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American Morning
Anxiety Rocks World Markets; Deadliest Blow of War; Financial Expert Analyzes Investment Opportunities in U.S. Economy; Governor Rick Perry's Call to Prayer; Hunger Crisis in Somalia
Aired August 08, 2011 - 08:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN ANCHOR: Confidence in short supply this morning.
I'm Christine Romans.
Markets across the globe stumble after America loses its AAA credit rating for the first time in history.
Here at home, the blame game has begun. But will the threat of another downgrade force Washington to finally change its tone?
CAROL COSTELLO, CNN ANCHOR: And good morning to you. I'm Carol Costello.
He's not on the ballot in Iowa but, boy, do conservatives want him to run, baby, run. Texas Governor Rick Perry put a call for a prayer session on Saturday, 30,000 followers answered. The question is: Can Perry court voters outside of conservative circles? The experts weigh in, later this hour.
ALI VELSHI, CNN ANCHOR: I'm Ali Velshi.
The single deadliest blow for U.S. troops in Afghanistan, warriors on the battlefield, dads and husbands at home. We'll hear from people who love them the most on this AMERICAN MORNING.
(MUSIC)
ROMANS: And good morning, everyone. It is Monday, August 8th.
Watching all of the markets open around the world, waiting for our market to open here.
COSTELLO: I'm dreading that day -- dreading that time, what am I talking about?
ROMANS: The day is here.
COSTELLO: The day is here. I thought it was just a bad nightmare, but it's not.
In just about 90 minutes, the U.S. markets will open. And the world will be watching closely because this will be the first day of trading on Wall Street since the S&P downgrade.
Right now, futures are sharply lower. The three major indices are down around 2 percent.
VELSHI: The credit rating agency S&P is coming under fire for its decision to downgrade the U.S. from AAA status to AA-plus, one notch lower.
The White House calls it unwarranted. Others are calling it politically motivated.
Earlier on AMERICAN MORNING, S&P's global head of sovereign ratings, David Beers, said it's simply a matter of loss of confidence after the debt ceiling debacle.
(BEGIN VIDEO CLIP)
DAVID BEERS, GLOBAL HEAD OF SOVEREIGN RATINGS, STANDARD & POOR'S: If we see that the climate in Washington is calming and it becomes easier for the parties to come together on a consensus around fiscal policies in the country and, therefore, we see that a more -- a more robust and bigger fiscal stabilization program emerges in the future, which is going to stabilize the U.S.'s debt burden, then the two together could get the U.S. back to AAA.
(END VIDEO CLIP)
VELSHI: Managing director of S&P says it's possible, though, that the U.S. credit rating could be downgraded again in the next six to 24 months.
ROMANS: And he called the White House's criticism of their move a smokescreen and says that it doesn't really negate what is the truth here.
VELSHI: He also said that no country has ever called them up and said thanks for the downgrade.
ROMANS: Yes, right. Investors aren't just rattled about a downgrade here in the U.S. They're also watching Europe, which has even bigger debt problems.
Richard Quest joins us now live.
Richard, good morning.
VELSHI: He's just escaping. He's here because it's not as bad here as it is in Europe.
RICHARD QUEST, CNN INTERNATIONAL BUSINESS CORRESPONDENT: Oh, fighting talk and it's only 8:00. Good morning to you.
VELSHI: Good morning.
ROMANS: Good morning. What is happening with Spain and Italy? We're talking this weekend about the U.S. debt downgrade. Inevitably, quickly, people in the market say we're watching Spain and Italy.
QUEST: The worries are, particularly with Italy, that the sheer amount of debt, $1.2 trillion, 120 percent of GDP, that Italy will not be able to pay its bills. Italy could be the next to fall in the European bailout situation.
So, we've already had Greece. We've had Portugal. We've had Ireland. Was Italy next?
I can tell you that the actions taken by the ECB, European Central Bank, the European's equivalent to the Fed -- the European Fed is going into the market and buying Italian bonds. And, sure enough, it seems to be working this morning. The yields are down comfortably for both Italy and Spain.
VELSHI: To around where? Let's just put this in perspective because if you buy a 30-year U.S. treasury, the yield on that is under 4 percent. That's the interest that the U.S. pays at this point.
QUEST: We're talking -- right. Let's look at tens. So a U.S. 10 is --
(CROSSTALK)
ROMANS: Ten-year yield?
VELSHI: Two and a half percent let's call it.
COSTELLO: And let's just connect this to the real world. Treasuries affect mortgage rates, right?
ROMANS: No, 10 years.
(CROSSTALK)
VELSHI: So, if the U.S. wants to borrow money for 10 years today, this morning, they're going to pay about 2.5 percent for the privilege. What's Italy going to pay?
QUEST: Over 5.5.
VELSHI: Right. OK.
QUEST: Five-point-eight. But it was 6 percent.
VELSHI: Right.
QUEST: As you say, this is all -- where does this all relate to the real world?
COSTELLO: Exactly.
QUEST: Where this relates to the real world is because eventually it feeds through not just in interest rates directly to what you pay for your mortgage, your car payments, your credit cards, but to your confidence. Do you feel better off? Are you concerned that the government is going to be bailed out? Are you worried about what's going to happen to your paycheck or your job because the economy is slowing down?
COSTELLO: Tell me how worried I should be.
QUEST: I would say, on a zero to 100 -- what would you say, Ali?
ROMANS: Worried about Europe or worried about the U.S.?
COSTELLO: Worried about my personal finances as it's connected to this downgrade.
VELSHI: You know, look, of all the things that make you money and make you feel prosperous, right, you got your -- the value of your home increasing, the value of your investments increasing in the stock market.
But the most important one -- because you could live without a 401(k) or a house, you can't live without a job. You can't live without an income.
So, the closer you are to not having a job, the more worried you should be.
QUEST: And when you put into context Spain's unemployment, over 20 percent, the European outreach, 7, 8 percent, under the United States. But austerity is creating a lot of joblessness, particularly in the U.K. And you've got cutbacks over here.
So, I would say concern, not worry.
COSTELLO: So, austerity in the U.K., because that intrigues me. So, they've made massive cuts?
QUEST: Yes.
COSTELLO: And it's caused massive unemployment?
QUEST: Will do. It's feeding into the system now. We're just about getting to the winter, after the summer. It will start to really feed it.
But our AAA is secure for the time being.
ROMANS: That's right.
QUEST: And I don't say that in any -- I can see the look on your face. I'm not saying that sort of on the pedestal. I'm saying the reason they made the cuts in the U.K. was because they believed that if they didn't, the U.K. would eventually suffer.
VELSHI: I like that. At least they're honest about it, in the U.K. They call it austerity.
Here, we call it responsible debt reduction. We should call it what it is. It would be austerity.
ROMANS: And one real world point for you, Carol, is that this is a time for people, if you don't have a lot of debt, and you have a job and you have a 30-year fixed mortgage, you're in a good position.
COSTELLO: But not many Americans are in that position.
ROMANS: No, millions of Americans are in that position.
QUEST: Yes.
ROMANS: There are millions of people are in that position and they're unnecessarily worried, perhaps, and too cautious about what they're doing right now. Everyone is in a different boat. They really are.
QUEST: And that is the problem. Those who have versus those who have not or are about to lose it and it's just getting wider.
ROMANS: The ability to go back and forth between those two groups.
QUEST: And I feel so sorry for you, sitting here, amongst the three with us here, who live, breathe and sleep this stuff.
COSTELLO: No, man. I'm glad because I had to deal with this stuff all day, I would jump off a bridge
VELSHI: Hey, Richard and I --
(CROSSTALK)
VELSHI: We battle on each other on this stuff every Thursday on his show.
So, if anybody's got ideas, tweet them over to us @RichardQuest or @AliVelshi. We need something to fight about this week.
COSTELLO: OK. Well, we'll talk more about this later on the hour. But now is your chance to talk back on one of the big stories of the day. Are the poor partially to blame for our economic woes?
Let's talk about it. Deficits, stock, tax cuts, jobs -- those are today's political keywords. Bu what about poverty? You don't hear the word poverty that much in Washington these days, but it's out there. Boy, is it ever?
According to census data, 44 million Americans live in homes with income below the poverty level. The Department of Agriculture says nearly 15 percent of Americans are on food stamps. Some like talk show host Tavis Smiley think it's time to put poverty back on a national agenda and there's a bus tour now to do that.
(BEGIN VIDEO CLIP)
TAVIS SMILEY, TALK SHOW HOST: In this presidential race that we're about to embark upon, somebody has to stand up and defend and fight for and not be afraid to talk about the plight of the poor in this country.
(END VIDEO CLIP)
COSTELLO: Talk about a fighter. One Democratic congressman called the recent debt ceiling bill a Satan's sandwich for cutting aid to the poor. Yet, what exactly does poor mean in America?
The conservative Heritage Foundation says the overwhelming majority of the poor live in decent homes, most with two TVs, a DVD player and VCR, a kitchen with a fridge, microwave oven and stove. Their point? Statistics can be misleading.
Republican Senator Orrin Hatch says Democrats just don't get it.
(BEGIN VIDEO CLIP)
SEN. ORRIN HATCH (R), UTAH: I hear how they're so caring for the poor and so forth. The poor need jobs. They also need to share some of the responsibility.
(END VIDEO CLIP)
COSTELLO: So, our talk back question today: do the poor share responsibility for our economic woes? Facebook.com/AmericanMorning -- Facebook.com/AmericanMorning. We'll read your responses later this hour.
VELSHI: Remarkable conversation going on, on Facebook -- on our Facebook page about this issue.
All right. They were on a rescue mission when their chopper went down. We've got new details this morning on the single deadliest incident to U.S. forces in the decade-long Afghan war.
ROMANS: That's right. We're now learning that the 30 Americans who died in that chopper crash, most of them elite Navy SEALs, were on their way to help fellow troops.
COSTELLO: Unusual for Navy SEALs, actually. Their missions are usually carried out in secret. But one Navy SEAL widow wants the country to know her husband was a hero.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: I want to tell the world that he was an amazing man, that he was a wonderful husband and a fabulous father to two wonderful children. He was a warrior for Christ and he was a warrior for our country, and he wouldn't want to leave this earth any other way than how he did.
(END VIDEO CLIP)
COSTELLO: Oh, man. Brian Todd is at the home of the SEAL team in Virginia Beach.
But, let's go, first, to Barbara Starr. She's live at the Pentagon.
What more do we know about how this chopper was brought down, Barbara?
BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, Carol, by all accounts, it was brought down by a rocket-propelled grenade, several military officials telling us that is the working assumption right now, shot down by the Taliban. Twenty-two Navy SEALs, 25 special forces -- Special Operations forces, a couple from other services. A devastating today.
They were going in actually to reinforce an Army Ranger unit that was already on the ground in a firefight. The Rangers had called for reinforcements and the SEALs went. It is the type of thing that they often do in these very dangerous missions in eastern Afghanistan. Thousands of these types of raids, assaults, done every year now, day in, day out in Afghanistan.
This is a very remote area, an insurgent stronghold by many accounts.
And no one can say at this point, really, how it is that they got shot down. Did the insurgents get -- how did the insurgents get of that shot that brought the helicopter down? That will be certainly the focus of the investigation.
But the focus is also shifting for the next day or so to the return of the fallen. That flight could arrive in Dover in the coming days. That flight could arrive back in Dover in the coming days. There are many indications that Defense Secretary Leon Panetta and other VIPs will attend that ceremony at Dover -- Carol.
COSTELLO: This has to be a hard duty. I just wonder -- the Taliban are bragging about this, right? Usually, we never hear about the missions that the Navy SEALs do. Why make it public that so many Navy SEALs died in this mission?
STARR: Oh, well, let us be very clear on this. The Taliban often make many claims, many of them proven to be false. But this is a case in which 30 American troops lost their lives in combat. And the United States military publicly acknowledged -- it public acknowledges each and every fallen service member.
That is very much what happened here. There will be public announcements of their names, their hometowns, once all of the family members are notified. But as we have already seen, many family members across the country openly speaking out, telling the stories about the lives of their fallen service members, Carol.
COSTELLO: Barbara, I guess what I mean by that is that this Navy SEAL team was part of an elite unit that brought down Osama bin Laden. So why make that part of it public, to give the Taliban something to brag about?
STARR: Well, I'm not sure I know how to answer that question. I mean, reporters ask the military straight up what unit these guys belonged to. It's going to become very clear they were Navy SEALs by virtue of their families, of course, publicly speaking out. And that is a family choice to speak out.
Their identities are going to be made officially public by the Pentagon within the coming hours and days. They will be identified as belonging to the Navy SEALs. And they were a very elite, quick- reaction force stationed in eastern Afghanistan.
For people who follow this, it was becoming rapidly clear that they did belong to the same unit. And I don't think the U.S. military, in this case, feels it has anything to hide. They are very proud of these men. They are very proud of what they did.
Those who still serve in these covert units, their identities, of course, are kept secret for their protection and for them to be able to do their jobs as they continue to serve.
But for the fallen, the U.S. military always acknowledges who has fallen in battle.
ROMANS: All right. Thanks you. Barbara Starr, thanks for that.
VELSHI: All right. From the kudos they got from killing Osama bin Laden to the grief that they're going through right now, the adopted home of the Navy SEAL team is struggling right now with this tragedy.
Brian Todd is there for us in Virginia Beach.
Brian, what's the mood around there?
BRIAN TODD, CNN CORRESPONDENT: Well, Ali, this is a Navy town, through and through. The SEALs and their missions are a point of pride for the people here. So, what happened on Saturday is now just beginning now to sink in. And it's very, very tough to take.
(BEGIN VIDEOTAPE)
TODD (voice-over): Kimberly Vaughn describes that horrible moment when uniformed officers came to her door and told her about her husband.
KIMBERLY VAUGHN, HUSBAND KILLED IN AFGHANISTAN CRASH: And I just fell to my knees.
TODD: Aaron Carson Vaughn was one of 22 Navy Seals killed in the helicopter crash in Afghanistan. Kimberly is now left to care for 2- month-old daughter Chamberlin and son Reagan who turns 2 years old next month.
VAUGHN: I want to tell the world that he was an amazing man, that he was a wonderful husband and a fabulous father to two wonderful children. He was a warrior for our country and he wouldn't want to leave this earth any other way than how he did.
TODD: On the boardwalk, in the diners of the Vaughn's newly- adopted hometown of Virginia Beach, a community grieves for nearly two dozen young men who were in their midst, but who they never really got to know.
Mary's Restaurant is a hangout for some of the SEALs based near Virginia Beach.
UNIDENTIFIED FEMALE: You feel like you're at rock bottom again. You just feel like you're not succeeding at what needs to be done. And you have to ask: is it worth it? Is another life worth it?
UNIDENTIFIED MALE: It's a grave loss, and we're very sad. A very sad day.
TODD: These were secretive, elite commandos who could never reveal what they did to these neighbors.
(on camera): Still, people here feel a close bond with the SEALs. And in only about 13 weeks, this community has gone from the triumph of the killing of Osama bin Laden to what now appears to be the biggest single loss of life in SEAL history.
(voice-over): We're told none of the SEALs killed in this operation were on the bin Laden raid.
Virginia Beach Mayor William Sessoms wanted to throw a parade for the SEALs after the bin Laden operation, but knew he couldn't. Now, he's got to help an entire city grieve for a group of young men whose names they may be hearing for the first time.
MAYOR WILLIAM SESSOMS, VIRGINIA BEACH, VIRGINIA: It hurts and -- but it's a shared pain, which means that everyone thinks so highly of them.
TODD: John McGuire knows all about that shared pain. He was a SEAL for 10 years, stationed near Virginia Beach.
(on camera): Is there any survivor's guilt among current or former SEALs when something like this happens?
JOHN MCGUIRE, FORMER NAVY SEAL: I think former SEALs like myself and all SEALs go through all the emotions. But you know, we are at war and freedom isn't free. And these guys -- I guarantee you every one of them, if they had a chance, they'd do it all again.
TODD (voice-over): Now, the focus turns toward helping the families. Current and former Navy SEALs and their commanders will be trying to raise money for the Navy SEAL Foundation, a group dedicated to giving financial support to those left behind.
(END VIDEOTAPE)
TODD: And as SEALs and their commanders get busy on that front, they're just more active in that foundation than they ever thought they would be right now -- Ali.
ROMANS: Brian, thanks so much -- Brian Todd in Virginia Beach.
All of our thoughts and prayers are with all of those family members for their sacrifice. Unbelievable.
COSTELLO: Still ahead on AMERICAN MORNING: we're talking religion and politics. Texas Governor Rick Perry holds a day of prayer and asks Christians to fast and pray to fix our country's problems. It seems he did connect with religious conservatives. But can he connect with other Americans?
ROMANS: And the big moment is here. A 61-year-old distance swimmer on her way to a world record right this very moment. She is swimming from -- swimming, yes, from Cuba to Florida in shark-infested waters without a protective cage. We'll check in on her progress.
It's 16 minutes after the hour.
(COMMERCIAL BREAK)
ROMANS: For 61-year-old Diana Nyad, this is a dream that just won't die. The champion swimmer has been in the Atlantic Ocean for nearly 12 hours now, trying to swim from Cuba to the Florida Keys. I'm happy to know it's like 87 degrees. It's like swimming in bath water with shark.
VELSHI: It's warm. There are sharks.
(CROSSTALK)
COSTELLO: And Jellyfish, right?
VELSHI: Yes. She began last night, started in Havana. It could take her 60 hours to complete. The only thing standing in her is hypothermia, dehydration, four different kinds of sharks and a remarkable current.
COSTELLO: Oh, whatever. She is amazing.
Matt Sloane is in a boat. He is following Nyad's every stroke. And he joins us live this morning with the CNN exclusive.
So, set the mood for us.
MATT SLOANE, CNN CORRESPONDENT: The mood is absolutely fantastic here. But, you know, Ali, you ticked off all of those things, sharks, dehydration, malnutrition, and not to mention the fact that she's 61 years old, doing all of this.
So, as you mentioned, we've been in the water about 12 hours now, Diana is off to my left shoulder now, swimming about 13 miles. We're about 13 mile off the coast of Havana. We have about 90 more to go to make it to Key West.
So, we will be here quite a while. We'll be able to check in with you guys tomorrow as well and we will still be doing the same thing. But I got to say, she shoved off last night about 7:45. It was absolutely remarkable to witness.
Hundreds of Americans and Cubans came out to wish her well. Just an incredible site to see -- guys.
COSTELLO: So, tell us about this armada around here. There's a lot of boats and things watching out for her safety, especially when it comes to sharks.
SLOANE: Absolutely. We're on a big mother ship called Bellisimo (ph). But just a few hundred yards from us, the most important boat to the swim is the yellow kayak you can see right next to Diana. That's got the shark shield on it. It's an electronic device that sends out an elliptical electrical field around Diana and that irritates that shark's sensory nerves and keeps them away.
The boat right next to the kayak is called Voyager. That's where all of her handlers are. Every hour, she swims every hour over toward the boat. She can't touch it. She can't get out. But she can tread water there while they hand her some food and some drinks to keep her fueled up for the swim ahead.
ROMANS: I can't imagine how much refueling she's going to need over the next hours, because that must be an incredible endurance. I mean, imagine the calories that you're expelling.
SLOANE: Yes, it's pretty amazing. Diana told us when she did her 1978 attempt for this swim, she was in the water almost 42 hours before they pulled her out due to bad weather. She was consuming about 1,000 calories an hour and she lost 29 pounds. So, do that equation. I'm not sure how it really works out. But that's really an outstanding amount of energy she's using.
We talked to a doctor before we came out here and said, you know, how is this even possible? He said, first, she's going to burn the glucose, the sugar in her body. After her body is done with the glucose, it's going to turn to body fat and when she's done with that, it's going to turn to muscle. And she needs that muscle to keep swimming towards to Key West.
So, it's really a pretty amazing feat, especially for somebody at 61 years old.
VELSHI: What point does her -- I mean, how does she handle the fatigue at some point? Does she stop and tread water to relax? I mean, what does she do?
SLOANE: Not really. She could do that. By the laws of this sport, she could stop and tread water. Now, she can't hold on to anything.
But I got to say, you know, we were with her last summer when she did a 24-hour training swim. And she really doesn't get fatigued. You know, she does say that mentally she kind of goes to a different place for a while. She was telling us that she sang "The Beverly Hillbilly" theme song her head about 1,278 times and she knew that was three hours by the time she could through all that stuff.
But, you know, she does hallucinate. Parts of her brain and body do shut down, trying to conserve energy for this swim.
So, there's much interesting stuff about this project. And, you know, we're going to continue to keep an eye on it as she goes for, like I said, another two full days before we will make it to Key West.
VELSHI: Unbelievable, man.
COSTELLO: What a great assignment.
ROMANS: A thousand calories an hour and 29 pounds.
COSTELLO: And she's eating things like peanut butter, liquid protein.
VELSHI: All right.
ROMANS: We're going to mind your business next, including a check of the markets, not so treacherous maybe as the shark-infested waters off of Cuba.
VELSHI: That's right.
ROMANS: We will let you know.
VELSHI: How is that S&P debt downgrade going to affect you and your money? We're going to tell you what you can do about it, how to plan ahead.
Twenty-four minutes after the hour.
(COMMERCIAL BREAK)
COSTELLO: In just one hour, history will be made on Wall Street. For the first time, America will not be part of the AAA club when the opening bell rings.
ROMANS: That's right. Standard & Poor's rated America's stellar credit rating, AAA, until Friday. Now, it's AA-plus.
As you heard the agency, just last hour on AMERICAN MORNING, warned America could get slammed with another downgrade if Washington doesn't get its fiscal house in order and its political house in order as well. This all weighing on the markets. U.S. stock futures are down more than 2 percent.
Ted Rowlands is live at the Chicago Mercantile Exchange.
And, Ted, where you are right now is where the S&P 500 futures live. And that's the gauge we've all been watching for more than 12 hours now. What are you hearing about what could happen this morning?
TED ROWLANDS, CNN CORRESPONDENT: Well, the market just opened here. The bond markets open and yields are down. People are parking their money in U.S. treasuries, despite the downgrade. This is the safest bet in town.
One of the ramifications that investors are talking about is municipal bonds. They may follow suit in terms of a downgrade because they're tied to the federal government, because the AAA bond rating went down at the federal level. That may also happen to municipal levels as well.
One investor says a lot of concern, not fear at this point, but all eyes, obviously, on the opening markets, stock market.
ROMANS: Thanks, Ted.
And what that means, of course, is municipal bonds are cut, too. Carol, that means it costs more -- it's harder or costs a little bit more for local governments to raise money, to do the things they have to do. So, that's why it could affect you.
Ted Rowlands at the Chicago Mercantile Exchange -- thanks, Ted.
VELSHI: Very good setup to what I'm about to talk about where he said yields are actually down. The cost of borrowing for the United States, ironically, is lower today than it was Friday night.
While everybody is worried about your credit card interest going up and your mortgage interest going up, we're not entirely certain that's going to be the case because as Ted said, he says it's the only game in town. Actually, treasuries are about the only game in the world if you want a certain type of investment.
But let's talk more about what this downgraded credit rating means for you and your investment.
Joining me now is an old friend, Sarat Sethi. He's a partner and portfolio manager at Douglas C. Lane and Associates.
Sarat, good to see you again.
Look, things happen in the market that are irrational. Last Thursday was an example. I mean, everything sold off. Regardless of the quality of the company or how much cash it had on hand. We saw S&P 500 and Dow companies -- every one of them is losing money.
Putting aside irrational behavior, not all stocks behave the same, and as an investor who is watching us right now, you have a lot of opportunities to buy and sell stocks. This morning, what would you be buying or selling broad terms?
SARAT SETHI, PARTNER, DOUGLAS C. LANE & ASSOCIATES: The first thing I would caution is don't jump out and say I'm going to make an asset allocation change because of what just happened. We're looking down the road to say what are the bigger implications of this? One of the things we've looked at is to say where you'll make the most money is invest in multinationals that have access globally, not just U.S.- centric.
VELSHI: Because they have -- they are in markets that are still growing.
SETHI: Right.
VELSHI: Things like Coca Cola, General Electric.
SETHI: Coke, Pepsi, Procter & Gamble, even companies like Ariston Electric, companies that can allocate and shepherd capital where they see the opportunities and then bring them back to what we've seen again, the most fluid and strongest currency -- not strong, but fluid in liquid currency that people are going to.
VELSHI: Explain this to me in terms that our viewers will understand who don't trade in currency or bonds -- why would it be cheaper this morning for the U.S. to borrow money than it was on Friday after this downgrade?
SETHI: Because again, in a time of uncertainty when you saw what happened on Thursday and Friday, it was a trigger. People just said I'm selling, and "people" meaning globally. So when they sell, they have to move the money somewhere it's safe and secure.
VELSHI: We talk about in your mattress. This is the global equivalent of in your mattress is U.S. treasuries.
SETHI: Because it's the most highly liquid and also you can get a price on it right away. You need price action and you need liquidity. So when money moves in to buy something, the price goes up. The way bonds work when the price goes up the yields come down, which is, if you think about it, when the announcement came Friday, you say, well, yields should move. Over time yields will move up because we're not the safest anymore. But we still are the safest --
VELSHI: So Australia and Canada are rated more highly than the United States is, but you can't take all that money in treasuries and put them in Australian and Canada.
SETHI: Exactly. And it's the same when people want to buy gold. There's more gold being bought than there is gold in the world. So when that bubble comes down, people are going to get hurt and say I was on this trend. It's the same thing as real estate. You have to see what the supply and demand is and what the liquidity is. And just because things are going up doesn't mean you have to be in the area.
VELSHI: All right, my viewers got 401(k), they're looking at it, they're going to have some stuff in stocks. They're going to have -- many people have bond funds. What should I be looking for?
SETHI: Right. So it's a two-pronged question. Mostly there are net funds in a 401(k). So let's do the bond one. What's happened in the last five years is that rates have come down. So if you have a bond fund you've only seen your bonds go up.
VELSHI: As rates come down, the price of the bond, the value of the bond goes up?
SETHI: Exactly. So that's been happening and people are saying that's great. I'm not going to look at it. Wrong. The same thing happened in real estate market when prices only went up and you said I'm just going to keep on buying the same thing because it only goes up.
Rates at some point will start going up. And the longer dated bond you have -- so if you have bond going on 20 years, a bond fund, the average maturity, and the rats move up one percent, that hit to your bond value is a lot greater that if you have an average bond worth five years.
Now, here is the key. Should I give up that five percent yield I'm getting for 20 years and go to something I'm getting one percent to two percent? Because what could happen when bond rates go up, you could lose 10 percent, 15 percent of your capital. And that's when things are getting better because rates will start going up better when things are better.
So that when you have to look at the bond fund, look at what is called duration, the average maturity. If that's over five to seven years, cut it back because you're going to get hurt.
VELSHI: Lower your duration in your bonds. Cash or cash equivalents -- there are some people are nervous right now. They want to sell out of their equities. It may not make sense to do that across the board, but if you're worried, you might do it. Where is the logical place to park your money?
SETHI: So on the equities high, look at what's happening now. One of the positives of all of this is that energy costs, input costs, commodity costs are coming down in a slower growth environment. That's great. That's tax cut for consumers and a tax cut for corporations.
So who is going to benefit from that? Corporations that are selling goods that need all these input prices. Look at those companies.
VELSHI: Industrials.
SETHI: Companies like that.
VELSHI: Right.
SETHI: And then also look at companies that have dividends because these companies today compared to two years ago or really three years ago, we don't have financial Armageddon. And I want to make sure that people understand that.
VELSHI: This is not 2008.
SETHI: This is not -- we here -- Europe has a much bigger issue right now. They're dealing with that. They have to come together. But we here have great multinational companies have --
VELSHI: Italy and Spain right now feel more like 2008 was for us. Right now the danger is that it might cost more in terms of interest rates for companies to borrow money. It's not that there's no money around.
SETHI: No. And with the markets discounting for all these companies, there's a slower growth in the U.S. Well, when you get 60 percent, 70 percent of your revenue overseas, it's really not going to hit you that hard. And you'll be growing with a weaker dollar, which means your earnings are stronger here.
And a balance sheet compared to 2008 for most multinationals much stronger, which means that they can support their dividends, and, more importantly, grow their dividends.
VELSHI: OK, so the takeaway from this is we got bond funds, shorten the duration, the date of maturity, and look at the quality of the companies you own. If they are companies that have a lot of money and they do a lot of their business overseas, this may actually help them more than hurt them?
SETHI: Exactly. They can use their intellectual capital, they can use and reallocate capital and shepherd it, and we're investing in these managements. And we can understand -- what a lot of people don't understand is the American financial system is transparent. We can understand the balance sheets. When you start investing in China and India, which is great for growth, we don't have shareholder rights. We have them here.
VELSHI: Got it. Sarat, good to see you, my friend.
SETHI: Thank you.
VELSHI: Sarat Sethi is a partner at Douglas C. Lane and Associates.
ROMANS: Ali, Carol, I was just remaking that that's what's good for investors is investing in companies that are not hiring American workers but are actually sitting on all that cash that we've been talking about. And that's the irony. The safe harbor are the same companies that are the ones we've been saying, why are you sitting on all that money because they've been saying we're worried about what's happening around the world.
COSTELLO: The best part of that interview, we shouldn't freak out about this.
ROMANS: This is not 2008. Stay calm. And futures are down about 197 points right now. Thanks Ali. That still hurts a little.
COSTELLO: Let's talk about politics, something pleasant, shall we?
(LAUGHTER)
Coming up next, Texas Governor Rick Perry is likely to join the race for the GOP presidential nomination. This weekend he had a day of prayer, asking Christians to turn to god for the answers to the nation's troubles. Did he connect, and can he connect with those outside of conservative circles? We'll ask two experts. It's 36 minutes past the hour.
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COSTELLO: It's 40 minutes past the hour. Good morning, Washington, D.C. Partly cloudy right now, 81 degrees. It will be hot later, sunny and 96.
For many conservatives, Texas Governor Rick Perry is their dream presidential candidate. He is not on the ballot in Iowa, but boy do they want him to run. He held a day of prayer in Houston and 30,000 came to hear him.
(BEGIN VIDEO CLIP)
GOV. RICK PERRY, (R) TEXAS: As we go out of this place, I hope you'll continue to pray for our nation and our leaders, for our president, for all those elected officials, that god will pour out his wisdom upon them.
(END VIDEO CLIP)
COSTELLO: We know Perry connects with religious conservatives, but can he connect with other Americans? Joining us from Iowa is Paul Burka, the senior editor of "Texas Monthly." Kasie's in Iowa -- and Kasie Hunt, the national political reporter for "Politico." So Kasie, you're in Iowa.
KASIE HUNT, NATIONAL POLITICAL REPORTER, "POLITICO": I am.
COSTELLO: And, Paul, you are not.
(LAUGHTER)
PAUL BURKA, SENIOR EXECUTIVE EDITOR, "TEXAS MONTHLY": I am.
COSTELLO: Welcome to both of you. Thank you for joining AMERICAN MORNING. So Kasie let's start with you. Rick Perry supported this call to prayer to pray for the country, to find a way out of its economic woes. You're in Iowa. It seems other Republican contenders are ripping a page from Rick Perry's book. Michele Bachmann is one. She's supposedly praying publicly.
HUNT: She is. I was on the trail with her last April, and she kept the praying mostly to herself or for church events. And now a day or so after Rick Perry's massive prayer rally drew over 30,000 people, she was here yesterday in Des Moines doing a prayer event, and she did a very lengthy and public prayer. And she prayed for the 30 American service members who were killed in Afghanistan. So it certainly was a fitting thing to do. But it was something we had not seen her do often outside a church setting.
COSTELLO: Does it resonate with voters in Iowa?
HUNT: It certainly resonated last night with the folks who showed up to see her. Of course, there's always extended discussions of how important the evangelical Christian vote is here in Iowa during the caucuses. And it's something that's very important at the very least to Michele Bachmann.
So for Rick Perry to get out there and do this very public, enormous event that's very clearly targeted at those voters, a group of people she previously had a monopoly on or a near monopoly on, that's something that's very risky and problematic for her.
COSTELLO: Interesting. Let's get to you, Paul. You've been involved in Texas state government and you know everything there is to know about Rick Perry. One thing that resonates is that he can create jobs. Since he has been in office, and this is in the "Wall Street Journal," more than 1 million jobs were created, 300,000 were government jobs, and more than half of those jobs created were in public schools. Despite that, Democratic Texas lawmaker Lloyd Doggett is not a Perry fan.
BURKA: No.
(BEGIN VIDEO CLIP)
STATE REP. LLOYD DOGGETT, (D) TEXAS: Since Rick Perry has been governor, haven't we all had more reason to pray more often?
We need to get that message out to America that we don't want America messed with the way Rick Perry has messed with Texas.
(END VIDEO CLIP)
COSTELLO: Now, Doggett says Texas has the highest percentage of people without health insurance and that Perry claims that grandma's Social Security is a crumbling monument to the failure of the New Deal. So, Paul, who is Rick Perry?
BURKA: Well, Rick Perry is a man who grew up on a farm in west Texas. He had a difficult childhood. It was a difficult life for his parents. And he's always been able to tough it out, whatever he has done.
I think the core of Rick Perry, if you know Texas, is that he was a Yale leader at Texas A&M. And that means that he is somebody who knows how to stir a crowd, who can bring excitement to a group. And, at his core, I think that that is what he is. He is a guy who can lead a pep rally.
COSTELLO: On substantive issues, though, is he a job creator or is he hurting the state of Texas?
BURKA: Well, Texas has had a good economy before Rick Perry was governor. And it will have a good economy after Rick Perry is governor. But Perry has also had special programs that have brought jobs here, an emerging technology fund, an enterprise fund to bring in companies. And he goes out to California and to New York and says come to Texas. We don't have an income tax.
And it's a pretty good pitch. So he has definitely made jobs his number one issue. COSTELLO: Interesting. Ok, Kasie, so the last question to you. You're in Iowa, there is a sense voters may see Perry as just another George W. Bush. Does he have a chance, then, not only to win the nomination but maybe a general election if people have that perception of him since, of course, he is from Texas?
KASIE HUNT, NATIONAL POLITICAL REPORTER, POLITICO: Well, that is -- I mean that's the main concern, is the general election, which is why this prayer rally was so remarkable. Because it was very clear that he was stepping up and accepting the political risk that that entailed. He was embracing it.
So, the question is, can he take this evangelical support and what is clear excitement on the GOP primary side and actually appeal to the moderates and the independents that he'll need to win a general election? And with that memory of George W. Bush still fairly strong in people's minds, that gives the -- President Obama and his campaign a lot of fodder to deal with if they are, indeed, running against him.
COSTELLO: Thanks to you both; Paul Burka in Austin and Kasie Hunt in Iowa. Thanks for joining us this morning.
Morning headlines coming your way next. It's 46 minutes past the hour.
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ROMANS: 48 minutes after the hour. Here are your morning headlines.
Right now U.S. stock futures are trading sharply lower ahead of the opening bell. Each down about two percent so far. Standard & Poor's decision on Friday night to downgrade America's debt rating has been pushing stocks down worldwide.
Treasury Secretary Tim Geithner is staying on the job. There have been reports he'd be leaving that post once the debt ceiling crisis was over. But the President asked him not to go. He agreed to remain there for at least another year.
Downed Navy SEALs were on a rescue mission when their chopper went down in Afghanistan; 30 Americans died in that crash. It was the single deadliest incident for U.S. forces in the ten-year war.
A 64-year-old man died yesterday during the swim portion of the New York City's triathlon. A female athlete also had a medical problem. She is in critical condition this morning.
People who smoke their first cigarette within half hour of waking up are 80 percent more likely to develop lung cancer. The American Cancer Society says studies show those most dependent on nicotine crave that first cigarette earlier and they smoke more often throughout the day.
You're caught up on the day's headlines. AMERICAN MORNING back right after this break. (COMMERCIAL BREAK)
VELSHI: Right now, the U.N. is air lifting emergency aid to Somalia. There's an extreme drought and a famine sweeping the region; 12 million people are in dire need of assistance in that area, the Horn of Africa.
COSTELLO: Oh such a sad situation. Somalia, of course the hardest hit. The United Nations says drought and famine have killed nearly 30,000 children.
ROMANS: And the crisis is intensifying here. Dr. Sanjay Gupta arrived in the region just a few hours ago. He is joining us live this morning. And Sanjay, the United Nations says this is the worst humanitarian disaster in the world.
We frankly, are quite glad that you're there, so you can tell us more about it and what can be done. What are you seeing so far?
DR. SANJAY GUPTA, CNN CHIEF MEDICAL CORRESPONDENT: Well, it is hard to believe, but once you're on the ground here, you can understand that. What we're seeing is that first of all, we're in what's considered the largest refugee camp in the world. And -- and one thing that immediately came out to me, is that this is -- this is a chronic problem.
We're talking about an acute crisis over the last few months, but this area has had some problems with -- these types of problems for some time. This refugee camp had 300,000 people in it, just several months ago, and now it has close to 400,000 people in it, it is the size of a medium-sized city in the United States.
That's a refugee camp. It is designed to hold about 90,000 people. So you can imagine the conditions and how overcrowded they are. The situation is as you might expect. I mean you have a big agricultural community in Somalia. There has been a drought, it has been the worst drought in about 60 years that has led to a loss of crops, which led to a loss of livestock, which led to a loss of food and water for people, and made them flee.
Oftentimes walking for at least a month on foot with their children, trying to find a refugee camp like this. Just -- just that journey alone obviously is just so tough on these families. There's also -- it's all been compounded by the fact that there's been conflict in this area, which has prevented aid from getting into Somalia. And that's why they had to set up these refugee camps along the borders.
What you just reported that a -- that a plane actually went into Somali and the Mogadishu with aid. That is a big deal, trying to get aid to the people in Somalia as opposed to having the people walk sometimes up to hundreds of kilometers away to get that aid. That changes the equation. That's what needs to happen.
VELSHI: And so many different conditions. And famine, I am told, is one of the most frustrating, because the actual solution, the nutrition and hydration of people is a simple matter. Why is it complicated? What's -- and I know you've explained to us why they can't grow their own food and why it's not sustainable to them. But what's the complication in getting enough aid and simple nutrition and calories to these people?
GUPTA: Well, let me say one thing, Ali. Is that this -- this problem was neither a surprise nor was it unexpected. People knew that this drought was coming for at least a year now. So that makes the question that you're asking even more poignant. I think the problem now is -- I think that the sheer resources in terms of water, in terms of food are getting to some of the -- the outer lying areas along the border, for example, between Somalia and Kenya.
I think that this longstanding distrust of groups -- Islamist militant groups like Al Shabaab, which in the past had banned any aid coming from western organizations and had attacked aid workers as they tried to -- tried to bring aid into the country. That distrust still stands.
The organizations says that they have lifted the ban. But so many aid workers in the past have been killed but they are still reluctant, as you might imagine, to actually go into the country and take aid directly into Somalia.
So that's part of the problem.
This drought, you know, again, there was hardly any preparation for it. There are agricultural -- I'm sorry, drought-resistant crops that could have been planted at some point. I was learning about that today from USAID. That wasn't done.
They could have taken some preventative measures to try and get food and water into these areas prior to this -- you know, this famine occurring. That wasn't done either.
So now it's a big game of catch up, Ali. That's what's happening right now.
VELSHI: All right, Sanjay. Thanks very much. We'll -- we'll of course, be staying with you throughout the duration of your time there. CNN is committed to having a presence there to try and get to -- to try and cover this as much as possible and allow people to -- to help out.
Change your DVRs, by the way. Tonight is the night of the big move. "AC360" is moving to 8:00 p.m. Eastern. Anderson, along with Sanjay, will be reporting live from Somalia on this devastating famine in the region. That is 8:00 p.m. Eastern here on CNN.
It is 56 minutes after the hour. We'll be right back.
(COMMERCIAL BREAK)
COSTELLO: All right. Now is your chance to talk back on one of the big stories of the day. We asked you this question this morning. "Do the poor share responsibility for our economic woes?" Whoa, did you respond.
This, from Vesna. "The poor that the Republicans are speaking about are the functional poor, those of us who are just barely making it. Two TVs does not make you prosperous, when you can barely pay your cable bill, can't buy a house and have a hard time paying your rent, maxing out your credit card to keep your car on the road and paying for your kids' school clothes instead of a vacation. Blaming the poor is a poor idea."
This from Kate, "Certainly the poor should have to share responsibility for our economic woes, as should the rich and the middle class. We're in this together because we got here together. As far as entitlement programs for the poor, I like to think that we're only as great as the least of us. And enough to eat and a roof over your heads is not entitlement."
Please keep the conversation going. Facebook.com/Americanmorning. And thank you as always.
ROMANS: That's going to wrap it up for us. CNN NEWSROOM with Kyra starts right now.
