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Your Money
Summer Gas Price Prognostication; Housing Market: Buy, Hold, Sell
Aired January 07, 2007 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRICKA WHITFIELD, CNN CORRESPONDENT: Crack down on militias. Nuri al Maliki is out with a new Baghdad security plan. He says Iraqi forces with the help from American troops will hunt down what he calls outlaws regardless of their sectarian or political affiliations.
The U.S. Embassy in Iraq says it's checking reports that an American contractor was kidnapped in Basra. Reports say the man's Iraqi interpreter and driver were abducted at the same time. Police in the southern Iraqi city say two men found shot to death today may be the kidnapped Iraqis.
The funeral for Denver Bronco quarter back Darrent Williams getting under way this hour. Looking at live pictures right now out of Ft. Worth, Texas. The 24 year old was killed in a drive-by shooting New Year's Eve. Denver police say they're holding a possible suspect in the case on a parole violation.
In Los Angeles it's a day for cleaning up after a strong windstorm blasted the region. The wind blew down trees and knocked out power to thousands of homes and businesses. Some gusts were higher than 80 miles an hour.
And those are the headlines. I'm Fredericka Whitfield. More top stories at the bottom of the hour. Now IN THE MONEY.
ALI VELSHI, CNN CORRESPONDENT: Welcome to IN THE MONEY. I'm Ali Velshi sitting in for Jack Cafferty. In this week we are looking ahead to 2007.
Coming up the one-armed bandit, we'll find out how rough it could get at the pump next year.
Also ahead horns versus claws we'll get a Wall Street expert's take on whether we're talking bears or bulls in the months ahead.
And living room, we'll check the housing market and see whether it's time to jump in bail out or hang tight.
Joining me today Jennifer Westhoven and Allen Wastler. It has been a busy year. My favorite story this year seems like a long time ago, but it was Enron, it was the conviction of Ken Lay and Jeff Skilling. Because to me what it said is all the stuff we talk about on the market, all these record highs, the average American doesn't necessarily get to feel it. Those scandals really burned them. To me the convictions at Enron were a message to say, don't worry it's still a good place to be, markets are still OK. JENNIFER WESTHOVEN, "HEADLINE NEWS" CORRESPONDENT: It was also a very interesting I thought in responsibility. People not taking responsibility for what happened at their company. It took a long time for anyone to end up in jail.
One of my favorite stories of the year was the housing market. I have to admit that particularly one reason I like it is because I've never bought. While this is seen as potentially awful for many people, the stock market, for the economy, for people who never bought, wow, what a chance. We have historically low mortgage rates and we've also got prices, you know, coming down a little bit.
VELSHI: It's a fantastic feeling once you buy until you buy. And then you go through that feeling for several days where you don't want to eat and doubled over in pain.
ALLEN WASTLER, MANAGING EDITOR, CNNMONEY.COM: I was like oil, oil this year was the big one. Because you really got to see how politics and business sort of combined because a large part of the oil market this year was, you know, all the anti-Americanism from overseas. You saw Iran rattling savors, North Korea rattling savors, you know, Venezuela, and every time that happened the oil market went, charge --
VELSHI: And Americans pay the price at the pump.
WASTLER: You saw the stock market fluctuate on it, you saw the consumer level. So for me it was oil all through the year.
VELSHI: Both of those stories you're talking about were ones that really made a difference to people's pocketbooks. Mine was a little cerebral but your were people paid the price for oil and housing this year.
WESTHOVEN: Oil and gas is a perfect note for us to go out on because that brings us to our next guest. One of the cardinal rules of journalism is don't speculate but we like to live dangerously around here so we're about to break that rule like crazy today by asking a lot of our guests to make some big predictions.
We're going to start our look at the coming year with a close look at the energy sector. Peter Beutel is going to help us figure out where it is heading and what it will cost you. He is the president of the Energy Risk Management Firm Cameron Hanover. Welcome to the program.
PETER BEUTEL, PRESIDENT, CAMERON HANOVER: Thank you.
WESTHOVEN: What a wild year for oil prices. Where do you think that we are likely headed right now?
BEUTEL: Well a lot of it's going to depend over the immediate term on the weather. But the good news is in August/September we basically broke the back of the bull market and now we're going to have to find out if the bull market is over. The time that we'll know is May. In 21 out of the last 22 years gasoline prices have moved higher for March through May. So this year if we don't make new highs, I think that the big bull market is over and that over the next four to eight years we'll see oil prices move lower, perhaps dramatically lower.
VELSHI: Peter Beutel, we've known you for years. The average American may not think they know you, but they do. Because we see you on TV here and in other places when oil prices spike. And you have some fantastic predictions sometimes about how high the price of a barrel of oil will go, how high gas prices will go. Even now, when you're talking about the fact that if we don't see higher oil prices between now and spring, they'll go lower. How much lower? Give me a number.
BEUTEL: Well, if you look at the cycles we've seen in the past, there is reason to believe that we could touch in crude oil a number under $20.
WESTHOVEN: Whoa!
BEUTEL: Four to eight years away from now. I know it sounds crazy. But none of us ever thought we'd see $78.40 on July 14, 2006.
WASTLER: Peter, $20 bucks a barrel, come on. You have to take me through this. How does this happen in three to four years? Right now we have OPEC threatening to cut supply, we got China and India out there gobbling up more and more oil. Run us through the logic of this $20 number you threw out there.
BEUTEL: Quick history lesson, 1980, $39.80 high, 1986, $9.75, 1990 $41.15, 1998 $10.35, 2006 $78.40. I believe that ultimately there will be a price to pay by consumers. Hundreds of billions of dollars have been taken out of consumers' pockets over the last few years. And the only thing that has saved them has been home refinancing. So if we have a recession or a pull-back, even if it's not a major recession, it's not just going to hit us, it's going to hit China and India, and we're going to have a multiplier effect in the decrease in demand.
WESTHOVEN: Are you predicting a recession? Also, $20 a barrel, what would that mean -- what would gas prices look like at $20 a barrel?
BEUTEL: Under $1.50.
WESTHOVEN: Whoa.
BEUTEL: I don't know if I'm predicting a recession, but I know that every time we've seen oil prices triple, we've had one. The average price of crude oil in January of 2002 was $19.73. So we increased by a factor of four. And ultimately you have to pay the piper. I know a lot of consumers that are pulling back hard right now because their utility and heating bills are so much higher than they were two, three, four years ago.
VELSHI: Except, Peter, we're easy to trick. American consumers are easy to trick because we've been told by people like you, that we're probably going to see a pullback. We've heard this from a few people. So American consumers think, as long as the future looks good, as long as I've got a job, as long as oil prices aren't going substantially higher, as long as inflation's under control, I'm OK, I can buy the truck, I can stop worry about a hybrid, I can continue to invest in energy companies. We're easy to trick.
BEUTEL: Well, we are. I'm not going to take that away from you. But let me give you some numbers here on the other side, 360 new projects have been approved or are likely to be approved that will give us new sources of oil and gas, according to Cambridge Energy Research Associates. Every time we've seen oil prices move this high, we have taken out hundreds of billions. During 2005 the American consumer spent $400 billion more on energy than he or she did three years earlier. During the first eight months of 2006 it was close to $300 billion more. That's a lot of money to take out of people's spending pockets. If you don't have it in your pocket, sooner or later you're going to have to pay back what you borrow.
VELSHI: Peter, always a pleasure to talk to you. Thanks for being with us and you'll keep us up to date on whether you're predictions actually come true. We all kind of wish they do. Peter Beutel, Cameron Hanover, joining us.
We're going to take a break when we come back, there politics but your pocket book, with the new Congress coming into session find out what is in store for your money and playing for keeps. Allen is going to tell us what he had to go through to keep his mitts on the must have item of the year.
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WESTHOVEN: The New Year promises to bring with it a decidedly different climate in Washington. New faces were on Capitol Hill this week as the 110th Congress convened and the Democrats took control of both houses. Now a look at what we can expect in 2007 and what it means for your money. Greg Valliere, chief strategist at the Stanford Washington Research Group joins us again. Greg thank you so much for joining us.
GREG VALLIERE, STANFORD WASH. RESEARCH GROUP: Great to see you Jennifer.
WESTHOVEN: What can we expect coming out of Washington this year in terms of our pocketbooks and maybe that's how much money people make, how they save, how they spend, what are the different policy initiatives?
VALLIERE: It will be a little tougher to ascertain. The last two years it was simple, gridlock, not a lot happened. I think in the next year there will be some stirrings. The election was important because the electorate may be shifting. That could be a huge story for '08. In '07 we still have a Bush veto. We still have gridlock. But there are certain sectors, Jennifer, like driving stocks, oiling stocks that could be under a fair amount of pressure.
VELSHI: Greg, it's Ali Velshi. We've seen in 2007 the connection between politics, world affairs and people's pocketbooks. One of your interesting predictions about 2007 is something we haven't paid as much attention to, but what happens to Afghanistan?
VALLIERE: Well, I tell you, Ali, for all of the depressing stores out there, North Korea, Hugo Chavez, Iraq, Iran, one that will get much more attention is that Afghanistan is starting to go back to the Taliban. Western Europe is unwilling to fight there. The U.S. is stretched thin. I think with the exception of Kabul, much of Afghanistan will go to the Taliban, which will give al Qaeda a sanctuary. So that leads me to my fearless forecast for the year. I think during this period there's going to be just withering hearings on Capitol Hill about the post-war Iraq environment. You need a fall guy, Rumsfeld's gone. Who's the fall guy? I think its Cheney. I wouldn't be shocked if during this year Cheney is out, citing alleged health reasons.
WASTLER: Greg, that's a quite a prediction there.
VALLIERE: You wanted one off the wall.
WASTLER: Oh, man! What does that say about the Republican Party, then? I mean, we've seen a little bit of disarray there. Is that going to continue on? Is this going to blossom?
VALLIERE: Huge disarray. You have one of the leading Republicans John McCain saying we need more troops. Giuliani saying maybe we need more troops. You have other Republicans saying, we need to listen to the Baker/Hamilton report. It's a very divide party right now.
WESTHOVEN: How much power is the president going to have with this mixed Congress coming in right now? He said, he sounded a bit conciliatory when the Democrats said they would like to raise the federal minimum wage, but is that setting a tone for what the next year will look like?
VALLIERE: I think he'll give around the edges Jennifer, I think he'll go for a minimum wage, maybe a bill to cut student lending interest rates, maybe an immigration deal. There will be a few things where he'll compromise but on the big stuff, no new taxes, no Social Security reform without private accounts, and in particular no quick pull-out in Iraq. On the big stuff I think he'll not relent.
VELSHI: Grey you were talking about whether Cheney becomes the fall guy. The interesting thing here is that the Democrats are now -- or people who follow politics are now focused on what happens in '08. When we talk about whether it's Obama or Hillary for the Democrats, who's running. Are the Democrats going to want to go to full steam ahead with their economic proposals are they also going to work around the edges so that they keep the momentum going for 2008?
VALLIERE: I think they're going to cool it. I think the last thing they want to do is scare the electorate into thinking they want big new tax hikes, so there won't be any. I think they don't want to scare people with talk about impeachment, so there won't be anything there. I think the Democrats will want to look moderate because they realize the real prize is '08. I have to tell you I think their chances in '08 look a heck of a lot better than they did in 2000and 2004. VELSHI: If they don't blow it.
VALLIERE: If they don't blow it by sounding radical.
WASTLER: Real quick Greg, looking forward to the political situation, you've predicted a number of major losers. What should investors be watching?
VALLIERE: The Fed, the Fed, the Fed. I think it's a Bernanke story next year. He is showing signs of being a great Fed chairman. He has done the right thing. I think he might cut rates once or twice, but it will come later rather than sooner. With Fed policy as steady as it's looking, I think the markets will have a lot of confidence.
WASTLER: OK. Well, Greg, really appreciate you coming in and talking to us. And we'll see how it all shakes out in the coming year.
VALLIERE: Happy New Year.
WASTLER: Take care Greg. That was Greg Valliere of the Stanford Washington Research Group.
Cheney out, Afghanistan, Taliban.
OK. Coming up after the break, a big, fat kiss goodbye. We'll look at the hefty severance package for Home Depot boss Robert Nardelli. And find out how it is playing on Wall Street.
Plus, best bet and long shot. Stick around and watch a market expert try to guess where Wall Street is headed in 2007.
And micro finance with macro impact. We'll hear about Mohammed Unis of Gramene (ph) and check your tips on some other business mavericks to keep an eye on.
(COMMERCIAL BREAK)
WESTHOVEN: Wall Street is off and running for 2007. We've already seen some big news this New Year. Just ask anyone from Home Depot. We've also got news on the jobs front. Susan Liscovicz has a look from her post above the floor at the New York Stock Exchange. Susan nice to see you. First I want to talk about Home Depot. What is it with some of these CEOs, don't they get that when they make this much money, they have got to bring home the bacon?
SUSAN LISCOVICZ, CNN CORRESPONDENT: Yes. We've seen it since the Greek tragedies and it's played out in Wall Street in spectacular fashion. The problem is that Bob Nardelli was hired six years ago. He was considered as a successor -- a possible successor to Jack Welsh at GE. So he is a hot commodity. He had a big job to do, turn Home Depot around. The problem is he failed. He still got a lot of money for it. And he was rather imperious during his reign, so to speak.
I think it really -- really had a low point last May when he refused to take investor's questions beyond one minute. It was like the Kremlin in action. We were gearing up for a proxy fight this year. Finally the board finally developed a backbone and said, take a pay cut. He refused. And they said, got to go.
WESTHOVEN: You know and it seems like he's one of these CEOs who refuses to acknowledge that his performance wasn't so great. Is that because, you know, should we be measuring performance by the balance sheet? It did pretty well under Nardelli.
LISCOVICZ: That's a very good point, Jennifer. He had defended -- these were not new criticisms. He said, look, the revenue doubled. The earnings doubled over his six years. But the earnings per share, what we saw with the share price lagged. Meanwhile, they were considering, as his compensation, company buybacks. So the company is consciously buying back Home Depot shares to pick up the price and they were including that in his performance. So it just didn't deliver. You cannot blame the housing slowdown on Bob Nardelli but you could blame other factors associated with his tenure.
WESTHOVEN: All right. This morning we got this jobs report. Rock solid one economists called it, 167,000 new jobs. November looked even stronger than we thought. How is Wall Street's view of the economy shaping up? It's early in the year but the Fed's a little nervous.
LISCOVICZ: You know, it's another disconnect between Main Street and Wall Street. It was too strong, perhaps, for investor' liking because the feeling is that the Federal Reserve might not cut interest rates, in fact, because it's watching inflation and the hourly wages in December went up half a percent. Might, in fact, raise interest rates and that's why you saw investors get spooked on Wall Street on Friday.
WESTHOVEN: What about oil prices? It seems like they've come down so far, it's so warm out. Shouldn't that have given the market a little juice?
LISCOVICZ: Yes. That's another interesting thing. You know, oil prices really plummeted this week. That would normally be seen as a good thing, but why are oil prices, why are copper prices, why are goal prices plummeting? Because of an economic slowdown perhaps, not only because of the warm winter we have been seeing here in the northeast. That's just another factor to play. We know the U.S. economy is slowing but yet we see the labor markets holding up. Just trying to put all the pieces in the puzzle book, certainly for consumers like you and me, it's a good thing.
WESTHOVEN: Right. Certainly comforting to see the job market doing so well when you worry about the housing market.
LISCOVICZ: Holding up despite the weakness we've seen in construction and manufacturing.
WESTHOVEN: All right. Susan Liscovicz from the New York Stock Exchange, thank you so much.
LISCOVICZ: Good to see you Jen.
WESTHOVEN: All right. Coming up next on IN THE MONEY, test your street smarts. We'll hear from an expert about the outlook for Wall Street. See how your take matches up with his.
And also ahead, should you spend this New Year under the same old roof? We'll get a prediction on where the housing market is headed.
And basic medical care without all the hoopla. Former AOL boss Steve Case is out to bring it to you. We'll tell about you that in "Life After Work."
(COMMERCIAL BREAK)
WHITFIELD: Now in the news, Iraqi Prime Minister Nuri al Maliki says Iraqi forces are ready to implement a new security crackdown in Baghdad. It will target all militias regardless of political or religious affiliations. The announcement comes, as President Bush is ready to unveil his new Iraq war plan.
The Pentagon sends personnel to apologize for letters sent to families of 75 dead officers and 200 wounded officers, asking the officers to re-enlist. The army says the error happened when two different mailing lists were mixed up.
Funeral services are under way for Darrent Williams, the Denver Bronco's football player killed in a drive-by shooting on New Year's Day. There are still no suspects in custody.
The nation Islam says its leader Luis Farrakhan is recovering from a 12-hour surgery. No other information was released. In 2000 Farrakhan had surgery for prostate cancer.
The last show of crocodile hunter Steve Irwin is set to air in two weeks. You will not see any video from the day he was killed by a stingray. The show is titled "Oceans Deadliest."
Coming up at the top of the hour, an "Open House" special a mortgage meltdown, Gerri Willis looks at what has gone wrong for so many homeowners and how you can avoid the same mistakes.
Now back to IN THE MONEY.
WESTHOVEN: Investors cheer on a strong year on Wall Street in 2006 but will the bull be able to keep charging into next year? Now joining us now with a look on what to expect from your investments in 2007, Ned Riley, founder and CEO of Riley Asset Management and a friend of the program. Welcome back. Tell us what you think, I mean we're closing out this year with the Dow right near some records. It's been a big run in these past few months. Is there any momentum that we have got left as we head into next year?
NED RILEY, FOUNDER AND CEO, RILEY ASSET MANAGEMENT: I think so. I think we're in for another good year in the market. As a matter a fact I'm looking for about a 15 percent return from equities next year. I haven't seen anybody out there yet forecast in that kind of number. So that makes me feel even more comfortable if I'm in the minority. But it's really a matter of interest rates and inflation next year. And I truly believe we're going to see long-term interest rates below 4 percent and I think we're going to see the Fed, particularly in the second quarter, moving very aggressively to lower rates because, unfortunately, this economy is losing momentum. We're going to get the echo effect from housing in 2006. And the bottom line is, I think the unemployment rate's going to start to rise.
VELSHI: Hey Ned, it is Ali Velshi. You look better at the end of every year than you do when you started. I want to know whether you think the index, the Dow is going to look better at the end of next year? I think you do, like other people. The problem of course Ned is that the average American investor doesn't invest in the Dow. What do they do to take advantage of growth in the stock market next year? Is it piling back into those energy stocks? Is it -- you said financial stocks. What do you do?
RILEY: No. Actually, I think for the average investor, somebody that doesn't have 12 to 14 hours a day to analyze stocks and analyze the stock market.
I would recommend they buy what we call exchange traded funds or index-type funds. I like the financial sectors in particular. Something called a spider; an XLF is an exchange-traded fund on all financial stocks. So if people want to participate in lower interest rates and participate in a group that has a very low price earnings ratio particularly the big banks and a group that does have a high yield about it, then I would suggest the financial stocks. I like the big banks in particular because they've had momentum throughout this period in which interest rates have been rising, the yield curves been inverted and yet they've still prospered every quarter.
The bottom line is I like financials. I also like technology. Now, this is not a (INAUDIBLE) because of 1998 and 1999 and the average retail investor doesn't like it but I suggest XLK which is a spider on technology or QQQQ. It's something that obviously encompasses big tech stocks and some health care. It's basically the top 100 stocks in the Nasdaq and it's very inexpensive to buy.
WASTLER: Ned, over the past year private equity and hedge fund money have been the headline grabbers in the market movement and things like that. I've heard a lot of people say, that's the smart way to go. Look at how they're doing it. What do you think about the whole hedge fund performance over the last year and going forward?
RILEY: Well, for the sake of looking under my hood when I go outside after the show, I'm going to suggest to people that I think the basic accumulation of money has created what I consider to be almost melt-up in some areas that private equity and hedge funds have been focusing on. In other words they've created almost their own performance. Where I don't like their bets at least for the next twelve months is in the energy sector. They are long, huge in terms of energy futures, 48 billion barrels of oil, 1 1/2 years world consumption is tried up in contracts. I think the bottom line is to stay away from the hedge funds in particular, to stay away from some of the private equity funds because I think they too fewer things to invest in right at the moment and they're inflating the prices of those particular assets.
That doesn't mean that long-term performance of these groups are not going to be good because you got a lot of smart people running this money. Unfortunately a lot of it's very short-term oriented. For the average person who doesn't understand the mechanics of how a hedge fund works, or basically the reporting practices or the fact that a lot of these don't even report to the SEC, I would suggest to stay with more vanilla kind investments as I suggested.
VELSHI: One of the strategies that people have used successfully over the last couple of years even while staying diversified is staying diversified in specific regions. Some folks are saying anything China needs to buy, you should buy. What are your thoughts on it? You're not that hot on it.
RILEY: No, I'm not as a matter of fact. I think that China mystique is going to be unraveled in 2007 and 2008. I really think that if you focus on that which China does, you could run into big problems because basically they've overbuilt in certain areas. That's going to be a price to pay, at least in 2007 and 0'8. I would say the bottom line is look to where you can produce cheaper goods and services. Look at India for the moment because, clearly, even though that market has done particularly well, we are going to see some very inexpensive labor and production coming there.
The other areas I'd stay focused on would be more domestic than international. People ask me about the international markets and they have done exceptionally well over the past several years. As a matter of fact, the Dax is up about 170 percent. But the reason is that earnings in Germany have been up 190. I think that's going to change in 2007. I think the U.S. market is going to dominate in terms of performance of most major markets and it's going to be because they're the ones that are going to be lowering interest rates, they're the ones that are going to be fair in taking out -- at least the slowdown is already anticipated. And the bottom line is the ECB, European Union Central Bank, is clearly going to continue to raise interest rates for whatever reason. I don't know.
VELSHI: Ned Riley always a pleasure to talk to you. Thanks a million for being with us again and good luck for 2007.
RILEY: My pleasure. Thanks a lot guys.
VELSHI: Ned riley, chief investment strategist at Riley Asset management joining us from Boston. Lots more to come here on IN THE MONEY.
Coming up next home improvements, check your prospects for upgrading to a better place to live in the New Year.
Plus, flat and happy, like me, find out why retailers are making it so easy for to you take home a flat-screen TV.
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WASTLER: Do you hear that? That ever so faint hissing noise? It's the hot air seeping out of the so-called real estate bubble. It's getting louder here in New York but in other areas of the country like south Florida, Los Vegas, Southern California it's getting pretty hard to ignore. The trend may continue. More than 30 of the 100 largest real estate markets in the U.S. are expected to see price declines in the next year. Let's find out what that means for homeowners and prospective buyers and sellers in the U.S. Mark Zandi is chief economist with Moody's Economy.com and are go-to guy on real estate. Welcome back Mark.
MARK ZANDI, MOODY'S ECONOMY.COM: Good to be with you.
WASTLER: So lay it out here. It's pretty obvious the real estate bubble is deflating. Has it deflated all the way? What are we getting into here?
ZANDI: Well it's not deflated all the way, no. The housing corrections in full swing. It's about a year and a half old and I think it has about another year to run. So '07 will be another tough year for the housing market.
WESTHOVEN: Mark one of the things that we talk about with the housing market is that even though it's been cooling off, as long as the job market is OK and it has been, that the economy is going to be OK. But what are your forecasts for the job market for next year? Is that something we need to worry about?
ZANDI: Well, it's something to worry about. I think the job market's going to hang together reasonably well. Everywhere except in housing and in manufacturing. I mean, most businesses are in great financial shape, profitability is high, and balance sheets are pristine. I don't see any reason why they would pull back significantly. But those in the housing industry, those in the vehicle industry, manufacturing will see some job losses in those industries.
VELSHI: Mark, it's Ali. National housing prices I've always maintained mean nothing to most people unless you're moving from a market that is performing one way to a market that is performing another way. For most people if you're staying within your region if you have a house that you want to move into another house, it's still largely a wash for you.
ZANDI: Yes, that's right. For most people this shouldn't be much of a problem, particularly if your horizon is more than three years. Most people it is, they don't plan to move. If they've moved into a new home they'll probably be there for five, six, seven, eight years. For most people is shouldn't mean a whole lot. It's a problem for those people who bought in the last three years and those people who need to sell and buy some time in the next couple, three years.
WASTLER: Mark, a lot of this bubble is fed by cheap money. You've got all of these exotic mortgages, and easy money, sort of type things, to get you in the housing market. But it looks like that run is beginning to erode a bit. We're seeing a spike in foreclosures. What will be the economic impact of that? Not just people with those loans but for everybody.
ZANDI: That is a problem. Mortgage foreclosures and delinquencies are rising rapidly and all signs are that they will continue to rise very sharply in 2007. It's difficult thing for those people involved, for the borrowers and lenders. I think it won't become a broader economic problem because the dollar amounts are still too small. But that's assuming that the job market hangs together reasonably well and interest rates don't rise. If, for whatever reason the job market heads south or interest rates spike higher, then the mortgage problems will be more severe and the economic consequences more significant.
VELSHI: Jennifer, ask him if you should buy your house.
WESTHOVEN: That's exactly where I'm going. Mark, we talk about these home prices, what should one do right now who's either think being buying? Should they wait? And someone who might be wanting to sell right now but they're not budging when it comes to that price. What should people who are really right now in the middle real estate market wanting to make a deal, what should they be waiting for?
VELSHI: Mark; feel free to substitute someone for Jennifer.
ZANDI: She's in the market, is she? Well I would be patient if you're a buyer. You'll have a good open window for at least another six, 12 months. Get to know the neighborhoods, know the homes that are up for sale, that potentially will come up for sale in the next few months and negotiate and negotiate from a point of strength. I think you'll get a very good price.
If you're a seller, you know, I think you probably should sell sooner rather than later. You should be aggressive and work with the potential buyer and try to figure out what it is that he or she needs and try to get it to them quickly. I'd get out of this market as fast as possible.
WASTLER: Mark, just a real quick question right now. With the housing market the way it is right now if you're an investor looking to get in at the bottom is now the time to start going into homebuilders, things like that?
ZANDI: Well you know you have to have a long enough horizon. I think if your horizon is the next three, six months, the answer is no. If your horizon is next couple, three years, and then I think yes, you start looking. But I do think you'll get an even better opportunity sometime over the next three, six months to get in and get a higher return over the next several years.
VELSHI: Mark Zandi good to talk to you, thank you so much for being with us.
ZANDI: Thanks for having me.
VELSHI: Mark Zandi is a chief economist at Moody's Economy.com.
Well coming up next on IN THE MONEY, don't tell your doctor, former AOL boss Steve Case is out marking health care as easy as going to the store. We'll hear about that in our "Life After Work" segment.
Plus Allen and Wii, find out how Allen scored big in the video game war before he even learned how to turn the thing on. And it's prime time to hear from you as we read some of your e- mails from the past week. You can send us an e-mail right now we are at INTHEMONEY@CNN.com.
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VELSHI: We've always wanted to know if our viewers had any great business ideas. Whether they'd cut us in on the profits if they ever made it. Seriously, we asked you two weeks ago to e-mail us your ideas and we've invited Polly LaBarre to come back and evaluate some of them in this week's "Brainstorm" segment. You will recall that Polly is a co-author of "Mavericks at Work, Why the Most Original Minds in Business Win." Polly thanks for coming back.
POLLY LABARRE, CO-AUTHOR, "MAVERICKS AT WORK:" Great to be here.
VELSHI: Let's get to a couple of our e-mails. The first one comes from Dave in Wisconsin. He says, "My Maverick is Scott Kirkpatrick, president of the Extra Bold Portfolio School. Extra Bold is an advertising school where students are given actual assignments for real clients. Students receive creative briefs and they come up with ideas and finally present their concepts to the actual client." What do you think?
LABARRE: Well, this is a great idea to do real work with real clients right off the bat. It's not only a great way to learn, it actually speaks to a mind flip about where great ideas come from. The general practice in business is the best ideas come from the most experienced people. But sometimes the freshest and most compelling ideas come from the most naive and untrained minds. I think this practice of putting beginners to work off the bat for real clients is going to yield some wonderful surprises and also a lot of very messy failures. Let's face, it that's what innovation is all about.
VELSHI: We've seen that trend; we've seen companies recruiting people just from their consumer base.
LABARRE: Yes.
VELSHI: To send ideas in. This beauty of the fact that good ideas are out there for the taking.
LABARRE: Right. Not just from young people, but also from untrained, fresh minds, people who come from different parts of the world.
VELSHI: Let's go to the next one. It is an e-mail from North Carolina, from Maxine. She sent us information on her husband, Robert. He builds schools that changed some of the rules in how you build schools. She writes, "By the time a school system is able to break ground, the cost has skyrocketed during the funding process. Robert knew public-private partnerships could solve this problem. He then worked to get state laws changed so that now until the school system opens the school building, the developer is responsible for the entire facility. This guarantees a better product and a shorter wait time for the school system. Most people often giver up when they hit hurdles like 'the law will not allow it.'
LABARRE: Well, this architecture firm, but what they're doing is they're not just putting products out there and building business. They're advancing a cause. This is a core maverick theme that you don't just chase market opportunities. You look for an opportunity to make a difference. So they're building what they call dream schools and they're willing to go to the mat to the point of, you know, pushing legislation through to fight for the ideas that they stand for. That's a core maverick theme.
VELSHI: Can we put in a quick plug for something you wrote about ten years ago, something we've known about for a long time, Muhammad Yunus he won the Nobel Peace Prize this year for micro finance, for lending little amounts of money to poor people.
LABARRE: The poorest people. He's the ultimate maverick. He's not trying to reinvent an industry; he's trying to create a better world. He started the Grameen Bank about 30 years ago in Bangladesh. The idea behind it was you know poor people stay poor because they don't have access to credit. His simple insight was it's not that people aren't credit-worthy it's that banks aren't people-worthy. He invented a whole way to give these small, mini loans, mostly to women, 97 percent of the loans go to women, they have 7 million borrowers, they've laid out $5.7 billion, 90 percent recovery rate and they created a real revolution. Not just in banking but in putting a dent in poverty.
VELSHI: One of the best things I've ever heard him say is that he would like to see a museum to poverty so that people who don't know what poverty is, one day can come back and look at it as if it's something in the past. Polly, thank you for doing this and thank you for your book, which really opens people's eyes.
LABARRE: Thank you so much.
VELSHI: Polly LaBarre is co-author of "Mavericks at Work: Why the Most Original Minds in Business Win."
Well in 1985 Steve Case co-founded America Online. At its peak less then two decades later the company boasted 27 million subscribers. This week's "Life at Work" finds Case turning its entrepreneurial spirit toward a new challenge tackling the problem of America's health care industry.
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UNIDENTIFIED MALE: You've got mail.
STEVE CASE, CO-FOUNDER, AMERICAN ONLINE: I just love building businesses that can change the world.
VALERIE MORRIS, CNN CORRESPONDENT (voice over): Steve Case co- founded America Online and eventually spearheaded the mega merger of AOL with Time Warner, CNN's parent company. But no matter how large his company's become, it's the creative process, which drives Steve Case. CASE: AOL was a 20-year journey. The first ten years started with dozens of people, and when we merged with Time Warner suddenly it was tens of thousands of people. It was a whole different scale. I think I better in a work more effective in the early stage, kind of pioneering phase.
MORRIS: Amidst the busting of the dotcom bubble, AOL/Time Warner share price plummeted. Under pressure Case resigned as chairman of the company nearly four years ago. Still defending the merger, despite its disastrous consequences for stockholders and the bottom line.
CASE: There is no question strategically that merger was a good idea for both companies. The execution was difficult.
MORRIS: Today Case is focusing his best for innovation on a new challenge, hoping to revamp the health care industry.
CASE: Twenty years for AOL and other companies to really make the Internet more of a mainstream phenomenon. It will probably take 20 years to revolutionize health care to make it more consumers centric.
MORRIS: Case is the principal investor in Redi Clinics, a string of small health care facilities set up at high traffic areas like drugstores. They're staffed by nurse practitioners who provide preventive care and treat common medical conditions in sessions averaging 15 minutes. There are no appointments and fees are moderate.
CASE: It's a way to provide a higher level of convenience and a higher level of affordability than presently exists.
MORRIS: As Case demonstrated, he is not afraid to taste his own medicine.
CASE: Didn't hurt at all!
MORRIS: Valerie Morris, CNN, New York.
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VELSHI: We'll be right back with more IN THE MONEY.
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WESTHOVEN: The Christmas season is the most crucial time of the year for many industries. But it's the Super Bowl, the World Series and the Kentucky Derby all wrapped into one for the folks who make and sell household electronics. And for the companies that sell that stuff online, it was a championship season. Allen Wastler has a look at some of the numbers. Allen, the big, you know, product that everybody was talking about in the business world, flat-screen TVs and the price wars. What happened?
WASTLER: It's an interesting story. The number of flat screens sold in the year doubled, to like 50 million units, thereabouts. Prices, especially towards the end went down about 40 percent. That's where you had the biggest price war going on. It's interesting because now the industry has a problem. They fought each other and they've gotten their games out. We just had results from Best Buy and Circuit City. Best Buy had same store sales up 7 percent, Circuit City up 4.2 percent. Now they've got the flat-screen market, they pounded it so much; it's in danger of becoming a commodity market where everybody has a flat screen. It's no longer that big margin thing.
WESTHOVEN: I mean, their sales are up but didn't they say they got beaten? Best Buy and Circuit City both disappointing profits.
WASTLER: That is right. Because yes you're selling a lot and you think, we'll make it up in volume. That's a joke folks. It's not going to happen if your margin's getting thinner, thinner, thinner. Now they have a problem Wal-Mart jumped into the game and all of the other big box retailers. It used to be Samsung and Sony. Now everybody's jumping into it. Pretty soon flat screens will be a commodity type deal.
The other big fun was Wii Playstation. You know I have a big warm spot in my heart for this. Xbox 360 was there with the high ground but had two introductory products coming in for the Christmas season. The Wii and the PS3. Everybody thought the PS3 would be great. It was actually quite disappointing, 700,000 sales, supply problems and some critical pushback on it. The Wii, everybody loves the Wii. I love it. I snagged the Wii for Christmas. Now, you see --
WESTHOVEN: Get you off the couch!
WASTLER: Oh, tell me about it. Here's the problem, you've got to be careful with the Wii because me and one of my little girls were playing on Christmas Day, and dang if she didn't slide and fall and, boom, sliced her chin open on a stool right there. I was in the emergency room for Christmas. It was interesting because a lot of people are having this problem, the Wii is so popular, there's a lot of injuries. There's a great site Wiihaveaproblem.com. The guy that runs the site says they collected stories of Wii injuries. The biggest one is ceiling fans, people playing in rooms with ceiling fans reach up, boom. Be careful. The Wii's fun, just be careful.
WESTHOVEN: Is it any worse than kids playing baseball or softball?
WASTLER: It's the same thing. I've got hit with a bat mitten rackets in the backyard. The final thing to note for the Christmas season, online sales, once again, they did a 26 percent increase. They're getting to be more and more. Now you're seeing an interesting phenomenon. I use online because I hate malls and I hate crowds but now online you're beginning to see some of that crowd phenomenon. Everybody got new ipods and itunes gifted cards they went piling into the itunes Websites, it got jammed up. We're seeing crowds on the Internet. I can't handle this! It's interesting to the know as we go forward.
WESTHOVEN: Wal-Mart had that problem with Elmo, too. Thank you so much, Allen Wastler.
Now it's time to read your answers to our questions. Did you have a good year financially in 2006. Well Paul in Illinois did, "My wife and I own one of those businesses that you'd expect to fail in tough economic times; an after school gymnastic academy. 2006 was the best year we've ever had and we are able to give more to our employees."
Many people in real estate said 2006 was a disaster. Kevin in California was one of them. "I really had a tough year dealing mostly with sellers were not willing to lower their prices despite the cooling market. Thank goodness for my senior citizen clients, who mostly knew when to get out? But my income was cut in half this year."
Keeping it simple made 2006 a good year for David in Massachusetts who says, "My Roth IRA is up 16 percent this year and remember that when I eventually make a withdrawals I will do so tax free! Meanwhile the interest rate on my regular savings account is now up to a decent four and a half percent. Slow and steady wins the race."
Now for next weeks email question of the week, "What financial challenge or obstacle would you most like to overcome in 2007? Where would you like to have a financial break through? Let us know, we will try and take a closer look. Send your responses to us at INTHEMONEY@CNN.com. And visit our show page at CNN.com/InTheMoney.
Thanks for joining us for this edition of IN THE MONEY. We'll see you back here next week. Saturday at 1:00, Sunday at 3:00. See you then.
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