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Could Oil Prices Send Us Into a Second Recession?; Help on Controlling Your Gas Mileage; No Sunny Days in Spring For Struggling Housing Market; Careful and Easy Planning Can Lead to an Abundant Retirement Savings

Aired March 26, 2011 - 09:30   ET

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


CHRISTINE ROMANS, HOST: Unrest in the Middle East, a bombing campaign in Libya and a nuclear disaster in Japan.

Oil prices top $105 a barrel for the first time since 2008, bringing the national conversation again to how America gets and consumes its energy.

Peter Morici is an economist and a professor of International Business at University of Maryland.

Peter, you say high oil prices could cause a second recession. Why?

PROF. PETER MORICI, UNIVERSITY OF MARYLAND: Well, simply, oil at $1.10 a barrel, gas at 360 has done enough to reduce GDP growth for this year form say, 3.5 percent to three. If it goes to $1.40 a barrel or 410 a gallon that will be enough to take growth below 2.5 percent and that is not self-sustain. At that point employers lay workers off and you get on the down side of the power curve.

ROMANS: All right, April Ryan is the White House correspondent for American Urban Radio Networks.

You know, people feel energy policy in terms of what it cost to fill up their gas tank and that's what they're concern about, here. Is the president communicating what his policy is? He did come out after Japan and said, look, I am still behind nuclear energy in this country. How is the message from the White House on this?

APRIL RYAN, AMERICAN URBAN RADIO NETWORKS: Well, Christine you know, every day in the briefing room and the president has said himself, being peppered with questions as press conferences, look, we are looking at the long term which is, again, the green energy: solar, wind, things of that nature. But at the same time, people are concerned. Right now a lot of people don't have hybrid cars and they're dealing with the gas prices.

You know, I just went to the pump and I spent, and this is low, $3.49 for regular to fill up my gas tank. But again, because you can't do anything really in the short-term he's looking at a long-term approach. But one thing he can do, he can ask other countries to increase oil production, and you have to remember, some oil analysts said this as well. If, indeed this country were to siphon all the oil and we would use our own oil, other countries would lower their production. And that would make us still have large oil prices or gasoline prices at the pump. So it's -- it's -- the devil's in the details.

ROMANS: Peter, let me switch to you. I mean, you and I have talked about this for years, about America's energy policy, where we're going next, how we have to use these times of rising oil prices, or unrest in the Middle East, to refocus our effort in energy independence. Fifty-seven percent of people polled by CNN approve of using nuclear energy for electricity, but two nuclear plants plans for Texas are on hold. The company, Peter, citing uncertainty after Japan. On the nuclear energy front, are we headed into a new era of not in my backyard, do you think?

MORICI: Oh, I think we are. There is going to be a slowdown in the build out of nuclear energy, which essentially means we're going to have to drill more domestically or we're going to face much slower growth.

The president's program has built out alternative energy, battery powered cars and so forth, about as much as is possible. And at these times, if we produced more domestic oil, well the White House is correct, it might not bring prices down very much, at least the money would be staying here.

You know, if we were paying $3.60 a gallon for domestically produced oil instead of arbitrarily shutting down gulf drilling as we have done, then that money would stay in the United States and growth would not slow.

You know, when we send money abroad to buy oil and we pay more for it and it doesn't come back to buy our exports, growth slows. And now we're very close, we're very close, to a second recession, as a consequence of not drilling in the Gulf and drilling in other places. The White House has misplaced its emphasis.

ROMANS: You know, but Peter, some say -- other energy watchers have told me you need to have sustained gas prices above $4 before it's really going to sort of hurt the consumer. You think that we could have a second recession at this level of gas prices? Or you think we have to have higher gas prices than this?

MORICI: Well, the thing is, hurt the consumer. What does it mean? Every time you pay more for gasoline, you have to either take of money out of savings, which people don't have a lot of these days, or they have to divert purchases from something else: fewer restaurant meals, a couple less garments purchased this year, things of that nature. Those all slow down the economy. When money leaves the country, that doesn't return, to pay for imported oil, it slows the economy, it's a tax. So, $1.40 a gallon, $4 a barrel, in my estimation that would do it if it happens, right now.

ROMANS: I want to ask you both of you the same question. I'll start with you, first April, about the politics of it, I guess. The president has also said he's ready to tap the strategic petroleum reserve if it comes to that. April, do you think politically he can get in there and use some of that 727 million barrels of oil that we have to try to lower gas prices? You think he'd do it?

RYAN: Well, politically, you'll never find a consensus on whether he should or should not. That's one thing going. But at the same time, we're seeing some perilous days as far as the economy and energy is concerned, but we always have to remember that there is tomorrow. So if you do indeed tap, the question is are you going to replace, and replace what you took plus some? And that's really the issue.

ROMANS: Right. What do you think, Peter?

MORICI: Well, if gasoline is at $3.60 a gallon putting oil at $1.05 and you start to draw it down, you've got about 700 days worth of supply if you want to bring down prices by, say, you know, 10 percent, 20 percent, so it's a viable policy. But if oil goes to $140 a barrel, and gas is $4 a gallon, then to buy the impact you need to make a difference means you have less than a year's supply. Not a great strategy.

The bottom line here is, every time we have one of these crises people suggest drilling more, developing more domestic oil. Until we can get to that day we can use alternatives to push out gasoline consumption and they say, well you know, if we do that, it won't help this time.

But if we did it now, then, two, three years from now we wouldn't be so vulnerable, yet again. But it seems as though this administration wants to think 10 years out. Never, two years out. And that is a real problem. It has made America as vulnerable as it is right now.

ROMANS: Peter Morici, thank you so much. April Ryan, great to see you, have a wonderful weekend, you guys.

RYAN: You too. Thanks.

ROMANS: You've heard it before, you're hearing it again: $5 gas? Is it even possible? Better yet, who cares? What you can do about it.

(COMMERCIAL BREAK)

ROMANS: Look, you can't have control where oil prices are headed, but can control how you drive your car and how to get the best gas mileage. Robert Sinclair is with AAA, he's here.

I always say nice guys finish first, in this, don't drive like a jerk and you're going to -- you'll save gas.

ROBERT SINCLAIR, AAA: Yes, absolutely. Whatever speed you're accustomed to driving, slow down, accelerate gently, brake gently, all that counts in saving gasoline. A more aggressive driver burns more gasoline.

ROMANS: But you want to make sure that the care is tuned up. This is really key, because you don't -- you want it to be efficient and running well because at 3.50, 3.60 a gallon, it matters.

SINCLAIR: It really does. And I don't know if tune-up is the operative term these days with all the computers that we have, but --

ROMANS: I know, but I'm showing kind of my old, you know, my dad's a car guy kind of thing.

SINCLAIR: Yes, whatever it is that a technician has to do to bring the vehicle to optimum running condition, you should make sure it's done. The spark plugs, air filters, fuel filters, all those kind of things, having a computer re-booted or something. It all counts making sure the vehicle's running more efficiently and burning less gas.

ROMANS: You also want to find the cheapest gas in your neighborhood. There are different ways to do that. I mean, I always kind of caution, too, that you don't want to, like, drive an extra five miles to go find that, but make sure that the cheapest gas is on the route to wherever you're going. How do you do that?

SINCLAIR: Well, you can look around. I'm a little biased, AAA has something called the Fuel Gauge Report. It lets you know the average prices in the metropolitan area. But we also have something called Fuel Price Finder and it's at AAA.opusnet.com, and it lets you put in a postal zip code and designate an area of one, five or 10 miles and shows all the gas stations and their prices.

ROMANS: Is it just me or if you're just off a highway of a on ramp or an off ramp you're likely to pay a little bit more?

SINCLAIR: A little bit more. Wherever it's busy, you're going to pay a little bit more. They know they've got you, in essence, if you're on the highway or something, so if you're in the neighborhood before you head out on the highway, gas up at the local station before you get those highway stations.

ROMANS: Now, something I wasn't aware of. You want to purchase gas at the coolest time of the day. Why?

SINCLAIR: Well, gasoline changes its density based on temperature. The cooler, the more dense the gasoline, you'll get slightly more for your money. The hotter is, the less dense. And in fact, pumps in California, people want them to have chillers on them to make the gas less dense. But there are haters on the pumps in Canada, because the oil companies realize they'll be giving out more gasoline for the money, so they've taken the action where they would lose money, but not where they would --

ROMANS: There you go. Also, proper tire inflation. We've heard this millions of times. You don't want them underinflated, not overinflated, it's got to be just right.

SINCLAIR: Very, very important. For every pound per square inch that your tires are underinflated you lose one percent of your fuel economy and that's per tire and most of us, especially during the winter, when the volume goes down, cold contracts, heat expands, driving around on underinflated tires. So, minimally once a month, ideally once a week, check tire pressure, make sure it's up to the manufacture of the vehicle, manufacturer's specifications.

ROMANS: And get the junk out of the trunk.

SINCLAIR: Junk out of the trunk. All the weight that we're carrying around. Yes, some people put --

ROMANS: Golf clubs, the three strollers, the bags of dirt.

SINCLAIR: Yes, if you've got an SUV, that third row seat, it might weigh 100, 150 pounds. Pull it out the third row seat. Yes, whatever extraneous material you're carrying around, get rid of it. All that extra weight burns gas.

ROMANS: All right, Robert Sinclair, AAA, thank you so much really appreciate it, sir. Have a great weekend.

SINCLAIR: You, too.

ROMANS: Never before have few new homes been sold. In a country of almost 308 million people, only 19,000 new homes were sold in February. Why aren't people buying houses?

Plus, what to do if you're trying to sell yours.

(COMMERCIAL BREAK)

Just weeks before the all-important Spring selling season in real estate, frigid number. Sales of existing homes fell 9.6 percent in February. New home sales had the worst month since records had been kept in 1963. A terrible 12 months for housing sales.

At the same time, the value of the house is falling. The median house price for an existing home declined 5.2 percent from February of 2010.

Mike Aubrey is a licensed realtor and the host of HGTV's "Real Estate Intervention."

Mike, what's it going to take people to buy houses?

MIKE AUBREY, REAL ESTATE INTERVENTION: You know what? I mean, I'm not surprised by these numbers at all, Christine. Obviously, people are afraid. I mean, I think that people don't want to invest in homes right now, and coupled with the fact that we're starting to see mortgage rates begin to inch back up again, people don't want to be in the marketplace. What I think we need do to get them to do that? I think that real estate is just like securities. Over time people will come back to the market. I am absolutely sure the sun will come up tomorrow and I'm absolutely sure that the real estate market is going to recover, as well. I think it's just going to take some time for us to get through this painful period in this recovery that's going to put us in a position where real estate will again create equity. ROMANS: And like securities, there are people with money right now who are seeing a once in a lifetime opportunity, but there are people, Ilyce Glink, author of "Buy, Close, Move In," who, even with housing affordability better than it's been in a generation, still it's not enough for them to get the loan, to get in the house and to get moving. When does that thaw for people?

ILYCE GLINK, AUTHOR: It all starts with, can you actually even afford to buy? Lenders are being so strict on their requirements that there are all kinds of people who might like to buy a property. They don't qualify. Five years ago, you could have literally had a pulse, you could get a loan. And today it's a lot more difficult.

ROMANS: Let's talk about how difficult it is, Ilyce. It's like almost 28 percent down for a loan. You have to show that you've got six months or a year of utilities and mortgage payments in the bank. You have to have a very good credit history, maybe 750 or higher on your credit report. That leaves a lot of people who have been dinged out, dinged by the recession, out of this game, doesn't it?

GLINK: It does. And you left off the biggest part which is you actually need cash for a down payment these days. And it's not just talking about 3.5 percent. You're going to see FHA raise up how much you need for a down payment probably to five percent. Already at 10 percent, you're going to do a little better on some of their fees and points. In addition to that, the conventional loan market doesn't really want to look at you if you don't have 10 percent or 15 percent to put down and preferably they'd really like 20 percent or 25 percent. If you're looking to invest in property, you're going to have to have 25, 30 or 35 percent cash.

In fact, cash is king, right now. The percentage of buyers paying cash for property is somewhere over 30 percent. It's really one of the highest I've ever seen.

ROMANS: Yes, we're going to talk a little bit more about that in a couple minutes.

But Mike, I want to talk about one the problems that people have been having. They're signing deals, you got a buyer and seller coming together, they decide on the house. The seller is so glad to have this off his or her hands, the buyer so glad of the bargain they've gotten, and then suddenly the deal's fallen through because the assessor comes in and the house is valued for less than the agreed upon deal.

AUBREY: Well, and actually I think the word that you meant to use was the appraiser.

ROMANS: Appraiser, right. Sorry.

AUBREY: Right. And I'll tell you what, I mean, what appraisers are doing right now is they're essentially changing the marketplace as we know it. I can be the best real estate agent in the world and I can be the best negotiator in the world, but even though P.T. Barnum told us that there was a sucker born every day that sort of has changed, it doesn't matter if that sucker's out there anymore, because it's only if the house appraises at the value of the deal that was made. You can't really negotiate deals anymore. The banks are trying to cover their interest. I mean, I think that what we've seen is sort of a rebound of them being very concerned and very afraid in trying to look at their shareholders and say, we're protecting their interests, and right now the appraisal process is the only way that they have to do that.

ROMANS: And Mike, you've made a point before on this program, that if you are a seller, listen up. You need to be priced right. That goes into this whole concern about not being priced right in the first place. You want to attract the buyers interest, but at the same time you don't want to be priced too high.

AUBREY: No, I mean, I think if you're overpriced in this marketplace, people are just going to look completely past you, Christine. I think that not only do you need to be priced right. I mean in some places depending on what the competition is like, you need to be priced aggressively. I mean, Ilyce mentioned the fact that cash buyers are out there and that number is going up.

What does that say to me? It says that investors think that we're nearing the bottom of the real estate market. When we see cash buyers back out there, those cash buyers, those are investors and they think that they're going to pick up great deals, right now. And it's hard for people doing financing to compete with those people.

So, what that says to me is this may be a great marketplace to get a great deal on a piece of property if you can get the loan.

ROMANS: All right, well thanks so much for all that insight, Mike Aubrey and also Ilyce Glink. We'll talk you to you again, soon. You guys have been right on about the real estate market, so we're really interested in your perspective. Thanks, guys.

All right, we've gone through this. Gas prices are up, home prices are down, but you can still be ready to retire. Steps to make a million -- yes, a million dollars or at the very least get your money back on track.

(COMMERCIAL BREAK)

ROMANS: It's hard to think about retirement in 10, 20, 30 years or even longer when you're trying to make ends meet, right now, trying to fill up the gas tank. But the average American worker has a retirement savings shortfall of more than $47,000, and too many workers haven't saved anything at all for retirement.

Donna Rosato is a senior editor at "Money" and Louis Barajas is the author of "My Street Money."

Louis, welcome back to the program. How much time do you have to save for retirement? I feel like so many people start thinking about this after they've spent so much -- time is your most important friend when you're investing or saving for retirement, a lot of people don't get a start until much later. LOUIS BARAJAS, AUTHOR: Well, you got all the time in the world because you should be saving I mean, starting today, if you haven't started saving, but the problem is that people are living longer and having to work longer. So, you've got to save as much as you can and it doesn't really matter on time, you just got to do it and you got to start as quickly as possible.

ROMANS: You say that time, savings and investing, Donna, are the three levers. And if you have a lot of time, that is the best way to build to become a millionaire or to have that big retirement. That's the most important. What if you don't have the time, then what do you do?

DONNA ROSATO, AUTHOR: If you don't have the time, don't worry, you can still do it, but you need to be a little bit -- you're going to have to save more and you're going to have to be smarter about your investing. You know, you want to focus on low cost investments that don't eat into your return and you may want to be a little more aggressive. So you're going to have to step up those other levers if you don't have as much time.

ROMANS: You also say learning about money is key, here. And in a great piece you guys have on "Money," there's a great piece about, you know, ways to become a millionaire. You have to do the money talk, you have to learn about money, be smart about money and learn the money talk.

ROSATO: Well, that's right. You know, a million dollars is sort of the magic number that people want to hit for retirement. It's not a bad number to focus on, but you do have to learn, it's not rocket science, but you want to learn some basics. You want to know what asset allocation is, you want to know what your risk tolerance is for investing. And these are not hard things to know.

You know, one thing, Christine, that I think is very helpful for people, most people have their savings, if they do, in their 401(k), and a lot of companies are offering people advice for their 401(k)s and doing automatic enrollment which really helps. But, I do think it's important for people to get this information.

ROMANS: Louis, you say no matter what your job is, no matter how much money you have, you've got to start saving. What is the best way to go about it? If I'm starting right now, how should I be investing, where should I be investing?

BARAJAS: OK, well first of all, it's important to also note that the cash you'll need in retirement. You really need to do a retirement budget. And then you've got to go out and find a really, like a free retirement calculator so you can take a look at how much money you're going to be investing and for how long. And then you got to take a look at how you're investing your money. And you got to be very careful, because if you don't have a long time, you don't want to be so aggressive that you're taking too much risk.

You also don't want to be so scared because of what's happened in the stock market, and currently, that you're, what I call, under- investing, you're putting into real short-term cash type of accounts.

So, you want to have a really nice balanced portfolio and it's really important that you see somebody professional who's a registered investment adviser or fee only advisor that can help you allocate those assets in your 401(k) or your set planner, your 43D plan.

ROMANS: Donna, you say people need to be realistic about how much they need to retire. How much does it take?

ROSATO: Well, you know, again, that million dollars is a nice number to shoot for, but really how much you need depends on what kind of lifestyle you want to live in retirement. You know, a lot of people underestimate how much they're going to need. They think that their spending is really going to drop in retirement. But particularly, in the beginning of retirement, you're going to want to travel, or many people want to travel, do the hobbies, they never had time for to work. So, you want to make sure --

ROMANS: Retirement is supposed fun, it's not supposed to be about counting your pennies. You know, but a lot of people, kind of, quite frankly, are nervous they'll have to work longer, they're not saving enough and the value of their house is down. I mean, I can see where the anxiety comes from retirement planning.

ROSATO: That's right. And you know, the simple way to figure out how much you need, there are great calculators at TRowePrice.com or I agree with Louis, that meeting with a certified financial planner, a fee-only person who's not going to sell you products that might not be best for you, is a great way to sit down and look at your budget and figure out what your plan is and you may have to work a little bit longer or save more, but you know, once you hit retirement, you can enjoy it.

ROMANS: You can read some magazines about it or read some books about it, plug, Louis, or you can learn a little bit before you sit down for a couple hundred dollars or whatever it is with a fee-only planner who can take a look at everything you've got and help you get back on track.

Louis, do you have any other creative ways to get the most out of retirement assets?

BARAJAS: Yes, absolutely, you want to think about realigning your assets or liabilities, right now. For example, I just refinanced my house from a 30 year mortgage, to 1 15 year mortgage, so I'll have my house paid off before I'm age 65.

The things you can do right now, take a look at comprehensive, everything that you have and see what you can pay down. Because retirement lifestyle is all about cash flow. Bottom line is how much you have. Focus on having a financial dignity in your retirement years. And so, it's just making it a priority. Think about what your lifestyle's going to be in the future so you can do something about it, right now.

ROMANS: And it begins, I know we all agree on this, it begins with paying down debt immediately, because you have to have your -- you've got to pay off your past before you can invest in your future and that's, I guess, the best starting point maybe, for people who are just trying to figure out how to get going.

Louis Barajas, thank you so much, "My Street Money," is the book. Also Donna Rosato, senior editor at "Money" magazine, thanks guys.

ROSATO: Thank you.

BARAJAS: Thank you.

ROMANS: All right, I want you to send us an email to YourBottomLine@cnn.com. You can find me on Facebook and Twitter @ChristineRomans. We want to hear what you think about your money, your house, your kid's education, what's driving your family dynamic.

That's going to wrap things up for us this morning. Back now to "CNN SATURDAY" for other stories making news.