Transcripts For CNN Your Money 20100417

2.2 million jobs through the first three months of year. but ben bernanke stressed it will take a long time to recoup job losses. so the question is, does this recovery have legs? we will pose that question to wall street journal columnist, john fund, and steve lee, and joanne. i will put my bias out there. i am a confident guy, and i think the economy is going to recover. i think that's where we are headed. i am also a journalists, as a couple of you are, and we have to turn that stone over and say there are mixed messages out there, so where are we headed. what can we tell our viewers about where we are in the recovery. john, let me start with you? >> there are positive signs. this recession is two years old. it eventually does have to end. most of your viewers are concerned about jobs, jobs they lost or jobs they are worried about losing. the recession costs us 8.4 million jobs. we are 11 million jobs in the hole. last month we had job growth. 162,000 jobs. but 40,000 of those were census jobs. we need -- those are temporary. we need 150,000 new jobs every month just to keep up with population growth. so even though retail sales are up, we are still losing jobs because we have to create more to account for a higher population growth. >> stefen, what do you think? >> i agree the economy has legs but i think they are very, very small legs. they may be sturdy and keep the economy growing at a relatively slow pace for sometime to come i hope, but there are a couple things about this recovery and the recession that are different than what we have seen before. one it was caused by balance sheets. balance sheets exploded. in the wake of that, we are not going to see very, very aggressive bank lending. that will not happen. the second thing, and i know i sound like a broken record on this, we are looking at rising commodity prices. index i follow which is the raw industrial index of the crb, no speculation in this and it's just a measure of what companies are paying among themselves for scrap steel and iron, and up 50% year over year. that's the fastest we have seen the index rise in at least 30 or 35 years. >> that's because there is demand in china and they are building in india and building in brazil? >> exactly, and that building is fortunately a tax on american people. who would dream unemployment near 10% and paying near $3 a gallon for gasoline, and that's a major tax and hurdle. >> i think john is absolutely right. most of my viewers are concerned with jobs in the employment situation, and steve is right we have commodity increase, and still have credit issues. what is your view on where we are right now? more positive or negative, legs or short legs, what do you think the economy is about? >> i think the legs are short and wobbling, honestly. you have major, major real estate issues. housing is a huge issue. there is something like 6 million homeowners now behind in their mortgage. and there is 15 million homeowners n owe more to the bank than their house is work. and it looks like the most recent one doesn't look like it will be anymore successful because the banks are revolting against it. and on top of that, you have commercial real estate issues. i think this is the big, big question for this year. we have been hearing for two years that commercial real estate is in a bubble, and it's going to burst and there will be huge repercussions. it has not happened yet. the reason it has not happened yet is because the borrowers have been able to renegotiate and hold on to their properties, they have not had to sell them. >> borrowers in the commercial sectors have been smarter than banks were with homeowners. and because they have seen it coming they tried to dull the pain a bit. >> they are holding on to their property so you are not seeing it in the open market. this is not a sustainable possession. unless real estate prices rise, you have huge issues with malls and hotels and all of your commercial property, and office buildings, and there is no sign of those prices coming up right now. >> what i have from the three of you, we are in a recovery, but, dot, dot, dot, we know the dow is up 68% since it bottomed out in march of 2009, and we know that interest rates are still remarkably low and even though they are likely to go up for home price for mortgages they are still pretty cheap. let's talk now about opportunities for my viewers. what exactly can you do to get the positive side of the equation into your bank account or into your real estate or job. let's start with you, john. >> the stock market is going newspaper part because your viewers will not put their cash under a mattress, it has to go somewhere. the stock market is paying more than cds and bank deposits. one of the frank places is municipal bonds. i am sure they will get paid off and they are getting paid 6% tax free. >> appears riskier strategy. look at the towns that are in deep fiscal crisis. >> states can't go bankrupt. >> yes, they can't, but you have states, municipalities in deep, deep trouble. you are going to have to raise taxes or cut services even further. >> i have 15 seconds left. tell me what you think our viewers should do? >> you have to overweight commodities or overweight gold, and you have to have 10% 15%. there is a flood of euros. china indicated they are aggressive buyers of gold. i think it pays for every one in a world though, i think it's better like you do, is still extremely, extremely risky to at least put a few, if not gold, then silver under your mattress at night so you can feel better when you go to sleep. >> we spoke over the last couple years, and i would rather inbound this situation where we have different views on where things are going than a year ago when we all had the same view of where we are in the economy. to your viewers, i think the folks know a lot about what they are talking about, and take advantage to read up a little bit about what they are suggesting you do with with your money. thank you so much to you. coming up next, one of the things they just touched on was the housing market. it's confusing. what does it mean to the recovery and how do you take advantage of it? plus, how should you be investing your money right now? 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[ male announcer ] discover the accu-chek aviva system and save with a prescription discount card. start your discovery today. if you follow the housing market as closely as i do, you are finding mixed signs. sales are going up, but foreclosure filings are on the rise. the first months of this year 16% higher than the first three months of last year. where are we headed with this? chris, good to see you again. thank you for being with us. foreclosure filings are up but this is the different from the first run of foreclosure that we had a couple years ago. those were triggered by loans resetting and people not being able to afford their payments. and this is largely because people have been hit by the recession and lost their jobs? >> yeah, what we are seeing now is part of it is the delay. remember banks basically slowed down foreclosures, believe it or not, and you have 5 million people 60 days delinquent in their home. and there are people going out of the labor market and people are coming in, and that leads to more problems. >> if you look at it by the numbers, we have seen home prices stabilizing and starting to go up and remarkably low interest rates continuing. they started to pick up a little bit. the fed is doing things and that means they are not giving as much money to fannie mae and freddie mac to give to banks, but where do you see this going? >> well, although the economy is important, i think rates and credit are just enormously -- an enormously big issue for housing. we watched the housing market start to pick up, prices, anyway, from the summer when the fed really intervened and brought the rates down. >> yeah, they put money into the agencies that by mortgages, and rates went down to 4.6% at some point. >> yeah, we are still below 5.25. the problem is the increase of a half percent in rates could increase the cost of owning a home between 5% and 10%, and that's the equivalent in a drop in demand of that much, we are not sitting in such stable shape we could handle that kind of increase. >> people who follow rates closely do say we don't know whether house prices are going up or down, and rates are probably going up. the 5.25 could become 5.75. >> yeah, rates have started to rise even though the feds have not raised their discount rate at all. >> good news if your house is under water. people waiting to buy a house with access to credit, they may think prices will come down a bit and i will wait for that to get into the house. but as you and i discussed before if rates go from where they are now to 6%, it will -- >> if you are at a point looking at a home you will live in for a while, this is a tremendous opportunity to buy a house. boy, there is significant risks on the up side. if you lock that in for 30 years and get an affordable payment, and the economy improves a little bit, and it's a good deal. >> even people that think the economy is not fully on its feet don't think interest rates are going down. chris, good to talk to you. the professor of real estate at the columbia business school. april 15th has come and gone. we are going to tell you what you should do with your refund when we come back. they've served for decades as a golden, tasty sidekick to the all-american meal. french fries, and our national passion for them, are legendary. classic. iconic. but times change. and people want better foods. so cargill helped a restaurant chain create a zero-trans fat cooking oil for their french fries. using select canola plants and inovative processing techniques while preserving their famous taste. because no one wants to give up a classic. this is how cargill works with customers. ♪ (announcer) right now, all over the country, discover card customers are getting five percent cashback bonus at home improvement stores. it pays to get more, it pays to discover. i thought after tax days we would not be talking about tax day anymore. maybe you are getting a big tax refund and you are excited about it. doug flynn is joining me now, and he said if you are excited about getting a tax refund you are doing something very, very wrong. and we are joined by the president of optimum capital management. doug, you feel if you are getting a refund or you owe more than $1,000, you are doing something wrong. you are not withholding the right amount from your paycheck. >> yes, a lot of people don't realize, the w 4 form when you signed when you first took your job, it doesn't have to be the one you keep on file for the rest of your working career. can you change that from time to time. as your life situations change, you get married or divorced or have children, your tax withholding will adjust. you don't want to give the government a whole bunch of money to hold for you throughout the year and then get it back in a big refund, unless you are not disciplined to save throughout the year. >> ryan, let's talk about iras. what role should they play in peoples' lives right now? >> well, there is a lot of ways to max mim and accumulate wealth, and you can reduce your living expenses and debt, and powerful ways to reduce your taxes and the ira is allowing yourself to get a tax-deferred savings plan, and a tax deduction so you can accumulate wealth in a responsible way. for those individuals who might not be billionaires, they still have things they can use to make sure they minimize their taxable base and maximize the wealth. these are great ways to get good tax deductions and save money in a good tax-deferred strategy. >> on some levels you want youringyour ing ing a naus particular. what should they think about their investment strategy versus what the market is expected to do in the next few months? >> a lot of people did their ira contribution, so if you can get money to the ira throughout the year, that's a big advantage to fix your withholding. when you are investing, you have to choose what to invest in. you want to make sure if your portfol portfolio drifted, you can get out your 401(k) statement and look for the highest returning funds in the last 12 months. the problem with that right now is the things that return the most over the last year are some of the lower quality and more aggressive securities. if you chase them now at this very high point in the market relative to where we are, you could chase last year's winners. the things likely to do better going forward are higher quality, and dividend paying. those don't show up as the highest returns with the options in your plan. >> give me a mutual fund pick and stocks? >> i think the equity fund. t. rowe price, and they are value plan investors, and they try to chase not only against value but giving good dividend stocks as well. and the long-term investor, mcdonald's is a great stock right now. they are kicking a 3.2% dividend yield. a little risk on capital depressuration if the market does fall. >> good to have you here. as always, thank you very much. ryan mac and doug flynn. major charges against the investment giant. and then from paying at the pump to the store shelves, what you pay is directly influenced by the price of oil. stay with us. big story this week. goldman sachs charged with fraud by the securities and exchange commission. it's not every day you hear the words goldman sachs and fraud in the same sentence. i will warn you ahead of time but it's complicated and important. >> first of all, a huge embarrassment for goldman sachs, the most envied firm on wall street. the securities and exchange commission is saying that goldman engaged in fraud essentially by deceiving investors and playing two hands. here is exactly what happened. this all involved mortgage-backed securities, and investments in mortgage-backed securities in an investment pool put together to track investment securities. on the one hand goldman put together investors. they were buying into the investment based on the mortgage security in subprimes, and not high quality mortgages, okay? and then on the other hand goldman was doing business with a giant hedge fund, paulson and company, and that firm was betting against some of the securities. goldman told the investors that a third party was picking the mortgages in the investment, while in fact paulson, which was betting against the mortgage securities was involved in selecting which mortgages were in there. so the scc is saying a conflict of interest here, a case of fraud. >> where are we in this as we know? the scc filed charges, and they are civil charges and not kr criminal charges? >> yeah, they have no criminal jurisdiction. this just came out on friday, but clearly a big embarrassment for goldman sachs, and they are saying we did nothing wrong. in this issue, goldman says, hey, we have gotten a lot of blame for the collapse of the housing market and aig problems and being in bed with aig, and we were just doing business and did nothing wrong, and the scc now begs to differ. >> and on a lot of fronts, that's true, they were doing business. and this is different and it's not business as usual? >> yeah, the scc is saying, look, you cannot tell your investors that a third independent party is picking the mortgages that are going to be in your investment when at the same time you have got a hedge fund that is betting against these investments, and you are doing business with them. you know, you cannot have it both ways. >> all right. thank you for a clear explanation for what is going on with goldman sachs. tune in and i will object cnn every monday through friday at 1:00 p.m. eastern. and then another point of interest, you name it the price of oil affects how much you pay for it, but it could hurt our economic recovery. jefr ruben, the author of "why your world is about to get a whole lot smaller," an expert on oil. 85 bucks for a barrel of oil and we are not officially able to say the recession is over. most people think it is, but it's 85 bucks and we are in a tight spot with oil. steven lee was on earlier, and they said look at china, and they are using more oil, and he thinks the commodities including oil will go up. you agree with him? >> absolutely. two or three years ago today's oil price would have been an all-time record high, and now it's where oil trades when most oil consuming economies in the world have not recovered from where they were when the recession began. i think we will see triple digit oil prices by the fourth quarter of this year, and next year we will be asailing $147 a barrel mark in 2008. where we go from there is a pretty open question. >> we changed some of our driving behavior here. and we got off of the suvs, and have we changed our behavior enough to manage $4 or higher gasoline? >> probably not enough. there will be one big factor and big difference. our first encounter has left us with the largest fiscal deficit since world war ii. not only do we have room to do that again, just as we will hit the triple-digit oil prices, we will have to pay back the deficits. that's going to be akin to the government having its foot floored on the accelerator to slam it on the breaks, and we don't have the room to run up the deficits again. >> oil price spikes triggered recessions, and this was not triggered by that but a very unusual recession. are we worried about double-dipping because of the increased price of oil that you are predicting? >> it's not clear to me that the world economy is any better to handle $147 a barrel oil than it was in 2008. i think what we will see is we will keep running into the ceiling of triple digit oil prices causing back to back recessions until we re-engineer our economy. >> boon pickins tried to do that with solar wind. and i think you say that stimulates production of altertive energy that has been sometimied a bit because oil prices went down. >> yeah, there is no question we will develop new technology. unfortunately, our rendezvous with triple digit oil prices is maybe in ten or 15 weeks. so instead of trying to figure out how to turn cow dung into fuel, we have to learn how to get off the road. that's exactly what we will do. >> give me something for my viewer to work with. we will get hit with the high price of oil, and is there some way i can make money off this? >> there is a lot of ways you can make money on this. you will find there is a lot of silver lineings. you will find a lot of industries that we thought were gone forever, everything from steel to farming, is soon going to be coming back, not just in america but in a whole lot of other places. >> jeff, good to see you. the author of "why your world is about to get a whole lot smaller." spending less time in school but doing better in math and science than in the united states. find out what we should be doing to fix our schools coming up next. to more than 300,000 growing companies. ♪ ♪ [ male announcer ] what are you gonna miss when you have an allergy attack? 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it may all come down to tradition. this is the confusion hall that honored philosopher and his philosophy of self improvement. it's the chinese trau dilgs of emphasizing education that is the top factor behind hong kong's top scores. he has been studying the education system here for more than 20 years. >> it's a very test orient. there is a heritage of that. there is other pragmatic reasons why. if you pass compassions you get into better schools and universities. >> with such an intense emphasis on getting into the better university, tutoring is huge in hong kong. more than half of hong kong students get private tutoring. >> the entire hong kong school community is very, very competitive. when i go to the u.s., for example, or the uk, i find a lot of people are more relaxed. >> he is not happy with his writing score, a mere 680, and that's a 94 percentile performance. >> sounds to me the fix is not getting people to want to do better in school. how do we fix america's schools? and we have the comedian, and an expert on china. and roland martin. christy lou was talking about things that set these students apart. test oriented and culture and a competitive demand, and they find americans and westerners too relaxed. >> we are failing in certain areas of the country and cities, and you talk about the students, but you also talk about who are the folks behind the students? do you have a two-parent household? a mother and father that have high expectations? and another thing we have in the country, there is an assumption that the people who are responsible for educating are just the teachers, when in reality you are educating a child before they go to school, when they are at school and when they come home from school at all. when my wife and i took over the care of my four nieces, we had them in a 24-hour education boot camp. we did not allow a moment to pass where they skipped over something, allowing them to use incorrect english. it's having high expectations from day one, and following through. but you have got to be an involved person in your kid's education. >> it's try. i don't think the parental involvement is as big as a structure where they look at education that is good for the country. there is a distinct section of the populist in our country that views education as a privilege and not a right. there is an element where you -- roland was referring to the two-parent household, and that's not dealing in reality on the ground. it's something we hope for, but it's not something that you can legislation. what you can do is fund afternoon and preschool programs. >> but it's not about just legislation. now, you said -- >> it has to be, though. >> no, it's not. >> it has to be, because that's what we can control. we collectively could do something about it. >> give you perfect example. a few years ago i was on a program and we were talking about reverend floyd flake, and jonathan causal. >> if you want to read anything about education in this country -- >> yeah n. this country. >> it's about funding and legislation. i said wait a minute, jonathan, in my school, the average dollar spent per kid is $5,400. and he said you are a charismatic leader and you have a different idea of how you want the students to perform. the point i am making is it's not about making, and i saw it myself, when you have parents saying it's just your job, then you fail. but if you don't have somebody who is saying, look, i am in partnership with you, and if i don't go to a pta maeeeting or follow-through with the kid gets home, what they learned at school -- >> roleened's the exception to the rule. the question is what do you do? >> well, again, you can't legislation that part of it. i can't take care of how people parent their kids, but i can as a taxpayer say the structure of our education system has to be such that the kids only come from a single parent home end uch in as good of a possession as the kids without that. that's what we have to focus on. >> i have to end it there and this is a good conversation. >> we are not going to sort it out today. i have to pay the bills. roland, good to see you, as always. thank you very much. stay with us. coming up next, it's a reality check. is too big to fail a real consent or a spin? listen to this. you took my eggs ! it's an "egg management fee." what does that even mean ? egg management fee. even kids know it's wrong to take other people's stuff. that's why at ally bank, we offer rates among the most competitive in the country... ...that won't get eaten away by fees. it's just the right thing to do. as you can see this isn't your typical midwestern farm. the reason lies 6000 miles away in japan. where a producer of specialty eggs needed corn for feed grown to precise standards. cargill identified the producer's needs then introduced an illinois farmer to grow the exact corn needed. and developed a system to ship it separately, connecting the farmer with a japanese customer who was very appreciative. this is how cargill works with customers. time now for reality bites. our reality check of some of the smaller bite sized stories out there. we have our comedian back, and then we are looking at the signs the economy is shifting back in gear. job growth in january and march, increased sales. are we really recovering or are guys like me just thrilled to not be thought of as profits of doom, and happy to talk about any positive report that comes out on the economy. rachel, let's start with you. >> the green chutes are popping up. big ticket items like cars have been up especially since toyota sliced prices and all the automakers slashed to match them, and there is an incentive to buy cars. seems things are happening. like an oil tanker, hard to turn around, but once it's moving -- >> once we see the horizon in the right direction, we get excited about it. hal, i am happier reporting on the potential for good economic news than i am of the likelihood of bad news. >> yeah, i see more grinz around this place than the last time we talked about this particular issue. what was the number last year about this time in the stock market? nearly half of what it is? i would hardly call that a green chute, even. it's god's tear falling onieden as far as the south carolitock concerned. >> i would say part of the issue is it doesn't all seem fair when the economy is going down, and it doesn't all see fair when it's coming up. listen to this and let's move on. at a congressional meeting this week president obama addressed what he hopes to achieve through financial regulatory reform. listen to this. >> i am actually confident we can work out an effective bipartisan package that assures that we never have too big to fail again. >> is there really such a thing as too big to fail or did the media buy into that hype during the financial crisis? honestly, hal, why couldn't something actually fail? >> well, no, it has to. and companies actually internally take care of this particular issue in that they firewall certain departments financially and in regard to how they drive their business in case one section of the business starts to collapse, so it doesn't take the rest of it with it. there is no reason the government would not protect the economy in a similar way. absolutely this is something that has to be dealt with. >> what do you think, rachel? >> you know, i think that it's really easy to look backwards with everything that we know now and forget just how scary september of 2008 was. it really was. in hindsight it was good to doi scenes. letting aig go was scary. too big to fail? i think what's clear is that you can't allow too big to fail to happen. >> right before it happens, yes. >> there is such a thing as too big to fail. the issue is making sure we don't have too much of that around. >> any of it anymore, quite frankly. >> you vindicated me. i love it. is cashing in on tweet going to cost it its fans? >> a new jersey print shop under a pile of bills they couldn't pay. they found their creditors were willing to listen. >> reporter: it may not look like much but this trash-filled 15-acre lot is what drew jerry and donna to the store front across the street that houses their printing business. construction was about to begin on a large condominium and retail complex in ft. lee, new jersey. more than two years later, the site remains empty. >> we moved up here thinking this is great we could share resources and have visibility to the new complex across the street. no sooner than we moved in, they pretty much went bankrupt and it's been an empty lot since. >> reporter: the hub print and copy center does everything from print letterhead to make keys to ship and receive mail. without development across the street, business dropped off. bills added up, debt piled on. they watched restaurants, hair salons and nail shops close around them. some of their biggest client went under, too. >> we have to fight to get our money. meanwhile people want to get paid from us and we have to wait to get paid in order to pay. >> reporter: enter jerry silverman founder and ceo of corporate turnaround. he helps small businesses deep in debt negotiate with their creditors. the toners enlisted his help 18 months ago. he says their problems are common among small business owners. >> all of our customers have dire situations. they all are looking for a way out of debt. these people want to pay their bills. they can't afford to pay their bills. >> reporter: they helped the toners prioritize their debt and struck deals with some creditors. they worked out a payment plan for the remaining debt. now don and jerry are cautiously optimistic. business picked up this spring. the town recently received proposals from four different developers interested in the lot across the street. >> if i can get through this, this little recession or whatever they want to call it, if i can survive this, i'll be okay on the other end. >> reporter: allan chernoff, cnn. aflac is not pay the hospital insurance. aflac is not pay the doctor insurance. aflac is not major medical insurance. aflac is affordable-we-pay-cash-directly- to-you-fast-when-you're-sick-or- hurt-insurance. if all you know about us is... duck: aflac! ...then you don't know quack. to find out all the ways aflac's got you covered, visit knowquack.com. wondering about your retirement plan? who isn't? retirement planning is all questions... how long? how much? how soon? what if? welcome to answer city... td ameritrade's retirement center. i get planning tools, like wealth ruler. strategies. and investment ideas. and retirement experts, on the phone, when i need them. for a little help. or a lot. whether retirement is way off. or way close. time for fresh thinking. time for td ameritrade. i think i'll go with the basic package. good choice. only meineke lets you choose the brakservice that's right for you. and save 50% on pads and shoes. meineke. twitter announcing sponsored tweets this week. is it going to turn off the fan base? twitter will be experimenting with some paid tweets that will show up at the top of your list. rachel, you are a very active twitter user. do you have an opinion on this? >> well, i don't want it to affect sort of the enjoyment out of my tweet stream. these are words you feel you need to put air quotes around. you're thinking about user experience. will that be interfered with? on my blackberry there are ads in there, i don't notice there. your eye learns quickly what to go to. >> it's one more thing to ignore on the internet. we really have become good at this. the internet has slowly become like a shopping district in hong kong. there are so many lights and so many signs after a day, first time you're there, like, month, my god, this is so overwhelming, but then you don't see them anymore. >> the ads with a google search come up on ton. twitter is unique in the internet in its own web page, people who like the experience do it because of the content or they use some third party software to do their tweeting. twitter almost looks like it was designed in somebody's basement. >> right. >> i think the most important thing is the content. what remains important is the authenticity of the person who is using twitter. the person you're following. transparency, if they themselves are being sponsored. >> ultimately pushing them to the top doesn't force anybody who watches to be involved with that twitterer or care more. ultimately, it may make them hostile to that person. >> i was almost going to say it almost goes away from the democratization of social media. then it might give me some offer that makes me go to starbucks. i'm a creature of suggestive advertising. rachel, you don't think it fundamentally damages the brand? >> this is not the first time twitt twitter -- their suggest of year list was thrown wide open for corporations and big names at the beginning. that's where you see the wide disparity. people who had the giant following. >> you have to uncheck his name when you sign up. that didn't translate to more people showing up to see "spread," his most recent film. you follow somebody because you want to follow them and you like their tweets because of the consistency. >> and you engage. >> if they want to follow you guys. >> at halsparks and she is at rachel sklar. >> i'm ali velshi. you can check out al's comedy special. christine will be back next week. until then join our running conversation on facebook and twitter. join us every week for "your money" saturdays at 1:00 eastern

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