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QUEST MEANS BUSINESS
U.S. Fed not Expected to Move Rates; GM Working to Rebuild Market Share
Aired August 11, 2009 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: A delicate balancing act. The U.S. Fed turns its attention to interest rates.
Where can you put your millions these days? Tax havens are under the spotlight.
And wish you were here, the "staycation" is replacing the vacation.
I`m Richard Quest, I mean business.
Good evening. There will likely be no change in U.S. interest rates this week. And that`s not just how the financial markets are calling it. It`s the view of a former vice chairman of the U.S. Federal Reserve.
With the economy starting to show signs of improvement in the United States, tonight we`re going to ask what the Fed can do without snuffing out optimism.
America`s central bank is meeting right now to answer that very question. All of this year benchmark rates have been held at historic lows. It`s expected to remain there for the time being. It`s what the Fed says about the state of the economy that`s crucial to investors, corporations, and to basically all of us.
Earlier I spoke to Alan Blinder, former vice chair of the U.S. Federal Reserve, now a professor in the United States. I asked him what he`ll be looking for from the Fed on Wednesday and in the future.
ALAN BLINDER, FORMER FEDERAL RESERVE VICE CHAIRMAN: Two things: First of all, they`re not changing interest rates. That`s a forgone conclusion. So you want to see a little bit about what they say about the economy. And what I mean by that specifically is how much optimism they`ve allowed to creep into the statement.
It`s not going to be super-optimistic, that`s for sure. They would look crazy. But things do look better than the last FOMC statement. And Chairman Bernanke and his colleagues will probably change their prose accordingly.
The second thing people are looking for is what they will say about the program to purchase U.S. Treasuries, the analog to the U.K. program that you just mentioned. Some people are going to declare that the Fed is going to -- some people think the Fed is going to declare it over.
I`m a little dubious about that. I think it will end on schedule. I don`t think they`re going to grow it or extend it. But I don`t see the point in August, the August -- today is the 11th, tomorrow is the 12th, of making a declaration and locking yourself in to that conclusion.
Nonetheless, they probably will say something about it.
QUEST: Do you still see a very loose -- well, almost nonexistent energy policy at the -- for the foreseeable future with no thought of tightening until at least Q2 of 2010.
BLINDER: Probably. I would put -- in the U.S., I would put some small probability on Q1. But I think it`s unlikely. I`ve been saying some time in the first half of 2010 is probably the first little inkling of tightening, not a vast tightening, but a little bit of tightening by the Fed.
And my guess is the ECB, which never got as low as the Fed, comes later.
QUEST: Do you believe that recovery will be -- will have started by the end of this year, or do you think we`re still looking into the beginning of next year for the resurgence of growth?
BLINDER: I think it depends a lot on what geography you`re talking about. I think in the U.S. it`s almost certain that recovery will be here by the end of the year. Indeed, I think in terms of GDP, though not yet in terms of jobs, it`s here already.
Europe -- most of Europe is running a little bit behind. They were -- Europe was a little slower than the U.S. getting into this mess and is going to be a little slower getting out of this mess.
QUEST: Would it serve the market and the financial world if the president was to come out early and sooner and say this is what is going to happen?
BLINDER: I think it would. I think the markets are looking for a Bernanke reappointment. They`re expecting a Bernanke reappointment. They`ve grown comfortable with Bernanke -- in large measure, they`re full of admiration for what he has done, been pulling the whole world financial system back from the abyss.
And I think it would be a good thing for markets and for -- of things to get this done sooner rather than later.
QUEST: Is there any risk that he won`t re-appointed? I know there is always a risk in the world of politics. But is there any real risk, do you think, that he won`t be re-appointed?
BLINDER: I think there is some risk, yes. I mean, I was saying a while ago that Bernanke has got a beta of one with the economy. That his prospects were perfectly correlated with the economy.
So if the economy should turn sour, that would increase the risk. There are also other people that are sort of vying for the job. But I think the great likelihood is that he will be reappointed.
QUEST: Finally, professor, I`m asking all major -- former policy people like yourself who have spent their life in economics, did you ever think in your career you would see a full scale global use of quantitative easing where, frankly, we don`t really know what the long-term effects will be?
BLINDER: Yes. Or you might say, the short-term effects either. No, the honest answer, Richard, is absolutely not. I never imagined anything like this happening in my lifetime, the Great Depression and the financial mess that went with it was something we read about in history books.
Old as I am, I`m not that old to have experienced that. And I never imagined anything like what we`ve experienced in these last two years.
QUEST: Alan Blinder, giving us an account of what he expects from the FOMC. And you will bear in mind, of course, the Federal Open Markets Committee, all central bankers try and telegraph as best they can what their decision is.
This is the way the markets are looking at this hour. The Dow Jones is red, flashing quite sharply, down 85 -- at point 0.85, nearly 1 percent, at 79.5. The numbers seem to be a little bit -- I think we`re having a few problems with that. It seems to be flashing all sorts of colors. But the Dow is very firmly lower today. Pretty much what the consensus thought was going to happen.
And shares in Europe also closed lower for the second day in succession. And today the losses -- well, I`m afraid to say, they were much steeper than Monday`s. And there was the same logical reason.
Certainly a market that had been over-bought on the upside, but there was inflation numbers from Germany, export numbers from China, all of which has called into -- and I would say, called into question, but has given grist to the mill that the recovery will be slow.
So the London FTSE was off 1 percent. And it was the banks that were very large decliners: Barclays, Lloyds, RBS, all took a whacking. And hardly surprising when you think of how well they have performed, (INAUDIBLE) and the mind, not surprising.
If China is warning about exports being down, and they did, some 20 percent, then the minds obviously feed into that.
But look at the Xetra DAX. The biggest loss there was Adidas, down 4.8 percent. But the banks were also off sharply: Deutsche, Commerz, and all of the major banks. And the automakers: Volkswagen, BMW, Daimler.
We`ve said this before, the -- and there was a fascinating piece about why the German economy is moving out of Lincoln in yesterday`s Financial Times, funnily enough.
And the Xetra DAX reflects an economy that is largely based on a strong export-led economy. If the exports and the economy is not performing, that`s why the DAX is off so sharply.
The Paris CAC-40 down 1.3 percent, 34.56. There are only two stocks in the black, Alcatel-Lucent, Arcelor Autos were also under pressure.
So as you can see, it doesn`t matter which market we`re talking about, a little -- I hate to say a self-fulfilling prophecy, but unfortunately we had warned that there was a consensus that the falls were on the cards.
You`re up to date with what has been happening in the markets. Now let`s catch up with the news and Becky Anderson is at the news desk.
FIONNUALA SWEENEY, CNN INTERNATIONAL ANCHOR: Hey, it`s Fionnuala.
Myanmar`s pro-democracy icon Aung San Suu Kyi has been sentenced to 18 more months of house arrest. A military court in Yangon found her guilty of violating the rules of her house arrest. Suu Kyi was originally sentenced to three years in prison, but the military junta intervened.
Her supporters say the government wants to block her from campaigning in the 2010 election.
A judge in Thailand has ruled against sending the Russian known as "The Merchant of Death" to face trial in the U.S. Alleged arms dealer Viktor Bout was arrested last year in a sting operation at a luxury hotel in Bangkok. The U.S. wants to extradite him to face charges of plotting to illegally sell arms to Colombia`s FARC rebels.
Rescuers in Taiwan are hunting for signs of life following Typhoon Morakot. Dozens of people were killed by the storm and its aftermath. And the toll is expected to rise. Rescuers say they`ve found hundreds of people escaped mudslides and floods on the southern part of the island.
Protesters outside a court in Munich showed solidarity with victims as a 90-year-old former German embassy officer was convicted of 10 counts of murder from the Second World War. Josef Scheungraber was found guilty of ordering Italian civilians to be forced into a barn which was then blown up. He was sentenced to life to in prison.
And those are the headlines, Richard. Back to you in the studio.
QUEST: And my apologies to you, Fionnuala. And I promise you I will get it right next time round. So sorry about that.
SWEENEY: That`s OK.
QUEST: Of course, Fionnuala Sweeney, at the CNN news desk.
In a moment, "yes, we can"? Oh no you can`t. Plans for health care reform in the United States under attack, whether or not President Obama overcomes the resistance, we`ll have a report in a moment.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: And a few hours from now, President Obama will be fielding questions on one of the most controversial issues of his presidency so far, healthcare reform.
The President is holding town hall meetings in New Hampshire to address some of the big concerns. 46 million Americans have no health insurance, and the President says he wants all of them to get the care that they need without other people losing what they already have.
BARRACK OBAMA, PRESIDENT, UNITED STATES OF AMERICA: Let me just start by setting the record straight on the few things I`ve been hearing out here about reform.
Under the reform law proposal, if you like your doctor, you can keep your doctor. If you like your healthcare plan, you can keep your healthcare plan. You will not be waiting in any lines. This is not about putting the government in charge of your health insurance. I don`t believe anyone should be in charge of your healthcare insurance decisions by you and your doctor.
QUEST: We`re going to see. We`ll have analysis on how that town hall meeting goes and the issues later in the program and things start to look up for some of US economy. The financial sector is looking up what it can learn from the crisis. Citigroup was one of the biggest casualties. It needed 10`s of billion of dollars of US government money to survive.
Our Asia Business Editor Eunice Yoon asked Chuck Prince the former Chief Executive and Chairman of Citigroup, and he was basically dismissed from the company, if he`s been humbled by the financial crisis?
CHUCK PRINCE, FORMER CHIEF EXECUTIVE AND CHAIRMAN, CITIGROUP: I don`t think I`m a very arrogant person. I don`t think I was a very arrogant person, but you know I think anybody who`s gone through - anybody in the industry who`s gone through what the industry has gone through has to be humbled by what happened. I mean, it`s an enormously consequential thing, and as I said my speech this morning here, one can only hope that it`s a once in a lifetime experience.
EUNICE YOON, ASIA BUSINESS EDITOR: What have you personally learned from your experience during this financial crisis?
PRINCE: The level of confidence that people had in the mathematical models that where the basis for the securitized products. That sense of confidence in the math and the science of it were displaced, and so when you rely on those mathematical models up to a certain level and then it turns on you then there`s nothing you can do at that point.
So, I think that having a bit higher level of skepticism about the under pinnings (ph) of some of the products and so forth is a big take away from me.
YOON: There`s still a lot of anger about bankers` bonuses. Given the political climate, how do you think bankers should be compensated?
PRINCE: Look, I think that in the environment we`re in now the public feels angry, and I think that anger is a natural reaction, and I think in that environment it`s very easy to sort of spark or trigger more anger. This is a perfect example of that. So, you know, there are people who make money for the institutions. They make profits for the institutions and they have to be compensated, but we`re going through a process. We`re going to a change process and it`s hard to predict where it will come out in the end, but my guess is that`s where regulations or changes in the law and so forth the compensation structure will probably be at least a little different.
YOON: How do you think the current CEO, Vikram Pandit, is doing?
PRINCE: I never want to comment specifically on individuals, but I`m a big supporter of Vikram`s.
YOON: If you had a niece or a nephew or a friend`s child who came to you and said they were undecided about their career path, would you recommend banking?
PRINCE: I would definitely recommend banking. Look, I think that even with the difficulties that the industry`s had the business of connecting capital markets and users of capital is not only a necessary function. It`s a positive function. People love, hate Wall Street, I understand that, but I think that the banking profession is an honorable one.
YOON: What skills would you tell them they needed and where in the world would you suggest they work?
PRINCE: When I went to university which is a long time ago, my foreign language of Russia. When my son went to university, his foreign language of Mandarin and I that as we move forward the focus of grow is going to be in the emerging markets. And so, when Kevin and Christopher, my nephews, get old enough to think such matters I will encourage them to do internships in Asia. If you don`t have that, you`re not going to have the right world view.
QUEST: Fascinating stuff. That was Chuck Prince the former Chief Executive of Citigroup and who perhaps I should have made - he did resign early in the crisis after the company that he run I`d say many billions of dollars of US government money and a fascinating account there of what it was like back during the worst part of the crisis.
The Volt is giving a jolt to the US motor industry. General Motors rolling out a high bridge. It goes further when a gallon of gas than anything you`ve seen before and back in a moment.
QUEST: Welcome back. General Motors, GM, new GM now as we probably should call it says it`s bringing out a car that`s (INAUDIBLE) efficient that converts and run on fresh air. It`s called the Chevy Volt and presenting it GM`s Chief Fritz Henderson who said many people will be able to drive it day after day without burning a single drop of fuel. It unveils official measurement, staggering 230 miles of the gallon.
Poppy Harlow joins me from New York and to put this into some perspective. 230 miles to the gallon?
POPPY HARLOW, NEW YORK: That`s right, Richard. I mean when I heard this information before, it became known to the public last night. When I got the number from GM I thought, "How that can be 230 miles per gallon?" but this is a special calculation. GM has been working the EPA to measure the Volt`s fuel economy. EPA still has to confirm that number of data for city driving, the highway number in terms of miles per gallon. It hasn`t been calculated yet, but the CEO Fritz Henderson saying he is confident that highway number will be in the triple digit as well, Richard, but when you`re looking at it, the car that can go 40 miles per gallon on just on electrical charge. You have to charge it overnight, but then it`s only after that that any gasoline takes in, Richard.
However, how do you get to that number? Well, let`s go through it because this works so much differently than other vehicles even a Prius which is a hybrid against 50 miles per gallon ultimately all the energy to power Prius comes from burning gasoline. The Volt on the other hand can go 40 miles no gas. Then, let`s say the engine kicks on. So, if you`re going further distances, Richard, you`re not going to get that 230 miles per gallon, right? If you drive 80 miles straight, the calculation shows that your fuel economy will be about 100 miles per gallon. If you`re going 300 miles, your fuel economy is going to be about 62 miles per gallon, Richard.
So, that`s the headline number, but only if you`re not going more than 40 miles total.
QUEST: Does anyone want to buy that? A car decider whether their eyes will look at the thing or not and it probably sounds like a sewing machine as it`s going down the road. But I mean, does anybody actually want to still buy a car from General Motors or am I just being disrespectful?
HARLOW: You`re not being disrespectful. When you look at the numbers, you can`t dispute the fact that GM`s market share, here in the United States, at least, has fallen, especially to its competitor, Ford, when it fell into bankruptcy, and it`s now emerging.
But Fritz Henderson saying he thinks this car will actually be a game- changer for General Motors. A lot of questions out there, still, though. The affordability - that`s a big question. Will the price tag be too high? GM told me it`s going to be in the high 30,000s. That said, they`re probably going to have to sell this at a loss at first, Rich. So that`s exactly what Toyota had to do with the Prius, sell it for less than it costs you to make it, bring people into the showrooms, and hope things turn around as it becomes more popular, et cetera. And also, where do you charge it, Rich? If you live here in New York City, you don`t have a garage. Where do you charge this thing at night? That`s a huge, huge problem.
QUEST: Yes, that`s a problem that`s solvable. Here in London, we now have blue lights all over London where you can charge your electric -- charge your cars. But listen, at the end of the day, and I know you`re not as much as you like a sporting automobile, perhaps, but is there a feeling that GM merely has a EV2 with this, or is actually a groundbreaker? Is it quantum leap?
HARLOW: You know what`s interesting? One of my colleagues here described it as the halo effect. Sort of making General Motors look angelic in a sense that we are coming forth with this electric vehicle. Let`s not forget, Richard, that it was GM that came out with the EV1, an electric car, well over a decade ago, only to turn around and have to pull it off the market. So this isn`t the first time GM has tried to do this. Will people buy it? We`ll see. Is it better for the environment? Sure. But let`s remember it`s electricity that powers these cars and half of the electricity in the United States comes from burning coal, so we`re not talking about a purely clean car. But whether it has the halo effect on GM, we`ll see. Interesting term.
QUEST: Thank you, thank you much, Poppy Harlow in New York.
Just one more car story to bring you tonight. This could be a trend of the future. As General Motors cuts the numbers of dealerships, it`s hoping to get more drivers buying cars on the Internet. Beginning today, customers can buy directly from GM dealers over eBay`s auction site. The buyer can haggle over the price or settle for the so-called "Buy It Now." This is revolutionary. Will Internet auctions ever replace kicking the tires and taking a test drive? Would you ever buy a motor vehicle over the Internet?
On the line, Barry Alves. He`s the senior sales consultant at Witt Lincoln Mercury in San Diego, California. Barry, are you worried eBay is about to put you out of business selling cars?
BARRY ALVES, WITT LINCOLN MERCURY (on phone): Not at all, not at all. The customer still wants face-to-face interaction coming into the dealership. They still want to drive the actual car that they`re buying.
QUEST: But Barry, they pop into your dealership, they have a go around the car, they kick the tires, they take it for a test drive with your gasoline, and then they go online and buy it from eBay.
ALVES: You know what? It doesn`t concern me very much because in the past, you have a lot of Internet shoppers, but if you create a great relationship with your customers face to face, that means a lot when they know they`re going to have somebody to come back to when there`s a problem with that vehicle, or if there`s a referral or any service questions or delivery questions at point of sale. eBay can`t answer those questions. Only a properly trained sales consultant can.
QUEST: It`s fascinating, isn`t it though, the way this development takes place, because at the end of the day, Barry, none of us really know whether these things will take off in that fashion.
ALVES: Correct. You never know, but the Internet is the big portion of the researching, but a lot of people still want to know every detail about the vehicle, and you cannot get that online.
QUEST: Barry, do me a favor. In a year`s time, let`s talk to you again and see if you know anyone who`s bought a car, because frankly I wouldn`t buy a car online. Would you come back then?
ALVES: Absolutely, I will. I`ve been here nine years at Witt Lincoln Mercury and I`ve never had people go on eBay looking for a car, new or used, compared to what we do here, our pricing and our relationship management.
QUEST: All right, Barry, many thanks indeed, Barry Alves joining me then from the heat over in California. In a moment on this program, why those toxic assets are still toxifying the banking system. We`re going to be talking to the chair of the U.S. Congressional Oversight Panel, Elizabeth Warren, about ominous new warnings. It`s all about the idea, if you don`t get rid of the toxic assets, we`re doomed in the future.
QUEST: "Quest Means Business," welcome. I`m Richard Quest, this is CNN and pleased you`re with us.
United Kingdom and Lichtenstein say that they`re making it tougher to hide out from the authorities in what`s becoming a long-established tax haven. The companies have signed a deal that they say encourages British clients in the Alpine principality to disclose untaxed money. It will affect about 5,000 investors upwards of $5 billion in secret accounts, according to a survey by the "Financial Times." It`s a serious amount of money for a very few number of people.
The deal provides special conditions starting next year and runs through 2015 encouraging clients to declare their holdings. Details would be kept confidential and a reduced penalty of 10 percent would be levied instead of the regular penalties, which would be as much as 100 percent of the tax evaded.
This is all bubbling as Switzerland`s cabinet holds an extraordinary out of session meeting to discuss tax evasion cases hanging over UBS. Switzerland and the U.S. have failed on Friday to reach a settlement that would spare UBS a trial over secret bank accounts held by 52,000 American clients. Talks continue tomorrow and Wednesday.
It is perhaps the only safe place for your money is under your mattress these days. Certainly, when it comes to tax havens, there are many of them. But, of course the opportunities are getting fewer and farther between. I spoke to Barry Murphy, head of corporate tax at Pricewaterhousecoopers. I asked him, needed to know, you need to know, if tax havens are still relevant.
BARRY MURPHY, PRICEWATERHOUSECOOPERS: I think tax havens as part of an international financial planning system are absolutely relevant to anyone who is using a model legitimately to plan their affairs. I think the Lichtenstein agreement and others, what they`re trying to drive a wedge on is if you`re using the secrecy laws in these places to evade taxes illegally, the tax authorities around the developed world are trying to call time on that and that`s what the Lichtenstein deal is all about.
QUEST: Of course, there is rampant illegality, such as money laundering and those little things. And then there is the gray area where you`re basically -- they could be honest, people could have a difference of opinion.
MURPHY: There is and I think that`s where people tend to blend the words tax evasion and tax avoidance together, depending on which side of the fence people sit on. But I think for anyone who`s looking at asset protection or diversifying the opportunities for investment are just making sure, as I said, the tax affairs are planned sensibly. Then using off- shore centers is still absolutely valid on all those laws.
QUEST: How competitive are the off-shore centers themselves?
MURPHY: I think some of them, obviously varying degrees, and we`re in a period now where we`re going to see a lot of change. But some of them are for a lot less cost, they are for a much more diversified range of investment opportunities and for that reason, are competitive.
QUEST: Which are the most popular ones?
MURPHY: Well, I think the ones that always spring to mind for people are places like Switzerland or Luxembourg or Jersey or Lichtenstein and of course, you`ve got a lot of other places like Dubai, et cetera, trying to come up with that curve and say we ought to be the financial center of the future. And indeed closer to home, you`ve got places like Dublin. And there`s a plethora of off-shore centers and all of which serve a different purpose for different investors.
QUEST: All right, I want to open an off-shore account. Where do I go? Come on, tell me. Should it be Jersey? Should it be Switzerland? Come on, what about the Cayman Islands?
MURPHY: I think it should be wherever you think you can get the best return in a way that you can manage the risk in your money. Certainly with deposit accounts right now, the big thing for people is...
QUEST: (INAUDIBLE), the Caribbean, nice play to go and visit the money.
MURPHY: If that is your wont, then you might well go and visit. And I think you and some others have asked, is there a connection between nice places to visit and offshore centers that might have been there in the distant past.
But I think, you know, do people go and visit their millions? I think people go and visit center where they think they are doing sensible business and good investment.
QUEST: Finally, how much -- I remember an accountant many years ago saying to me, Richard, be careful of cocktail party chatter. How much of all of this is just people saying, yes, my accountant said I should have an offshore account, I need a tax haven?
MURPHY: I think there is always danger in taking investment advice from cocktail party chatter. And I think offshore accounts -- maybe one thing that will come out of all of this Liechtenstein story and everything else is that more people will understand that offshore tax shelters are not necessarily always used for bad, illegal purposes.
They serve a very legitimate purpose as well. Yes, there are people who evade taxes, and they are the people the government are concentrating on. And I suppose rightly so.
QUEST: That was PricewaterhouseCoopers talking to us about tax havens.
Now news headlines and correctly, this time, Fionnuala Sweeney is at the CNN news desk.
SWEENEY: Thanks, Richard. First, a story just in from Baghdad. An official saying at least three people have been killed and 10 wounded in three explosions. The blast hit a Shiite neighborhood in southeastern Baghdad. The official says a mosque, a fuel station, and a coffee shop were the targets.
U.S. Secretary of State Hillary Clinton is demanding the release of Myanmar dissident leader Aung Sun Suu Kyi. Her comments come during a visit to Congo where she spoke about women`s rights. Clinton says Suu Kyi should never have been put on trial, much less convicted of charges she violated her house arrest.
And she called for the release of all political prisoners in Myanmar.
His comeback stalls out. Formula 1 racing legend Michael Schumacher won`t be driving in the European Grand Prix, thanks to a neck injury for a motorcycle accident last February. He was set to replace the badly injured Felipe Massa in the Ferrari cockpit.
... are in but they aren`t being released to the public. The Los Angeles Coroner`s Office says the information will be held indefinitely while authorities investigate whether anyone should be charged in connection with the singer`s death.
Meanwhile, police executed a search warrant at a Las Vegas pharmacy earlier in the day in connection with the investigation.
Police in London are looking for suspects in connection with a $65 million jewelry heist. Detectives say two men walked into Graff Jewelers on Bond Street last Thursday, threatened the staff with guns, and walked out with more than 43 items.
Authorities have released these surveillance camera images in hopes that witnesses will come forward with more information.
And those are the headlines, Richard. Back to you in the studio.
QUEST: It`s extraordinary the brazenness of some people, isn`t it, in these things?
MURPHY: What, to be caught on camera or to steal?
QUEST: Well, both. I mean, both. All right. They must have known the cameras were there. (INAUDIBLE) at many banks, as one will follow.
After the break, I like to be beside the sea, side beside the sea, side beside the sea, but in a recession? My fellow Brits have ruled out relaxing in Rio and swimming in the Seychelles. The classic beach resort`s time has come and gone, and now come back again. If I`m sounding Delphic, it`s time for a "Holiday Look" in a moment.
QUEST: A recession can do wonders for consumers` choices. In the days when tourism was in its infancy, the British seaside resort was the height of fashion. Cheap flights to sunny destinations in the `70s and `80s left the seaside looking like a relic. But now the seaside is back.
So packed Jim Boulden off to see whether the good times have really returned to the British seaside.
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT (voice-over): Margate was once a picture perfect British seaside resort.
Today, 25 percent of its shops are closed, the highest percentage in the nation. But the long, sandy beach, one of the closest to London, is, of course, still there. And so is the fabled donkey ride, a Margate invention.
(on camera): And though Margate certainly has seen better days, and has been through some tough times, some people say that things are now looking up and that the recession is definitely helping.
(voice-over): Town officials say July bookings were up 143 percent over last July.
RICHARD SAMUEL, CHIEF EXECUTIVE, THAMES COUNCIL: The weather has been better this year. And of course, the recession has bitten. I think more people are staying at home, more people doing day trips. And this is a great day trip.
BOULDEN: Christine Lumpden (ph) and the family have come to Margate for the day. But she would rather be by the seaside somewhere else.
UNIDENTIFIED FEMALE: It would be nice to go to Spain or Portugal or somewhere like that. But you can`t afford to. So you come to Margate.
BOULDEN: Whether the working class haven of Blackpool in northwest England, or gentrified Southwold on the east coast, seaside towns say their piers are bustling. The fish and chip shops are doing a brisk trade.
The Web site travelsupermarket.com says searches for the term "British seaside" were up 38 percent through July, giving jaded towns like Margate another chance.
UNIDENTIFIED MALE: Oh, I haven`t been down here for a good five, six years. So it looks like it`s actually picking up, even though we`re in a recession and everything.
BOULDEN: Margate has come late to regeneration, maybe too late to take full advantage of this recession. But visitors can see changes, a new national art gallery is under construction, and there are plans to restore one of the country`s best-known amusement parks, Dreamland. It used to have the U.K.`s oldest wooden rollercoaster, but it burned down.
And it`s not just British tourists who come to Margate.
SARAH VICKERY, BUSINESS OWNER: We have a lot more European visitors than we`ve seen any year before. There have been a lot more, particularly French, German, Dutch people.
BOULDEN (on camera): Well, let`s have a look.
(voice-over): Sarah Vickery runs the town`s best-known mystery, the Shell Grotto.
VICKERY: 1835 it was discovered by some children playing.
BOULDEN: It`s full of mosaics made of more than 4 million shells glued to the cave walls, giving tourists a place to go on a rainy day.
VICKERY: We had the best May that we`ve had since I`ve been here. And then we had the worst June.
BOULDEN: But any sunny day is a boon for most British Seaside businesses, as they try to win back the hearts of the hearty British beachgoers.
Jim Boulden, CNN, Margate, England.
QUEST: Now it`s not just the likes of you and me that decided to stay at home on our "staycations," world leaders also don`t want to be seen to be abroad in a recession. Gordon Brown, we know, is holidaying in Scotland.
Also recently the Russian prime minister, Vladimir Putin, enjoyed a summer break, some action pictures -- that will scare the children, of him enjoying a summer break in Siberia.
And President Sarkozy of France is on the south of -- in the Riviera, enjoying a holiday with Carla Bruni Sarkozy, his wife. So they have decided to stay at home.
This idea -- this idea of staying at home is a fascinating one. We need to put some more perspective into it, because when you decide to stay at home, well, are you really getting that much of a break? Jim Boulden`s report we heard already.
Jim, is it just economics? Would people go overseas if they could afford it?
BOULDEN: I certainly think people would. I think we found a lot of people who said, look, I`d love to be somewhere else, except for necessarily the British seaside. You know, the weather hasn`t been that great this summer.
We also -- you know, the politicians always have to stay at home. You know, that looks good for the voters. So I don`t count that very much. But we know that the number of Americans coming to Europe is down about 10 percent. The number of people going to places, international tourists coming to Spain, Italy, down about 7 percent.
But, of course, if people in Italy stay home, maybe we don`t see the impact as much because the people there are going to those hotels instead of others coming there.
QUEST: What is it that people miss most when they don`t go overseas and they have to take a vacation? Because the people I`ve spoken to this year who have stayed at home, have basically said, both in the U.S. and in the U.K. and elsewhere, have said they had a more pleasant experience than they had expected.
BOULDEN: At home?
QUEST: At home.
BOULDEN: I guess one of the things is that it`s familiarity. You don`t spend two or three days getting used to the place or having the jet lag. There are some other people who have said, of course, they`re worried about the flu this summer as well. And they thought that actually played into it as well.
So I think if you stay home, especially in the U.S. where gas prices are a lot lower than they were last summer, you will actually save a lot of money. And that`s what a lot of people are looking at, of course.
QUEST: All right. Jim, many thanks, indeed. Jim Boulden.
And just to prove these are real, bucket and spade, Jim, while I am -- tell us what`s happening next, perhaps you`d like to try and dissemble the deck chair.
QUEST: Oh, this is one of the great things, of course.
BOULDEN: Do you think I can try that?
QUEST: We`ll let him get on with that.
Now I do like a good vacation. So despite the temptation to have a "staycation," we`re going on the road this year. From one year from the near collapse of the -- put it back together. Now see if you can put it up.
QUEST: From the world`s financial system. Well, where the next week the program coming from Hong Kong. The week after, the program comes from New York. And the week after that, we`re back in London. It`s "Ny-Lon Kong" as -- make sure you tune in when we`re in Hong Kong on Monday. "Staycations" indeed.
If you are on vacation and you want to know what the weather forecast is like where you are, Guillermo is at the world weather center.
GUILLERMO ARDUINO, CNN INTERNATIONAL METEOROLOGIST: Richard, you know there is an extraordinary event taking place right now, if you look at the monitor you will see this. And maybe you can help me out with the pronunciation. I know it`s quite difficult.
I think, if I`m not wrong, it`s Perseid, right? Perseid the right pronunciation. This is happening and it`s happening all over the world. So many people are going to have a chance to see and to experience this meteor shower.
And of course the weather plays an important role, Richard, because it has been happening since July 17th. And I can show you now a Google Earth map -- oh, no, no. It`s not a Google Earth map, it`s the (INAUDIBLE) that we use for that data.
I want to go to 493. So I show our viewers what`s going on in the Northern Hemisphere. Because it has been happening since July 17th, these locales have already reported sightings of the meteor shower.
In the Southern Hemisphere, we`re in the wintertime, that`s why perhaps we don`t have so much because of all of the clouds and all of that. Let`s go back to the other graphic.
But also they are reporting at Los Angeles that the moon is going to be quite bright tonight. So perhaps it can be in the way of experiencing this meteor shower. But it`s going to be extraordinary according to NASA.
They are long, slow, and colorful. So you can experience that, it would be great. And there is something interesting that the U.K.-based Newbury Astronomical Society has decided to implement is a tweeter experience. So people are going to tweet each other, telling each other when they see, how they see it, and what it looks like. So I think it`s a great idea.
So that`s tonight, and also in the next couple of days. But the peak is tonight.
We`ll see in Hawaii also we have here some action going on. It`s only a tropical depression, but you know, Richard, that surfers are going to take advantage of these waves that are quite high. It is going to be dangerous. So it`s only for people who are very experienced. We see the waves at five meters or so. But there`s the chance of floods as well with the passing of this system.
In the meantime, an update on the situation with Morakot, the devastatingly strong typhoon that affected Taiwan and China. As you see, remnants of it over Korea. So we`re going to see delays over there, improving in Japan with the other cyclone that we have outside the area.
But Hong Kong, Seoul, and Taipei, because there is more rain, especially in southern parts of Taiwan, where the devastation is worst, and we have more rain in the forecast, unfortunately.
And thunder in Guangzhou and Shenzhen and also into other sections of Asia -- Richard.
QUEST: And I will be out trying to find those meteors, and seeing -- apparently, since 1992 it has been a rare occasion to see it. Guillermo at the world weather center, we thank you for that.
Hindsight, a terrible thing, missed opportunities to make a little profit, there have been plenty of those in the past few months. We look back at the stocks you wished you had bought and why you didn`t.
QUEST: When you look back, it all seems so obvious. Equity values had sunk so low in early March, there was bound to be a pullback, major companies couldn`t just simply go out of business.
Back then few of us recognized it, or at least were prepared to put our money where our mouth was. This morning, I received a nasty shock. Here it is. It came in with my cornflakes. It was an e-mail from David Buik, one of our family members and distinguished market-watchers.
It listed a handful stocks which had done extraordinarily well since March. Here`s what we should have bought: Apple shares, of course. The March low of Apple shares was $80. Apple is now up at $162, a gain of 95 percent.
HSBC, that low was 285 pence in March. Now 130, 145 percent gain, just nearly 655 British pence.
And what about this, JPMorgan shares, the March low was $15.90, now $41.53, a gain of 180-odd percent.
So that gives you the idea. The best performer of all on Buik`s list was Barclays. If you had bought the shares when they were at 57 pence, you would be sitting on a profit of some 550 percent. Now I didn`t quite manage to call that low. I got in at 66 pence. I`m still sitting on a profit of over 400 percent.
David Buik joined me earlier. And I put it to him that the beaten down stocks we saw in March were an obvious -- well, with hindsight, an obvious opportunity.
DAVID BUIK, BGC PARTNERS: I think people underestimated the massive level of fear that fell over the marketplace. And it was a great deal of feeling in a lot of places that they would get the stock cheaper.
The only thing that really triggered the rally was when we saw many of these bank shares, say, in the case of your American audience, a Citigroup getting down to 90 cents, to Bank of America getting down to about $4, Barclays getting down to 55 pence, HSBC getting down to about 275 pence...
BUIK: That`s what triggered it off. And then everybody realized that it wasn`t necessarily going to be Armageddon. And the thing that we all should have noticed, every one of us, was that Apple, at $80 or $60, was an absolute snip because that`s about the only area, together with food, that was more or less immune from this crisis.
QUEST: But, look, I mean, I`m just wondering, why do you -- do you think it was just naked fear that many people didn`t plow into the market?
I mean or do you -- was there a real risk that companies like Caterpillar, Goldman, Penny`s, Macy`s would go?
BUIK: No. I think they went down (INAUDIBLE) and Caterpillar should have been, again, an obvious one, because we know that President Obama was going to put in a huge amount into road improvements and into the public sector over there in order to get unemployment up. So one should have obviously bought that.
But the fact remains is you can`t just dismiss the catastrophic falls that took place between September of 2008 and early March, 2009, which was about a 40 percent fall in people`s pension funds, their money funds, their life savings were absolutely walloped, particularly if they were in the wrong sectors, like banking.
QUEST: So who did, do you think -- I mean I have to put my hand up. I did buy Barclay`s, as viewers of this program know. I did buy Barclay`s at $66 or whatever -- at $63. So I`ve got a -- but I didn`t -- but, of course, now I`m just regretting now buying more of them when I did it.
Who did, do you think, really make serious money out of these?
BUIK: One or two of the major fund managers did make the good call that this is over sold. And that created a different atmosphere completely, whereby a lot of the fear went out and a little bit of expectation replaced it. And once the momentum started, people got in maybe 10, 15, 20 percent above these low levels, because they felt comfort on the back of other people`s sensible decisions made out of sheer logic.
But it was a really qualified bet and it was a bit more than that. It was an odds on certainty.
QUEST: What`s been the reaction from people that you have seen -- you`ve shown this e-mail to, as you`ve rubbed salt into the wounds of whatever?
BUIK: Do you have to constantly remind me of my shortcomings, is probably what I would say that most people have said to me.
(END VIDEO TAPE)
QUEST: David Buik talking to me.
Now, finally tonight, don`t get too carried away by talk of recovery until (INAUDIBLE) the U.S. Congress the toxic assets haven`t gone away -- loans that may never be repaid, investments whose values are impossible to establish are still weighing down banks that have billions of them on their books.
They`re a major threat to the recovery, says the Congressional oversight panel which is monitoring bank bailout money and how it`s spent.
Elizabeth Warren chairs that oversight panel, professor of law at Harvard Law School.
And Professor Warren joins me now live.
Professor, we thank you so much for joining us. And apologies that we kept you waiting.
Professor, the reality is, surely, until the toxic asset problem is dealt with, we are going nowhere fast.
ELIZABETH WARREN, HARVARD LAW SCHOOL: Well, that really is the bottom line for this panel, because, you know, it`s the toxic assets that drove us to the brink of disaster last September and October. And our secretary of Treasury then, Henry Paulson, said to the American Congress, we need $700 billion to resolve this problem or we won`t have an economy.
So Congress voted the money, but the secretary of Treasury used it in a different way. And basically, the bottom line is, the toxic assets that caused such a crisis last fall, by and large, are still on the books of the financial institutions. And we think that`s a serious problem.
QUEST: Right. The -- the different plans that have been put forward, whether it be an asset guarantee plan, whether it be a good bad bank (INAUDIBLE) plan, whatever -- and it`s an insurance plan.
And, Professor, whichever plan is put forward, when is something actually going to happen about it?
WARREN: Well, you asked the same question that we asked. This report is much less about it should be Plan A or Plan B or Plan C. What this report is about is that we can wait no longer to do something about these toxic assets.
And, really, it`s for two reasons. The first is the one you identified at the outset, and that is, they continue to face a risk that is simply (INAUDIBLE) meltdown in the system or at least serious degradation in financial institutions that have to -- have to close.
But the second is so long as those toxic assets remain on the books, when many financial institutions -- when they get money in, they want to hang onto that money as against the losses that they see coming down the line with those assets.
And, as a result, they don`t have the money to lend. So here we`ve pumped all this money into the financial institutions, supposedly so that they would lend it on out to small businesses and help the -- the recovery go forward, but they can`t do that so long as they`ve got the toxic assets to deal with.
QUEST: Professor Warren, many thanks for joining us.
We`ve got a few (INAUDIBLE) but we thank you very much for giving us time.
Thank you very much.
We look forward to talking to you again on these important issues.
Now, finally, tonight`s Profitable Moment.
David Buik`s list of best performing shares (INAUDIBLE) an early morning cup of coffee.
It really was that classic case of "if only." If only I had had the nerve and bought back in March. The price of beaten down stocks that we didn`t buy, if only. And certainly things -- now, as you know, I bought Barclay`s shares, as I said earlier, at 63 (INAUDIBLE). I`m sharing a profit of more than 400 percent.
I should be satisfied with the money I`ve made. It is more than enough to buy the entire QUEST MEANS BUSINESS team a week`s worth of nothings. It should be. But I`m not happy.
I keep wishing I`d bought more Barclay`s at that low price. I keep wishing I`d bought Goldman Sachs when it was way down, at 72, or HSBC, Caterpillar, AstraZeneca, Martin (INAUDIBLE), Apple, Google, and, yes, I hear you say pure greed, Quest. Pure ingratitude. In other words, I seem to be concentrating on the money I didn`t make rather than the money I did.
And I`m not alone. So many people who are bemoaning either not buying more or selling too soon. It`s no different than the gambler who wishes they doubled up or risked the winnings on another spin of the roulette wheel.
The stock market is about long-term investment, not short-term gains. I`ve preached that message a million times. Now I just have to practice what I`ve preached.
And that`s QUEST MEANS BUSINESS.