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YOUR MONEY

Scandals and Lies in Politics and Sports Assessed; U.S. Housing Market Analyzed; Clothing Entrepreneur Interviewed

Aired July 27, 2013 - 14:00   ET

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


CHRISTINE ROMANS, CNN ANCHOR: Sex, lies and money. Your wallet to your vote, it is hard to find someone to trust this summer.

I'm Christine Romans and this is YOUR MONEY.

ROMANS (voice-over): From the political field to the playing field, it seems like no one is leveling with the American public these days.

(BEGIN VIDEO CLIP)

ANTHONY WEINER, (D) NEW YORK CITY MAYORAL CANDIDATE: Citizens are more interested in the challenge they face in their lives than anything that I have done embarrassing in my past.

ROMANS: Danger -- Anthony Weiner's bad behavior didn't end after his resignation, but will it end his political career? Both Weiner and Eliot Spitzer went from rising political stars to tabloid staples. Now they both want another shot.

ELIOT SPITZER, (D) FORMER NEW YORK GOVERNOR: The public is going to give me a fair hearing.

ROMANS: From the political field to the playing field, Yankees third baseman Alex Rodriguez has admitted to doping in the past. Now the highest played player in all of Major League Baseball is facing a scandal that threatens ending his career -- cheating. It's why Lance Armstrong was stripped of his seven Tour de France titles. His response this week to a scoop from the Justice Department over his former sponsorship by the Postal Service? Armstrong says he should have known he was doping.

LANCE ARMSTRONG: The reaction and the fallout was more than I expected.

ROMANS: And more lies alleged on Wall Street. The government is going after one of Wall Street's big dogs, indicting billionaire Steve Cohen's hedge fund, charging it with insider trading, wire fraud, just the latest in a summer of sex, lies, and money.

(END VIDEOTAPE)

ROMANS: Joining me now are CNN's political power couple, Margaret Hoover and John Avlon, also the executive editor of "The Daily Beast." OK, guys, we have seen Anthony Weiner's wife Huma Abedin stand by her man. But New York Democrats, I don't think they're going to be so loyal. After this week's scandal Weiner fell from the top spot in the race for mayor, his favorable rating plunged 22 percentage points from last month. Margaret, it's one thing to allow redemption of somebody to get a second change. A third chance, is he going to get a third chance?

MARGARET HOOVER, CNN CONTRIBUTOR: A third chance may be too far even for New York voters. When you polled 73 percent of New York Democrats, and by the way, this is only a Democratic primary we're talking about, and he only has to be in the top two. Now he's in a statistical dead heat for the number two spot. And 73 percent of Democrats who will vote in the primary said Huma Abedin's testimony, character witness for her husband, made no difference at all. So the third chance may not actually happen.

VAN SUSTEREN: What do you know that he says is true or false or --

JOHN AVLON, CNN CONTRIBUTOR: Yes, I know. The guy is clearly a narcissist and, we have to assume, a pathological liar. He had lied to his family about something he was already punished very publicly for. You can take the medical route and say it's an addiction. I don't give a damn. You deal with that in your private life, not on the New York voters' dime trying to run for mayor of New York.

But the larger problem is this massive deficit of trust that we're seeing actually increase over the last couple of decades. And part of problem is this people in positions of authority aren't to hold themselves to a higher standard anymore. It doesn't seem like they are. Back when people aspired to be Abe Lincoln, or even that idea of noble public service that the Kennedys tried to embody, however flawed they might be, we've seen a steady slide in personal behavior. These people are so arrogant, so narcissistic, they think they can get away with anything, and that sends a message that further defines deviancy down.

ROMANS: There's also wining. People want to win, whether it's in politics or it's in sports. The government now is suing Lance Armstrong, claiming that he violated his contract with his team sponsor, the U.S. Postal Service. Lance Armstrong's lawyer offers an eye-popping defense this week to get this case dismissed. I want to you read this quote. "The government wanted a winner and all the publicity, exposure, and acclaim that goes along with being his sponsor. It got exactly what it bargained for."

AVLON: This is the dark side of the American dream, that will to win that we all admire, working harder, being more successful. Folks, especially if they're narcissists, feel like they can cut corners and they'll get that competitive edge and they will be rewarded for it in the near run. So then the sin becomes getting caught, not the actual cheating.

ROMANS: This is like a summer of lies. Every newspaper, the front page, every blog is about how we've been lied to, who is cheating, who is being punished, who is trying to dodge punishment. Even when you look in my wheelhouse Wall Street, we're talking about fines, SEC charges, we're talking about fines for Haliburton for destroying evidence. We're talking about all kinds of different things. I'm speechless.

AVLON: Your brain is hurting from all the lying.

HOOVER: The good news is they're getting caught, right? And there is moral outrage about it and we're having this conversation. This isn't OK. This isn't how we play. We play fair, we have laws, we have rules, and we're enforcing them because it matters.

AVLON: But let's be completely honest. A lot of corporations, a lot of campaigns feel they will break laws and then they'll pay fines after the fact once they've survived a court case. The cost of doing business, and the comparative fine, $200,000 in the case of Haliburton outside the other payments they'll have to make to Fish and Wildlife, that is a slap on the wrist for a multi-million-dollar corporation. So therefore all of a sudden it i's a rational bet to make.

ROMANS: It's winning, winning, winning, winning at all costs, and adulation from shareholders or from bosses or from viewers, it's all about the bottom line.

AVLON: Guess what. Night follows day, consequences will kick in eventually.

ROMANS: I hope there's not so much lying next summer. The summer of lies! Thanks, you guys.

Coming up, the energy boon was supposed to put money in your wallet. Instead it's blowing out your car's tailpipe. It's escaping out the windows of your home. I'm going to tell you why, next.

(COMMERCIAL BREAK)

ROMANS: It was supposed to be Saudi America. We are producing a lot more natural oil and gas, but are you feeling it? The promise of thousands of new jobs and lower energy bills nowhere in sight. And this summer, driving the car, running the AC, is getting more expensive. Gas prices have surged after dropping just a few weeks ago.

Take a look at this. From the July 4 holiday until Monday, you got gas prices up 17 cents a gallon. Electricity prices are also rising. Check out the change at the wholesale level in some of the country's biggest trading hubs. In Massachusetts, up 101 percent, in New York state, up 65 percent, Washington, Oregon, Minnesota, Arizona, and California all with huge gains. Why? The Energy Information Administration says it's the rise in the price of natural gas that's used to make electricity.

Luckily for some energy producers buy natural gas in bulk years ahead of time, so you might not see those increases in your energy bills, at least not until maybe next year.

Now, many areas got a big break from the sweltering heat this week, but you may have to keep that air conditioner on well until September. The National Weather Service predicts higher than expected temperatures across most of the country over the next three months. You can see where right there.

But let's go back to gas for just a minute. It's not just changes in demand that move prices for gas anymore. Some refineries here in the U.S. are having a variety of problems. Plus we're in hurricane season, oil prices are volatile, the conflicts between Syria and Egypt, those cause worries about the supply chain.

And big banks may also be contributing. A Senate banking committee hearing this week discussed whether banks that own power plants, pipe lines, and other physical commodity businesses pose problems for consumers.

(BEGIN VIDEO CLIP)

SEN. ELIZABETH WARREN, (D) MASSACHUSETTS: But I also don't think that most retirees realize that their pension or retirement savings are used to pave the way for big banks to be able to control an electric plant or an oil refinery.

(END VIDEO CLIP)

ROMANS: Tom Kloza is an expert on everything from the well head to the gas tank. He's also chief oil analyst at Gas Buddy. Nice to see you, Tom. So bid banks, tensions in the Middle East, demand for cash strapped Americans, refinery problems, is there a simple way to explain why gas prices are rising when we are flush with oil and gas in this country?

TOM KLOZA, CHIEF OIL ANALYST, GAS BUDDY: Well, we're part of the world, and we do have to privilege numbers in terms of cheaper crude than the rest of the world, but there are a billion people elsewhere in developing countries that are moving into the middle class, let's say, in this generation. So we're going to see some settlements of world oil prices. But relative to the rest of the world, we've got better prices for crude, we've got much cheaper prices for natural gas, and we've got a little privileged continent atmosphere.

People don't notice it because they're paying more than they were paying last year for gasoline, but you look at a generation ago, and it was a dollar or a $1.50 a gallon lower.

ROMANS: So it could be worse?

KLOZA: It could be worse. And I think we need to remove out of the equation that we're not going to go to $5 or $6 or anything like that.

ROMANS: We're not?

KLOZA: No, we're not. Only if we had some major cataclysmic event like a major Mid-Eastern war. We've got plenty of refining. We've got plenty of domestic crude. We're producing more crude oil right now than we have since December of 1990, and we're going into the 80s in terms of supply.

ROMANS: We complain. We might be an entitled continent, but we complain. Look, there was a commenter on a recent Gas Buddy blog that says gas goes up like a rocket and down like a feather. Do you think prices have peaked for this move?

KLOZA: I think they peaked for this year. We got to $3.78 in February, which was in anticipation of what might happen. They peaked unless we get events. By events I mean if we get a hurricane in the Gulf of Mexico, you can almost take whatever category the hurricane is and move it in some sort of exponential like cubit, and that will be how much gas will go up.

But without that and without Egyptian violence breaking out into the Suez Canal and elsewhere, I think we're pretty close to a top and I think we'll see much lower prices in the last 100 days of the year.

ROMANS: I tell you, I'm so glad to turn my AC off. If it's not put in the gas tank, it will be paying my electric bill this summer. Thanks. Nice to see you.

Here are the other stories that matter to your money this week. It's not all about the gas tank. Give me 60 seconds on the clock. It's money time.

(BEGIN VIDEOTAPE)

ROMANS: Good news for Apple. It sold 31.2 million iPhones last quarter. No one saw that coming. The bad news, profits sank and investors are still waiting for Apple's next big thing.

A new study parents are forking over less cash for their kids' college. Instead students rely more on scholarships and they're bunking up with mom and dad.

One kid who doesn't need a college, Kate and William's royal baby boy. Estimates for the cost of raising the prince at a million bucks, and that's with a rent free palace.

Taco Bell won't be selling meals with toys anymore. Taco Bell is the first national chain to dump the kiddie menu.

You might also say goodbye to mail at your door. The cash-strapped post office pushing to cluster boxes instead of door-to-door delivery.

You can Google the next story. Google accounts for 25 percent of all web traffic in North America. That's bigger than Facebook, Twitter, and Netflix combined. And Netflix could use some more of that traffic. Bringing back "Arrested Development" brought in lots of new viewers, but not enough to keep investors happy.

(END VIDEOTAPE)

ROMANS: Coming up, a monster payday for Mark Zuckerberg, $300 million in one day after an explosive rally in Facebook stock. Is it time for you to get in?

(COMMERCIAL BREAK)

ROMANS: Facebook finally delivers. The company had its best day ever on Thursday, rallying 30 percent after making big inroads in advertising. It still is, by the way, 10 percent below the IPO price of $38, but several Wall Street firms are now raising their target price above that threshold.

Then there's the housing market. Home prices are up more than 12 percent from a year ago. This is according to S&P Kay Schiller. This market is no old bull, it is a young pup. Housing website Zillo predicts home prices will rise another five percent next year nationwide and double digits in some markets. So where should you put your money now? Before we ask Wall Street, let's hear from Main Street.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: If I had some cash to burn, I would most likely buy real estate.

UNIDENTIFIED FEMALE: I would probably buy stocks.

UNIDENTIFIED FEMALE: I think the stock market on the whole has always done better.

UNIDENTIFIED MALE: I feel like the housing market is eventually going to go up.

UNIDENTIFIED MALE: If I'm looking to make a real return on my investment, I'm going to buy some stock.

UNIDENTIFIED FEMALE: If it's not under my mattress, it would probably be in real estate.

(END VIDEO CLIP)

ROMANS: There is always somebody putting it in the mattress. Let's ask the experts. Keith McCullough is CEO of Hedgeye Risk Management, Michelle Meyer is a senior U.S. economist at Bank of America. Nice to see you guys. Keith, if we talk top market, look at Facebook. Is this fool me once hype here, or are you buying in?

KEITH MCCULLOUGH, CEO, HEDGEYE RISK MANAGEMENT: I definitely wouldn't buy Facebook today. If you own Facebook, I'd take it and sell it and buy a house with it, Christine.

ROMANS: You would!

MCCULLOUGH: Yes, I think that's the right call. People should feel comfortable in housing in particular. Supply is tight and demand from a mortgage -- think about your mortgage payment as a percentage of your income. It's at a historical low, so that's affordable, and prices, as you pointed out multiple times, are rising, which is a great time to buy a house.

ROMANS: Existing home sales, Michelle, slipped in June, but new home sales are at a five-year high. You look at some of this housing data, do you agree with mortgages rates falling for the second straight week that the read on the housing market is still quite bullish? MICHELLE MEYER, SENIOR U.S. ECONOMIST, BANK OF AMERICA: I think it is. I think the fundamentals are very supportive of home prices continuing to rise. We have very low inventory, we have a lot of pent-up demand coming from household information, and mostly coming from people that were sitting on the sidelines waiting to feel more comfortable about the idea that housing is once again an appreciating asset. I think we are seeing a continuing improvement housing demand. It could be volatile, it always is volatile. The data is noisy, so we have to be careful of reading too much into one month.

ROMANS: You look at first-time home buyers, they're 30 percent of home sales, and first-time home buyers tell their realtors that they can't find the house they want in their price point, they can't find something they can afford. That's probably because of an inventory issue. And also they're still having trouble getting mortgages. You look at some of these other markets, 57 percent of the purchases in like Florida are cash purchases, 80 percent of purchases in Vermont are cash purchases. It doesn't look like a gain for the masses. It seems like the people who have money are making money in real estate.

MEYER: It still in many ways a distorted market. We came off the biggest housing recession since the Great Depression. We've had a lot of distressed inventory and had extraordinarily low production, extraordinarily low construction.

So I think, yes, in terms of clearing out the distressed inventory, in terms of moving the existing property, it's been driven by that higher end individual. Once we start to see new construction pick up, which is more focused towards that entry-level homebuyer, then I think we begin to see the resemblance of a more normal housing market. We're not in a normal market. This is the beginning of a turn which ultimately will be towards a more stable market.

ROMANS: Keith, you said earlier take that Facebook stock and buy a house with it. If you ask the question stocks or real estate, is the answer both?

MCCULLOUGH: Yes, I think it's both. But again, it's all about the duration of your holding, so I think if you had a lot of normal people give you that explicit answer. And I think on stocks you got to keep buying pullbacks, because what the market is really doing, and Facebook is a shining example of this, is that the market is saying, hey, look, we like growth. Even though the rest of the world is trying to scare the hell out of you every day, fear is for sale, bonds are for sale, so you want to buy those, and you want to buy stocks on pullbacks, and then take your gains and buy longer duration assets like a home. I agree a lot with what Michelle had to say about that. Affordability and a lot of metrics are right where you want them to be. Now you just need that type of supply to come online.

ROMANS: If you have one house, buy another. That's the best place for anybody to make money these days. Michelle, thanks very much. Keith, nice to see both of you.

All right, how do you create $1 billion empire without spending a dime on advertising? Hint, Oprah, Beyonce, Kim Kardashian. Can you guess the most sought-after item in their closet? You already have it in yours. Men, you might have this, too.

(COMMERCIAL BREAK)

ROMANS: Kim Kardashian wears them, so do Beyonce. What am I talking about, what do they all wear? Spanx. Those celebrity endorsements helped the company's founder Sara Blakely build $1 billion clothing empire without spending a dime on conventional advertising, and all by selling something you're never even going to see. Zain Asher sat down with her to find out how she did it.

ZAIN ASHER, CNN BUSINESS CORRESPONDENT: The simple answer, Christine, is through word of mouth. Every man out there and has a woman knows what Spanx are. You put them on, it gives you a desired shape. A very simple idea, but the woman who came up with this idea went from selling fax machines door to door to making $1 billion in under 10 years. Take a listen.

(BEGIN VIDEOTAPE)

ASHER: Sara Blakely admits she's not your typical CEO. She's never taken a business course, nor did she have any experience in her field. But she's a grade-A student when it comes to not taking no for an answer.

SARA BLAKELY, FOUNDER AND CEO, SPANX: I got laughed at a lot the whole way, but I learned that you had to keep going.

Blakely is the world's youngest self-made female billionaire, thanks to Spanx, tight-fitting shape-wear for women, an idea that came to her while she was getting dressed for a party.

BLAKELY: There was a void for undergarments for women. So they Spanx came out and created a completely invisible, light weight shaper that became like a second skin.

UNIDENTIFIED FEMALE: It will suck you in without being too tight or uncomfortable. I'm getting married and I need something that can hold in all the goods so that nobody can see something only your husband should be seeing.

ASHER: She sold over 10 million pairs around the world without spending a dime on advertising.

UNIDENTIFIED FEMALE: If a girlfriend tells you at a cocktail party or sitting in a restaurant about a product, you tend to become much more loyal or interested in it than if somebody showed you a glossy picture in a magazine.

ASHER: Especially when that girlfriend is Oprah.

UNIDENTIFIED FEMALE: I've given up panties. I wear Spanx. That's more information than you all need to know.

(LAUGHTER)

ASHER: One mention from Oprah and 20,000 pairs of Spanx were sold in less than a day.

BLAKELY: It's like winning the lottery as an entrepreneur.

ASHER: But Blakely's road to success didn't start out easy. After failing to make the cut for law school, she settled on a job selling fax machines.

BLAKELY: If I hadn't failed that LSAT, Spanx would not exist.

ASHER: After patenting her idea, she begged factories to start making it. Although they refused, Blakely refused to stop trying.

BLAKELY: When I grew up, my dad used to encourage my brother and me to fail. So I would come home from school and sit at the dinner table and my dad would say, kids, what did you fail at this week? And if I didn't have something to tell him, he would be disappointed. So if we weren't failing in our home, we weren't trying new things.

(END VIDEOTAPE)

ASHER: And the takeaway I got from that interview is that if you have an idea for a product, it doesn't have to necessarily be the most original, no one's ever thought of idea. It can actually be the simplest thing. She found something that every woman in America would have a need for, but I think what she did differently was execution. The way she went about it -- her first launch in big department stores, she would literally go to big department stores and stand in the checkout lines and tell people why they should buy her product.

ROMANS: Wow. It's so interesting she was selling fax machines door to door. Zain, thanks for bringing that to us. You can see more of Sara's tips for aspiring entrepreneurs on CNN.com/YourMoney.

Coming up tomorrow at 3:00 p.m. eastern, I'm going to give you a rare glimpse at modern life inside super secretive North Korea.

(BEGIN VIDEO CLIP)

IVAN WATSON, CNN INTERNATIONAL CORRESPONDENT: These kids, we've talk to some of them, they love things that most children love, cartoons, rollerblading. But when you ask them what they want to be when they grow up, many of them say they want to be soldiers to protect their country.

(END VIDEO CLIP)

ROMANS: CNN's Ivan Watson with remarkable access to North Korea's economy. That's Sunday, 3:00 p.m. eastern.

"THE NEXT LIST" starts right now.