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YOUR MONEY

Are We in Recession?; Where Do the Candidates Stand on Your Money?; Bank of America Purchasing Countrywide

Aired January 13, 2008 - 15:00   ET

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


ALI VELSHI, CNN HOST: Welcome to YOUR MONEY. Where we look at how the news of the week affects your wallets. I'm Ali Velshi.
CHRISTINE ROMANS, CNN HOST: I'm Christine Romans.

Coming up on today's program, how to tell whether we cross the line. We will ask two Congressmen whether we are in recession and find out why the answer matters so much to you.

VELSHI: Where do the candidates stand on the hottest election issue of all, your money?

ROMANS: That is right. But first, Bank of America says Friday it would purchase and battle mortgage lender Countrywide Financial for $4 billion dollars and stock.

VELSHI: Now this deal which is expected to go through in the second half of the year. Would make Bank of America the nation's largest lender. Because Countrywide is now the nations largest lender.

ROMANS: The CEO of the company has been under siege, criticized for actually helping foster the subprime mortgage crises by putting hundreds of thousands of Americans into homes that they would never be able to afford. The company says it is doing everything it can to try to help those besieged lenders, those homeowners.

Last weekend, I was at a conference with Senator Chuck Schumer. This is what he had to say about the CEO of Countrywide Financial.

(BEGIN VIDEO CLIP)

SEN. CHUCK SCHUMER (D), NEW YORK: I met this man Bazilo (ph); (INAUDIBLE) I would like to boil him in oil figuratively.

(END VIDEO CLIP)

ROMANS: Speaking of Rev. Jesse Jackson, it shows you kind of the disdain for the industry that is happening right now and the unhappiness among politicians, homeowners and a lot of the folks who are doing consumer credit right now about the kind of situation we are in.

VELSHI: People are going to have questions about what this means to them. Obviously so many millions of Americans are either clients of Bank of America or Countrywide. We are going to tell you exactly what it means to you. For now, don't worry about anything. If you have a mortgage with Countrywide it stays exactly the same.

ROMANS: If you have been concerned that we are headed for a recession, you're not alone. The majority of Americans think so too. A growing course of economists are right behind them.

VELSHI: According to last week's job report, unemployment jumped from 4.7 percent to 5 percent. For most of you, that may not seem like a big deal. It is a significant increase in the number of people without a job.

ROMANS: Add that bad news to record-setting energy prices, housing foreclosures, retail holiday sales; you might think the economy is already in a recession. Ali as you reported this week, we won't know from the experts until it is over. For some people, they think they are already there.

VELSHI: Except for some people, they don't think we are headed that way. One of those people is Fed Chairman Ben Bernanke. Here is what he had to say this week.

(BEGIN VIDEO CLIP)

BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: The Federal Reserve is not currently forecasting a recession. We are forecasting slow growth. As I mentioned, there are down side risks. It is very important for us to stand ready, as I mentioned to take action to address those risks and provide some insurance against those negative outcomes.

(END VIDEO CLIP)

VELSHI: Take substantive actions to prevent those risks.

ROMANS: Translation.

VELSHI: They are going to cut interest rates again January 30th is when the Fed stands next to make a decision. It might do it before that. That's what the market thought. We have two economists here to help us figure out where we are, what it means for you and me and everyone else in this country.

Peter Morici is a professor at the University Of Maryland School Of Business and the former chief economist at the U.S. International Trade Commission. Lakshman Achuthan is the managing director of the Economic Cycle Research Institute.

Welcome to both of you. Thank you very much for being with us. Lakshman you are in the business of predicting recessions. I guess there are some lulls in this business. Where are we now? You are the one who is going to tell us, your figures say we are in or headed for a recession.

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: Well, we are certainly in a very precarious state. I don't think a recession is a done deal yet. What we are seeing and the key indicator is the generator recession, is the beginning of a self-reinforcing downturn. You don't want that to continue because then you are in a recession. Now, Chairman Bernanke is in a unique position to make the statement he made because he is one of the only people who know if we are going to get what need is in order to avert a recession.

ROMANS: Peter, let me ask you what you think is needed to revert a recession? You told me that when you look at those job numbers, outside of the private sector is where the hiring is. That means the government -- you are worried about what is going to happen in the next few months and what we are in right now?

PETER MORICI, UNIV. OF MARYLAND BUSINESS SCHOOL: If we measure GDP on a monthly basis as opposed to a quarterly basis, I wouldn't be surprised if December were a month of negative growth. Bernanke really can't say we are headed for a recession, it would be wide spread panic, he has to say that we are not going to have one. I don't believe he is on track.

Cutting interest rates alone is not going to solve the problem. It won't have much effect on the ability of all day mortgages or jumble mortgages because the bond market has broken down. They have not taking any actions to really improve that basic situation. The takeover of Countrywide is more or less a celebration of failure. It doesn't signal something new and better is going to follow.

VELSHI: That is interesting. All right. Lakshman let me ask you about this. You are saying that maybe Bernanke has a better clue because he knows what is going to happen, because he can actually be at the meeting when they decide to cut interest rates. First of all, are they going to continue to cut interest rates by .5 percentage point at the end of this month? And as Goldman Sachs says maybe another 1 1/4 through the course of the year and secondly will that be enough?

ACHUTHAN: There is an important distinction. Look they are going to cut interest rates. There is no debate about that, whether they like it or not. The question is, do we get prompt policy stimulus? If it doesn't happen promptly, they can cut until the cows come home and you will have a recession.

If you think back to the last recession, Chairman Greenspan was at the helm. In January of 2001, he began cutting rates. He cut 200 basis points very, very quickly. We still had a recession, because the timing was too late. We are -- we have a very brief window here where some stimulus may abort ...

VELSHI: Tell us why -- the day they cut rates, people's loans get cheaper.

ACHUTHAN: Yes, but see what happens, this is where Peter and I are on the same page, is that once you start a sequence of events, it begins to gain momentum. We see sales falling down and getting weaker. Then, production, for example, if it was multi-production, begins to decline. Once production declines, job growth could go negative, which impacts incomes. Then, that comes full circle and brings down sales.

That's a self-reinforcing downturn. Once it starts, you can't stop it. That's what they have to get ahead of. They are running out of time. It is not baked in the cake but we are headed in that direction.

ROMANS: Peter, if there is a half percentage growth, if there is a half percentage point contraction in the economy it still feels the same to me sitting where I am sitting. And in some places it is already clear.

In Michigan and Detroit, it is already clear there has been a recession there for some time. What happens from this point forward? We have Congress talking about some kind of stimulus. The president, his aide saying he is watching all the numbers and may announce something at the State of the Union. When it is Congress waiting for more numbers, is it too late?

MORICI: I think it may well be too late, because of the kinds of stimulus they are talking about. If the president gave us back $500 a piece in February, would that jump-start the housing market, would that make mortgages more available and put equity back in people's pockets by raising home prices? I think not. Cutting interest rates might make the commercial paper market a little more viable than it has been but it won't repair the mortgage market.

They are not taking the structural steps necessary. Paulson's Hope Now Program really doesn't address the mortgage crises. They have been too late on this one. They have really lacked creativity; at least Greenspan was forward looking and very unconventional. He was willing to jump forward. Bernanke seems to be running the economy through the rearview mirror; these are not the black boards at Princeton. He is running this place as if it was MI University using the models we use. It doesn't work.

VELSHI: That's exactly right. The economy is not a blackboard at Princeton. I think Lakshman; you guys have both said it is what it feels like. Will that stimulus help -- will lower loan rates help people? This is psychological. Let's be clear on this. Whether we have got blackboards to tell us what a recession is. A recession is people's behavior is it not Lakshman?

ACHUTHAN: Absolutely. If we do, indeed, get a recession, this will be the most forecast recession we have ever had. It is very unusual in that respect. The fundamental reason why is because we have had all these bad shocks yet the economy has some how muddled through and been resilient. Now, the cyclical vulnerability is joining all of these negative shocks and that makes it very difficult to avoid a recession. You have to be very aggressive as Peter was suggesting in terms of policy to counter those forces and the psychology is critical.

For example, during the holiday season, people would go to the pumps, they would lose the battle. They would have to fill up their cars but they would still be OK with going to the mall and buying something at a deep discount. All of the retailers that made money had huge sales they had to get the consumer to spend money.

VELSHI: Thank you for this. MORICI: Two things, retail sales are hardly up but imports are up a great deal, which means that demand for U.S. products has already turned down. That is really quite problematical and we still don't have a repair for the housing market. Without those two things, we are not there.

VELSHI: Thanks, guys. Lakshman is managing director of the Economic Cycle Research Institute and Peter Morici, professor at the University of Maryland School of Business. Thanks to both of you.

ROMANS: There is a spirited debate going on about what's happening in the economy. Up next on YOUR MONEY, we are going to tell you what the presidential candidates are going to do about it.

(COMMERCIAL BREAK)

VELSHI: With New Hampshire in the rear view mirror presidential candidates are working their way through Michigan. Primaries there are set for Tuesday.

ROMANS: Now while the economy has become a hot button issue nationwide, it has long been a major concern in Michigan where unemployment is among the highest in the nation topping 7 percent.

VELSHI: The candidates spoke out this week courting those voters who are already familiar with the word recession.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: I am most concerned about the technical definitions of a recession than I am with all the people I meet who are struggling every day. They have been struggling for many years, even when the economy looked like it was doing well on paper and Wall Street was flush with cash.

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: We cannot leave these great Americans behind. I want to tell you, I will help you create new jobs and new education programs and ways to keep these people leading productive lives with great futures and a great future for the state of Michigan.

SEN. HILLARY CLINTON (D), PRESIDENTIAL CANDIDATE: I think that we need a president who will once again look out for the middle class of America. When you do that, you put America on the right track for the future.

MITT ROMNEY, (R) PRESIDENTIAL CANDIDATE: No one cares about Michigan like I care about Michigan. No one has the deep roots here that I have here. Something else that's even more important as it relates to Michigan. I spent my life in the private sector, in the economy. I learned why jobs come and why jobs go.

(END VIDEO CLIP)

VELSHI: Let's find out who is really connecting with voters on the matters of the economy. Michigan is a great example. As you said they have been in a recession for some time.

ROMANS: That is right. Karen Tumulty of National Political Correspondent with "Time." Her interview with Hillary Clinton is in this week's issue. Karen, welcome to the program. What are we going to hear from these candidates as they go to Michigan, the Republicans in particular? What can they say to this state which many say is already in a recession?

KAREN TUMULTY, NATL. POLITICAL CORRESPONDENT, "TIME:" Well, the economy was a slogan coined by the Clinton campaign in 1992, but I think the issue for politicians even as it is rising in the minds of voters, it is now number one, it is ahead of the war, ahead of everything else, it is different in different parts of the country.

In Michigan, it is all about jobs. In places like Florida and Nevada, it is all about foreclosures. Everywhere, it is all about health care. It is a more complicated puzzle for politicians to solve now, even though they know they need to connect with voters on this issue. On top of everything else, voters understand in a way they didn't in the past the degree to which their economic are tied to things going on globally.

ROMANS: Karen, we have been hearing a lot about the broad brush strokes of the economy. The Republicans talking about lower your taxes. Mike Huckabee talking about a consumption tax getting rid of the IRS. Are there specific plans out there about what's happening right this minute? Or is that something that happens in June when you have two nominees and they start fighting each other on the economy.

TUMULTY: No. In fact, every candidate now understands that they have to have something very specific to say about the economy. Hillary Clinton came out of her New Hampshire victory with a $70 billion economic stimulus plan. You do see, while the details are different, very different approaches on the part of Democrats and Republicans.

Democrats will usually talk about things that involve additional government spending for targeted assistance. Republicans cannot do that. Not only because their party is ideal had logically more attuned to tax cuts.

Also, because they understand the Republican basis very, very angry at the Republican Party in Washington for what they see is out of control spending. So they are really somewhat more limited in terms of the kinds of solutions that they can propose. Also, they are certainly leaning more toward a private sector solution than the Democrats are.

VELSHI: Karen, you have watched this closely. We are in January. A lot of people think we are in a recession and a whole lot more think we are headed for one and a very small minority of people doesn't think there is going to be one at all.

Does this matter for presidential candidates? Because this can all be done and we can be on the other side of this by the time the next president takes office or not. How do you deal with this? What does the voter think about this? Should we be paying attention to president and Congress or the candidates?

TUMULTY: Well, certainly, I think the voters are looking for candidates who really can understand them, can connect with them, really know that what is going on in their lives is something that is not always spelled out by the economic statistics. I think, probably, the best line I have heard recently comes from Mike Huckabee running in a Republican primary saying, voters are looking for a guy who reminds them of the guy they work with, not the guy that laid them off.

ROMANS: That ties into everything, it ties into globalization, it ties into the auto industry in Michigan and just sort of the feel good kind of setting yourself apart.

VELSHI: And a kick in the shin for Mitt Romney. Where do we go here? What do these candidates, are we finding it is gelling? What Christina and I have noticed is when we do, you know just before we produced you, we played some comments from many of the candidates, they are highly nonspecific. They are moving in the right direction. At this point, nobody can tell me exactly how we get out of this downturn.

TUMULTY: Yes, I think it is a sense that voters are looking for that the candidate is on top of the issue and this candidate understands the issue. Hillary Clinton pulled out a surprising win in New Hampshire after Iowa. One of the numbers in the cross tabs of the exit polls was where she really dominated Barack Obama issue wise was on voters trust and who is more competent to handle the economy. I think that is sending everybody a big message that they have to look like they really are understanding of what are the forces that are driving the issue.

ROMANS: All right. Karen Tumulty, her interview with Hillary Clinton on news stands right now, thank you so much Karen.

VELSHI: Coming up, two cities and their plans to fight predatory mortgage lending. You want to listen to this. Stay with us, we are coming right back on YOUR MONEY.

(COMMERCIAL BREAK)

ROMANS: The city of Baltimore is taking Wells Fargo to court. A lawsuit filed this week alleges the bank used predatory lending tactics in poor predominately black neighborhoods issuing high risks and unfairly priced loans. Wells Fargo mortgages practices discriminated against black borrowers. The bank says race isn't a factor when determining loans.

VELSHI: The city of Cleveland this week filed suit against 21 investment banks for their lending practices, Wells Fargo was among them, the suit accuses the banks of creating a public nuisance by allegedly buying and selling high-interest mortgages irresponsible. It targets some of the biggest names in investment banking including Goldman Sach, Deutsche Bank and Merrill Lynch. Cleveland says the banks create a condition which drains the city's tax base and ruins whole neighborhoods. And we are contacting all of those banks for their comment on this lawsuit.

ROMANS: A pretty safe bet that you are going to see other cities and municipalities following suit.

On Wall Street this week, late payments are shaking up a couple of companies whose plastic you might be carrying around. Capitol One announced it's setting aside $650 million to cover unpaid credit card bills. American Express says it is taking a $440 million dollar pretax charge in the fourth quarter as defaults pile up. Annex says the soft housing market is hitting its less affluent customers with their credit card use down and late payments rising.

VELSHI: That news is really hitting the stocks at those companies.

ROMANS: Up next one of the issues that you the voters most concerned about for the presidential election. .

(COMMERCIAL BREAK)

(NEWSBREAK)

ROMANS: OK, so we all want to know where the candidates stand on your money, which happens to be the number one issues in the mind of voters right now. One of the strongest forces hitting the economy right now is the mortgage crises.

VELSHI: Allan Chernoff has been following that, he joins us now with a look at how that crises is playing out among American voters, Allan.

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: This issue is consuming voters who are having trouble making ends meet and who know their situation is only going to get worse as the election approaches.

(BEGIN VIDEOTAPE)

CHERNOFF (voice over): Julian Simmons is a single mother with a big worry.

JULIAN SIMMONS: This is my home. This is my castle.

CHERNOFF: She is saddled with a mortgage she can barely afford and her monthly payments are scheduled to jump higher this summer.

SIMMONS: Loosing my home. That is my biggest fear.

CHERNOFF: An unscrupulous broker put her into a risky mortgage. Another one refinanced her last year into a new loan that added to her debt burden.

SIMMONS: As you see there, my payments went up.

CHERNOFF: Sims U.S. citizens came from Trinidad is a classic victim of predatory lenders who have put tens and thousands of Americans in danger of losing their home. The mortgage crises may prove to be a very important issue in the presidential election. Among the states that had the highest foreclosure rates are California, Florida, Michigan, Ohio and Indiana. Together, they have nearly half the electoral votes needed to elect the next president.

SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: We need exposure and accountability in the housing market.

CHERNOFF: The leading Democratic candidates, Obama, Clinton, and Edwards all endorse a federal fund to support homeowners who is in over their heads. Obama and Edwards also want to outlaw overly aggressive lending.

JOHN EDWARDS, (D) PRESIDENTIAL CANDIDATES: We need a national predatory lending law that cracks down on the abuses, from front-end fees to excessive interest rates.

CHERNOFF: But it is Hillary Clinton that most interests Jillian.

SIMMONS: I think Hillary can do a terrific job. I think I have enough fate in her ...

CHERNOFF: Senator Clinton is pledging a foreclosure time out.

CLINTON: I will have a moratorium for 90 days on foreclosures while we try to figure out what we are going to do to keep people in their homes.

(END VIDEOTAPE)

CHERNOFF: Republican candidates prefer to see the private sector work out the problem, rather than having government provides aid to borrowers in trouble.

Wall Street represents 1 to 1.5 million American house holds will face financial distress this year as their mortgages adjust upward. The issues could be a deciding factor for voters like Jillian Simmons who are trapped upped the weight of a very expensive mortgage.

VELSHI: The polls are showing that everybody, this is the number one issue for people, whether you are in an adjustable rate mortgage. The economy is worrisome on the jobs front, on the gasoline front. Are people able to translate that into making a decision for who they are going to support in the election?

CHERNOFF: Some people. I think we are still relatively early in the process. Obviously, we are not that early because the primaries are coming right up. For a lot of people, it's been hard to figure out where all the candidates stand on the issues. A lot of the coverage has not focused on that. People want to know. They want to know what will the candidates do about these economic worries.

VELSHI: Underneath it, Allan, it says, financial security watch, because we have been getting that feedback from people that they want to know very specifically, for people like us to do what you are doing ask specially what that is going to do. And I think that is important for us.

ROMANS: And here is the deal. If you don't have a sub prime mortgage or a prime mortgage that is adjusting and you are in trouble any way, your neighbor could. In Prince George's County, there is a mayor there who told me last week that $10,000 is being loped off the value of every single home because of the foreclosures down the street. So it affects everybody.

CHERNOFF: This is really as you know the factor that is causing, the real credit crunch. So banks are not lending as much not just to consumers but businesses across the country. That could push us into a recession.

VELSHI: Allan, thank you.

ROMANS: Thank you, Allan.

VELSHI: Too many risky loans got us into this mess. But some real estate watchers believe that there is more to the housing prices than unscrupulous lenders and unwitting borrowers.

ROMANS: Our obsession with homes and our unyielding urge to make them bigger, bolder, more luxurious, it all helped create a housing bubble that is now burst. Daniel McGinn ought to know he is the author of a new book called "House Lust." America's obsession with our homes. Welcome to the program.

DANIEL MCGINN, AUTHOR, "HOUSE LUST": Thanks.

ROMANS: Here is what we are all trying to do as we talk about the housing crisis. Who are the people who are trying to gain the system, no money down, second home kind of deal and they got in trouble? Who are the people who got pushed into a loan they were never going to afford and it was predatory lending and who were these crazy people taking money out of their house like it was a piggy bank and building $200,000.00 decks. You know a lot about the last group of people don't you?

MCGINN: The focus the last few months has been on foreclosures and defaults and on how the lending industry put so many people in these loans. In the book, I am more interested in the demand side. What were people doing with this money? Why did we get to appoint where we wanted our houses to be so much bigger where we were buying second homes and investment properties? What was it that changed culturally about the way people thought about their homes?

VELSHI: You know what is interesting is Christine and I was talking about this, my parents live in the same house that I grew up in. It's been renovated. It's still the same house. You were telling me your parents just did some renovation recently. When did this change? When did we become all about really big, so when did this house lust set in and what made it happen?

MCGINN: I think it happened during the boom. When we all watched our houses gaining value by 10, 15 percent a year, it became hard not to act like somebody in a casino who has just won a hand and is anxious to bet on the next hand. The building industry has become very sophisticated in their marketing, they have marketed the idea you want more square footage and you want a newly built home. Why live in a used house when you can live in a new house where you choose everything. So these are some of the ideas I look at in the book.

ROMANS: Stainless steel appliances, garages that have three-car garages and then another garage for your boat. People can drop names about granite. We all got obsessed with our finishes.

MCGINN: Sure. Two things that come to mind with this. Number one, when I talked to people who were going through this, I was surprised how many of them talked about the tex dot bust of the '90s. They got burned during that, they said why I should put money in stock. I lost money before; I am going to put it in my house.

VELSHI: To be safe.

MCGINN: The other thing that I think people don't give enough attention to is the role that the media played in some of this, shows on HGTV. We are all watching a lot of home shows. You can watch people flip houses that can be pretty seductive.

VELSHI: And I was going to say, we were talking about the media, I guess there are those of us on the news side that talk about how those prices were going up. You get to look in peoples private homes and they tell you what they are doing, it puts the pressure on to keep up with the Jones's. It's not like you are not looking at the Jones's. Everybody knows what they are doing.

MCGINN: Absolutely. People think young women read too many fashion magazines and see so many skinny models it can affect their body image. I think some of these home shows have the same effect. We are looking at a lot of perfect houses and we are watching a lot of make over shows where houses get perfect by the end. That can lead people, to spend money and to be unhappy with their houses.

ROMANS: Bottom line of all your research tell us is it a self- inflicted wound? Some of these middle class homeowners and now in big trouble?

MCGINN: Some aren't in big trouble. Clearly, a lot of people borrow too much money and are facing foreclosure. The majority of people are just adapting to an age in which their house isn't gaining 10 percent and maybe losing a little bit of money. While there is a lot of pain caused by this, there is still a reality that we are all adjusting to as well. I think some of our attitudes about this will prevail in the end.

ROMANS: All right. Daniel McGinn, "House Lust" is the name of the book. And now Ali is not going to buy that Collie Goldenbay (ph) he has been talking about.

VELSHI: That is a little bit true. Good to see you.

Up next on YOUR MONEY, why you might want to buy high on gold.

(COMMERCIAL BREAK)

ROMANS: Gold futures soared on Friday topping the $900 an ounce mark for the first time ever. That was after the Federal Reserve Chairman Ben Bernanke said the Feds rate will lower rates in order to keep the economy in track.

VELSHI: See it.

ROMANS: Ali is like wearing his gold investment on his sleeve.

VELSHI: I wore my gold bar cuff links. They are not really real, they just look like a gold bar.

ROMANS: If they were real they would be up another 43 percent over the past year which means.

VELSHI: I would have to have a bodyguard to wear them. The weak dollar always makes gold go higher, sky high oil prices and of course continued concern about inflation. Gold's rise has been steady. It may continue. Will it? Should you buy, sell, or hold gold?

Frank Holmes is a CEO of U.S. Gold Investors; he joins us now from San Antonia. Frank, is this the time to buy or sell gold?

FRANK HOLMES, CEO, U.S. GOLD INVESTORS: It's always the time to own gold in a portfolio. There have been a lot of studies going back over 30 years ago using regression math. It shows you should have a 5 percent exposure to gold. Then, you rebalance each year.

ROMANS: So that means a bunch of smart people are doing a bunch of smart stuff with numbers and say you should have 5 percent of your portfolio in gold, jewelry, in bouillon. How do I as an individual investor maybe want to get some exposure it I don't think I can go out and buy bouillon? Can we buy the exchanged traded funds, ETF? And is now a good time to buy one like GLD, or some of them are tied to the gold miners?

HOLMES: I think when you take a look at gold jewelry and you believe they are going to continue to fall, that Cartee (ph) watch is going to continue to go up.

ROMANS: Really?

HOLMES: Absolutely. The cost of gold is going up and the cost of the currency for the Europeans that are manufacturing and creating that watch. So you are seeing appreciation being passed on. The other part is high-end quality jewelry. Or you can buy simple. The gold ETF is a great way to buy it, and you are going to own it, but it is not as tax efficient as going out and buying some simple gold bars. Which you can buy some simple gold bars in various places. Now buying gold stops, we are in the money manager business, and we look at the miner's index, and we go to beat it every year.

VELSHI: This is interesting, because it is not a point that I got this portfolio and I should have gold. You are saying that you can have gold and your gold should be diversified between bouillon and jewelry as you say or coins and maybe an ETF and a gold stock or a mutual fund. So even the gold part of your portfolio should be diversified is what you are saying.

HOLMES: Absolutely. You need to rebalance your ETF and you need to rebalance your gold mutual fund.

ROMANS: What about grandma's gold jewelry, I guess? We are talking about some of the heirloom stuff. Is that part of my portfolio that I didn't think about?

HOLMES: Absolutely. If it is 18 caret gold, it will go up in value. In India, you can buy 22, 24 carat jewelry marked up that hour. So when gold moves up 20 percent, people will come back and turn in their gold for a new design.

VELSHI: You don't even have to go to India. You can go to Queens in Jackson Heights and get that 22 carat jewelry.

HOLMES: That is a great idea.

VELSHI: Frank good to see you. Thanks for being with us.

HOLMES: It is great to be here.

VELSHI: Frank Holmes, the CEO of U.S. Global Investors.

ROMANS: We are going to tell you about a drop off in holiday shopping and what it is doing to the economy.

(COMMERCIAL BREAK)

ROMANS: OK, so back in November, everybody was like holiday shopping will be so great. The day after Thanksgiving was wonderful.

VELSHI: You and I were like, stop this nonsense. It is not going to be wonderful. We were out there we saw it wasn't going to be wonderful. Guess what, Jennifer is here to tell us, it wasn't wonderful.

JENNIFER WESTHOVEN, CNN CORRESPONDENT: It wasn't wonderful. I think it might have been wonderful in those first few days. That was people loading up on credit cards that they now can't pay off. This was a big problem.

This is one of the economies of course, vital signs. Holiday shopping, we have two separate gages that showed it looked even weaker with some of the final numbers coming in. The two of them basically show consumer spending, pretty spiritless. One gauge put it at 1.7 percent, another at 2 percent. Either way the slowest rise to 2002, so the worst in five years.

ROMANS: I want to say something quickly about the credit card part of this equation. If you are out there with a bunch of credit card bills from the holiday, call your credit card company. If you can't pay the minimum, talk to them. Don't let it just pile up. Try to get them to lower the interest rate. VELSHI: We look at earnings report. Sometimes the average investor doesn't. The thing I like about earnings season, it is the report card, the truth about what is going on in business in America.

WESTHOVEN: That's right. Merrill Lynch, I mean first of all, American Express is one of the credit card companies that is having big problems. But Merrill Lynch is too, not just credit cards. We keep getting right hooks coming in from the credit card companies. They are reporting that they are going to write down $15 billion. It is huge. It is the worst in the company's 94 year history.

This huge write down has to do with the mortgages. It has to do with putting pressure on this company and shortage of cash. They may have to start looking at cutting bonuses. They have to start doing what other companies are doing, going to foreign governments.

VELSHI: A lot of grim news. So now I would like you to tell us about topless mermaids.

WESTHOVEN: Of course he came right in on the topless ones. We are talking about the clown of McDonald's verses the mermaid from Starbucks. She did used to be topless but they vanillaed her out. McDonald's is challenging Starbucks going to the heart of their business by putting in coffee bars with baristas so you can get a latte along with your big Mac.

VELSHI: I tried it, I will stick with ...

WESTHOVEN: I want to smell the coffee. Part of that whole problem they are having at Starbucks, they say, are we losing our soul. Their traffic has been down. They just got rid of their CEO and brought back their chairman and founder.

ROMANS: I wonder what the franchise owners at McDonald's think of the cost of putting in coffee bars.

VELSHI: It used to be at McDonald's when you are getting something; the person goes and gets the fries and the drink. The coffee machine is going to be facing the customer because there has been research that says, that's going to be better. I am a big McDonald's guy. I am not interested in fancy coffee or baristas.

WESTHOVEN: Those are high margin items, those fancy coffees.

ROMANS: McDonald's over Wendy's?

VELSHI: Yes.

ROMANS: Coming up on YOUR MONEY, the hottest gadgets of the year are out. I don't know how to use any of them. We will tell you why you shouldn't buy any of them right now.

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ROMANS: Tell you a little secret, Ali knows a lot about high tech. I can't even work the remote control. VELSHI: I am going to give you a quick lesson. You saw in 2007 I had my whole system redone.

ROMANS: Big TV on the wall.

VELSHI: I didn't get a new DVD player. Why? They were installing all this stuff in my apartment. You will see the finished product. It's an old DVD player. Everything is high-def except for my DVD player. I did not want to make a commitment as to which format to go with. Today, there are two formats. One is called HD DVD, which stands for high-definition DVD, the other called Blu-Ray, which I think is a bad name. They are both competing formats.

ROMANS: They are different?

VELSHI: They are different formats. They both play high- definition DVD's.

ROMANS: I can't watch the same DVD on both machines.

VELSHI: Until now, if you didn't know which way to go, you would have to buy this machine on the top, which is a Samsung, which plays both Blu-Ray and HD DVD for a near $1,000.

ROMANS: Do they make them in other colors?

VELSHI: No, that is the only color. Right but a thousand bucks as opposed to buying a cheaper DVD. If you decided you were going to go with HD or Blu-Ray, this middle machine is an HD machine, about $400 at Best Buy. At times, there have been cheaper ones. The bottom machine is a Sony, which is Blu-Ray, which is about $400 as well. You have to make a decision.

ROMANS: It's an investment.

VELSHI: Right. This past week, Time Warner is making their DVD's in Blu-Ray. It's unclear which one is going to win.

ROMANS: Michael Copeland is going to join us now. He knows a lot more about this than I do. He is a senior writer of "Fortune" Magazine. He just spent some time at the consumer electronic show. Welcome to the program.

MICHAEL COPELAND, SENIOR WRITER, "FORTUNE:" Thank. Thanks for having me.

ROMANS: Is it going to be like Ali says?

COPELAND: There was a company there working on a plug that they want to make universal that has some intelligence in it so it knows how much power you are using an how to use it more efficiently. We got get there someday.

VELSHI: When you are looking for investments in a recessionary environment, what's going on? What's going on with all this recession talk, in the electronics world? The consumer electronics show is the biggest thing out there in electronics. What is the biggest thing there?

COPELAND: Well the biggest thing there was a 150-inch plasma screen.

ROMANS: I'm sorry, 150-inch?

COPELAND: It's about 10-feet wide and 8-feet tall. It seemed a little bit much.

ROMANS: What about the social statement it makes when you bring the girlfriend over for the first time?

VELSHI: You are not going to have much time to talk. Many going to be watching my big screen TV for the rest of my life. Is that a trend?

COPELAND: That's just a statement. That's just a one op to show that they can do it. Hopefully, we won't see those in anybody's living room any time soon.

ROMANS: You talk about economy and recession. The manufacturers have to be worried about getting people to keep spending the money on the next new thing.

COPELAND: I think so. Everybody is saying things are going to slow down. If I were a manufacturer, I would be keeping an ear to the ground and looking at my pricing.

VELSHI: You know, 2006 was the year where people saw those price drops onto big screen TV's. 2007 was OK. We really saw the big electronics retailer selling fewer of those. I think the biggest gadget this past holiday was the GPS. There wasn't a new iPod for the holiday season or big developments in other areas. Was there anything capturing your attention to say this is going to be the must-have in 2008?

COPELAND: No. People kept searching for that must-have gadget. One didn't rise to the top. There were, object the television side, beautiful screens from all the manufacturers. They have gotten bigger and thinner. The resolution is much better. What you were starting to see was them getting connected to the rest of your digital world.

So there were screens that were being shown by Sony and some other manufacturers that had Ethernet ports in the back so you could get your Internet connection going and do all sorts of things on that screen without a PC. That was one trend that was interesting. All these connected devises that had some intelligence and could go to the Internet but weren't PCs.

ROMANS: Michael Copeland we have to let you go, senior writer for "Fortune." We have a piece of advice I think is good for everyone. When something new comes out, do you buy it right away? You say wait three months.

COPELAND: I say wait. I have a friend who buys everything immediately when it comes out. VELSHI: Is it a good looking guy that is wearing a striped suit right now?

COPELAND: No, that is you. If you like this and I get to hear that, and then I wait for the price to come down three months later and then I go buy it.

ROMANS: Michael Copeland, thank you so much, senior writer of "Fortune" Magazine.

VELSHI: You can all wait and see that price go down. That's it for us. Thanks for joining us for this edition of YOUR MONEY. You can Christine later today 6:00 p.m. Eastern on "Lou Dobbs this Week."

ROMANS: And you get to see Ali every weekday morning on "American Morning." We will see you back here next week.

VELSHI: Saturday at 1:00 and Sunday at 3:00, see you then.

(COMMERCIAL BREAK)

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