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YOUR MONEY

Where Do You Stand in the Economy?; Housing Market After Fed Rate Cut; Managing Your Investments; Oil Biggest Story?

Aired September 23, 2007 - 15:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(NEWSBREAK)
VELSHI: Welcome to YOUR MONEY where we have a look at how the news of the week affects your wallet.

I'm Ali Velshi.

CHRISTINE ROMANS, CNN HOST: I'm Christine Romans. This week, we're looking at the changing U.S. economy and where you stand after the Fed's rate cut.

VELSHI: That surprise rate cut on Tuesday. Coming up, the short- term thrill of watching your investments go up verses the long term risk of lower interest rates.

ROMANS: Plus while the same move that has many on Wall Street celebrating could leave you out in the cold this winter.

VELSHI: We're going to help you understand how to pick a loan that will keep you out of trouble in today's tough new credit climate.

ROMANS: It has certainly tough been a wild, busy week for the Fed, slashing interest rates by a half percentage point on Tuesday and on Thursday, Fed chairman Ben Bernanke says the Central Bank may be ready to do more.

VELSHI: The Fed says it will do whatever it takes for the U.S. economy, but Bernanke says Americans are still in danger of losing their homes.

(BEGIN VIDEOTAPE)

VELSHI (voice over): The sub prime mortgage crisis is not over.

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: Delinquencies and foreclosures are likely to rise further.

VELSHI: Fed chairman Ben Bernanke is talking about borrowers with poor credit and adjustable rate mortgages. He wouldn't say how bad it will get, but he says for those still having trouble making their payments, talk to your bank.

BERNANKE: The Federal Reserve, together with the other federal supervisory agencies has encouraged lenders and loan services to identify and contact bowers who with counseling and possible loan modifications may be able to avoid entering delinquency or foreclosure.

VELSHI: The Fed chief says he's working with banks to say borrowers really understand how their monthly payments can change when they get an adjustable rate mortgage. Treasury secretary Henry Paulson says mortgages are just too complicated for most people.

HENRY PAULSON, TREASURY SECRETARY: The idea that I like a lot is every mortgage having one page, very simple, big print, you know. Your mortgage payment is "x" dollars today and it could be as high as "y" dollars.

VELSHI: Paulson and Bernanke emphasizes that most Americans aren't facing a mortgage crises. For home buyers with good credit a 30-year fixed mortgage is 6.3 percent. Not even a full percentage point higher than a year ago. But there is still the actual housing problem. The median price for an existing home in America is $218,000, $3,700 less than it was a year ago.

(END VIDEOTAPE)

VELSHI: And while we always talk the fact that a median price doesn't mean anything if it's not in your area, the median is the price of which half of the homes are sold at a higher value and half are sold at a lower value. In some places, prices are up, but if you are in Detroit, or Phoenix, this median price doesn't help you much.

ROMANS: If there is good news in this weeks treasury cut it should give the mortgage holders maybe a bit of a break, right?

VELSHI: Right, because those rates came down by half a percentage point and then of course the bonds came down. That's where adjustable rate mortgages are financed.

ROMANS: We are joined now by Nick Retsinas, he is going to help us understand what this week's rate cut means for your stake in the housing market. Nick is the director of the Joint Center for Housing Studies at Harvard University. Boy are we glad we have your expertise today. It was a wild week, a surprise half-point rate cut there are billions of dollars of adjustable rate mortgages that are resetting next month. Is there going to be hope for some people here?

NICOLAS RETSINAS, HARVARD UNIVERSITY: Well, there will be hope. The rate cut certainly is good news, but it's not going to cure the patient. But it won't hurt. For those with adjustable rate mortgages, particularly those linked to the Federal funds rate this is going to save them some money in the months ahead as their payments reset. For those with home equity loans it is going to save them a little money. With those with sub prime loans, they are pegged generally to the other libel rate which hasn't fallen as much. So it is a little bit of mixed message, mostly good. Particularly for those with existing mortgages.

ROMANS: It's like chicken soup if you have a little bit of a cold, maybe the mortgage market does; it's like chicken soup it can't hurt. RETSINAS: It can't hurt, and for home buyers, for those who have good credit, they probably -- and those particular who get an adjustable rate mortgage, they'll be better off, ironically, for those looking for a fixed rate mortgage, it's not clear they'll be better off, because there is some suspicion that the long-term rates may go up a little bit in reaction to possible inflation.

VELSHI: But if you are one of these people like me who would rather have a fixed rated than an adjustable one, getting one today isn't that bad of a deal at 6.3 percent. It's not that high historically.

RETSINAS: It's not that high historically. However, if you are buying in a really high priced area over what is called a conforming loan limit, that is above $417,000 ...

VELSHI: That's what we sometimes refer to?

RETSINAS: Right, those jumbo loans they are still pretty high and still pretty hard to get.

VELSHI: Let's talk about this Bernanke and the Treasury secretary testifying before Congress, saying they are going to work on a few things. One of the things that Ben Bernanke said that I though was fascinating is that if people are getting in trouble paying their mortgages, they should talk to their lender and that the Fed tells banks and lenders they should talk to their bowers and the two of them should try to work something out, because it is better than allowing people to default on their loans. I said this to a lot of people yesterday and they laughed. Oh, sure, yeah, yeah, your bank will definitely negotiate with you.

RETSINAS: I think a lot of them will, I think surprisingly more than we now expect. It's complicated somewhat because many of these mortgages as we know are not owned by the banks but are in large securities and there are some restrictions on the part of investors, but for the most part, whether it's an investor or lender they would rather modify a loan than have to foreclose than take the chance of losing substantial collateral value.

ROMANS: Online there are a lot of homes on the market right now, there are a lot of people who are in mortgages that are going to cost a lot more, 1.4 million homeowners will see their mortgage payments double over the next five years. The Fed rate cut this week is sad. But we have big issues to work through, don't we?

RETSINAS: We have some major issues, and a matter of fact. The next quarter, the last quarter of this year is the peek period for the recess. The underlying problem, which the rate cut doesn't particularly address head on is an overhang of inventory; we just have too many vacant homes, too many homes on the market. That depresses prices, and that puts in danger some of these mortgages.

ROMANS: Can you imagine having your interest rate -- your mortgage payment double? What it must mean for the budget of families to have it doubling in their mortgage rate when they can't sell the house, because there are too many houses.

RETSINAS: You are absolutely right. The other thing to worry about is one of the worries is if we tighten credit and rules and regulations in terms of some of these loans, people who might have had the opportunity to refinance out of those toxic mortgages won't have that access.

VELSHI: Nicholas, good to talk to us. Thanks for making this clearer for us.

RETSINAS: Thank you.

VELSHI: Nicholas Retsinas is the director of the Joint Center for Housing Studies at Harvard University.

ROMANS: Up next on YOUR MONEY celebration versus caution. We will get two takes on this week's market surge and where your investments are headed.

(COMMERCIAL BREAK)

ROMANS: I think it's fair that Wall Street has all but begging for the Fed to cuts interest rates. And the reaction to this week's half point cut, of course those were stocks absolute serge was one of the biggest days I think in five years.

VELSHI: Within minutes, we saw the Dow go up after the Fed announced its surprised cut. Joining us with two takes on what this means, Fed cut and market activity means for you, are two of our very good friends, Doug Flynn of Flynn Zito Capital Management and Ned Riley, joining us from Boston, he is the chairman and chief investment strategist with Riley Asset Management. Gentlemen, welcome to the show. Thank you for being with us.

DOUG FLYNN, FLYNN ZITO CAPITAL MANAGEMENT: Thank you Ali.

NED RILEY, CHAIRMAN, RILEY ASSET MANAGEMENT: Thank you.

ROMANS: We're looking for a really deep discussion here about what in the world all of this this week means for our money. For our money. Doug, let me start with you I guess. Does it mean anything in the very near term for my investments, my income, and my expenses?

FLYNN: Sure it gives a boom to the economy in terms of the markets. That's the short term. And short term and long term, I think the outlooks are very good. But I'm a little concerned about the intermediate term and that's because with inflation comes in, I think that was too much, and in our opinion --

VELSHI: The 50 basis point cut, which we didn't think we would get. It's a half percentage point was more than the Fed needed to do?

FLYNN: Well, I think so and I think it's great for the short term and long term I'm not really concerned about. But it is like if you keep going back to the well and it keeps going, does that mean they will have to offset that later on with additional increases that they wouldn't of had to do had they not cut this far.

ROMANS: Ned, weigh in here because I think are you a little more optimistic about what this all means, right?

RILEY: Yes, I am. I can't judge what instant media term means anymore, but I clearly believe that the inflation rate in this country is low and going lower, we're at a 2 percent inflation rate right now, and if you recall back in 2003, when the Fed was talking about 2 percent inflation, they were talking about us going into deflation. So now they are worried about inflation. I don't see it.

With the exception of energy prices, labor costs, unit labor costs are down. Productivity is strong. We still have a huge global impact from production overseas. We have a lot of, unfortunately, illegal aliens that are working under the table. We've got a tremendous amount of pressure on costs in this country and the bottom line is basically we'll be importing cheaper goods. China may pay the price in margins, I don't care. We'll be importing cheaper goods. That's the American way of life many.

FLYNN: Intermediate terms to me means beyond three years, mid term time frame, it is not tomorrow or the next year, where the markets will do very well. Long term, we all know the markets will do very well because of the correctiveness of it.

VELSHI: Because they do historically markets do. Let me tell you this, Ned, listen in. When we were talking to people on the street and asking them about the economy, most people said there's a problem. Most people said there is something wrong, but when you look at mutual funds, the top ten, we've looked at this a few weeks ago, the top ten that Americans hold. They are up over the last year.

ROMANS: Except for the bond ones.

VELSHI: Take a look at what markets look like over the last, this year, since January of this year, we have a Dow that up 10 percent, we have a Nasdaq that is up 10 percent, we have an S&P that is up 7 percent. Do we have a problem or don't we?

FLYNN: Well, the problem is that with short term interest rates there's an opportunity now people now have a fixed rate mortgage available to them, that is probably less than a one-year adjustable. The question is are they going to convert these mortgages or when rates maybe do go back up again because inflation creeps it's way in when we don't expect it, it that does happen, that's just an if. Are you planning for that? The question is do they have any equity in their home, do they have the closing costs to convert these things to fixed. Not everybody can just flip a switch talk to their bank and convert to a fixed and be good for the next 30 years.

VELSHI: Even though we say that's what they should do.

FLYNN: That is what they should do. What if you have no closing cost money to do this? How do you convert to a fixed? If that happens and rates go up and people's mortgages go up eventually, we need to do something rather than just lower rates in a short-term situation. So my whole thing is just simply, what's your plan, what are you doing and how are you set up with your investments?

RILEY: That's why I really believe that 50 basis points on the Federal Funds rate was critical. Because I do believe that interest rates have to come down substantially more to rectify the situation in the housing market. We have got a whole element out there that clearly is going to foreclose or default and what we need to do is sort of supplant that or bring the cost structure down.

The other part of the market, the stock market, it's interesting. I'm glad people have reservations, I'm glad to hear people talk negatively about issues that could be coming up. That's the greatest back drop to invest in the market. People get scared when negative news come out. I'm always used to saying, buy when blood is flowing in the streets. And you should sell when people are celebrating unanimously.

VELSHI: All right. We are going to take a quick break. We'll come back with both of these guys and we'll get some specifics about exactly what you should do, depending on whether you are scared or you are celebrating. Doug Flynn and Ned Riley, we're coming back with a special edition of YOUR MONEY in a minute.

(COMMERCIAL BREAK)

VELSHI: We're back with a special edition of YOUR MONEY. Where you stand in this economy, we have been talking to two guests whose have been no help to us.

ROMANS: Doug Flynn certified financial planner with Flynn Zito Capital Management is our guest here in the studio and Ned Riley, chief investment strategist of Riley Asset Management joins us from Boston.

VELSHI: You guys are brilliantly smart, but you have different views about where we're going to go if I'm sitting at home worrying about my 401-K or my home or the economy in general, what am I supposed to do, Ned?

RILEY: I would do nothing. As a matter of fact, I would add to equities. I tell people who are still working, they should have 70 to 80 percent in the market for the next 5, 10, 15 years. So that is the first place I would go.

The second is I would be diversified. Unfortunately a lot of people own company stock and that is nice and wonderful but they should limit that because of the exposure and the risk kind of taking they have.

Third, I think that they should be in exchange trading funds which are very inexpensive to hold, .02 of one percent, the exchange rated funds are the ones that clearly are diversified like the Standard & Poors 500 has an ATF. I recommend that QQQQ is the top 100 stocks in the Nasdaq. I would recommend that probably to the tune of 20 to 30 percent.

FLYNN: The only thing about that, is what if you are a more of a conservative investor and let's say four years ago, had you a 70 or 80 percent equity exposure and you haven't rebalanced, you haven't look at it you just keep putting your money in the 401(k) and all of a sudden you look and maybe you haven't looked. And you might be at 90 or 95 percent equities, and what we're doing is your true allocation is 80, just make sure you are at 80 unexpectedly. When are you a couple hundred points off the all time high, maybe it's a good idea to relook at.

RILEY: That's an excellent point. People should rebalance and look at that. Try not to make the judgment based upon what you see on the headlines and Wall Street and sometimes what we say this is a long-term investment for people. It is a retirement fund, and I do believe that diversification is critical, but more importantly that you own the United States market, you also own the developing country's market, or the developed countries by buying an exchange traded fund. So diversify. I think the stock market over the next 5 on to 10 years will return some where between 8 and 11 percent.

ROMANS: We certainly hope you're right, Ned.

RILEY: Not knocking the cover off the ball, but the bottom line is people shouldn't have gotten accustomed to the 20 percent back in the latter 1990s and today be realistic. We're back to the mean, and 8 to 11 percent makes a lot of sense.

ROMANS: Ned, you make a really good point about the investing class I think is well aware of rebalancing and knowing exacting where its holdings are, but for working men and women and middle class.

VELSHI: They have jobs and things to do.

ROMANS: There are a lot of very intelligent I would say wealthy people that look at it once every five years, so if you are adjusting based on a Fed rate cut, you haven't done your job. You should be having a plan in place for the moves in the Fed.

FLYNN: Absolutely and I agree, long term the market is going to do fine, and in the short term it will as well if things change down the road and you are more aggressive than you thought you were, a lot of people think they have a particular allocation. You need to do a little bit of homework on this.

VELSHI: Ned, Doug makes the great point that if you are, a if you are conservative or b you are busy, you need to be diversified, you need to be rebalanced and you need to check that with some regularity. But the sexy number is what the Dow will do. And we've been pushing you on this for months. Where is the Dow going to be at the end of the year?

RILEY: Oh, I think clearly we're going to go through the 14,000 level. I think we'll be around 14,500. And the critical element is that people should not be worried about the fact that if it makes it or not. Unfortunately, and this is one thing I think I've studied investors and how they work.

Unfortunately, people get more bullish as the market goes up and invest in the higher ratio and they get more bearish as the market falls, so I try to tell people ignore where the market is today, because you look back in history and I don't think people realize this. Over the last 50, 70, 100 years, the market has returned close to 9 percent, including dividend re-investment.

People should take a longer-term perspective, I know 50 years sounds like a long time, but I think we've got the best capitalistic system in the world. I think we got the best brains right here in the United States, and I very optimistic about America over the next 25 years.

FLYNN: One other thought with that. When you think about when would you want to -- if you were to get a little more conservative or if you wanted to be more conservative, when do you want to do it? At the all time high or when it off 30 or 40 percent. If you are aggressive, then don't worry. But if you are more conservative or want to be these are times to say maybe ...

VELSHI: You don't have to lock in any losses, guys thank you so much, great perspective from both of you.

ROMANS: Coming up on YOUR MONEY we will take a look at why the Fed's move could change what you pay to heat your home and see why now is the time to lock up a loan, a loan you can count on later.

(COMMERCIAL BREAK)

(NEWSBREAK)

VELSHI: Thanks for joining us. We're trying to figure out whether we should say the crude oil is over $80 a barrel. But any way you cut it there were new records set on crude oil this week. And they were more than $80 a barrel. That hasn't yet translated into soaring gas prices so this conversation may not be as interesting to you as it is when you go to the gas station and find out what we're talking about.

ROMANS: Our next guest says filling your car may be the least of your worries this winter. He says homeowners may be forced to choose between paying their mortgage or paying their home heating bill. Joining us now is Peter Beutel, president of Cameron Hanover an energy risk management firm. Peter thanks for joining us.

PETER BEUTEL, PRESIDENT, CAMERON HANOVER: Thank you.

ROMANS: First of all for the record, your background in English literature I'm sure will tell you is it more than, over, or above $80 a barrel.

BEUTEL: More than.

VELSHI: She wins again. You just side with her, Peter.

ROMANS: And I'm worried about this whole idea of heating oil being a significant problem for homeowners this year. BEUTEL: It is. We've just reached record prices all-time prices. And like crude oil, we continue to make new highs. I think we've made four new highs in heating oil over the last seven days. In crude oil, we've made seven new highs in seven days. Heating oil is really the worry, particularly in the northeast. Five states used 50 percent of the nation's residential use of home heating oil. Massachusetts, Pennsylvania, New York, New Jersey, and Connecticut. So those states will be disproportionately hit hard.

VELSHI: My good friend Christine is of five mid western stocks and in the mid west of the United States many of our viewers will know they use natural gas to heat their homes. Doesn't that kind of move in lock step with oil? Its demand for oil is higher; doesn't natural gas demand go higher too?

BEUTEL: Sometimes it does. This year it has not. You know, we are still at roughly triple the price that we were in January 2002. But we're not talking about the multiples of four or even eight times what we've seen in recent years that we're looking at, say in heating oil or crude oil this year, there is plenty of natural gas in storage. We've already hit the number that we needed to hit by November 1st, we hit it on September 1st, and so we're in pretty good shape in natural gas. I don't see as big of a problem there this year.

ROMANS: So if I'm sitting down with the family budget what do I need to do? Or is there anything that I can do to prepare, other than just kind of like crossing my fingers and hoping all of this money will work out this winter?

BEUTEL: I think you're going to need to budget for more than you spent last year. This year you will be paying more for heating oil than you've ever paid before. So, you know, I think people need to budget at least 10 or maybe even 20 percent more and let's hope that it's not a very, very cold winter. Then it could be a lot more, and let's hope also in the next four or five weeks we do not have a major hurricane like Rita or Katrina, in which case it could be more expensive.

VELSHI: The only thing you can do Christine, is you can invest in the stock of the companies that -- that deal with this. I'm not entirely sure, Peter, if you know what the trend is and you know where it's going and maybe you can tell us where the price of oil is going, unless you understand the underlying factors, there is no way to bet against this. Most of us need to drive and all of us need heat.

BEUTEL: Well that's very true. Most heating oil distributors are family-owned businesses. You won't find them listed on the New York Stock Exchange. But it's very hard to say where we're going. It looks like we're going higher. I see no relief on the immediate horizon. But at some point, I think the Fed may find itself in a difficult position here, because this is inflationary, and at some point they may want to lower interest rates, but not be able to because of the inflationary component.

ROMANS: Let me ask you a big macro question. But everyone stick with me here because this is important to everybody. If you have oil prices staying above $82 or $83 a barrel and you have you a forecast for one in three chances for recession, even Alan Greenspan said it could be more than 1 in 3 chances for recession. How does the high oil price fit into all that? I mean can we all be hurt? Or if the economy slows down, will that pull down the oil price?

BEUTEL: What has happened in the past is every single time that we've tripled or quadrupled the oil prices, we have had a major recession within two years of that tripling or quadrupling. We actually are now 8 times the price that we were in December '98. We're four times the price we were in January 2002. So we've already done it. But what happens historically is that you see the price start to drop during a recession, and then it does not come back for a number of years, sometimes five, six, seven years, after the recession has ended and the economy has started to pick back up.

ROMANS: All right. Peter Beutel. Wow, you had a very -- that was kind of depressing, Peter.

BEUTEL: I'm hoping to give you good news someday.

VELSHI: We'll keep having you back it will happen.

ROMANS: Peter Beutel, Cameron Hanover. Thanks Peter.

VELSHI: All right. Coming up next on YOUR MONEY why debt isn't a dirty word anymore, as long as you manage it properly and really we'll tell you how. So stay with us you're watching YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: Why do we have this thing that says credit relief? Debt is good; there is nothing wrong with debt.

ROMANS: Debt is good, there is nothing wrong with debt until you are drowning in debt, you have to manage it properly, it can be a great tool in your financial armory, or it can be the thing that takes you down.

VELSHI: It's available to a lot of people, but doesn't come with a guide book sometimes. Greg McBride is a senior financial analyst with Bankrate.com and he is joining us from West Palm Beach, Florida.

ROMANS: And we are very pleased to have Carmen Wong Ulrich she is the author of "Generation Debt," she is here in New York.

Welcome to both of you.

VELSHI: She's on my side.

ROMANS: She's on your side. On Ali's side that debt is good. Bring it on. But you have to use it properly, right?

CARMEN WONG ULRICH, AUTHOR, "GENERATION DEBT:" Right, I'm not all doom and gloom about debt. It's not necessarily that it's good. But if you know how to use it and you know how to manage it you'll be OK. And it's a message a lot of people need to hear. VELSHI: I'm assuming, Greg, that you share that view. Because you're with Bankrate.com, which is a useful tool for people who are looking to get a loan or manage a loan or figure out whether their loan is the right value. Is debt a good thing or bad thing?

GREG MCBRIDE, BANKRATE.COM: It depends on how you use it. I often equate debt to being like a steak knife in the right hands it's a very powerful tool, but if used improperly, you could get hurt very badly.

ROMANS: Greg, one of the things about getting hurt very badly in the mortgage market right now is that so many people use debt that put them in a position that once interest rates started to rise, it hurt them. Now the interest rates are coming down. Will that lower the cost of borrowing money for people who want a car or who want all these other things?

MCBRIDE: It will bring down costs on a variety of instruments, home equity lines of credit, credit cards, auto loans. But at this point the impact there in terms of dollars and cents on the monthly budget, it's very minimal. You have to be very careful about how much debt you are taking on and make sure you have the capacity to repay that.

VELSHI: Which brings us back to Carmen who says there are very clear, simple rules you can follow to not get yourself into a debt situation that you can't handle.

ULRICH: Yes, I mean the first is, and it seems like it just makes sense, but pay attention. Do you open your bills when they arrive? Do you know what your interest rates are? You need to answer these questions and if you can, are you on top of things. Know how much debt have you outstanding, know what your interest rates are, and know your policies on your debts, for example, you know, if you pay late now, $39 can be a late fee.

VELSHI: That is the bane of my existence.

ULRICH: That's one day late. That's a lot of money. But "Consumer Reports" came out with a study that showed that half of the people that called their lenders got their interest rates lowered and 80 percent got their penalty fees waived.

ROMANS: Set up a system so you don't incur late fees, even if it's sitting at a table and make sure on a certain day you always look at those bills.

ULRICH: Online banking is a boon for people in terms of managing debt. If you are cash strapped and don't have enough money to automate bill paying, what you can do is set up alerts on an electronic calendar, 7 to 10 days before you have a payment due.

ROMANS: Carmen but you have to be using this debt for a purpose. You have to be using debt for a certain kind of goal. You can't be using debt to live beyond your means. ULRICH: Exactly. That's the point. Most American who are in debt are there because either they are new college graduates, there was medical --

VELSHI: Some good reason to be there.

ULRICH: There are a lot of good reasons to being there; it is not just about bags and shoes. Just make sure you stay on top of it, don't get any deeper and protect yourself right now by putting yourself in a position to make sure you don't have any late fees, no universal default.

VELSHI: I was covering the Fed rate cut on Tuesday, Greg. And one of the things said, most people don't care about what Fed does or doesn't do. When the Fed cut rates a half a percentage point. That gave you ad discount on your credit card payment in many cases, because so many credit cards are tied to the prime rate. And when the Fed rate goes down, the prime rate comes down too.

MCBRIDE: That's exactly right, Ali. The credit card rates will come down, and I think that is a powerful tail wind to consumers that are trying to get out of debt. You are talking about the difference between good debt and bad debt. Very often credit card debt is paying for the excesses of yesterday. Well now that interest rates have come down a bit and that's a tail wind on efforts towards debt repayment. So keep the hammer down and keep applying as much money you can to that high interest rate.

ROMANS: Greg I know that everybody is different. Would you say bottom line, you shouldn't be carrying a huge balance on a credit card every month, that you should be using credit card debt only sparingly or only for monthly purchases that you can afford to pay for? Isn't that the first step for people to get themselves out of trouble?

MCBRIDE: Absolutely. You have to live within your means. Things can happen. Maybe you were out of work for a while or maybe you had an illness. Have you a credit card balance, and it is not because you were overspending but because of a temporary financial situation. That's fine. Just make sure when you prioritize your debt repayment you are taking care of that high interest rate debt first, get that out of way, then back on the road to recovery and planning for the future.

ROMANS: You know what drives me crazy, all three of you? When you pay off balances every month, do you know how many things you get in the mail for more credit cards and upping your occasion they want you to spend more money.

ULRICH: Go to optoutprescreen.com and opt out of getting those offers. You don't need them anyway. If you want to shop for a new car go to Greg's site.

VELSHI: One of the things I want to ask you both while you're here, is we have been talking about, for instance, if you wanted a 30- year mortgage, Greg will tell me it's about 6.3 percent, if you go for a one year adjustable rate mortgage, it's even more than expensive than that. Is there any good reason why anybody taking a loan in America shouldn't lock into their rate, particularly if it is a mortgage?

MCBRIDE: I can't think of one. Value right now is in fixed rates and not just because of where rates are today. A fixed rate mortgage helps you plan for the future. The fact that you can cement that payment for years to come, that's a big step toward achieving future financial security. Because you know as your earnings grow, that mortgage payment will take a smaller and smaller bite out of your paycheck.

ROMANS: Carmen.

ULRICH: Yes, if you have a great credit record and great credit score, now is an excellent time to refinance. Because banks and lenders are really looking for the best borrowers, a lot of times they waive closing costs and other fees that go with refinancing.

ROMANS: I know that Carmen has a baby, I have a baby. Do you know that I'm already getting credit card things for my baby? I got him some frequent flier cards, and suddenly every week it is like this little baby who can't even ...

VELSHI: Stop the baby from getting a credit card. Carmen good to see you.

ROMANS: Wait, Carmen, optout prescreen.com and my child won't get those anymore?

ULRICH: Opt her out, I did that.

VELSHI: Carmen, you can become my favorite guest of the year, and Greg is always is, Bankrate.com great site to find out what people are paying and what the rates are two very useful pieces of information. Thank you to both of you.

ROMANS: All right. Coming up next on YOUR MONEY the cash in your wallet is worth less than you think. We'll tell you why.

(COMMERCIAL BREAK)

VELSHI: All right. I keep a stash of these around for when I go home to see my family in Toronto. This is a loony.

ROMANS: Why do they call it a loony?

VELSHI: I'm trying to get it to show on the camera. This is a loon. This is a Canadian dollar, can you see that loon? That's the Canadian dollar, and that is a loon, the bird loon.

ROMANS: You call a Canadian dollar a loony.

VELSHI: So it is called a loony and when they have a $2 coin which they do, it's called a toon. And she knows why we're talking about the loony. JENNIFER WESTHOVEN, CNN CORRESPONDENT: We're all a little loony. All right. A loony week for the dollar too. It is now sub solo that Canada no longer a bargain. And it's the first time that has happened since 1976 that the U.S. dollar is worth the same a Canadian dollar.

VELSHI: The only thing I remember from 1976 is I had hair.

WESTHOVEN: And you were?

VELSHI: Small.

WESTHOVEN: A wee lad.

VELSHI: So this is unbelievable. The U.S. dollar will get you a loony, $1 Canadian. There are implications of that. It's not just cute for Canadians.

WESTHOVEN: It might mean our products become cheaper, and more Canadians will buy more U.S. stuff.

VELSHI: It's bad for Americans that want to travel to Canada or Europe. The euro, $1.40 to get a euro, so it will keep you all home. Which is not a bad thing because Americans will spend money their money at home, other people will come here, as you said, and they'll buy American goods. Americans will buy American goods. All in all, not a bad deal.

ROMANS: Except a week dollar is indicative of concerns about the overall economy. And the fact that the rest of the world is growing faster then the United States, That's not good.

VELSHI: But the economy can do well as a result of it. A lot of economies do well because of weak dollars.

WESTHOVEN: Bad for people that work near the borders I think who are used to Americans coming in.

VELSHI: A lot of border towns you see or the big cities that are within proximity to borders. What else going on?

ROMANS: We could have a showdown over whether weak dollar is good.

VELSHI: Let's bring another country into the mix then.

ROMANS: How about Dubai?

WESTHOVEN: Well a Middle East buyer wants to get into a big U.S. name and we are talking about the Nasdaq stock market. This has got Washington's notice, Dubai's government, its coffers fattened by high oil prices, bid for nearly 20 percent of the Nasdaq. And I'm sure you remember last year that firestorm when the Dubai government company nearly ended up running key U.S. ports. Now that was shot down and a new law was set up in the aftermath. So this deal will have to win federal approval. We learned we have very opposing viewpoints on this at the table. VELSHI: These Dubai companies are run fairly independently of the government of Dubai and exchanges are competitive.

ROMANS: Ali the press release that created -- a company that was created last month is going to control 20 percent of the Nasdaq stock market.

VELSHI: If they don't run it well, people will list their stocks elsewhere.

ROMANS: We're here to reflect the vision of Shaikh Mohammed. There was this whole long thing about he is everything we do ...

VELSHI: Shaikh Mohammed has a very long history of running successful companies.

WESTHOVEN: I cannot believe people can list their stocks elsewhere. People invest their whole world, their whole financial lively hood in these companies and if the Nasdaq is not playing by the rules of the game, if they are not enforcing the regulations, people investors could lose everything. Investors can't walk off and say ...

ROMANS: We're not saying they can ...

VELSHI: They can move to the New York Stock Exchange, if they feel that the Nasdaq is not being run. One interesting thing here is that it is a 20 percent stake. It is not going to be able ...

ROMANS: Only five percent voting stake.

WESTHOVEN: Companies like Enron, who want to play fast and loose with the rules, it's the Nasdaq's job to make sure they are not cheating.

VELSHI: But that is going to be an important consideration for all stock exchanges and regulators all over the world, I don't see any evidence that a company owned by the government of Dubai will be any looser with the rules. Enron happened on our watch in the United States with the Security and Exchange Commission and the New York Stock Exchange.

WESTHOVEN: We have some of the toughest rules.

ROMANS: Will you at least acknowledge that a foreign government owned company should go through a national security review process. So that you can't just pick countries that it is OK for them to buy our stock.

VELSHI: I do.

ROMANS: And if France were buying part of the Nasdaq, they would be review process. I'm just saying they have to be reviewed very carefully.

VELSHI: I'm sure that will happen. Good, we're talking about all sorts of other companies now, Jennifer thank you so much. ROMANS: One of the perks of retirement is supposed to be sleeping in, right? But retiree Bob Works didn't get that memo.

VELSHI: Ever since Bob Works left the fast pace of the working world out of New York City and he moved to Vermont, he has been getting up every day at 4:00 in the morning.

(BEGIN VIDEOTAPE)

VELSHI: New York, bright lights, big city, and Bob Works traded it all in for something completely different.

BOB WORKS, OWNER, PEAKED MOUNTAIN FARM: We call our farm a food farm. We have sheep, that's our primary animal product and from the sheep we make cheese, we process meat, we process wool.

VELSHI: Bob and his wife Ann run Peaked Mountain Farm in Townsend, Vermont. They moved there 12 years ago when the company Bob worked for in New York went public and he cashed out.

WORKS: When I was 48 years old, I retired from my chosen and my passionate profession. I loved corporate real estate, it was my total career. It was a great way to make a living. But I wanted a profession or a new chapter in my life that would allow me to learn something new, totally new, something that I cared about as a consumer previous to this, and that would provide a living and a life-style. And that's what farming does.

VELSHI: Every morning at 4:00 a.m., their day begins. Milking the sheep, herding them into pastures, feeding the pigs, and then it's time to make the cheese.

WORKS: We produce 6,000 pounds of raw sheep's milk cheese. Which is sold in California, New York City and Boston. And also off of the farm. So here locally in Vermont, different restaurant and inns and co-ops. That's our primary product. Fourteen hour day, easy. That's every day without exception. I don't want to make it sound like this is slave labor or something. But we also have the pleasure of stopping what we're doing, having lunch together, eating the food as we make it it's a great way to live.

(END VIDEOTAPE)

ROMANS: The whole program this hour is about where you stand.

VELSHI: In this economy, whether it's jobs and oil, markets and housing, we'll come back and bring it all together for you, so you know whether your situation looks like that of the rest of America. Stay with us you're watching YOUR MONEY we're coming right back.

(COMMERCIAL BREAK)

ROMANS: What's the bottom line for us? What does this all mean for us?

VELSHI: The bottom line is that stocks are up, if you are diversified in your investments over the last year, even this year alone, your Dow is up 10 percent, your Nasdaq is up 10 percent, and your S&P 500 is up 7 percent.

ROMANS: Pay bills on time, manage your debt, and make sure that you are not living beyond your means, that you are using your debt for the right reason. Thank you so much for joining us.

VELSHI: Join us again next week. You can catch Christine later today at 6:00 p.m. Eastern on "Lou Dobbs This Week."

ROMANS: And you can see Ali every week day morning on "American Morning." We will see you back here next week.

VELSHI: Saturday at 1:00 and Sunday at 3:00. Have a great week.

WHITFIELD: Good afternoon. I'm Fredricka Whitfield. Straight ahead in the NEWSROOM, the march, the aftermath and now the backlash over Jena. We will take a closer look at racial tensions trigger by events in that small town.

Also, Iran's president is coming to New York this weekend. He's already getting the cold shoulder from some. But an Ivy League university is welcoming him with open arms. We will tell you why they won't take back their invitation.

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