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Your Money
Addressing Terrorism Without Losing Sight of the Economy; Educate to Innovate; Market is Soaring, But Buyers Beware
Aired January 10, 2010 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(BEGIN VIDEO CLIP)
CHRISTINE ROMANS, CNN HOST: The president's challenge. Address the threat of terrorism without losing focus on the economy. Is it too soon for a shift in presidential priorities?
The new $250 million plan, educate to innovate. But will the best and brightest in this country soon have to travel to China and India to land a job?
And the market is soaring, but buyer bewares. One theory of what could happen to stocks in the back half of 2010.
Get ready to get smart. It's time for YOUR MONEY.
(END VIDEO CLIP)
ALI VELSHI, CNN HOST: Once again we're into 2010 and the economy looks a little bit better but the unemployment rate remains a painful 10 percent and that is a number that is threatening to cripple our economic recovery. Welcome to YOUR MONEY. I'm Ali Velshi.
ROMANS: And I'm Christine Romans. The economy actually created jobs late last year in November. That is when employers added 4,000 positions, but that small, little gain ended almost two years of job losses and then by December, the layoffs resumed.
VELSHI: Oh, I so wanted it to be different.
ROMANS: I know. 85,000 jobs lost in the final month of the year.
VELSHI: But in the grand scheme of things, has not been terrible compared to what we've seen in the last year or so.
ROMANS: But still, 85,000.
VELSHI: That is a lot.
ROMANS: Eighty five thousand was unexpected and since the recession began you now have 7.2 million jobs lost.
VELSHI: Let's break that down. The unemployment rate in particular, which is 10 percent on average. The jobless rate for blacks, Hispanics and teens is rising. It's much higher than the national average of 10 percent. So look at the screen there. Adult men have an unemployment rate of 10.2 percent, so higher than the average.
Adult women, 8.2 percent, which is why some people call this a man's session. The manufacturing and construction jobs dominated by men have been heavily lost, whereas jobs dominated by women in education and health care have been growing. Teenagers, look at that, the unemployment rate for teenagers able to work, 27.1 percent. That does not bode well for a good start.
Now look over when we break it down by ethnicity. The population of whites has an unemployment rate that is lower than the national average. National average is 10; whites have 9 percent unemployment, black, 16.2 percent, that's spread between whites and blacks. Always been there but it is actually growing a little here, that is a bit of a concern. Latinos at 12.9 percent that spread is narrowing.
ROMANS: And the unemployment rates for blacks, Latinos and for teenagers grew from November to December. So we ended that year, that year that was so important because job losses were slowing, but we ended that year with unemployment rates for those three groups actually rising.
VELSHI: Now young people have a hard time getting jobs because there are so many old people who are experienced, like us, people who have job experience will work for less money. Again, another subcategory here that we often look at, if you have a college education your unemployment rate is half of the national average.
ROMANS: About 5 percent.
VELSHI: If you haven't graduated from high school, it is about double the national average.
ROMANS: Flip that around too though and you can look at the unemployment rate for people with a college education. Still doubled over the past year.
VELSHI: Everything's gotten worse, but it is different.
ROMANS: You are better protected with an education. Now Nariman Behravesh is the chief economist at IHS and Joann Lipman is the former editor and chief of Conde Nast Portfolio. Jessica Yellin is CNN national political correspondent, we are going to break down what all this means for you, for the economy overall and for politicians.
VELSHI: And for politicians this is an issue. This is a big issue. Because we are trying to emerge from this thing. Jessica Yellin what does this mean in Washington? What does it mean for the Obama administration that this is the one thing that was so, so high on their agenda in terms of solving, and it just seems they keep getting stuck on unemployment and on jobs?
JESSICA YELLIN, CNN NATIONAL POLITICAL CORRESPONDENT: Well Ali, they knew that they had to come out of the box strong on jobs and they felt they did immediately after the New Year and unfortunately the terrorist scare over Christmas pushed back their jobs agenda a little bit. One of the White House officials is saying we know how to walk and chew gum at the same time and they absolutely have to.
They have no choice but to pivot and focus on jobs. And you saw them start to do that on Friday with the president's comments, when he came out talking about green jobs and the focus there. Expect a big push on the jobs bill that will be moving through the Senate in the next four weeks. They have to get that done. Politically and in terms of the economy and they know that.
ROMANS: Nariman Behravesh you know, we can focus on green job, but we know that with 7.2 million jobs lost since the recession began, the president and his labor secretary, they cannot promise a green job for 7 million people right away, right? What does 2010 look like and what can they deliver in terms of jobs growth for people this year?
NARIMAN BEHRAVESH, CHIEF ECONOMIST, HIS: It's a good news/bad news story in the sense that the good news is the unemployment rate is either at or close to a peak and it's going to come down through the course of this year. Bad news is, it's going to come down very slowly. So even by the end the year we're looking at unemployment rate of 9.5 percent. So it's not going to look really good for the Democrats when it comes to the mid-term elections. In that sense, it's not a good picture.
ROMANS: 9.5 percent still really hurts. I mean 9.5 percent means that there are families who want to be working who can't and after 40 percent of the unemployed right now have been unemployed for I think six months or longer that starts to become a problem in the economy.
VELSHI: And you start to loose benefits and you generally change, Joann, your role as an economic participant, when you become part of the long-term unemployed. It is a big problem.
JOANNE LIPMAN, FMR. EDITOR IN CHIEF, CONDE NAST PORTFOLIO: It is a huge problem and what we've got going here is, think about this. There are 15 million people who are unemployed right now. That does not count the millions more who are underemployed or people who have just gotten so discouraged that they've left the workforce.
VELSHI: We talk about discouraged people and people wonder about this. But you are talking about a manufacturing worker at a manufacturing town in the Midwest where what are they looking for as another job?
LIPMAN: Right. Are they looking for, and you know this green job thing, it sounds great, the administration has been talking about it since the spring. The best estimates I've seen are far fewer than 1 percent of American jobs are in the green sector. And not only that, but a lot the green economy jobs have disappeared, the turbines, the solar companies have been laying people off.
VELSHI: Sure.
ROMANS: And developing. We're going to talk about this later in the hour, developing resources and RND in other countries where a lot of the growth is happening. VELSHI: Nariman what role I mean, if you want to be mad at the government, you want to be mad at the administration in fairness people ask me this all the time, what role should they have in creating jobs? We don't want to live in an economy where the jobs are coming from the government anyway.
BEHRAVESH: I think the best role the government can play is in fact in kick starting growth. The good news is, there's a lot of pent- up demand still out there you know corporations have the money to spend. Nine out of ten households have the money to spend. They've got jobs.
The issue is to improve that confidence that sort of the growth momentum in the early stages of the recovery. Then really stand back and let the economy kind of move on its own. So it's like kick starting this important, you know so far so good. I think the stimulus a big stimulus has helped, but it's going to be slow going for a while.
ROMANS: You know, guys ...
YELLIN: Can I weigh in?
ROMANS: Sure Jessica.
YELLIN: One thing to add here is that some of this is just maintaining government jobs. I mean think about how many of these states are going flat out broke right now.
VELSHI: Right.
YELLIN: The house bill, the house jobs bill, what it did, is it added money to just keep cops on the beat. Things like that. To keep state and city governments functioning. So some of that, the federal government can help with. That's what they're focused on.
VELSHI: Right, but remember that every job that is kept keeps somebody as a taxpayer and helps that bottom line. Keeps them potentially a consumer and so that's important, too.
LIPMAN: It is. That's important but the stimulus that we've already had, the $780 billion, really there is a great deal of missed opportunity because it was spent so slowly and so little of it was spent on jobs, the shovel ready jobs or in creating jobs that can put people to work right away. So much of it has been spent on tax breaks and on other things that are really not creating new jobs.
ROMANS: Plugging budget holes and the like. All right. We'll keep talking about all of these things. Nariman Behravesh thank you so much for joining us, chief economist, IHS. Jessica Yellin and Joanne Lipman stick with us for another round here.
You know where the jobs are in 2010 and what kind of jobs are we are talking about? A closer look at who's hiring, what they're paying and what you need to know about the future of jobs in this country.
(COMMERCIAL BREAK)
ROMANS: All right. To behind the job report numbers it's the landscape of the American workforce changes as well 7. According to our next guest, survival of the fittest out there and so-called permal answers are here to stay. Not necessarily a bad thing.
VELSHI: Tig Gilliam is the CEO of one of the worlds largest staffing company and also still with us CNN national political correspondent Jessica Yellin and Joanne Lipman, the former editor in chief of Conde Nast Portfolio. Tig, you say you expect this to be the most Darwinian recovery in history. What does that mean?
TIG GILLIAM, CEO, ADECCO: Companies are clearly getting more confident about bringing people into their organization from where we were in the summertime but they are looking for the absolutely best talent. Inside the organization and out. So this is going to be a jobs recovery for the best and the brightest in their field, and I think what that means is you've got to be on top of your game every day.
ROMANS: Well they have a huge pool of people to choose from. I mean there are 29 million people or 25 million people who under employed, unemployed or drop out of the labor market. I mean that is a lot of folks in the country that you know has a good education in the system in general and there's a lot of people out there.
GILLIAM: And I think also, people are seeing a trend in the changes of where the jobs are going to be. They're using this as a chance to change industries. To take their financial and analytical skills that have been applied in financial services and to go to energy, where they see a future that is going to be brighter than maybe what they saw before.
ROMANS: Nuclear engineers, these kinds of things. Stuff I couldn't do are the places where the jobs are going to be, right?
GILLIAM: Clearly, if you look at the unemployment rate it is 5 percent for people who completed school and it is 15.3 percent if you didn't finish high school. So clearly if you are in the education system, you've got to stay.
ROMANS: We are going to talk a little bit more about the politics of all this. But you the president and the White House trying to kind of pivot towards job situation and creating jobs and green technology. That's not going to eat up all of the jobs that have been lost. Though, right? Green technology can't be the whole solution?
GILLIAM: Look, we've lost millions and millions of jobs and we have got 10 percent unemployment and we have a group of people who are employed but not fully we didn't see an improvement in the average workweek, in the December jobs number.
ROMANS: Meaning people could work longer, work more and they are not. Companies aren't giving them the hours?
LIPMAN: It doesn't seem to be a lot of evidence of these freelancers being converted into full time jobs which is the one marker that we've all been waiting for.
GILLIAM: Well I think what is changing there and we hear this from Adecco clients, they had to cut so deeply in this recession. They don't want to do it again.
VELSHI: Slower to recover and to hire back?
GILLIAM: Even where they need resources they want a flexible model. Whether that is a temporary, we saw 47 thousand jobs increased in December in temporary, or it is a contract worker. It gives them a way to do project-based work or contract work. That if something does dramatically change later in 2010 they're not in a situation to have to make cuts again.
VELSHI: So Jessica, we are talking, what Tig is talking about here is stuff that is cyclical. So you can explain to some people in some jobs that they can get a little more education, they can stick it out a little while. It will come back. The problem I think the administration has is that of that 7.2 million jobs lost; many of them are not part of a cyclical downturn. They are manufacturing jobs and they are not likely to come back to this country anytime soon that remains a political problem. When the president comes out and the manufacturing parts of this country.
YELLIN: Yes. Those numbers are chilling, when you look at them and when you listen to what he's saying, because especially for politicians who are up for re-election this year, 2010 mid-term elections are coming up. Everyone here in this town is focused on them. Big cities are seeing their unemployment rise.
Even though unemployment broadly is stabilized, the unemployment in big cities is spiking, and folks who are representing essentially communities with an under-class. Folks who don't have a college education, who don't have special skill sets are so frustrated they're taking it out on the president.
ROMANS: Job number one and two are jobs and counter terrorism. How do you make sure you balance both of these things and both of those are job number one?
YELLIN: That's the challenge for this president. He's going to have to do not only both of those things; they both have to be job number one. He cannot let up on the economy for political reasons; he can't let up on terrorism at all. But in addition to that, Christine, he also wants to take on this year immigration reform, he has to finish health care. He wants to do climate change, a jobs bill. Financial Wall Street reform is coming up. I mean this is such a packed agenda. It looks like something will have to go, but it cannot be the economy.
LIPMAN: We know that the job situation though is going to be with him not just this year but for the rest of this administration. If you look at a best-case scenario, let's say we go to creating 300,000 jobs a month, which would, you know, be enormous.
VELSHI: Double what we often do. Yes. LIPMAN: OK. So best case scenario, it would take five years. Five years.
VELSHI: Yes.
LIPMAN: To be into the next term by the time we get back to pre- recession levels.
ROMANS: And worst case scenario, is more like 2015, '16 '17 '18.
LIPMAN: Right.
GILLIAM: The real policy issue I think, I mean clearly long-term we were talking about it, is are we investing in the education to make U.S. employees desirable? In the nearer term from a policy point of view, as companies recover, the economies getting better. Are the jobs going to be here or are the jobs going to be somewhere else?
VELSHI: Very interesting discussion, because we're going to have that discussion later in the show. You teed us up well for that. What are we doing to prepare for the return of the economy? It may be 2013, '14, '15, '16, '17. It will be there. You are planning on being around.
ROMANS: And they may be in technology jobs and they may be in Singapore, Germany and other countries. And that is something that is a real challenge and concern. Tig Gillian, CEO of Adecco thank you all so much. Joanne Lipman thank you very much. And also our very own Jessica Yellin, as always Jessica thank you and have a great weekend everybody.
VELSHI: Well the best jobs in the United States and the worst jobs in the United States. Find out if your job made either list, next.
(COMMERCIAL BREAK)
VELSHI: OK, it is time now to take a look at some of the big headlines this week. Joining us, Pat Kiernan, anchor of New York One News and a good friend of this network. D.L. Hughley, radio show host and comedian. First off we are going to announce the best and the worst of 2010 in terms of jobs.
ROMANS: Right. Drum roll, please. Congratulations to actuaries across the country. They claim the honor of best job in 2010 according to the Jobs Rated Report by Careercast.com. Come on these are people who interpret statistics to access the financial impact of risk and uncertainty.
VELSHI: Insurance places use them.
ROMANS: So sexy. Software engineer, commuter systems analyst, biologist and historian.
VELSHI: I don't get the historian thing how that fits into that whole thing because historians seem like an interesting job. What's up with that? Actuaries, what do they measure? They measure opportunities for advancement, salary.
ROMANS: Income stress, outlook, physical demands ...
D. L. HUGHLEY, RADIO HOST: Risk factors and stuff like that.
VELSHI: Actuaries don't have a lot of risk factors.
ROMANS: Look at the worst jobs, roustabout, which is for a worst job, it has the best name.
VELSHI: Oil workers.
ROMANS: Labor intensive, but lower pay. Roustabout, lumber jack.
VELSHI: D.L.'s ready. Lumberjack.
ROMANS: Ironworker, dairy farmer and welder. You look like one.
HUGHLEY: Kind of.
VELSHI: Had you done any of those jobs?
HUGHLEY: No. I haven't done -- roustabout I kind of have done. I thought that was -- Ross has Sherry I thought. Oh. They have all their money.
ROMANS: No expensive dinners. What is the best and worse job you ever had?
VELSHI: You were a grocery guy. You worked in a ...
PAT KIERNAN, NEW YORK ONE NEWS: Yes, candy floss spinner.
ROMANS: Candy floss spinner. Many Americans might not know what candy floss is.
KIERNAN: What do you mean cotton candy? Candy floss is a Canadian term?
ROMANS: I never heard candy floss in my life.
HUGHLEY: Me neither.
VELSHI: He's the guy that sits there and gives you the little pink thing that you eat.
HUGHLEY: Wow. In Canada?
KIERNAN: Well, that's what I happen to be growing up.
ROMANS: D.L. is -- with the unemployment rate, America at 10 percent. If you have a job, you probably feel lucky but that doesn't necessarily mean that you're satisfied with that job. That brings me to the Romans numeral for this week, XLV. Only 45 percent of American workers are satisfied with their jobs. That is according to a survey from the Conference Board, 45 percent. That's it. VELSHI: I'm fascinated by this. I'm fascinated that in an economy where unemployment is at 10 percent people are not -- I mean I definitely get the feeling every day when I have a job, my god, I've got a job. It might be a tough day but at least I've got a job. I'm satisfied by the number of people who are dissatisfied. Another survey a few months ago said that people given the chance would leave their job.
ROMANS: Because they are working more. The productivity, they are squeezing more out of you every hour.
KIERNAN: I think it is as simple as people don't feel the freedom to try to move. Because of the -- nobody else is going to work. So I am just going to stick with what I do. Whether it be a natural progression.
HUGHLEY: Feel like -- I go all over the country and I perform in a lot of different places. There is this feeling of, I think, more just hopelessness, just like despair. Even people that have jobs, even if they dug the job before, feel like they have -- a lot of people in relationship situations that they feel bound to because financially people just can't make -- there's not much room for movement. They have to kind of be there. That obviously lifts to some level of dissatisfaction.
ROMANS: When does that break or change? When jobs come back?
VELSHI: Yes. Maybe -- if this analysis is right, which is interesting that you're unhappy because you now don't think you have options. The same thing that made you happy, then I suppose the availability of options creates a sense you're happy. I guess that's the point. I don't think it translates, so when more jobs are available, I don't actually think two-thirds of people are all of a sudden going to change their jobs. They'll be happy with their own jobs.
KIERNAN: A big lag.
ROMANS: Let's talk about another sort of trend in the labor market this week. The Equal Opportunity Commission said this week with a number of workers claiming discrimination on the job surged to new highs last year. A disability discrimination claims the biggest jump.
This coincides with recent changes with the Americans with Disabilities Act, that a lot people with treatable conditions like epilepsy and diabetes classify as disabled, the overall bias claims citing, race, sex and retaliation were the most frequent as they have been for several years. What is behind this spike in bias claims? Just more layoffs and so people are saying I was laid off for the wrong reasons?
HUGHLEY: I think that's part of it. But I think that obviously, if the labor pool is much smaller people are making more kinds of decisions as to what kind of worker they like and which to let go and it would be disingenuous to think that some people don't factor those things in when making decisions about what workers they are keeping and who they'll move around and what they'll do.
That plays a part. But I think, again, I think the economy, you know -- if a long -- I know I thought that the economy was Wall Street and the economy was the stock market. If you can't buy gas and you can't buy food and you can't buy clothing, and just like the Christmas holidays, you can't -- there's a limitation to that, it makes you feel -- there is a lot of hopelessness and I think that that is kind of permeating everything we're seeing right now.
VELSHI: The other thing it might be is that people who, if you don't have those opportunities to get another job, you may be a little more vigilant about why you think you lost yours?
KIERNAN: It's almost impossible, crime rates or claims like this to separate how much of it is awareness and people choosing to report versus a true increase in whatever the underlying accusation is.
ROMANS: And no other choice. It's not like you lose that job and you can get another one right away.
VELSHI: Right so now you go back to, wait a second. Was that fair?
ROMANS: Right.
HUGHLEY: And as the nations only black lumberjack, I feel safe with my job.
VELSHI: I bet you we're going to hear from black lumberjack.
ROMANS: There is definitely a trade association I'm sure.
The president announced this huge initiative this week to get American kids back to the top in math and science, but after all of that education, why so many of these high-tech jobs might be found far away from the United States.
(COMMERCIAL BREAK)
VELSHI: Well some support for education in this country. This week President Obama announced a $250 million plan to improve math and science education. Here's his reasoning.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The nation that out-educates us today will is going to out-compete us tomorrow. To continue to seed our leadership in education is to seed our position in the world. That's not acceptable to me and I know it's not acceptable to any of you.
(END VIDEO CLIP)
ROMANS: Is this what America really needs? The right approach at the right time? Michael Teitelbaum is with the Alfred P. Sloan Foundation, he is a program director for several foundation programs, specifically targeted at training in science and math.
We've reported so many times that we are facing some big shortages in science and math teachers and there is a big push to try to get mid career and late career science and math teachers, professionals, back into the classroom. Is this the right approach, $250 million to try to jump-start this part of things?
MICHAEL TEITELBAUM, PROGRAM DIR. ALFRED P. SLOAN FOUNDATION: It's a good idea. We do need more science and math teachers, K to 12; we also need better science and math teachers. It's a quality question that ought to be addressed in a very serious way.
But the final issue I want to mention to you, is retention. Because there's huge loss of trained teachers out of the system, especially in science and math. So it doesn't make too much sense to train a lot more people and then have them leave.
ROMANS: Why the loss? Why are they leaving? Are they going into industry?
TEITELBAUM: They find it difficult to be a teacher. It's not a satisfying profession for many people. They have very -- they're very overworked, they often not respected. The pay can be quite decent, in some areas and not good in other areas. There are a lot of reasons, but I think a lot of attention should be paid to retention as well as the education of more science and math teachers.
VELSHI: Tell me clear, are we short of people who studied and are trained in science and math or are we short of teachers and as a result that's taking a toll on the future generation?
TEITELBAUM: No, we're not short of people that studied science and math, but the teaching side of science and math, k-12, is a problem area.
VELSHI: And the result that problem, if we don't deal with it would be what? We would have substandard education of science and math k-12 and that would mean what?
TEITELBAUM: That would mean that the future generation of adult citizens would not be sophisticated about science and math and that's essential. No matter what career you're in, no matter what do you in the future you're going to have to know science and math in a serious way.
ROMANS: Because this is a country that thrives on innovation and thrives on coming up with new things. That is science and math and technology issues. Are we, do we have enough scientists and engineers in this country for the jobs that are available now? Do we have the talent here to really be that country that is the innovator of the future?
TEITELBAUM: Well, you know there are lots of claims of shortages of scientists and engineers they mostly come from employers and to some degree from immigration lawyers.
ROMANS: That's because ...
TEITELBAUM: Because they want to have more visas for science and math people to come in.
ROMANS: Who are paid ...
TEITELBAUM: Who are paid -- well who knows? We don't have good data on that.
VELSHI: All right. Riddle me this then, for two particular parts of our audience. The part of our audience that are parents of kids in school from k to 12 is there anything they can do to address this? Number two, for parents of kids who are maybe college-bound, is there an opportunity here for them?
TEITELBAUM: Yes, to both.
VELSHI: OK.
TEITELBAUM: The parents should pay attention to the quality of the science and math teaching their kids are getting. That's critical. And there are some teachers who are absolutely terrific. We know that at the Sloan Foundation, we have an award program for truly exceptional science and math teachers in the New York City public schools and there are some spectacular teachers in the New York City public schools.
But as far as career paths, I think people should educate themselves about career paths. They shouldn't go innocently into a path that has very poor career prospects going forward. That's going to be difficult because of the fluctuations we were talking about, when you have booms and busts of demand and then there's a bust and suddenly people are laid off in large numbers. Everybody should look at this very carefully. There are lots of resources on the Web. People should pay attention to the career paths.
ROMANS: All right. Michael Teitelbaum, the program director for the Sloan Foundation. Thank you for dropping by. I really appreciate it.
TEITELBAUM: My pleasure.
VELSHI: OK. Stocks are looking pretty good right now. But we'll tell you why the second half of 2010 should have you paying very close attention to the market.
(COMMERCIAL BREAK)
VELSHI: Called 2009 the year of recovery for investors. Since it is March low, the stock market, we are looking at the Dow here, has made an incredible comeback. The question so many of you have, I have, we all have, is how long will that last? So let's bring in our good friend Doug Flynn, he is a certified financial planner with Flynn, Zito Capital Management, a good friend of our show. Doug good to see you.
ROMANS: Hi Doug.
DOUG FLYNN, CERTIFIED FINANCIAL PLANNER, FLYNN, ZITO CAPITAL MANAGEMETN: Good to see you.
VELSHI: Answer our question. How long will that last?
FLYNN: Well, it will definitely last for a couple months, possibly half the year this year and the primary reason is because everything is still in place that was in place from the end of '09. Which is the stimulus money, the government buying the mortgage-backed bonds; they spent $1.25 trillion on that.
That's going to start to end. They're going to stop buying those. The Fed's going have to raise rates and you'll hear that in their speaking when they stop mentioning that they're going to keep rates low for an extended period of time.
VELSHI: Right. We know that when ever we talk about portfolios you have to have some sense of what your portfolio looks like. I like to always tell people that they can go to that one that you and I designed at CNNMONEY.com/Ali and you can ask yourself a few questions.
ROMANS: A portfolio named after you.
VELSHI: I have a portfolio named after me. You ask a few questions and it spits out a pie chart of what you have and typically speaking there are a number of categories. But the large ones are bonds, stocks and alternatives.
FLYNN: Exactly. This whole thing we're talking about today is not getting away from the allocation. That's important. But within each piece, you do the same thing you did in '09 that you will do into 2010 and '1 1.
VELSHI: So you may have a portfolio that is a third, I am just making that up, in bonds, a third in stocks and a third in alternative. You are not saying that unless your needs have changed you don't have to change your allocation, but with in bonds for instance, lets start with bonds, with in bonds what should you do now in 2010?
FLYNN: OK. So everybody hears when interest rates go up bonds aren't the place to be. Aren't bands bad is a question I get a lot. And when we're talking about there in that discussion is Treasury Bonds do not do well. But what you have to do is you have to look into your portfolio and say I know I need bonds, but do I have the right kind?
Well the kinds of bonds that do well in a rising rate environment are not Treasury Bonds, they are Inflation Protective Bonds, and they are local government bonds. But you want to hedge them; you want to have hedged ones. It is very important, because you don't want them to be sensitive to currency and floating rate bonds.
Those do exceptionally well in a rising rate environment. If we're going into that we all agree, look at the bond piece of your portfolio, it doesn't have to be changed in percentage. But look at what you're doing within the bonds. And we are talking about taking profits; take the profits off all the bond money and the stock money that you've made this year.
ROMANS: Stocks, small cap emerging market, cyclical, if you have those it is time to start thinking large-cap growth, U.S. and dividend stocks, cut dividends. I mean this is -- S&P isn't as dividend rich as it used to be in defensive stock.
FLYNN: Yes, if you break down the S&P to high quality stocks, the average quality and low quality, you look at the run that we just had, the high quality stocks have actually been zeroed and negative return. The low quality stocks have gone up over a 100percent. I mean put it all together, you get the numbers you get, but when you look deeper you say it's the higher quality ones that have not participated.
Everybody chased the low quality, because that's what people do after they lose money. They try to make it back quick. As we cycle over to higher quality, this is the time. If you invested a year ago, sometime this year you'll cross over 12 months, long-term capital gains. We're looking to take profits middle of the year. Listen for the Fed when they're going to start to raise rates and start cycling over to this higher quality dividend, more U.S. based. Dollar going up is not necessarily as good for the international markets.
VELSHI: Finally, let's talk about alternatives. Some people have had gold. Some people have commodities in there. You're saying that commodities have been on quite a run for quite some time. You're saying, do something else for your alternative part of this. Go into long-short which means one industry against another. One company against another or market neutral. These are mutual funds you're talking about?
FLYNN: They are. In all cases people love commodities. It not there, they are still chasing them. We continue to believe they will do well in the 2009 environment. But as that wanes and again as the dollar rises, gold, all of these other commodities in your alternative space are not going to give you the same kind of growth that you had in 2010.
VELSHI: Always good to have you here, Doug because this is a question that's very commonly asked of us. What's going to happen to the market in 2010? When Christine and I are actually able to answer that question, we're going to be doing this show from our yacht.
ROMANS: Hmm. Our yacht that's right outside of our big private island. Half is his. Half is mine.
All right. Your state may be struggling financially, but most politicians won't even speak of raising your taxes. Instead, surprise. You may be bearing the brunt of the state budget shortfalls without even knowing it.
(COMMERCIAL BREAK) ROMANS: We are back with Pat Kiernan, anchor of "New York 1 News "and D.L. Hughley, our radio show host and comedian. We are taking a look behind the headlines with Professor Velshi right now.
VELSHI: We all know that a faltering economy and high unemployment affects our wallets but it also affects your states' wallets. States, just like you and me have to balance the money coming in with the money going out. In planning for 2010 fiscal year, 48 states faced budget gaps.
Which means they had more money going out than coming in, they have to fix that. As unemployment rising, the states' revenue from income tax decreases, fewer people working, fewer people paying their tax for the state. So states need to find other ways to get your money.
Some states don't even have income tax. They just have fees on things that you use. Let's take a look at how some states are dealing with these budget gaps right now. Give you some examples. Let's start with Idaho. Idaho hopes to rake in $30 million in revenue from drivers. They cut a 2.5 cent per gallon tax exemption for bio diesel, so that tax exemption is gone, 2.5 cents a gallon.
And they added fees for driver's license, vehicle title transfers, coping records and replacing registration stickers. That is the kind of thing that ends up hurting everybody, because everybody drives but it is a consumption tax. So it hurts people disproportionately at the low income, because whether you earn $30,000 or $300,000 a year, you still have to get a license for your car and you have to drive.
Florida, adding a $1surcharge to the tax on cigarettes. The state also added a surcharge on other tobacco products of about 60 percent of wholesale costs. Estimates say that could raise $1 billion in tax revenue. Let's look at Maine now. Maine has done a number of things. Expanding its sales tax to cover amusement parks. How can you be so mean charging people tax on amusement parks? Sporting events, services like auto repair. I mean getting your car repaired it is already a ding and then they're charging you tax on top of that.
Get this. Dry cleaning, New Hampshire. Let's take a look at what New Hampshire is doing. They are increasing certain taxes as well. New Hampshire increased taxes on hotels and meals. Sorry, I lost that. Bring us back to New Hampshire. On hotels and meals, a 10 percent tax on gambling winnings. I suppose that's OK, once you've won the money you're not that attached to it just yet. That could add up to $40 million per year for New Hampshire.
Take a look at what New York State is doing. Increased fees on hunting and fishing licenses, imposing a horse racing entrance fee. Suppose that's OK and you'll also now be charged a fee of $50 if you pay your taxes with a bad check. By the way that will react; you'll see that in your bank statement as well. Obviously, if you are going to write bad checks these days, banks take a great opportunity to take more money from you. What do you think of this way of handles these shortfalls? ROMANS: Just don't call it a tax increase.
HUGHLEY: I live in California, where we are so poor we're thinking of legalizing marijuana. So where this is with Governor Woody Harrelson. Obviously people have to do things that they just traditionally wouldn't do, and I think that now -- the services that people need and have to have; there are all of these budget shortfalls. I just don't know where they'll get them from. It's unfortunate that people that don't have money, it's robbing from the poor to give to the poor.
ROMANS: You know parking at the state parks; I mean it is going to cost you more to take your kid to a public pool this summer to go to the park, for a family picnic. It is going to cost another buck ...
HUGHLEY: If you live in New York, you should pay more. All of these big restaurants, you're going deer hunting. OK.
KIERNAN: You mentioned change in gas tax which reminded me of a story out of Texas this week. They are creating a new study there, this is happening in other state as well, the idea of replacing the gas tax with a pay per mile formula.
Which is interesting, because they're basically saying that the gas tax isn't raising as much revenue as it should, and is there a better way to do that? Because the gas tax has always been you're essentially charging people for the amount they're driving on the roads. Getting more hybrid cars in the mix of things like that people aren't buying as much gas.
VELSHI: People who become more cost efficient and more fuel efficient in their behavior are paying less tax.
KIERNAN: Still driving on the road.
VELSHI: Still driving the same amount.
KIERNAN: I don't know if that's the motivation behind this movement. They are looking to do things like check your odometer when you renew inspection every year. Not an easy thing politically, though, because people who drive the most miles are in those coveted rural areas.
ROMANS: Look a right-leaning think tank in Britain said this week that drunks admitted to the hospital should pay a fee of 532 pounds, it is about $845. Reuters reported that alcohol misuse cost the state funded National Health Service which provides free health care there2.7 billion pounds a year. That is quite a collective hangover. A hangover that most taxpayers are paying for, but it brings up an interesting point. When it comes to health care costs should there be a premium for reckless behavior?
VELSHI: Yes, look as extended to wreck less eating. You know? There are some people who say, you should be charged extra if you're eating habits cause you to have certainly illnesses, I don't know where the line is but I think there's a line and I think people should pay for wreck less behavior.
KIERNAN: Unenforceable. If you had two glasses of wine you're OK, we'll pay for it. But if you had six?
ROMANS: Well if you had two glasses of wine, you don't end up in the E.R.
KIERNAN: Are you blowing the breathalyzer on the way into the hospital?
ROMANS: I think if you're so drunk you go to the hospital, it's pretty clear you're so drunk.
HUGHLEY: Maybe when the airlines were thinking of charging people that were obese, lapsed into an extra seat, that's discrimination. Discrimination is things you can't control. You're a woman, I'm black, I can't control those things and you can control, I mean and everybody says that's discrimination but nobody wants the person sitting next to them. Everybody goes man, we all say a prayer, and I hope they move on. I think that there are certain things that honestly we pay for as a society.
ROMANS: Right.
HUGHLEY: A lot of people don't let you smoke anymore, because people are dying of second-hand smoke. There were so many illnesses associated with that. Drunk driving, people really got, I mean it used to be 20 years ago; it wasn't the stigma that it is now. There are habits that affect us as a society that probably would do two things, one kind of limit our exposure to them and, two, make them so expensive that they may be not as attractive.
VELSHI: Where do you think the line is drawn? You said this is not enforceable. But where do you draw that line?
KIERNAN: I am not saying it wouldn't be a good idea to put some accountability on the person. It would be impossible to implement is all I'm saying.
VELSHI: Well even if you are not hit by hunting or fishing fees or some other fee that your state has come up with to recoup lost money, there is one fee that is headed straight for your living room. We'll tell you what it is next.
But first, Long's Bedding store survived the great depression; is it going to survive the great recession? Here is a look at how the store is keeping business going in this week's "Turn Around."
(BEGIN VIDEOTAPE)
ROMANS (voice over): Bob Long has been serving customers at his New York mattress store for 46 years, just like his father and his grandfather, who started the store in 1911. Long's Bedding has seen a lot in 98 years but Long couldn't foresee this recession.
BOB LONG, OWNER, LONG'S BEDDING: I would say this has been the worst, yes, absolutely, this is the worst I have seen business since I have been here in 46 years.
ROMANS: Long's company didn't carry any major debt and was in pretty good shape financially. But sales fell 20 percent. That meant he had to take steps to help turn around the business. First stop, cutting costs, like the yellow page ads the store has taken out for decades.
LONG: I found over the last couple of years that people are going a lot more towards the Web and they are not using the yellow pages. I have been paying a fortune for a full-page ad in the yellow book.
ROMANS: Now, Long's wife Judy maintains the businesses Website at a much lower cost.
LONG: We have also changed our lineup of bedding over the last year, last six months to a year, where we have brought more reasonable priced bedding to the store which is what's selling now, the mid to high priced bedding is not selling all that well.
ROMANS: He says one thing he won't change that sets his business apart from the big chain competitors.
LONG: Service. We service our customers. Somebody has a problem with a bed, we, ourselves go up first.
ROMANS: That's why, despite lower sales, he says, he has refused to lay off his delivery men including one that has been with the company for two decades.
LONG: I have gotten countless calls from customers, thanking me, not for the product but for the men that made the delivery.
ROMANS: Long says with the combination of great service and a few smart steps, his business will be around for future generations like his daughter, Terry, who has already worked here for 12 years.
(END VIDEOTAPE)
UNIDENTIFIED MALE: "The Turn Around 2010," brought to you by Intuit quick books.
(COMMERCIAL BREAK)
VELSHI: We are back with D. L. Hughley, comedian and radio show host. And Pat Kiernan anchor of "New York 1 News." Chistine.
ROMANS: All right. Ali, your cable costs are on the rise, no end in site. Digital cable customers pay an average of $75 a month. I actually pay more than that.
VELSHI: I watch "Jersey Shore" a lot.
KIERNAN: They charge by the episode.
VELSHI: I love the show. Everybody always tells me don't say that on TV.
ROMANS: You do not watch "Jersey Shore."
VELSHI: I watch every part of it; I watch it over and over again. Carry on.
KIERNAN: Do you know how Short Snooky is?
VELSHI: He is pretty short. But the reason I watch it, did you ever watch "Jersey Shore?"
HUGHLEY: No.
VELSHI: Because I feel like I'm like the situation. If I were to show you my abs, which I'm not going to do.
All right. $75 a month.
ROMANS: Ali, "Jersey Shore."
HUGHLEY: And this is the guy I would trust with money.
VELSHI: So you take the $75 that you spend on average, you factor in the average annual price hike of about 5 percent and that means five years down the road, the average person could be paying $95 a month or more for TV. Now are people really going to pay this much for so many channels that they don't need? Why can't you just pay for what you watch? And this is a conversation that keeps coming up.
Pat, you are close to the cable business.
KIERNAN: I work for the cable company too.
VELSHI: I think Cable Company too for how much I pay them.
KIERNAN: I think cable is great.
Look, the a la carte thing becomes more of an issue. But on the other side of this with this whole debate right now about broadcast TV, it's a very difficult argument for a news corp. and others to say, something that we are giving away for free over here; we are going to charge you for over here. It may accelerate the end of broadcast TV.
VELSHI: Interesting. But somehow, my cable company will still end up paying me and charging me more.
This whole cable dispute that Time Warner had with Fox, I thought was fascinating because they were both taking ads explaining to me that my cable costs are going to go up. And I felt like saying, and I did say to Time Warner Cable my cable costs have gone up with you every year. Now, you take out an ad to tell me that something specific --
HUGHLEY: I remember when you used to plug your TV in and it would work. I've been a lumbar jack so long. I think in the worst economy that anyone has ever known, people will find a way to justify trying to take a profit. I think the consumer, they have always found a way to do it and that they acclimated us to it. That people are kind of accepted. That that's kind of -- accepted that that's what happened.
ROMANS: People are going to pay for the entertainment.
KIERNAN: I think if we were to stand up though, is that if you have the option, the a la cart pricing, which we heard a lot of talk about but it has never happened. And that is going to be a big adjustment for people. ESPN gets a dollar or more per subscriber from every cable company, every satellite. People start opting out of ESPN because they never watch it that is a big hit.
VELSHI: I do these bundle things and I start to call up every now and then when I actually look at my bill, and I think, oh, my, god, I'm paying all that and I call up and say, how can I get this lower? I can never seem to get it lower because of the bundles that make sense.
ROMANS: They know that. They have actuaries who are figuring out exactly how to make it so that you ...
KIERNAN: Want "Jersey Shore."
HUGHLEY: I'm paying for your "Jersey Shore."
VELSHI: That's the situation. All right. Pat and D.L., thanks for being here. For those of you in New York you can catch D.L.'s comedy show on Sunday at "Caroline's" on Broadway. If you are on twitter, you can follow Pat's papers or subscribe to Pat's papers. He gives you all the headlines without having to read the news, creating a lazier society across America.
ROMANS: Yes, love it. Thanks for joining us for YOUR MONEY. Make sure to follow us on facebook and twitter. Ali "The Situation Velshi" is at Ali Velshi and you can find me at Christine Romans.
VELSHI: Make sure you join us every week for YOUR MONEY, Saturday's at 1:00 pm Eastern, Sunday's at 3:00. You can also log on 24/7 to CNNMONEY.com. Have yourself a great weekend.
