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Federal Government Stepping in to Help Detroit Automakers; What Does a Jobless Recovery Mean For You?; Where to Find Jobs
Aired December 20, 2008 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN HOST: Welcome to YOUR MONEY, I'm Ali Velshi.
As 2008 draws to a close, we find Detroit's automakers continuing to struggle. The federal government is stepping in, doling out $13.4 billion in federal loans to General Motors and Chrysler with four more to follow in the spring.
This comes after all three automakers announced plans for extended shutdowns of their assembly lines across America for the holiday season. They're doing that to conserve cash. For the moment, Ford is in the best shape of the three. We'll hear from Ford CEO Allen Mulally in just a bit -- Christine.
CHRISTINE ROMANS, CNN HOST: Thanks, Ali. I'm Christine Romans.
President Bush explained the immediate need for the bailout loan on Friday.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: My economic advisors believe that such a collapse would deal an unaccepted really painful blow for hard working Americans far beyond the auto industry. It would worsen a weak job market and exacerbate the financial crisis. It could send our suffering economy into a deeper and longer recession. It would leave the next president to confront the demise of a major American industry in his first days of office.
(END VIDEO CLIP)
ROMANS: But will it be enough to save Detroit or does it just put off the inevitable bankruptcies in this industry? Stephen Leeb, president of Leeb Capital Management, author of the forthcoming book "Game Over" and Peter Schiff, president of Euro Pacific Capital and author of "Crash Proof, How to Profit from the Coming Economic Collapse." They're here to tell us what the next year could bring and what they think about this bailout.
Let me start with you first. Did the president do the right thing and is it going to help prevent disorderly bankruptcies in this industry?
STEPHEN LEEB, PRES., LEEB CAPITAL MANAGEMENT: In both instances, yes, Christine. He did the right thing. That doesn't mean that the auto industry is going to survive a year from now, but we have to deal with an economic crises here and now and we cannot afford to have a couple of hundred thousand people unemployed in the context of what's going on now especially given recent evidence that the economy, believe it or not, there's some very strong statistics that suggest that the economy isn't improving.
Its rate of decline is definitely lessening. I would hate to see that disturbed right now. There will be a time, if the auto industry cannot get its act together in '09 to engineer an orderly bankruptcy. Now is not the time. He's buying time at a minimum and maybe, miracles happen, the auto industry could survive.
VELSHI: Peter, do you agree?
PETER SCHIFF, PRES., EURO PACIFIC CAPITAL: Absolutely not. I don't think he's doing the wrong thing. Bankruptcy is what is needed here. We need a legitimate restructuring, we need to allow market forces to operate and we don't need government intervention.
VELSHI: He said that in his comments, normally I would not want to intervene and normally I would let market forces take their -- under ordinary circumstances I would let market forces play it out but these are not ordinary circumstances.
SCHIFF: That's a bunch of nonsense and he's buying the nonsense from the auto executives and the auto labor union. This is when we need market more. When times are tough we have to rely on the market. We can't rely on government. What's going to happen is they're not going to meet the criteria. They're going to come back under the new administration and they're going to say, you know what? Things got even worse. It's even worse than we thought, we can't meet it, we need more time and we are going to need billions more and it is going to go on and on and on. It will be a never-ending money pit.
LEEB: This kind of crystal balling I really don't buy.
SCHIFF: You don't need a crystal ball for that?
LEEB: We don't know.
SCHIFF: Sure we do.
LEEB: How do you know?
SCHIFF: What do you mean? These guys have been shedding jobs for decades.
LEEB: How do you know if the economy will recover next year?
SCHIFF: It can't recover; the government is making it worse.
LEEB: Give me one example of a depression in the history of modern -- what are you laughing at?
SCHIFF: Because I know what you're going to say.
LEEB: Give me one example of a depression in modern cap one.
SCHIFF: In Argentina.
LEEB: They came out with the government. One example of where I'm --
SCHIFF: They never came out.
LEEB: What country came out of a depression, Peter, let me finish talking. I'm just asking a simple question. One example, one example of a depression that was cured without government intervention? One.
SCHIFF: What depression was cured? Give me an example. No it wasn't.
SCHIFF: No. Read your history.
LEEB: What do you think the Second World War was, Peter? Was that a stimulus? That was called a --
VELSHI: OK. Is -- no, do we think --
SCHIFF: But it didn't cure our economy. It's nonsense.
LEEB: Of course, it did.
VELSHI: Let me ask you this, let me ask you this. We got out of it --
SCHIFF: So you think wars are positive?
LEEB: No. No. I never said that. I asked you a question, Peter, and you haven't answered yet.
SCHIFF: I have answered.
LEEB: No, you haven't.
SCHIFF: Stop talking!
LEEB: No, because you won't answer my question.
LEEB: The Great Depression and the stimulus --
VELSHI: Did you get out of this situation that we're in without government intervention?
VELSHI: How? SCHIFF: Will you be quiet for a second? Look, the Great Depression was caused by the government. The bubble in the 1920s was caused by the government. The government --
LEEB: In the 1920s. The stock market --
SCHIFF: That was caused by the Federal Reserve and when it burst the government interfered and Hoover and Roosevelt created the Great Depression. You have no idea what you're talking about.
LEEB: I do. You have a 50 percent rally --
VELSHI: The two of you know what the answer is then, Peter, so you're saying no government intervention. At this point let everything happen as it will.
SCHIFF: The government is in the process of creating something far worse than the Great Depression. We'll have hyperinflation. Our economy will be completely ruined and our currency will be destroyed by the government and by the Federal Reserve. They couldn't be doing something more wrong if they did it intentionally.
LEEB: Say I'll give Peter the benefit of the doubt on this one. I think that this will lead to a lot of inflation.
ROMANS: Guys, these are important arguments, but we've got to leave it here. We're out of time. The economy can bounce back maybe in 2009, but what would a jobless recovery mean for you?
VELSHI: There's some relevance to discussing when this economy starts to recover and there's a benefit to discussing the science behind economic cycles, but bottom line is people are losing their jobs and home values are still in trouble and having trouble with credit.
ROMANS: Close to 2 million jobs has been lost over this year and we're expecting more job losses next year. It is going to be a rough couple of years for jobs.
We turn now to Lackshman Achuthan managing editor of the Economic Cycle Research Institute and Jim Ellis, assistant manager of "Business Week." Talk about what we can expect in terms of jobs in 2009. I've been told this is not time to be taking a risk with your jobs. This is a time to be bracing for more job cuts. We're looking at those weekly unemployment claims every week more than half a million people are lining up for the first time for jobless benefits, is this what it will look like for next year?
LACKSHMAN ACHUTHAN, MANAGING EDITOR, ECONOMIC CYCLE RESEARCH INSTITUTE: At least through the first half of next year. We've been talking about the weekly leading indicators how they've been plunging over the course of the last year. We also have other types of leading indicators for different sectors of the economy, manufacturing, services and construction. VELSHI: How do they look?
ROMANS: Bad, don't they?
ACHUTHAN: We looked at a dozen of these, across the board they are all falling at the same time. That hardly ever happens. I have to tell you, there is no doubt about it; we are going to have a tough jobs market. A tough economy.
VELSHI: OK, was Peter Schiff right? This is going to be really bad and worse than the Great Depression?
ACHUTHAN: No. I don't think so. According to just --
ROMANS: You can say no. You can take the I don't think so off.
ACHUTHAN: We would do a lot of things differently than the Great Depression and for those reasons you would not have a depression.
VELSHI: Jim, most companies in America, many companies will not escape layoffs. There are many of them going on and that is affecting people who remain there. I was speaking to a manager the other day who was saying what do I do? Because I think the books look OK for what I -- the business I run, but people are very fearful that they look at the environment around them and they see layoffs and layoffs and layoffs and they're worried that they're going to lose a job. How do you operate in that environment?
JIM ELLIS, ASST. MANAGING ED., "BUSINESS WEEK:" It's very difficult to manage a business in that environment simply because there's a giant cloud over it and often a lot of units that are actually doing well, if the parents are doing poorly, they're having their budgets pulled and they're strong reduce head count. There's not a lot you can do except wait on the market to hopefully --
VELSHI: Is it bad for the economy that there are a whole bunch of people fearful to lose their jobs?
ELLIS: You basically are going to have a lot of loss productivity by people who are spending time worrying about the jobs or looking for new jobs rather than doing their jobs.
ROMANS: I think people are feeling it. Companies like FedEx announced that 5 percent pay cuts and stopping contributions with the 401(k) match. More companies will be doing that. I think people in 2009, should they be prepared to lose the 401(k) match to maybe have to take a pay cut?
ACHUTHAN: All of the above. You see the jobs are an essential piece in the vicious cycle that is a recession and the recession is revving very high. When you're worried about your job or you lose your job, your spending goes down, production goes down and budgets get cut.
ROMANS: What turns it around? VELSHI: The stock market and all of that affects obviously the stock prices because it's related to earnings. Let's look at this for a second. Barry Diller of Interactive Corporation a couple of weeks ago made a speech where he said your stock price is down anyway to a bunch of companies. He said if your stock price is down and you're going make less money and you'll make half as much money as you made last year, why not keep the staff? You're not getting punished. Normally if you're trying to cut costs people think you're doing the right thing, but you're not getting any gain from it anyway why not keep the employment situation under control?
ACHUTHAN: Because everybody is wanting to have enough cash to ride this thing out. We don't have an upturn yet, that's the problem. The forward-looking indicators are not turning up yet. So you have to have enough cash. Every household and every business in order to ride this out otherwise you have to get in line and go to Washington and go through what the auto industry went through and nobody wants to do that.
VELSHI: You agree with that?
ELLIS: Yes, basically it's all about cash and being liquid now. No matter what your long-term prospects are if you can't get through the next six months. It is a good GM example; GM is going to get significant savings on the labor front in about a year. The problem is they can't make it through the next month.
ROMANS: So I wonder, if our government and if our companies and if the American people are starting to have to live within their means and the whole, that whole bubble bursting, that credit bubble bursting is going to be a painful, painful adjustment for jobs, for companies, for people for the foreseeable future.
ACHUTHAN: For the foreseeable future which is half a year and beyond that, into the middle of '09. Beyond that it's plausible this there could be a recovery. We don't have evidence of a recovery. What will happen is you'll have low interest rates and you are going to have pent-up demand all of the things we have are going to wear out.
ELLIS: I don't think that will happen. That's not going to happen in the middle of next year either. I think for real recovery what we'll end up having to do is to wait until 2010. This will be a steep decline now. We're seeing the economy contracted almost a 6 percent annualized rate in the fourth quarter and this will be deep and it's not going to be a big v-shaped recovery.
VELSHI: It bounces back.
ELLIS: And instead we'll drag along and scrape and bottom for a while.
VELSHI: OK. So the point here is a bunch of smart people that are able to look at the tea leaves and the tea leaves don't show the recovery because we can only see so many tea leaves. We'll be revisiting this.
ROMANS: Lackshman Achuthan and Jim Ellis thanks so much. OK. Thanks guys.
VELSHI: Tonight at 8:00 p.m. by the way, because we upset you so much about how bad things are, we'll give you a guide on how you can recover from this current financial crises. As Jim pointed out you can only control some things, but don't miss "Gimme My Money Back" here on CNN. Christine joins me as we lead you down a path toward taking control of your finances and learning to grow your money.
ROMANS: It's a fantastic program. Don't miss it.
One thing is certain going into 2009 people need to work and we have the scoop on where there are good jobs.
ROMANS: All right. You know, it was simply staggering the job losses in 2008 and, you know, a lot of people you know may be looking for a job. You might be looking for a job. It's been a testify -- it's been a tough rod.
VELSHI: So who's hiring? Who's creating jobs right now? We have Jennifer Merritt; she is the career editor at "The Wall Street Journal." She's come prepared with some jobs that you can get right now. Jennifer welcome back to show, thank you for doing this for our viewers. People who are able to get jobs, what are they getting jobs in? One of the things that you've indicated, I was surprised.
JENNIFER MERRITT, CAREER ED., "WALL STREET JOURNAL:" The court reporting field is growing by 25 percent. We have a lot more trials and a lot more court reporters are needed to simply take depositions and take testimonies and they can be in all sorts of cases. It's a very specialized field and it takes a few years to get fully trained, but once you are, you're your own independent contractor typically and you can make up to $100,000 after a few years.
ROMANS: That is what I like to hear. If you work hard and you play your cards right and work up the ladder you can earn up to $100,000 and that is something this people looking for the jobs that pay well to replace the jobs being lost. Auto mechanic is also on the list. You can't outsource auto mechanic.
VELSHI: It doesn't matter what happens to the auto industry, we have cars and they need to be fixed.
ROMANS: You can also argue that if you're not selling cars, people may be fixing older cars much more.
MERRITT: And actually we found that that's happening a lot more. Auto mechanics say their business is up 25 to 40 percent and in many cases long time customers who have come in for a oil change are now asking for a lot more to be done to their cars and there will be a shortage because fewer people will be going into this and you can make 40,000 coming out to 60,000 after two years.
VELSHI: And save on that fixing your own car.
ROMANS: And you can wear the cool thing.
MERRITT: You don't have to go to college. It's a technical training program.
VELSHI: Plumber. You can't outsource plumbing jobs. That's the other thing we learned.
MERRITT: Plumbing isn't about unstopping your clogged toilet or clogged sink. There's plumbing in construction, in government buildings and schools. You get trained through an apprentice program and through a technical school or community college and you can earn about $47,000 on average right out the gate.
ROMANS: Also electrician, another essential industry, one thing about electricians and plumbers is they're called ladder careers. You can end up being a small business owner if you're an electrician or a plumber. Tell us about electricians.
MERRITT: Electricians go through a four-year apprentice program along with some classes and many states mandate a wage for apprentice electricians to actually getting paid a pretty decent salary. Once you're done, you can go union and you can go into a small shop and many, many people as you said start their own businesses.
VELSHI: How do you feel?
ROMANS: I feel good, but I don't -- I wouldn't pay for this? I would pay for you to stop. No, massage therapy as a career of the future, is somebody really going to pay Ali to --
VELSHI: Someone like me perhaps.
MERRITT: The careers reporter at the "Wall Street Journal" found massage therapist businesses are up to 50 percent right now. When people are stressed out they're looking for some sort of comfort and $100 massage is maybe better than weeks and weeks of psychotherapy.
VELSHI: In some cases they manage to get it covered.
ROMANS: Oh, that's true.
MERRITT: Also one of my colleagues is saying the aging population like if you're -- if there's physical therapy and rehabilitation.
VELSHI: It's want just a luxury.
MERRITT: And in the geriatric setting or a nursing home or assisted living and its part of their therapy and it's paid through the insurance.
ROMANS: The little old ladies love a back rub.
VELSHI: Medical assistant, we sort of touched on these things in the past, but this is an interesting one and it's not a very high- paying job at entry level, but it doesn't need a lot of training.
MERRITT: Many people are trained on the job for this job, for this type of position for medal assistant or you can go to community college for about a year. You will make $28 or $30,000 coming out, but it is something that you can do very quickly and you can build on it later. If you do a great job the company might sponsor you for a nursing degree.
ROMANS: It is also one of those things that can be in your neighborhood. All these health care jobs you can find in your neighborhood because there are health care locations everywhere. It's not the kind of job where you need to move half way across the country to find.
VELSHI: Great advice. Thank you so much.
The state of the American auto industry hangs in balance. Hear where they might be headed from an inside source.
FREDRICKA WHITFIELD, CNN ANCHOR: Hello. I'm Fredricka Whitfield in Atlanta.
Now in the news, parts of the country are digging out from a deep blanket of snow and ice, but brace yourself. More snow is expected tonight. Roads and airports are already snarled with holiday travelers, and utility workers are busy across New England trying to get the power back on before the next storm hits.
And you can expect a big U.S. military buildup in Afghanistan next year, that according to the chairman of the joint chiefs of staff Admiral Mike Mullen. Visiting Kabul today Mullen said between 20,000 and 30,000 more U.S. troops could be in Afghanistan to counter the growing Taliban threat.
President Bush says the auto rescue loan will shield the American people from a harsh economic blow at a vulnerable time. In his weekly radio address the president said letting the automakers collapse is not an option during a recession.
President-elect Barack Obama is working with congressional Democrats to get the economy moving again. They've set Christmas as the unofficial deadline to come up with a list of spending projects. Vice president-elect Joe Biden predicts the plan will cost $700 billion over two years.
Coming up at the top of the hour, CNN presents "The Mystery of Jesus." Now back to YOUR MONEY.
ROMANS: Welcome back to YOUR MONEY. On Friday, President Bush announced that $13.4 billion in loans will be made immediately available to GM and Chrysler. Ford, with more cash on hand, hopes to avoid tapping into that federal money.
VELSHI: I sat down with Ford CEO Alan Mulally; his job has been to convince Congress that what happened in 2008 was not the fault of the Detroit three.
ALAN MULALLY, CEO, FORD MOTOR CO: Ford is different.
VELSHI: But you guys were the best kid in detention.
MULALLY: Well, I think that's a little strong. We were there to help our industry, but at the same time we were -- we welcome the opportunity to tell our Ford story and we have been on a transformation plan that is exactly what everybody says should be done with the focus the brand and on the fuel efficiency. We have been on this journey. The most important thing we do is stay laser-focused on creating a well-run business for all of us.
VELSHI: Last time we talked we were here in Dearborn and you went off to Detroit and you and the --
MULALLY: I think I drove there.
VELSHI: I'm talking about the time before then when you didn't drive. Were you a little surprised at how strong the response was to the jets and the salaries and things like that? Were you thinking you were going there for a different discussion and you got something else?
MULALLY: I think it was a very appropriate discussion. I learned a lot and, again, I was there to help my colleagues and help the industry and to get a chance to feel what's on everybody's mind. We're all concerned. Yes the United States' economy is in very tough shape right now. Everybody that can help is trying to help. People are frustrated. When -- like when our colleagues are asking for taxpayer money, that's a very serious request that needs to be taken very seriously.
I think the questions were appropriate.
VELSHI: One would think that if one of your competitor's fails or two of your competitors that would put you in a remarkable competitive position, explain to me why you don't think that's the case. Why you don't want Chrysler and General Motors or either one of them to disappear?
MULALLY: It does sound funny as a competitor, but the most important thing is the automobile industry as we talked about just touches all the tentacles of the industries of the United States and especially all of the suppliers and about 70 percent of the dollar value for every automobile is produced by our supplier network. It just turns out that over the years about 70 percent of all the businesses that are done are done by the same suppliers.
VELSHI: That used to be different. Everybody used to have their own suppliers.
MULALLY: Very much different, but this is not just the three Detroit companies, but also all of the Japanese companies, too. We're all using the same supply base. So if any one of the OEMs or one of the car companies gets in trouble it will go into bankruptcy that would affect all of the suppliers and a good probability is take them into bankruptcy which would then come back and take us into bankruptcy.
ROMANS: That's a fascinating interview from his perspective. OEM, what is that acronym for?
VELSHI: If the OEMs were to fail, OEMs are original equipment manufacturers, its car speak. But Mulally came from Boeing and doesn't sort of feel the guilt or responsibility to that degree of the ownership over the problems that were developed before he was there so he seems to speak with sort of a freedom to say yeah I see what the problems are and I see why we have to fix them.
ROMANS: Let's talk about whether 2009 will be a better year for Detroit, for the big three, for American automakers. Peter Valdes- Dapena from CNNMONEY.com, and Mike Quincy from "Consumer Reports" joins us now. Peter, let's start with you. Does it get better for them next year? They have three months to get together some kind of plan for viability. Can they do it?
PETER VALDES-DAPENA, CNNMONEY.COM: I think that I can get together some kind of plan for viability because there's a huge incentive here not to let these companies fail and not to take this money away. So they have some plans on the table. They've been doing this for a long time and they've been working toward viability in the future, but right now we hit a rough economic patch that took them into a crises zone.
So it's want like they've been working toward viability already. So, yeah, I think they can get that and certainly it's better than what it would be without getting this kind of loan. So that's a huge improvement already. However, there are going to be a lot of challenges out there and negative impressions even more so than there already were.
VELSHI: I asked Mulally about this. I asked Rick Wagoner from GM about this some months back. They tout their quality, but Michael, Americans still have a problem believing it. It's not reflecting in the resale value in most cases of domestic brands.
MICHAEL QUINCY, "CONSUMER REPORTS:" For decades Detroit built very mediocre cars and "Consumer Reports" has definitely seen that through, however, today we're looking at Ford making reliable cars that are just as good as some of the Japanese models. Chevrolet, General Motors and a little bit hot and cold. Chrysler still isn't there yet, but you can get a reliable car made in Detroit especially from Ford.
VELSHI: How do you make people believe that? This is what I asked Al Mulally, you're showing me the stats, but this doesn't matter until people say I feel it is as reliable as something else. QUINCY: I think you're right. You have a couple of generations of people that were burned because they bought an American car and they said there are too many good cars out there any certainly "Consumer Reports" will say you've got choices so you can look around.
That's one of the things they've got to convince. You have got to say listen we got Bob Lutz and General Motors. He's a car guy producing very good models. You have Alan Mulally who is behind Ford and saying our reliability according to "Consumer Reports" is as good as anything out there. Chrysler on the other hand they have a much bigger hill to climb.
ROMANS: What's it going to look like by the end of next year if I'm looking to go shopping for a car? Dramatically fewer brands, dramatically fewer options or are there so many cars out on the lots right now a great big deal for me? For me as a consumer, what does any of this mean?
VALDES-DAPENA: For example, what happens with Chrysler, some people are saying that Chrysler, if business deals with start happening, Chrysler might be an entry point for a foreign brand to come into the U.S.
VELSHI: You're thinking it might be Nissan.
VALDES-DAPENA: There are several companies that have been mentioned as possibilities for that, so we could see even more brands entering the market, but on the other hand, GM is looking at getting rid of Saturn. GM is looking to getting rid of Saab. So you could see some fewer brands there, but right now there's so much variety on the market and there are probably more car brands on the market than we need so it might not be a terrible thing.
VELSHI: Michael, the price of gas has come down dramatically and it's starting to tick up a little bit. Are we going to go back to the old ways are the automakers going push trucks and SUVs again or have we been burned and going more toward a world of more fuel economy?
QUINCY: I think consumers going forward, they have to take the last 12 months of the up and downs of the price of gas seriously. Right now, gas is sort of relatively inexpensive, but does anyone out there, with half a brain think that that's really going to last? I mean, the best thing that car companies, every car company can do have fuel-efficient products in your product line because without those you're not going to get any traffic into your showrooms.
ROMANS: One quick last question, Peter, back to the news of the week which is the big bail out. Those wage and workplace concessions and the end of the job bank and the other things that were in there, what does this mean for the UAW and what does it mean for the union?
VALDES-DAPENA: A lot of that stuff is somewhat of a red herring, if you will. I was speaking to Ron Harbor, who publishes the Harbor Report the other day. I wanted to point out that the 10 most efficient auto plants in the U.S. are actually domestic. The tenth is one shared by GM and Toyota. They're all union plants so this idea that the union work rules where somebody can't drop a piece of trash on the floor and the other guy has to pick it up, that was through decades ago and not true today.
They're much more flexible today than they used to and wages when it comes to wages, wages are very close and the hourly would be Toyota and GM is about $30 an hour. They're not that far apart. It's the benefits.
VELSHI: It's a red herring because they might actually be able to meet those requirements.
VALDES-DAPENA: They might actually be able to meet those requirements without too much trouble, but they need to be focusing on other things and retiring --
QUINCY: They're perceptions. You have to overcome these perceptions. The challenge that these guys have to do because there's good stuff out there.
VELSHI: Guys good to talk to you. Thank you so much for that.
ROMANS: All right. So you think no one could have seen the huge drop in oil prices? Well, you are going to meet the man who called it one year ago right here on this show.
(BEGIN VIDEO CLIP)
PETER BEUTEL, CAMERON HANOVER: A recession actually is the one factor that could bring oil prices down and not just down a little bit significantly.
(END VIDEO CLIP)
ROMANS: That was our friend Peter Beutel one year ago on this program when oil prices were nearly triple what they are today. The price of crude soared to $150 in 2008 before as Peter predicted. Global recession caused prices to plunge to under $40 this week. You know, he called it. He absolutely called it.
ROMANS: We said is there any bright spot in the huge and skyrocketing price of oil and he said yes, there will be a big global recession and it will bring the oil prices down dramatically. You just watch.
VELSHI: Of course, it is tied to the price you pay at the pump, so are you likely to see $4 gas again in 2009? Why not ask Peter Beutel he's the president of Cameron Hanover. Peter you win the prize on this one. You had the one bright spot of news in this otherwise lousy economy, oil under $40 a barrel which was inconceivable a year ago, certainly half way through the year and absolutely inconceivable when we were at $147 a barrel so give us your wisdom for 2009. BEUTEL: Well, I think we're going to have a rally which means that prices will go back up a little bit. Not a lot. I think we'll probably see prices nationally somewhere between $2.60 and $2.99 a gallon somewhere around Memorial Day and then I expect we're going go down and make yet another new low some time late in 2009 or maybe February or March of 2010, but longer term, we're going to go through it all one more time if we do not do the right thing now. This is a reprieve, not exoneration.
ROMANS: Peter, let me ask you, that's very important because already people are starting to forget that sting at $4.
VELSHI: The sting that made you change the way you ran your life.
ROMANS: Is it possible that people are going to go back to their old ways?
BEUTEL: We're already seeing it. Unfortunately, just about seven or eight weeks ago gasoline demand was down 5, 6 percent against a year ago. Now it's down 1 and 2 percent against a year ago. So people are starting not to consolidate trips, not to telecommute, not to carpool, and it's a shame because consumers don't really understand how much power they have over the price of a gallon of gasoline.
VELSHI: Peter, you know about the whole, you know, soup to nuts part about oil. At some point does the price get so low that all of those new rigs and new digs and new expropriation that was going when oil was above $100 a barrel does that start to stop and do we start to produce less oil thereby causing the price to go back up again?
BEUTEL: Well, yes, you're never going lose all of it because once you have it as a producing asset, what are you going to do with it if it's not producing, but in terms of starting new drilling and new exportation, there is a report out today by a bank saying that we are going to see exportation drilling 12 percent less and then expected just a little while ago in 2009. Because of the decline in prices we've seen so far.
So, yes, the lower the price goes, the less supply we're going to have longer term and so we really need to do something right here with alternative energy, drilling exploration and everything because somewhere between 2012 and 2018, if we don't do the right things now, we'll see prices over $147.
ROMANS: Peter, quick question. We just have 15 seconds, but these cheaper oil prices just today this does act as a stimulus for consumers, isn't it? It is billions of dollars in our pocket at a very important time.
BEUTEL: Compared to July the decrease of food and wholesale prices at the food level is worth than a trillion dollars annually to consumers and it's a big, big thing. You'll just see the wholesale prices at retail.
VELSHI: Peter, thank you very much. And we will, of course, continue to do this with you every and many times in between.
Peter Beutel joining us from Cameron Hanover.
ROMANS: You're going to want to grab a pen and paper, one of our favorite guests will be here. Another one of our favorite guests to talk about what you should do with your money next year.
VELSHI: All right. You cannot be blamed if you never want to delve into the stock market again after the year that we have had in 2008.
ROMANS: I laugh about it.
VELSHI: But we were in it together. There's nobody that made out in 2008 well, but with history as our guide, markets do crash and markets come back. They work in cycles.
ROMANS: It is a cycle. We've been here before and we've had big losses and come back. The question is, do the big losses this year mean big opportunities for you in 2009? Do you stay risk averse? Do you take any more risk if you have any money left? What in the world do you buy, joining us now is Ryan Mack president of Optimum Capital Management, if you've got money left.
ROMANS: There's something you can do, Ryan. We can all figure out what our risk tolerance is. If you work with an adviser and you can go on a web and you can answer a few questions and you can find out whether you are risky or not. You may feel it, but you may have to answer a few questions.
RYAN MACK, PRES., OPTIMUM CAPITAL MANAGEMENT: The risk tolerance is the most important question. Nobody wants to lose sleep while trying to invest in the stock market so you should only take on as much risk as you can actually bear.
VELSHI: Sorry to interrupt you, why are you even recommending that individuals who are watching our show buy stocks as opposed to mutual funds.
MACK: Again -- well, individual stocks, I actually prefer mutual funds, as a matter of fact. Mutual funds are diverse. You get the most diverse and the biggest bang for your buck for the least amount of initial cap it will, but there are those individuals out there that want to take a little risk and put some on the table and purchase individual stocks and for those individuals I have some things prepared.
ROMANS: All right. Well let's talk about; I'm pretty risk averse, in fact. I'm very risk averse. Unlike Ali who is not.
VELSHI: It's a good combination.
ROMANS: So let's start with me and let's talk about risk adverse stocks. What do I look at for risk averse? MACK: Well first of all, I think 2009, the first half will still be recession, but the second half I'm predicting a recovery.
ROMANS: You do? In the second half?
MACK: I do think we'll recover somewhat in the second half, not very strong, but I do think if you look at the consumer staple industry, rather, these are the stocks that are dealing with more needs as opposed to wants and the one stock I pick up in that industry is CVS. CVS is a company that handles its debt very well. It didn't do as well in the pharmaceutical, but in retail sales it outperformed the industry. For a good long-term play for the price level it is trading at now, CVS is very good.
VELSHI: Johnson & Johnson.
MACK: Johnson & Johnson in the health care sector. The health care sector does not traditionally follow the overall economy. I think Johnson & Johnson, they deal with generic as well as pharmaceuticals and they have competition from generic, but they had solid results in the last quarter with the medical devices segment.
VELSHI: Christine, let's talk about me for a second. I'm more of a risk taker. By being a risk taker, my 401(k) in 2008 got hammered because we're much more heavily into stocks.
ROMANS: So who got hammered worse?
VELSHI: But let me tell you, you guys are talking about a risk taker, one of them is Microsoft and one of them is J.P. Morgan Chase, a bank in a year that we had nothing, but bad news from banks.
MACK: I'm actually looking at Microsoft and J.P. Morgan. I think Microsoft in the technology sector; you can't dispute their financial record. Bill Gates did a tremendous job in putting this company together. At the end of day if you look at their product line, a very diverse product line, they came out with the Xbox and the Play Station, and the AT&T and Verizon both selected them for the ITV platform. So you can't dispute their financial record.
In the financial sector, it's a sector that's been battered as well. So J.P. Morgan will be one bank that will outlast the other banks. Of course, they've got a lot of risks, $77 trillion exposure in the market and a lot of rising loan costs, but at the end of day, J.P. Morgan, their purchase of Washington Mutual gave them a deposit base and their purchase of Bear Stearns gave them a huge bottom line boost and I think they've always kept a very conservative balance sheet so I really like J.P. Morgan Chase.
VELSHI: We've got you risk averse, we've got me a little bit more of a risk taker that's our personal situation for 2009. What do you predict for your personal situation for 2009?
MACK: I think one of the best investments that anyone can ever make is not necessarily actually invest in love. It's a four-ticker symbol, l-o-v-e and on this here day I am going to look into the camera here and I will ask the person who I love, Lori George, who I have been with me for quite some time and I'm quite sure God has --
ROMANS: Do it.
MACK: I'm quite sure God has put us two together to be together and I feel that you are the one for me and on this day and at this time in front of CNN, in front of millions of people, I would like to ask you if I cannot be as nervous, Lori George, to marry me. And I hope to God you say yes.
LORI GEORGE: Yes, of course.
VELSHI: All right! Let me tell you, if we can all be that fortunate in 2009, congratulations to you, Lori, and to Ryan. You have been -- Ryan, you have been a good friend to us and you helped many of our viewers along. We are so excited to share in this moment. We are very, very excited for you both.
ROMANS: 2009 will be a great year for a lot of people.
I love it.
VELSHI: That's a good way to stay up. All of the negative stuff. That's a good way to do it. Thank you so much to Ryan Mack, who's off somewhere else, not interested in our stock picks as he was a few minutes ago.
Back in August, did you ever think that you would be paying less than $2 for a gallon of gas? I will take care of this. You're occupied. We're looking at the chances of a gallon of gas falling below $1 in 2009. First, this week's "Right on Your Money."
ROMANS (voice-over): There are just enough days left in 2008 to get your 2009 budget in check. After all, keeping your household budget in the black should be your number one resolution.
HILARY KRAMER: When it comes to budgeting especially in 2009, look for big expenses you are incurring but you don't realize that are inhibited to your bottom line.
ROMANS: The first step in developing a budget, know where you're spending your money now.
KRAMER: The beauty of credit card, the beauty of the debit card is that you're able to sit down and look over an extended period of time and review your spending habits and your pattern and pick up on certain expenses that you didn't realize that are adding up over the long term.
ROMANS: Cutting back is helpful but big monthly costs like an expensive car loan or high credit card bills can create the biggest drain on your bank account.
KRAMER: The most important part of your budget planning is to get rid of those big, huge expenses that are really dragging down your portfolio and value of your personal account.
ROMANS: And that's this week's "Right on Your Money."
VELSHI: Are we going to be able to finish the show?
ROMANS: It is so lovely when people fall in love.
VELSHI: It is lovely.
ROMANS: Love is a four ticker symbol word. I love that. We have been at the predictions show without our crack CNN Money team.
VELSHI: Joining us with some bold predictions for YOUR MONEY in the year ahead are Jennifer Westhoven, HLN business correspondent and Paul La Monica editor at large at CNNMONEY.com. HLN is our new branding for the network that Jennifer works at. So we're just getting used to saying it.
Paul, let's start with you.
ROMANS: People, people.
PAUL LA MONICA, EDITOR AT LARGE, CNNMONEY.COM: You want it to be bold so here we go. Gasoline under $1 a gallon some time in the next year.
LA MONICA: This isn't really good news, though, because it's probably a sign of inflation and the continued deterioration of the economy.
VELSHI: And nobody's buying gas.
LA MONICA: And nobody's buying cars, as we all know. Good news if you can actually still afford your car payment.
JENNIFER WESTHOVEN, CNN HEADLINE NEWS CORRESPONDENT: If you were to send in the gas prices, we got down to $1.19 in these places.
VELSHI: Wow. And a trend upward that just started in the last week or so. No one's really used to that. We have been seeing gas prices go lower and lower and lower. Jennifer, you have a different sort of prediction.
WESTHOVEN: Well one of them, I have two. One is I'm reacting to you, Mr. Velshi and predictions on the housing market. My prediction is that I think for the whole year with housing, even if we start to see the bottom, at best it's going to be flat. And I'm not sure it's going to be flat. I think it could bottom this year but I still think overall, it will still be awful.
But I think what that's going to do is drive up something I'm starting to see lately and that is people want to know about their money. People actually want to be literate about this stuff. They want the details. They want everything that they can do to get their credit score up and things like that. I think that's marvelous and I think that is smart and good for book sales.
ROMANS: And I hope there's a new thrift in America and I hope that, that thrift lasts. Because we have seen too many times people call it depth of the American consumer and we come back and buy more stuff we don't want.
VELSHI: We don't want the American consumer to stop but the American consumer needs to have more money.
LA MONICA: Definitely. The depth of the American consumer would be awful. It wouldn't be a terrible thing if the American consumer learned to maybe not binge as much and be as little bit more healthy. A more healthy lifestyle, fiscally if you will. Not just fiscal fitness but fiscal fitness.
WESTHOVEN: That's cute. People look at me funny when I say I got this great deal at a consignment store and this great dress for $30.
VELSHI: Now it's cool to do that. I don't think it's cool to be a conspicuous consumer in 2009.
WESTHOVEN: For so long it was not cool to save money. I'm glad it's cool again.
ROMANS: We can use a little saving money. And I always say this about kids. This is a great year for people to teach kids good habits. Because if you -- just like if you're a smoker, your kid has a greater chance of smoking and this and that. If you're bad with money, your kids have a better chance of being bad with money.
VELSHI: I learn good habits from being with you.
ROMANS: I learn good habits from being with you.
VELSHI: Paul, good to see you. Jennifer of HLN News and Views.
ROMANS: HLN News and Views.
VELSHI: Good to see you and I hope to see you at 8:00 p.m. Eastern for your guide on how to recover from this financial crises. Join us for "Gimme My Money Back" here on CNN as we guide you down the path of taking control of your finances and learning to control your money.
ROMANS: It's a great program with shining lights, leading lights of economic thinking and money thinking.
VELSHI: And easy to digest for you folks.
ROMANS: Make sure you join us every week for YOUR MONEY Saturdays at 1:00 p.m. Eastern and Sundays at 3:00 right here on CNN.
VELSHI: Have a great weekend.