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Open House

Recession-Proof Your Money; Are We Headed Towards Recession?; How to Save for Your Retirement; A Great Super Bowl Party For Less

Aired January 26, 2008 - 09:30   ET

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

BETTY NGUYEN, CNN ANCHOR: Yeah, it's really interesting when you look back and you see the times today and this is being a big primary for both Barack Obama and Hillary Clinton and John Edwards.
JOSH LEVS, CNN CORRESPONDENT: Huge deal and everyone out there taking part today in the primaries anywhere in South Carolina, we want your i-Report, take photos, send those stories, cnn.com. At the very top, you see a link that says "i-Reports," just click on it, send us your stories, we'll share them on TV and online.

NGUYEN: All right. Thank you, Josh.

LEVS: Thanks guys.

NGUYEN: Well, coming up on the CNN NEWSROOM.

T.J. HOLMES, CNN ANCHOR: We got a lot of stuff coming your way at the top of the hour. But don't go away, because OPEN HOUSE with Gerri Willis starts right now.

GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money. Coming up, "Financial Security Watch," we'll show you how to recession proof your savings. Everything you need to know now about protecting your money. Then your questions and real answers. We're putting what's on your mind on our show.

But first, the big questions on everybody's mind: are we headed toward recession? Will an economic stimulus plan make all the difference? And what does this mean to your family?

Peter Schiff is the author of "Crash Proof: How to Profit from the Coming Economic Collapse," he's joining us from Stamford, Connecticut. Greg McBride is coming back to us, he's a senior analyst with BankRates.com, joining us from West Palm Beach in Florida. Knight Kiplinger is editor-in-chief of "Kiplinger's Personal Finance," and joins us from Washington.

Welcome to all of my panelists. Good to see you guys.

PETER SCHIFF, AUTHOR: Thank you.

KNIGHT KIPLINGER, KIPLINGER'S PERSONAL FINANCE: Hi, Gerri.

WILLIS: Let's start with the biggest headline this week. The president and Congress seem to be coming to terms with a stimulus plan, could mean as much as $300 to $1,200 per American families. I have to assert with you, Knight, is this going to be meaningful? Will this drag the economy back from recession?

KIPLINGER: Not by itself. I don't think it's a big deal economically. Some people will spend the money, some people whether save it. It's not enough by itself. I think the effect is more psychological. Just as I think the fed's rate cut a couple of days ago had a short-term psychological effect. I think the U.S. economy is going to avoid recession because of the underappreciated sectors of this economy that are doing very well. We know what's hurting, but we don't appreciate who's doing really well.

WILLIS: Right. Greg, I got to get to you for a second because of what knight mentioned about this not being enough. What if the fed continues cutting rates? We had a 75 basis point rate cut, this week. Is that going to be enough, do we need more?

GREG MCBRIDE, BANKRATE.COM: I think we need more and will get more. As Knight said, the stimulus package isn't going to be enough by itself, but neither would the fed interest rate cuts. Combined, that could make a big difference. I do expect that the fed will cut interest rates again this coming week because it's a long haul until their next meeting in March. They don't have the luxury of sitting back and waiting.

WILLIS: Peter, is this the right medicine.

SCHIFF: Not at all. You know, first of all, we're already in a recession; it's going to get a lot worse. But the last thing we want to do is stimulate more spending. The way we got into this mess is Americans spending money we don't have. Now, we're loaded up with debt and we can barely repay it. We need to start saving. All the stimulus package is going to do is lead to more inflation, ultimately higher long-term interest rates and that's the last thing American consumers want is higher inflation, to compound these problems.

WILLIS: In fact you make the point in your book that we could be headed for a big depression. Night, what do you think of that?

KIPLINGER: Well, if Peter means by that a depression like the 1930s, in which GDP fell by 50 percent and employment hit 25 percent, one out of every four working Americans in the 1930s, no we're not headed for a great depression, as a matter of fact, I think we're going to escape right on the edge of zero growth through most of this year, anemic growth that's not going to feel very good, but we're going to avoid a clinical recession of contracting output for two or more quarters.

SCHIFF: You know, the economy is already contracting. If you measure it in anything other than U.S. dollars, which are shrinking themselves, if you measure our economy Eros, in Canadian dollars, in gold bullion, it's been in a massive decline and that's going to continue. You know, the government is debasing our money and it's screwing up all the measures of valuation. We measure stocks, we measure real estate prices in a currency that is in a perpetual decline. So, it gives the illusion of growth. WILLIS: Even so, let's take a look at how stocks typically perform pre, during and post recession. There's actually a good news story coming here. You know, the stock market anticipates what's going on with the economy and we could be in a situation, we saw some this week, where stocks go up. Greg, what do you think about the prospects for investigating in the stock market?

MCBRIDE: I think the prospects are very good, provided that you have a long-term horizon. You're getting a much better value out of the market now than you did just a new weeks ago. And I think that that's why you saw such a big turn around in the middle of this last week where you had a big intraday swing, a lot of investors recognizing that value and stepping in. Once the economy regains it's footing, I think the market will do quite well, particularly with large cap stocks. The valuations are not scary, they are very attractive and with the latest downswing it just makes it all the more attractive.

WILLIS: Peter, can I get you to something that I know you think is very scary and that's the housing market. Where are housing prices going?

SCHIFF: Well, you know, they're going to go a lot lower. Remember, what happened in the housing bubble is you had this, you know, the low interest rates fed the housing bubble and Americans were operating under the delusion that their home equity represented legitimate wealth and they went and borrowed trillions of dollars against that home equity and they used all kinds of gimmicks to be able to afford the loans -- teaser rates, negative am (ph), option arms -- and now that these rates are resetting, and the home equity is vanishing, they realize that, you know, that equity is gone and all they have is debt. And we're going to have a major recession.

Home prices are going to be substantially lower. And if you're talking about stocks, we have been in a major bear market since 2000. The Dow is down over 70 percent since it's 2000 peak, priced in gold. This is a major bear market. Stocks are going a lot lower, the dollar is going lower. People need to invest abroad. They need to get their money out of U.S. dollars, out of U.S. bonds...

WILLIS: It's always good to diversify, right Knight. I mean, diversification is a beautiful thing.

KIPLINGER: You know, I Share peter's enthusiasm for the global economy. I'm a serious global investor myself. And like Peter, I expressed warnings over the last two years about inflated residential home prices. I expressed warnings about Dow 14,000, last fall. I mentioned earlier the unappreciated strengths of the U.S. economy. If the U.S. Economy were entirely home building and autos and a few money centering banks we'd be in a severe recession already, which we are not. Let's look at the strengths of this economy.

Export manufacturing, earth moving equipment, aviation, medical diagnostic equipment, chemicals, software, the United States is on an export tear selling to strong economies all over the world. SCHIFF: Yeah, but we have a record trade deficit. How are we on an export tear when we still have $65 billion a month trade deficits and...

KIPLINGER: Because of petroleum. Because of the price of a...

(CROSSTALK)

WILLIS: Guys, guys, we're going to have to leave it there. I'm so sorry. It's such a great conversation. I'm sure we'll have you back. Great conversation, great points, thanks so much.

SCHIFF: Thank you.

KIPLINGER: Thank you.

MCBRIDE: Thank you.

WILLIS: Coming up on OPEN HOUSE, start saving now, even in a though economy. We'll tell you how to protect your money. Plus we're giving you the microphone and answering your questions.

And it doesn't have to be all bad news. We'll show you how to have a great Super Bowl party for less.

(COMMERCIAL BREAK)

(BEGIN GRAPHIC)

Nearly 45 percent of Americans are "at risk" of being unable to maintain their standard of living in retirement.

(END GRAPHIC)

WILLIS: Only 53 percent of full-time workers are contributing to their retirement, that's according to the Employee Benefits Research Institute. And with the markets on a roller coaster ride, you may be worried about your 401K. But, before you make any decisions about your future savings, you'll want to listen to our next guest. Lynnette Khalfani Cox is a financial expert and author of "Investing Success."

Good to see you again, Lynnette.

LYNNETTE KHALFANI COX, AUTHOR: Thank you. Great to be back.

WILLIS: You know, I think the question this week is recession proving your life. How do you go about that? What do you do -- what do you think you do and now that the economy is really in trouble, people are looking for answers?

People are worried about the stock market; they're concerned about the prospect of us tipping into a recession. You can do a couple of things: one is keep your credit squeaky clean. I mean, don't pay any payments late, don't max out your credit cards. Those kind of things will help. You also want to shore up your cash position. So if you have...

WILLIS: Get some savings, right?

COX: Yeah.

WILLIS: I mean, you got to set some money aside in case you lose your job because that's what happens in a recession, right?

COX: We have seen unemployment tick up, five percent. Some experts think it might go as high as six, maybe six-and-a-half percent in 2008. So, you want to have some money set aside to deal with an emergency.

WILLIS: Absolutely. They say three to six months worth of savings. You know, there are other things you can do. I some times say that maybe people want to think about getting a home equity line of credit. If you have a job now, it might be smart to have one of those in your back pocket. You can find ones that cost nothing at all. And if the worst happens you can pay that mortgage.

COX: You can pay that stuff off. And the other thing is that because of the recent fed rate cut, it's even more attractive to get that home equity line of credit, or home equity loan, it's your standby, it's a bit of a protection in uncertain times.

WILLIS: So, let's talk about 401Ks because I know people out there are thinking: golly, I don't want to contribute the max of my 401K because look what's going on in the market.

COX: Yeah, we joke about it and you know, that 401K is starting to look like a 201K. But really, you know, as turbulent as the markets have been, as uncertain as these times seem to be. Now is the absolute worst time to let that fear major overtake more rational thinking and saying forget it, I'm not going to cut my losses or I'm not going to contribute. Some people have 20 plus years, or whatever, before retirement, anyway.

WILLIS: Some people are saying I'm going to borrow from my 401K and find something else to invest in. That seems to be totally crazy.

COX: Yeah, I don't think that's a good idea at all. For one, you know, you do have the benefit of paying yourself back the money with interest, but again, you have to know the rules. One of the rules concerning 401K withdrawals is that if you separate from your job for any reason, if you get a pink slip or you just decide to quit and go elsewhere, you have to pay that money back, it's due in full or else you face tax consequences. So, I don't like to see people borrow willy-nilly from their 401K plan.

WILLIS: And you say something interesting about 401Ks. If you haven't been at your company very long, watch out, they'll just cash the thing out.

COX: Yeah, if you haven't been there long and you have under $5,000 and you do separate from the company, they can legally say, here, take this money, you go do something with it, because frankly, for the company it's more of an administrative burden than they deem appropriate for them to have to deal with. So they can make you go elsewhere with that money.

WILLIS: Make you go elsewhere, but you got to be careful what you do. It's always better to roll it over, take care of this yourself and not pay those extra taxes. What other ways can I think about investing, right now? I know people are scared of the stock market, but that's probably a good to place to start, right now?

COX: It really is for a lot of reasons, one is that you can dollar cost average in a market like this. Yes, we're going to experience volatility. That isn't going to go away, frankly. But if you dollar cost average, which means you simply set aside a fixed amount of money into the markets at a scheduled time regular time every month, month in and month out. That way you take the motion out of the equation and get yourself disciplined...

WILLIS: And you reduce your overall investing cost.

COX: Right, you lower the average price point of the shares that you are buying.

WILLIS: That's a great thing. So, where else would you put money, right now?

COX: You know, obviously housing, real estate is down, right now. People are worried about that, but if you are a potential investor or maybe looking to be a first-time buyer, actually there are bargains galore. You know, I'm not saying go out there and be speculative, don't try to flip a house, that's not the strategy eight now, at all.

But, at the same time, if some of you are saying, you know, I wanted to buy a house in the next year or so, you can definitely find some good bargains. People are obviously flocking, as well, to more traditional safe havens when it comes to investing, you know, bonds, things of that nature, government securities. So, those are alternatives to consider.

WILLIS: And, you know, if you are buying that house out there, mortgage rates are very low, right now. You know, people don't realize that there were double digit mortgage rates, your parents probably paid that at some point.

COX: Exactly, 10 or 11 percent in the '80s and you know, or even beyond that. So, what we have, by relative standards, is very, very attractive.

WILLIS: Lynnette, thank you so much for that.

Stick around, up next, we took to the streets to find out what's on your mind, answers to your questions coming up. And get ready to throw the best Super Bowl party ever without breaking the bank. But first, your mortgage numbers.

(COMMERCIAL BREAK) WILLIS: It's time to answer what's on your mind. As you know, CNN's "Financial Security Watches" is all about looking out for you. We took to the streets to get your comments, your questions and your concerns about the economy. I'm joined again by Lynnette Khanfani Cox.

Lynnette, let's get those questions out there, right now.

COX: A lot of people want some stuff.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I'm looking to investment (INAUDIBLE) and one of my question would be would (INAUDIBLE) housing market?

(END VIDEO CLIP)

COX: This is about volatility in the housing market.

WILLIS: Real estate and invests in the housing market. Lynnette, what do you say?

COX: Well, he was asking if there was going to be volatility. Stock market volatility, yes. I don't think we're going to see a tremendous amount of volatility in the housing market. I think it's just going to be flat or down. So, that's my expectation for 2008 and for next year, as he was asking about, for 2009. It's possible we may see a teeny bit of a rebound in '09, but I wouldn't necessarily count on it. For him as a prospective buyer, that's good news, because it's a buyer's market.

WILLIS: Well, I got to tell you, I think he's sitting pretty. Here's a guy that doesn't have to sell a home in the U.S. to buy a new home, so he's really looking good, right now. And I say start shopping in another 10, 12 months you may really be happy. Let's go to the next person. What's your question?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Is it better to put your money to pay down your mortgage or are you better off investing with additional money that you might have?

(END VIDEO CLIP)

WILLIS: What do you say to that?

COX: I say neither. Actually, I think that in the time that we're facing a recession, No. 1 priority, if you have extra cash, as he mentioned, is to shore up the cash position, take that extra chunk, he said "the government," maybe he means a tax refund check, put it aside so that you have that three to six month cash cushion. If you already have that, then I think, out of the two, I would actually recommend paying down the mortgage or whatever other debt you have as opposed to throwing extra money into the stock market.

WILLIS: All right, let's go to the next question.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Which candidate for president is really going to step up and really put forward a clear plan? Because right now I'm worried, but I don't see a very clear economic plan for young people.

(END VIDEO CLIP)

WILLIS: Well, you know, that's a great question, because all the candidates say they have an economic plan.

COX: They don't all have one.

WILLIS: What do you think?

COX: I don't' know, they haven't told us specifically for young people, as she mentioned, what that is. I think the Democrats are talked about more that would impact young people is student loan aid. You know, but again, sketchy on details, they haven't' told us a lot. Maybe they want to lower interest rates, that's one plan that's been offered through different plans, different proposals. Or maybe they want to take away from some of the profits from student loan companies. But again, they haven't really been too specific, here.

WILLIS: It's hard to yell who's going to be best for the markets, for the housing markets for taxes.

COX: And is it really possible.?

WILLIS: Probably the biggest revolution is Huckabee saying let's get rid of the IRS. Let's go to the next question.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: So, I was wondering is it -- I'm running out of space at home, is it better to renovate right now or buy a new place?

(END VIDEO CLIP)

WILLIS: It's all about whether or not you have to sell your house right now to get the new house. I think that's got to be a big question on your mind and how easy is it to unload your home if you're running out of space. What do you think, Lynnette?

COX: Do like I'm doing, renovate. You know? Build up, build out, add to the house. I really do think, for most people that will be a cheaper way to do it. You don't have wait, you don't have to sell your house. You don't have to go through a mortgage approval, all those kind of things.

WILLIS: And the beauty of that is that, renovators, right now, they're looking for work.

COX: Yeah, they really are offering great deals, so I think that's probably the best strategy, right now.

WILLIS: All right, Lynnette, thank you so much for being with us today. I want to tell you, right now we are one week away from the Super Bowl and our crew guys are really excited. They're here with Tony Siragusa. And remember -- oh, wow, look at that -- it's not too late to plan a party, one that doesn't cost a whole lot of cash. The details are coming up, but first your "Local Lowdown."

(BEGIN VIDEOTAPE)

WILLIS (voice over): Phoenix, Arizona, this dessert city is just miles from Super Bowl XLII. But, forget the big game, it's sold out, instead, check out the zoo. One of the newer zoos in the country, the Phoenix Zoo is home to approximately 1,200 animals and it's open 365 days a year.

Spend the day in nearby Scottsdale. Stroll through the historic old town, shop around or visit one of over 100 art galleries in town. Or take a drive on the Apache Trail. This scenic route offers unbelievable views of canyons, lakes and geologic formations. But, be aware, the steep and narrow trail is not recommended for nervous drivers.

That's your "Local Lowdown."

(COMMERCIAL BREAK)

WILLIS: It's countdown to the Super Bowl and this year it's the ultimate East Coast matchup: Patriots versus the Giants and of course I'm for the Patriots. So, how do you throw the ultimate Super Bowl party without breaking the bank? Former Baltimore Raven and Super Bowl XXXV champ, Tony "The Goose" Siragusa, and carpenter and remodeling expert, Jason Cameron, host of "Man Caves" on DYI.

JASON CAMERON, MAN CAVE: Hey, you guys welcome. Was that not impressive?

TONY "THE GOOSE" SIRAGUSA, FMR. BALTIMORE RAVEN: Well, we've got to tease you a little bit. Hold that football again, let me see how -- let's see your form.

WILLIS: Isn't that like -- that's kind of right.

SIRAGUSA: Let me see it, you got it, you got to like sort of get the crease -- lick the fingers a little bit, pat it, then you bring it back pasts the ear. Not this. Not this.

WILLIS: Oh.

SIRAGUSA: Sort of by the ear.

WILLIS: That looks really good. You're a professional.

CAMERON: What he said.

WILLIS: What do you think Jason. CAMERON: That was much better just now than it was earlier.

WILLIS: OK. All right.

CAMERON: No, you got some room to improve. You got it.

WILLIS: I'm mostly about the party, I have to tell you. OK? Let's talk about the party. And the thing you guys say is, for the perfect party, big TV.

CAMERON: Not just any party, "Man Cave" party, that's what we're talking about.

WILLIS: We have to have a "Man Cave" party?

CAMERON: It's got to be a "Man Cave" party, it's Super Bowl.

SIRAGUSA: Absolutely, the guys hanging out.

WILLIS: You guys went all out. Thanks for the chips.

SIRAGUSA: Got to watch the game.

CAMERON: I'm glad we could help.

WILLIS: Can we talk about the TV?

CAMERON: Yes, we can. It's -- one of the most important things about watching the Super Bowl, is you got to have a new TV. I'm talking 60-inch -- at least 60-inch HDTV, LCD plasma.

WILLIS: I'm not spending $5,000 for a TV set.

SIRAGUSA: Rent it. You can rent it for one day at $300.

CAMERON: You know, Gerri, they're running a lot of sales right now, you can go to Best Buy, after the holidays, now is the time to get a television.

WILLIS: OK, well, all right.

CAMERON: Now's the time to get an HD television.

WILLIS: What else do I need for this big party? How about -- but, you brought me Coca-Colas. I'm thinking maybe beer?

CAMERON: No, we didn't bring that.

SIRAGUSA: You got to have some kind of cocktails, let's put it as cocktails.

WILLIS: You said kegs, that's not what I would call elegant. You know what I mean?

CAMERON: You're looking for an elegant party? Tony, we're in the wrong place. Is this the "Man Cave" interview or what are we doing here?

SIRAGUSA: Elegant?

CAMERON: Are we in the right place, here?

SIRAGUSA: I don't know.

WILLIS: You know, maybe some canopies. No?

SIRAGUSA: Chips.

CAMERON: Listen, we don't want five star, we just want finger foods. But, you got to have beer. I mean, come on. If you're going to do it right -- a perfect example is to get a small refrigerator. All right? The hot/cold refrigerator, that way you can put it right there in the room. That way you don't have to get up to go get your beer. It's right there for you. Or if you want to go into it further, get the Kegorator. Do it right.

WILLIS: What's a Kegorator?

CAMERON: Kegorator is what you put the keg in with a little cap on top.

WILLIS: All right, you obviously have more experience at this than I do.

SIRAGUSA: Beer at my house never really gets to that, so it's cold by the time it's -- it never gets warm. It's empty before...

WILLIS: OK, we talked about food. You said the ultimate way to save some dough is to make everybody bring something.

CAMERON: Divvy it up. Everybody bring something, you save a little money, they bring what they want, you've got, you know, a ton of choices.

SIRAGUSA: Tough, though at mine, I got a lot of freeloaders. A lot of freeloaders.

CAMERON: They come over looking for the handouts.

WILLIS: Now, when you say bring something to my house, they don't say: yes sir?

CAMERON: You think they would.

SIRAGUSA: I make like, chili, I make like a regular chili and then I put like ridiculous hot sauce in one and like all the freeloaders I give them that stuff. Burning. They don't come back.

WILLIS: That sounds like fun. You know, we're out of time.

CAMERON: Is that it? Thanks for having us.

WILLIS: Can I say thank you for coming. I really enjoyed it. CAMERON: Thanks for having us.

SIRAGUSA: Thank you.

WILLIS: All right. You can hear much more about the impact of this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN.

As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be back next week, right here on CNN and you can catch us on HEADLINE NEWS every Saturday and Sunday at 3:30 p.m. Eastern Time. Don't go anywhere, your top stories are next in the CNN NEWSROOM. Have a great weekend.

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