tv Worldwide Exchange CNBC September 19, 2012 4:00am-6:00am EDT
hello, and welcome to today's "worldwide exchange," i'm ross westgate. >> and i'm kelly evans. >> japan's central bank has pulled the trigger on more easing. sending markets far in the process. >> a spectacular performance. the word from the street following into texas. 32% rise in first half profits boosting the owner of zarra's stock in madrid. >> jl raises $8 million in the world's second biggest ipo this year. >> and shares rising after
workers accept a 22% pay rise, ending six weeks of protest and violence. you're watching "worldwide exchange," bringing you business news from around the globe. >> welcome to today's program. it's hump day. halfway through the week. i don't think antoine got the message. if he did, he wasn't listening. >> it's also speak of what today is, international -- what is it? pirate speaking day? >> speak like a pirate day. it's the tenth anniversary of international speak like a pirate day. are you suggesting there's a connection? >> there was a connection to bristol, you were saying. >> yeah. we'll get into that. there's so much there. we can't do it right now. coming up on today's show, minutes from the bank of england's monetary policy meeting. we'll find out whether the decision to keep qe unchanged
this month or not. htc with a brand-new product, but will it be a phone or a tablet? possibly both. brazil is expected to begin hiking rates soon, but we'll talk to one guest who says that may not necessarily be the case, and that's coming up a little after 11:00 central european time. first, tokyo stocks surging to a four-month after. the yen dropping to a one-no low against dollar, while government bonds with a brief spike. kaori joins us with more. >> reporter: export activity in japan was slowing down. the china slowdown was weigh on
sentiment for the remainder of the year, there was some expectation that maybe they'll hold their fire. but the bank of japan unanimously decided to expand their asset purchase program. this is the only tool that it has left right now to ease monetary policy, because as you know, interest rates are at zero. from 70 trillion yen, they've expanded that to 80 trillion. what's also interesting is they've basically said the quantitative easing in japan is going to remain until the end of 2013. the other part of this is they basically scrapped the minimum on their jgb purchases. until now, it had to be yielding 0.1% or higher. that is no longer. and, of course, they have said that they expect the economic recovery in japan to be delayed at least another six months. >> what's so interesting about this is just during its last meeting, bank of japan sounded
more optimistic. now they're sounding more pessimistic. some are saying kind of ignore that prognosis and focus in on the yen because ultimately what it's doing is fighting back against the easing coming from the fed, coming perhaps from europe, that strengthened the yen, made it more difficult for japan's economy. >> absolutely. we had a little bit of a knee jerk reaction, but 7 for corporate japan still hurts a lot. at a time when they were counting on the economies of southeast asia and perhaps china to pull them along, that is no longer the case. the pressure was on for them to deliver. and why wait now when you've had so much data confirming the slowdown in export activity. >> stay with us. coming up in the next half-hour, the boj is not quite off the hook just yet. our guest will tell us why he thinks it will ease further. one of the biggest comeback
stories in the country's corporate history, but jl's modest debut also highlighted uncertainties about the long-term prospects and about the airline industry as a whole. it's been a bumpy ride to stay the least for jal. what's the outlook now for this firm? >> well, this is a success story for the government that injected a huge amount of money back in 2010. i mean, they are the biggest beneficiaries from this ipo. this isn't a traditional ipo. it's not like they're issuing new shares. it's the government keeping it afloat that is releasing the amount of shares that it holds in japan airlines. so for them this is a bonanza. this is the first time the company that has declared eff t effectively chapter 11. whether or not foreign investors will have the appetite to buy into it is another question
mark. there's also question marks about its china strategies, its asia strategies, because for now it seems to be focusing on the north american market. i had a chance to sit down with the president of japan airlines and asked him first off whether these protests that we're seeing in china are going to affect his business. this is what he had to see. >> we have already seen a slight impact, but it is within expectations. getting a slot in beijing and shanghai has been very hard, but we have been in line and so are dozens of others. i don't think recent developments will change anything. i certainly hope they will not. >> by any metric, this company is extremely competitive, even compared to its global competitors, but they have competition from low cost carriers, particularly in the asian region. i asked him about that as well. >> translator: we have no intention of entering a price war. our goal is to be a full service network carrier and we have no plans to change that. >> so great move from the government, but for japan
airlines, take a look at the share price. 38.30 is the closing price. so very lukewarm in terms of the first day as a publicly traded entity. >> thanks so much for that. you're going to stick around a little bit as well. and joining us for more is nicolas cunningham, transport analyst. i suppose the question is what does an investor do with jal? >> we think the ipo price undervalues the company. on our estimates, look at earnings for japan airlines, the ipo is pricing jal at around five times p.e. do you allow for the textiles benefit or not, and if you decide to exclude that, you're looking at eight times p.e. the global airlines average
you're looking at around eight to times p.e. we think that the ipo price is undervaluing the business. >> it's interesting, because if you look at the trading, it reminds you so much of the biggest ipo this year, that was facebook. it was clearly supported just over its opening price day one. it's fallen so sharply since. why shouldn't we think the same will happen now with jal? >> well, japan airlines is a completely different business. we're looking at an airline. the second point i'd made is on our estimates, as i said, i think that the ipo price is undervaluing the company. looking forward, we do expect earnings to ease given that we expect japan airlines is to analyze at any given time. we think it does offer value to investors. >> you have one airline in japan that has basically had this
remarkable return to profitability with government help, and you have another airline, anna in japan, which is doing okay without any government help. leaving aside whether it's far or not far, what does that mean about the efficiency of the japanese economy when one is being bailed out and sustained while the other isn't? >> i think it's a reasonable question. and a&a would naturally argue that japan airlines has been given an unfair competitive advantage. but i think that if you look at both airlines side by side, it would be prudent to consider the track record of management. as you mentioned, a&a management have performed over time what has been a tough market for both airlines. i think that is a relevant consideration. japan airlines management is relatively new and remains to be seen how they will perform over time. >> nick, all the metrics suggest that air passenger traffic is going to be robust. growth is going to be robust in the asian region. which company here in asia stands to benefit most from the
emergence of the middle class that are going to be flying more? >> i think looking forward to japan, especially the key thing to look for is the emergence of low cost carriers. in the last six months, we've had three low class carriers start in japan. that's a new record. i think this is the key thing to look going forward for both japan airlines and a&a. >> that's sort of perhaps the reason why you think we're undervalued on the flotation, but no long-term value for an investor. where does the long-term value go in this sector? >> our view on the japanese sector is going forwards with the emergence of low-cost carriers and also additionally more legacy carrier location. also the implementation of open agreements next year onwards, so we think that the foreign
carrier presence will also increase. so we do think going forward that the investor does need to be cautious on the air industry. having said that, the air industry is a volatile one and we take the view that a long-term investor should be cautious. having said that, looking at this ipo price, we do think that at pricing levels, japan airlines does remain attractive on a 12, 24-month basis. >> nicolas cunningham, thanks very much for your time this morning. staying with japan for just a moment, china is flexing its muscles on anti-japan protesters as territorial tensions continue to run high. reports say police are clamping down on chinese demonstrators around japan's embassy in beijing, the focal point of the protest. still several japanese companies have kept operations closed. kaori has more on this.
first to you. >> i think the scenes that you saw there were from yesterday. i'm hearing the streets surrounding the japanese embassy in beijing are nothing like that. in fact, many of the manufacturers who closed down their production facilities over the last couple of days have resumed, including some of the major auto makers. some of the retailers who have been disrupted have also resumed operations as well. this is a completely different picture that we're saying today in beijing than the ones that we saw yesterday. having said that, all of these events have made it fairly clear that it is very difficult for japan to continue to assert its claim on the islands and also foster closer economic ties. we're already seeing the ripple effects of this. the most powerful business lobby here in japan, the head of that body was set to go to shanghai tomorrow to attend a china-japan
sort of green energy conference, which is a key area for these two powerhouses, but he has been told by the chinese authorities, he says, to cancel that trip. there are also questions about a three-party free trade agreement between china, korea, and japan. negotiations which would have been scheduled in november. so that's up in question as well. so i think the diplomatic fallout, of course, still will be feeling that in the weeks ahead, although from the manufacturing perspective, it seems that many things have subsided. >> i guess the question becomes chinese consumer psychology, how it's affected. as we look at the corporate fallout from autos to other parts of the japanese economy, what are you seeing? >> we know that china's commerce ministry called on japan to take complete responsibility for any trade fallout, but latest china fdi numbers show china has a lot to lose as well. japanese investment increased 16.2% in the first eight months.
but that's much slower than the 50% increase in 2011. on the whole, down 1.4% on year, but that's higher than that of july. january to august, investment inflow declined 4.3% from the previous year. if you look at a breakdown, debt-plagued europe was the weak spot. investment from the u.s. declined 2.8%. foreign investment into the agricultural sector tumbled nearly 15% on year, but the silver lining was in the services sector, hired by over 5% on growing domestic demand. >> i want to thank you very much for sticking around and sharing your thoughts on everything happening. sixuan, we'll see you a little bit later in the program. let's bring you up to speed where we are, just an hour and 15 minutes into trade.
after losses yesterday, this is where we stand right now for european equity markets. there's a number of stocks today. heineken says it will support the sale of f&n stock. heineken stock up 6%. porsche doing pretty well. a german court decision against the holding company supporting that. lonmin up 4% today. having accepted a new pay deal. so it is theoretically off. the owner of zarra with 4% profit. stock up around 1.33%. we keep our eyes on peripheral debt as well. yields are low again.
helped by the bank of japan. we have seen a narrowing between spain and italy. we'll keep our eyes on what's going on this morning. on the currency markets, euro dollar holding below the 1.31. dollar-yen is firm at 78/98. oil at the sort of levels yesterday. it was 117 that we hit two, three sessions of tradings ago. and spot gold, 1776 at the moment. that's where we trade right now here in europe. >> the problem with those oil prices, that they trade in dollars. and speaking of dollars, the global currency war is finding a new frontier in the uk city of bristol. according to the bbc, more than
350 firms have signed up to launch an independent currency seen as a direct challenge to the pound sterling. one local organizer says the idea is to help local traders by issuing money that can only be used in their shops. and they're not the first to try this, by the way. can local currencies actually help boost local economies, or are they fighting a losing battle? let us know here on "worldwide exchange." you can send us an e-mail. email@example.com. and that's where that story ties in with talk like an international pirate day because a lot of pirates came from bristol. black beard, in particular. can the growth be sustained? we'll dig into the retail scene when we come back. bob... oh, hey alex. just picking up some, brochures, posters
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no reports of tear gas. shares not too moved on that news. >> into texas, top market expectations with a 32% jump in a half year profit. first year net profit was $934 million. we just saw the stock a short while ago. steffen has got more on the details. where they have boosted sales? >> online, and of course on emerging market. what's your strategy when your main domestic market is in crisis? you look for growth, online business extension. it's exactly what they did during the first six months of this year and it paid off. the company beat expectations with a 32% increase in net profit. the spanish group also gave a trading update for the beginning of the third quarter and there is no signs of slowdown.
sales increased by 17% from the first of august to the 17th of september and that's really a positive statement, because earlier this week, a swedish rival announced only a 6% increase in sales for the month of august, it was well below expectations. 22% of its revenue out of spain. but still 17% of its total revenue out of europe, and that's the reason why international expansion is the main strategy for the company. in the first six months of this year, the index opened 166 new stores, mainly in emerging countries. >> all right. thanks for that, stephane. joining us in the studio is the director at mintell international. how much of a standout is it? >> it's doing fantastically well. it understands fashion.
even in different times, the young are prepared to spend on fashion. they want to do that. and they go to the stores that suit them best and serve them best. >> quite a contest with the french connection. down to 96. they're saying the same stuff. >> i would disagree, sir. >> they're so close. >> the point is it understands fashion and french connection doesn't. until french connection can regain that touch that it used to have for fashion, it really is lost. i mean there are all sorts of other problems with that business, but ultimately if you haven't got the right merchandise -- >> yesterday we had on the program modi operandi. people are paying full price.
i wonder if we're not seeing the split of the retail segment. strengthened super high end with innovative techniques, this direct online to customers. we're seeing strength in the innovative parts of the low end market. does that mean that the likes of french connection are at risk of going away, meaning they get squeezed out of the middle? they're not following the innovation. what do they have to do to turn their business around? >> they need a good designer. i think zarra is -- it's not cheap. it really is middle mass market. and it's just giving consumers what they want. i think in tough times consumers are more selective. they're not going to go to ones that don't readily deliver, which is exactly where french connection is at the moment, but they are prepared to concentrate their spending on the ones giving them the best service. >> there's no reason then to look at french connection as a bargain unless they're able to
turn around on the fashion front. >> sales up 33%. online business, but more of an aggregator. >> i think uk sales are up something like 10%. >> that growth in assets is really slowing. it's not the dramatic growth that we're used to from there. it's almost as if there is a ceiling for an internet pure play. businesses are doing best online, whether it's john lewis or sara or whatever, are those that can combine stores and online and whatever, because you know what you want and then you've got the chance to shop. if you trade just online, i really think you're trading with one arm tied behind your back. >> especially when you're
fighting amazon. all of those issues remain at focus. >> i presume you'll spend a bit of time at world retail congress. >> if i'm invited. >> thank you for joining us. stick around, because still to come on the program, will the bank of japan surprise asset purchases be enough to revive growth in japan's economy? full analysis on that next.
you're watching "worldwide exchange," bringing you business news from around the globe. >> and these are the headlines from around the world. the bank of japan pulls the trigger on more easing. also sent stock markets high in the process. a spectacular performance, that's the word from the street following into texas. 32% rise in first half profits. japan airlines returns to the market after a three-year hiatus. jal has raised $8.5 billion this year. >> investors are cheering a wage deal. shares are up after a 22% pay rise is granted, ending six weeks of protests and violence.
we've got minutes coming up from the bank of england's last meeting. >> any minute now. >> european stocks are firmer today. and certainly we've seen some reaction for spanish bond yields from the bank of japan action as well. let's bring you those minutes right now. a number of things to get through. bank of england september minutes, they voted 9-0. the decision is relatively straight forward. some saw a likely need for more stick lus in due course. one member saw a good case for more more qe in september. they talked about the growth being uncertain and substantial risks from the eurozone for some time to come and can't discount the risk of sharper slowdown in emerging economies. they said they can expect uk measured gdp to rise sharply in the third quarter. the data suggests modest
underlying growth and inflation to fall less rapidly in the near term than they had thought in august. they suggest there's an encouraging sign on lending rates from the fls. the funding for lending scheme. interesting comments there. sterling slightly up on that news. joining us, jeffrey dicks, which of those comments do you want to pick out first? >> i think david miles is probably the one member who's laying down a marker for more qe. their estimates are prepared to wait for the present program to expire in november. but i guess by the time we get to november, even though we will have had a decent bounce in gdp by then, the committee will be moving their way towards another round of qe. >> is that justified? >> well, the aim, of course, is to stimulate the economy. the way it works principally is through guilt yields and guilt
yeeds have risen a bit recently. there is a scope to get long-term interest rates down again. i'm not persuaded that qe really does the business. everyone else is. the boj, you've just told me. the fed, obviously. they're linking qe in america specifically to job creation. but it doesn't seem to have done a great deal so far. >> do you think actually that given the aggressive action we've seen from other central banks, it makes it more or less likely that uk will follow suit? >> we're hoping to rebalance our economy, so the more help we get from overseas, the less we have to do ourselves. but i think the bank is going to take out insurance. i mean, the minutes themselves today, they can't rule out worse activity in europe. >> and emerging economies as well. >> because i wonder, you mentioned that they're looking to influence yields, but i would almost argue that a key part of that -- or a key part of that is also looking at the exchange rate.
so to the extent that these other major economies are weakening their currency to some extent through more aggressive policies, does that not make it more likely for the bank of england, depending on how strongly they emphasize the need to look at sterling to do more. >> as a whole, very keen on rebalancing the economy. you could almost say they're keener on rebalancing the economy and supporting it than actually targeting inflation. so to the extent that we are not getting help from the euro and experts in general that they were hoping for, i think you can say over the past that they've -- well, not necessarily tried to talk down the exchange rate, but they certainly haven't tried to talk it up. >> this is the interesting thing. encouraging signs on lending rates from the fls, the funding for lending scheme. how long do you think it's going to be before we actually know whether it's having an impact? >> well, if you remember, when
they voted to expand qe, the two people who didn't vote for it, spencer dale and ben broadbent, were citing the fls as possibly giving more scope for the banks to lend money than the rest of the committee might have expected. so i think they are as a committee quite optimistic that they are going to see some results. how quickly is a different question. i mean, that's a question you ask. i don't know how quickly we're going to see results. >> you mentioned spencer. you're looking at a speech he gave on the limits of monetary policy. do you think there has been a decided shift from what theoretically should be a fairly narrow inflation mandate to helping drive aggregate demand, in which, of course, if they are doing that, the inflation target sort of gets pushed to the side. >> yes, i do very much. the speech must have got official backing. all the speeches, of course, are made by individuals, and they disclaim ownership on the part of the part of the npc or the
bank of england. you don't make speeches like that unless it's gone through the press officer. it went through the official machine. he specifically said we expect more from monetary policy than just inflation and he sees a role for monetary policy in stabilizing demand. so i think you can say the npc as a demand is very whole is very keen on supporting demand, and if that means they miss inflation in the short term, so be it. if it means they miss inflation in the long term, which of course they have until possibly next month when we might actually see inflation back at 2%, then that's what they're trying to do. >> jeffrey, good to see you, as all. thank you very much. staying with central banks, the bank of japan is giving a shot in the arm to japanese stocks this morning with a decision to pump into the economy an extra $125 billion. joining us now is the executive director of investment research
at jpm investment management. thank you for joining us. does this come down to you to weakening the yen, or is this a sense that this will be enough perhaps to finally dp ll lly gi strength to the japanese economy? >> i guess because nobody was quite expecting the boj to do anything much today, was expecting that they would rather do something at the end of october with the release of the semiannual report. the market was surprised it did act, and with that quick reaction, the yen actually weakened. but it has been sort of moved as action by the central banks in the u.s. and europe. that seems to be adding to the risk on moves by investors.
that is also the reason behind the current weakening of the yen. >> and is it warranted, in your view, given your own outlook for japan's economy, how much more aggressive should the central bank be from here? >> i guess there's no doubt they have more room to go in more aggressively. the fact that the fed has initiated open-ended qe and ecb is doing unlimited backstop, compared to the boj. boj has allocation. that doesn't necessarily picture the continuing increase of its balance sheet. so i guess there is more room to go. and the japanese economy actually doesn't need, you know, weaker yen to help out the activities there.
>> is there any chance of -- i mean, authorities can step in and try and defend it when it appreciates too much, but is there anything really that is going to weaken it when it's global forces that are causing it to be so strong, rather than the necessarily domestic policy? >> well, i guess you'd have to say that u.s. interest rates impact on japanese yen, i guess the u.s. dollar, has been much more influential. that's for sure. but still, that doesn't mean that boj cannot do anything and boj can go more aggressively, come up with new ideas and they are having talks of the possibility that the boj could consider buying foreign assets. that included more cooperation between bank of japan and the government. there must be something more that they can do. >> we've seen the nikkei
rallying on the news, but how much further do you think it can run now? how fundamentally does this change the outlook for japanese equities? >> well, for the boj action alone, as i said, markets are expecting more to come. what we had from the fed and the ecb looks to be quite important, and that is generating the investors' mood. and that's probably more important for japanese stock market to continue going up, and hopefully we're now going to get another renewed concerns available. >> i think people well outside japan have the same view.
yoshito sakakibara, thank you for joining us this morning. efforts by central banks to pump money in reminded him of a scene from "faust." the chief was speaking at an event in frankfurt marking the 180th anniversary. he wrote the book. nevertheless, it is an interesting time for him to make those comments. silvia is in frankfurt with more. we heard from angela merkel saying the president has the right to speak about what he believes. i'm wondering where she will still feel some consternation at these remarks, even though they've come from a slightly sort of side adjunct. >> reporter: let's be quite clear about this. the politicians at the moment are very happy if i stay with
faust, for the ecb to do their dirty work. clearly, reforms, etc., don't get on track fast enough, so they need the ecb to keep buying them time. they've done that with all the money they pumped into the market over the past few years. they've done that with the first bond bank program and they do that with the second bond bank program, which at the moment has been announced but not executed, of course. they kind of close their eyes, in my opinion, and i think he is on my side with that one. the ecb is going one step further by actually acting politically and not only in monetary policy. you're kind of stepping on dodgy ground and politicians know that, but they ignore it. he chooses not to ignore it.
i think angela merkel would be happy if he wasn't quite so outspoken right now, but she knows as well that she needs weidmann as the backstop, because one of the biggest problems is popularity. not among the markets. the markets love the ecb. the markets love mario, but we know very well that the german public and maybe german politicians don't. that's why you offer to come to the parliament and have them ask him so that he can explain their policies, and the invitation has already gone out. we haven't quite got the date yet. >> does what is sort of implied criticism from weidmann, does that help or hinder from what you've just said in terms of the politicians and the public? >> i think it does both, frankly speak. it doesn't help to have this open quarrel inside the ecb and
i think draggy is starting to realize that. it's not very helpful for the ecb's overall credibility and for the ecb's way of operating. it is helpful for angela merkel as a backstop because she can always say well, the bundesbank we're going. it makes politicians' work easier. until, of course, potentially the ecb's bluff has been called, because the big moment of truth will come when, let's say, conditionality is the agenda. when let's say spain is under a bailout program and italy is not under a bailout program and the market keeps exploding in terms of bond yields. what will the ecb do? will it act in the sense of monetary policy?
and by both italy and spain, then the spaniards would feel a little bit with egg in their face. or will it act according to its political agenda saying conditionality first and only by spain and let italy sink? that will be the moment of truth. >> yes. and i guess we don't quite know which way it's going to go. what are the polls saying at the moment about angela merkel and what are they saying about how people feel? do germans feel like they're beginning to pay for everything and resent it or not? >> i think they feel that they're paying for everything and they're resented, even though that's not true. they're not paying for everything. they're paying 30%, or not even quite 30% for everything. so the perception isn't quite right either. but angela merkel in the polls is rising and rising and rising. so is her party, it's at the highest level i think since she came back into power after the last elections. so in terms of where she stands politically, domestically and
internationally, she can feel ever more comfortable. so that's why maybe the criticism of the bundesbank and weidmann might not be something that pleases her, but on the other hand, it doesn't concern her too much. let's not forget one thing. the bundesbank, when it was still in power, so to speak, as setting monetary policy, was the one institution -- i hope you're sitting -- that the germans trusted more than any other institution in germany, including the church. >> well, that was part of the post-war reconstruction germany. we'll put our faith in the financial institutions. silvia, thanks very much for that. we'll catch you a little later. what other literary parallels can you draw with the eurozone crisis? you can head to our website cnbc.com to find out and make your own pact with our online offering. like that? >> i did like that. european stocks, they're in a pact to go higher, not by much.
up around a tenth of a percent around the board. let's remind you of what's happening in asia. li sixuan has more. >> the nikkei closed at its four-month high as exporters rose on the weaker yen, trading at around the 79 handle. china related stocks rebounded, and factories resumed operations in china today. and shares of japan airlines gained 1% in its debut. this was on the hopes the pboc will follow global central banks to announce similar easing moves. securities and technology shares also rallied on supportive policies. gains helped the hang seng end well in the green. some japan related stocks recovered, some lost ground after drops in the past two
days. the kospi finished marginally higher. in australia, strength in miners sent it higher to a four and a half-month high. that's all from me. >> sixuan, thanks very much for that. let's take a quick look at what's on the agenda in asia tomorrow. hsbc will post its early read on china's factory read in september. this is the one to watch. in tokyo, video game makers will be packed displaying their latest offerings. martin gets to play race cars with lewis hamilton. we'll have a full report on that important news. >> i was trying to fly over to do that. >> i know, i know. next time. maybe when he's closer to home. we'll take a short break. still to come, what fashion a-list designer alice temply told kelly about the strength of
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welcome back to the program this morning. the world retail congress is kicking off here in london and features discussions on emerging markets, new business models and future drivers of growth in the industry. top executives from j-crew among others will be featured at the event. i caught up with british designer alice temperly, whose line became one of the fastest selling brands in its history. i talked to her backstage before her runway show at london's fashion week, which was just wrapping up. amid the bustling atmosphere of models, alice talked about how she thinks the retail sector is holding out. >> buying investment pieces. they're kind of a stable. women always know that they can go back to. i think it's extremely fast, everything out there. trying to chase the trends is not what we're about. there is a change in the way
women shop. >> that said, you've done so well with john lewis. is that going to be increasingly important to you? >> the main texture now has become much more luxury, much more special. as a brand, i think it's really nice for us to have our beautiful ethereal gorgeous main line bridal. an element of ours, that's it. the work mother and people have extremely busy lives. high fashion, let's face it, affording it. it's nice to have something and not be exclusive. >> how important has the princess effect been for your business? >> anybody who's in the public eye, people will love it. just flattered that everybody who wears temperley wears it.
>> noticed some surprising areas of strength. talked about kazakhstan. are there any places that might surprise you when you look around the world? >> we also did the middle east. which is a surprise. but yeah, several countries. sometimes you can be a bit surprised. >> do you think the china market -- is that still a big opportunity area, or is it mature? is there a sense that the fastest growth is behind us? >> oh, no, it hasn't stopped in china. china is booming, booming, booming world market that is just sort of beginning. obviously you've got brazil and you've got india, which will be ready soon. >> is an ipo in your future? >> possibly. we'll see. if it makes sense, possibly. >> what about being open to private investors who may be attracted by all the interest?
>> obviously we're always open to discussions. we're very lucky to be an independent brand, to be able to make decisions at this level. and then obviously those opportunities would become more help with manufacturing, distribution, logistics. to understand where your brand needs to go and passionate about that rather than being outside. >> and last question, a lot of supply shortages. how does that influence your business? >> interesting. that was something you have to deal with and work around. a lot of the mills that we're using around europe basically went out of business because the session hit them hard. saying that, though, we are now
making a lot of stuff at home. it changes every season. might be an improvement somewhere else. you have to think about logistics. we can design clothes, but it's 90% logistics. getting fabric on time, make it in time and deliver it to the shop floor. >> i enjoyed that. >> fascinating interview. and she talked about potentially you could see this company going public someday. "worldwide exchange" will continue to focus on the retail sector throughout the week. we'll speak to phillip green. you can catch the full interview on "worldwide exchange" this friday. now, meanwhile, the global currency war has found a new frontier. this is in the british port city of bristol. according to the bbc, more than 350 firms have signed up to launch an independent currency, seen as a direct challenge to the pound sterling. one local organizer said the
idea is to issue money that can only be used in their shop. it's not just shops. it's also going to be credit-based as well. it's an interesting idea. >> it is, but as a viewer points out, the bristol pound is a waste of time. it's worth one to one, so it has no point. a marketing gimmick. i'm not sure what taxpayers would be liable for. it is a good point that still is 1/1, but at the same time, if you're required to spend it in the local community -- >> you can only spend it in those shops that take it. so if you've got something, you have to go -- >> it is interference in the free market. so it's interesting. >> on the other hand, they would say they're expressing the free market by being able to launch their own currency. >> or perhaps reflecting demand for it. >> the interesting thing is is that it ties in with today is the tenth anniversary of international talk like a pirate day. and the reason that ties in with
bristol is because many pirates -- black beard, probably the most famous real pirate, unlike the fake one we're watching on the screen. >> unlike johnny depp. >> did come from -- came from bristol. bristol was the second-most important city in the 18th century. >> was there a accepsense that bristol influenced priority talk? >> yes, because they had that bristol burr. >> we'll preview htc's latest advice. can it take on apple? >> newfangled gizmo. stick around. bob...
oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office. nowners.
welcome to "worldwide exchange." if you're just tuning in, i'm kelly evans. >> i'm ross westgate. headlines today from around the world. >> japan's central bank follows the fed's fed footsteps. >> and the bank of england, some policymakers saw further stimulation. >> plus, a spectacular performance the word on the street following into texas, boosting the owner of zarra shares in madrid. >> and it's a changing of the gold guard at goldman sachs as the longtime ceo, the longest
serving on wall street, decided to step down. >> you're watching "worldwide exchange," bringing you business news from around the globe. if you're just joining us, let's take a quick look at u.s. futures. the dow jones industrial average is poised to add about 28 points. the nasdaq pointed higher by about six or seven. s&p 500 is looking to add a few as well following a pretty mixed day, a quiet session for the most part in the u.s. yesterday. the mood across the globe, we can take a look. ftse is lower. >> we have seen benefit for spanish bond yield today for the bank of japan.
they're trying to get below 5% for italy as well. not a huge reaction, but they are slightly lower on the day. there's a perception that maybe we will get more qe in november when the comp program runs out. sterling dollar steady. aussie dollar down at 1.0443. dollar rebounding against the yen after those moves from the bank of japan. euro/dollar maintaining, 1.30, as you can see. the big sharp falls in oil prices. we were at 117 before we got that extraordinary few minutes of trading. spot gold slightly high. that's where we are two hours into the trading session here in
europe. let's remind you what's happened. li sixuan has more for us. >> asian markets ended in the green following the boj's expansion of its asset purchase program. the nikkei at its four-month high. some china-related stocks rebounded as many stores and factories resumed operations in china today, and shares of japan airlines gained 1% in its debut. the shanghai comp gained by .4%. this was on hope the pboc will follow global banks to announce similar easing moves. gains in industrials and financials helped the hang seng end well in the green. some stocks recovered some lost ground. the kospi finished marginally higher, while defensive health care stocks extended gains, but auto makers were under pressure on concerns. the weaker yen could lower asian car prices overseas.
meanwhile, in australia's strength, the asx a two-month closing high. >> it's interesting the see all of the green behind her. it's really not extending very much through the europe session. >> there was a little kick. then it's dissipated. >> yeah, it has. well, there's plenty more to cover on that front, especially as we get into the trading session here. but in the meantime, want to take a look at some of the stories out of the u.s. this morning. goldman sachs, longtime cfo david veneer is retiring at the end of january. he has been the finance chief since it went public in 1999. he's being replaced by harvey schwartz, who will not only be responsible for the company's finances. that that is a significant
underperformance. >> can we say that he voluntarily walked the plank? >> yes. >> he voluntarily walked the plank. >> how many more pirate references. >> as many as we can get in today, folks. meanwhile -- i was trying to think of a pirate talk for the fed chairman. they're expected to discuss economic policy and the fiscal cliff. bernanke has reportedly warned the fed doesn't have the tools to offset the economy. all the tax hikes go into effect at once in january. >> perhaps we should name the fiscal cliff the fiscal plank. just for today. >> fiscal plank. >> let's take a quick look at what's on the agenda today in the u.s. what may perhaps start to turn sentiment around this morning, or at least wake up traders. august housie ining starts at 8 this morning.
building permits are expected to drop 1%. at 10:00 a.m., we get august existing home sales. they're expected to show a small increase from an annualized rate of about 1.65 million. jeffrey lack ser saying the central bank's decision to launch qe3 -- against the decision to buy another $40 million of mortgage securities. he says the feds shouldn't play a role and says u.s. gdp is being impeded by the housing slump and political gridlock that's creating uncertainty and dampening investment and new hiring. joining us is greg mcbride, senior financial analyst at bankrate.com. good morning. >> good morning. >> let's take a look at some of the these concerns that lacquer -- a well-noted hawk -- has raised. is there a concern that the supply credit isn't part of the conditions, that ultimately it's not about what they're doing?
>> yeah, a lot of that to get right back at the fed again. we got into this mess because anybody with a pulse could get a loan. so the fact that we've gone back to more standard underwriting criteria means not everybody's going to apply, but a lot of the people that could get approved aren't necessarily looking to borrow money right now. so there's a lot of supply, there's just not a whole lot of demand. >> it's interesting, there's a cheeky piece. the american banker basically saying the gold is to get more or less sub prime or nonprime borrowers access to credit, why not give them credit cards? we almost seem to have them fighting what the fed is trying to do on the other. >> exactly. and a lot of banks, they have regulators whispering in one ear. hey look, you don't have enough capital or you need to increase your loan quality, and so what do they do?
they actually tighten up their lending guidelines. that's what we've seen play out over the past couple of years. despite tons of liquidity, you don't have a real incentive or appetite on the part of lenders to dig into the riskier end of the borrower pool. and that's where the bulk of the demand is. but there's just not a whole lot of appetite to take on that kind of risk. >> how hard is it as well for folks to sell existing homes? i mean, you need a bit of a -- you need sort of a two-way market going here. >> yeah, and the move-up buyer has really been impeded by that because even though affordability is great, it's the best it's been in decades, people are still concerned about their financial situations. aren't enough first-time buyers looking to buy. and even people that want to move up to a bigger home, a lot of them are upside down or they don't have enough equity to be able to unload their home at today's current prices and still have money left over to make for a down payment on the next home. that's what's changed. you need to bring something to
the closing table in the form of a down payment, even if it's a modest 3.5% down. but people don't have equity in their existing homes, it prevents them from doing that. >> yesterday, david kelly at jpm asset management told us he thinks home prices in the u.s. are too low. at the same time, a lot of your data -- especially this index you guys are coming out with now, looks at how americans fundamentally, their financial situation is still precarious. is he right? can you objectively sort of say whether home prices are too high or too low, or ultimately does it come down to psychology? >> well, ultimately, real estate is local. yes, markets do have a tendency to overcorrect on the downside, but the other shoe that people are waiting to drop is this large shadow inventory. there are a lot of homes in some stage of the foreclosure process that will eventually have to make their way under the market. the concern is if that is not meted out, it could depress
prices. >> when you look at households' balance sheets, what is the overwhelming desire at the moment, to save or if they've got any extra cash, to spend it? >> well, saving is really the achilles' heel of financial security. by more than two to one, people say they are less comfortable with the money they have in savings today than what they had a year ago. they realize how far they still have to go. debt is an area where people have moved the needle. the debt service ratio is the lowest it's been in 18 years, but savings is the area where people feel that they have a long way to go. >> okay. greg, thanks for that. greg mcbride. porsche is doing fairly well today. a german regional court has stopped two investor lawsuits against porsche. still seeking just over four billion euros in damages in germany. they've rejected claims as well in the volkswagen-porsche merger
suit. just to remind you. >> well, they don't need help from local currency, ross. that's a reminder of one story we're following this morning. the global currency war has found a new frontier in the uk city of bristol. bbc says more than 350 firms have signed up to launch an independent currency, seen as a direct challenge to the pound sterling. one local organizer says the project is to help local traders by issuing money that can only be used in local shops. we want to know what you think about this. bristol is far from the first to try this strategy. the u.s. germany and many others have tried this as well do. the local economies actually help boost the local economy? you can e-mail us with your thoughts. you can tweet us @cnbcwex. you can also reach us directly. still to come, a high yield bond is the next sub prime. we'll talk with a guest who says the new round of qe launched by the fed is not fueling a high yield bubble. bob...
oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office.
>> at the bank of england, some see the outlook for a stimulus even as the outlook for inflation picks up. defense secretary leon panetta is in china meeting with officials there. and this news coming via reuters, china's vice president is criticizing japan's purchase of those disputed islands in the east china sea, calling the purchase a "farce." he's saying japan should "rein in its behavior and stop undermining china's sovereignty." >> what was also interesting, i read today in the telegraph, a suggestion that china should use its japanese bonds. they could threaten the japanese bond market. >> yeah, economic positioning there. >> extraordinary. >> there's also a chinese agency talk about how japanese auto makers may lose their top
selling status to the likes of germany because of this. so the rhetoric coming out of china certainly has fomented. >> on the other hand, if china did sell a bunch of japanese data, it would weaken the currency and they would like that. >> they come with a total fiscal meltdown. >> bank of japan could buy it all up. there are some positives potentially. first it was samsung, and then nokia. next came apple. yesterday was motorola. today it's htc. the latest release is expected to be a fablet. i don't even know what that is. it's a hybrid phone and tablet. htc is keeping a lid on it because that's the photo that we've got. >> oh, my goodness. it's so reminiscent of that shadowy iphone launch. i wonder if apple will take them to court over it. >> natalie morris joins us now. they're not giving much away,
natalie. what do you know? >> no, it's very seductive. sit a phone, is it a tablet? we don't know that much. we don't even know the name yet. we think it could be called the 1 x-5. we're also heard it could be called the dix, the droid incredible x. what we do think will happen is it will be a five-inch phone because that seems to be the screen size that the android phones are competing on. we haven't seen the htc offer a phone that's this size yet, so that's something that will be high definition, that's kind of standard these days. we've also heard rumors that it could be 480 pixels per inch, that's in a small space. so we're thinking really beautiful displays. really nice camera. we're thinking that it will run qualcomm's s-4 chip set, which is qualcomm's speediest chip
secht that set. we saw intel enter this market just this week. so they are going to have to really compete on qualcomm's s-4 platform. so we see a lot of -- but, you know, the thing is that these android phones, they all seem to have the same features, so we really are looking for that one killer thing that makes this different. because we see the screens are nice, the cameras are nice. they have speedy processors. what we want to see out of these phones is really great battery life, great performance. so we'll see how htc does when it comes to this size screen. and also we have to remember it's iphone week. early reviews of iphone are coming in tonight and they're very good. reviewers really like them. so, you know, this is the week to play when it comes to phones because it's almost holiday time and that's a really good gift. >> as far as i'm concerned, battery life is quickly becoming the most important feature for me on these phones.
thank you so much for working us through that. we'll see what they end up calling this thing when they unveil it later today. in the meantime, need to bring you in news out of south africa. angela merkel was reporting some violence. this according to dow jones. firing rubber bullets on a crowd near a platinum mine. i presume that's referring to the same one, ross, but we'll follow the story as we get more information. >> just a reminder, had come to an agreement with their striking workers. the strike was effectively off. >> i'm not sure this is a reference to lonmin. >> no, exactly. i was just updating that side of the story. >> there's potential unrest. we'll take a short break. our next guest says the cost of money in the latin american powerhouse will stay put for a while. we'll find out why when we come back.
welcome back to the program. we're just getting word that france will close embassies friday fearing a backlash over cartoons that were printed in a satirical featuring the prophet muhammad in the wake of the video, the u.s. video that has already spurred violence across the middle east. we don't have details on which
embassies will be close, but france is saying it will close embassies on friday fearing a backlash over the printing of those cartoons. meanwhile, brazil will be releasing september numbers. it will help bring down consumer prices. neil sheering specializes in that. good to see you again. thanks for joining us. they've also come in with cuts in electricity tariffs as well. are these measures going to offset -- how much will they offset rises in food prices? >> we're going to see a rise in food inflation over the next two or three months. these cuts in utility tariffs that have been announced probably aren't going to come into effect until early 2013. they should once they do take effect almost fully offset the spike in food inflation that we'll see. and less effect from all of that
will be if it stays broadly varied. >> does that mean that policy stays where it is? we're down on record lows for interest rates. >> i think it probably does, yes. i think policy actually is going to become very interesting, because on the one hand, demand is still pretty strong in the brazilian economy. on the other hand, the supply side of the economy seems to become more constrained. combination of strong demand and policy stimulus against supply constraints means inflation. then you've got the effect of policy changes. you've got the fact that demand itself may not hold up because a lot of it has been propped up by very rapid credit growth, high sustainable credit prices that are starting to fall a bit. i think policymakers are going to have to tread a very careful line over the next 12 months. i think the net effect of that is that interest rates basically are going to remain where they are. >> brazil has been such a disappointing story, whether it's growth, stock market performance, lack of investment, some of these supply side
constrai constraints. same with india. it's interesting, over the weekend, jim o'neal sort of said look, brazil and india are making the supply side reforms needed to support their economies. sit your view that brazil is doing enough in that regard or does it still suffer from structural weaknesses? >> i think it still suffers from structural weaknesses, but i think they need to be viewed in context. the point is i think in 2010-2011, the euphoria that surrounded greece, surrounded brazil even was overblown. completely overblown. this is an economy that can grow at 3% or 4% a year, which is very good. but it's not one that can grow at 6% or 7%. now they have to tackle some of the constraints on the supply side. but they're difficult and it's going to take time. they're taking baby steps at the moment, but steps in the right direction. will it lead to a rapid turnaround in the economy overnight? i don't think so. >> is some big bang measure like
what india did snes. >> i think it probably is necessary. the policy is very difficult. there's very disparate coalitions within congress that need to be addressed. i think that's going to ultimately make any sort of rapid change difficult. >> meantime, in argentina, the imf is warning they need to do more to improve the accuracy of its economic data or else face sanctions, including losing its imf leadership. i just wonder to what extent argenti argentina's resistance to owning up to the true inflation rate in the country, to making the needed talk about supply side issues. how vulnerable is this country to sort of an external financing shock or to further deterioration? >> hugely vulnerable. actually the comparison with brazil and argentina is a very con strungtive one. brazil has some structural problems but that will constrain growth at 3% or 4%, as i said. argentina has massive structural
problems, mainly due to failure to really rein in macro policies since the 2001-2002 default and devaluation. it's been underpinned by huge improvement in relation to trade prices and that's really helped to paper over the cracks. >> the country would have a huge problem. the latest rallying price has bailed out. i think it has a lot further to fall. they're losing competitiveness at very rapid rates. we'll see how these things turn around. and don't look to what the federal reserve has done. don't look to what qe three has done for these kind of issues.
welcome back to "worldwide exchange." i'm kelly evans. >> and i'm ross westgate. here are the headlines from around the world. >> with just two weeks to go before they face off in their first debate, a new nbc "wall street journal" poll finds president obama widening his lead over mitt romney. japan central bank follows in the fed's footsteps. it's pulled the trigger on more easing, sent equities higher in the process. >> at the bank of england, some policymakers see the case for further stimulus even as the outlook for inflation picks up in the near term. and it's a changing of the old guard at goldman sachs. the leader has decided to step down. you're watching "worldwide exchange," bringing you business news from around the globe. >> let's start with the u.s. and work our way back. futures for the most part are pointed higher. the dow is poised to add about 40 points.
the nasdaq and s&p 500 are poised to open a little bit higher as well. this follows overnight trading in which we've seen asian equities pick up largely on the back of the bank of japan. surprisingly large quantitative easing measures. the ftse is up one tenth of a percent. the mood from that policy hasn't really kicked over into strong gains across the european session. if we take a look at what's happening with those forces for the most part we're seeing a mixed bag. now mostly to the upside. the ftse 100 now about two tenths of a percent. even the ibex has now kicked higher. it's adding two or three points this morning. 8060 is the level to watch there. >> that's where we stead right ahead of the u.s. open. what are investors to do? just a recap from some of the experts already today on cnbc. >> i think it's going to be really tough, but i think the real play is euro/yen.
the fast move of the euro/dollar last week has pushed it up to 3% in the last week or so. dollar/yen, cloudy judgment there. i think 80 is going to be tough. >> you'll probably be looking at thing where is you want to let some guilts go and look at them relative to the u.s., because at current spread levels, gilts look very, very good. >> very, very much out of favor. it's trading at just -- trading at much less. has a huge sales line. if there's ever any margin, we're in a situation where that will be very different in years
to come. >> so some ideas there. investors can't get enough, though, of the yield on junk bonds. that's at historic lows and issuance is breaking records left and right. so should investors potentially be worried about what's happening? is the market too froth write? is -- frothy? marty, in your view, how overextended s the market here? >> well, not very. the yield spreads are a little bit below average. the average historically runs about 600 basis points. it's about 530 now. so it's not frothy. those spreads have gotten under 300 at times in the past. so far from the kind of extremes
we have seen on a indication in the past. >> i think the real concern is people buying into this product, so if you have pension funds, for example, which both because of their return mandate and just the need for some sort of yield are buying into companies that down the road should rates move to the upside aren't going to fundamentally be as attractive. basically are they loading up with sub par product? >> the quality is not great concern right now. it's obviously easier for lesser rated companies within the spectrum of high yield to finance currently than is the case in some markets. but there's -- offsetting that is the fact that the credit outlook is pretty good. the default rate has been running about 3% versus a historical average of about 4.5% proswrejected to remain at aboue same level for the next year.
so there's really not a great concern about the credit quality aspect of it. the concerns really are ultimately rise in the underlying treasury yields, the possibility still of the u.s. sliding back into recession, and the possibility of a worsening of conditions on the european front. >> the yield on the index recently hit an all-time low, 6.21%. historically had an average of 9%. so if you are buying now, that's what makes you think you're buying at the top of the market, just because of the price. >> right. as the yield spreads indicate, the reason for the record low yields is the very low yield on the underlying treasuries. the five-year treasury is averaged about 4% historically. that's under 1%.
again, the risk premium that you're getting for bonds is not much below the historical average, but the underlying treasury yields far below the historical average. so along with holders of any other kind of fixed income investments, you face the risk ultimately of a rise in interest rates. the fed clearly indicating that that's not something that they're looking for any time soon. >> marty, i imagine you think this has a little bit further to run. it to me raises a philosophical question, which is are we -- do we have zombie companies walking around to some extent? meaning is this sort of equilibrium of super low rates, huge demand for paper, and no end in sight really to this move, keeping companies alive and inhibiting the creative destruction process? i don't know if you have any view on that. >> now, there is some of that. companies would be in trouble in
some cases if they had not been able to finance their debt maturities. they've taken great advantage of that over the last couple of years, pushed out their debt maturities. so they won't face insolvency problems for that region. they could still have operating problems severe enough to put them into default, despite that. but the financing conditions have been very favorable. so yeah, to some extent, you have some misallocation of capital that would be recycled into more productive uses. but that being said, there's some limitation on the investment opportunity so it's not as if there are great projects waiting to be financed and are not getting financed because capital is tied up in companies not doing all that well. >> because so many have taken advantage of this new issue boom to refinance existing debt, how much more demand is there going
to be? >> well, the capital has been flowing in because investors are under tremendous pressure. they don't have much yield to obtain in any other kind of investments, so they're shifting capital. we see institutions doing this as well as the individual investors. so the demand has remained very strong. but i think the key point is that they're not really coming into it with the expectation of great gains, despite having seen that over the last few months. from a time when people were already starting to talk about the bubble in high yield. we've had yields come down substantially from those levels. but that's not really the motivation of investors getting into it. they're really looking to collect a coupon in a time when in many cases they don't expect a lot of appreciation in stocks just because we're already starting to see some pressure on corporate profit margins. >> they don't think the opportunity cost is that high.
martin, thanks for joining us. martin fridson. had a german bund auction out. >> a two-year low for the first time since june. not talking about a lot. >> people must have dived in getting a positive view. >> yeah. you can't live on 0.06%. but it does go to show that we have seen an improvement in risk attitudes. we did see those yields moving pretty low into negative territory. a positive yield on that two-year schatz auction with a bid to cover 2.1 for 0.06%. coming up next, money printing is the devil's work. that's what the head of the bundesbank is saying. we'll discuss next. ♪
can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office. ow save 50% on banners. you're watching "worldwide exchange." >> welcome back to the program this morning. as we've been discussing, the global currency war has found a new frontier in the british city of bristol. according to the bbc, more than 350 firms have signed up to launch an independent currency. it's seen as a direct challenge to the pound sterling.
one local organizer of the project says the idea is to help local traders by issuing money that can only be used in local shops. britain is hardly the first place to do so. towns in the u.s. and germany, among others, have also pursued this route. earlier, we asked what you think about this project, and nasa writes in to say -- spending your way out of debt is completely inpossible. glen says i only hope bristol isn't sued for breaching the global anti-money laundering act. they are cracking down on that front. the next time you're in bristol, you can give us an on-the-ground report. >> it reminds me of that film, a comedy where they try to set up an independent state. >> i think i missed that one. i'll take your word for it. >> speak of bristol, today is also international talk like a pirate day.
and the reason that's been important, because the most famous real pirate of them all, blackbeard came from bristol. one of you tweeted in a pirate day recommendation. don't know what that recommendation was. said long silver, short currency pegs. very good. i like that. long silver, short currency pegs. that might even work as a trade idea. away from talk like a pirate day, inditex doing well. beat expectations despite the ailing spanish economy. profit came in at 944 million versus the reuters forecast of 905 million. the shares in the last three months up 24%. not bad for an international retailer in what is supposed to be a pretty soft global economy. >> yeah, especially compared with the likes of french connection this morning, which
is struggling saying it hopes to turn a profit in two years turn. we'll keep an eye on the private sector. you are watching "worldwide exchange" and these are your headlines this morning. a new nbc "wall street journal" poll shows president barack obama widening his lead over mitt romney. the boj pulling the trigger on more easing. and the bank of england, some see the case for more stimulus even as the outlook for inflation as the near term picks up.
to put the story into some context, the bundesbank chief was speaking at an event in frankfurt, which was marking the 180th anniversary of -- gerta. i thought there was a second part of the book that no one has read or seen. >> anyway, silvia is in frankfurt. the point here is, silvia, a lot of comments about whether jens weidmann should be as public in his criticism of central bank. clearly he didn't mention the ecb. he was talking about faust. but clearly this was an implied criticism of ecb action. how is this going down in political circles? >> i don't think there's anything implied in jens weidmann's comments anymore. he said it many times before. on record, off record. and this time, commemorating the
death of johan wolfgang. he might have had to quote from poems like "the bell." but there's nothing implied about what jens weidmann's criticism stands for. it isn't only criticism of the ecb, by the way. it's criticism of all that easy, cheap money we had in the system for a long, long time. but at this moment, of course, he had very, very strong resentment and we know that also from the rest of the ecb, that every vote that comes down, he votes against bond bank programs or the like and he thinks that there's a great problem. he said before that he thought that going down the path of this bond bank program meant to tut essentially it could be like a drug for the banks, a drug they can't be weaned off of. he's probably right. isn't easy, cheap money what got
us into subprime etc.? that's what he's warning of, but i'm afraid he hasn't got another recipe of fixing it either. >> yeah. i don't know whether you saw the graphic there, silvia, that we've put over. >> oh. [ laughter ] >> you've seen it now. >> i'm not so sure whether he's really an angel, let alone arc angel. the problem with mario draggy is that he has to regain, if anything, the confidence of the german people. he's got market cred. the markets are praising him to the high skies, very close to the angels. but he has got a problem with his popularity, or lack thereof, from the german people. your politicians can ask me about my actions. the invitation has gone out, we
just haven't got the date yet. so that will be one speech to watch out for. >> i thought mario draggi looks good in red, actually. he's an italian. he can wear everything. silvia, thanks for everything. craig, don't worry, we haven't dressed you up in any kind of weird graphic, so you're all right. you've got yin and yang so you're balanced. >> i'm glad it's not a pirate. >> no, you're not dressed as a pirate either. that may come later. the point silvia was making is yes, we have got the bank system on life support. how on earth do we get off it? where do we get to the point where we have a self-fulfilling economic recovery that doesn't need all this central bank action? >> that's a hard question this early in the morning. certainly what the fed is doing right now, we're keeping the
housing market and the banking sector to some degree, but really the housing market more than anything on life support. you know, trying to push down mortgage rates in order to really reinflate the housing market so that -- if you listen to chairman bernanke's press conference after he announced qe3. he said that the goal was to get banks to look at collateral, real estate as a more favorable collateral so they would loosen their lending standards and start making more loans. i think that's a dangerous proposition. we've seen it happen once before and we've seen it result in the last recession. i think you have to let the market find its own bottom, which is going to require some pain. >> part of the problem is in order for markets to find a bottom, that implies a whole chain of events that ultimately ends up in higher unemployment here because we hear similar comments coming from a lot of people who say look, the fact that we're not allowing more deflation in prices is a tax on consumers, but is it not the case that ultimately they're trying to pick the lesser of two evils here? >> i think they are.
i think they're walking a real tight rope and it's a difficult place for the fed to be. it doesn't help when nobody else in washington is pulling their load. so yeah, definitely think that they're in a tough position. they're trying to take the lesser of two evils. for now, the effects aren't great, but i think longer term, you can see the negative consequences of the expansion of the monetary base. for now, we haven't seen it, though. >> i want to turn quickly to what's on the agenda here in the u.s. against the backdrop of all of this. housing starts around 8:30 eastern. building permits may decline. that's follows by existing home sales at 10:00 a.m., seem to pose a small gain of 4.56 million. we'll also hear from richard fisher, the dallas fed president later in the evening. with the focus on the housing market lately, craig, is it your view that the fed's policy is going to be enough of a difference here? are we beginning to look ahead in six, 12 months time and go
back and identify this as some kind of turn? >> i don't. i don't think so. certainly the fed can try to push mortgage rates lower. i think that they can eventually. one of the problems we have right now is if you look at morning rates versus mortgage backed security yields, which typically those would be correlated tightly, the spread is 150 basis points. the average spread is around 50 basis points. reason is you have this big backlog in the pipeline. there are too many people that want to refinance. the banks can't service them. the mortgage originators are no longer in business. so it's going to be hard to push those rates down when there's so much demand to refinance and not enough demand to create refinances. one of the reasons the banks aren't lending isn't because rates are too high or not convenient enough. you know, the regulatory headwinds that they're dealing with right now are substantial. i just got back from a bank conference and listened to a
couple presentations on the regulatory environment. at the end of them, i thought to myself wow, i don't know who wants to be in this business anymore. it's very difficult and they're having to figure out how to comply. >> you make a good point. you just say don't forget, bernanke put is good for stockholders, but are you suggesting europe stock is going to come back and bite us all? >> they do. they always do, right? that's been the trend for the last several years. i think bernanke's put gives some wind to the sales of stocks. it alters the risk-reward symmetry. so i think that helps stocks. i think it's going to weigh on bonds. but at the end of the day -- and it's indefinite for now. so it's going to be hard for investors to figure out how to price this into the market. the wrong call from europe is bigger than bernanke put. >> thank you so much for your time. apologizes to marty fridson.
good morning. today's top stories, the central bank easing financial policy. goldman sachs' david viniar is retiring after 32 years at the firm. the last 12, he was the cfo. did you not know viniar was leaving? >> he's been trying to leave for years. >> so you do have some background here? >> we'll be talking about it. >> and back to work and back to school. chicago teachers agreeing to end th