think that the market really wanted to hear a complete QE3 program. Because when you look back at one and two, what has it really done for us? It has not done what a lot of people expected. So I don't think a lot of people really want a full-blown QE3. They just want to know that the Fed is there and that they acknowledge, I'm kind of guessing that he headlines did say that. And the market remains confused. You have to understand, we have had a lot of damage done to this market, in the last week and a half. So the market itself is trying to readjust and it is trying to find its own footing.
TAYLOR: Well, it did acknowledge that the economy is weaker than it had been before. But again, I mean, that is a little bit of the situation where it is almost damned if he does, damned if he doesn't.
POLCARI: That's right. Sure.
TAYLOR: Because now that indicates that things are worse than he had been saying before.
POLCARI: That's right. But if he stands ready. If he stands ready and he indicates that, you know, listen they have kept rates low, I get all that. Nothing has really changed there. But if he stands ready to add further stimulus, if it gets weaker, then I think that is what the market needs to hear. I'm guessing that somewhere in that statement it does say that without actually launching a QE3 program.
QUEST: All right.
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TAYLOR: Let's take a quick look at the Dow. Right now it is up 25 points.
QUEST: All right.
TAYLOR: Gold is also up $47, both indications of what is happening in the marketplace. Not so happy about what Ben Bernanke said, so far.
QUEST: All right. Felicia Taylor, you are way ahead of me in terms of the market numbers. Maggie Lake-thank you, Felicia.
Maggie Lake is with me. Did I hear her just say the market is now up 25 points?
LAKE: The headlines come across. They read it on the wire, in headline form. They go back, the desks read it. And then you have a delayed reaction. Sometimes it is not until the next day that we absorb what happens in the Fed statement. They said that--
QUEST: So, with more mature reflection, which is the bit we should be focusing on?
LAKE: They said they are downside risk. The emphasized they have a dual mandate. Not just inflation, but growth, which is different than Europe. They are extending their gains. And they said that they stand ready to employ their tools, meaning they think they have more. Which you and I talked about earlier.
QUEST: OK, so finally then Maggie, you say they stand ready to employ their tools.
LAKE: Right.
QUEST: They have got this dual mandate. Now that dual mandate, and reminding us about that-
LAKE: Growth and inflation. So they are going to watch the labor markets. They are going to watch growth. Not just inflation, which we know, people here in the U.S. think ties the hands of the ECB. The Fed has a dual mandate. So they will watch a weakening economy.
QUEST: Maggie, many thanks, indeed.
Maggie Lake who is here, Felicia Taylor is at the-inside the stock exchange.
The Dow Jones industrials, let me remind you where the Dow now stands. The Dow now stands just seesawing. This is the way the market is at the moment. We will be back in just a moment. QUEST MEANS BUSINESS live from New York.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS. This is CNN. And today the main news on this program, of course, is the decision by the U.S. Federal Reserve. It hasn't changed interest rates. But it has given us a decision now on that extended low Fed funds rate, through to mid 2013. It says it stands ready with its tool box. Ready to do what is necessary to continue to promote its dual mandate of low inflation and of growth.
The Dow Jones industrials had been up before the Fed statement. It then went down by about 6 points. And as you look at the numbers at the moment, the Dow Jones industrials are up just around about 30 to 40 points.
As traders headed for the door, one man piled into shares.
He is the billionaire investor, Wilbur Ross, who believes that buying opportunities are all around him.
He's the chairman and chief executive of Wilbur Ross & Company.
Mr. Ross joins me now from CNN Los Angeles.
Wilbur, let's just talk about what the Fed has decided to do and whether or not you think that factors into your investment decisions at the moment.
The Fed says it stands ready. It's acknowledging the weakness in the downtown in the economy.
WILBUR L. ROSS, CHAIRMAN & CEO, WL ROSS & COMPANY: I would not have expected them to say anything more than what they did. I think their role is one of being fairly temperate. And I think the interesting thing was making it clear that low rates will be here well into 2013. That elements one of the fears that people had had of a premature upward trend in rates in the United States.
QUEST: You've got to admit, it's like -- it's very unusual, isn't it now, to basically tell the markets where rates are going to be and rather than leaving this vagueness. And the fact that it is going to be until 2013 is surely a reflection of that weakness and how deep-seated and worried they are.
ROSS: Well, indeed, it is. And I believe that given that
Inflation, particularly in the case of petroleum prices, seems to be reasonably under control, it probably gives the Federal Reserve more running room to pursue their other mandate, which is to try to stimulate employment. It's a unique mandate and very often the two components of it are logically inconsistent, each with the other.
So I think right now they're going to be focusing on trying to boost employment and boost the economy.
QUEST: Let's talk about the investment strategy then.
With 1000 points the Dow and the other markets relative over the last few sessions, the last week or so, you can understand why people are looking to people like you and saying, where do you invest?
What is the strategy that one should employ now?
ROSS: Well, first of all, I think people shouldn't be too preoccupied with day to day fluctuations, even though the ones we saw the last couple of days were obviously pretty extreme. You really shouldn't be trying to second guess what's the absolute bottom. My experience is anybody who tries to figure the exact bottom or the exact top never gets it right anyway.
So I think all you can really do is say are things at a level where they provide good value?
Are they at a level...
QUEST: All right...
ROSS: -- where we can get good returns over a seven year period?
And that's all that one should really be doing.
QUEST: OK. But now, if you -- even if you're not -- and I -- and I fully take on board what you say about -- I mean, you know, only a fool tries to hit the top or the bottom. It's just a monk's game (ph).
ROSS: Right.
QUEST: But do you believe that this is a moment to be sitting on your hands or a moment to be getting into stocks to dollar average down?
ROSS: Well, what we've been doing is averaging down on those of our companies that are public and where the stocks have taken a real smack. Our theory is, if we liked it up 15 or 20 points, we really should like it better down 15 or 20 points.
So we've been pecking away, not taking huge incremental positions, but each day buying a little more in the ones that showed the most weakness.
QUEST: Finally, putting this into a global context, we know that the fastest growth is in the emerging markets and we've also now seen gold rising so dramatically.
Do you subscribe to the view that gold is this last best haven against all other faults of the world?
Or do you think that it's just basically the metal for the loonies?
ROSS: Well, I think it's all of the above and none of the above. I think it's quite illogical that simultaneously gold and U.S. Treasuries are viewed as the safest haven, because what propels each of them is radically different from the other.
Gold, if you make a conceptual case for it, is more a case against inflation. But if you're really worried about inflation, why would you be driving yields on 10-Year and 20-Year Treasuries down to very low levels?
So I think what it really shows is there's not a unanimity of concern among investors. They are concerned but they're trying to figure out different ways to deal with their concern. And that's why you're seeing this weird phenomenon of both Treasuries and gold being strong.
QUEST: You can certainly say that again, Mr. Ross.
What a -- what a treat.
And thank you for having us -- for having you on the program today.
And thank you for joining us.
Many thanks, indeed.
Wilbur Ross joining us this evening from Los Angeles with his unique perspective on what's happening in the markets.
Well, there are other news headlines.
And Hala Gorani is at the CNN News Desk to bring us up to date -- good evening, Hala.
HALA GORANI, CNN CORRESPONDENT: Hello, Richard.
Here are the stories we're following.
According to Syrian state media, Syria's president said that security forces in his country will not stop cracking down on, quote, "armed terrorist groups" that he continues to blame for months of violence. This after a visit by the Turkish foreign minister. Turkey has said it's, quote, "running out of patience" with the regime's crackdown. Human rights groups report about 30 more deaths today across the country.
Also, new developments from the unrest in Britain. Investigators have found no evidence that Mark Duggan fired on police before he was fatally shot last week. Duggan's death set off peaceful protests Saturday night, but they morphed into days of riots and looting. Police say 111 police officers have been injured during the unrest.
Also, in the United States, a sentence of life behind bars for polygamist sect leader, Warren Jeffs. That's for aggravated sexual assault of a child under 14. He was also sentenced to 20 years on another count. It took the jury just 30 minutes to decide the sentences. Jeffs has argued he's being persecuted for his religious beliefs.
That's a look at the headlines.
We'll have a special edition of "WORLD ONE" at 3:00 p.m. at the top of the hour -- back to you, Richard, on Wall Street.
QUEST: Many thanks.
It's raining on Wall Street, Hala. It's most unpleasant weather. And I suppose that's -- that matches the mood of the markets, that really can't decide, just looking at the Dow Jones, which is swinging backwards and forwards, now down just half a -- now down just 5 or 6 points. But up a bit, down a bit, round a bit.
And the one market that has seen the strongest gains has been that of gold. Gold rose quite sharply after the Fed statement came out. It traded at a record high.
Poppy Harlow from CNNMoney.com joins me now -- Poppy, give me the story of gold today, please.
POPPY HARLOW, CNNMONEY.COM CORRESPONDENT: It's -- it's been a fascinating day, once again, for gold prices. We hit a record high on Monday, Richard. Then this morning, at the open, we continued to rise, up 2 percent, as you said, exactly on points. And equities fell precipitously after the Fed came out with this announcement just about 15 minutes ago here in the United States. We saw gold pop higher.
I talked to a gold trader from a Chicago Mercantile Exchange today to get his take on, first of all, who is buying gold. It's more and more retail investors, not just institutional traders. And his take on the gold play right now, at these levels.
Take a listen.
(BEGIN VIDEO CLIP)
MIHIR DANGE, GOLD OPTION TRADER, ARBITRAGE LLC: I think you're seeing both retail and institutional buying. When -- when you have a tremendous sell-off in equities, traditionally, you find that same sell-off in gold. And that's what happened in December of '08, when we had the flash crash.
But we're not seeing that now. So we're seeing that disparity, which means that there's a lot of retail and institutional buying. It means that people don't feel that their money is safe with currencies, with crude oil, with any other commodity other than -- then gold right now.
HARLOW: Why do you think that is?
It's very interesting, because the kind of equity sell-offs that we've seen in the last week have been akin to what we saw in 2008.
DANGE: Right.
HARLOW: However, you're seeing a very opposite play with gold.
Why is that?
Why is it different this time?
DANGE: Because the -- the -- the U.S. debt was downgraded, which is - - the president says that it's not really a big deal. In the eyes of the rest of the world, it's an -- it's a huge deal.
And I think the most -- the most telling sign is that recently we've had central banks buying a tremendous amount of gold. And most of them have been Asian central banks, which is -- which is kind of demonstrating that the Asian markets, who owe -- who own a tremendous amount of U.S. debt, are no longer comfortable with it.
HARLOW: One thing that I -- I fear is that we talk so much about gold and this flight to safety, and I fear that -- that the average investor thinks that their gold investment is 100 percent secure, that they -- they feel that there is no risk there.
Talk about the risk inherent in gold at these levels.
DANGE: To -- to believe that there is no risk is -- is very foolish. We are seeing a tremendous amount of volatility in the product. We're seeing $50 ranges overnight, I mean, and the range if $50, but we're seeing it trade up $50, down $30, up another $20, down another $50. I mean it's very, very dangerous right now.
If you pick your spots, you could do very well. If you're on the wrong side of the trade, you could -- you can get burnt.
So though there is that flight to safety, how safe is it?
Right now, it's not that safe. You could have bought 1782s last night, saying, oh my god, we -- this is $50 higher, it should go to $1,850 today. And now, you're looking at $1,730 -- you know, $1,735 gold and saying, wow, I didn't make a good investment.
(END VIDEO TAPE)
HARLOW: And Richard, I asked for his six month call for gold. He's betting mid-$1800s. That's the high. We don't push higher than that. Inflation adjusted, we're really not at record highs for gold. Gold would have to hit about $2,200 an ounce.
But I just want to point out something interesting. We'll put it up on the screen.
Look at gold, up 35 percent in the last month. Look at oil, down 16 percent. I'm seeing that exact reflection as trading goes on right now. Oil down almost 3 percent. Gold up almost 3 percent -- Richard.
QUEST: Right. Many thanks there, Poppy Harlow.
And now to put a bit of perspective on that, obviously, oil comes off the top because of that worsening outlook, or at least deteriorating outlook from the Fed, who are concerned on economic growth, which, of course, takes its toll on the price of oil.
Poppy Harlow from CNNMoney.com.
When we come back in just a moment, the former Italian prime minister, Lamberto Dini, joins me to discuss whether or not the markets are beating up unfairly on the Italian economy. And, after all, the ECB has ridden to the rescue.
QUEST MEANS BUSINESS after the break.
(COMMERCIAL BREAK)
QUEST: OK, so the markets have suddenly decided to have a little bit of a turn turtle. The Dow Jones Industrials now down 165 points. We've lost 100 points in the last few moments for reasons, frankly, that are by no means clear. We've had the Fed decision, so we know why -- we know what the Fed thinks about unemployment and a growth strategy and how it spoke of it.
The Dow is now falling quite sharply. It is down 200 points.
We'll get Felicia Taylor back with us in just a moment or two, as we factor in what is going on and the reasons why. But the Dow is off the best part of 200 points at the moment.
Let's put this into perspective, because the other big issue that has been on the agenda is the weakness in the European economies, especially the debt crisis facing countries like Italy.
The former Italian prime minister, Lamberto Dini, is joining me now on the line.
Mr. Dini, we -- we now know what the ECB is basically bailing out the issue by buying bonds.
But how structurally weak is the Italian economy, as you see it?
LAMBERTO DINI, FORMER ITALIAN PRIME MINISTER: Well, look, first of all, no one is bailing out Italy at this point. There has been only the decision of the -- the heads of states to give permission to allow the European Central Bank to intervene in the purchase of Italian securities on -- in the secondary market.
But so far, in my view, those purchases has been very small.
Secondly, it is true that the Italian economy is not growing very fast. This is due to structural factors that are not easy to reverse in the short-term. The aging population, the structure of our economy that is based largely on small and medium sized companies...
QUEST: Right. What...
DINI: -- that's more subject to foreign competition.
QUEST: So but those are reasons -- but let me -- let me just jump in there.
Those are reasons for what is happening.
But do you worry -- do you worry, sir, that once the bond market and the bond vigilantes sniff blood in the water, they are going to go after Italy, even though that would require vast sums involved?
DINI: Look, I don't think so. It is true that this state of speculation was started by American hedge funds, that all ganged together to attack Italy. But the Italian situation is not worse today than two months ago. Actually, I think it is better because the Italian government is intervening just to accelerate the elimination of the budget deficit in next year and the year 2013. And that deficit is small in relation to that of other countries, being less than (INAUDIBLE)...
QUEST: All right.
DINI: -- today. So...
QUEST: So...
DINI: -- Italy...
QUEST: Right. But...
DINI: -- will do everything it takes to bring back -- to bring down that differential between the Italian -- the security government bonds and the bund.
QUEST: So that's -- if that is correct, then you are looking at having to introduce -- or the government is -- further austerity measures...
DINI: Yes.
QUEST: -- to try and not only do the refinancing operation, but to get the debt to GDP levels down. That's more austerity.
Are the Italian people prepared to accept it?
DINI: Look, when the house is burning, the first thing to do is to put out the fire. And that's what we have to do. Then, certainly, we are not insensitive -- the government is not insensitive to the fact that the economy needs stimulation. And measures will be taken to facilitate the business in particular, removing bureaucratic obstacles and giving incentives to new companies, to new businesses being created and other measures. We cannot do much more than this.
But I think we have -- we need a credible measures and I think they are credible, the measures that the government is -- is introducing now.
I think that those guys that have uncovered (INAUDIBLE)...
QUEST: But...
DINI: -- you know, they should take -- like on Wall Street, and we can comment on that if you want, that they should learn to cover...
QUEST: OK...
DINI: -- before it is too late.
QUEST: Right. Well, many thanks, Mr. Dini, in terms of what -- Wall Street. Run for cover, which is exactly what I should be doing now, because both financially and meteorologically, the heavens have opened and we're getting well and truly rained upon, which, and you will see, it's going to get pretty unpleasant in the next few minutes as my suit turns a funny shade of wet.
When we come back in just a moment, the Brooklyn Brewery.
QUEST MEANS BUSINESS live on Wall Street.
Oyez.
(COMMERCIAL BREAK)
QUEST: OK, so, the wind turned, the markets fell, the rain poured in, we got wet, but luckily, we've always managed to get a bit of cover, which is perhaps more than investors did today.
There have been many words to describe what's been happening on the markets. Some said panic. Other people said crash.
The truth of the matter is, if you want to know what Americans are thinking, the best place to get them -- to speak to them, is at breakfast, which is what I did this morning at The Flame Diner.
(BEGIN VIDEOTAPE)
QUEST: If you read the morning papers in New York, you'd think the financial world was coming to an end.
Let's find out what breakfasters really think here at The Flame.
And whilst we're finding out, the breakfast will be cooked.
Pancakes, please.
What's your fancy?
UNIDENTIFIED FEMALE: The (INAUDIBLE) with the flat eggs and the multigrain toast.
QUEST: It's that sort of day, isn't it?
UNIDENTIFIED FEMALE: Yes.
QUEST: Yes. It's a Friday sort of day. You don't want anything granola-ey.
UNIDENTIFIED FEMALE: No.
QUEST: The last few days have been very difficult, haven't they, in politics and in the economy and...
UNIDENTIFIED FEMALE: Very bad. Very bad. I'm going to be 90 and I never remember it like this.
QUEST: It is a concern to you, the -- the seeming inability to solve the economic problems?
UNIDENTIFIED MALE: What else is different, you know?
Things have changed in the last 30 years.
QUEST: It sounds cynical, sir.
UNIDENTIFIED MALE: What?
QUEST: The great part about this diner, this is something I recognize.
(RINGS BELL)
QUEST: What are you having for breakfast this morning?
UNIDENTIFIED FEMALE: (INAUDIBLE) muffin is blueberry.
QUEST: The Chinese say Americans have got to stop living beyond their means.
What do you say?
UNIDENTIFIED FEMALE: I don't live beyond my means, so maybe I'm more of a Chinese than an American.
UNIDENTIFIED FEMALE: we are cutting back. We're tightening our belts. We are finding ways of being as creative as possible.
UNIDENTIFIED FEMALE: The prices are rising on -- on food and everything, so people are eating less. So we're feeling it a lot.
QUEST: Really?
UNIDENTIFIED FEMALE: Yes.
QUEST: Are you worried about what's happening for this generation?
UNIDENTIFIED FEMALE: I'm worried. I'm worried about Social Security not even being existent when I get old. And I'm worried about them. Yes, I am.
UNIDENTIFIED MALE: I think learning a foreign language is important to, you know, be able to expand your horizons, right, Matt?
UNIDENTIFIED MALE: Sure.
QUEST: Which language would you like to learn?
UNIDENTIFIED FEMALE: Spanish, probably.
QUEST: Clearly, the economy is in trouble.
Are you worried?
How do you think the market is going to react?
Ah, my breakfast has arrived. Something tells me this will lead to indigestion. This will set me up nicely for the day.
Thank you.
I love pancakes.
(END VIDEO TAPE)
QUEST: I don't know of any economic problem that a very large stack of pancakes in a New York diner won't put right. At least it will keep you secure until the chance that you won't feel any effects of anything else.
All right, Guillermo is at the World Weather Center.
What on earth just happened then -- Guillermo?
GUILLERMO ARDUINO, CNN METEOROLOGIST: It's going to get worse, we think, and in the next hour or so. There's a stormy weather system. Philadelphia is much worse, I must say. I was reading the Philadelphia airport is much worse.
LaGuardia and JFK now have some rain. And more is coming, because the -- the line of storms is moving into New York as we speak. So it's going to get worse.
But the good news is that after that, tomorrow, it's going to be nice. And today was not that warm. Tomorrow is going to be nicer, in the sense that we will see sunshine. Temperatures are going to be more comfortable in the morning, but it will get, again, to 30 degrees or so.
The Southwest, much hotter. So all those are in worse conditions, especially Oklahoma. You see all the excessive heat warnings if you are going there. Also, if you are flying into Texas or Louisiana, Arkansas and the Southeast here, the Carolinas and Georgia, the heat continues.
This is an idea of what's going on right now. Only 27 in New York. A lot -- 31 -- in Atlanta. Dallas even worse at 38. Chihuahua, in Northern Mexico, 31 degrees; 32 in Vegas and 23 in Boston.
So tomorrow we think it's going to get 30 or so in New York.
Then, no problems at the airports, apart from what's going on right now in the Northeast.
And in Europe, also, we see the change, the cooling trend continues into the west. And you see the showers return into Britain and Amsterdam and also in Brussels. The strong storms all the way to the east. That's about it. The Mediterranean lovely.
All those who are in a cruise liner in Scandinavia, the weather will not continue -- will not be nice, will not improve at all. But in the Mediterranean Sea, that's nice. Also in Istanbul looking OK. The heavy storms in the east with strong winds, rain and thunder. Probably Dublin here with some delays due to cloudiness and storms. And also in Copenhagen, the same system all over Scandinavia, Richard, with some windy conditions.
But I promise that tomorrow the weather will be much better in New York.
So wait for that.
QUEST: Fine. Fine. Thank you. I'm on my way back to London tonight, if the plane ever takes off.
(LAUGHTER)
QUEST: All right, Guillermo is at the World Weather Center.
If you have ever wondered what it takes for us to bring something like QUEST MEANS BUSINESS to you from somewhere like our position at the New York Stock Exchange, it takes these good people. It takes the good people from the Parks Department. And somehow I'm going to -- wait.
What is going on?
Get us away. It's -- give us -- that's (INAUDIBLE). And it takes my esteemed colleagues to make sure I stay dry.
QUEST MEANS BUSINESS, A Profitable Moment, next.
(COMMERCIAL BREAK)
QUEST: Tonight's Profitable Moment, with the Dow off 88 points.
When we started the program an hour ago, it was bright sunshine. Then the Fed's decision acme out and the rain started falling.
What do we make of it?
We can say it was a commentary on the sad state of the U.S. economy. Perhaps others would suggest that the fact that the interest rates were going to remain ultra low until 2013 shows that the Fed is on the mark. Or perhaps you might just simply say the Fed, like the rain, has taken the heat out of the situation.
And that is QUEST MEANS BUSINESS for tonight.
I'm Richard Quest in New York.
Whatever you're up to in the hours ahead, I hope it's profitable.
I'll see you back in London tomorrow.
END
