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Your Money
The Huge Economic Problems Barack Obama Faces; What He Can Do to Get the Labor Market Growing; What You Can Do to Keep Your Job or Survive a Pink Slip
Aired November 08, 2008 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN HOST: Welcome to YOUR MONEY. I'm Ali Velshi.
CHRISTINE ROMANS, CNN HOST: And I'm Christine Romans.
Barack Obama has a new job, but will you keep yours. Another month of staggering job losses provided a sobering backdrop for a week in which the presidential election finally ended and the transition to power began.
VELSHI: In the next 60 minutes, we'll examine the huge economic challenges facing this new president-elect, what, if anything, he can do to get the labor market growing, and what you can do to keep your job or survive a pink slip.
To tell you about this job market that we keep talking about.
ROMANS: 1.2 million jobs almost lost so far this year, Ali, and half of those coming in just the past three months. That means that the deterioration is quickening here in the labor market. Something is happening in the economy right now and there are expectations that losses like these will continue into next year.
VELSHI: We expected to see 200,000 jobs lost in October. We got the news that it was 240,000 in that September number which was a 159,000 was revised to 284,000. This is pretty serious. We will talk about what this means and whether these job loses will stop.
The problem here is when you start to see numbers of this magnitude. Some of you already know lots of people who have lost jobs depending on where you are in the country. But now it's starting to permeate. People are starting to fear about what's going on happen to them.
ROMANS: Let's talk about where we have seen the job losses mounting. Ten months in a row, no surprise that manufacturing leads the way here, and another 90,000 jobs lost there, construction 49,000 jobs lost. Business services 51,000, retail, finance, anything that touches the consumer. Car dealers, travel agents, restaurants, airlines, those are all --
VELSHI: Anything that you have an opportunity to spend on, if you don't have to spend on it, you're not spending. Let's talk about where the gains have been seen in October. They tend to be the same sectors we're seeing over and over again. Healthcare which relates to our aging population added some jobs and government-added jobs and while that's good news you don't tend to want to see your job creation being led by government and mining added new jobs. That had something to do with the energy sector, the amount of work that's being done over there. There are issues about places in the country being better off than other.
ROMANS: There are. You have a couple of states that always lead. Michigan and Rhode Island have like 8 percent plus unemployment rate. Look that the map. The green there are states that have better than average unemployment situation.
The red states is where you are seeing the jobless rates higher than the national average and then sort of the gray are holding on to the average, but you look at where you can see some of those mountain states you see a better situation. South Dakota, Wyoming only having 3 percent, I think, unemployment rate in that area, but some of these other states you're talking 6, 7, 8 percent unemployment rate.
VELSHI: Some of the areas are benefiting from technology, Virginia being green, lower than average unemployment. Texas is another one of those states, but they are few and far between and when it comes to manufacturing jobs, virtually no state is adding manufacturing jobs.
ROMANS: The job is the backbone of your economy. Let's talk to some experts about what you can do about jobs and what you can expect in the job situation going forward. Lakshman Achuthan is the managing editor of the Economic Cycle Research Institute. "Business Week" senior writer Diane Brady and Ben Dattner organization sociologist and founder of Dattner Consultants.
In short, he is our workplace consultant today. Let's start with Lakshman and get the big sort of overview of this economic situation. We have just painted a pretty grim picture.
LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: You have and your unemployment map was very interesting. Another aspect that is holding up the middle of the country was the boom in oil prices and food prices that is right down the center of the country.
VELSHI: Oil and on the higher end they have the corn and the wheat.
ACHUTHAN: You see the recession is pervasive job losses. So it's squeezing in from the coasts and now it's gripped the entire country and the numbers are showing that. Today's numbers are also showing us really the third chapter of this recession. It started off at the beginning of the year as a very mild recession, job losses below 100,000. By summer we saw, because of the global economy going into recession, all of a sudden the manufacturing exports started to collapse.
VELSHI: The rest of the world was doing OK and they could buy the products that we were manufacturing. ACHUTHAN: Which kept everything kind of mild and we saw a shift in the summer and from September and October we've had this big jerk downward and it spread to business services, consumer services and all of these things.
ROMANS: Diane you say that it's even worse than we see on the surface because there are people dropping out of the labor market that are so discouraged.
DIANE BRADY, SENIOR WRITER, "BUSINESS WEEK:" They have a concept called under employment. You see people being forced into part-time work and full time work and hours are being cut.
There are also people out there who are technically able to do jobs much higher than what they end up getting. So, for example, if you were in financial services, you are now folding sweaters at Gap, that's not necessarily a bad job but you really would prefer to be back in financial services so I think the whole underemployment situation has --
VELSHI: And switched to freelance workers in many cases and workers without benefits.
BRADY: Contract work. Exactly.
VELSHI: We also saw an up tick in the unemployment rate from 6.1 to 6.2 percent but that speaks to what you and Christine often says, 6.2 percent is a measure of those people who are either working or --
ROMANS: I think it is 6.5 percent.
VELSHI: I still haven't been able to register that.
ROMANS: The highest in 14 years. Well 14 years ago, we were in the midst of another ugly time.
ACHUTHAN: We were recovering from a nasty recession. We were starting to get to see better numbers. So that also tells us essentially that these numbers are going get worse. You are not necessarily seeing the heart of the recession here. It will get worse.
VELSHI: Ben let's ask you this. You are a workplace guy. You're an organizational psychologist. We keep hearing about things you should do, being nice to your boss. Bottom line is these kinds of numbers are not about individuals being selected to be laid off. These are in many cases mass layoffs. October saw the biggest number of mass layoffs in five years. You can be as nice as you want; you're a number at this point.
BEN DATTNER, WORKPLACE CONSULTANT: Absolutely right. As my high school social studies teacher used to say. If you have a job there's 100 percent employment, if you don't there's 100 percent unemployment. It is important to be focused on your job and do not get distracted by organizational politics and let's not get caught up in gossip.
ROMANS: Don't panic, too. It is not the time to be panicking. The other thing is how do you know if you are at your job, how do you tell the writing on the wall that you might be one of these people that is going to be laid off, or your whole division -- should people be looking around to get an idea that hey, it might be me and I need to be doing something about it?
DATTNER: Unfortunately in today's world, the old psychological contract between employees and their companies has totally eroded. So even before the crisis hit people cannot count on lifetime employment or job security. Unfortunately, I think people always have to be looking around, developing their skills and thinking about what their next move might be.
VELSHI: What does this mean? Avoid unemployed word?
DATTNER: I coined the term intra employed which I think is a lot more positive then unemployed, when people ask you what are you currently doing, if you say I'm intra employed.
VELSHI: If someone told me they were intra employed the first thing I'd tell them is stop talking nonsense. You're not going to get a job.
DATTNER: It would have broken the ice.
VELSHI: I suppose that's true, but I don't think -- are you suggesting there's a stigma to be unemployed in this market? I think people think there is. With so many people unemployed you are now --
DATTNER: That's an important point. In some ways this is the best time to be looking for work because nobody will think you're a poor performer. They'll think there were massive layoffs at your company.
ROMANS: There are a couple different ways to look at it, there are poor performers this is the reason -- anybody with head count in this country, I've said this for weeks. Anybody who was in charge of head count in this country knows they're top and bottom performers and their boss probably knows them at this point, too, but there are some people who are going to lose their job through no fault of their own and that's a really hard part to come to grips with because when you lose a job, you've lost, it can be depressing and it can lower your confidence.
VELSHI: When you're seeing a company laying off 500 or 1,000 or 2,000 people or 3,000 at a time as we've seen over the last few weeks. At that point there's not necessarily a sense that they're going through and selecting individuals. It could be just everybody under a certain level.
ROMANS: The other thing, too, a lot of advice we get from work places consultants says makes sure that you have a good relationship with your boss. Well if your boss gets canned and you have a relationship with your boss, you need to know your boss's bosses too. We just saw from Ford just cutting a bunch of white collar jobs, management jobs. A lot of management kind of jobs that will be lost, too. Everyone, stick with us. We'll talk about this in a minute.
The election is over. Obama has his dream job. It's time for you to find yours.
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VELSHI: More layoffs announced this week. Fidelity Investments, the world's largest mutual fund company says it will cut 1,500 jobs. Another round of layoffs would occur in the first quarter of 2009. Toy maker Mattel is even cutting jobs reducing its workforce worldwide by 1,000 jobs.
ROMANS: Things look like they could get even worse. What's the next administration to do?
We are joined by Lakshman Achuthan the managing editor of the Economic Cycle Research Institute. "Business Week" senior writer Diane Brady and Ben Dattner organization sociologist and founder of Dattner Consultants.
VELSHI: Let's talk about infrastructure projects. A new stimulus bill and some of this might include infrastructure spending. Diane sort of nodding her head thinking this isn't the solution.
BRADY: You know I think there are only so many of how can get out there and build bridges for us. I mean, yes, its one solution and it will not make much difference. Washington's job is to protect us from the vagaries of the economy. It can't really create jobs. That's a private sector --
VELSHI: What do you think, Lakshman?
ACHUTHAN: This is part of the longer term economic plans that are being proposed in the short term which is what really matters here ask what's going on in the job market. There are just a couple of things that the government can do. One is shore up state and local government budget which is are getting crushed and we even see in today's number, you saw the revision and the revision to the September government job losses. There were big job losses there which means they're firing teachers and postal workers.
These are guys you don't want to fire in the middle of a recession that just makes everything worse. The second thing is getting a v-shaped recovery. The last two recoveries we had were so- called jobless recoveries and that's the last thing we need here. Imagine they're saying there is a recovery but nobody is getting hired.
VELSHI: This is an important point. To Ben's point, if you have a job, the economy's fine. If you don't have a job, you're in recession. There's an unemployment problem. If you don't have a job, you stop spending and then the economy continues to shut down.
ACHUTHAN: They have to extend unemployment benefits because those are expiring for people who lost their jobs in the beginning of this year, this is a vicious cycle because if you lose your job or you have to go into some part-time thing then you have to foreclose on your home and we know it is at the epicenter of the whole thing to begin with.
Generating a v-shaped recovery which we've not had since the early '80s. How do you do that? We know we'll have stimulus spending in one way, shape or form. I'm less concerned about debating the content of that or even the size of that, but more about the timing of it. If you throw it out willy-nilly.
ROMANS: Well, Washington always gets the timing right on stuff like this, right?
ACHUTHAN: This is not easy to do, but none of this is easy and we need to do something hard which is to time this stimulus when the economy is tilted toward going up anyway so we get a v-shaped recovery. This is critical to the 2009 economy.
VELSHI: The challenges, Diane, for this president-elect. He's sitting around late this week with his big names on there. He's got real grown-ups who are advising him, some veterans, advising him on what to do next. At the same time, some veteran companies are laying people off. The auto industry is literally fighting for its life and hemorrhaging money, hundreds of thousands of skilled manufacturing workers are already out of a job. What can the president do in the first term?
BRADY: Well, I think there's no question that the auto industry will get more support. They simply just cannot let all those people get out of work and the ripple effects are too profound. So we'll see some help in Detroit. I think you have to get the banks. Make sure that all that capital that's going into the system is going out. Lending to businesses, lending to consumers and restoring confidence. I don't think that there will be a lot of job creation, per se, out of Washington.
What Washington has to do is do the right stimulus so there's confidence in the system that people will spend again and businesses will feel some comfort at least that they don't have to downsize further, but there's more pain coming.
VELSHI: The White House --
ROMANS: Right.
VELSHI: The economic -- for my monthly haircut.
The reason that the infrastructure problem could not work, Christine made the point that in fact, for purposes of infrastructure, we actually do have the workers probably at the ready.
ROMANS: And we do.
VELSHI: Construction and manufacturing workers are laid off for over a year now.
To that point, we were on the radio show the other day taking calls and somebody called in and said my daughter's been unemployed. She lost her job and she bought a new house and it doesn't look like in her area jobs are coming back for five or six months.
So, Ben, if that's the case, if you've been unemployed in a manufacturing job or a construction job and there really isn't anything on the horizon for you, should retraining be something that you do now? Because what I think happens to people who sit around for six months, eight months and don't get work and then think maybe should I retrain?
DATTNER: Absolutely. Continue to develop your skills throughout the course of your entire career is the best thing you can do.
ROMANS: How do you do that?
DATTNER: Investing in yourself.
ROMANS: You go to a community college? You find out whether jobs are -- how do you do that?
DATTNER: You can volunteer at a non-profit organization to keep your skills sharp. You can enroll in higher education and get additional training or you can move to another area where there may be better opportunities.
VELSHI: In some cases that's an interesting point because we always have some tension on this discussion about whether you can move to another area. Because we present that map that shows where the -- right down the middle of the country these green states, these ones that have a lower unemployment rate than the national average and it's always a question of whether when do you make that decision to move? When your factory has been shut down and you can't sell your house.
ROMANS: Sometimes people can't move for a lot of reasons because they're close to an elderly relative. They can't move.
VELSHI: Kids in school.
ROMANS: Or they're divorced and they have a custody agreement. They can't move for lots of different reasons. They can't move because the public schools are terrible. I feel like there are people who recommend you've got to be nimble and get up and we even had a workplace consultant one time who said you should move to where the countries where the jobs are growing.
VELSHI: I'm not sure at this point when you've a million people who have lost their jobs in this year whether that's not something people should reasonably be thinking about.
ROMANS: At some point you don't have another choice.
VELSHI: Thank you folks for being with us.
BRADY: Thank you.
VELSHI: We have continued great advice on how to search for a new job without jeopardizing the one you already have in case you're worried about losing it.
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ROMANS: Why do they call it a pink slip?
VELSHI: I think it goes back to like early days when people actually got a pink slip when they were terminated.
ROMANS: A long time ago.
VELSHI: I don't think these days' people really get pink slips although the guys were telling me here on the floor that athletes get a pink card sometimes.
ROMANS: Oh. If you're dreading the dreaded pink slip, when employers are slashing jobs it's natural to worry about your job and there's nothing wrong with looking around for what else is available if you fear that pink slip.
VELSHI: So, Liz Wolgemuth joins us now to share some advice on how to look for the new job without losing the one that you're in right now. Liz is a money and business reporter for U.S. News and World Report. Liz thanks for joining us.
This is an issue that's tricky because we've crossed a million jobs loss now this year alone which means people are actually really worried about their own jobs and you have tips for folks that they need to be careful and they need to assess your own level of interest. You need to keep the negotiations classy, ask for security and know your employer. Let's break these down for our viewers.
Let's start with be careful. I assume you mean be discreet when you are looking for a job while you continue to be employed in one.
LIZ WOLGEMUTH, U.S. NEWS & WORLD REPORT: Yes, that is exactly what I mean. There are tremendous advantages of looking for a job when you already have one. You may be more attracted to employers. You're not quite as desperate. You can look at a more varied variety, but the truth is that you're at a tremendous disadvantage and you need to be discreet. You can't pepper your resume out there and hope that it sticks somewhere.
ROMANS: What do you mean by assessing your level of interest? If you're going start looking around you need to know that you want to do it.
WOLGEMUTH: What I mean is that you need to know if you're really willing to leave. I mean if you love your job and you're not leaving until they kick you out the door then it's great to get out there and network and talk with other companies a little bit.
But if you're not really interested and you start interviewing and you sort of follow it through to the thank you notes and a company puts together an offer that meets your expectations and you turn it down and it shows them that you're not really serious, that you weren't serious from the beginning. That's a black mark on you and it's not like you can stick the job offer in your pocket and come back to it later on.
VELSHI: Let's talk about keeping the negotiations classy. What do you mean about that?
WOLGEMUTH: This is when you get to the point when you've gone through the interview. You need a lot of common sense here because you are walking a bit of a tightrope. When you get an outside offer don't accept it right away.
Be grateful, say thank you and then go back to your employer and effectively resign. Tell them you've had this other offer and you're going take it because if they counteroffer and you renege on the last one, again that's just a great way to burn a bridge. If you say thanks to the first and you have both options to weigh, then you are really in a good position.
ROMANS: Its leverage and a lot of people don't have leverage in this economy. It is great if you can generate that leverage for yourself before something bad happens at your own company. What about ask for security? That's another one of your tips.
WOLGEMUTH: If you get an outside offer, you might be able to use that as leverage in a negotiation with your existing employer to ask for sort of an employment contract for a stipulated period of time that allows you the job security that you're probably craving like all Americans are right now. The caution here is do not use an outside job offer for leverage that you are not interested and that you would not take because if your existing employer calls your bluff and says go take it then you're stuck in a job you don't want.
VELSHI: To that point you want to know before you're embarking on this what your employer's culture is with respect to you looking for a job. Because some employers look at this very differently. Some employers see you're being offered a job as a reason to really to go after you and make sure that you stay in your job and others see it as something very bad.
WOLGEMUTH: Absolutely. It's a key part of company culture and you should have friends in the company and you should probably have a mentor at this point and you can kind of rely on them to get a taste or feel for your company culture, but some, if they find out you're talking to a competitor, they'll have you walked to the door. Others won't even negotiate salary until you have an outside offer. So, it's a tricky thing.
ROMANS: Very tricky waters indeed. Thank you for helping us navigate them.
WOLGEMUTH: Thank you.
VELSHI: Whether it is job security or finding a new job, your concerns are now officially shared by millions of Americans. E-mail us your job questions and concerns at ISSUEONE@CNN.com. We'll watch those e-mails and we will get your e-mails addressed by employment experts that will help you take charge of your job situation. If you have good ideas or good suggestion e-mail those to us as well and we'll share those with our viewers.
ROMANS: All right. The big three U.S. automaker are in a whole lot of trouble. Will they be rescued by the new administration?
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FREDRICKA WHITFIELD, CNN ANCHOR: Hello. I'm Fredricka Whitfield in Atlanta. Now in the news three Indonesian militants have been executed for bombing a pair of Bali nightclubs six years ago. That's according to their lawyers. More than 200 people died in the attack and hundreds more were injured.
Hurricane Paloma is heading toward Cuba. The category 4 storm damaged roofs and produced floods and power outages in the Cayman Islands. No deaths or injuries have been reported so far, but the storm is still considered to be extremely dangerous.
A frantic search through the rubble after a three-story school building collapsed in Haiti. At least 82 people are confirmed dead. More than 100 hurt. Hundreds more may still be trapped. Kindergarten, primary and secondary students attended that school. Authorities are blaming shoddy construction.
Coming up at the top of the hour, CNN's special investigations unit. Now back to on more of YOUR MONEY.
ROMANS: Heads of the three leading U.S. automakers met with house speaker Nancy Pelosi Thursday afternoon to discuss a possible bailout. General Motors and Ford reported sizeable third quarter losses this week for revealing the need for painful, new cost outing measures.
VELSHI: I would say they're bigger than sizeable.
ROMANS: It was amazing. The amount of money these companies are burning through is just stunning.
VELSHI: Here's the thing. Is it at the expense of workers? Not that the United Autoworkers Union can help it, they have new clout in Washington after helping the campaign of president-elect Barack Obama. I am joined by Peter Valdez he is the CNNMONEY staff writer, and Beth Schulman, the author of "The Betrayal of Work" and former union organizer. Thanks to both of you for being on the show.
Beth, let's start with you and lets just talk about this? Is there really any clout, I mean we watched the strikes of the last year. You don't get the feeling that the UAW has much clout left anymore. Does the election of Barack Obama substantially help them and other unions in America?
BETH SHULMAN, AUTHOR, "THE BETRAYAL OF WORK:" Well, I think the important point here is that I think investing in the auto industry and the government providing some low interest loans was a win win for everybody. It is a win for business; it is a win for our economy. It is a win for our national security. VELSHI: Except that the automakers have not been able to do anything in the last several years to actually get themselves substantially back on track.
SHULMAN: Well, I think it's important that it be structured in a way that we put that money into kind of re-tooling the industry to have kind of fuel-efficient cars and that workers obviously are a part of that, that they get retrained. That they get the kinds of jobs that are important for working families.
ROMANS: Beth, what are the implications if we're still hemorrhaging jobs in some of these companies and hemorrhaging money in these companies? What are the implications for the labor market, for the middle class and some of these states? We're talking about a situation where some politicians look beyond kind of macro picture of the economy or the companies and say, look, we have the economy and we have these states to worry about.
SHULMAN: Absolutely. We've seen 240,000 jobs lost just this month, more than a million this year. We need to do something to ensure that the industries that can grow and benefit our economy help working families. We can't afford to lose good jobs anymore. This is essential for our middle class.
VELSHI: Peter, so we've got a U.S. auto market which is definitely shrinking. It's been in long-term decline. We were never going to, I mean despite the economy we were never going to sell as many as 16 million or 17 million cars this year, now we are going to be down to 11 or 12 million cars. But some people can make cars in America and make money. What's the problem with Detroit? What's the problem with GM, Ford and Chrysler?
PETER VALDES-DAPENA, WRITER, CNNMONEY.COM: GM, Ford and Chrysler make cars that make money in other places just not in the U.S. And the problem here is you have a long history and a long, trailing history of legacy costs as they're called like healthcare.
Now, a new contract with the UAW should help at least put a cap on that in the next coming couple of years and also the ability to hire workers at lower wages, but, you know, the U.S. auto industry's history in this country which dates back to a time for example in the '50s when there were tons of money going around.
VELSHI: There were workers paying for the stuff of the other workers who were retiring.
VALDES-DAPENA: And you get into these contracts and into these arrangements that carry forward to a time when you can no longer profitably sustain that.
And if you're a company coming into this market, you have new factories to set up. You're setting them up in the south where you don't have to hire union workers; you can have more flexibility to save money, to set up new kind of health care plans that don't cost you that kind of money while still giving those employees -- ROMANS: Somebody's got to make a sacrifice here. This can is an industry that cannot go on as it is, right, Peter? What are the executives going to Washington and asking for and how will they be able to convince policymakers that they can take our money in low- interest loans and actually be able to turn things around?
VALDES-DAPENA: To be fair, the United Autoworkers has made serious concessions and they may not be coming onboard soon enough and it could use help immediately, like now. We're talking about the new health care fund to start taking over around 2010. What the government can do is help pay for this transition in to a new type of worker relationship that's going to cost some money in the short term.
The government can help provide some loans and funds to help pay for that. The government is also providing loans to help pay for switching over to more fuel-efficient smaller products and cars and plug-in hybrids and things like that that will make this industry more competitive in the future in its own home market.
VELSHI: Beth, we've seen -- go ahead. What were you going to say?
SHULMAN: One of the things that are important is this like blaming the consumer for the financial debacle.
VELSHI: Right.
SHULMAN: I mean the reality is CEOs made decisions about doing gas-guzzling cars and there were workers that were doing that.
VELSHI: I agree with that. The bottom line is that people aren't buying the cars. If the American carmaker can't buy them, it doesn't matter who's to blame for it. Do you think what Peter is saying could make sense? Could we go forward in a way that workers are still getting paid and they're getting paid well and they have health benefits but they are the same as what the UAW contract of years gone by would provide for them?
SHULMAN: I think the important thing is we need healthcare reform?
The big three are subsidizing all those employers who don't provide health care. We need healthcare reform and we need some investment in this industry that would be a win-win for everybody and especially right now for working families. We want fuel efficient cars and we can build them here in the United States.
The autoworkers and the automobile companies are notorious for great working relationships with regard to training and really making sure we go forward with this. So I think, again, it's important that we invest in the auto industry, but a new auto industry, a modernized auto industry.
ROMANS: Beth Schulman, author of "The Betrayal of Work," thank you so much Beth. And also Peter Valdez-Dapena, right here, CNNMONEY.com. VELSHI: Stocks took another hit this week. We have specific advice on what you can do with your money. How you can invest it right now.
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VELSHI: Barack Obama's victory ending any uncertainty related to the presidential election, recession fears continue to scare investors off, whether a Democratic White House and a Democratic Congress will be good for your money remains to be seen.
ROMANS: Here's hard core investment advice and where you should be stashing your crash right now. I am joined by Ryan Mack president of Capital Management and Doug Flynn, a certified financial planner with Flynn, Zito Capital Management.
VELSHI: Get your pens and pencils out for this one. This is highly specific advice. Tell us what you just said in the commercial.
ROMANS: I just said in times like this someone always makes a fortune, how, Doug, can I be someone who makes money in all of this nonsense, this chaos?
DOUG FLYNN, FLYNN, ZITO CAPITAL MANAGEMENT: You have to recognize what kind of bull market we're in and the bull market we're in is the bull market of volatility and what I mean by that is if you go back the previous 30 years ending September, there were only 34 days in those 30 years where the market moved more than 4 percent in a day. Since that day we've had about 16 days.
VELSHI: Right.
FLYNN: So we have increased volatility and the likelihood is that that is going to continue. So what you need to do is you need to do more things than just long equity, buying and holding. You to do things that do well in those kinds of times.
VELSHI: I want to run you through a few things that you suggested to us. Number one, municipal bonds or municipal bond funds, number two market neutral strategies, number three, global macro, and number four hedged equity. These are very important. Let's start with municipal bonds and municipal bond funds; these are investments in bridges, street, airports.
FLYNN: You have to realize that relative to treasury, the yields on muni's are at unprecedented levels and levels that we haven't seen in our life time. You are getting more for going with a muni, however, there's more risk there and that's why they're yielding more. You will make money on top of the yield. Some of the yields are in the 5, 6 percent range tax-free over the next couple of years and you may get some appreciation.
VELSHI: Tax free on state or federal level?
FLYNN: Both if you're buying one from your state, if your state has -- ROMANS: How do I find one of those?
FLYNN: You always want to look at your favorite fund provider if you're in a state that has a high-state income tax and you'll look for one in your state, if not you can use a federal one.
VELSHI: Market neutral strategies, you and I spent many years talking about this one. The idea that there are investments that you can make that operate, they are sort of agnostic to how the general market trend is going.
FLYNN: Exactly, we're just talking about a period of high volatility. A market neutral strategy will go long which means they'll buy stocks outright and they'll go short.
The offset effect of that is if you eliminate that volatility out of the portfolio and so you can make money in a sideway, up or down market and you can look on Morningstar for the long, short funds and learn more about them, but that's the -- when you're in a high volatility time you don't want to just buy S&P 500 index fund and hold on. You might not make any money. You haven't since 2000.
ROMANS: I just don't want to loose anymore money.
VELSHI: What do you mean with global macro and hedged equity?
FLYNN: Global macro is sort of futures and they can go short and long and bonds, not just stocks and hedged equity are when you start purchasing put options and selling covered calls. There are mutual funds that do all of these. You don't have to do it yourself, but those are the places you want to look at a high volatility, sideways market which is likely what we're in for.
ROMANS: People pay an awful lot of money for this advice. I want everyone to understand that they're getting fantastic free advice here today. They're asking these sorts of questions. Ryan Mack is here. Ryan, your favorite funds. How can we make money or at least stop losing money in this market. We should be deploying assets, right?
RYAN MACK, CAPITAL MANAGEMENT: I picked three funds. American Century Equity Income Fund and Phil Davidson is the portfolio manager of that fund and three reasons why I like these funds are quality stocks. They'll do a great job of paying dividend yield stocks which are usually more established companies and these are the type of companies in a value play market. Right now you're trying to seek out the value of the stocks that have been down trodden, but you want to make sure that you have the stocks that have high dividend yields.
VELSHI: Keep that screen up there.
ROMANS: So people can write it down.
MACK: Diversification, they have a very diversified portfolio and they play according to the Russell 3,000 Value Index. But they don't only play there; they have to give the portfolio managers a lot of discretion and good management style and experience. The second fund here is Columbia Dividend Income. I love this fund because they're quality stocks, they have great management and more important than anything, a steady unwavering investment management style. At the end of day because they have good, free cash flow stocks. They have stocks that they got rid of a lot of financials because they had to report free cash flow before they actually collapsed because of their investment style.
On the flip side of that they didn't have a lot of energy stocks. They don't have a lot of material stocks so they didn't get in on the high side of appreciation, but they do have a steady, unwavering style and very conservative style and for the long run it's great.
And finally the Vanguard Total Bond Market Index Fund. They are very great returns and a broad benchmark and they follow the Lehman Brothers Aggregate Bond Index Fund and very low expenses. We have to look more on these mutual funds that have low expenses, 1.5, 2 percent is way too high in this type of market. This fund has a .19 percent expense ratio so we have to make sure we have the mutual funds that don't have these high expenses that have long-term returns. They have great quality stocks. Good management style, at lease five years or greater. We don't want any funds that have a new manager and don't have a good track record of history.
VELSHI: You both mentioned Morningstar as one of the places that every investor can go to and they've got all sorts of criteria by which you can rate mutual funds and they give them their own ratings, and you can customize the whole thing and that's a wise thing for people who are wondering what to do right now to learn how to use.
MACK: Four and five-star rating on Morningstar, always go for that, and make sure the mutual fund manager has been there for at least five years. A 1 percent or 1.5 percent expense ratio or lower and make sure that there are no-load mutual funds. Every penny counts in this market. So no-load mutual funds as opposed to mutual funds that is crucial.
And also look at the most important thing. What's their track record? Three and five and the ten-year return on the S&P 500 over McAfee. Have they beaten or equal to the return of the market for the 3 and five or 10-year rate of return.
FLYNN: I want to find two stock funds that become the next five- star funds. I find a lot of times if you buy only five star funds they turn into 2s. When you try to do more digging than just look at the rating that's one piece in the whole thing. Stay with the fours that have good management.
VELSHI: We could break every one of these single tips you folks have given into segments of their own and we might have to do that over the course of the next few week. Thank you for great advice. Ryan Mack and Doug Flynn.
ROMANS: All right. The economy, housing, energy, jobs, and the CNN Money team breaks down the biggest challenges the president-elect will face when he takes office. It's a long list. (COMMERCIAL BREAK)
VELSHI: What are the biggest challenges that president-elect Barack Obama will face when he takes over the White House?
ROMANS: Our CNN Money team joins us now. CNN "Headline News" correspondent Jennifer Westhoven and Poppy Harlow and Paul La Monica from CNNMONEY.com.
Jobs that were to end the week. The guy is a president-elect for just a couple of days and the stock market has a horrific two-day performance and then we get a jobs number that is just terrible. Poppy, he enters the White House with a very serious challenge.
POPPY HARLOW, CNNMONEY.COM: He talked about it on the campaign trail, now he really has to do something and what he does is he wants to create 5 million new jobs by spending 150 billion in terms of his energy plan. You heard him on the stump just a few weeks ago saying things, build cars, build them in America. Build these wind turbines and build these solar panels. The question is he going have the money to do that especially when there's not the push for alternative energy like there was when gas was over $4.00.
VELSHI: I think not having the money to do it following the last couple of months has anything to do with anything anymore?
PAUL LA MONICA, CNNMONEY.COM: Yes, I mean clearly.
VELSHI: We didn't have money for --
LA MONICA: Money comes out of nowhere, seemingly. I think while alternative energy needs to remain a key focus of the near-term; it has to be pushed to the latter part of the first term because literally Obama has to focus on the credit crisis first and foremost. I think everything stems from that once we can get banks to start lending again, then we can start to worry about the other longer term challenges that the economy faces, but right now it has to be short- term focus.
ROMANS: I wonder if the retooling of GM - the retooling of Detroit, though, can fit into the renewable energy thing and also government stimulus and jobs, jobs, jobs, jobs.
JENNIFER WESTHOVEN, CNN HEADLINE NEWS CORRESPONDENT: That's just it. I think energy is great and we're also -- jobs and housing are right now, these are things happening right now that if he doesn't do something about, we could be in big trouble. But I also think as part of his -- I'm going to say integrity, I think a lot of the reason many people see for electing him is to gradually, responsibly, close out the war in Iraq so he can't just push that off either. So I think there's so much happening that's sort of now, now, now.
VELSHI: Remember what he said, it was just before the first bailout package, the night before, couple days before the debate when John McCain had said he wanted to suspend his campaign and go back and Barack Obama said the president's going to have to face many serious issues at the same time.
ROMANS: Competing issues at the same time.
VELSHI: I don't know if he knew what he was getting into, but, boy, this is many competing issues at the same time, Poppy. The fact is there is a massive expectation. He appealed to a lot of people who felt he was bringing some hope and hope theoretically should translate into a better economy and jobs and better home prices. Is there anything obvious that he is going to be able to do to get any one of these things happening quickly?
HARLOW: I think what could happen, especially if we are seeing this week how poor of a state the automakers are in, Ford and General Motors. I think in some way if they can facilitate not just a government bailout but big investment in the automakers and combine that with his energy policy and which is a lot about the less fueled cars, maybe he can make an immediate change by saving jobs, maybe bringing more jobs to Detroit, Michigan, needs them really badly, and maybe putting America in a better position on that front.
ROMANS: We will talk a little bit when you guys come back about whether the president can actually do these things, whether we are all putting too many expectations on the president. Whether the president can create jobs and ever has been able to, whether that's just something -- too much of an expectation.
VELSHI: It's a big one. We'll have more on that with our CNN Money team.
But first, here's this week's "Right on your Money."
(BEGIN VIDEOTAPE)
ROMANS (voice over): The cost of college is up, way up. According to the Nonprofit College Board, tuition and fees for private colleges jumped an average 5.9 percent in the past year. The cost of four years at an in-state public school rose 6.4 percent.
ANYA KAMENETZ, AUTHOR, "GENERATION DEBT:" It's really important that entering students think very strategically about, first of all, their choice of college and also their path through college. So I think that the most important thing a lot of students can do is think about graduating on time or maybe even trying to graduate early with summer courses and a -- just a quicker pass to that degree.
ROMANS: And as tuition increases, so does the need for financial aid.
KAMENETZ: Your number one stop should be your college and financial aid office. They do offer the best information about loans and for the lenders that are pulling out in some cases; they can find you substitute loans.
ROMANS: Shop around. Web sites like Simpletuition.com let you compare rates to get the best private loans. And start planning early. KAMENETZ: The number one recommendation for parents with students who may be reaching college age is the 529 Education Savings Plan, and that's a tax deferred or tax advantage savings plan just like a 401(k). You can start saving now and let that savings grow tax free until it's time to pay for college.
ROMANS: That's this week's "Right on your Money."
(END VIDEOTAPE)
(COMMERCIAL BREAK)
VELSHI: We're back with the CNN Money team, Jennifer Westhoven, Poppy Harlow and Paul La Monica. We were just on the break discussing this. I think it's worthy of discussion for a second. There's a discussion of a new stimulus package that Congress might put through and what shape that would take. We kind of know it's not going to take the shape of the last one.
ROMANS: Rebate checks.
VELSHI: It might be investment in infrastructure, whether it's as Poppy said this energy infrastructure that Barack Obama is talking about or whether as Paul said, the energy discussion gets pushed back a little bit or it's something else. Do we think this is a good plan? Some people think it will take too long to implement.
ROMANS: People are going further than the stimulus infrastructure plan. They may talk about some big great depression- style plan that lasts multi years.
LA MONICA: When you think about one is needed in terms of infrastructure in this country, highways, and other public transportation projects, none of those are going to take place in a matter of months. Those are multiyear projects and as you pointed out, there are plenty of construction firms and workers in that agency are not doing as much as they used to given what's going on in the housing market. So there are people that probably would jump on jobs in that type of work.
ROMANS: Short of an infrastructure spending plan, a big infrastructure program, can the president actually create jobs? Or does the president, along with the Congress, create an environment in which the economy grows and private --
VELSHI: The John McCain argument.
ROMANS: And private industry creates jobs.
VELSHI: Which he said is a bad plan for the government to be the driver behind your job creation.
WESTHOVEN: I the government is planning to do this temporarily as part of this. That is something that worked during the great depression. I also think this is a transformative precedent. Can he change this assumption that we have all been going on for 30 years that the government can only mess things up. Why does the government have to be in the way of business? Why can't they be partners? Clearly we saw when we left business to itself to gage big risks --
VELSHI: By the way, now we as a taxpayer own shares in major banks, which was supposed to loosen up the credit system. That money was suppose to go to those banks and we will the assumption, silly us, that would be for loans. They are building other banks up to become profitable for the banks. As shareholders, we'll get from gain from that. But this is why we worry about the government making progress with business because nobody seems to get it right.
HARLOW: But why not fix America's failing infrastructure we talked about with skilled American workers, pay them a decent salary.
ROMANS: We would have to have a very, very well calibrated retraining program to go along with that. Because you can't just put these people to work and then you still have a manufacturing faction afterwards --
VELSHI: Right and reunemployed.
WESTHOVEN: And you are where you started. You're hoping you do it for a little while and the economy rights itself and creates its own jobs.
HARLOW: Barack Obama is talking about coming back from Iraq and Afghanistan and a green job training and then gets them to do an alternative kind of work. He's pushing that, getting into different kind of work whether it's infrastructure or a new energy policy.
VELSHI: And as Paul points out, when you talk about infrastructure works, it's not that the government necessarily employs people to build bridges, it's that the government hires construction firms that happen to have time on their hands because they are not building houses and not building other things. It could be interesting. We complain about our energy infrastructure, our electricity grid, all of these things, it might not be a bad idea.
We will continue to discuss this. Thank you all for your input into this discussion. Thank you for joining us this week on YOUR MONEY.
ROMANS: E-mail your thoughts, questions, your concerns about your job at ISSUE1@CNN.com. We will get those questions and get them answered for you by workplace experts.
VELSHI: We will see you back here next weekend, Saturday at 1:00 p.m., Sunday at 3:00. See you then.
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