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YOUR MONEY

The 2012 Economy; European Influence; State Of Your Job; CNN Commentators Predict Romney Will Be GOP Nominee; Congress Tops Dumbest Moments of 2011 List

Aired December 24, 2011 - 13:00   ET

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


ALI VELSHI, CNN ANCHOR: America's economic future is uncertain. At stake is your money, your job, the presidency. Welcome to YOUR MONEY. I'm Ali Velshi.

As 2011 draws to a close, we are all about 2012 right now. Diane Swonk, the chief economist at Mesirow Financial. Diane, good to see you. You've spent a lot of this very puzzling, confusing challenging year with us.

You're an economist and yet you've been called upon to be a political strategist to understand what it is that's going to happen in 2012.

Tell me where you sit right now. Is 2012 going to be a better year economically for America than 2011? Is there going to be economic growth? Are we possibly headed into further stagnation?

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Well, you know, I mean, the political strategist side of things I've never had to look so much at politics to try to figure out where the economy was going.

I tell you, it's like watching the Keystone cops. I mean, this has just gotten ridiculous, but going forward we do have some momentum carrying us into 2012. That's the good news and we hope we don't lose it because of political ineptitude.

That's what would kill it. We have a lot of icebergs ahead. We just hope our politicians are better at navigating these turbulent waters than the titanic. That said, where are the positives?

The positives are there is a glimmer of hope in the labor market. It looks like the situation had bottomed out after things had fallen apart last spring and into the summer. And we're certain to see some momentum return to job hiring.

Not enough momentum, but some is better than none. Particularly small business hiring, new business burst, that's very important to the backbone of the U.S. economy and that's looking for strength going forward as looking for new business creation to begin picking up again.

Not enough to really take down unemployment to the point where it gets to long-term unemployed, which is what we really worry about, but taking down unemployment nonetheless. We have a chance of reaccelerating in 2012 and doing a little better. VELSHI: Right and to be fair, even the best projections, about when we get back to 5 percent unemployment, which is roughly where we were before the recession started, we're still looking at 2017.

I mean, we're not looking -- not talking about a big burst in 2012, but anything makes a difference here. Harvard University professor, Niall Ferguson is the author of "Civilization The West and The Rest."

So you bring a great perspective this, Niall, whether it's was the debt ceiling debacle or the "Super Committee's" failure to create a deficit reduction plan, 2011 was undeniably a year of political gridlock or what Diane calls Keystone cops in Washington. Leadership deficits have held us back. How do you see this playing out in 2012?

PROF. NIALL FERGUSON, HARVARD UNIVERSITY: Well, it's hard to be too optimistic. After all, one of the things that gave us signs of life in the last quarter was a plunge in the savings rate. I'm not sure that Americans can really postpone deleveraging for more than a quarter before their balance sheets begin hurt to them again.

On the political side, I think we're in for some surprises in 2012. My sense is that the Republican nomination race could end very badly, indeed, with an unelectable candidate getting the nomination.

In other words, not Mitt Romney and then we're suddenly going to see the possibility of a third candidate entering the race. I think that's going to increase the uncertainty hugely. If Americans elect can get somebody like, I don't know, Mike Bloomberg to enter the list.

Then it's going to be very, very hard, indeed, to predict the outcome of the presidential election. While that's going on, don't expect any sanity to prevail between Republicans and Democrats in Congress.

I think total fiscal mayhem seems an almost guaranteed feature of next year. Certainly, nothing that is going to help the economy. It's quite possible that we'll get things that will hurt it.

That's to say we'll end up heading towards this across the board sequestration, budget cuts all around if they can't agree on some rational strategy. So that's really a big worry.

VELSHI: It is a worry because that's not strategic. That's the kind of thing that will cut budgets, but could hurt the economy more.

Bill Gross is co-founder and co-chief investment officer of PIMCO, we spent a good deal of time together in 2011. Bill, in a market that is this uncertain, there have been some opportunities.

What is your prediction for what happens to global economies in 2012 particularly from your perspective as being a key bond investor?

BILL GROSS, FOUNDER AND CO-CHIEF INVESTMENT OFFICES, PIMCO: Well, I think, Ali, that 2012 will resemble 2011 in that 2011 was dominated by delevering. Niall just mentioned that -- and speaks the country's attempting to balance the deficits and some on the verge of default in Greece, for instance. It speaks the banks being forced to raise capital and shed investments that speaks to individuals fleeing risk markets like stocks for bonds and safer havens. This is all delevering risk reduction, and all of it is healthy long-term as we mentioned.

But destructive short-term because it reduces growth and lowers asset prices. Now does that continue in 2012? To our way of thinking it certainly does. What does that mean in terms of what you should buy and what you should sell?

I think you should prepare for euroland instability that speaks to Greece and perhaps one or two other countries dropping out. I think you should prepare for currency instability. That speaks to a stronger dollar.

I think you should speak in the bond market for a bottom in yields in those what we call clean dirty shirt countries, the United States, United Kingdom and Germany. They can only go so low.

VELSHI: And your analogy of clean dirty shirts is, you know, you're traveling and your trip gets extended another day. You didn't bring enough shirts so you find the cleanest dirty shirt in the pile.

At this point, the cleanest dirty shirt tends to be the United States when it comes to its borrowing. Niall Ferguson, to what degree is this stuff happening, disagreement and some degree of ineptitude in Washington.

And to what degree does this actually threaten the western world and America as a great economic power?

FERGUSON: You know, I think right now the biggest threat to western economies is coming from the other side of the Atlantic. I think if it weren't for the fact that the Europeans were in such disarray, things might be looking rosier in the United States.

I mean, there are signs of recovery, there's no question of that, whether you look at unemployment or housing. But if you cross the Atlantic, there's a far bigger political mess there because it's almost impossible to sort out the eurozone without a shift towards what amounts to the United States of Europe, in other words, some system of fiscal federalism.

VELSHI: Right.

FERGUSON: And yet, the political obstacles to that are absolutely enormous. So I think that the headwind from Europe is probably the strongest headwind for everybody right now. It's after all appropriate from my point of view as somebody chronicling the crisis of western civilization that the epicenters of the crisis in Europe have been Athens and Rome.

I don't think this crisis in Europe is in any way over and I anticipate further bloodshed as the Europeans struggle to overcome a profound German resistance to long-term transfers to a less productive periphery and also a profound German resistance for easy money from the European Central Bank.

The ECB would like to be the fed. I'm sure itching to do some QE, quantitative easing, but the brakes are being applied very aggressively by Berlin and that means that we're almost certainly going into a European or at least a eurozone recession, which can't be good for the United States.

VELSHI: We're close to it now. Hang on for a second. You know, Rome and Athens haven't been this important in almost 2,000 years. Diane, Niall, and Bill, stick around.

Let's talk about the economic future of the United States and whether our obsession of what's going on in Washington is actually founded. Maybe they can only tinker around the edges.

We'll talk about your economic future and how it's going to look in 2012 next on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: Picking up where we just left off. Niall Ferguson has talked about the fact that some of the threats to America's economy right now have been coming from places like Rome and Athens, certainly from Europe.

Europe's debt crisis puts the entire global economy at risk and could drag America, which is showing some signs of recovery, back into a recession.

Diane Swonk joins us again. Diane, you say it's possible that we've only seen the tip of the iceberg when it comes to Europe and the political leadership in the United States needs to steer this country in the right direction not only to protect itself, but to try and veer off any trouble.

That further trouble Europe can get into, but that begs the question what role, if any, should the United States play in dealing with eurozone crisis?

SWONK: Well, it's a very difficult question and has a very difficulty answer. I think the most notable is, of course, what the Federal Reserve has already done.

We saw a coordinated effort by banks around the world, notably in the eurozone, but also with Japan joining in, Canada joining in, Switzerland joining in, all these banks around the world to do a coordinated effort to provide liquidity to European banks.

Because the bottom line is we're all interconnected. Nobody is an island in this world in global economy and through the financial system is where we are most at risk for contagion. Should Europe go down, as we already know from 2008, we need to have our oars in the water to get through these turbulent times.

And so I think that's very important as the role that central bank plays and now makes a very good point. I mean, listen, you know, the ECB would like to be the fed, but they can't, thereby law prohibited and Berlin is making a huge wall of that.

And it puts the onus on the fed to continue to provide support so that we don't -- not because they are trying to rescue Europe out of their own altruism.

Because we need to protect our own financial system from the repercussions should Europe's financial system worsen as its debt crisis worsens, which is a very real probability and one that's far too high at this stage of the game.

VELSHI: Bill, what do the numbers say? I mean, you look at what the world is saying about these countries and their futures based on the yields, on their bonds. How serious does it look for you?

GROSS: Well, the global markets, Ali, basically say that this stagnation and in some cases recession in euroland is going to continue for some time, you know, certainly for 2012 and maybe beyond.

Because, you know, bond markets are basically anticipating no change in what we call policy rates, that would be the feds fund rate here in the United States with 25 basis points for the next two, three, four, perhaps even five years because unemployment is still high and inflation remains contained.

So global bond markets basically say things aren't going to improve any time soon. There's another point to consider here. I agree with what Diane said in terms of interconnectedness. But to the extent that yields are so low that it reaches a point where there are disincentives to invest.

We're seeing money market funds, for instance, close down because they can't properly offer a return to their asset holders. We're seeing banks basically close branches because, you know, there's no longer the profit that was assumed at higher yields.

VELSHI: Sure.

GROSS: And so as we move lower and lower to what we call as zero bound in terms of interest rates, it might have a deflationary impact as opposed to an inflationary impact.

VELSHI: And Niall, we'll take that back to your comment that, you know, some of -- every time we see blips in economic growth here in the United States, they do depend on the savings rate dipping.

So while we're trying to get people to build up savings rates, there is no incentive to do so. And in fact, the Federal Reserve and other central banks have sent out a message that there will be no incentive for savers for some years to come.

How do we fix this economy? We keep money cheap so that people invest except they don't fully use that money to invest and then we don't do anything for folks who are saving.

FERGUSON: You know, I agree with Bill Gross. I think you begin to see diminution returns from near zero interest rate policy just as we've seen diminishing returns from fiscal stimulus.

Remember the U.S. has run a huge deficit, 10 percent or so of Gross Domestic Product in Keysian attempt to deal with this crisis. The payoffs have been really meager. We're learning some valuable things about economics.

Including the fact that economists don't really understand the way the world works as well as they thought they did, massive monetary stimulus, massive fiscal stimulus and actually a very, very anemic recovery.

Now the good news is the U.S. is not in a situation of a country like Italy, which despite being an extremely depressed condition is suddenly seeing an uptick in its borrowing cost, more than that.

VELSHI: Sure.

FERGUSON: A huge spike on borrowing cost because of fears of default or even the possible breakdown of the eurozone. My worry has always been at some point -- I don't know when it will be, but at some point people are going to start asking the same kind of questions about U.S. fiscal policies that they started to ask about Italian fiscal policy this year. Is this credible in the medium term? The answer, of course, is it's not credible.

VELSHI: That's a very good question. The day that starts to happen, Bill, how quickly will we know when someone -- what is the tipping point when someone says, you know, the cleanest dirty shirt in the bond pile isn't that clean?

GROSS: Well, I'm with Niall there. You know, it ultimately will happen to the extent that the fed at some point has to raise interest rates in order to support a declining dollar. I don't see that in the next few years, but it can happen.

To the extent that the fed is limited in terms of buying through quantitative easing then treasuries are at risk and so a downgrade here, a downgrade there.

You know, all of a sudden the cleanest dirty shirt is a little dirtier. So that's something two, three, four years down the road. But the U.S. is certainly not the cleanest shirt in all of this mess.

VELSHI: All right, so Diane, we've maybe got a little bit of a window in that two or three years to try to get the things that matter to Americans to make them feel more prosperous going.

We've seen a relatively unproductive stock market in the last year. We've see a tepid but OK housing market. We've seen a little bit of a move to the upside on jobs. What's the thing you're looking for to tell you that we're going in the right direction here in the U.S.?

SWONK: You know, unfortunately I wish I could say it was just the economy, because the economy we are getting to that point where really there is only so low you can go, and there's pent up demand. The auto market has come back as well. There's actually lending in that market, which is important, but I do agree deleveraging is still a problem. Frankly, the political uncertainty is adding to a weak economy.

If we are growing 6 to 8 percent, frankly, it would all be noise. But, you know, these issues can make a difference. You know, I don't want to be a doomsdayer here, but you know, I agree with my colleagues here.

I mean, the bottom line is two or three years down the road, all of a sudden if we don't make the tough decisions today, we will be paying an extra price, an extra risk premium on our debt.

Even if we're not out of this entirely and that's just not -- I mean, it's something that's completely avoidable. That's an iceberg we can avoid yet we don't seem to have any leadership to do so.

VELSHI: Well, I wish the three of you were involved in coming up with some of those solutions. Things like maybe a little brighter than they do.

Diane, always a pleasure to see you. Thank you foryou're your good friendship and good advice to our viewers this year. Diane Swonk, chief economist with Mesirow Financial.

Niall Ferguson is the author of "The Scent of Money, A Financial History of the World" and a professor of Harvard University. We are talking about the survival of civilizations, Niall. So thank you for that.

And Bill Gross, you have been very helpful to us as well. Bill Gross is the founder and co-chief investment officer of PIMCO. Happy New Year to all of you.

More than 13 million Americans conservatively are still out of work. What needs to be done in the New Year to get them back to work and solve the unemployment crisis for good in the country? That's next on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: Welcome back to YOUR MONEY. Look, there are all sorts of things that go on in the economy, but only a few things make you feel more prosperous, the value of your home going up, the value of your retirement investments going up and the fact that you have a job.

In fact, jobs are the most important leg of the economy. Let's take a look at the jobs situation in 2011. How did it look? Well, I would say choppy, to say the least. It looked like we got off to a good start and then we got set back in May and June.

But then we started to pick things up. That's a hard map to make a trend out of. But the bottom line is, of those legs of the economy that make you feel prosperous, jobs are not looking as bad as they were maybe six months ago when some people were talking about a double dip recession.

But we all want to know whether the job market in the United States is likely to improve in 2012. Stephen Moore is an editorial writer for the "Wall Street Journal," Chrystia Freeland is the editor at Thomson Reuters Digital and Christine Romans, my co-author of "How to Speak Money," host of CNN's "YOUR BOTTOM LINE."

Welcome to all of you. Chrystia, let's start with you. Job growth was somewhat uninspired and inconsistent in 2011, but it's been a little bit steadier. Are we likely to see more job growth in 2012? What are your thoughts?

CHRYSTIA FREELAND, EDITOR, THOMSON REUTERS DIGITAL: Look, I do think that the trend although slow and unsatisfying is broadly positive. It's now, you know, going into 2012. It's going to be three years since the real depth of the economic contraction in 2009 and we have learned subsequently that was a huge contraction.

You know, the economy just really ground to a halt. So, you know, it is healing. I think the November numbers are encouraging. What's interesting about that chart that you just showed us, Ali, is it also shows the economy is so fragile that external shocks can knock it off course.

You see the impact of the Japanese tsunami slowing things down in the spring and then in the summer, both the debt ceiling debate and also real anxiety about Europe causing problems.

So I would say could be a better year, but American politicians must avoid own goals, which they are pretty good at and everyone has to really hope that the Europeans keep it together.

VELSHI: Christine, there is a big distinction going in 2012 between the newly unemployed and the long-term unemployment.

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Yes, and you and I have talked about this a lot. I mean, if you're newly unemployed, the indicators are showing that it's a little bit easier to get a job. It will be a little bit easier in 2012 than in 2011.

If you've been out of work for six months or longer, the situation is basically still the same for you. Now you're talking about retraining, about refocusing, about moving, about doing something very drastic to try to get back in the labor market and you run the risk of not being able to get back in the labor market.

So it's not a monolithic thing when jobs start to come back. They are coming back so slowly that it's not benefiting everyone. It's benefiting people who are newly unemployed. They are having a little easier time.

When I talk to CEOs, Ali, especially in insurance, in commercial real estate, and some other parts of the economy, trucking, for example, I know Stephen Moore has been talking to some trucking people.

That they say we're ready to hire. We are stretched so thin. We are ready to hire. We just need one little bit of demand to tip us over the edge. Hopefully that will be in 2012.

VELSHI: You know, I have to say, Stephen, if unemployment hangs around 9 percent like it's been for sometime, President Obama is going to be worried about his own job.

STEPHEN MOORE, EDITORIAL WRITER, "THE WALL STREET JOURNAL": No question about it. You know, I think Chrystia said the operative word here on the U.S. economy right now, Ali, and it's fragile. It is completely fragile.

You know, when you look at the jobs picture over the last three years, we lost about 8 million jobs in that horrible recession of 2008, 2009. We've only recovered about 2 million of them. This has been by far the most anemic recovery.

Hopefully, I mean, under a normal kind of recovery pattern, we'd see big job growth next year. That would be the normal course of events. The worry that I have is we're kind in the economy of 1970s where you'd have these kinds of periods of false prosperity where the economy would lift up and fall and lift up and fall.

That seems to be the pattern right now. I don't think you're going to see a real resolution. You're not going to see those employers really go out and hire, I think, until the election is held in November of 2012. I really think people are in a holding pattern right now.

VELSHI: Chrystia, what's the best solution? What is the fix? We know the blame. We know we're why we are where we are largely. We know a lot of people share responsibility for this. What's the logical fix because it doesn't seem to be the thing we're necessarily talking about?

FREELAND: Look, I think that there are short-term fixes and there are long-term fixes. On the short-term, I tend to -- you're going to hear a scream from Stephen right now lean towards a little bit more of a Keynesian rather than austerity approach right now. Because I do think that the economy still could use if not a jump-start --

VELSHI: He hasn't screamed.

FREELAND: He's getting ready to scream.

MOORE: A primal scream.

FREELAND: At least, you know, the thing that does bring me on the own goal front in the short-term is something that has a huge impact on those jobs numbers is the government flaring people.

So at a time when unemployment is such a concern, it seems kind of crazy for important government workers like school teachers to be laid off. In the longer term, just hang on just a second.

Just do a quick long-term point, OK, Stephen? In the longer term though I think it's a lot more complicated, and -- Nobel Prize winning economist wrote what I thought was a brilliant piece just published in "Vanity Fair." Arguing that we are in a period of economic transition analogous to the transition from rural to an urban economy, which you know, resulted in the great depression. It was very painful and difficult and I think that's what's happening now. I don't think there are short-term fixes. I think it's a generational change.

VELSHI: Stephen.

MOORE: Let me say something about this fiscal stimulus issue. You know, one prediction I can make with pretty solid assurance is that we're going to have another trillion dollar deficit in 2012 whether we have that increase in fiscal stimulus that Chrystia is talking about or not.

And if you add up the totals here, that's $5 trillion of debt in four years. That's a lot of debt. When we talk about the economy racing ahead, which we all hope happens.

One of the things to think about is interest rates. You know, you talked about this in a previous segment, interest rates are as low as they have been in 40, 50 years. If you start to see those creep up again that has negative effects on ability to -- mortgages, increase in deficit numbers.

That's the other "X Factor" that I'm worried about. I'll make a prediction to you, a year from now interest rates are going to higher than they are today. Now that's not a very bold prediction, right, because they are about as low as they can go, but that's another factor that people should be looking out.

VELSHI: But the last year has been counter-intuitive for us on that, right? Because we could have made that prediction a year ago and been wrong today so that's why we'll keep talking about it.

Thank you to all of you. You've all been great friends of the show. Chrystia, great to see you and Stephen Moore. We hope you have a great New Year and we will have lots to talk about in 2012.

I there a lot of carryover stories in 2012. You might have heard there's a big presidential race. That's continuing.

Plus, a huge decision expected from the Supreme Court on health care. And then there's an epic ongoing battle between Will Cain and Pete Dominick, which is likely to spill into the New Year. You'll hear from both of them next on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: There's a lot of questions about 2012. Right now the biggest one is which GOP candidate will run against President Obama and who will be getting ready to take the oath of office this time next year. They don't take it until a few weeks after this time next year.

Pete Dominick is host of Sirius XM Stand Up, Will Cain a CNN contributor. Good to see you guys. You've been here telling us what's going on all year. Tell us what you think, who wins the GOP? And who wins the presidency?

WILL CAIN, CNN CONTRIBUTOR: I think Mitt Romney wins the GOP nomination. I think the Newt Gingrich bubble has peaked, the balloon has inflated now it will slowly deflate. Will it deflate fast enough? I think so. There's a hint of inevitability around Romney. Not because he so great, but his competitors are so poor. It will be Mitt Romney.

VELSHI: What do you think, Pete?

PETE DOMINICK, HOST, SIRIUS XM STAND UP: I think, I agree that it will be Mitt Romney. I think in the end, in Iowa, and some of these other states. People will not vote for who they want to win, but who they think can win.

VELSHI: Right.

DOMINICK: I think voters really hate - Republican voters, conservative voters, Tea Party voters really hate President Obama so much. Recent poll 52 percent of Iowa voters. They are not sure if he was born here. It is still all that crazy is still out here. They are going to vote in the end, not for who they want, but who they think can beat President Obama. Republican establishment is not letting Newt Gingrich get anywhere within 30 within the White House.

VELSHI: So the conversation has been, if someone other than Romney wins, Obama is competitive. If Romney wins, now we have an issue. Who do you think win that battle? I'm asking a question almost a year away.

CAIN: It's a jump ball, that's a 50/50 bet. I would have to say, look, there are firsts for everything. Barack Obama was the first black president of the United States. He would then become the first president in the modern era to have an approval rating below 49 a year before the election. There have been five incumbents and they have all lost. He has the lowest approval rating, lower than Carter, of any of those presidents. With bad economy, high unemployment rate, he would be the first incumbent to get re-election in that environment.

DOMINICK: We forget that we used to focus on the unemployment numbers. If they come up, and that is an X factor, just a little more, just a little better, even though we all talk about what kind of jobs those are, that will really help President Obama. And that will put him over the top.

VELSHI: That's one of the economic indicators that has actually been going in the right direction. Many aren't. That is one of them.

All right. Let's talk about Occupy. That has been a busy week. Do you think Occupy Wall Street is going to have a meaningful influence on the general election in 2012, Pete?

DOMINICK: Absolutely. You see mic checks where they interrupt the speeches, with Newt Gingrich, and all the Republican candidates. You have also seen them with President Obama, in his fund-raising speeches. It's a leaderless movement still. I think that's a problem frankly. But I absolutely think they are going to come out strong. It's going to change, it is going to develop over the next year, as things change, as things may or may not get more dire. It's going to be a huge factor. Look for it to be a factor against President Obama.

VELSHI: It's funny, Will, they are not doing what the Tea Party did. I know the folks on Occupy hate the comparison, they are not rallying behind candidates who are running, maybe people like Elizabeth Warren in Massachusetts who might share some of the things they want to advance. Can they be a force without becoming an electoral force?

CAIN: I think they already are. I think they have already influenced the election. We saw President Obama come out in a speech a few weeks ago and invoke Teddy Roosevelt. He is suggesting that his campaign speech may evolve around this concept of inequality. That how you are doing compared to someone else is very important. If that's his campaign message, he certainly floated that balloon out there. You can credit Occupy Wall Street for making that one of the big issues of this year.

DOMINICK: Occupy is more focused, not as much on politics and political parties, but on the system. Occupy is trying to strike at the root, which is, frankly, campaign finance, of course, inequality and corporate interests. But campaign finance, that's a lot of what Occupy is about. Both parties take part in that.

VELSHI: Should there be-I mean there have been all sorts of people who have moved into this movement to try and co-opt it and make it their own, but not candidates. In fact, most candidates have largely distanced themselves from Occupy. Should there be a candidate?

CAIN: I think Occupy Wall Street represents the true intellectual spirit of the American Left. So their test will be to make Democratic Party more resemble their values. They will be to move the Democratic Party to the left, to make the Democratic Party embrace concepts such as income equality. If the president of the United States does this, that suggests they are having a successful movement.

DOMINICK: Buddy Romer, if he could possibly be the candidate because of what he says about campaign finance, no one is saying that. But they are too far on so many other issues, although he has been very supportive of he Occupy Movement.

I don't think they want the candidate. Again, it's the system that the Occupy Movement is upset with, not the candidates, not the parties. It is the system, the root.

VELSHI: Moving on, the future of health care could lie with the Supreme Court. Will the court rule against the Obama health care plan and should they? Pete, Will, and I are going to hash it out next on YOUR MONEY.

(COMMERCIAL BREAK) VELSHI: Also on the agenda for 2012 the Supreme Court will tackle what could be its biggest case in a decade, the health care reform championed by President Obama. The central issue, whether the, quote, individual mandate section that requires all Americans to buy health insurance is constitutional. We're not going to get into a constitutional debate here. I'm going to ask Pete and Will what they think is likely to happen--Pete.

DOMINICK: Well, as Will said on television, and still own this talking point many times, who is the most important vote in the 2012 election, Justice Kennedy, right?

CAIN: Yes.

DOMINICK: The guy in the middle. I think it's possible-talking to Dolly Lithwick (ph) of Slate.com, who is so good on these issues, it's possible that it goes 7-2. We've seen lower courts with very conservative judges say this is constitutional. But without getting into arguments, it does matter. This is a case that literally could predict the presidential election for the first time, except for 2000 when the court picked the president.

CAIN: I know you don't want to get into a constitutional argue. This question is massive. It is huge. We are defying the limits of the federal government's power. Let me do should and will. Should it be ruled unconstitutional? If I were a judge, Ali, it is clear to me that it is unconstitutional.

This revolves around commerce clause. Congress has the power to regulate trade among the states. That's grown and stretched, and expanded over the years. One thing it hasn't done allowed Congress to regulate your inactivity. That's a massive leap. To regulate inactivity, that you will have violated the law just by existing in this country. If that's true we need to set limiting principles. Can the government force fat people to join Weight Watchers. It is a legitimate question that Kagan and Thomas will be debating.

DOMINICK: The look on Pete's face says tat he thinks they should.

CAIN: I can guarantee that debate will take place in the Supreme Court chambers. But will it be ruled unconstitutional. I want to walk back on my Anthony Kennedy prediction.

VELSHI: Yes?

CAIN: Justice Thomas is the only guaranteed no vote. Justice Scalia and others have viewed the commerce clause with broad powers over the last decade. It's not clear it will be ruled unconstitutional.

VELSHI: It may be the most political Supreme Court decision in a very long time.

DOMINICK: You can't ask will Cain that question without Justice Cain coming out to tell you. He's very passionate about this issue, as a lot of people are. But then you have the immigration case, which is also going to be taken on. Two big Supreme Court cases, then you have the budget battle, which will be in September.

VELSHI: Although what I will tell you, part of what I'm wondering about for my viewers, what does the outcome of the matter to what has to happen in 2012.

DOMINICK: If it's ruled unconstitutional it hurts President Obama. If it's ruled constitutional, it hurts, if it's Mitt Romney, a lot.

CAIN: If it's unconstitutional the issue is not dead. Republicans will now take it up in the legislature, and try to have Obama care repealed. They will not leave it up to the courts to do away with this law on their own.

DOMINICK: They have to have the White House or else they fail. Because obviously President Obama -- look for it. We're looking ahead to next year. My X Factor, I want to predict this. Americans elect, they are on 12 states ballots, there's going to be probably on all 50 states that say Americans elect -- who that's going to be? I don't know. That is the "X Factor" nobody is talking about.

CAIN: I agree with you on that. There are big people behind the - the court cases could have huge role. You have Neill Ferguson on earlier. If Mitt Romney is not the nominee, I do agree you could see a third party candidate, whether or not that's Ron Paul, whether or not that is Michael Bloomberg, who knows who it could be.

VELSHI: It's going to be an exciting year. Hope you guys come and spend as much time with us in 2012.

CAIN: As long as people wear red sweaters for Christmas.

DOMINICK: It's Christmas Eve. It's Christmas Eve Day, Merry Christmas.

CAIN: This is Halloween.

VELSHI: He thinks he got a red sweater. It's an orange sweater.

DOMINICK: This is a Christmas sweater. I want to wish all of the viewers a happy holidays, Happy Hanukkah, Merry Christmas. This is a Christmas sweater.

VELSHI: Please tune your TV sets to make sure that looks orange.

CAIN: Nothing says Christmas like orange.

DOMINICK: Also my Halloween sweater.

VELSHI: Good to see you guys. Happy New Year.

2012 was a rough year to figure out what to do with your investments. It is about to be a new year. We're going to help you figure out the right 2012 approach to YOUR MONEY, next on YOUR MONEY.

(COMMERCIAL BREAK) VELSHI: So many of you have your 401 (k)s, your IRAs invested in the S&P 500, the broader stock market or something that looks like that, a mutual fund or exchange traded fund that looks at it. Take a look at what the S&P 500, a chart of it has looked at over the last year. Uninspiring says my next guest.

You don't invest in the market so it ends up roughly where you started at the beginning of the year. That actually ends up costing you money. Jim Awad is the managing director of Zephyr Management. He is a good friend of our show.

Jim, good to see you. As we put 2011 behind us, we talk about 2012. Our viewers can't really afford to be making investments the same ways, better than losing money which we've done in recent years. What do you think happens with the S&P 500, the broad stock index of the United States in 2012?

JIM AWAD, ZEPHYR MANAGEMENT: It should be somewhat better than this year, although it's not going to be a home run by any means. The good news is that the United States is growing better than expected, all of the metrics for the next several months have been better than most people thought given the head winds we had.

VELSHI: Sure. Not necessarily everywhere but in the United States.

AWAD: In the United States, so you want to participate in that. On the other hand Europe the news really is getting progressively worst. At the east they are going to have a long grinding austerity period of no growth or gradual recession. At worst they could have a financial accident. Then you go over to the emerging markets, they have tremendous secular growth but experiencing a cyclical slowdown. So, you have a lot of moving parts, different pieces. My hope is that 2012 will be a better year than 2011, but it will still be a year of modest returns.

VELSHI: Remember in these emerging markets in many cases their own populations growing achieving getting into the middle class and buying things. They also depend on selling a lot of things to the United States and to Europe. A slowdown there will affect them. You recommend investors getting involved in a large cap fund of global multinational. Major companies that sell things all over the world. What do you recommend?

AWAD: OK, so what I'm recommending an iShares, and S&P 500 iShares fund. What you want to do is participate in the U.S. recovery short- term, participate in long-term emerging markets growth and get some protection from problems in Europe. The best way to do that is big conservative stocks, such as in an S&P iShares fund.

VELSHI: Right, and these are companies that may be based here in the United States.

AWAD: But they are global.

VELSHI: Like, a Coca-Cola, or a major General Electric type company. AWAD: Right. These are company actually where the majority of their earnings growth, secularly, is in the emerging markets, but they are benefiting from short-term cyclical uptick in the United States.

VELSHI: Very good. You're probably getting these calls. I'm hearing from people who say I like to rebalance at the end of the year. But in addition to rebalancing to where you should have been, should I be taking a more conservative look at my portfolio and staying away from heavy investment in the U.S. and Europe?

Well, it's a time to emphasize quality. I would be selling low quality companies, low quality debt in the United States. I would be lightening up on small cap stocks in the United States. I would be lightening up on commodities because they require high growth in the world.

And in Europe there are certain value plays but you have to understand the odds are stacked against you when the economy is shrinking as Europe is likely to shrink for the foreseeable future.

VELSHI: Even if you have a value play, even if you have a stock that seems undervalued, the fact is the overall economy and what it's doing in Europe may have more of an impact than the companies you are investing in.

AWAD: Right. You're better off capturing anything good that's happening in Europe you'll capture through large cap United States companies, with a global franchise, in Europe. There's no way to change the fact that they are going have a long period of headwinds even significantly larger than those in the United States. So you've got to be careful

VELSHI: You're still a believer that for the average investor, who does something else for a living and investing is what you do for retirement. Dollar cost averaging is still a smart thing to do. In other words, buy shares on an ongoing basis, and your price will even out.

AWAD: Yes. We have tremendous volatility. A lot of individual investors have left the market. There's a lot of computer trading. There's much higher volatility than usual. The only way to escape getting caught in that is to rebalance monthly or quarterly and dollar cost average. And that's particularly true in the emerging markets, where there are even more volatile than the United States.

VELSHI: Which is opposite of backing up the truck and loading up or dumping everything one day because you are having a rough market?

AWAD: Yes, absolutely. Don't get caught in emotion. Don't get too bullish. Don't get too bearish. Have a portfolio allocation and rebalance towards it on a methodical basis.

VELSHI: And if people who are watching this have questions about this, Jim is a great friend of ours. Tweet us with your questions @alivelshi. Or @CNNyourmoney. If there is something you didn't understand we'll get it cleared up and we'll share it with you. Jim, always a pleasure to see you. Have yourself a happy new year.

AWAD: To you, also.

VELSHI: Jim Awad is managing director at Zephyr Management.

All right, for making smart decision about your money to the dumbest business moves of 2011 we'll tell you the worst of the worse, when we come right back.

(COMMERCIAL BREAK)

VELSHI: We simply can't move in 2012 without revisiting some of the dumbest moments of 2001. And for that I have brought in our good friend, Lex Haris; he is the managing editor of CNNMoney. And Christine Romans, host of CNN's "YOUR BOTTOM LINE".

No doubt about it, the dumbest moment the year in business was the debt ceiling debacle.

ROMANS: I say it was like the dumbest moment in like 100 years. Is 100 years too many, or would it be 50 years?

LEX HARIS, CNNMONEY: They are dumb a lot of the time. And they were really dumb this year. It was a really bad year for Congress across the board.

VELSHI: Dodged a big bullet, though. For all of the fears of whatnot raising that debt ceiling in time, would do we probably suffered the fewest consequences other than being listed as a dumb moment of 2011.

HARIS: Clearly the dumbest. When we went to Jean Sahadi, who has been covering this for us, and said we're doing dumbest moments. She was like, well, which one. You know, remember the budget showdown in April.

VELSHI: Right.

HARIS: Then there was the debt ceiling, then what about the super committee? What about what's going on right now with the payroll tax. She was beside herself. She would be writing right now if we didn't call the deadline finally.

ROMANS: I was just saying that there were 25 different dumb moments of Congress. You put just put them all under the debt ceiling debate.

VELSHI: That ranks up there.

Next on the list is Netflix double oops. Netflix had loyal customers and its the stock was flying high until the company raised price by 60 percent. And announced the launch of a new business called Quickster. This unfolded with lightning speed. It seemed dumb. This wasn't one they didn't look in hindsight.

ROMANS: They did it because they were afraid of being obsolete and not relevant. And in a way they made themselves by not relevant. VELSHI: Right, a lot of people canceled their subscriptions.

HARIS: What the CEO is saying is for the long term maybe it's the right play. It's one of the most stunning declines I've ever seen in business. Their subscribers loved them. The stock was soaring. In an instant it all went away.

VELSHI: They didn't get a lot of those customers back. They apologized for the way they handled it, but didn't change the thing that affected most people.

HARIS: Exactly.

VELSHI: They lost a lot of customers.

None of us can forget BP's massive oil spill in 2010, after three long months they finally plugged that leak but the bad decisions kept flowing right into 2011. Transocean, the company that owned the rig that exploded in the Gulf, paid out big bonuses to executive this year, based partly-are you sitting down for this-on its safety record from 2010.

HARIS: I went back and read the proxy statement and it actually says the best safety performance in the company's history. I mean it was stunning. And people were angry when that came out.

ROMANS: The best safety performance of the company's history worst public relations performance in the company's history, in everyone else's view.

VELSHI: So what do you think? Do we learn lessons from these things in 2011. Certainly we've been talking all show about Congress and its work in 2012. There's not a whole lot of people holding out a lot of faith that somehow Congress will get its act together and make better decisions for us. But they have some serious decisions to make.

HARIS: They do. They have to get it right. The time is now. I don't know how much longer financial markets, investors, consumers, how much longer we'll give Congress to get it all figure it out.

ROMANS: They do nothing, from a AAA credit rating downgrade, that we've worried about for years, that finally came with a warning that it's Congress and political will that's a real problem here. Nothing has changed since then. Nothing has changed. At the end of the year they are arguing about how to pay for $200 billion in the extension of the payroll tax holiday. No big talk about structural problems in the economy. How to fix trillions of dollars in debt and deficit, the $14 trillion and counting national debt.

They can't even agree on a two month extension of a payroll tax holiday and how to pay for it. I'm not coming down on one side or the other. I'm just saying this kind of ineffective governing just shines a big bright spotlight on the decision that made the AAA rating-.

VELSHI: They end up having extensive conversations about process. It becomes about not doing a two month extension because it's kicking the can, versus doing a one year extension when in fact most Americans are waiting for solutions, particularly to the big. Like you said, the big structural problems. Rather than talking about unemployment benefits what are we doing about jobs?

HARIS: I will predict to you now that next year's dumbest moments is going to be the fight about the Bush tax cuts. We'll just be arguing about the same dumb stuff again.

ROMANS: Same dumb expensive stuff again.

VELSHI: Let's hope something changes. Thanks to both of you.

You can get great stuff on CNNMoney.com. Lex is the managing editor there. And, of course, Christine Romans is on TV with me every morning 6:00 to 9:00, on AMERICAN MORNING. She's on "YOUR BOTTOM LINE" Saturday mornings. You can catch us here. Thank you for joining the conversation every week on YOUR MONEY, every Saturday and Sunday at 3:00 p.m.

Be sure to check out our new book "How To Speak Money." It's a step- by-step guide to understanding the language of money. Everything you need to know now to deal with it. Head to Amazon.com right now and be one of the first to get it. And put it under somebody's tree unless you missed that already.

(LAUGHTER)

Stay connected to us 24/7 on Twitter. My handle is @alivelshi. The show's handle is @CNNyour money.

From all of us here at YOUR MONEY, and CNN we wish you a very happy holiday and a happy New Year.