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Your Money
Spiders and Exchange Traded Fund; Housing Market; American Dream: Humans Disappearing from New York Stock Exchange
Aired June 03, 2007 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ROB MARCIANO, CNN NEWS ANCHOR: Hello, I'm Rob Marciano in the CNN Center in Atlanta. IN THE MONEY begins in a moment. But first, the headlines.
The Lebanese Army renews its assault on militants linked to al Qaeda. The militants are holed up in a Palestinian refugee camp near Tripoli. After a lull in the week's long fighting, the battles flared up again today.
And one of four men charge in an alleged plot to attack New York's Kennedy Airport is still on the loose. Another suspect, seen in this sketch, is a U.S citizen and native of Guyana. He's in custody in New York and the others are being held in Trinidad.
Authorities say the men planned to blow up fuel tanks, pipelines and buildings at JFK. They describe the suspects as "al Qaeda wannabes."
And the race for the White House making a stop in New Hampshire. The eight Democratic candidates face off in a debate tonight here on CNN at 7:00 p.m. Eastern Time. The Republicans take the stage on Tuesday. The Granite State holds the campaign's first primary.
You'll want to stay with CNN for our extensive coverage before, during, and after tonight's taping. There you see nit the lineup.
More news in 30 minutes, now time for IN THE MONEY
ALI VELSHI, CO-HOST: Welcome to IN THE MONEY I'm Ali Velshi.
CHRISTINE ROMANS, CO-HOST: And I'm Christine Romans. Coming up on today's program, we'll look at whether you're better off today than your parents were?
VELSHI: And later, road testing some tests on fuel efficiency to see which ones actually save you money.
ROMANS: Plus, find out if your part of the country could have an electricity squeeze this year. Maybe higher bills. How much you're going to pay for power.
VELSHI: A busy business week, even though it was a short business week, this weeks. We saw records on the Dow, on the S&P 500.
ROMANS: That's right.
VELSHI: But, it continues to be more mixed news about the economy.
ROMANS: That's right, we saw jobs growth, 150 plus thousand new jobs, but then there are people who are concerned that that's not enough to keep up with the growth in the working age population. Also some revisions on some prior months. And GDP is not as strong -- it's showing some slowing there in GDP. So, watching all those numbers, but stocks -- if you're looking at your, you know, 401-K and your stock portfolio, you're seeing some gains.
VELSHI: Yeah, the Dow has been hitting records for months. But this week, we saw something that you may not have really been thinking about -- the S&P finally caught up and hit its first record in seven years.
ROMANS: And that's the broader index, right? That's 500 stocks. So, enough of that little history lesson. We want to know this: What do you do now with this news? How could you profit from it?
VELSHI: And Ned Riley, who's been with us to talk about records on the stock market many times, with us again. He's at Riley Asset Management. He's the chairman and chief investment strategist.
Now he predicted -- Ned, welcome to the show. You predicted at the beginning of the year this was going up. The interesting thing here is that the S&P 500 is 500 stocks, the Dow is 30 stocks. Tell me how investors should think about this.
NED RILEY, RILEY ASSET MANAGEMENT: Well, basically, I think they should pay attention to the S&P 500. I still like the market. I liked it at 13,000. I liked it at 12,000, 11,000 and the reason is fairly simple, right now. The bears right now are looking for an immediate correction. Those that are even slightly bullish are looking for a correction in this market. And there are other people that are saying, there's no potential return out of the stocks.
The point I'm getting at is that people are still looking at the market as half empty, not half full and the bears, way back at 10,500, and now telling people to take profits. Well heck, they kept them out of the market at 10,500. Where are the profits because they were told not to buy stocks.
ROMANS: OK, so if I had taken your advice last time I talked to you and if I had taken your advice way back in February, I would have made some money. You said to buy the Spiders, then. Do you still buy them -- first of all, what's a little -- the itsy bitsy Spider and do you buy it right here?
RILEY: I would buy the Spider here. The Spider is basically the Exchange Traded Fund of the S&P 500 stocks. When somebody buys the Spider, the S&P 500, they're buying basically a cross section, well diversified list of securities, 500 securities that gives them all sectors representation: oil, technology, financial stocks, consumer nonvariables, all the way down the line. So people don't have to guess about Microsoft and Intel or try the guess between Sears and someone else. The bottom line on those things is simple -- you get what you pay for. At the end of the day, if the S&P 500 is up 1.2 percent, your portfolio should be up 1.2 percent with those Spiders.
VELSHI: A Spider is an example of an ETF. Now we want to talk about ETFs and index funds. You've talked about those before. First of all...
ROMANS: Alphabet soup -- Spiders and ETFs.
VELSHI: Right, this is a good to know, because if you aren't doing anything in your money or it's sitting in a bank account or you don't want to follow stocks but you're seeing all this money being made in the stock market. An ETF -- Exchange Traded Fund is something you recommend. That's what a spider is?
RILEY: Basically, that's what it is. I mean, there are tons of Exchange Traded Funds today. Unfortunately, it's getting complicated because there are over 300 of them now. Before, it's fairly simple. You had the S&P 500, you had the Dow index, you had International Index, now we've got Sector Bets, that is there is an Exchange Traded Fund for technology and financial stocks and so forth and so on. I just would advise people to stay with the bigger names out there. When you start going to the emerging market Exchange Traded Funds or some of the Country Exchange Traded Funds, we're taking a lot more risk than if you bought the S&P 500, the QQQQs...
VELSHI: That's the NASDAQ.
RILEY: NASDAQ 100 stocks or the, you know, the Wilshire 500. I would say diversification and participation in the market are critical for individuals and don't try to pick individual stocks because this is not a game to practice on. This is something that people spend 10 and 12 hours a day doing and a lot of them don't do it successfully.
ROMANS: Yeah, if you're not smart enough to really follow every single move, I mean, you know, there's a lot of -- there are a lot more people in the market who are smarter than we are as individual investor and spend much more time at it.
You also like one of those tech ETFs, right? Maybe financial services? What are some of the specific sectors to look at right now as an entry point?
RILEY: Well, I think the financials, particularly in the bank sector, the bank stocks have kind of hit a brick wall since interest rates have moved on the long bond from 450 up to a 490. I think that's holding it back in the subprime issues.
I'd like to buy some of these areas that are lagging. Technology has done OK. But, this is a growth area of the future, as far as I'm concerned. You can find very few sectors that are going to grow above average in terms of unit growth and eventually translate it into much better profit growth. The analysts have always been too optimistic in incorporating estimates for these companies. I think once the dust settles, you're going to see the company growing between eight percent and 12 percent, and that could be a lot of tech companies, are going to be afforded a premium multiple anyway. And at least there'll be some secular trends working for technology group that you don't have in energy and you don't have in the cyclical.
VELSHI: Look, is this the bottom of the market in 2002. Energy stocks have gained over 200 percent.
ROMANS: Wow.
VELSHI: Let me ask you about something else. ETFs as an option. This is for people who have trading accounts, who like to buy stocks, they want to feel the energy of the stock market.
There's another option called Index Funds which you' buy through whomever you buy the mutual funds. Their kind of the same thing, you can buy and S&P 500 Index Fund and you can buy and S&P 500 ETF, like the Spider. What's -- why one over the other?
RILEY: Costs. And not the big cost, either. But Index Funds are the cheap vehicle to be used. Actually, the advantage of the Exchange Traded Funds is they trade like a stock every single day. So, at 12:30 in the afternoon, you could sell out that Exchange Traded Fund if you wanted to. On the Index Fund, you have to wait until the end of the day. So, it's a matter of structure and even in costs. The interesting thing is the Exchange Traded Funds are extremely tax efficient.
ROMANS: Right.
RILEY: The managers are able to minimize taxes...
VELSHI: And they exactly mirror whatever you're buying. So, if you're buying the Spider or the Exchange Traded Fund or and Index Fund in the S&P 500, it's exactly what that index is doing?
RILEY: Exactly within some statistical error. But I'm talking about a tenth of one percent and it's the fee issue that may cause a differential.
I might add one more point here. A lot of people, including State Street Global Advisors have been putting out what they call Enhanced Exchange Trader Funds, meaning that the managers are tinkering around with the model to try to get that particular fund to do a little better than the S&P 500 or the QQQQs. I would say for the average investor, stick with the -- you know, stick with the basic vanilla Exchange Traded Fund and don't try the enhanced. But the enhanced -- I know these guys who developed over at State Street, anyway, they're smart guys, and they know what they're doing.
ROMANS: Ned, 10 seconds, bottom line. Don't be afraid that stocks are up so much over the past five to seven years, you can get in here right now.
RILEY: I believe so, and just don't listen to the Wall Street chatter?
ROMANS: OK.
VELSHI: Ned, always a pleasure to have you on this show. Thank you so much.
RILEY: Thanks a lot.
VELSHI: Ned Riley.
ROMANS: Ned Riley.
Up next with the housing numbers pointing every which way, see whether it's time to buy or sell on the housing market. And later, find out if your mom and dad had it better than you do.
Plus, learn which fuel efficiency tips really deliver when you take them on the road.
(COMMERCIAL BREAK)
ROMANS: Of course your biggest investment, your No. 1 investment is probably your house. And the latest studies have been showing that home price appreciation is slowing and in some markets, the price of your biggest investment is going down.
VELSHI: Now, it's -- it's one of the things that we've always talked about, that home prices are local, but the trend does mean something. Because, on the whole, when houses aren't being built, fewer people are being employed, if people aren't feeling the wealth out of the market, they're not going to spend as much money.
ROMANS: That's right. Nick Retsinas is the director of the Joint Center for Housing Studies for Harvard University.
Welcome to the program.
NICHOLAS RETSINAS, HARVERD UNIVERSITY: Nice to be with you.
ROMANS: OK, I looked at lot of the numbers, some of the markets -- WOO! -- have not done well at all. Detroit housing prices are going down. San Diego -- although that's good for some people who want to get into some of these hot markets, but it's not good if you're trying to get out of your house. Tell me about some of the places in the country where home prices are actually falling -- Nick.
Well, as you pointed out, it's mixed. It's an awfully big country. And many parts of the country are paying the price for what was an overheated market. So, when you look at the Midwest, for example, you have a struggling economy and reflecting the loss of jobs, you have falling home prices.
But there are other selected markets in California and in the northeast where prices at best are flat and in some cases, falling, not precipitously, but they are -- they are moderating.
VELSHI: All right, so -- you know, if you're moving in and out of the same market, if I'm in New York and I'm going to buy and I'm going to sell, theoretically -- the market is appreciated or depreciated the same amount, so it might be a bit of a wash. Who should think about the decision to buy or sell, given the trends in this market?
RETSINAS: Well, a buy decision, I think, one has to discipline themselves to understand that you buy a home to live in, primarily, not invest in. So, I think if you were buying, you'd ask yourself the question: am I comfortable living here? Is this where I want to raise my family? And more importantly, am I going to be able to stay here and not have to sell in a couple of years because the market is still turbulent. If you do that and the numbers work for you and it's a nice place to live, then buying would make sense.
ROMANS: If you've living in your house for 20 or 30 years and you are, say, within seven to 10 years of retirement, you want to think though, about cashing out of that big asset, right? And moving into the buyer's market of a smaller property and maybe realizing some of those gains. Would this be a good time to do that if you fit that sort of description?
RETSINAS: You might want to do that. It depends. The other part of that equation would be, where are you going to move to? So, it's not just where you're moving from, where you're moving to? But it's an opportunity to downsize. There's no question that one part of market that is particularly struggling is the condominium market. Which means that there are some interesting, soft of price, sort of, options on condominiums. But it is, as I said, a turbulent time in the marketplace.
ROMANS: It's crazy, because in some of these -- once hot markets, there are condos that haven't even been finished yet where, you know, you've got people who are trying to get out of something that doesn't even exist yet because there's an awful lot of property out there.
RETSINAS: Well, and today's condos are, probably, in some markets going to be tomorrow's rentals.
VELSHI: Another question we get, Nick, a lot is from people who say, I'm going to wait until this all shakes down before I buy. If you're a first time home buyer, do you wait?
RETSINAS: Not necessarily. Again, it goes back to my question of your time horizon. If this is the place that you want to live in. This is the place where you want to raise your family, there are good schools and you're not testing out of place. And if the numbers work for you, and you don't have to resort to these mortgages with the tricky terms, this is not a bad time to get a mortgage. Interest rates are still relatively low. But again, you have to make sure you are going to be stable over time.
ROMANS: Nick, let's talk about some of those tricky term mortgages, because you know, there are, you know, reasonable people out there who are living in a home right now and if interest rates are going to continue to rise, they're going to get in trouble in the home they're in right now. What's your advice on maybe avoiding some of these really exotic loans?
RETSINAS: Well, if you have one of these exotic loan, one of the things you should ask yourself and look at the terms, is can you prepay and switch? We find a number of people from our data that really have looked at these -- taken these adjustable products and found a way to convert them into fixed rate products. That's an option that one ought to think about and look at. Now some of those mortgages do have prepayment penalties, so you have to balance that. But, this is a good tome to look at switching from adjustable to fixed, because the long-term rates are still relatively low.
VELSHI: You know, Nick, sometimes, just for the ability to budget, it's worth it because the spread between a 30-year fixed mortgage and one of these great deals isn't as big today as it has been in the past, so it definitely is worth thinking, rather than pulling your hair out saying what's going to happen in the next three years. If you're that unsettled about it, maybe that's a good decision to make.
RETSINAS: That's right. And lock it in, get peace of mind. Even if you don't convert to a 30-year fix. There are products with five-year fixed terms, seven-year fixed terms to give you some breathing room and not be so susceptible to sharp increases in the other end of the yield curve.
ROMANS: All right, Nicholas Retsinas, thank you so much for joining us. Really appreciate all of the advice on if you should buy, if you should sell your home, how to get through this tough housing market.
VELSHI: As you said, it's your biggest investment, so it's your biggest decision in many cases.
ROMANS: Absolutely.
VELSHI: We're going to take a break. When we come back, see if your life matches up with the American dream. We'll look at whether you're doing better than your parents did. Stay with us.
(COMMERCIAL BREAK)
VELSHI: Well, now it used to be future generations always did better than their predecessors, then their parents. But there's this new study that shows that men in their 30s are now making less than their father's generation made.
ROMANS: That's right, adjusted for inflation. Let's break down the numbers. The researchers are a diverse group of think tanks and they found out that after adjusting for inflation, men in their 30s in 2004 had an immediatian income of $35,000 per year. That's a 12 percent drop compared with $40,000 per year for men the same age group in 1974.
VELSHI: Now, that's in contrast to men in their 30s in 1994 who where earning five percent more than their fathers did. This is hard to sort of follow this, but it's a generational thing.
ROMANS: It is and it's important to look at the generational thing, because that's how you measure sort of the American dream, right?
VELSHI: Right, are you doing better than the previous generation?
ROMANS: Right, and that's why it got, I guess, so much pressed. But are things really all that bad? You know, a lot of folks, you know, armed with their studies. There's that old saying that you can torture the statistics until it confesses. Anyway, they say things clearly are better for this generation.
VELSHI: Jennifer Westhoven has been looking into this for us. It's hard to get your head around this issue. Are we doing worse than our previous generation?
JENNIFER WESTHOVEN, CNN NEWS CORRESPONDENT: There are so many ways to look at this. You know, yes, no, what year, what taxes are you looking at? And if you noticed the story banner we had up before, it said "father versus son."
ROMANS: That's right.
WESTHOVEN: This study is all looking at men. And even though men use to be a great barometer for how families are doing, they're not necessarily a barometer for that anymore. And really, if you want to look at how we're doing, don't you want to look at families. I mean, it is true that we have all of these dual income households now so you can say, aren't we better if your mom has to go to work was well, too?
But, it's really interesting -- I mean, there's so many ways to look at this. You know, when you compare it to the '70s, it looks like we're not doing quite as well. When you compare it to '60s, we're doing a lot better. And when I say "we," I'm talking about things like household income. Then you look at average household worth, which includes the value of your house. Then people talk about tax rates that are going on here. There are so many different ways to look at this. Even when you adjust for inflation inflation, exactly, right? It's head spinning at some times to try and figure this out and there are plenty of arguments that we're doing OK, we're still growing.
ROMANS: That's why it's so political because we're going to see the debates, and we're going to see on the campaign trail, we're going to see people talking about the state of the middle class.
VELSHI: We Are doing worse than before.
ROMANS: Or, no, you're rich because you have a 401-K, and we never had that before. You have a very big house, you're living in a house that's 25 percent bigger than a house generation ago. We're spending more. We have two cars, we have a flat screen TV, we have all of these things. So, I bet, on the campaign trail, we're going to hear a lot about are you better off or not?
WESTHOVEN: And just -- I just want to throw in some of this feel-good statistics. I'm not saying this is the truth, right, but there are things that we can clearly see we're paying a lot less for these things. Airlines -- since deregulation, a lot of airfares have come down. When you adjust for inflation, a lot of people have access to flying, now. Flat screen TVs, cable TVs, we all have cell phones, these kinds of gadgets and high-technology...
ROMANS: Do we feel better?
WESTHOVEN: Unimaginable. Right, but we don't feel better, right? That's why you have all these people saying, oh, we're not doing as well as our fathers. So, there's this really interesting argument -- is it just perception? You can lay out number after number, whatever your dad made, but it's what you think you would be making compared to what you really make a few years later?
VELSHI: What happen in the '70s? Why is this comparison to now different than if you compared men 10 years ago to men in the '60s, what happen in the '70s?
WESTHOVEN: I don't know that for sure. Maybe you can jump in here too. But I was thinking was probably we had a lot of the inflation coming after that. So that's why when you measure afterwards...
VELSHI: Is that when...
ROMANS: There were some hearings in the Senate Finance Committee a couple of weeks ago: can the middle class make ends meet? And there was a lot of discussion about a generational -- a shift -- women going back to the work place, more and more people are educated, more people out there, an economy that's not quite -- shifting from a manufacturing economy and that there's something happening and no one really quite knows what it is. But there is something happening and people -- people feel differently and -- I mean one of the things in the hearing that was fascinating is what we know for sure, there is no -- there's no ambiguity. We're saving next to nothing and we're spending more than we earn. And that's the bottom line.
VELSHI: But -- thank you very much.
ROMANS: All right, Jennifer Westhoven. Thanks, Jennifer.
VELSHI: Well, we talked earlier about how Wall Street's latest run-up has finally helped the S&P 500 set a record for the first time in seven years.
ROMANS: Well, you know, the way that stocks are traded now is a lot different than we are way back in 2000 -- back in the dark ages. Susan Lisovicz explains how humans are disappearing from the floor of the New York Stock Exchange.
(BEGIN VIDEOTAPE)
SUSAN LISOVICZ, CNN NEWS CORRESPONDENT (voice-over): Tradition is as much a part of the New York Stock Exchange as its flag-covered columns. The bell ringing that opens and closes each session is a celebrated fixture, attracting rock star CEOs, and actual rock stars, themselves. And the greatest tradition of all, the NYSE's vast trading floor where buyers and sellers have haggled over stock prices for 215 years.
STEVEN GRASSO, INSTITUTIONAL SALES TRADER: From the minute I stepped on the floor, it was like stepping onto the New York Yankees lawn. I thought it was something where I was excited to be down here at the NYSE, I felt like we were always on the cutting edge.
TEDDY WEISBERG, SEAPORT SECURITIES: And there's a whole energy. And it's the kind of the honey that gets me to come in the door every day, and I suspect it works that way for everybody else that comes here.
LISOVICZ: But the floor is much quieter these days because of a new trading system that favors automation. Eighty percent of the average daily volume at the NYSE is executed electronically, four times more than just a year-and-a-half ago. Hundreds of people have been let go. So, many that the NYSE recently closed one of its five trading rooms. The new executive in charge of trading at the NYSE came from Goldman Sachs' trading desk. He spoke to CNN exclusively.
DUNCAN NIEDERAUER, PRESIDENT & CEO NYSE: Well, a lot of the market is interested in getting executed as fast as they can. What we're really trying to balance is, does that always get you the best price? And it's not clear to me that it does. So, I think you'll see us endeavoring to try to marry the two.
LISOVICZ: The average speed of a trade executed by a broker is nine seconds. Compare that to an automated trade which takes less than 300 milliseconds.
MIKE RUTIGLIANO, MANAGING DIR WJP CAPITAL: I don't ever try to compete with a machine. I, on the other hand, want to try to add some human element, some decision making, some discretion, some intuition that, frankly, is very hard to program into computers.
LISOVICZ: But speed is vital to the New York Stock Exchange, which merged in April with Euronext. Like the world's other major stock exchanges, Euronext is completely automated.
KENNY POLCARI, MANAGING DIR, ICAP EQUITIES: You start at the global economy and the ability for brokers to interact, you know, in London, in South America, in Asia, then I think what you'll see is that the world will come together and it'll settle down. Albeit different than what it is, but it will settle in.
(END VIDEOTAPE)
LISOVICZ: Traders say the computers are fast, but can't think. That in many cases, they can get their customers a better price and that they can also reduce the volatility that comes with the hyper speed of electronic trading. Nonetheless, the downsizing here continues.
Just a few days ago, Lehman Brothers said it was laying off all of its clerks on the floor of the New York Stock Exchange. And last week, Sandra Bernstein, another brokerage, shocked traders when it said it was eliminating its entire presence on the floor here. Very different times here at the New York Stock Exchange -- Christine and Ali.
VELSHI: You know, I got to say, these guys, when you see them work and we've all had the good fortune of spending a lot of time at the New York Stock Exchange, they're like computers, they're faster than most computers, I mean, they -- the hand movement and the ability to make sense of what's going on, I mean, that's quite something.
LISOVICZ: You know, and -- well, you know, I guess the bottom line and their argument is that the fastest trade isn't always the smartest trade. They're fast, but there are lots of things that go on. There's a herd-like mentality, as you know, in stock movements and sometimes that can work against you. Sometimes you don't do all of your trades in one big block. Sometimes you wait. There's different strategies, different intuitions, experiences. So, you know, the computer is fast and it's cheaper. It's cheaper than paying a human. But the human has the experience, the thought, and there are advantages to both and I think that we all can say that the best choice for a consumer is when you have more choice and that's what they're arguing. And, you know, if you just see where I'm standing, Christine, Ali, you've been on this floor. I mean, there were days...
VELSHI: You'd be pushed out of the way.
LISOVICZ: Just a few years ago -- yeah, I felt like I needed to be the Michelin Man, have that much padding. Now I feel like I'm the Maytag repairman. I feel like I'm very lonely. And so it's visually very different here.
ROMANS: Think of all of the people, Susan, we've interviewed down there: Jon Bon Jovi, John McCain. I mean, to think of all the -- I mean, when would I get a chance to meet Jon Bon jovi, right...
LISOVICZ: Well, it's still the world's greatest stock exchange, and for a reason, and you know, but it's very competitive, and things change, and, you know, business has to change. But the point is, is that you don't have to throw out the baby with the bathwater, that's the trader's argument.
ROMANS: All right. Susan Lisovicz, thank you so much at the New York stock exchange.
LISOVICZ: You're welcome.
VELSHI: Coming up on IN THE MONEY, do you save gas when you turn off your air conditioning? Gas-saving fact or fiction coming up next.
ROMANS: And find out how much your energy bill might be this summer.
(COMMERCIAL BREAK)
ROB MARCIANO, CNN CORRESPONDENT: I'm Rob Marciano in the CNN Center in Atlanta. IN THE MONEY continues in a moment but first, the headlines.
Fourteen more U.S. soldiers have died in Iraq this weekend. Among them, four killed today in a single roadside bombing northwest of Baghdad. The U.S. military reports several others killed in Diyala and the Provinces. The number of U.S. deaths in the Iraq war now, 3494.
The hunt is on for one more suspect in what investigators call a plan to blow up fuel lines at New York's JFK International Airport. Two other suspects were arrested in Trinidad. A former airport employee appeared yesterday in court. Authorities say the alleged plot did not target any flights.
In Virginia, speed is being blamed for a one-car accident that shut down Interstate 95 for nearly four hours yesterday. Three women and two children, all members of the same family died.
Close by in the nation's capital, a car plows into a crowded street festival. Injuring at least 35 people, several of them were seriously injured and the 30-year-old woman driving the car is charged with aggravated assault.
And an important note find out where the Democratic presidential candidates stand. Their strengths, their weaknesses, they will debate the issues tonight and take questions from voters live here on CNN at 7:00 p.m. Eastern Time, our in depth coverage begins at 5:00.
A complete wrap of the upcoming news at the top of the hour. Right now, IN THE MONEY continues.
ROMANS: Good gas mileage isn't just about what you drive; it's about how you drive. And with prices at the pump going up, there's plenty of advice out there on how to improve your own fuel efficiency.
VELSHI: I've got to tell you, I've heard some of these things and you believe some, you don't. The folks at Edmunds.com car Website, road tested some of the very tips we have all heard about to find out which one really work. Phil Reed is the senior consumer advice editor for Edmunds.com. Joining us from Los Angles. Phil thank you for joining us.
PHIL REED, SENIOR CONSUMER ADVICE EDITOR, EDMUNDS.COM: My pleasure.
VELSHI: I will run through some of these and find out whether they are fact or fiction. Lets start with the idea that aggressive driving burns gas much faster.
REED: Aggressive driving is actually the number one culprit of gas wasting. You will feel it in your pocketbook right away. We took four cars up to Death Valley and we drove 55-mile loops. And we found the difference between aggressive driving, and moderate, not slow driving but just actually moderate was up to 37 percent with an average of 30 percent. This is the number one way for people to save money right away.
ROMANS: Fact or fiction, lowering your speed saves gas. REED: Yeah, this is very true. Now it depends a little bit on the car that you are driving, every car seems to have sort of a sweet spot where they maximize fuel efficiency. For example the Honda Accord, I get reports of people getting 40 or 50 miles per gallon on a non hybrid Honda Accord if they drive it very carefully. Now over long trips things such as elevation change and wind resistance, like if you have a tail wind, it will make a big difference. But it's the amazing the difference between 65, which by the way is the speed limit in most places, and 80, which is what most people, are doing right now.
ROMANS: Driving at the speed limit can save you 12 percent in your costs?
REED: Absolutely. If you're thinking of a family taking a long trip, just think about 12 percent. That is one night in a hotel room or a couple of meals.
VELSHI: Fact or fiction, using cruise control saves gas?
REED: This is one of the tips that really surprised us. Using cruise control is a very effective way to save gas. Now, the reason being that people tend to react to everything around them. So if somebody passes them, they speed up. But if you're on cruise control, you're in a different frame of mind. You're letting the onboard computer handle that. So you have a tendency to go a very constant speed and accelerate, again, acceleration here is a big component of this. Because people have a tendency to see an opening and then just gun it and go straight into the opening.
VELSHI: That plays into the speed factor fiction that we talk about and the aggressive driving. Because cruise control kind of eliminates two of those problems.
REED: It automates it, right.
ROMANS: Now one of the things, the New York City taxi sometimes you get in there on a hot sweltering day and the windows are up, and there in no A.C. on because the guy says listen, you know, gas prices are so high. You have to help me out here. Fact or fiction not using the AC and keeping the windows up will save gas.
REED: I think this is one of those tips that it's outdated. It goes back to the '60s when air conditioning was new in cars. But these days, they've been working on this problem for a long, long time. Air conditioning units are very efficient in cars. Further more, you have extreme aerodynamics of the car itself. You get a wash. Now, the taxi cab driver in New York City may have a very small point. But we're talking about 1 or 2 percent. When you get on the highway, the fact of opening the car windows will turn your car into a parachute and slow you down. However, the air conditioner is extremely efficient. So it's a wash right there.
VELSHI: Here's one that I hear all the time. This is one of the most common ones. Fact or fiction maintaining good tire pressure saves gas. REED: Well, to tell you the truth this one makes me nervous. It's so important to maintain proper tire pressure for safety and also for tire wear. But we were unable in the cars that we tested with the tires that were on them. And they may have been low profile, high- performance tires which have very stiff sidewalls but we could not measure distance. We're planning this summer to go back up and do what they call coast down tests to test this tip again.
So again, I think what we're talking about here is a 1or 2 percent, which is difficult to measure. Now over the life of the car, it could be very significant.
VELSHI: To underscore your point, it may or may not save gas. You should keep your tires inflated properly?
REED: Absolutely. This is something that you should do when the season changes, as spring goes into summer. Because heat is a huge factor in terms of boosting the pressure inside the tires. If you go the other direction from summer to fall, you're going to need to put more air in your tires.
ROMANS: How about this one avoiding excessive idling saves gas, is that a fact or is that fiction?
REED: It's a fact. When you are sitting there with the car engine running and you're not getting anywhere, you're getting zero miles per gallon. That's the worst you can get. You have to average that to the times where they are moving. I see so many parents with a van full of kids going from house to house. They sit there and chat with other parents for two, three minutes. Why not shut it down the second you pull to the curve? We never want to tell people to shut down the car in traffic. That happens automatically with hybrids and that's one of the reasons they're so fuel-efficient.
ROMANS: All right. Phil Reed, Edmunds.com, thank you so much, with the facts versus the fiction.
VELSHI: Well coming up next on IN THE MONEY, find out why electricity costs and supply are all about where you live.
And find out why everyone is clicking on a story about how to retire on $300 a month.
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VELSHI: Time for "Power Pulse." Did you see that? Here in New York, it's hot day today. And hot summers, we've seen, can lead to power outages and, in some places, very populated areas. We saw it in New York last year; we saw it in the Midwest and California.
ROMANS: The question is though; will that be the case this summer? And even if power in your area, we don't know where you live, but if power in your area is secure, how much will it cost you?
VELSHI: Ashley Brown is the executive director of the Harvard Electricity Policy Group. You've been studying some of this. Actually thank you for joining us. First of all are we safe in most parts of the country? Or is it clear that we're going to have brownouts and blackouts?
ASHLEY BROWN, EXECUTIVE DIRECTOR, HARVARD ELECTRICITY POLICY GROUP: No, it's not clear. The forecast that I've seen based on the assumptions of abnormal temperatures and no technical problems are that we should have sufficient supply. But there are, you know, there are some potential problems. But at the moment, given the probabilities, it looks reasonably good.
ROMANS: Am I going to pay more for my electricity if I live in one of the big populated areas or if I live in Iowa or some place in the middle of the country, am I better off?
BROWN: Well, the forecast or the prices are going to be going up in the wholesale market, anywhere between 20 and 30 percent.
ROMANS: Wow.
BROWN: Now, how much of that actually gets translated on in retail rates to customers depends on a lot of different variables. But, yes, the general answer is rates are likely to go up. In large part, that's a feature of high gas prices.
VELSHI: What is the relationship here between gas prices and my electricity prices?
BROWN: Basically, gas is the marginal unit of production in electricity. It 's the gas prices that tends to drive the price of electricity. And the demand for gas as we build more and more gas generations or have over the past several years means that the gas prices are going to drive electricity prices.
VELSHI: And you are talking about natural gas?
BROWN: Natural gas, that's right.
ROMANS: Lets talk a little bit then about why are we in this sort of position? You say there might be a few problems here and there. But are we are we stretched pretty thin here? What's happening?
BROWN: We have not been investing a lot of generation or in transmission. At least not sufficiently. There's some new transmission going in the New York area. There have been some additional generating plants. Basically, because of the uncertainty about where we're going on a number of policy issues both in terms of the nature of the market and also because of climate change and other environmental issues, people have been reluctant to invest a lot of capital in generation and in transition.
There are some other reasons why they've been so reluctant. We have some constraints. On the other hand, if weather circumstances stay normal, most of the predictions seem to see prices going up but supply being sufficient. But there's always the probability of technical problems that could cause outages. VELSHI: You know what I heard Ashley when we had those blackouts in New York last year when I was doing studying on this; I heard something interesting that in this country, we have an expectation that electricity will be here. Upgrades to the infrastructure are so costly that no one really pushes for it because it's not sexy. You don't win elections on the idea that we're going to spend $15 billion improving our energy infrastructure. People expect it to be there.
BROWN: None of that is true. It's sexy to build infrastructure. It's not sexy to pay for it. So the problem, the result of that political problem is that you do get discouraged in the investors and as a result of that, we have been investing in the extent that we have. On the other hand, hopefully, we're going to be able to get through the summer without outages.
ROMANS: So Ashley bottom line here, you're going to see your bill go up, most likely, you're going to have enough juice in your neighborhood to prevent any kind of problems, that's probably. Is that how we recap it?
BROWN: That's what we recap. The only hesitation we have is that wholesale prices may not be reflected in retail prices immediately because of the way the regulatory system works.
VELSHI: Ashley Brown, thank you for joining us.
Coming up next on IN THE MONEY, why being the best didn't help hard-working autoworkers in Canada.
(COMMERCIAL BREAK)
VELSHI: All right it is time now to find out what stories did the best job of grabbing your attention this week.
ROMANS: And for that as always, CNNMONEY.com managing editor Allen Wastler joins us to grab your attention with stories that click.
ALLEN WASTLER, MANAGING EDITOR, CNNMONEY.COM: I will try to do OK. Thanks Christine. We had wide variety of stories that were popular on the Website this week. One very big story that ties into all sorts of stories, Chinas' decision to execute the former food and drug chief after a corruption conviction. Boy he looks happy, doesn't he? This could be a fallout in response to the exported food contamination scandal that is rattling the country. And they did another series of initiatives, but readers were all over that story.
They were also interested in the story on how the most productive plant in all of North America is getting shut down anyway. That's right, the GM plant in Oshawa, Ontario. There's nothing like working hard and getting punished for it. Right, you know? But they are shutting it down, GM is going to cross it right out.
And another very popular item was this question-answer video segment. It was like a throw away that we did. It was on what to do with $300 a month in retirement savings. Should you put it in your 401(k), should you put it in your Roth? And people just dived into that. OK, a cute little video. We're going to have -- people just loved it. They ate it up. I don't understand.
VELSHI: Can they still get it? Can they still see it?
WASTLER: Yes they can still see it all the time. It's an interesting question too, 401(k) or Roth? Our expert on it Walter from "Money" Magazine," he said doing all right in the 401(k), slip it to the Roth that way you got a little tax diversification thing going for your retirement supplement.
ROMANS: Savvy baby-boomers want to know what to do.
WASTLER: The other two stories were kind of serious. The GM plant, they got it down to like 15 and change in terms of hours on a production vehicle. That's great for them. They're going to close it any way.
ROMANS: Why?
WASTLER: The thing about American manufacturers, they tend to make plants that, OK it will make this type of vehicle and --
VELSHI: Not only stop selling or discontinued, it's easier to shut the plant down.
WASTLER: The year before, the Ford Taurus plant in Atlanta. It did great but, whoops bye-bye to the plant.
ROMANS: That is hard news for the folks who are such workhorses.
VELSHI: Well this country observed Memorial Day last Monday a time to honor lost men and women in the military.
ROMANS: But one retired marine general wanted a place to honor his fellow marines every day, not just holidays. Randy Kay has the story.
(BEGIN VIDEO CLIP)
RANDI KAYE, CNN CORRESPONDENT (voice over): Semper Fidelis, the motto of the U.S. Marines, translated from Latin it means "Always faithful" and for retired marine general Ron Christmas, being faithful meant building a place to honor his fellow marines.
GEN. RON CHRISTMAS, PRES. MARINE CORP, HERITAGE FOUNDATION: The Heritage Foundation took it upon itself about ten years ago to build the National Museum of the Marine Corps. A place for all marines and their families, but most especially to tell the story of the Marine Corps to the American people.
UNIDENTIFIED MALE: In one of the largest --
CHRISTMAS: And to share with the American people this wonderful legacy of their corps of marines. KAYE: The museum opened last November. General Christmas was on hand as president of the Marine Heritage Foundation, the group he's led since retiring in 1996 after 34 years on active duty.
CHRISTMAS: When I was asked to do the Heritage Foundation, which I do pro bono that really became a labor of love. I feel very strongly, and felt strongly then and feel more strongly now that this national museum and the programs, the historical programs that we support are so important, not just to the Marine Corps but to the nation.
KAYE: And many of these exhibits have a personal attachment.
CHRISTMAS: I look over at that picture of the wounded being lowered down, those are all my marines. That's very meaningful, those marines carrying the wounded, marine through a blown out wall that we had worked our way through. They're my marines. So, yeah, this is very meaningful to me. It really is.
KAYE: Randi Kaye, CNN.
(END VIDEO CLIP)
VELSHI: All right, coming up next, what you can learn from my home theater installation experience. We'll be right back with more in IN THE MONEY.
(COMMERCIAL BREAK)
VELSHI: Well Christine is a new mother. As such, you have more options. This week, Marriott and Nickelodeon decided to start up a hotel brand, this resort brand. The first one is going to be open in 2010. In the course of ten years they are going to open 20 of them around the world.
ROMANS: For people with rug rats specifically.
VELSHI: Kids like Nickelodeon, its sort of you know compete with other places that kids like to go. So the announcement was here in New York. I went to it. Bill Marriott from Marriott was there. It was something. Because Nickelodeon, there's Sponge Bob square pants.
ROMANS: Not your normal sort of corporate announcement.
VELSHI: And look at that, that's green slime they dropped on him.
ROMANS: He's a good sport.
VELSHI: Sponge Bob he looks like he's having a good time.
Look it is an interesting deal. Because Nickelodeon obviously it is a Viacom Company, very popular for the little kids to watch on TV.
ROMANS: A lot of other hotel chains that have really great kind of packages and kids and stuff. People know parents of little kids -- VELSHI: Yeah.
The decision has to be made though on whether your kids are going to like their trip. So they are going to capitalize on that. The TV thing we have been following --
ROMANS: We've been talking about Ali's quest to get his beautiful flat screen on his wall. You know it was going to be easy installation. No problem.
VELSHI: I did it because Best Buy came up with a system where you can buy their stuff, and you can get their people, Magnolia, to install, it was suppose to be seamless. I don't know how many dozens of hours --
ROMANS: Are those are speakers?
VELSHI: Those are speakers in my wall, that's my flat panel, my little cabinet. It's very clean look.
ROMANS: But it took a long time didn't it?
VELSHI: Took a very long time. Very nice job in the end that they did.
ROMANS: All you need now is a little cocktail on your knee and it looks like you are in heaven.
VELSHI: Well I'm going to be enjoying that for sometime to come. That is it for us, thank you for joining us for this edition of IN THE MONEY. You can catch Christine later today at 6:00 pm Eastern on "Lou Dobbs Weekend."
ROMANS: And you can see Ali every weekday morning on "American Morning." We will see you back here next week.
VELSHI: Saturday at 1:00 and Sunday at 3:00. See you then.
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