Return to Transcripts main page
Mass Job Losses May Be Slowing; Is Your Bank Too Big to Fail?; Is It Time to Get Back Into the Stock Market?; How to Cook a Meal for 4 Under $10
Aired May 10, 2009 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN HOST: 539,000 new jobs lost in April alone and unemployment rate now at a 25 year high again. You know, its cold comfort if you're one of those people, but listen up, the mass job losses may be slowing.
I'm Christine Romans. Welcome to YOUR MONEY.
ALI VELSHI, CNN HOST: I'm Ali Velshi. The results of the bank stress test were revealed and the administration claims the bog of uncertainty has been lifted, but is your bank really too big to fail.
ROMANS: And is it time to get back into the stock market? This hour we pose that very question to, drum roll, please. Warren Buffett.
VELSHI: Warren Buffett.
VELSHI: And then Rachael Ray teaches me how to cook a meal for four people for under $10 bucks total, you heard that right, a meal for four people for under $10 bucks. There is just one problem though; I don't really know how to cook.
ROMANS: We'll see. First, unemployment in this country now stands at 8.9 percent and for blacks, Hispanics and men it's even higher. Nearly six million jobs have lost since this recession began 18 months ago.
VELSHI: So we've been talking about this economy possibly showing signs of life, but is your job any safer. Federal Reserve Chairman Ben Bernanke said this week that unemployment will remain high even after economic growth resumes.
ROMANS: Lakshman Achuthan is with us now; he comes here almost every employment report rather to help put everything in perspective. Lakshman is the managing director for the Economic Cycle Research Institute. Lakshman you told us last week that you think that this recession will end at the end of summer. Will we look at a jobs picture where you still have 539,000 people losing their job and an unemployment rate at a 25-year high. Are you seeing any signs in there that corroborate your expiration date on the recession?
LAKSHMAN ACHUTHAN, MANAGING DIRECTOR, ECONOMIC CYCLE RESEARCH INSTITUTE: Yes. In essence, first, you know, losing all those jobs means you're still in recession, let's be clear, and until we're out of it we're going to have these headline job losses. However, we are seeing in every major sector across the board that job losses are beginning to wane. The slash and burn that we were seeing a few months ago is starting to ease off and that is the first sign, a key first sign that the recession is drawing to a close. You first have to get less bad and then ...
VELSHI: Let's talk about that. We'll look at the jobs that we've lost so far in April, 539 that was thousand, by the way, that's lower than was expected and in fact the lowest since October of last year, but something that you said to me that stood out last week when we talked. You said that what happens in a recession sometimes is that we become more efficient and we pick up the slack for our laid off colleagues and that means that we can go into recovery without hiring all those millions of people who have been laid off back.
ACHUTHAN: Right. So to re-gain where we were before, like we've lost 5.5 million jobs, we're probably going to lose maybe a million more before this recession's over, to regain those jobs is going to take years. That's not going to happen overnight.
VELSHI: According to the government it could be 2012, 2013.
ACHUTHAN: It depends on the pace of recovery, but certainly the first thing is to start adding jobs. We even had in the household survey which is a slightly different survey and that was a positive number this month where they actually counted jobs added and not lost to jumpy survey so we'll have to wait and see, but essentially what happens during the recession is all of these companies fire a lot of people so that they can try to become profitable.
Once they become profitable they have a sigh of relief first and then they very slowly and tentatively will start hiring people as long as they can maintain their profitability and that's the road we're going to travel.
ROMANS: You know Lakshman a lot of people I talked to they get really worried about what this recovery will look like when it comes and they worry that we're going to see an America with a higher unemployment rate than we're used to. That we're going to come out of this and it won't be the way it used to be. That we're having some major transitions in the labor market.
We know we're hiring for the census right now. We know we're hiring in health care, but what kind of job market do you see on the other side? Do you see this l-shaped or hook-shaped recovery where we never really get back to where it was before?
ACHUTHAN: Well, no. I think we will get back. The question is how fast do we get back? We may be headed back towards the kind of cycles that we saw in the 1980s or earlier that were slightly bigger cycles. There's more uncertainty a little bit more whiplash associated with those. You can have in the very early stages of recovery, it's possible to have a recovery that's faster than you would have thought partly because the recession itself was so sharp that you have a bounce back, some pent-up demand that pushes you, you snap back as a result. So that's one thing to watch out for here, but what happens in a recession again, everybody stops making money. All these companies are not profitable. So you have to see inside the recession who becomes profitable. There's interesting and new businesses that emerge that are making money today and that are hiring people today and those will lead the economy out of recession and I mean, you also see there's some fanatic things like green technology, maybe Ford Motor Company, for example, is actually hiring people, but to make smaller cars.
VELSHI: One quick question, Lakshman, the unemployment rate has never been equal in this country and it affects different demographic groups differently. You look at the unemployment rate in April, while it is 8.9 percent nationally, for men it's significantly higher, it's 9. 4 percent. Women, lower than the national average at 7.1 percent. Now let's give you a different breakdown.
Let's show you some of the racial breakdowns we've got. African- Americans, the unemployment rate has risen to 15 percent and for Hispanics it's down a bit, but about the same, 11.3 percent. Is this because of the recession or has it been this way for a long time? I seem to think that these disparities have been around for a long time.
ACHUTHAN: Yes, well the structural disparities have been around a long time. Those are not solely the result of the recession, but in this recession we've seen, for example, construction. Manufacturing, financial services, those areas get hit very, very hard.
VELSHI: Lots of men in those areas.
ACHUTHAN: A lot of guys and a lot of men in there and a lot of white men in there and in the construction you might have some additional minorities in there as well so they're getting hit from the recession particularly hard. On the way out of here you're probably not going to have a lot of demand for financial engineers, right? I hope not, but you might have actually, you know, less bad stuff going on in manufacturing and construction and that's a place where we'll probably get some job growth eventually.
ROMANS: One thing I keep pointing out about the breakdowns is if you have a bachelor's degree the unemployment rate has been rising, it's 4.4 percent now, it is less than half of what it is for someone who has just a high school education, when you look at demographics from race, sex, education from actually also parts of the country, it's a very dynamic, different picture and there are a lot of reasons built into all of those.
VELSHI: That speaks a good reason for getting an education if you have the option to do that.
Lakshman, stay with us.
ACHUTHAN: All right.
ROMANS: All right. Testing the strength of your bank. Is your bank too big to fail? (COMMERCIAL BREAK)
ROMANS: OK. I'm stressed out. I'm stressed out by all of the stress tests.
VELSHI: This has been one stressful week.
ROMANS: This is the stress test, the test that found that ten of the nation's biggest banks are going to need to raise nearly $75 billion more to protect themselves against possible losses if the economy remains at a slump through the end of the year. You'll show us the results of this and I guess, what it means is putting the banks on a financial treadmill.
VELSHI: That's exactly what it is. I had a graphic earlier this week that I used that I really loved; it was a bank on a treadmill. The idea is not only if the economic slump remains, but if it actually gets worse. So we have an unemployment rate now of 8.9 percent, what happens if that goes up to 10.3 percent which is higher than most people estimate and home prices which are already down 20 percent since the beginning of the recession go down another 20 percent?
If that were to happen the government says Bank of America would need about $34 billion more. Not government money necessarily, they need to raise that capital. Wells Fargo would need about $14 billion more. GMAC another $11.5 billion. They're big in the mortgage business right now, a lot people associate them with autos and Citi Group would need about $5.5 billion.
This is how when we tell people you should have keep extra money in case you loose your job, keep six to eight months worth of reserve. There are some banks that are OK, even though they were TARP recipients, they received money because the government told them they needed to take money.
These bank holding companies will not need more money under the stress test. They passed even though the government doesn't want us to use pass and fail. Goldman Sachs, American Express, Bank of New York, Mellon and J.P. Morgan Chase. You can expect these banks will be going to the government at some point very shortly. Some of them have already made noises that they would like to give the TARP money back and that they're safe and good to go.
ROMANS: And TARP of course is the big bank bailout. Why do we care about what happened with these stress tests? Because you might bank there, keep in mind, your banking is not going to change depending on whether they passed or failed and you might have money in there. The Treasury secretary through taxpayer money, of course, Treasury secretary Timothy Geithner says these test results are an important step on the road to financial recovery.
(BEGIN VIDEO CLIP)
TIMOTHY GEITHNER, TREASURY SECRETARY: Our hope is that with these actions today, banks will be able to get back to the business of banking. The leaders of our nation's banks -- the leaders of our nation's banks have a lot to do to earn back the public's trust and to do that we want to it see them working hard in their communities, making the loans to businesses and consumers that will be so important to economic recovery.
(END VIDEO CLIP)
VELSHI: So what does all this mean for you, the bank customer and you the taxpayer because this sort of affects you two ways? Chrystia Freeland is the managing editor of the "Financial Times." Gary Stern is the president and CEO of the Federal Reserve Bank of Minneapolis and is the co-author of "Too Big to Fail." Welcome to both of you. Thank you for being with us.
Chrystia, let's start with you. What should this mean? What should Americans have taken away from this very detailed flow of information that we're getting this week about the stress test? Worse, better, safer, more precarious? Where are we?
CHRYSTIA FREELAND, MANAGING ED., "FINANCIAL TIMES:" Well, I think the message is that the treasury and the Fed are hoping that the banking system is going to be able to muddle through this crisis. What they're saying is there's not going to be a need for a huge additional injection of government capital into the banks. They're not saying everything is perfect. Some banks, as you said, are going to have to go out and raise money although part of that capital gap can be filled by converting the preferred shares into common equity.
But they are essentially saying that the banking system now, we should -- they want us to rest easy to believe that we are going to see a restoration of lending and most importantly of all, I think what Tim Geithner hopes we'll take away from this is it's time to have confidence in the banking system again, but I'd be really interested in whether Mr. Stern thinks as one asset manager said to me yesterday, these are stress tests or feather tests.
VELSHI: What do you think?
ROMANS: He should know because he is the Fed was really the architect of these stress tests and he is the president of a regional Fed bank. What do you think?
GARY STERN, PRES. & CEO, FED. RESERVE BANK OF MINNEAPOLIS: Oh, I think they're legitimate stress tests. I think they were designed to assess the position of these institutions and reduce uncertainty about their financial condition. I think they serve well to do that.
I think the adverse scenario is a serious scenario and I think the banks that need to enhance their capital buffer will take the steps over the next six or seven months to do that. So it seems to me that this should make an important contribution to helping to re- establish some confidence that part of the financial system.
VELSHI: Gary Stern, let's try and figure out what the next shoe to drop is. A number of people have suggested to us on this show and we've obviously heard much about this, that the commercial real estate situation could be very dangerous for us. Can you tell us what you know about that in terms that our viewers would understand? None of us are commercial experts, commercial real estate experts. How dangerous could this situation be? What is it?
ROMANS: And we know that the banks have a lot of exposure to this so it's one of the worries about just how healthy are the banks if there are these other challenges?
STERN: Well, first of all, let me say that I think the stress test covered vulnerabilities in commercial real estate. I think it's likely that there are some difficulties ahead in that sector for particular institution because as refinancing that has to occur and vacancy rates are rising and so forth, but I think some of the concern has been exaggerated. We had a very sharp significant cycle in commercial real estate in the late 1980s and early 1990s. This cycle is -- this cycle is likely to be smaller because the amount of overbuilding has been a good deal smaller. I think it's important that people bear that in mind.
ROMANS: Chrystia, let me ask you what happens next here. We know as somebody told me this week, they said the biggest stress test of all for the banks is how well they're going to weather all of the millions and hundreds of millions of dollars in losses they're probably going to be suffering from credit cards and commercial real estate and the like over the next few months. Have we heard the end of it? Have we put the bank insolvency concern behind us or has the market and optimism gotten ahead of itself?
FREELAND: I think you're right, Christine, to point to the fact that there are some future market tests ahead of the banks, but one thing that I think that we were reminded of in the first quarter and then I do think the government took into account when it did these stress tests is the big retail banks are massive earning machines.
FREELAND: And at the moment they're able to borrow money very cheaply. So there is this natural cycle where if the bank can avoid another cataclysm, just their natural earning power should take care of a lot of their problem. I think the other interesting question following this stress test is going to be whether we see a big differentiation between the strong and the weak.
And in particular, banks like J.P. Morgan, Goldman Sachs which passed the stress test, I know as Ali was saying we're not supposed to use that word, but the ones that don't need to raise additional capital, whether we are going see the market really rewarding them and also customers, retail consumers rewarding them.
ROMANS: All right. A fascinating discussion. We're going to pick it up again. Gary Stern, come back, great to talk to you. There are lots of things we'd like to talk to you about in the future. President and CEO of the Federal Reserve Bank of Minneapolis. And also, Chrystia Freeland, managing editor of the "Financial Times." Thank you both of you.
FREELAND: Pleasure. VELSHI: Well the government plans to get old cars off the road which could put money in your pocket to help you buy a new car.
ROMANS: Stick around to find out what Rachael Ray taught Ali in the kitchen to help you save some money.
(BEGIN VIDEO CLIP)
RACHAEL RAY: Open wide.
VELSHI: This is the only one that matters.
RAY: Good, right? Isn't that yummy?
VELSHI: Really good. It's delicious. Even I can make that?
RAY: Everybody can make that.
(END VIDEO CLIP)
VELSHI: All right. The Obama administration this week supported house Democrats' efforts to push forward legislation to stimulate car sales. You'll remember we talked about this with our friend Richard Qwest some weeks ago.
ROMANS: Let's say it's a good time to be in the market to buy a new car. Under this cash for clunkers plan, consumers with old gas- guzzlers can get $4500 in government vouchers to buy new cars with better gas mileage.
VELSHI: Now we have two guys here to talk about this, but they both point out they do not want the car that's in our graphic, traded in as a clunker. They'll be very angry if they were to happen. Let me show you which one I'm talking about. Maybe you can see it up here. This one here. Mike Quincy, the editorial content specialist from "Consumer Reports" and Peter Valdez-Dapena he covers auto for us on CNNMONEY.com.
ROMANS: You don't want to trash that.
MIKE QUINCY, AUTO SPECIALIST, "CONSUMER REPORTS:" Crushing an old nomad would be criminal. Please don't that that if you have one.
ROMANS: All right. Mike Quincy with "Consumer Reports." So what is it? You really have to have a clunker, something with horrible gas mileage, a clunker that you couldn't get more than $4500 if you were to trade it in and then you get a government voucher. Explain how it works.
QUINCY: Well basically the idea is can we take cars that aren't very fuel efficient, have poor exhaust emissions and basically get them off the road. The idea is generating traffic to the car dealers so people will go out and buy new cars and trying to get people excited about it again, but really, from one perspective, it's good because you're hopefully getting people to upgrade for more fuel- efficient car, but on the other hand it's really good because you're driving an old car with up-to-date safety equipment.
VELSHI: All right. Now Peter take a look at this thing that we got on the wall right now. Tell us how this works, what's the concept here?
PETER VALDEZ-DAPENA, SENIOR WRITER, CNNMONEY.COM: The concept here is if you drive an old car and there's no age restriction on this, but if your car gets 18 miles a gallon. The car gets 18 miles a gallon or less than 18 miles a gallon and you trade in for a car that gets 4 miles a gallon better, you get a voucher of $3500. If you trade your car in for a car that gets 10 miles a gallon better which is a huge jump, not easy to do, you get a $4500 voucher.
What this means is not a lot of people with cars will qualify because the fact is not too many cars out there right now actually get less than 18 miles per gallon combined. This is good if you have an SUV though because there are plenty of SUVs that get less than 18 miles a gallon and for an SUV you can get a two mile a gallon improvement or a four mile a gallon improvement and that makes sense because with SUVs because they have lower fuel economy that four mile a gallon improvement is a bigger percentage difference in fuel economy and adds up to actually much more gas saved during that time.
So most of the folks taking advantage of this will be SUV drivers. We have an example of just a small SUV. This isn't even a big Chevy Tahoe. This is someone trading in a GMC Jimmy for a new Subaru Forrester could get a $4500 voucher toward the cost of that Forester.
ROMANS: Look at the fuel savings, 318 gallons of gas.
VELSHI: Better than $600. The thing is that Jimmy has got to be worth less than $4500 to you because you don't get to trade in the car and get a voucher. The idea is you hand your car in and you buy a new one and you get the discount or the voucher off of that. The old car gets junked, is that my understanding?
VALDES-DAPENA: It gets crushed. Part of the idea here from the environmental standpoint it doesn't make sense environmentally to have people trading in SUVs and buying new cars because what happens to the old car? Someone else drives it and you haven't benefited the environment until that old car gets taken off the road. Part of the reason they're doing this is to actually improve the co2 emissions and improve fuel economy so you want to get the old cars off the road.
VELSHI: And Mike Quincy, if you're doing this, what do you recommend people buy. What does "Consumer Reports" say?
QUINCY: Well basically "Consumer Reports" has always said that a lousy car at any price is never a good idea. "Consumer Reports" would say don't go out and buy a new car because it's cheap.
There are a number of vehicles out there that a lot of people with not a lot of money might be tempted into buying I don't think the bill will help the domestic manufacturers that much because their cheapest cars have never done well in "Consumer Reports" tests whether it's the Chevy Aveo, the Dodge Caliber, and the Chevrolet Cobalt. These are relatively inexpensive cars, but even a lousy car at a good deal is never a good deal.
VELSHI: OK. Guys good to talk to you. Thank you for shedding some light on this. It could be an interesting program. It's not set in stone yet and still set to be developed and we'll talk to the experts when it happens. Mike Quincy, automotive content specialist at "Consumer Reports." Peter Valdes-Dapena at CNNMONEY.com.
ROMANS: All right. It does not have to be a jobless recovery for you if you know where to look. We're going to tell you which sectors will be the first to shake free of the recession where you can get a job.
VELSHI: Our goal throughout this recession has been to empower you with the information that you need to survive the economic downturn. Several economists and administration officials are pointing to the end of this recession by the end of this year.
ROMANS: Wouldn't that be nice?
ROMANS: They also agree that many companies won't start hiring any time soon, but we want to create a road map to the industries that will start hiring first as the recession, god willing, winds down.
VELSHI: Because even if it is early or late this summer or later this year, the bottom line is you may need to plan ahead. It may not be that the job you're looking for is available for another year, but let's figure out where they're going to be.
ROMANS: And it might not be the job you had.
VELSHI: You have time to fix it. Here to help us out is Lakshman Achuthan again; he is the managing director with the Economic Cycle Research Institute and Leigh Gallagher, who is a senior editor at "Fortune."
Leigh, welcome to the show. Let's talk about this. First of all, at the end of recessions there are typically industries that recover first as we start to emerge so those could be areas that people look at for jobs.
LEIGH GALLAGHER, SENIOR EDITOR, FORTUNE: Absolutely. You really have to look at the broader context of what's happening in the general economy. Right now we're still in the middle of a big, tectonic shift away from manufacturing and more toward a service economy and you kind of have to add to that what's going on in obviously sectors like the auto industry and manufacturing in general.
So what you need to look for or what's growing and two big sectors that are growing that will probably going to lead this recovery are one, energy, and two, health care. Those are both enormous sectors so within energy you have all sorts of things happening with alternative energy, clean energy that is really going to be one of the next big gross engines of the economy. And there is plenty of opportunities there. And health care on the other side, same thing, and everything within health care. Hospitals, pharmaceutical companies and those are two strong sectors to look at.
ROMANS: Let's take a snapshot at sectors that were gaining in the most recent employment report that we got last week. We told you that there were 17,000 jobs created in health care, 72,000 created in government and a lot of those were census jobs and those are jobs that people can get in the very near-term if they need to.
VELSHI: There will be a million people hiring.
ROMANS: I think they'll hire an awful lot of people. Manufacturing, construction, business services, retail. We have seen service jobs be lost as well even though that's supposedly where we'll go forward here. The health care, Leigh, I think is interesting because health care is a local job. This is a job that you have in your neighborhood, your hospital, out-patient services sector and offices and the like. Urgent care facilities and there's a lot of good retraining for people ...
VELSHI: Its good range, anywhere from three months to seven years. I mean, you can get in at any point.
GALLAGHER: Yes, that's a great point and it is a very local industry. Hospitals are actually one of the bright spots right now and if you think in the bigger picture, we just did the Fortune 500 and some of the companies that are doing very well and hiring are companies like Johnson & Johnson. So there's many, many opportunities there, everything from research to, you know, sales, there are companies that are doing well in this field and local and national level.
ROMANS: So Lakshman, let me ask you a question if you're an auto worker and you're somebody who works in the steel industry or in the heavy machinery industry, an industry that is facing very heavy competition from low-cost labor markets should you be waiting for a job to come back to you in a year or would what would you say to someone, as an economist, what would you say to someone in one of these industries that we have seen massive, massive job loss in the last few years.
ACHUTHAN: Well first, I would point out that the rising tide of recovery is going to lift all boats. We've all heard that saying and that is going to happen here except those boats that have gaping holes in them and the biggest industry that has a huge hole in it is the financial services industry. And that is even though there's a recovery that is going to be a tough one in terms of job creation.
In terms of these old economy areas there will be some job growth there, but as Leigh was just saying there is a reorientation towards the greener version of these companies and you're going to see already there is hiring happening there it's just that you're getting the old economy losses that are bigger so the net is still a loss for the time being.
ROMANS: The president this week said both the financial sector and also the manufacturing sector are still important. There still will be jobs there, but they will not be the same size in the economy as they were before.
VELSHI: You know, one of the things that the government studies have pointed to and we know this in the country, 80 percent of everything we buy gets moved at some point by a truck and the transport industry was growing substantially for a good amount of time and it's obviously pulled back in this recession, but those seem to be opportunities for people. Either of you, do we still see opportunities there, as far as you know?
ACHUTHAN: Absolutely. I mean, that is the cyclical, very cyclical industry. So when sales start to stabilize and increase, you've got to move it and efficiently in the production are certainly diverse all over the place so that has to be organized through shipment.
GALLAGHER: One thing that is also interesting, though, I do agree, but we are also going see a seismic shift when it comes to consumer spending which is two-thirds of the economy. So many of the goods that is being shipped, lots of that stuff is for businesses but we're talking about consumer goods. I think we are going to see, we already have seen a pullback in consumer spending but it will be a pretty seismic pullback that will last several years as consumers really change their spending pattern so that will affect the retail industry and anything related to consumer products.
VELSHI: So typically the end of a recession we will probably see a very big up tick in retail jobs, for instance. Leigh, you're suggesting that may not be the seem and it may be spread out over longer --
GALLAGHER: It may not. Unless you are looking at of course Wal Mart is doing very well right now and is hiring.
ROMANS: You used seismic and tectonic, I think people should realize that there's a real big, we could go back and this could be a real milestone right here, a marker in the history books for a different American consumer.
ACHUTHAN: You are going get a bit of a recovery there in retail as the recession ends and I'll put a big warning sign out there, non- residential construction, that's commercial construction that is not coming back any time soon. So you don't want to be there.
VELSHI: That keeps showing up as something that we need to talk about more. But thank you for that. All right. Lakshman Achuthan is the managing director of the Economic Cycle Research Institute. Leigh Gallagher, senior editor at "Fortune." Thanks for being with us both of you.
What if Warren Buffett told you where to invest your money? I bet you'd listen. ROMANS: I would.
VELSHI: Grab a pen and paper because that's one of the questions that our Poppy Harlow asked him and you might get your money back.
ROMANS: Plus. Absolutely no one intimidates our Ali Velshi.
VELSHI: Not Warren Buffett.
ROMANS: Not the Treasury secretary, not prime minister of Canada and not Kathy Ireland, except ...
(BEGIN VIDEO CLIP)
VELSHI: You intimidate me a little bit.
RAY: I intimidate you?
RAY: Dude, if I intimidate you ...
VELSHI: I'm going out ...
RAY: ...there's no place to go from there.
(END VIDEO CLIP)
VELSHI: Well, a lot of us wish we could invest like Warren Buffett or at least peck his brain for some advice.
ROMANS: CNNMONEY.com Poppy Harlow got a chance to speak with him at the 2009 Berkshire Hathaway annual meeting. She's here to tell us about her weekend with Warren and what he had to tell her about investing in particular.
POPPY HARLOW, CNNMONEY.COM: Hi guys. Just had a full weekend in Omaha with 35 thousand other Berkshire Hathaway investors, folks this was like a big party where you hear from a man that many people call the smartest investor in the world right now. Warren Buffett talking us to a lot about the economy. You heard him say this was an economic Pearl Harbor and the crisis is easing.
But when we asked him when we spoke with him one-on-one, what about the average investor, the person that doesn't know which side is up, the 60-year-old, and the 55-year-old that lost half of their retirement savings. What do they do? Take a listen to his advice.
(BEGIN VIDEO CLIP)
WARREN BUFFETT, CEO, BERSHIRE HATHAWAY: They should probably, assuming they're savers, consistently just buy equity securities over as long as they have a savings period, but regularly, if they have x dollars a month or a year to invest, probably buy very low-cost index fund. They own a cross section of America, just consistently bought and the last thing in the world they should do is to try buy and sell stocks.
I don't know how to buy and sell stocks by jumping in and out of the market. What you do know is if you consistently buy stocks of high-grade companies that have a diversified portfolio and you don't have a lot eaten up in costs, transactional costs, or management costs you'll do fine over 30 or 40 years.
(END VIDEO CLIP)
HARLOW: This is the prime example of a value investor, and a student of Benjamin Graham might not know who that is but listen. He's about value investing over the long term and Christine and Ali, I asked him, I said you what? You've said before you put all your money or a lot of it in one place, why shouldn't we do that right now when stocks are so cheap. He said, listen, this is my game, Poppy, for people that aren't you want a cross section of America. So interesting there.
VELSHI: There's so much in that one statement there. He talked about equity securities and buying stocks. He talked about putting x dollars a month regularly in.
ROMANS: its dollar cost averaging.
VELSHI: It's dollar cost averaging. We talked about this. He talks about low cost, low transaction costs and low mutual funds.
HARLOW: When you're investing you have an investment adviser look at the load fee. This is something that they might not tell you about that there could be a front load or back load on the end.
VELSHI: That's a percentage of what you pay right off the top and if it doesn't perform well, you're still paying.
HARLOW: Exactly, you can look at investing on your own. That's what he's advising and a cross section of America, look what he own. He owns General Electric. He owns some banks, but he owns companies that make things that we use every day.
ROMANS: He didn't say we're out of the woods yet, though, right? He said that we still have battles that we're fighting in the war.
HARLOW: He made a quicksand analogy, your friend fell in quicksand, you throw them a rope, but they're on the way out.
ROMANS: You're still, wet, muddy and that's how we feel right now.
VELSHI: He does talk about a diversified portfolio and he does talk about a long-term horizon and he does talk to us about index funds which are a great way for people to get invested at this point.
Was it fun? Did you love being out there?
HARLOW: It was an experience like no other. It was a lot of fun and he is so friendly, but this is -- who was the richest man in the world not very long ago talking to you just like you're his next-door neighbor. We actually saw his house and he lives in an average house on the corner in Omaha and giving you these analogies so you can understand the crises that's what makes his advice so helpful to people.
ROMANS: That's why they call him Uncle Warren. Most of us don't have uncles who are billionaires, though.
Good to see you, Poppy.
VELSHI: Thank you Poppy.
ROMANS: What's more shocking? A meal for four under $10 or a meal cooked by Ali Velshi.
VELSHI: The second one is definitely the more shocking.
ROMANS: Rachael Ray is about to face the challenge of a lifetime.
ROMANS: You know I like to cook.
VELSHI: I know you do.
ROMANS: I've been waiting all show to see this. Not only is Rachael Ray going to try to get you to cook. As you are going to prepare a meal for four people for just $10 bucks.
VELSHI: Well, I was actually kind of just watching and I thought I was heading to Rachael Ray's test kitchen to eat. I never turn down a shoot that involves eating, but while we were talking about ways that you and your family can save at meal time. My part in helping to prepare a chicken fajita salad with poblano buttermilk dressing.
VELSHI: Super easy and very few ingredients.
RAY: Super easy. We use healthy oil, a little bit of olive oil on everything. Heat up a grill pan or your outdoor grill. You grill some chicken breasts with salt and pepper. We have poblano chiles, medium heat level, seeded, throw them on the grill. Sweet onions and protein of some sort. We charred up some tortillas. We let the chicken marinade in some lime juice, you can use much less salt and the chicken has to marinade for a very short amount of time.
Come on over here and I'll show you what happens when it comes off the grill. When it comes off the grill take a poblano pepper and some buttermilk and you put it into a food processor and you make a dressing, again, with lime juice and a little bit black pepper and taste it and see if you even need salt. Lime hits the same places on your tongue as salt would.
VELSHI: Oh interesting. So it might let you do this with less salt.
RAY: Exactly. So you make this nice tex-mex dressing and let it go until it's smooth. Dress any sort of greens that are on sale that week. We have romaine, but buy any greens that have a good price.
RAY: Toss that together and you know, by adding salad to something familiar like a fajita, you get kids interested in eating salad for supper.
VELSHI: Right. We discussed this. It's hard to get kids to decide to eat something healthier unless it's fun.
RAY: If you mix it together. Exactly. You have to make it fun. If you mix it together with sliced tortillas, chicken strips and give it a fun name like a chicken fajita salad they might be more willing to try it. So mix it together with that put your peppers and onions down over the top and a little bit of your sliced chicken.
It's delicious and nutritious and you can even pour a little extra dressing down over the chicken when it's all done.
VELSHI: So for a family of four that comes in at under $10.
RAY: Under $10 and it's something everybody will love because it sounds familiar. It involves ranch dressing which kids love anything with ranch dressing on it and it's a chicken fajita with a bunch of lettuce mixed in.
VELSHI: You test all of these things to make sure the prices are where they are.
RAY: What we do is we take a median price from grocery stores all across the country and then we put together a program so that when we put in all of the pricing of our food, it will give the average price from coast to coast take into consideration every region of the country. So these are pretty close to the mark.
VELSHI: As you and I discussed last time it would still do you better to buy things in bigger portions.
RAY: Always buy in bulk; every time something goes on sale turn yourself into your own frozen food factory. If broccoli goes on sale, any vegetable your kids love. Buy it, blanche it in boiling water with salt, take it out, cool it down and put it in plastic food storage bags and store it in the freezer. Any time a lean protein that goes on sale. Do the same thing. Portion it up and put it in the freezer.
You can arm yourself with really good tips. Unit price is a terrific tip and not a lot of people understand. Don't look at the price on a jar or on a box of cereal or even on a cooking oil or vinegar. Look to the left on the little grocery store marker. It will give you the price per unit of measure and that will give you the only true price you're going to see because packaging they can play around with. You can find your best value by finding unit price as opposed to item price.
VELSHI: And even more than just thinking about I might buy the bigger one it is cheaper, there might be ...
RAY: The package could have the bottom, you know, could be pushed up inside the jar and the jar looks very tall and really big, but you're getting less volume. So look for the unit price. Oh! Remember when you go grocery shopping you can mix any protein and any vegetable with eggs, beans, whole grain rice or whole grain pasta. Eggs, beans, rice and pasta stretch a buck.
RAY: So matter what you're cooking try to mix it with those grocery store items and you can really get your moneys worth. And when you are buying rice and pasta, that's a perfect way to get more nutrition into your children. Try the whole grain. It's full of protein, full of fiber and they'll never be able to tell the difference.
VELSHI: You put sauce on it, they would never know it.
RAY: You know if you cook up light brown rice, which is fairly new to the market, when it's cooked up, it looks just like white rice. They'll never know the difference but they are getting more nutrition. And with pasta sauce on the pasta, once you cook it up, it's very similar looking to penne or macaroni, whatever it is your kids like. It's a way to get a lot more nutrition for a lot more money.
VELSHI: On the show it's "Meals for a Steal" and in the magazine, it's the "Ten Spot."
VELSHI: One of the things that when you think back when you hear stories about the depression, the food that people had to eat because they couldn't afford it sounded boring. One of the things that you got was a sense of excitement in the food.
RAY: We try to make food, when we're writing a "Ten Spot" we are writing for children or we are writing a column on good nutrition or diet-friendly foods, I think that's when you really have to bring in big flavors to make it exciting for people.
RAY: You know, you don't want to be reminded that you're going through tough economic times or that you're on a diet.
VELSHI: Well actually when I read that, I don't get the impression that you're catering to people who are either on diets or that it's tough. It just happens to be that you have found stuff that people can buy that's affordable. RAY: I think in order to eat well, you have to have fun with it and it has to be affordable.
VELSHI: I'm looking at all of the cookware. Let's take you take somebody like me, who would like to for reasons of eating better or for reasons of saving money, want to cook more at home. One of the things that are very daunting is what you need, the equipment you need. General recommendations.
RAY: If you're just starting out in the kitchen, get a big skillet, pasta pot, maybe a small skillet for eggs, or just a chicken breast or a piece of fish. That's it. Big cutting boards, you don't have to dirty a bunch of dishes as you are preparing your ingredients. I will send it over to you. If you cook one meal, Ali.
VELSHI: I will invite you for the first meal.
RAY: Ali's going to invite me over. If that happens, I'm bringing you guys with me.
VELSHI: It's on TV now. So it's going to happen.
ROMANS: Ali, my friend, I have known you a long time ...
VELSHI: You never had me come in one day and say I just whipped up the greatest meal last night.
ROMANS: Do you have pots and pans?
VELSHI: I don't know where they are, but I believe I do have pots and pans.
ROMANS: You have silverware.
VELSHI: I am equipped to eat all sorts of things.
ROMANS: As soon as the carry-out guy brings it.
VELSHI: As soon as I open the bag. She did really made it look very easy. One of the things that was interesting about this is in her magazine, "Rachael Ray Everyday" she has got these recipes a lot of them called the "Ten Spot." So it is all for meals for under $10 and they test to make sure the price is actually under $10. These chili poeblanio things, they were $2.48 a serving.
ROMANS: And she is good about healthy too, she makes sure you have the greens that are on sale.
VELSHI: Get the protein that's on sale whether it's chicken or fish. It was a lot of fun. She did say, as you said, that she would like me to cook at some point and I might actually do it. Listen, for the complete recipe and a look at my full interview with Rachael Ray, which was actually a lot of fun, head to CNN.com/yourmoney.
ROMANS: I will come over tonight.
VELSHI: We can work it out.
ROMANS: OK, still confused about the bank stress test. We are going to head to the gym, hop on the treadmill. See how it works.
VELSHI: Well as we told you earlier, we found out this week how our banks fared in the government stress test.
ROMANS: Stress test. But a lot of people still aren't exactly sure how the test worked. Was it a treadmill? Was it that thing, a fit ball?
VELSHI: I don't know.
ROMANS: We're not the people to ask. But our Adrian Finighan fitting gave us the whole topic of stress test, the full workout.
ADRIAN FINIGHAN, CNN INTERNATIONAL CORRESPONDENT (voice over): Now, here at the Bank of Finighan, I cope pretty well. OK, I have a head cold that left me feeling slightly off color. But on a whole my eco biorhythms are normal. But what if things got worse? Would I be fit enough if the going got really tough? U.S. Banks, of course, faced a series of stringent tests to find out whether they're fit enough to face the future. Let's find out how I get on.
Now, think of the weight, that's the number of people out of work. As you can see, I'm coping pretty well. As long as the unemployment rate remains within a comfortable level so people keep paying back their loans. But if unemployment goes above 10 percent and the house prices continue to fall, then the default rate will get bigger. And I am going to struggle. I need more muscle. Now a brisk walk and everything's normal. I feel great. I can even cope with jogging for a few minutes.
But what if I'm required to run? Well, I can do that in short bursts, but if I have to keep up, after more than just a few minutes of this, I just don't have the stamina. I need more energy. So a workout in the gym has shown me that I need to improve my fitness if I'm to cope with challenging rigors. I want, of course, that there will be some banks that will pass the stress test without even breaking a sweat. Most, like me, ask their personal trainer, the government, to improve muscle and stamina.
Adrian Finighan, CNN, London.
VELSHI: All right, Adrian Finighan explaining the stress test. Glad it's him, not me.
ROMANS: Yeah. VELSHI: Listen, next week ...
VELSHI: This week. Thursday, May 14th, at 8:00 p.m. ...
ROMANS: I think I'm going to join you.
VELSHI: You're going to join me for "Money and Main Street." We're doing this -- this is the first time we're doing this. We are going to talk about how everything that is going on in the economy affects you both on a macro level, the policies, the decisions being made in Washington, all the way down to how it affects you specifically in your neighborhood with respect to your job, your home and your investments.
ROMANS: It will be important. I hope we can really bring good stuff. We will work on it all week.
VELSHI: We have a blue ribbon panel of people. Plus we are going out to towns across America to find out what people are really suffering, what questions they have. You want to check in with us. 8:00 p.m. on Thursday, May, 14, "Money and Main Street."
ROMANS: All right. Thanks for joining us. You can follow us on Facebook and on Twitter at Ali Velshi and Christine Romans.
VELSHI: Make sure you join us every week for YOUR MONEY, Saturdays 1:00 p.m. Eastern, Sundays at 3:00 p.m. You can also logon 24/7 to CNNMONEY.com.
ROMANS: Have a great weekend everybody.
VELSHI: See you.