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YOUR MONEY

What's Ahead for Your Money in 2014; Looming Fight Over Unemployment Benefits

Aired January 4, 2014 - 09:30   ET

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


CHRISTINE ROMANS, CNN HOST: The U.S. economy is taking flight. This year, will there be more room in coach?

I'm Christine Romans. This is YOUR MONEY.

The rich got richer in 2013. So, is 2014 the year more Americans share in the recovery? I'm going on the record with predictions for YOUR MONEY.

(BEGIN VIDEOTAPE)

ROMANS (voice-over): The economy will again be the big story. The year of economic growth and growing worry that the recovery is not benefitting everyone. The unemployment rate will likely fall below 7 percent. That's the trend.

The real story is the under employment rate. Don't expect that to budge as companies hold back on hiring full-time workers, whenever they can.

The recently unemployed, they will have a better chance of getting rehired next year, but the long term unemployed still face the same problems. Congress may reinstate recessionary long term benefits in the year. But by the end of the year, expect that program to end for good.

The minimum wage, it will rise in 13 states, but not as high as the $15 an hour that legions of low paying workers are protesting for. With the recovering economy, the minimum wage debate won't fade in 2014.

The stock market, it may not return as richly as it did in 2013 as the taper is finally here. And mortgage rates will likely rise.

Will that end the recovery and home prices? Probably not. Rates are still well below the post-World War II average of 6.5 percent, and higher mortgage rates may even spur banks into lending more freely to first time home buyers. Home prices, expect low single digit percentage increases.

(END VIDEOTAPE)

ROMANS: All right. So, those are some of my predictions. Let's talk to somebody who actually has money riding on their predictions.

Mohamed El-Erian is the CEO of PIMCO, the world's biggest bond fund.

Greg Valliere is the chief political strategist for Potomac Research Group.

Nice to see you guys at the beginning of the year, because I've got a lot of questions about where we go from here.

Mohamed, a lot of optimism about the economy for the year. What do you see is the biggest risk?

MOHAMED EL-ERIAN, PIMCO: So, first, Christine, happy New Year.

And the optimism is well-placed. This is going to be a year in which growth is higher, we create more jobs. That's the good news. And wages will go up, as you say.

The less good news are the risks. We have three in particular. One is that underlying all this is a Fed that continues to use unconventional measures to support the economy and it's changing the way it will be doing business. So the uncertainty associated with the effectiveness of the Fed as it pivots from one instrument to another.

The second element is businesses. They have the wallet to spend, but not the will to spend. It's really important that businesses deploy their cash into high investment in plant, equipment and people. That's a real uncertainty. Business is risk adverse.

And then, finally, there is an issue of income and wealth inequality. At some point, this income and wealth inequality becomes more than a social and political issue. It becomes an economic drag. And I worry that we are getting close to that point.

ROMANS: And I think that's still going to be a topic for economists and for politicians this year, that income gap, because even as you've got the economy recovering, you guys, you got a lot of people saying, I don't feel it. And that's the big divide.

Greg, there is also a midterm election this year, 35 seats in the Senate are up for grabs. All of the seats in the House are up for grabs. The economy is the top issue for voters, yet, most Americans say it's in poor shape. How will the economy affect those midterms?

GREG VALLIERE, POTOMAC RESEARCH GROUP: Hard to say for sure, and I'm happy New Year as well.

I think, Christine, the Republicans will have a fairly good election. They're going to keep the House, largely because of the way the districts are drawn or perhaps one might say gerrymandered. I think Obamacare certainly doesn't help the Democrats.

In the Senate, where six seats would give control back to the Republicans, I think they're going to win at least four or five. So, I think both Houses stay just as conservative or more likely get even a bit more conservative.

ROMANS: You know, one of those risk factors that you talked about, Mohamed, was these companies and what they're doing with their money, they are using their cash to buy back shares, to boost dividends. They're not really hiring. If they don't have to, they're not hiring. They're not investing big in technology and plans.

So, what is it? What is it that unlocks or gets the genie out of the bottle for that?

EL-ERIAN: So, a couple of things: one, less for them to buyback shares. And the numbers have been enormous, Christine. Last year, $750 billion in authorized buy backs by company boost. That's about 6 percent of the capitalization of the S&P.

ROMANS: Wow.

EL-ERIAN: That's a lot of dollars that went into share buybacks. Why? Because interest rates were artificially low. So, it made sense for companies to borrow, accumulate cash and pay back and share buyback. So, you need that incentive to go down.

And secondly, you need them to have more confidence about aggregate demand, and about the environment in which they're gong to operate. Those are the two key issues.

ROMANS: But, Greg, you -- I mean, did you have trouble finding risks? I mean, what did you think about the forecasts about his risks to the economy for the year?

VALLIERE: I agree with the trade risks that he cited. But I also would say you and all of your viewers and investors should make a New Year's resolution to not get faked out by Washington. We come right to the precipice and then we fan, we don't go over the cliff.

ROMANS: Yes.

VALLIERE: There's not going to be a government shutdown in January. There's not going to be a debt ceiling crisis later in the winter.

We have a lot of hot air, but when it comes to a real crisis, Washington blinks.

ROMANS: That's -- you know, you made me feel happy, both of you. I feel better about things.

Mohamed El-Erian, Greg Valliere, don't go away.

Another week, another stark reminder that if you put it online, you are risking your privacy. Snapchat let users share photos or short videos that disappear after a few seconds, you can use your imagination for what that contain might be. But this week, a group of hackers says it accessed information for 4.6 million of those Snapchat users. They posted some of that information online, including partial phone numbers and user names.

Now, the hackers claimed no malicious intent saying they want to send a message that we trust companies with our information should be more careful with it. It's a good reminder to protect yourself at all times in the digital world.

For more stories that matter to your money this morning, give me 60 seconds on the clock. It's money time.

(BEGIN VIDEOTAPE)

ROMANS (voice-over): It's a 50 percent raise this year for Netflix CEO Reed Hastings. That means a $3 million salary, plus, a $3 million allowance for stock options. Netflix was the top stock in the S&P last year up nearly 300 percent.

Big donations from big donors. There were 15 individual gifts of $100 million or more last year. That's four more than 2012.

Facebook CEO Mark Zuckerberg made the biggest donation. Facebook shares valued at almost $1 billion to the Silicon Valley Community Foundation.

Online (INAUDIBLE) today Zappos is doing away with formal job titles. Instead, workers will be responsible for several different rules and will answer to one another instead of a big boss.

Home prices jumped 13 percent in October, compared with the year ago, the largest 12-month gain since the height of the housing bubble.

(END VIDEOTAPE)

ROMANS: All right, 1.3 million Americans now without their extended unemployment benefits. What will it take to get the benefits back? Consensus in Washington.

(BEGIN VIDEO CLIP)

REP. NANCY PELOSI (D-CA), MINORITY LEADER: It is immoral that we have people that work hard and play by the rules are unemployed to no fault of their own. Really, it's a safety net for our system.

SEN. RAND PAUL (R), KENTUCKY: I do support unemployment benefits for the 26 weeks they are paid for. If you extend it beyond that, you do a disservice to these workers.

(END VIDEO CLIP)

ROMANS: All right. Mohamed El-Erian and Greg Valliere will be back with more next on YOUR MONEY.

(COMMERCIAL BREAK)

ROMANS: One-point-three million Americans are adjusting to life without extended unemployment benefits. Another 3.6 million people could lose those benefits this year if Congress doesn't extend the program.

So, should the benefits be extended? It's all on the eye of the beholder. First, put on your blue glasses for the liberal of you. The White House says failing to extend these benefits will cost the economy more than 200,000 jobs and will slow -- reduce economic growth this year. Democrats also point to an unemployment picture that is getting better. It is getting better, but it is still bleaker than it was 2008.

When President Bush first extended unemployment benefits, jobless rate was 5.6 percent. Now, it's 7 percent.

Americans are working harder -- they're taking a longer time to find work, too. It's now 37 weeks on average. That is more than doubled over the past five years.

Now put on your red tinted glasses for the GOP perspective. Unemployment benefits has been extended 11 times since 2008. Some Republicans say with the rate coming down, it's now time to pull back on what was supposed to be an emergency recession era program. An extension, by the way, has to be paid for.

Extending the program for one year is going to cost $25 billion. That's according to the congressional budget office. That's money some Republicans say could be put to better use by paying down the national debt.

Mohamed El-Erian and Greg Valliere are back with me now. Mohamed is the CEO of PIMCO, the world's biggest bond fund. Greg is the chief political strategist for Potomac Research Group.

Mohamed, economists say that unemployment benefits are one of the best ways to get money right into the economy, recipients generally put the money right to work almost immediately. Do you think this extension is necessary?

EL-ERIAN: Yes, I do. I think it's really unfortunate if it doesn't happen for two reasons. One is bad economics. As you say, this is the best way of putting money back into the system and we suffer from a problem of lack of aggregate demand. So, to cut demand at this point is bad economically.

It's also horrible social policy. We know we have a long-term unemployment problem. We know that 38 percent of the unemployed are long-term unemployed and it's for no fault of their own. It's that the system itself is having problems generating jobs for them.

So, which ever way you look at it, not extending it is the wrong thing to do.

ROMANS: But, Mohamed, do you think from -- from the perspective of economics, does it create a whole class of workers who are dependent on a paycheck from the government instead of going out and maybe finding a job less than they would have liked.

EL-ERIAN: So, that assumes that jobs are available, right? And if you look at the data, that's not the case.

The problem with long-term unemployment is it is harder to reenter the labor force because the longer you are unemployed, the more likely employers are to hire people who are less -- spend less time unemployed.

So, you have this problem and it's not solved simply by forcing people back.

ROMANS: Right.

EL-ERIAN: It solves through job retraining. Also, some other things that we have to get better at.

ROMANS: Greg, in 2002, the economy was in a pretty fragile state. At the time, President George Bush called on Congress then to extend unemployment benefits. Let's listen.

(BEGIN AUDIO CLIP)

GEORGE W. BUSH, FORMER PRESIDENT: Americans rely on their unemployment benefits to pay for the mortgage or rent, food and other critical bills. They need our assistance in these difficult times and we cannot let them down.

(END AUDIO CLIP)

ROMANS: That was a whole different downturn. But then, it was a bipartisan issue. Will Democrats and Republicans come together on this one and extend them, Greg?

VALLIERE: Well, first, we get on Monday, this coming Monday, the Senate will confirm Janet Yellen and they will immediately pass a three-month extension of unemployment benefits. Then it goes to the House.

I think most Republicans would agree with Mohamed. But their issue is they have to pay it.

ROMANS: Yes.

VALLIERE: So, it's about $6 billion over three months. So, how do you pay for it? Do you cut off Saturday mail delivery? Do you get some savings in the farm bill? Unless there can be a clear way to pay for it, this could run into real trouble in the House.

ROMANS: You guys, just very quickly -- after this year, this emergency program is over, isn't it?

Greg?

VALLIERE: My sense is maybe we'll get one or two more extensions. But a year from today, with unemployment probably getting close to 6 percent, there's not going to be any more emergency jobless aid.

ROMANS: Mohamed?

EL-ERIAN: I agree with Greg.

ROMANS: All right. Gentlemen, thank you so much. So, I think we can safely assume there will be some sort of an extension, but this is the last year for this, guys.

All right. Thanks so much. Nice to see both of you this weekend.

VALLIERE: OK. You bet.

ROMANS: Coming up on this show, we talk about one America with two economies. Now, New York's new mayor is vowing to take on what he dubs a tale of two cities. And Democrats around the country are rallying around that message.

(BEGIN VIDEO CLIP)

BILL CLINTON, FORMER PRESIDENT: This even equality problem bedevils the entire country, and I can tell you from my work much of the world, but it is not just a moral outrage, it is a horrible constraint on economic growth.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ROMANS: One America, two economies, an undeniable quick recovery by the numbers. A terrific 2013 for those with the cash and the credit to take advantage. But it's a recovery of a majority of Americans insist they are not feeling. In New York City, a billionaire mayor who oversaw a Wall Street renaissance has given way to a populist promising to take on income inequality, and he has a nation of Democrats behind him.

Susan Candiotti joins me now. Hi, Susan.

SUSAN CANDIOTTI, CNN NATIONAL CORRESPONDENT: Hi.

And it's interesting to see how this new mayor, Bill de Blasio, just elected here in New York City, just taking office, how he's going to do. He campaigned as a man of the people, and that message was also made clear during his inauguration ceremony.

(BEGIN VIDEOTAPE)

CANDIOTTI (voice-over): New York's populist new mayor, Bill de Blasio, and his family, got to his inauguration ceremony the way millions of New Yorkers get to work every day -- on the subway. Before emerging, even running into his predecessor, former Mayor Michael Bloomberg.

In his speech, signaling a reversal of policies that saw business boom under Bloomberg, some say at the expense of the poor and working class.

MAYOR BILL DE BLASIO (D), NY: When I said I would take dead aim at the tale of two cities, I meant it.

CANDIOTTI: Citing liberal leaders of the past century, de Blasio promising to even the economic playing field, including taxing those who make more than a half million dollars a year to pay for universal pre-K and after school programs, telling the wealthy, don't worry.

DE BLASIO: See their taxes increase by an average of $973 a year. That's less than three bucks a day, about the cost of a small soy latte at your local Starbucks. We do not ask more of the wealthy to punish success. We do it to create more success stories.

CANDIOTTI: With Bloomberg at times looking grim, in apparent disagreement, other speakers attacked his administration.

Also invited on stage, a little girl named Dasani, who has become the face of one of more than 22,000 homeless children, a record in New York since the Great Depression.

LETITIA JAMES, NEW YORK CITY PUBLIC ADVOCATE: We live in a gilded age of inequality, with decrepit homeless shelters and housing developments stand in neglected shadow of gleaming, multi-million dollar condos.

CANDIOTTI: Some light moments -- a son of the new comptroller fidgeting while daddy was being sworn in; New York's governor greeting activist actress, Susan Sarandon; and former president Bill Clinton embracing de Blasio's popular interracial family, a real-life modern family, as he called it -- and his plan to change the city's economic landscape.

CLINTON: That we have to have a city of shared opportunities, shared prosperity, shared responsibilities.

CANDIOTTI: And with that, a synchronized kiss to the crowd from the city's first Democratic mayor in 20 years.

(END VIDEO TAPE)

CANDIOTTI: It's kind of big picture. We're looking at a lot of things how this may affect people nationally.

(CROSSTALK)

ROMANS: That's what's so interesting. I'm going to be honest with you. Most people outside of New York don't give a hoot that there's a new mayor in New York.

CANDIOTTI: Right, right.

ROMANS: But what they're listening to this talk of one America, two economies and how it plays for them. New York is always much bigger and bolder and louder than the rest of the country, but there is this issue right there that seems to be playing out on the national stage. So it's sort of like a test tube for national politics.

Nice to see you, Susan.

All right. New York's billionaire mayor, you saw him there, he's just a billionaire. No more billionaire mayor, just a billionaire. So what's next for Michael Bloomberg?

(BEGIN VIDEO CLIP)

MICHAEL BLOOMBERG, FORMER NYC MAYOR: I applied to teach Spanish at a few universities, but I'm told that my accent isn't quite bueno.

(END VIDEO CLIP)

ROMANS: How about a White House run, instead? The business of being Bloomberg is next.

(COMMERCIAL BREAK)

ROMANS: Mayor Mike Bloomberg bid farewell to New York City politics, but don't expect one of the world's richest men to simply disappear. Armed with billions of dollars and a zeal for civic issues, Michael Bloomberg's next chapter promises to be very interesting.

(BEGIN VIDEOTAPE)

ROMANS (voice-over): With a last wave, this multibillion air is out of work, for now.

BLOOMBERG: I'll be fulfilling a lifelong dream of enjoying a small soda on a nonsmoking beach.

ROMANS: His net worth of $31 billion makes him the seventh richest man in the country, and the 13th richest in the world, and it all started with a layoff.

When Solomon Brothers let him go in 1981 with a $10 million severance package, Bloomberg started what would become Bloomberg LP. It's now the largest financial data provider on the globe. The company on track for a record $8.3 billion profit in 2013.

Bloomberg stepped down as CEO in 2001 to campaign for mayor, financing that campaign himself.

BLOOMBERG: So help me God.

ROMANS: $74 million in 2001.

BLOOMBERG: So help me God.

ROMANS: $85 million in 2005.

And after a controversial change in term limits he pushed through city council --

BLOOMBERG: So help me God.

ROMANS: -- $108 million in 2009, the most expensive self-financed campaign in history.

Bloomberg ran New York City for 12 interesting years. From pedestrian plazas to public smoking bans, to calorie counts, to banning the big gulp. His no-nonsense approach made him his fair share of enemies. He took only a $1 salary, saving the city $2.7 million over 12 years. BLOOMBERG: My checks used to be 93 cents and now they're 95 cents.

ROMANS: He opted not to live in Gracie Mansion, and he took the subway to work. According to "The New York Times," he gave the city at least $650 million for a wide variety of perks and programs.

His foundation, Bloomberg Philanthropy, has distributed $370 million in 2012, alone. He's given more than $1 billion to his alma mater, Johns Hopkins, and he's donated $2.8 billion in his lifetime to help causes from art to public health.

BLOOMBERG: The thing that gives me the most pleasure in the world is knowing I'm making a difference.

ROMANS: So, what's next for the billionaire mayor?

BLOOMBERG: I don't know what the future holds -- president, pope, naked cowboy.

ROMANS: He has quashed rumors about White House dreams for years, but he is deep in the political fray, championing causes from gun control to immigration reform.

Business mogul and billionaire mayor, the business of being Michael Bloomberg is far from over.

(END VIDEOTAPE)

ROMANS: Thanks for starting your Saturday's smart with us.

Coming up on a brand new YOUR MONEY at 2:00 p.m. this afternoon Eastern Time: stocks finished last year with record high levels. Is the market set for a drop this year? A bull and a bear face off on a brand-new YOUR MONEY right here at 2:00 p.m. Eastern.

And coming up at the top of the hour, an NFL player murders his girlfriend and then killed himself. Now, his mother is suing his team. Did dramatic brain injuries drive him to do it? The family's attorney steps into the "CNN NEWSROOM" right now here on CNN.