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QUEST MEANS BUSINESS
Germany, France Call for Changes to Lisbon Treaty; Will France Rescind Pension Reform?
Aired October 28, 2010 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Opening a Pandora's box. Germany and France say Europe needs to amend the Lisbon Treaty.
Striking, but to what end? Turmoil in France even as the pension law heads for completion.
And to cut, or not to cut? That is the question on this week's "Q&A".
I'm Richard Quest. We have an hour together. Yes, I mean business.
Tonight, France and Germany are trying to convince EU leaders that their country's view on reducing deficits is the right one. President Nicolas Sarkozy and Chancellor Angela Merkel have a major challenge on their hands. The agreement that the two leaders reached last has been nicknamed the "Deauville Deal". And, yes, it would require, they believe, amending the Lisbon Treaty.
Yeah, I really did say possibly amending the treaty that was tortuous in being passed by members of the European Union. Ireland, of course, failed literally to pass the Lisbon Treaty.
But why does France and Germany want to do this in the first place? There are several reasons. Firstly, prevention, they want to avoid Greek style crises and they want to put in place a permanent framework, that would mean that governments, when they wouldn't be left bailing out countries. Instead, countries would be responsible for running proper fiscal and monetary policies.
But then, this is the heart of it. The sanctions, the automatic fines, the loss of voting rights. This is behind what they believe is necessary in many cases, if they are going to actually introduce this. And the reason they want to do it? France and Germany, the two big boys at the table, they have had to bear the brunt, particularly Germany, of the cost of not only the Greek bailout but also the European bailout that has been put in place for several years to come. It was German taxpayers that drubbed Angela Merkel's government in regional elections.
But it all-doing this prevention, and sanctions, would all mean you would have to amend the Lisbon Treaty, or at least Germany believes so. And that has created horror in the halls at Brussels. Were Viviane Reding has even said it is irresponsible and it is opening a Pandora's Box, a commissioner, responsible, involved.
It is a miserable prospect if the Lisbon Treaty has to be reopened. Lothar Keller from "Artell" (ph), joins me now from Brussels.
I'm not exaggerating, am I? If they have to open up Lisbon-well, it is a new ballgame.
LOTHAR KELLER, JOURNALIST: Well, I'm afraid, Richard, they are about to do this. At least Angela Merkel, brave Angela Merkel, seems is not afraid of waking up this dragon. We talked to some of her counselors about an hour ago. And they are very optimistic that the winds have changed, you know, after this Deauville Deal. There was a lot of criticism towards Germany and France for their nearly private deal, and for this idea of opening the Lisbon Treaty, which is an idea Merkel is telling us about for months now. And now she has France in her boat.
And, well, yes, the wind has changed. It seemed in the last hours and here in Brussels, and the German government is very optimistic that they will reach an agreement here, tonight, during this summit about opening this process.
KELLER: For changing the Lisbon Treaty, to make it more stable in times of crisis.
QUEST: OK, now let's put the horror of that to one side, for one moment. The deal, the Deauville Deal that France and Germany came to, they both agree to some extent on these automatic sanctions, don't they? The fines that would come in, the loss of voting rights, but is there any chance that the other countries will go along with that? Or is there still, as Germany-sorry, as France has said, still some doubt?
KELLER: Well, during this summit, probably there won't be a decision about that. That is more or less the price that Germany pays for getting an agreement about the changing of the Lisbon Treaty. The idea of, to suspend the voting rights of the countries which do not comply to the stability pact, this idea will be postponed. So, let's say probably to the next year, but Angela Merkel won't forget it. It is still her idea.
QUEST: Finally, in a word, is it-do you believe tonight that Lisbon is going to be reopened, and the whole saga again is going to have to be passed?
KELLER: Well, Angela Merkel makes it very clear. She wants a decision about that during this summit. And she is willing to block all the rest if she doesn't get that. And they are very optimistic that now also after a lot of telephoning and explaining, so a majority and a necessary majority of the other countries will agree.
QUEST: Lothar, many thanks, indeed. Keep on this and keep watching what is happening in Brussels for us tonight.
It had been thought the panic over Europe's debt had actually cooled, but now we are seeing numbers that suggest otherwise. In Ireland, governments have announced cuts of $21 billion, twice as much as had been planned. In Greece borrowing costs are now up over 10 percent, yields on the 10-year government bond, as George Papandreou the country was still in danger. He has confirmed a budget deficit in '09 of more than 15 percent.
And in Lisbon, Portugal's finance minister has warned that failure to agree on budget cuts will plunge the country into a very deep financial crisis. The minority government has so far failed to win support from the opposition. You can see the sorry state of affairs that is in Europe tonight. I'm joined by Vanessa Rossi, senior research fellow for the International Economics at Chatham House.
Vanessa, what do you make of it?
VANESSA ROSSI, SR. RESEARCH FELLOW, INTERNATIONAL ECONOMICS, CHATHAM HOUSE: Good evening.
QUEST: Good evening.
ROSSI: Would we ever have thought we would be here today, revisiting the Lisbon Treaty?
QUEST: Why do they need to reopen Lisbon?
ROSSI: Why do we need it? Why? Well, supposedly it is to do with these changes in rules. Why are we needing to change the rules? Essentially the problem goes back to how do you keep the countries in Europe on track, so that you are not bailing them out? It is all this effort is simply to avoid bailout problems. Now, we already have mechanisms for this, right?
QUEST: You have the stability and growth, and you have the emergency provisions, all of these things.
ROSSI: But not only that, just a moment, we mean business, yes? We have already got the business mechanisms. Why do interest rates go up when countries are borrowing too much? Why do they have problems accessing money in the markets? The ultimate sanction for a country that is irresponsible is that it won't get any money from the markets, will it? Now, Europe doesn't like that, because it doesn't think the markets are very nice. So what do we do, we have to rewrite Lisbon.
QUEST: The fact is the bailout plan that was put together, by the European Commission and the IMF, and the ECB. Nobody wants to have to do that ever again, do they?
ROSSI: Absolutely not.
QUEST: But doesn't that make sense then, to try and sort it out, once and for all.
ROSSI: Well, it if it has to be changed because of these rules. Because these rules will supposedly avoid having debt problems in the future, then that is what they are going to do. The reason Germany is pushing so hard for it is they think that if they get these rule changes they have a cast iron guarantee this can never happen again. Now, they already thought they had a cast iron guarantee with Maastricht, and they didn't work. Now if you put these things in place, what does it mean? One of the difficulties of the voting rights, if you go ahead with the plans they have currently got, they want to have changes in voting rights and the other monetary sanctions on countries that don't meet the targets. Now, do we think that that is actually going to work?
QUEST: So, I was looking over some wire copy that is coming in at the moment.
QUEST: It says here, EU leaders judged it necessary to create a permanent Greek-style emergency fund for the Euro Zone. So not only are they going to reopen Lisbon they now say they need to say a sort of permanent fund of the sort that they have already got.
ROSSI: In other words, they expect more problems, don't they? So they are not really solving the problems by having these other sanctions.
QUEST: OK, if they do have to open Lisbon, which like they're looking at, if they're talking-is it going to be torture? I mean, if they reopen Lisbon does Lisbon have to be ratified again, by all the governments?
ROSSI: Well, there could be some factors that could be modified here.
ROSSI: Possibly the U.K. government and others will argue that the changes that are being brought in are not something everybody has to vote on. And in that case it can be all done without too much-
QUEST: Ah, fudge!
ROSSI: We would hope. But my problem is, A, we have the problems-we have to face up to this problem, the wrangles over Lisbon. But even more so, it is not really going to solve these problems of the overrun budget deficits. Why do you think that losing the voting rights for Greece would suddenly have made Greece a more responsible country? I don't think so.
QUEST: Is it a mess, tonight?
ROSSI: Ah, I think we are heading for yet more sort of European turbulence here, aren't we?
QUEST: In which case you will be coming back again to help us understand it.
ROSSI: Well, either that or to complain about it, one way or the other.
QUEST: Both are possible and both will be enjoyable.
ROSSI: Thank you, Richard.
QUEST: Thank you very much indeed, Vanessa Rossi, joining me.
We turn our attention next to the other big European story. Strike, protests, or appeal in court? What would it take to oppose an increase in the retirement age that has already been approved by the French parliament. Is this a Pyrrhic victory? In a moment, QUEST MEANS BUSINESS
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QUEST: The French parliament has already approved raising the retirement age. Those who oppose the move say they won't back down. The unions have called a strike. Rallied thousands of protestors to the streets of France today. And the socialist party is playing what looks like a long shot, appealing to the constitutional court. Jim Bittermann has been following the story. Jim joins me now from Paris.
Jim, if it has passed parliament, and even allowing for a constitutional challenge, what do the strikers hope to gain by doing this?
JIM BITTERMANN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, there is a small percentage of them, I think, Richard. If you could take a public opinion poll that would say that they would hope that it would get rolled back. And this actually happened once before about four years ago, with a reform in education. And at that point in time, Jacques Chirac's government rolled back on an issue after it has been passed by the parliament, before it had actually been promulgated, which is to say, signed into the law by the president. So that is the precedent that a lot of these people on the street are citing.
But, on the other hand, I think this is kind of morphing into something else. I mean, especially the opposition, the socialists, would love to see this turn into an ongoing challenge for President Sarkozy on all sorts of different issues.
But the French are two minds on this kind of thing. And it is the kind of that we heard both on the streets and off the streets today.
BITTERMANN (voice over): For the seventh time in less than two months, hundreds of thousands poured into French streets for a strike and protest over reform of the state pension system. And once again, despite the fact the reform has now been approved by the parliament. The French were confronting two very different national visions.
For 46-year-old high school teacher and lawyer, Laurent Piau, it is once again a moment to demonstrate. In fact, he traveled all the way from his home more than 200 miles from Paris to make sure this voice was heard in the capital.
LAURENT PIAU, HIGH SCHOOL TEACHER: Everything comes from the people. And not from a sort of elite, which decides on everything. It reminds the elite that we're here, and you are not going to decide our lives.
BITTERMANN: At about the same age, and still decades away from retirement, Flavien Kulawik, the CEO of KLB Group, has a somewhat different view. For him, the unrest in France has been a nightmare. His company arranges shipping and logistics for other companies. And the ongoing transportation problems, fuel shortages, and road blockades have meant one big headache as his employees try to cope.
FLAVIEN KULAWIK, CEO, KLB GROUP: What is the point to block all of the economy and to block, and to damage the economy. And I'm not happy at all with the image that we give, as French people, overseas, abroad.
BITTERMANN: But for Piau, there is little concern about what others outside France think, rather he worries what is happening inside.
PIAU: We have a society which is working quite well. It is a sort of good balance between the American system, or some of their-some system like the American system, and the Communists system. And we think we found a sort of way in the middle, and that we should stick to this way.
KULAWIK: This is graph of sales figures.
BITTERMANN: But trying to stick with French tradition is costing Kulawik money. He estimates that because of the protests his employees will put in 20 percent more work, and his company will show no growth at all. He says France has been taken prisoner by the street protests.
KULAWIK: You can hear only these people complaining, and you can see them on TV, and so on. But you don't see the silent people who are working and struggling to work and not be taken hostage.
BITTERMANN (on camera): Reform has never come easy in a country where most everyone proudly believes that street protests are part of the democratic process. Still the strikes and demonstrations of the past few weeks have proved more divisive than most.
(Voice over): And it has exposed two very different ideas about France's future. Which weeks of debates, protests, and conflicts have brought into stark contrast, but not reconciled.
BITTERMANN: And proof of the fact that it hasn't been reconciled Richard, is the fact that the unions have scheduled yet another big day of national protests on November 6th, Richard.
QUEST: As you have mentioned, this dichotomy between the public support for the strikes, but the fact, the law comes into force, regardless, Jim.
BITTERMANN: Absolutely. And it is part of kind of the schizophrenia here. When you do public opinion polls you find that people-they'll say 65 percent of the French, according to some polls, are backing this action to continue. And yet there is an easy majority that say they don't want to be inconvenienced by it. So, it is a little tough to reconcile that as well, Richard.
QUEST: Jim Bittermann, in Paris, tonight.
In Spain, too, unions are gearing up for more strikes as they fend off dramatic austerity measures. Only last month the country shut down in a general strike. Unions say they will press on for reforms. Our correspondent Al Goodman is now gauging the mood on the ground, in Madrid.
AL GOODMAN, CNN INTERNATIONAL CORRESPONDENT (on camera): This is the shopping district next to CNN Bureau in Madrid, the newsstand, the stationary store, the coffee bar. People we are in contact with, regularly, and here and across Spain, many are worried about the government's austerity plan to fight the economic crisis.
OSCAR GOMEZ, NEWSSTAND VENDOR (through translator): I am Oscar Gomez, a newsstand vendor.
Really, the government isn't doing anything to solve the economic crisis. People are losing their jobs. The government just says it will provide jobless benefits, but if people were working they wouldn't need to collect the dole.
UNIDENTIFIED FEMALE, MADRID FOOD STORE WORKER: (through translator): I am Vincenta Altavera (ph), a food store worker. The pension cutbacks worry me. There are many old people with low pensions. They ought to cut pensions for the wealthy people. My work is OK, some declines in sales, you can stop buying clothing or shoes, but not food. I am not too worried but I could loose my job, too. Just like anyone else.
And I voted for him, and I would do it again. And I am a socialist, even though this guy isn't doing very well.
QUEST: That was Al Goodman in Madrid.
Now, the markets and how they reacted. Well, certainly if you take the strikes in France, it didn't put traders off in Paris. The CAC 40, that gained 0.05 percent. The FTSE was up the best part of 0.5 a percent. The DAX nearly, roughly the same. Mining shares were some of the top performers in London. BHP Billiton gained 2.6 percent. VW one of the top gainers in Frankfurt, up 2.8 percent. Telecom was up 3, after it raised its full-year revenue forecast. That is the way the Euro bourses traded.
Now, in New York.
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Let's have a look at the Dow. Down 31. Now 11,000 may be safe, but you may well be worrying about what has been happening and why the Dow is falling in the way that it is. It is losing momentum, under pressure. And the reason, of course, is investors are extremely concerned ahead of next week's meeting of the Fed. That is why we are getting off, just off a third of 1 percent.
And our other story, just to update you with tonight. It is looking as if EU leaders meeting in Brussels, will, tonight agree that if they are going to implement new measures on the Stability and Growth Pact, ready for this? Then they may well have to actually open up the Lisbon Treaty, which was a torturous process, getting it passed in the first place.
OK, as we come back, in just a moment. It is austerity versus stimulus. The question: Is it time to cull and cut, or boost and bolster, a fragile recovery. I'll be battling it out. Ali Velshi and myself, "Q&A" after this break.
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ALI VELSHI, CNN BUSINESS CORRESPONDENT: Well, welcome back.
QUEST: QUEST MEANS BUSINESS and so does Ali Velshi. Even in times of austerity, Sir, you and I are here together in the CNN NEWSROOM and around the world.
VELSHI: Every week at this time Richard and I get together. We answer your questions about travel, about innovation, about the economy. And the best part of it is that nothing is off limits. This week we are tackling your question about some recent events we have seen in Europe. The idea of austerity versus more stimulus.
And, Richard, who is going first this week?
QUEST: Well, Ali, I think I went first last week, because you had that silly truck.
VELSHI: Oh, that is right.
QUEST: So, if I am not-if I am not mistaken, you have 60 seconds on the clock.
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VELSHI: All right. Very good.
Consumers worldwide are recovering from this great recession. But they are not recovering fast enough. So many governments think that what they need to do, until consumers step up to the plate is continue putting money into the economy. That is stimulus. The idea is that if governments keep putting money in. It will keep the factories going. It will keep the factories going. It will keep the economy (sic) flowing through the economy.
And you know what, in a few years, unemployment will go down. Jobs will come back, people will be paying taxes. And we will deal with the deficits that the stimulus causes later on. We'll deal with the debt later on.
That is the view of this administration right now, in the U.S. There is a different view in Great Britain, where as you can see, Richard is, where they have decided it is about austerity. If you don't have the money, right now, you cannot spend it. That means cutting back on government programs. It means laying people off. It means the government is not going to step in to fill in for the consumer who is not there.
Now what is the effect of that? The effect is that some people, who are hurting, are going to hurt more the hope is that what it does is it beefs up the economy and as a result there is more confidence and there is more investment.
Unclear, which one is better. Richard, how about your one minute staring-
QUEST: It is very simple, austerity versus stimulus goes to the heart of the economic debate. During the crisis itself, it was spend, spend, spend. No one argued with that. But it left countries, like the U.S., with a deficit of 9 percent, the U.K. 10 percent. It drove countries like Greece almost to bankruptcy.
So, now, do you cut or do you spend? The choice is very simple. Europe has decided for-
QUEST: The Grim Reaper, the Halloween of cutting social spending. But the United States believes that the party still has to continue.
QUEST: They are determined that nothing is going to get in the way of them having a good time. The only problem, Ali, is whoever is right, there comes a point when he who pays the piper has to be paid in full. And that means that, yes, the United States will also face the sort of cuts-
QUEST: -austerity or stimulus, it is a matter of when.
VELSHI: And some people might face the wrath over that, next Tuesday, on election night, if you are thought of as somebody who spends and doesn't have a handle on saving.
Nice job there. Oh, those were some of the best props I have ever seen. But listen, props are not what separate the men from the boys, Richard.
QUEST: Absolutely. And there is only one way that we judge this competition. Enter-
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QUEST: -The Voice.
THE VOICE: All right. Gentlemen, this is it. It is the moment of truth. This is where the rubber meets the road, it is time for you both to press your point anchor noses to the intellectual grindstone. Here we go, quiz time.
This week plans were announced in the U.K. to introduce a new tax-free savings account for children. Which means kids will have more money, which means Justin Bieber will sell even more albums and will never go away. Here is your question: Which of these countries has the highest national savings rate? A., Japan; B., Germany; C., Italy; or D., France?
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THE VOICE: Richard Quest.
THE VOICE: Japan's national savings rate is just over 22 percent, Germany is a close second at 21.5 percent. The U.S., for the record, is a distance 12.2.
VELSHI: You are on the board, Richard.
THE VOICE: Question No. 2-Ali, catch up.
After a recent visit from IMF officials, the Romanian government said they were cutting state employee salaries and pension and unemployment benefits. After huge protests, the Romanian government just barely survived a recent no confidence vote. Here is your question: What year was the International Monetary Fund officially signed into existence? Was it A., 1943; B., 1944; C., 1947; D., 1945?
THE VOICE: Ali-
THE VOICE: You are correct.
The IMF is an organization of 187 countries and was created in December of 1945.
Last question, and we have a dead heat!
At one point in our history, yachts belonged to only the wealthy and affluent. Actually, it is still a bit like that. The Voice has a rundown houseboat, which I share with my cat.
Here is your question about yachts: North America is the top seller of yachts. Snatching up 60 percent of the market. Which of these region is second? Is it, A., Asia; B., European Union; C., Middle East; D., Somalia.
THE VOICE: Ali?
VELSHI: The Middle East.
THE VOICE: Richard Quest?
THE VOICE: This is expensive airtime, Richard Quest.
QUEST: Oh, all right. I'm going to go with Somalia.
THE VOICE: Also wrong.
THE VOICE: Ali, Ali, what is it?
VELSHI: Did he really say Somalia?
I'm going to go for the European Union.
THE VOICE: Finally, you got it right.
THE VOICE: The European market makes up around 38 percent of sales. Most of those are said to be to the large and luxury ones, while in North America the yacht tends to be small and medium-sized ones.
VELSHI: This makes me think he threw the fight. He just threw this. There must have been some betting on this or something. How did you say Somalia? What were you thinking?
I thought it was a trick question, that maybe yachts were-that maybe yachts were registered in Somalia and that the voice was tricking us.
VELSHI: Ah, ooh. Oh that is very good thinking. I wish I had thought of that, except that I would not have gotten it right.
THE VOICE: All right, 2 to 1, Ali, you are the winner this week. And the smartest person on you television right now.
For Ali in New York, and Richard Quest, in a blimp over London somewhere. Thanks for playing, we'll do this again next.
VELSHI: Thank you, Voice. And thank you, Richard. Remember, you can put our questions down on Richard's blog. What is your blog name, Richard?
VELSHI: Or CNN.com/ali. Or Tweet us your questions. We'll do this every week at 2:00 Eastern.
QUEST: Thank you, Ali.
I will see you next week.
VELSHI: All right, Richard.
Have a good one.
QUEST: Oh, boy, I can't believe I got that one.
The Q25 after the break.
QUEST: Good evening.
Hello, I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN. And here, the news always comes first.
The death toll is rising from dual disasters in Indonesia. A magnitude 7.7 quake and resulting tsunami have now killed 343 people. Hundreds more people are missing. International donors are stepping up with pledges of assistance, as aid groups struggle to get supplies to the worst hit areas. The country's president has cut short his trip to Vietnam so he can survey the damage.
Indonesia's other disaster, Mount Merapi, the volcani -- volcano -- has erupted again and that shot out more hot ash. Thirty-two people have been killed and tens of thousands have evacuated the area. Many of the victims are buried in a mass grave. Entire communities are blanketed in ash. Merapi, which means Fire Mountain, is one of the world's most active volcanoes.
In France, protesters were on the street again in a last ditch effort to stop the controversial pension law from becoming law. The government says their numbers were much lower than recent demonstrations. The pension bill raises the retirement age from 60 to 62. It could still go to the constitutional court before President Sarkozy has to sign it into law.
The Argentinean president, Cristina de Kirchner, is mourning her husband's death, as former President Nestor Kirchner's body is lying in state. Tens of thousands of people have been lining up in Buenos Aires to pay their respects. Mr. Kirchner remained a close adviser to his wife after she succeeded him. It was said that he was planning to run for president again.
So, we're coming to the end of the Q25 for this earnings season, our own index that you'll understand to help make sense of where profits are headed. Green balloons goes to those firms that exceeded our strict targets and the red balloons for those who miss. We'll give you a final tally of balloons in a moment.
Maggie Lake is with me in New York -- good evening, Maggie.
As I look at the moment, the greens look like they have it. But the reds, they're still there.
But ExxonMobil is our -- is our first candidate tonight.
MAGGIE LAKE, CNN CORRESPONDENT: That's right, Richard. And this is a pretty good looking report. We saw a little hint of this from ConocoPhillips, but Exxon doing even better. And they managed to, I think, hit three of our five criteria. But the other two that they missed weren't bad, it's just that they didn't really give any guidance. Quarter over quarter wasn't quite there, but it was awfully close.
LAKE: And, you know, those oil prices are going up. So I think the future is looking pretty -- pretty good for them.
QUEST: In an oil market, it's hard to give an oil company a red. And also, indeed, if I can just get on there -- it gets a green balloon.
The second one from us tonight is 3M. 3M, now, look, Maggie, again, a three out of fiver, which meant you and I had to have a debate. They missed numbers and they didn't give improved guidance -- so, Maggie, why are we going for a green?
LAKE: Yes, I -- I actually think they only managed to get two, Richard, if we're going to be really strict about it. But the thing is, the thing that -- that jumped out and really bothered the market was that not only did they not raise their guidance, they lowered their full year guidance. But the thing is they lowered it because of costs due to acquisitions. And to me, that's very different than just not selling your product.
They've been expanding into markets, including law enforcement and emerging markets. And acquisition costs related to that, short-term, is going to hurt...
LAKE: -- but that should set them up nicely for long-term.
LAKE: I like that in this report.
QUEST: And in the statement, they made it clear it was solely their cha -- their downgrade...
QUEST: -- was solely...
QUEST: -- that was the word the company used -- because of the acquisitions.
Finally, is it -- I mean Motorola, I'm going to preempt it, because I want to talk about the overall effect of the Q25. That got a green. It made a good bet with Android. The numbers are impressive, even on our stricter reading.
LAKE: That's right. Hey, listen, if you're going to ride somebody's coattails, you've got to make sure it's the right one. And Android is on fire. And Motorola is only going to continue to benefit from that.
QUEST: OK, pulling it together, let's tally the numbers. If you look at the quarters Q25 to a close, you can see exactly -- as this brings the quarter to a close, we tally up the numbers so far. And this is the way it looks, our final count -- 15 greens versus 10 reds.
Now, Maggie, we've got -- so it's a 50 percent increase over all that.
Do you think that this reflected, if we look underneath the companies involved, that 15 to 10 is reflective of what we're seeing in the corporate world at the moment?
LAKE: I do think so, Richard, because even though we were all concerned about all that news -- the good news being priced in, the one place where they really exceeded was emerging markets. That was a big theme, wasn't it, globalization, these multinational companies. They might still be struggling in one area, but they were very nimble and really putting resources where the growth is. And it paid off. Even though a lot of the good news had been priced in, you saw them exceeding even those high -- higher expectations.
So I think it is pretty reflective of what's going on.
QUEST: But it -- it's still one of those areas -- the greens outweigh the reds. Not all companies performed. It's still very dependent on how you're -- you know, too many companies, what we saw, are relying on emerging markets without actually making a commitment and getting on with the act of being there.
LAKE: Well, I mean, I -- I think that those who are able to be in a business where they can capitalize on that are doing well. Some companies, also, another theme we saw was business spending, right. Companies, even Caterpillar, which had been one of the really beat up stocks...
QUEST: All right.
LAKE: -- that did well because of business spending, so, you know...
QUEST: I think I'm going to point out...
LAKE: -- I think it was better than I expected. Better than I expected -- Richard.
QUEST: All right...
LAKE: I thought it was going to be more red.
QUEST: All right, good news for you, Maggie.
As of the end of this Q25, we say good-bye to the balloons.
QUEST: The balloons are toast. Next time...
LAKE: Better news for you, I think.
QUEST: Well, perhaps.
Coming back in our next Q25 -- the Q25 -- thanks, Maggie.
The Q25 stays with us, but the balloons will be disappearing. We -- we're going a little bit more -- we're going to spend some money before we do this all over again.
It's not over yet for the earnings. After the break, we'll be talking to the head of Dassault Systemes. The software company really helps companies from cereal makers to playmakers and it does it all in 3-D. And their numbers were impressive.
QUEST: Welcome back.
News into CNN from the United States.
According to a letter from the federal commission's lead investigator into the Deepwater Horizon oil spill in the Gulf of Mexico, BP and Halliburton knew of potential flaws in the cement that was used to seal the well before it exploded in April.
Dassault Systemes today reported a 40 percent jump in profits simply by supplying other companies with the software they need to make their products. Of course, it's far from that simple. Dassault software helps companies create virtual reality. Sometimes it's cereal boxes and even the internal workings of an aircraft.
A 44 percent rise is impressive, indeed.
I spoke to the chief exec, Bernard Charles, and began by asking him, when we look at the numbers, good though they were, but why were they so good?
BERNARD CHARLES, CEO, DASSAULT SYSTEMES: Asia, for one thing, especially -- especially India, Korea. An amazing dynamic in Korea. And Japan improving. You know, it was really bad last year; and China, of course.
So emerging or fast growing countries, number one.
Number two, the bond portfolio that we have, what the diversification we do, from airplanes to cellular boxes is creating new growth dynamics in farmer, consumer packaged goods and infrastructure.
QUEST: How was -- and as I looked at the numbers for the revenue breakdown, Europe is still the largest. The U.S. needs to come up a bit.
But how was the performance in the developed markets of Europe and the US?
CHARLES: Quite good. As a matter of fact, because it was above 20 percent in Europe and almost 27 percent in -- in America, again, the same story, diverse -- diversification in America, new customers in consumer packaged goods, in the -- in the energy sector, the renewable energy sector, solar, wind, as well as in high tech.
QUEST: You upgraded your forecast again today, didn't you?
CHARLES: We did. We took -- we took the over achievement of the third quarter and we just added that to the full year plan.
QUEST: What are your customers telling you now?
Because to get these sort of results, your -- your shares are up very sharply today. To get these sort of results, it tells me that your customers are investing in capital expenditure, that CAPEX is back.
CHARLES: The CAPEX and the fact that we observe that, by the way, all across the world. The Bloc (ph) countries are fast growing countries. They are planning new product portfolios. And when you plan and you engage with a new product development, you need collaborative innovation platforms to actually do what you have said you will be doing.
QUEST: But if we factor this into an economy -- an economic situation where we're told austerity is coming, do you believe that that's the difference, between, say, consumers and businesses at the moment?
CHARLES: Oh, I...
QUEST: Do you...
CHARLES: -- I think that, clearly, I think that there is a limit to cost optimization. At some point in time, no matter in which industry you are, you need to plan future products, whether it's a consumer or a customer or business to business. You need to re-plan new products. So this innovation process, which we all talk about, I think, is going through a new playing field.
And I think if you don't do that in the developed countries, how will you compete tomorrow with the fast growing countries?
(END VIDEO TAPE)
QUEST: That was the chief executive of Dassault Systemes with his impressive results.
Now, some more news that's happened while we've been on air. E.U. leaders, you're aware that they're meeting in a summit meeting in Brussels and they have been considering their plans for next year's budget. Apparently, the U.K., which objected to an increase of anything more than the basic smallest amount possible, but apparently the countries have agreed that the budget increase for next year will not be more than 2.9 percent. There won't be a press release or conference on that from the E.U. on the talks so far.
But apparently, the E -- the U.K., which had opposed a major 6 percent increase in the E.U. budget, now it looks like it will be -- that increase will be held to 3 percent.
The weather forecast where you are.
Guillermo Arduino is at the CNN World Weather Center -- good evening to you tonight.
GUILLERMO ARDUINO, CNN METEOROLOGIST: Good evening.
I think that Friday it's going to be a good one in London and for most parts of England, but then the rain comes back. Now, you can't complain because the north, here in Scotland, we see bad weather. And Greece, Turkey looking really nasty right now. And we have some alerts going on. Italy, even though you see that the low is moving away, we still have some warnings, especially toward the south. So in Europe, in general, it's not bad. And I see that mostly we have to concentrate on the strong storms that we are seeing throughout Friday and to the end of the day.
Some positive news for many and especially here in the east and parts of Turkey, too. They are welcoming that rain. Not in Britain, but especially the rain is going to fall in the north. You see, systems come and go and then come Friday, we're going to see, still, some nice conditions and then some more rain.
Thirteen in Istanbul, 20 in Rome. That's the high for the day. Not bad at all. We see a lot of action here in Norway with rain, also some snow, then cold conditions descending into Northwest Russia and that's about it. It's not bad.
Vienna, 10 degrees; winds, though, especially in the Low Countries, Amsterdam, and also Dublin with some winds; Brussels, some winds, too. But then, apart from that, looking fine. You see no delays at airports expect -- at airports expected.
Madrid is seeing the arrival of the Iberian Peninsula, the arrival of this system.
Now, do you want bad weather?
What about Okinawa?
Even though we see how this typhoon is weakening as it approaches Japan, because it's going to go there. So if you are watching from Japan, you're going to see that the weather will not be nice. In fact, you're going to see right now, in the next two days or so, we will see lots of rain, especially around Tokyo, too. So this typhoon is going to start moving very fast. Look at this number -- 22. It's going to double very soon and it's going to move fast. But it's going to bring winds.
So if you are flying into Hanaida (ph), you may see some problems. Taipei still being affected indirectly by this. And we see some winds. So rain all over here, especially in Ru -- in Japan.
Beijing, three degrees. It's 2:48 in the morning right now; two in Seoul. Vladivostok is going to go from the negatives all the way to 13.
And, frost and freeze warnings in the United States. If you're coming anywhere here, we're still dealing with this low that is now moving into deeper Canada, especially, even though we see that we may see some bad weather into the Northeast, at those airports, and some snow in the Upper Midwest, things are getting much better, Richard. So it's not that bad anymore. I think that the nasty story is saying good-bye -- back to you.
QUEST: We thank you for that.
ARDUINO: Thank you.
QUEST: Guillermo at the World Weather Center.
We'll have the weekend forecast from you tomorrow. And -- and don't spare the horses.
When we come back in just a moment, I don't often do authors from books, but when I read this book, "Little Book of Commodity Investing," I decided that we really did have to talk about commodities and how they should be part of a portfolio. We talk to the author after the break.
QUEST: You don't need to be a financial expert to know that commodity prices have surged so far this year. Gold is the most obvious example. Look at it -- since 2000, down at $250, now at $1,333.5. I mean that's a - - a serious increase. It hit an all time high earlier this month.
But then there is platinum, tin, aluminum and nickel. The point is this, commodities, whether it's gold or the preciouses or the stocks or the -- or the metals -- are everywhere. In your car, they're in from the glass to the metal to the rubber to the fabrics inside. Commodities make the steel, the windows, everything.
Wheat is such an obvious example, corn, other grains. It goes from bread to muffins and just about every foodstuff in between. And then in our textiles, the cotton and even synthetic materials.
Because of this, John Stephenson is the author of the "Little Book of Commodity Investing" and says that commodities should be an essential part of any balanced portfolio.
So what do you look for when you're investing in commodities?
JOHN STEPHENSON, AUTHOR, "LITTLE BOOK OF COMMODITY INVESTING": Well, I would say the vast majority is based on fundamentals. But without a doubt, in certain commodities -- and I think gold, as -- as you pointed out, might be one example, where there's an awful lot of speculative or short -- short, quick money, fast money in the commodity.
QUEST: But if we take copper and we take the other ore materials, what's driving that to such heights, tin and the like?
STEPHENSON: Well, massive demand. And the demand is primarily out of China. Of course, all of Asia is participating in it. But China is the 800 pound gorilla when it comes to commodity demand.
If you look at copper, there -- there hasn't been a major mine discovered in decades. There are some smaller mines coming on, but the stocks are very, very tight. If you consider the 1970s, for example, when North America and -- and Western Europe and -- and Japan was coming in and the middle class was being formed, 75 million people became part of the middle class. Today, there's hundreds of millions that are becoming. It's a much more massive movement of people.
QUEST: In your book, you argue -- and you make a very strong argument that investors should have an element of commodity in their portfolio because commodities literally go into everything we consume.
STEPHENSON: That's right. There are -- they're parts of the raw materials that are used for industrialization and urbanization. And that's why there's so much demand. Steel is used to build buildings. Of course, there's a massive infrastructure build out underway in China. They're trying to make the interior the factory instead of the coasts, which it's been. That's tremendously important for coke and coal, for steel itself, for iron ore. That's leading to higher appliances. Those are the copper, zinc, aluminum, tin. That's what's driving those markets higher.
QUEST: Is what we're seeing at the moment above bubble forming in commodities, because equities are not necessarily giving a very good rate of return. Bonds we know about. Bonds are about to become a bust. There's not many places -- and certainly you wouldn't put it in the bank on deposit.
STEPHENSON: No. And that's why I think commodities will do quite well. And I don't believe that we're in a bubble. We may be in a bubble in certain commodities. I believe gold will top out around $1,400, $1,450...
QUEST: Well, hang on...
STEPHENSON: -- but...
QUEST: Hang on. $1,400. We're only at $1,300 and change at the moment.
STEPHENSON: So we...
QUEST: So you're saying there's still more to gold?
STEPHENSON: There's still more -- there might be to gold. But we're not going to hit the -- the inflation adjusted high, which is around $2,350. I don't think that's going to happen.
QUEST: How does an opportunity investor access commodities, because delightful though the prospect is of going in and buying a -- a gold coin or, you know, if I want to get into copper, into tin, into zinc, into cotton?
STEPHENSON: Right. Well, there's a number of physically backed ETFs and why...
QUEST: Exchange traded funds.
STEPHENSON: Exchange traded funds -- and why I like those is because they tend to track the price in the here and now, the price you see in the newspaper, very well. The ones that buy the futures don't track as well. It's a very, you know, complicated explanation, but they don't track as well.
The other way is through larger cap mining companies, oil and gas companies. I think, actually, energy is one of the most promising commodities going forward. I mean it's a product that everybody needs and there's no substitutes for.
QUEST: John, your book is excellent in terms of the reasons why we need to invest or why a -- a balanced portfolio has commodities.
What percentage do you think, of any balanced portfolio, should be in commodities?
STEPHENSON: Well, I think certainly 20, 25 wouldn't be unreasonable.
QUEST: That's a lot.
STEPHENSON: That is a lot.
QUEST: And but even at these frothy prices?
STEPHENSON: Even at these frothy prides. If you consider what's happened in the past, in the '70s was the last time commodities were booming, the S&P, just the energy component, went from 9 percent to well over 30.
QUEST: But a lot of viewers will be saying but is now the time, because, let's face it, you want to get in on the up swing, but we're up here.
STEPHENSON: Right. Well, I think it is the -- the time. If you consider what's happened with oil, yes, we're at $82, but we were $147 just in -- in last -- in 2008. So I think you're going to see it higher. Goldman Sachs is calling for copper to go from $378, $380 to $5. I think you're going to see higher prices for -- and they'll stay there for longer.
(END VIDEO TAPE)
QUEST: And you need to remember, as I need to remember, commodities can down as well as up. There's a risk involved.
There's no risk, after the break. It's a Profitable Moment.
QUEST: Tonight's Profitable Moment.
This has been another strong profit season so far, with many companies easily beating our tough love targets. As you can see, the greens greatly outnumber the reds. In the Q25, we continue to see positive earning trends. Tech profits have outperformed, as business spending rebounds. Strong business spending has also given a boost to firms in Q25 like the heavy machinery company, Caterpillar. Exposure for firms to Asia, Latin America and other emerging markets helped weather weaker results on both sides of the Atlantic. And according to S&P, more than 70 percent of companies reporting so far have beaten expectations.
That's why, as you can see, the greens beat the reds.
But that's why we also say good-bye to the balloons. We'll have a new look for you in the fourth quarter.
And that's QUEST MEANS BUSINESS tonight.
I'm Richard Quest.
Whatever you're up to in the hours ahead, I hope it's profitable.
"WORLD ONE" starts now.