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Hiring Slows Sharply; President Obama and His Promises; Budget Battle Brewing; Protecting Your Money

Aired April 7, 2013 - 15:00   ET

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


ALI VELSHI, CNN ANCHOR: Now the economy should be ready for a comeback, but you're not ready to celebrate just yet.

I'm Ali Velshi, this is YOUR MONEY.

Another month, another gain for jobs in America. Still not enough, though. Only 88,000 net new jobs were added to payrolls in March. Much fewer than the 268,000 added in February. Meanwhile the unemployment rate did fall slightly to 7.6 percent, but that just means that fewer people were looking for work in March. Regardless, the U.S. is still keeping with its now 37-month trend of private sector job growth in this country.

Christine Romans joins us now. She's looking at the numbers.

Christine, these numbers are disappointing. Should we be worried about something bigger?

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Is it a blip or is it a longer-term reversal of early year's strengths? That's what economists are arguing about. I mean, you look at the trend. We saw the past three years. You saw strength in the first part of the year and then you saw a pullback, a spring swoon.

It's something actually the Fed chief had warned about earlier this year. You talk about the unemployment rate dropping. Well, it dropped because look on your screen, 496,000 people dropped out of the labor force. The labor force participation rate now the lowest since 1979.

VELSHI: This is why when I always talk about the let's be careful about the unemployment rate it's because it often measures a moving target.

ROMANS: Right.

VELSHI: It measures those people who are participating in the labor force.

ROMANS: Right.

VELSHI: It's a smaller percentage, that sounds good that it dropped, but it's measuring a smaller over number of people.

ROMANS: And that right there -- right -- is the participation rate. Those are the people who are in it.

VELSHI: Right.

ROMANS: Now a few bright spots. Right? Professional business services added jobs, so did healthcare.

VELSHI: Which they always do.

ROMANS: But we saw losses in retail. What economists are arguing about now, or discussing politely, is whether you've seen the expiration of the payroll tax holiday that didn't really have an effect to the first couple of months of the year. Maybe it was starting to bite a little bit and that could be reflected in those retail jobs, or maybe there's something, some reason, sequester talk, all kinds of other things happening in the economy, Europe, that maybe people are feeling a little less confident and they're spending a little bit less and that's translating into fewer of those retail jobs.

I will tell you there's something called the underemployment rate, 13.8 percent, slight improvement, still, still too high. That's the number, Ali, that people call the real unemployment rate, it's people who aren't working or are working part-time but would like a full-time.

VELSHI: Right.

ROMANS: That number, you've got to get it down. People -- even if housing or the stock market the economy technically recover, until you have that number down and more people enjoying it, people aren't going to believe there's a recovery --

VELSHI: Right. They're not going to feel that great if they don't have the job and the income that they're looking for, or the benefits that they need because that money that would otherwise be in the economy is being spent on necessities.

Joining us now to discuss more of this is Diane Swonk. She's the chief economist at Mesirow Financial in Chicago. Mohamed El-Erian, CEO of PIMCO in California, one of the world's largest investors in bonds. Stephen Moore, senior economics writer and editorial board member at "the Wall Street Journal" in Washington.

This is an all-star cast because the question we've got for you this morning is the one that I asked Christine.

Stephens, stocks hit record highs in the last month. Job hires are slowing down. Companies are still flushed with cash. The private sector has been adding jobs for 37 months in a row.

STEPHEN MOORE, EDITORIAL WRITER, WALL STREET JOURNAL: Yes.

VELSHI: They need to add more. Americans themselves are hesitant to celebrate. The last time that jobs -- the last time that the stock market with these levels, the economy felt good and strong back in October of 2007. It was crumbling, but it felt good. Why is this different?

MOORE: You know, Wall Street is doing really, really well, no question about it. 2013 has been a record year so far. Ali, glad to see it. Most Americans are investors so they're feeling that in their wealth. Main street not doing quite so well. And you just see this kind of hesitancy in terms of spending, for example. That's one of the reasons that retail sales were down.

Here's the point that I would make about Christine's question about, is this just a bump in the road or, you know, are we seeing a long-term trend that's disturbing? And I would say the big disturbing trend is that this decline in the labor force wasn't just this month. It's been happening now for four or five years.

If we had had the same labor force participation rate and the same kind of job creation over the last four years we normally have during a recovery, we'd have about four million more jobs. That means every unemployed person in Pennsylvania, Ohio, Indiana and Illinois would have a job today. So I still think the labor market is weak, much weaker than it should be.

VELSHI: All right. Mohamed, jobs are coming back. They have been coming up every month. Obviously 88,000 plus is better than no jobs or less. But we don't -- you know, we've been talking about how many jobs need to be created to keep things going. Markets are worried a little bit by this pace of job creation. Company valuations, however, are still very attractive compared to the last time markets were at these levels.

Companies are relatively cheap. And there are many people who are saying this bull market could have room to carry on. Why are people still skittish? I get Stephens' point that many Americans, probably almost half are not invested in the stock market. Why is everybody not feeling this is an opportunity?

MOHAMED EL-ERIAN, CEO, PIMCO: So you have this amazing mix of excitement and anxiety. Excitement because the stock market has done well. The 401(k)s have done well. But anxiety because people have a sense it's artificial. And it's artificial because it's not being validated by the economic numbers and the employment numbers speak to that. What it's being validated by is central bank hyper policies that are making people nervous.

So people are looking at this and saying, yes, it feels good in terms of what's happening to the stock market, but this is maybe artificial because we are yet to see this handoff from central bank policies to genuine growth.

VELSHI: That the handoff is an interesting story, Diane. I mean, that's the issue. It's not that anybody thinks the Fed can do this forever, $85 billion into the economy. They've said so themselves. But the handoff is as if you're taking a patient off of life support. You don't do it until you believe that the person is going to live unless you're not expecting that to happen.

How does that handoff work? At what point does the Fed back off and this the growth doesn't feel artificial?

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: You know, that's the important thing. Actually yesterday Charley Evans made -- addressed that point exactly. He said, listen, if we thought the stock market was going to collapse and the economy wasn't going to be able to be sustained, we wouldn't back off. We're going to continue.

And of course Charlie Evans is one of the doves, but it is the Evans rule at this point in time on the Federal Reserve. And so he was really pointing out that he thinks this number validates that the Fed will continue to add to its balance sheet as long as it continues to add to its balance sheet and even if it keeps its balance sheet steady at a high pace. Even if it doesn't add at a high level that's stimulative to the U.S. economy.

And I think that's going to continue well through the end of this year and into next year as well. Janet Yellen who's vice chairman of the Fed has also noted that the balance sheet could remain stable for a very long time. Even until they start raising interesting rates. And so the Fed's clearly looking at this economy the same way that Ali is, and saying, you know, we are -- yes, we are propping it up, but we can't pull the plug yet because this situation we're still life support for this economy.

I will note that on the -- on the jobs -- the composition of jobs numbers which is really important to the Fed, and even in healthcare, in-home healthcare is very low-paying wage jobs.

VELSHI: Yes. Yes.

SWONK: And the composition is still not the quality.

VELSHI: Right.

SWONK: The other issue is that colder than usual spring weather really did hit same store sales and retailers. We did had record vehicle sales.

VELSHI: Right.

SWONK: It takes a lot more confidence to buy a car than it does to buy a spring outfit.

VELSHI: It is a very good point.

SWONK: We also saw gardening stores pulled back. So there was a cool weather effect. That said, we've got the heads winds of the sequester ahead of us.

VELSHI: And the car -- by the way, the car buying thing has still got to do with the Fed because people who can -- who want car loans, Americans like to buy cars on borrowed money, and you can get those loans that you couldn't get a few years ago.

SWONK: Very true. VELSHI: Stephen, let me ask you this. Conservatives -- and I don't know where you actually stand on this, but there are some conservatives who say just get the Fed out of this thing. It's creating false prices. The idea that money is that cheap inflates prices as we're seeing in the housing market. And you don't get a real sense of what this economy would look like if it were not artificial, as Mohamed says. But there would be dire consequences if the Fed decided to pull its $85 a month out of the -- out of the economy. Don't you think?

MOORE: You know, it's a great question. And the question that conservatives like I have, and by the way a lot of American consumers and a lot of investors, I get this every time I talk to an investor group. How does the Fed put -- stuff that Genie back in the bottle?

VELSHI: Right. Right.

MOORE: You know, it's easy to print money. You know, it's easy to get those printing process wrapped up. It's not so easy, we know this lesson from history. It's not so easy to pull back. I agreed exactly with what Mohamed said. I think there is a kind of fundamental anxiety that maybe this economy is building on -- built on sand, not stone. And one of the reasons is because of easy money.

And I would also make the case that this enormous debt. I mean, a great nation can't continue to borrow $1 trillion year after year. And Ali, that's not just me saying.

VELSHI: Yes.

MOORE: That's the guy on the street.

SWONK: The deficit is actually narrowing right now. It's one of the great, you know, myths out there is that the deficit is actually narrowing at the moment. Much more rapidly than anyone thought. So fiscal drag is certainly an issue. But the deficit is actually going in the other direction right now, which may be also one of the factors contributing to lower interest rates. It's kind of an interesting undercurrent that most people don't talk about right now.

ROMANS: And look, the debt discussion is so important. There's no question. The long-term, you know -- the debt discussion is so important but I mean, I would take a little bit of issue with Stephen Moore because right now, the very right now is a job, a job, a job, a job.

MOORE: Sure.

ROMANS: Your jobless rate is either zero percent or 100 percent. Right?

SWONK: Right.

ROMANS: So you can argue about the politics of cutting or spending or infrastructure spending, whatever, but people more than a philosophical conversation about whether you should be in debt or not be in debt, they really care about getting a job.

VELSHI: Yes. Yes. It's the most important thing they can do.

SWONK: Yes.

VELSHI: All right. This is a fantastic conversation with a fantastic panel. Stephen and Christine, thank you so much. Diane and Mohamed, stay with us.

President Obama insisted that the forced budget cuts would not happen. He also promised to create 12 million jobs in four years. I'm going to ask his chief economic adviser whether his boss stands by that promise.

(COMMERCIAL BREAK)

VELSHI: Twelve million jobs, that's what President Obama promised during the campaign. But the economy added only 88,000 jobs in March missing expectations by more than 100,000. That is definitely not enough to meet the president's promise.

Now I was skeptical when both the Mitt Romney campaign and the Barack Obama campaign said that it could be done. So skeptical that I wagered it wasn't likely. Not with economic growth as sluggish as it was then during the campaign and frankly may still be.

So before the election, I pledged that I would wear a dress if 12 million jobs were created over the next four years, just for a week by the way, under any president and whether or not I plan to honor that pledge, I'm constantly reminded of it.

As crazy as it sounds, I'd actually like to lose my bet, not because I want to wear a dress -- much. But I do want a lot of jobs to be created. Now you've heard me say that presidents get all together too much credit and too much blame for creating jobs, but the president did make a promise. So let's see how it's going.

And remember, it's got to go over many, many months, but we are two months into President Obama's second term. So the economy should have added 500,000 jobs. The economy has actually added 356,000 jobs in February and in March leaving a shortfall of 144,000 jobs.

I want to bring in Alan Krueger, he is the chairman of the President's Council on Economic Advisers.

Alan, welcome to the show. You said last month that the automatic spending cuts that Washington calls the sequester would slow economic growth and job creation. Now think back to the campaign when the president made his promise to create 12 million jobs, he said very clearly the sequester would not happen.

Given it's happened, has he revised his projection about these 12 million jobs or have you revised that projection about the 12 million jobs over the next four years?

ALAN KRUEGER, CHAIRMAN, PRESIDENT'S COUNCIL OF ECONOMIC ADVISERS: What we've done is to try to remove the sequester. The sequester shouldn't have happened. It's bad policy. It's cutting key investments, it's casing a lot of pain in the economy. It's going to hurt us in the long run because we will be spending and investing less in research and development. And it's not going to solve our long run deficit problems. So the president remains focused on pursuing the policies that will speed up job growth.

VELSHI: Yes. When you look at the 88,000 jobs gained, you guys can't be happy about that. I know you always put out a statement that -- it's like it's not worth pointing out the statement. You can't be happy about it.

KRUEGER: You know, Ali, I try to take a longer view. We've added half a million jobs over the last three months in the first quarter of this year. The economy is moving in the right direction. We need to avoid the kinds of self-inflicted wounds like the sequester that's going to slow down the economy.

VELSHI: On that we agree. But I also do like to tell people that I just think it's unfair that they put this all on the president in good times or in bad. What role exactly can the White House and the administration have in job creation? Because you don't really create jobs. And frankly, we don't really want an economy where the administration and the White House is directing the creation of White House. So what are the right things that the White House can do?

KRUEGER: Very good question. What we can do is create the environment that is conducive to job growth. That means investing in research and development. Investing in infrastructure so that companies are competitive. It means providing workers with the right set of skills needed for a modern economy. It means getting our fiscal house in order. And it means doing this in a way that doesn't create manufactured crises which have been slowing down the recovery.

VELSHI: Right. But that is in fact the one area you actually have influence in. Making sure we don't have any more manufactured crises. So given the experience of the first two months of the second term of President Obama's office, are you looking at this differently than your predecessors did in the first term to say we can't do down these roads, where we get into the stalemates with Congress and nothing gets done because Americans just don't like it. It's bad for the economy.

KRUEGER: Well, I actually disagree with you on the first part of that. I think the -- president can influence the economy in all of those ways. And what you'll see in his budget next week is a plan for the economy. A plan to invest in our infrastructure that make us more competitive to make workers more highly skilled. And to make manufacturing more competitive while at the same time we address our fiscal problems.

VELSHI: The elusive budget. April 10th I think you guys are putting that out. And hopefully we'll be able to get that -- get something done with that through Congress.

Alan Krueger, good to see you. Thank you very much. Alan is the chairman of the President's Council of Economic Advisers. He's a senior adviser to the president.

Want to bring in a good friend of the show, Kevin Hassett. Kevin is a senior and director of Economic Policies Studies at the American Enterprise Institute. He was also one of the major authors of Mitt Romney's economic policy.

Joining us again is Diane Swonk, chief economist at Mesirow Financial in Chicago, and Mohamed El-Erian, CEO of PIMCO in California.

Kevin, good to see you in person here. You made the same prediction that President Obama's team. It came from you guys first. Alan Krueger says he wants to take a longer view. OK? So we -- we're not expecting 250,000 jobs a month every month. It's going to balance out, it's going to average out. But I do think that no president creates jobs or should be creating jobs. What is the thing that the White House should be doing, if anything, to create jobs or is this entirely removed from politics?

KEVIN HASSETT, SR. FELLOW AND DIRECTOR OF ECONOMIC POLICY STUDIES, AEI: I don't think it's removed from politics at all. I think that right now a target of 250,000 jobs a month is something that any president would shoot for. That's kind of a return to normal. The question is how do we get there. I think we're not there right now. We're probably going about 1 percent less than we need to to get jobs at 250,000.

VELSHI: Which is the 1 percent of economic growth.

HASSETT: Of economic growth.

VELSHI: Right.

HASSETT: And I think that that slow growth is coming about for lots of reasons. I think that the contraction from the sequestration is certainly not in the data yet. It was what the first thing that Mr. Krueger mentioned. That I think that that was kind of a political point, not a economic --

VELSHI: When did you think that starts coming into the data? Next month?

HASSETT: I think that if you look for the whole year, then my estimate is that it's about a half a percent reduction in growth from the sequester.

VELSHI: Right.

HASSETT: And about 1 percent reduction in growth from the tax increases that we just had.

VELSHI: Mohamed, the forced spending cuts, the sequester, $85 billion out of the economy over seven months compared to the $85 billion a month that the Federal Reserve is putting in every month. You say the Fed's action is maintaining the economy's lukewarm progress. Ben Bernanke has just said that when the job situation improves, the Fed may start pulling back. Tell me, we've already discussed a lot of how that affects the stock market picture. What happens to the jobs picture? What role is this Fed activity playing in this lukewarm jobs picture that we have?

EL-ERIAN: So think of the Fed is minimizing the really bad risks, the disruptions. So what they are doing is they are minimizing the chance that we slip into recession again, but they can't get us to escape velocity. So if this Fed steps back, I don't think they will, but when they do step back, then the probably of falling back into recession would go up.

VELSHI: Diane, let's talk about this, though. We do have -- the Fed's advantage is we've still got these low interest rates. We've got this housing boom going on if you want to call it that. We've got an energy boom going on irrespective of politics around that. What is the thing that we need that boosts that growth that Kevin is talking about? How do we get that 1 percent or 1.5 percent more out of this economy?

SWONK: Well, there's several ways and I do think Kevin has a good point in terms of certainty about what policy is going forward. The president coming out with an actual budget is one step forward than getting some negotiation and compromise on that budget with Congress and moving forward so we have a road map of where we're going is one way to eliminate uncertainty. Even if it's bad news.

If we see potholes in the road, we can either brace ourselves for them or avert them. And I think that's very important. You know, the Fed has sort of been the only lifeboat of certainty in a sea of uncertainty. Some of those seas are getting a little calmer than they were with the housing market coming back. And the Fed has played a key role. And that is adding jobs. But it's not enough.

And I think Ali makes -- Mohamed makes a very good point about the fact that the Fed is really preventing us from slipping into another recession. But we have yet to reach escape velocity.

VELSHI: You're still optimistic about this economy. I mean, Mohamed, are you?

EL-ERIAN: A little bit less and let me explain why. The dynamics of this economy is that every month that we don't see rapid growth, it's -- makes it harder. Why? A couple of reasons. One, the international environment is getting trickier. It's getting more challenging. So the head winds that we face coming from outside are very large.

Secondly, fundamentally, Ali, and we've discussed this, but we are structurally impaired. So you use the example of a hospital. We came out of the hospital, but we are structurally impaired so we cannot run. And every month that we delay in dealing with a structural impairment means that we cannot run as fast for as long. And I worry about that because of youth unemployment, because income distribution. So I am a little bit more cautious than Diane is.

VELSHI: Kevin, what is your sense of how we fix this going forward?

HASSETT: Well, I think that we are poised to have a good growth year or two provided that things get fixed just a little bit more. I think that -- I think Diane earlier mentioned the autos. I think it was Diane.

VELSHI: Yes.

HASSETT: But the fact is that there are a lot of things like autos that are beginning to look like normal.

VELSHI: Right.

HASSETT: Like they did before the crisis. And so I think that we're really, really close. We -- if we get out of the situation where Washington is mucking things up with uncertainty and fiscal drag then --

VELSHI: But the market has -- has weaved around Washington, which is interesting. The stock market has sort of said, whatever, you know what, you guys get it it together or you won't. The problem is with jobs and with the rest of the economy, half of -- half of the country is not participating.

HASSETT: That's right. And that's Mohamed's head wind I think that's most important. That these long-term unemployed are very, very difficult to reconnect to the labor force.

VELSHI: Yes. Yes.

HASSETT: And so it's a big job to do so. And that's why it's so important that Washington get its act together.

VELSHI: Yes.

HASSETT: Stop squabbling. Give us a big fundamental tax reform that lowers marginal rates.

VELSHI: Yes.

HASSETT: And broadens the base. And if we do that, then we could get that extra percent we need to put those people back to work.

VELSHI: I'm going to nominate the three of you for some sort of commission to actually get that done because it doesn't -- it's probably not as complicated as it it sounds. It does just need will and agreement.

SWONK: It's not complicated.

VELSHI: What a pleasure to have you all here.

Mohamed El-Erian, the CEO Of PIMCO, Diane Swonk, chief economist at Mesirow Financial, Kevin Hassett, the senior fellow and director of the Economic Policy Study -- Policy Studies at American Enterprise Institute.

President Obama has one assignment that stays the same each year. Turn in a budget. He missed the deadline for that in February but next week he'll turn in his work. Next we'll give you a sneak peak at the big cuts and entitlement changes that he's planning to propose.

(COMMERCIAL BREAK)

VELSHI: Four years ago Congress passed a budget, a real one. And lawmakers haven't passed one since. But President Obama will release his budget proposal next week that aims to reach a deal with Republicans. Senior administration officials say it includes changes to Social Security and Medicare, plus new tax increases.

The new budget will includes -- include an offer the president made to House Speaker John Boehner in December, official say. That proposal included $400 billion in savings to Medicare over 10 years. For Social Security President Obama plans to propose a switch to so- called chained CPI. Proponents say that's a more accurate way to measure inflation than the way it's done now which they claimed overstates growth and consumer prices.

Critics say chained CPI is not a better way to measure inflation for Social Security recipients because they spend so much on healthcare which rises faster than other things in the economy.

Now the new budget would lead to $1.8 trillion in savings over 10 years. It will replace the forced budget cuts that took effect on March 1st, also known as the sequester.

Joining us is Austan Goolsbee, professor at the University of Chicago Booth School of Business. Former chairman of the President's Council of Economic Advisers, and a good friend to our show.

Austan, good to see you. Thank you for joining us.

AUSTAN GOOLSBEE, PROFESSOR, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS: Yes. Thanks for having me back.

VELSHI: Austan, the budgetary process has been stupid in Washington for the last few years. What's supposed to happen is that you guys -- when you were at the White House, you put out a proposal in February. People negotiate. They have meetings, they talk about it. They come up with a proposal and then Congress votes on it and the Senate votes on it.

But we've had this dumb system where one side or the other puts forward a proposal that has not been negotiated, not been compromised and it it fails or passes and that's the end of it. Is this -- how is this going to be different? How will this budget be different from all other budgets?

GOOLSBEE: You know, I don't know that it will be different. I think we have had a budget. People are saying we haven't had a budget. There has been a budget, it's just that the budget hasn't been a stand-alone budget.

VELSHI: Right.

GOOLSBEE: They've just been saying, OK, our budget will be extend the budget that's there now. And just --

VELSHI: That's those continuing resolutions we talk about.

GOOLSBEE: Yes. So, you know, in this case, the president is putting forward a budget. He has put forward a budget in the past. And this one I think what's notable is exactly what you noted, which is he's going an extra mile saying, all right, there was some question of whether they rejected his offer in the fall, was he still willing to make a compromise. It sounds like in this budget he is going to be willing to compromise.

But I don't know. You know, I don't see the Republicans really coming around. It feels like right now the dynamic is still the same.

VELSHI: Yes.

GOOLSBEE: The president is offering, you know, some cuts and some revenues. Including cuts on entitlements and the Republicans are -- they are not using that as a starting point. They're just opposed --

VELSHI: You're a professor and you were a professor before. So let's be professorial about this for a second. The budget is really the most important thing that the government can do because it is a manifestation of a government's priorities. Right? So we -- you know, what we haven't had is a new budget that outlines a government's priorities which change on a year to year basis. We've got these continuing resolutions that -- in many cases fund agencies at the same level they were funded before. Some should get more, some should get less.

GOOLSBEE: True.

VELSHI: It is basically -- I mean, isn't it the thing that they should do in Washington, you know, against all other things?

GOOLSBEE: Yes, yes, yes. But they aren't. Look, we are where we are. What are we going to do? I think the budget is a representation of the most important things -- most important decisions the government has to make. And in this case, we have gotten into a dynamic in which the president proposes some things and they will oppose them. And Democrats in Congress will oppose what the Republicans do. If we can't take a step back and each side be willing to give up some things, I don't know how we get out of that.

VELSHI: So when we talk about the economy that we're in right now which is growing more slowly than we would hope it to grow. And jobs are growing a little more slowly than we would hope them -- for them to grow. But there's clearly potential. And the stock market shows that people think things are going to be OK. At least some people do. You know, we need -- the way you squeeze more out of an economy like this is greater efficiency, perhaps some tax reform. Can we get to that point in life when we can't do the basics like a budget? Will we get -- can America be great if we can't do budgets?

GOOLSBEE: I certainly hope so. I hope that -- you sense most of what happens in the economy, 90 plus percent, has nothing to do with the government. I would hope that dysfunction in Washington would not totally bog it down. But as you have been saying for months if not years, you know, we've got to create more jobs. We've got to get the economy growing faster than it is. We've had modest growth at best. The rest of the world is even worse than that. And if you add on the sequester, if you add on these drags coming out of Washington, it just makes that job more difficult.

VELSHI: Austan, always a pleasure to see you. Thank you for being with us today.

GOOLSBEE: Great to see you.

VELSHI: Austan Goolsbee, joining us from the Booth School at the University of Chicago.

The upcoming budget battle isn't going to be much fun, but my battles with Richard Quest always are. When it it comes to the U.S. economy, what keeps us up at night and what are the two of us most excited about? A little cross continental debate on those questions next on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: Time for a little "Q&A", Quest and Ali, with my good friend Richard Quest, host of "QUEST MEANS BUSINESS" on CNN International.

Richard, for months, I have been insisting that the U.S. is a runner on the road to economic recovery. After growing at a rate of the 0.4 percent in the last three months of 2012, the U.S. economy has been picking up speed. Now economists are raising their forecasts for first quarter economic performance. Many now think that GDP grew 3 percent or more. Some even say 4 percent growth is a possibility. I don't think either of us believe that.

The stock market, however, has been on fire. Housing is rebounding in the United States. There's real money to be made. Real wealth to be built. But there are challenges, Richard. A paltry 88,000 jobs were added. We just found that out last March, last -- in March. We just found it out this Friday. It's not nearly enough.

Europe, where you are, deep recession. Asia has been slowing down. Political dysfunction in Washington remains a dark cloud over long-term growth. So Richard --

(CROSSTALK)

VELSHI: Yes, Richard? RICHARD QUEST, HOST, CNN'S QUEST MEANS BUSINESS: You're going to get on with this or what?

VELSHI: I'm about to. It seems, Richard, that the U.S. is at a fork in the road to recovery. It could really take off or it could stumble badly. So here, Richard, as you have waited so patiently for, is the question.

What are you most optimistic about and what are you most concerned about? Let me see, who should go -- I'm going to go first, how is that?

Richard, I am most optimistic about the energy boom underway in the United States. We are extracting record amounts of oil and gas from shale rock through fracking and other technologies and that is pushing the price up for natural gas lower, which is used, in part, to generate electricity. Now that helps utilities and the have the industrial companies compete. That creates more jobs for Americans. Possibly a resurgence that we've been seeing in manufacturing jobs.

Next year U.S. oil imports are forecast to fall to their lowest level in 25 years. America is on the path to continental energy independence. Got to include Canada in that. And the economic rewards will be enormous. Ironically the energy revolution is happening with very little help from Washington. That's my biggest concern. Broken government because of partisan gridlock we haven't had a real budget in four years. There's no long-term effort to deal with the country's debt. No movement to invest and things critical to this country's growth like infrastructure. Our elected leaders prefer to govern from one crisis to another.

That's my biggest concern. Richard, your turn.

QUEST: My good friend, Ali Velshi, is most definitely a glass half full, man. Now he starts with the optimism. I'm going to start with the pessimism. I am most worried about the inactivity and the dithering, the gridlock, the slow decision-making that takes place on both sides of the Atlantic that led to a debt ceiling debacle, a sequestration, and in Europe a continuing miserable state of affairs, best seen most recently by Cyprus. So despite all the things that might be going well, a market that's roaring ahead.

Despite all the natural, innate, good, thrusting forward of the markets, I regret to say I still remain a glass half empty person. And even more so today because the biggest threat, the biggest worry that I can see at the moment is that I won't have Ali Velshi to put right each week, to open his eyes to the sensible views as he goes into whatever myopic (INAUDIBLE) he wants.

VELSHI: I will miss you a great deal, my friend, but we will work together again. Otherwise I'll just call you and speak to you for a minute once a week.

Richard Quest, my good friend, the host of "QUEST MEANS BUSINESS" on CNN International. Go well, my friend. The S&P 500 is returning double digits already just four months into the year. Should you lock in your gains or ride it out? I'll talk with some of the best minds in investing about what you need to do with your money after the break.

(COMMERCIAL BREAK)

VELSHI: The S&P 500 has been hitting record highs. And so far this year it's about 10 percent higher than it started. But analysts say the index could move maybe 1 percent higher before we see a pullback. So where should you have your money?

The most basic rule of investing is this. Risk and reward go together. What you have to decide is how much risk you can stomach or how much reward you'd like.

Three of the best minds in investing join me now. Sarat Sethi is a portfolio manager at Douglas C. Lane and Associates, Jim Awad is managing director at Zephyr Capital Management, Doug Flynn is a certified financial planner at Flynn Zito Capital Management.

These guys have been advising you on my shows for more than a decade. I'm going to ask you all the same question. If you believe that there is another percent in this market, that's not enough for most people. They want -- they can't in April throw in the towel and say we're done. How do you squeeze more out of an investment without taking undue risks?

Sarat, let's start with you.

SARAT SETHI, PORTFOLIO MANAGER, DOUGLAS C. LANE AND ASSOCIATE: So I think when you're looking at the market, you're talking about an index. So we want to look at the sectors and stock specifics. So the time to rotate out of sectors that have done really well, i.e., some of the media companies, some of the utilities, some of the consumer staples, go into areas that still undervalued. Maybe the autos and some of industrials, some of the tech. That's where you make the money. Finding the difference in the market that's undervalued and overvalued.

VELSHI: Finding the --

(CROSSTALK)

VELSHI: Now you can't just throw your money at the -- at the market. Now you say, look, maybe the market pulls back but I got places that are still under value.

SETHI: Parts of the market that are still we think have a good way to run especially over the next three to five years.

VELSHI: Jim?

JIM AWAD, MANAGING DIRECTOR, ZEPHYR MANAGEMENT: The way I would answer the question if you believe the market is only going to go up another 1 percent and you want to get a return greater than that is to buy dividend-paying stocks. But it's got to be dividend paying stock with good fundamentals, well-covered dividend and a dividend that could grow. So it leaves you to large national companies with good balance sheets and a dividend you can have security.

VELSHI: Right.

AWAD: And many of them are 3 or 4 percent.

VELSHI: What do you do in the case where a company is paying a 3 or 4 percent dividend, which is better than you'll ever get in a bank account or a bond fund? But there's some worry that some of those might be at the top of their evaluations, too?

AWAD: Well, if you're not in and you believe that and you want to get in, you might buy maybe half the position right now because the market has had an extraordinary several months. And then when the inevitable pullbacks come, buy the rest of it. That way you're not totally risk right now.

VELSHI: Doug, fixed income, you know, the things that have had a bad name recently. They're getting a bad name because when markets are running 10 percent in three months, people say why are you in the markets? Why are in something else? Yield is not there. But you don't think people should go too nuts about that. If fixed income is part of your risk strategy then you should stay in it.

DOUG FLYNN, CO-FOUNDER, FLYNN ZITO CAPITAL MANAGEMENT: Well, most people don't want to have 100 percent of their money in the equity markets no matter how diversified they are. And most people have some combination of fixed income mixed in there based on their risk tolerance. But even within there, a lot of people do know how to diversify in the stock side but they really don't know how to do it on the fixed income side.

VELSHI: Absolutely.

FLYNN: So we're talking about treasuries and all the risks that are in treasuries. But there's a lot of opportunity in other places. Whether it'd be flexible income funds. Emerging market debt. There's a lot of different things that you can get into that will enhance and diversify and build you additional yield and allow you to rebalance and take advantage of that.

VELSHI: You're a financial planner. People must come to you at times like this when markets are going well. Say -- saying I want to get into the market. Do you put anybody into individual stocks?

FLYNN: Sure, I mean, there's a time for individual stocks. I mean, there are places where you can -- where you can bring some value in that versus just outright indexing. But you know, what we really look at is a year ago, you had -- you have to look at growth versus value. It's an easy way to eke out some extra return versus just looking at the market overall and the S&P. So a year ago when you had growth outperforming value, you could -- you could rebalance accordingly. And now a year later, the exact flip-flop has happened. And so you can just rebound back and forth between those and you're going to create some additional return versus hanging on in one particular place.

VELSHI: OK. Good. So we've given you some broad strategies. They're all three different. After the break, we're now going to tell you exactly what you do to keep your portfolio growing. So not just stick around, but come back with a pencil and paper.

(COMMERCIAL BREAK)

VELSHI: So one point that my three guests have made is that don't get nuts about looking at the market. By the way, it's Sarat Sethi, Jim Awad and Doug Flynn.

Don't get crazy about these market indexes because while much of your investment or some of your investment should be in something that looks like the S&P 500, the bottom line is this is a world made out of mutual funds, sectors, industries and geography. So I want to go through with my three guests exactly what they would recommend someone do right now in this market where we have a little pullbacks, Jim, but largely this market has been going in one direction since the beginning of the year.

And in fact when you broaden it out, it's been going in one direction for a long time. Up. So we are not -- the low-hanging fruit for investors may be gone. What do you do now?

AWAD: Well, you go with established companies that have global footprint that participate in the emerging markets, have a good exposure to the recovering U.S. market, and good balance sheets and good dividends. As I was saying, and I would use companies like Microsoft, GE and Intel all have between 3.5 and 4 percent dividends and stable business models and fortress balance sheets.

VELSHI: Yes.

AWAD: So that's going to do as well as anything.

VELSHI: So they are safe. They're not exposed to much interest rate risk. They sell. I wouldn't you know, I don't have any money with Microsoft and Intel and GE, if you want to be called boring, but they've got steady business that don't fluctuate too much based on changes in the economy.

AWAD: Well, yes. If you can grow the revenues 2 or 3 percent, earnings 5 percent, you got 3 and 4 percent dividend, that's a good total return for somebody looking to put their retirement money to work today.

VELSHI: OK. So you are emphasizing that yield, the dividend, the money that it throws off plus the fact that stock may appreciate in value. If somebody still -- wants yield, the idea that you want to be somewhat conservative but you can't put your pony in a bank, what do you recommend.

FLYNN: Well, you start with your typical fix -- we're back to fixed income again as the offset to the equity side and you need to diversify that. So 10 percent of the portfolio. We keep talking about emerging market debt. The reason I like it is because if you take emerging markets versus developed markets you've got their -- debt to GDP is one-third of what typical developments are.

VELSHI: Believe it or not that's the backwards of what it used to be in the old days.

FLYNN: Yes. Exactly. And yet they're growing at four times the rate.

VELSHI: Yes.

FLYNN: So there is an opportunity there. It doesn't need to be a big part. But the yield is about twice the yield of a 10-year treasury. Now they're going to have the same risk level as in equity, but the opportunity is there for enhancing yield without chasing high yield corporate debt too much and getting into very, very ultra risky assets. So that's a plus.

VELSHI: Do you have ideas?

FLYNN: Well, there's an ETF that you can certainly look at. The most -- the biggest one out there is hedged back to the U.S. dollar so you don't have the currency risk. But you can certainly get on the ETF database and search for emerging market debt funds, that one right there is the largest ETF out there in the space but there are some that are -- that are not hedged, so you have currency that -- that you bring in so you play that. But this is a very straightforward way.

Institutions, pension funds, have been using this as a small part of their portfolio for a long time.

VELSHI: Right. I have.

FLYNN: Most people haven't.

VELSHI: All right. And that's -- that's a very good idea. A lot of these are ETFs, which are exchange traded funds. They trade just like the stocks. If you have a trading account, you buy them, they have a ticker, and this has been a tool that the pros have been using for a long time but they are actually open to regular folks.

You're a stock guy. What do you think people should do?

SETHI: I think you look for secular growth. I think you look for companies -- totally agree with Jim. You want strong balance sheets, you want growth also, you want companies that free cash flow so you'll get company like a Google that is secular growth, more people searching, more people going on mobile, and their just -- their share keeps on going and as they increase that they're going to get more money, the stock sells at 14 times earning growing 10 percent. So on the same vain look at a Qualcomm, which is wireless technology, 3G, 4G and more chipsets. Everybody has got a smartphone, they're getting more than one whether --

(CROSSTALK)

VELSHI: And these guys win no matter what happens. Smartphone battle going on and Qualcomm wins either way.

SETHI: They're agnostic whether it's Nokia actually leading or if it's Google leading or if it's Apple leading, because the chipset is either being made by them or they get a royalty for them. And then on the other side, it's like, look what's happening globally. Auto sales are going up. So what companies are producing the best products? What have a good balance sheet that's growing a dividend? Ford has a 3 percent dividend. Didn't have one a couple of years ago. Increased their investment grade and their products are selling. In fact every quarter they're doing better and better.

VELSHI: From management, strong product lines.

SETHI: Exactly. Secular growth, get rewarded on the income side, on the balance sheet side with protection and also you get to grow over a period of time.

VELSHI: So when you say secular growth, I want the viewers to understand. What you're saying is they're not dependent on larger economic growth necessarily.

SETHI: Exactly.

VELSHI: They can grow in their area and their area is growing.

SETHI: They are dependent on what they produce and how competitive they are within the same industry or within the whole competitive landscape of different stocks you can invest in.

VELSHI: All right. Listening to this, you can get better than your 1 percent out of the market.

Guys, great to see you, Sarat, Jim, and Doug. It's been a long time for the three of you, and it's good to see you again.

FLYNN: Pleasure.

VELSHI: Some of the best advice you're going to get financially.

Coming up next, news of my own. I'll be right back with more on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: As some of you may know by now, this is my last weekend here on YOUR MONEY and on CNN. It's been a great 12 years.

(BEGIN VIDEO CLIP)

VELSHI: I'm Ali Velshi. This is YOUR MONEY. And as long as folks running for office won't tell you the truth about the economy, I will.

UNIDENTIFIED MALE: I have the bigger speaking part.

VELSHI: You certainly did have the bigger speaking part, oh, yes, you did. Take a look at this. Man, I've been talking to you about this on the show. People think I'm crazy.

UNIDENTIFIED MALE: Before he ended up acquiring it.

VELSHI: How would he do that? This is the rock star of Wall Street.

UNIDENTIFIED MALE: I think he could be an academy contender and I have to use him more. I think in my next bald headed movement.

VELSHI: Men are so incredibly curious, that I think it's unbelievable. People want to come up and touch my head frequently.

UNIDENTIFIED MALE: Just glide it down your head. There you go.

VELSHI: I just want to let you know, you can see this rope here. I'm tied around this pole and I've got a rope. We're at the back end of the storm. But you could still it's still got some teeth to it. This is ocean water. There are waves in the streets of downtown Atlantic City. This is how I come to you.

UNIDENTIFIED MALE: Back, back, front, front, squeeze, squeeze. And front and back.

VELSHI: I am bullish on America. I won't steer you wrong and that's no bull. I am just more than all hat. This is going to be the seventh Fed rate cut in a row. You've got to pay attention. This is major.

JON STEWART, HOST, "THE DAILY SHOW WITH JON STEWART": Who is that hairless prophet of doom? And how can we appease his anger, please? If we give you our hair, will you give us back our money?

(END VIDEO CLIP)

VELSHI: So for the first time I can't tell you I'll be back next week. You can still follow me on Twitter @Alivelshi and on Facebook. Keep watching this space. This show has been my home at CNN for many years and it will continue in capable and familiar hands.

All of my gratitude for those who work so hard between -- behind the scenes here to make this show that helps you, but mostly thanks to you for watching. Your comments over the years have made me better, the good ones and the critical ones. I'll miss you more than you know. Until we meet again, I am Ali Velshi. Have a great weekend.