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Riding the Bull Market; Pres. Obama Knocked off Jobs Message
Aired May 18, 2013 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, HOST: Did you buy stocks on March 9th, 2009?
I'm Christine Romans. This is YOUR MONEY.
Maybe you don't have that date marked in your calendar, but that was the start of a major, major rally. If you're smart or lucky and definitely solvent, you bought stocks back then and you're admiring the hefty returns.
The S&P 500 is up 145 percent from that date and hitting record after record high. If you're not in this market, you are missing out and if you are in, you're wondering if it's time to sell.
But what if you missed the entire rally? Can you still get in, or are you the sucker?
There still may be some room to run here. The current bull market is the fifth largest since 1928. If you compare it with the other four, it could -- could push even higher.
The bull market is in the 1940s is just a few percentage points higher. But look at 1982 to 1987, up 228 percent. 1948 to 1956, up 267 percent. And the king of all the bulls, 1987 to 2000, the S&P 500 surged 582 percent.
Now, the average span of the top five bull markets is 2,300 days. That's about six and a half years. This current rally just over four years.
Jim Rogers is chairman of Rogers Holdings and author of "Street Smarts: Adventures on the Road and in the Market". Jeremy Siegel is professor finance of University of Pennsylvania's Wharton School.
Gentlemen, nice to see you both of you this weekend. Thank you. I'm so thrilled to have both of you here for your opinion on what's happening.
Jim, what are the markets telling us? The other markets, gold, bonds, the dollar -- are stocks the only place investors have to put their money right now?
JIM ROGERS, ROGERS HOLDINGS: Well, no, they're not the only place but that's where everybody is going.
ROMANS: Why? ROGERS: Because it's fun. It's exciting, you know, Jeremy Siegel will tell you the market's going to go through the roof.
ROMANS: Do you believe it?
ROGERS: I'm skeptical. I'm not skeptical it's going to happen because what's happening that's causing it is staggering amounts of money printing.
ROMANS: The Fed.
ROGERS: Yes, yes. I'm not at all skeptical it's going to happen. I just worried about why it's happening.
ROMANS: So, why it's happening you say is because the Fed. The Fed is pumping money, $85 million into the market. It's finding its way into the stock market.
ROGERS: Not just the Fed, the Japanese Central Bank said they'll print unlimited amounts of money, and the English said, we can do that, too, and the Europeans said, we can do it, too. This is the first time in world history that every central bank is printing money and debasing the currency. This cannot end well.
ROMANS: You're predicting danger ahead.
And, Jeremy Siegel, you know, you've talked about the market, 16,000, I think is your goal for your target for the end of the year.
But let me show you, Professor, who is in and out, just 52 percent of Americans say they're invested here. That's in a 401(k). The mutual fund, individual stocks, any exposure at all, that's the lowest level ever recorded.
So if the market's going to keep going higher, should people get in right now or are they suckers?
JEREMY SIEGEL, FINANCE PROFESSOR, UNIVERSITY OF PENNSYLVANIA: Well, my feeling is this bull market is not over and Jim, I'm not going to say that stock market's going to go through the roof. My projection by the end of the year is 16,000 to 17,000, and even higher next year.
But relative to historical valuations, that's not through the roof, it's nothing like 1999, which was crazy. We are at half the price earnings ratio we were then.
And, Christine, you quoted figures in terms of bull markets. This is still young and still nowhere near the average appreciation. It's fundamentals. It's earnings and what else you have to invest in that are the most important determinants.
And I do not believe that Q.E. is the only reason why people are moving into stocks. I think they're moving into stocks because the opportunities elsewhere are not attractive.
ROGERS: But, Jeremy, are you suggesting that the Japanese and the Federal Reserve and the Europeans and the English weren't printing all this money, this would be happening anyway?
SIEGEL: I -- I mean, my feeling is that we would still be in a bull market, yes, I actually do because of valuations. Now, if we were at the level we were in 1999, I would say yes, it's just the printing of money. This is crazy valuation.
But, Jim, look at the price-to-earnings ratio and tell me, they are historically out of line with what we have experienced in the past. You can't. They are not.
ROGERS: You are right that we are not in a bubble. We're certainly not in any kind of bubble stage. Technically, stocks could go a lot higher.
But what if they stop printing money? Jeremy, the Japanese stock market is up 60 percent in seven months. That's not normal.
ROMANS: Let me jump in. So, Professor Siegel, what happens when the Fed starts to signal strongly it's going to unwind its historic stimulus in the market? We heard that earlier this week.
SIEGEL: First of all, so many people are convinced it's like only the Fed, it's only Q.E. I have no doubt that when they announce they're going to taper it off or stop, stop printing, there's going to be a short term reaction in the market, which I think is a great buying opportunity because I think fundamentals are what are driving this market going forward.
ROMANS: Let me ask you both about jobs because something in the stock discussion I get a lot from people is, it doesn't matter because half of Americans aren't invested and it doesn't matter because companies aren't using their profits or their flush corporate balance sheets to actually create jobs.
Jim, without a solid middle class job creation, can this, you know, recovery of stocks continue in.
ROGERS: Christine, yes, that's bullish. The fact that's not happening yet, that would make Jeremy's case. That is still to come.
If you told me everybody has a job and companies are spending staggering amounts of money, et cetera, et cetera, and the market's up much, much higher, then you have to be worried. What you just said is yet to come, that makes Jeremy's case.
I hate to hear her helping you, Jeremy, but she helped you a lot.
ROMANS: The job component of it. The job angle is missing, isn't it?
SIEGEL: You know, we have what, 7.5 percent unemployment, that still means 92.5 percent if I did my subtraction right of the people are employed.
ROMANS: No, unless they dropped of the labor market. Unless they dropped out of the labor market or they're underemployed or temporary jobs of the 19 percent of the jobs, I mean, it's not exactly rosy out there.
SIEGEL: I'm not saying it's rosy out there, I'm not saying we have -- don't have further to go and I think we're underutilized. But I think we're getting there and I think that actually through the second half of this year, and first half of next year, we're going to see better than expected GDP growth, 3 percent to 4 percent. We haven't seen that in a long time and that's going to help the unemployment figures, and also, as you say, once more people are drawn into the economy, I think that will further boost the stock market.
ROMANS: Last question to Jim Rogers, you invest all over the world. You actually moved to Asia.
Is America still the best place to make your fortune in the world?
ROGERS: It's a wonderful place to live and wonderful place to make your fortune. I happened to think there are better places. We're the largest debtor nation in world history, so we have the wind in our face.
In Asia, the largest creditor of the nations are China, Korea, Japan, Taiwan, Hong Kong, Singapore. The money is in Asia. If you want the wind at your back, you might think about Asia. But this is certainly a wonderful place.
ROMANS: There you go. Thanks, guys. Nice to see you.
ROGERS: Thank you.
ROMANS: All right. The IRS, "A.P." phone records, Benghazi, Obamacare, that's what's been dominating the president's agenda this week. So, what's get left out? I'll tell you, right after this.
ROMANS: President Obama knocked off message this week and that message was supposed to be --
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: New jobs and new opportunities for the middle class. American jobs. More jobs. Jobs. Jobs.
(END VIDEO CLIP)
ROMANS: Twelve million net new jobs in four years. That's what President Obama promised during the campaign. That works out to 250,000 jobs a month.
Now, to keep his promise at this point in his second term, the economy should have created 750,000 jobs. We're at 635,000, more than half of those were created just in February alone. I want to bring in Robert Reich. Robert was the secretary of labor under President Clinton. Today, he's the professor of public policy at the University of California-Berkeley. He's also the author of "Beyond Outraged: What Has Gone Wrong with Our Economy and Our Democracy and How to Fix It."
Welcome to the program.
ROBERT REICH, FORMER LABOR SECRETARY: Hi, Christine.
ROMANS: Nice to see you.
You know, over the last three months, the economy has, on average, added 212,000 jobs. But the jobs recovery, I mean, I think it's fair to say has been choppy and this week, first time unemployment claims jumped by 32,000. So it shows layoffs picking up just a little bit in the most recent week.
Do you think the president can meet that target of 12 million jobs in four years?
REICH: I think it's going to be very difficult to meet that target. Both because the job situation is still very bad and also because the headwinds on the economy coming from a Europe that is shrinking, a Japan that is basically still a basket case, China's growth is slowing -- a world economy is not exactly cooperating. And then, on top of that, you've got the sequester in Washington that is also a drag on the economy.
Given all of the drags, it's going to be very hard to get that many jobs.
ROMANS: You know, as part of the fiscal cliff, Americans saw their payroll taxes jump. And it works to about $1,000 for typical household making $50,000 a year. In a new study from the New York Fed finds the rise in payroll taxes is going to cause family to cut their spending by an average of $720 this year.
You know, there's the fiscal cliff. There's also that payroll tax holiday that went away. You've been a long time proponent of exempting the first $15,000 of income from the payroll tax. Do you think that could generate jobs growth?
REICH: Yes, it could generate jobs growth. Certainly, we could make up the difference if you lose some money, the federal government loses money by exempting the first $15,000 for Social Security, you just lift the lid on the percentage or the amount of money subjected to Social Security taxes. And that would be not only good for the economy, but it also would be a move in the direction of helping the middle class.
You know, one of the hidden issues here, Christine, is not only do we have a very slow jobs recovery but most of the jobs being created pay less than the jobs that were lost in the Great Recession.
So the quality of jobs is a problem as well. ROMANS: And that's -- when you talk about the changing of those payroll tax holiday, the payroll withholdings. It's so interesting because it would mean people who make more money would pay a little bit more out of their paycheck, people above 106,000 would pay more but middle class workers would have less taken out of their paycheck, bottom line.
REICH: Yes, that's right. People who earned a little bit, you know, at the top of the earnings scale would pay a little bit more but remember everybody -- according to this proposal -- everybody's first $15,000 of income would be exempt from Social Security tabs. So, even if you're earning $112,000, or $115,000, you probably are going to be paying less overall in Social Security taxes. It's only people over $200,000, $250,000 a year that would end up paying more.
ROMANS: I have to ask you. You were former U.S. labor secretary, this is commencement season. I must ask you, you know that college graduates are enjoying an unemployment rate that's half the national average, 3.9 percent for college grads. But the unemployment rate for recent graduates is 13.5 percent. It's still so high.
Agree or disagree, college education today costs more and delivers less than any other time in history?
REICH: I would say it's probably right, but it still is a good deal. That is over the course of a lifetime college graduates are earning about 70 percent more than people who do not have a four-year college degree. So, even though many young people are coming into a very bad jobs market, even though many of them have a lot of debt hanging over their shoulder, it's still over the long-term going to be a good deal for them.
ROMANS: All right. Robert Reich, so nice to see you again today. Thank you so much.
REICH: Thanks, Christine.
ROMANS: All right. Have a great weekend.
A final quiz for the class of 2013, 70 percent of you are graduating with some student debt. Is the average amount owed: A, $15,000, B, $25,000, or, C, 35 grand? The answer right after this.
ROMANS: Thirty-five thousand two hundred dollars, that's how much the average graduate from the class of 2013 owes. Of course, not everyone graduates with debt but most do. The same study from Fidelity Investments finds 70 percent of this year's graduating class will leave college with debt.
Fifty-four percent of those students say it will take them more than nine years to pay off the loans and 7 percent say they don't ever expect to pay the loans back. Why? Rising costs -- college tuition and fees have jumped 1,120 percent -- 1,120 percent since 1978. That's compared with 601 percent for medical care and 244 percent for food. So, is the high cost of college worth it?
Well, not according to Bill Bennett, not in all cases. Bill was secretary of education under President Reagan. He's also the author of a new book called "Is College Worth It?"
And, Bill, you and I have talked about this for so many years. You say the cost of college will keep rising as student aid continues to increase unchecked.
Does this mean we need to address rising tuition and financial aid rather than rethinking who should be going to college and what they should be majoring in?
WILLIAM BENNETT, FORMER EDUCATION SECRETARY: Well, I think it means thinking on both fronts and some people should go to college, by the way, about a third of those who start four-year colleges it makes a lot of sense for a number of different reasons.
But the availability of federal funds continued to drive up prices. It's possible that the prices would go up even if the federal funds didn't keep increasing because the colleges can get away with it. They can charge and charge and charge, and people will just keep paying in because they want their kids to get the degree because they believe it's a talisman, it is magic.
But it isn't magic for a lot of people. For about a third of the people who go it is, for about two-thirds, it isn't.
Remember, 45 percent of people who start four-year colleges don't finish. They don't finish at all. And many of them live with debt and without a college degree.
ROMANS: Bill, about the quality of education, and the cost and the quality. I mean, if you just look at it from a numbers standpoint, do you agree with the statement, it costs more to get a degree today and that degree delivers less than at any other time in our lifetime.
BENNETT: It all depends, what you're talking about and where. If you go into petroleum engineering at the University of Texas, it's going to pay off. If you get to Stanford, you should probably go.
If you go to a second level liberal arts college and major in philosophy like I majored in philosophy, it may not make sense. You should go into it with your eyes open but you may not get a great job, may not get any job at all.
That's why in the book, "Is College Worth It", we talk about various choices, various situations. But one thing is for sure, the colleges that have been taking in the money.
As you pointed out, the inflation numbers for tuition are extraordinary and they have been getting away with it and a lot of kids and families have been cheated, particularly a lot of the poor kids, kids at the bottom of American society economically are now graduating from college in smaller numbers than they did 30 years ago. ROMANS: Let me talk about student loan rates. They are set to double on July 1st. They're going to jump from 3.4 percent to 6.8 percent. Senator Elizabeth Warren is proposing a Student Loan Fairness Act. It would allow students to borrow money at the same rate as the nation's biggest banks.
Under her proposal, new student borrowers would be able to take out a Stafford loan at 3.4 percent.
You know, it makes sense. If the banks get to borrow super cheaply, why can't students? Why do you think that proposal might not be as rosy as it looks on the surface?
BENNETT: Well, we need to look at the ramifications and see who ends up subsidizing those loans. As you know, to date, the public has been subsidizing the loans. Who pays those loans back too? Because there is a lot of provisions in there for student loan forgiveness.
We propose 25 years ago, the income contingent loan. And you graduate from college, if you owe money and you're going to venture fund capitalist and make a million dollars, you pay it all back.
If you go in at the lower edges of journalism, let's say, or philosophy professor, you pay it back in small amount each year. I also think the colleges need to have skin in the game. If they advertise, charge these amounts, kids come, they don't graduate or they graduate and don't get jobs, I think the colleges need to give some of that money back.
ROMANS: You to think the colleges are adapting to the new reality of the job market? Do you think they're still delivering --
BENNETT: Some are.
ROMANS: -- a product the way they did 20 years ago?
BENNETT: Some are. There is a big fight right now. You probably know about these MOOCs, massive open online courses. Big announcement, Georgia Tech using Udacity, company in Palo Alto, I'm on their advisory board, I should point out, is going to masters degree in computer technology for $6,000. It used to cost $40,000.
Here's a way to get costs and prices down, use the new technology and Georgia Tech I think it very smart to do this.
ROMANS: Yes, that's an interesting trend that will be a big game changer in education, I'm sure.
Bill Bennett, the philosophy major, Christine Romans, journalism and French -- let's just point out liberal arts are the critical thinking, the innovation and the good judgment you need to balance out all those STEM people in the world, no question.
Bill Bennett, thank you very much.
BENNETT: Oh, man, Christine. You opened up a lot there. We'll come -- I want to come back and talk about --
ROMANS: You come back, you come back. All right. Thanks.
BENNETT: All right. Thank you.
ROMANS: Up next, after all the pomp and circumstance, my advice to new grads entering the, quote, "real world".
ROMANS: It's commencement season. College seniors across America are collecting their degrees, getting ready to enter the workforce. But they'll have to contend with high student debt and a job market that is still struggling.
And with competition so intense, today's college grads need a battle plan.
ROMANS (voice-over): After this, you may think you're done with this. But the homework has only begun.
The good news, the economy is recovering. Stock markets are on a tear. And companies are flush with cash.
The bad news is they're still not hiring robustly. And competition is intense among new college grads.
One-third of recent grads surveyed said they were making no more than $25,000 a year. With tens of thousands of dollars in debt to pay off, and a still sluggish jobs market, was it all worth it?
DAVID GARTSIDE, MANAGING DIRECTOR, ACCENTURE: The long-term data says that investing in the degree is the right thing to do. But you've got to treat it like an investment and treat it seriously.
Really show interest and passion about the area you want to work in and start networking early. The last thing is, take every opportunity.
ROMANS: Every opportunity because your dream job may not be attainable at first. And it's going to change with time. As the great Doctor Seuss once said, quoted again and again at commencement speeches --
UNIDENTIFIED FEMALE: You have brains in your head, feet in your shoes --
UNIDENTIFIED FEMALE: You can steer yourself any direction you choose.
ROMANS: It's up to you to steer yourself, especially if you feel like all the student debt wasn't worth it.
AUSTAN GOOLSBEE, ECONOMICS PROFESSOR: It doesn't take an advanced degree to figure out that people that have more skills and more education are doing better and surviving better in this comeback than are people who do not. I mean, that screams out of the data. ROMANS: And what the data show is nearly two-thirds of recent college grads say they need more training in order to get that dream job. But fewer than half say they got it in their first job after graduation. Meaning, plan your next two or three career moves now, and figure how your first job out of college can help with those moves.
Finally, start planning for retirement now. Does your company offer a 401(k) match? Take it. Start saving now and pay off your debt as soon as possible. Call it a battle plan for grads, make your opening shot in the job market work for you.
ROMANS: So how is it looking out there for you and what do you want to know about getting a job after college? And do you think college is worth the investment?
Let's talk about it. Find me on Facebook and Twitter. My handle is @ChristineRomans.
I'll be back at 2:00 p.m. today and I'll be naming names. Only two U.S. companies signed on to a global pact to improve safety at garment factories in Bangladesh. The big players are opting out. Hear me call them out before your next trip to the mall. That's today at 2:00 p.m.
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