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CNN IN THE MONEY
The Color of Money in Sports; America's Money in the Middle East; Does Quarterly Guidance Hurt or Help Companies?
Aired July 29, 2006 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JACK CAFFERTY, CNN ANCHOR, IN THE MONEY: And the color of money, or the money of color. We'll hear from an author who thinks black athletes are getting shortchanged by professional sports. All that and more right after a quick check of the headlines.
BRIANNA KEILAR, CNN CORRESPONDENT: Now in the news, air raid sirens heard again in Haifa and other towns in northern Israel as the Middle East crises goes on. Dozens of new rocket attacks reported in that region today. And across the border in Lebanon, Israeli forces have launched more attacks on Hezbollah targets.
Meanwhile, Condoleezza Rice makes a return trip to the Middle East just days after her last trip to the region. The secretary of state is back in Israel. She's scheduled to meet with Israeli Prime Minister Ehud Olmert in Jerusalem a short time from now. No word yet on when she might travel to Beirut to meet with Lebanon's prime minister.
Also today, new threats from Hezbollah's leader. In a television broadcast, Hassan Nasrallah says his group will strike deeper and hit central Israeli cities. He claims Israel has suffered a serious defeat.
We'll update the top stories in 30 minutes. IN THE MONEY starts now.
ANNOUNCER: From New York City, America's financial capital, this is IN THE MONEY.
CAFFERTY: And now you get to see us again. Hi, welcome to IN THE MONEY. I'm Jack Cafferty.
Coming up on today's program, hush money, Washington's been pouring your tax dollars and mine into the Middle East by the bucket full to try to keep it calm and quiet. Now that we know how well that's not working, we'll see if it was a dumb idea from the get-go.
Fresh bull from Wall Street. Quarterly guidance is a fantasy number that companies will kill to try to meet. See if we'd all be better off if we just did away with it.
All play and no say. Even the best black athletes usually aren't the ones running the show. We'll talk to an author of a controversial new book, "$40 Million Slaves."
Joining me today a couple of IN THE MONEY veterans, Jennifer Westhoven, Andy Serwer. So as we went to press, as they say, on Friday, the S&P 500 was headed for its best week since January. The beleaguered Wall Street investor finally getting a little blue sky between himself and his red numbers. It's all because, I guess, of expectations concerning the Fed.
ANDY SERWER, "FORTUNE" MAGAZINE, EDITOR AT LARGE: You know what's interesting, too, is that the Street seems to be ignoring the conflict in the Middle East and ignoring the distinct possibility that the economy is slowing down.
JENNIFER WESTHOVEN, "HEADLINE NEWS" CORRESPONDENT: Well, that's a very real possibility right after we took a look at this morning's gross domestic product numbers, cut in half from the last quarter. That doesn't look so good.
CAFFERTY: But if the economy doesn't slow down, then interest rates continue to rise and stocks can't fight that kind of a head wind very successfully for very long. So maybe a slowdown is good, as long as it's not too much.
SERWER: Stuff gets really bad overseas, starts to weigh, right?
CAFFERTY: Oh, sure.
WESTHOVEN: But I saw "USA Today" I think had a headline today that said "Stocks too Scary for Most Investors." Most of them getting out. Whenever I see that, I think, ooh, all the kids are out of the pool, adult swim. Maybe that's a good sign.
CAFFERTY: We'll keep an eye on things. But at least for the moment, markets look like they're going to try to get into the black.
America's been sending money and discounted arms to Israel for -- well, forever. Now it's paying additional cash for humanitarian aid to Lebanon and will pour more money in there to rebuild the infrastructure that the weapons we have been giving to Israel have been destroy. This is all a little much for me to follow along, Washington spending our tax dollars to patch up what the Israeli weapons are tearing down. That's not counting the money to the Palestinians, the money we give Egypt, Jordan, yada yada yada.
You think if we could buy some peace and quiet, it looks like we're wrong. Help us figure out whether we are wasting our time and our money, we're joined by Carol Lancaster of Georgetown University. She has a very long title and it is well earned. The director of the Mortara Center for International Studies at the Mendaywall (ph) School of Foreign Service.
Carol, nice to have you with us.
CAROL LANCASTER, GEORGETOWN UNIVERSITY: Thank you very much.
CAFFERTY: You got people in New Orleans don't have any houses a year after Katrina and we're dumping all this money into Lebanon and these Middle East conflicts. Try to give us a little perspective from where you view this. LANCASTER: We started putting money into Israel and then Egypt during the mid-1970s. The object was to persuade them to get together and talk about peace and give them an inventive not to make war. What happens over time is the money may be useful initially but it does tend to become a little bit of an entitlement. And so that has been one of the consequences of the large amount of money over a long period of time.
That economic assistance is coming down now. But I think you're right. I'm sure people are sitting around in Washington, even as we talk, thinking about how much is it going to cost to -- to restore the infrastructure in Lebanon and to help the people there who have lost their houses and don't have access to food and medicine?
One way of thinking about it is that what Israel is doing is fighting a terrorist group. I'm sure the administration is going to put this in a broader context of fighting terrorism. The real question is whether the response on the part of Israelis has been proportionate or not and is the American taxpayer going to be paying for a lot of destruction that might have been unnecessary or not very useful. We don't know yet because we don't know what the end game is yet.
WESTHOVEN: Carol even before these latest crises, for every $1 that we give Lebanon; the United States gives Israel more than $50. Obviously, Israel, a much richer country. What's the kind of impact it has when in the aid equation it is so favorably tipped towards Israel?
LANCASTER: Well, I think that the -- first of all, I think the money we've been giving Israel, the economic assistance, not the military assistance, has been going down. I think the Israelis themselves, the government there, recognized in the middle of the 1990s that they were well off and they were getting the largest amount of U.S. aid per capita, it was time to ramp it down.
However, I suspect it may get ramped up again in the wake of this conflict and so on. So what do we get for it? Well, you know, we are going to have to take some leadership, I think, hopefully not alone, in cleaning up Lebanon and restoring the situation there to the extent that one can. And aid is a very useful tool for doing that. It's a useful way of getting other people to chip in as well. The World Bank, other nations. We'll see if we can do it this time. Because this is a pretty difficult one.
The second thing is, sometimes we use the stuff to get people to do things they didn't otherwise want to do. And if we can persuade the Lebanese and the Israelis to sit down and come up with a deal to stop the fighting and somehow deal with a long-term problems then, this is a nice addition to our own diplomacy, our direct diplomacy. The third thing is that we can build some houses, we can fix some roads. Lebanon is, seems to me, torn to shreds. It isn't in our interest to have that country sink. It's risky. It's expensive. But I think a lot of people could make the argument that in some ways it really fits our national interest.
SERWER: Yes but Carol, aren't we really in a lose-lose situation when it comes to the Arab world or the Arab street as they say? We pour tens of billions of dollars into countries like Egypt, Jordan, and now Iraq, and what do we have to show for it? The people there, do they like us any more than they did before? I would say no. So isn't it really a question of hearts and minds as much as dollars and cents?
LANCASTER: Foreign aid does not buy you hearts and minds. There are other things that have an impact on what people think about you. Foreign aid can only be an accompaniment to other things. So putting all the aid or at least appropriating all the aid for Iraq, given the security situation there I'm afraid is not going to produce what we had hoped to. It's not the fault of aid. It's the fault of the circumstances in which we're giving it. And, hopefully, we can figure out when it doesn't make sense to move forward with aid there. That, I have my doubts that we do very well. And put it aside until the time is right.
CAFFERTY: Not to trivialize this because it certainly isn't trivial. But there's a definition of insanity that goes a little something like this. If you keep repeating the same behavior over and over again and expect a different outcome, you're not well. We've been down this road in the Middle East time and time and time again, with the Palestinians and Lebanon. And the outcome is always the same. It eventually calms -- comes to roost for a little while and then everybody gets rearmed and re-energized and then we start it all over again.
I mean, the idea of just continuing to dump money into this area seems, to me, without some sort of dramatic change in policy, to be a bit of a futile exercise or am I just silly?
LANCASTER: There's a lot of risk in it. But we're dealing with one of the most volatile areas of the world and one of the most oil- rich areas of the world. And so what's our alternative? Do we just want to walk away? I mean, sometimes you can get in there and nudge people towards something positive. Whereas if you're not there, they spend their time shooting at one another. I don't have an answer to your question.
CAFFERTY: No, I understand.
LANCASTER: I think there's a fundamental problem in the Middle East, which is the -- much of the Arab world, certainly the Palestinians feel that injustice was done to them with the creation of the state of Israel. The state of Israel is there to stay. I think we all recognize that and support that. How do we lance the boil? How do we kind of deal with this sense of injustice without undercutting the good things that have happened? I'm not sure people are ready to deal with that. People are fighting, I think, in the Middle East sometimes because they feel an injustice has been done to them on both sides of this issue. I'm not sure we are ready to take on the fundamental question.
CAFFERTY: I'm not sure we are either. And our appetite for imported Middle Eastern oil is certainly part of it too. Carol we have to stop there. This is interesting stuff; we will get you back here to do this again. Carol Lancaster directs the Mortara Center for International Studies at Georgetown University. When we come back on IN THE MONEY, target practice. Short-term guidance makes earning season a lot more exciting we'll find out how the companies and you pay for all that adrenaline. It's not necessarily a good thing.
Selling the great outdoors indoors, find out why Sally Jewel, the boss of REI Outdoor store chain, thinks she's competing against video games.
And hang on to your green backs Ned Riley, Riley Asset Management, says there's a slowdown ahead. Stick around get his thoughts; see if he can get the thinking that coincides with yours. Back after this.
WESTHOVEN: Quarterly earnings and advanced guidance on those earnings. The forecasts have become the measuring stick for how well a company and its management team is doing. But some say all that quarterly guidance is actually hurting companies because it causes CEOs to shift their focus on the short term and stock prices instead of long-term business performance.
Matthew Orsagh joins us now with his take; he's an analyst with the CFA Center for Financial Market Integrity. Welcome to the program. Thank you for joining us. When did it happen that a penny per share became either the basis for some kind of a glorious accomplishment for a company or deep disappointment, all in one day, all based on a penny?
MATTHEW ORSAGH, ANALYST, CFA CENTER FOR FINANCIAL MARKET INTEGRITY: Well, it's something that evolved over time. This is a practice we didn't really have 15 or 20 years ago. But analysts and asset managers in the Street started realizing that if companies missed by a penny or exceeded their expectations that were a way to make money.
Over the years, they decided to ask management more and more, for more and more guidance. Management provided that guidance. We've evolved to the stage we're at now, to where it's expected. We think it focuses too much attention as you said on making those pennies and not investing for the long term.
SERWER: Isn't it a problem here Matthew that Wall Street analysts, I mean you look at Warren Buffett and his company. He does not communicate with these people. I mean he has quarterly numbers, he puts out something on his Website that says the numbers will be posted on September 20th or whatever date and boom, they're there. That's it.
You know, any time a management of a company is communicating with an analyst and telling that analyst something he or she is not telling shareholders, that selective disclosure, and it's illegal. I mean, these people -- it's outrageous, some of the stuff they expect from companies, isn't it?
ORSAGH: Exactly. You're not going to go poor following what Warren Buffett does. One of the things we found when researching this project was a paper that came out early last year done by Duke University and Washington University. And was really eye-opening, it interviewed over 400 executives and found that over 80 percent of them said they would forgo kind of long-term planning, seed planning activity such as R & D or marketing or other long-term investments, if it meant they would miss short-term numbers.
Over 50 percent also said they would not invest in net present value positive projects, projects that would be long-term value creators, if it meant missing quarterly guidance. That's when we knew we had a problem on our hands.
CAFFERTY: What happens if this stuff goes away? We woke up tomorrow and there was no quarterly guidance? We still come out with the earnings every three months just like we always do, but there's no more guidance. You just wait for the earnings. What are the repercussions from that?
ORSAGH: Well I don't know that would be so bad. I mean, look at, again, Warren Buffett, some of the companies that have decided to stop giving earnings guidance. The National Investors Relations Institute comes out with a paper every spring surveying their membership. Over the last couple of years there's been a trend with companies giving less and less quarterly guidance. Some still give annual guidance. More give annual guidance than quarterly guidance. Some have stopped giving guidance altogether. I think if this goes away you'll have companies being able to focus more on the long term.
WESTHOVEN: Is there really something wrong with a CEO or a CFO communicating about what's going on with the company's bottom line? Not what Andy just mentioned, which was just talking to an analyst, just in general? Is there something wrong with that or is it just you're trying to look at the behavior of what happened in the late '90s and the boom time and Enron and trying to figure out a way to curb it and this looks like a potential way to do it? But is there really something wrong with just talking about what's going on?
ORSAGH: Well, I want to make a distinction between earnings guidance given and quarterly reporting. One model that we found works well is a -- one of the companies we talked to gives out monthly operating data. The same kind of data they use to run their business internally. This is actually giving out more information than they do as far as quarterly earnings guidance. They give it every 30 days instead of every 90 days. It's something they post on their Website for everyone to see. It tracks maybe the six or seven, eight or nine Metrix that they use internally to measure their company, not just that one Metrix, Metrix of earnings per share.
CAFFERTY: All right. Matthew we'll have to leave it there. It is interesting stuff, perhaps changes ahead, perhaps not. Matthew Orsagh the senior policy analyst for the CFA Center for Financial Market Integrity.
Time now this next week's look ahead. Next week is a big week. The latest numbers on personal income and spending out on Tuesday. Those reports usually give a good estimate of future spending. Auto and truck future sales will be released Tuesday. But the big number next week, the one Wall Street's really going to be watching is the July jobs report. That comes out on Friday. That tells us about the unemployment rate and non-farm payroll job creation in this country.
Coming up on IN THE MONEY after the break, corporate versus co- op. The REI Outdoor chain isn't just selling gear; it's selling the experience of days in the wild, to the tune of $1 billion. Find out how shoppers benefit when the company does well.
And almost home, black athletes, like ballplayer Jackie Robinson, changed sports forever in America. We'll talk to an author who thinks there's a lot more change ahead and it's long overdue.
Also ahead, software, the cold, hard ground. See if Bill Gates is the country's biggest landowner.
Test your knowledge against our "Fun Site of the Week." As IN THE MONEY rolls on. Nice sweater Bill.
SERWER: Outdoor retailer giant REI is more than a store. It's the largest consumer cooperative in the U.S. with close to 3 million active members. Anyone can shop at REI, but co-op members get an added perk. An annual dividend, which depending on company properties is usually about 10 percent of what they spend in REI stores each year.
But CEO Sally Jewell says the success of the company isn't just about keeping customers happy, it's about keeping her employees happy, too.
(BEGIN VIDEO CLIP)
SERWER (voice over): Visit Seattle and you can shop at the historic Pike Place Market, take in views from the towering space needle, and climb a 65-foot wall housed inside REI's flagship store. As the CEO who oversees this interactive experience and others in REI stores coast to coast, Sally Jewell is quick to credit her employees for her company's success.
UNIDENTIFIED MALE: All of these multi tools are huge.
SALLY JEWELL, REI'S CEO: REI's biggest strategic advantage is the quality of people that we have working for us and that has been true for REI for many years before I got here. They get a lot of training, much more training than most retailers provide to employees regardless of how many hours they work. And we're stepping that up. They will make your store experience fun and inspire you to have a great outdoor experience. That is what I hear most from customers.
SERWER: Jewell treats her workforce well and it shows. "Fortune" Magazine recently ranked REI as one of the top ten best companies to work for in America. A ranking the company received even before Jewell extended health benefits to part-time workers.
JEWELL: Part-time health care is an opportunity to, again, be part of a solution on the nationwide basis to the health care crisis that's facing our country. I was very uncomfortable, as were my teammates, in having any of our employees not have access to quality health care. It's the right thing to do. We feel like taking a step in this direction sets a good example for other businesses to follow.
SERWER: Jewell's novel views carry over to defining the competition.
JEWELL: We consider our competitors to be video games, organized sports, things that take people away from having time to play outside. Other retailers that sell outdoor gear are struggling in the way that we're struggling for people's mind share and a piece of their time. We want other companies active in the you doors to be very successful as well. So we don't consider them our competitors. I'm not sure they feel the same way necessarily.
SERWER: Spurred by growth from REI.com and REIoutlet.com, REI's direct sales posted a gain of close to 21 percent last year. Even so, Jewell isn't totally satisfied with her company's online performance.
JEWELL: REI.com has been a very successful part of our business since 1996 when we launched it. We're behind right now. We need our Website to reflect the kind of community that REI stores are and that people enjoy in the outdoors. We think we've got a lot of work to do to make REI.com the kind of outdoor community that people expect now.
SERWER: While Jewell works to correct the issue, she doesn't let it consume her. As a wife, mother and volunteer, she's aware people and issues outside of the "c" suite compete for her attention and she wouldn't have it any other way.
JEWELL: The best piece of advice I ever received came from a mentor and friend. He talked about living his life in thirds. A third for family, a third for the community, and a third for work. The community connections have made a huge difference in my professional life. I wouldn't be at REI if I hadn't volunteered. Living my life in thirds is advice I'd give to anybody. It's balance.
(END VIDEO CLIP)
SERWER: Jewell has spent most of her career working for big public companies like Exxon Mobil and Washington Mutual. The privately held consumer co-op REI has been a different experience for her. But she recently told a local Washington paper she really likes the co-op model. Jewell says the company structure allows for long-term decision making, rather than just focusing on the quarter-to-quarter stuff.
Coming up on IN THE MONEY, getting to the back office. Some black athletes make big money but they could be signing the paychecks. We'll speak with the author of "$40 Million Slaves."
And later, Asian invasion. Are turning heads on crowded British streets. Find out if the locals are catching a ride.
Plus, MVP, as in most valuable politico? They say Cuba's Fidel Castro once tried out for the Washington senators. Find out if they're right, on our "Fun Site of the Week."
KEILAR: Town of Bint Jbeil, Israeli troops have largely pulled out. Pinpoint operations are expected to continue inside the town. Ground fighting and shelling continue elsewhere in the area.
Meanwhile the leader of Hezbollah was back on television today, declaring that his forces have denied Israel a military victory. Speaking on Hezbollah television, Hassan Nasrallah threatened rocket attacks on central Israel but he gave qualified support to a new peace proposal from the Lebanese government.
And a man accused of staging a deadly attack at a Jewish Center in Seattle may appear in court later today. He's identified as a U.S. citizen of Pakistani descent and authorities are calling the attack a hate crime. Six women were wounded, one fatally.
And coming up at the top of the hour, we explore the meaning behind the name of Hezbollah's new rocket, the Khaybar-1. There might be a historical significance to that name.
But now, back to IN THE MONEY.
CAFFERTY: With multimillion-dollar contracts, large mansions and expensive cars, modern athletes hardly bring to mind images of slavery. But our next guest asks who really has the power in the relationship between mostly white owners and the large numbers of African-Americans who play for them.
"New York Times" sports columnist William Rhoden is the author of "Forty Million Dollar Slaves: The Rise, Fall and Redemption of the Black Athlete." We're happy to have Bill Rhoden who is also one of the fine columnists for "The New York Times" on IN THE MONEY.
It is a very proactive title Bill, how did you come up with that?
WILLIAM RHODEN, AUTHOR, "FORTY MILLION DOLLAR SLAVES:" It's an anecdote. During the 1999 championship season, there's a guy who played for the New York Knicks named Larry Johnson. He boycotted the media all year. Finally, the NBA fined him, said, you got to talk. He held a press conference and he blasted the media. One of the things he said is, you know, my teammates, we're a bunch of rebellious slaves. The next day in the paper, everybody just completely destroyed him "what do you mean slavery?"
Well the next season, they played a game in Los Angeles against the Clippers. During a time-out, as a team went to the bench, this white guy stood up from behind the bench. He said, Johnson, you're nothing but a $40 million slave. But there are two interesting things about that anecdote, which one of his coaches told me. A, the fact that the fan remembered that. And the fact that Johnson who had signed this lucrative contract, chose that metaphor to describe himself. And I think that was the interesting thing. So that as a snapshot of the title was a beginning place. Because, you know, when you mention slavery in this country, the great democracy of the world -- CAFFERTY: Sure.
RHODEN: All of a sudden, something we've been trying to get past, not deal with, and I think it's really important for athletes to understand how you got to this point. Where you began -- and I go all the way back to the plantation, which was sort of eye opening for me. That there were athletes on the plantation. To take it from there, this is how you got from there to point "z." so it was a way to get -- it was interesting story, but it was a way to begin to get everybody's attention. But beyond that, I think that a lot of the contemporary athletes -- you get strength from your history. I think too many young athletes just don't understand how they got to this point.
And you're strengthened when you know your history. So it was a number -- it was to get your attention, but also to start a dialogue and the dialogue has to begin with the history.
SERWER: Hey, Bill, let me ask you -- I guess by your title, what you're saying here, even though these people are highly compensated, they're also to a degree exploited. I what the to make a metaphor on Wall Street. It's different, but on Wall Street, young people get paid a lot of money. They often get treated like dirt; they work 15, 18 hours every day. They get yelled at. Then often they go off on their own and start off hedge funds and be successful. I think a lot of people black athletes have been success, you look at Michael Jordan, famous examples.
SERWER: Well, OK, that is questionable. That's another story.
RHODEN: No, Isaiah, another conversation -- you're right.
SERWER: OK, Lynn Swann, J.C. Watts, and then there's millions of other smaller examples. So is this really such a problem, people paying their dues and then some of them go on and do just fine?
RHODEN: Yes, well, let me say what I'm not saying in the book. I'm not saying this group of guys are exploited. I'm not saying that. Because they've arrived at the point now -- you know, they're getting paid more money than any group of athletes, than black athletes have been paid ever before. So on the contrary, not only are you not exploited, but you are now in a position -- in the past if we had this conversation maybe in the '80s, '70s, then we could talk about exploitation, the quota system and those kind of things.
Right now, black athletes are at a very unique point in the history of this evolution. They've gotten more money to do precisely what you're saying. The problem is even though individual athletes are doing some really nice things, the magnitude of the challenges facing the communities from which many of them come are much greater than any one person's foundation to solve it. I guess this is a call from -- kind of evolving from what's become sort of a one on one kind of mentality to more -- to getting back to that group, to getting back to doing more things collectively. You mentioned Magic Johnson. Magic has done great things. Could you imagine if there were like 20 Magic Johnson's doing things?
SERWER: Right good point.
RHODEN: That's more -- forget the exploitation thing. That has no place in this conversation, in the book. It's all about how to use the potential power that you have before it's too late.
WESTHOVEN: It's clear to me that you are -- you're actually saying that these guys -- yes, they're superstars, they embodied the American dream for some people. But you're calling on them for some kind of a leadership. At the same time, you've got some criticism for Michael Jordan for not providing that kind of leadership in terms of the African-American community. What do you want from him?
RHODEN: Well what he could have done, and again, this book is somewhat of a film session, you know, a lot of athletes spend all their time watching film. They watch film of the past to learn mistakes and what they could have done. With Michael, you look at the case of Harvey Gant, when Harvey Gant was -- is the mayor of Charlotte, and he was running against Jesse Helms for a senatorial spot. Rather than Michael using his immense power and acclaim to say, you know, I think Harvey is a guy and again particularly given who Jesse Helms was, you know, Michael chose to play it safe and say, listen, Republicans buy sneakers, too.
I know he would not have said that today. That's one of the things; Michael has so much weight when he was playing and whatever criticism I directed towards Michael has nothing to do what he's doing now. It's all what you could have done when you were play. Had Michael called athletes together, had he said, let's jump, they would jump. Had he said, move here, they would have moved here. But Michael had it in his mind that, listen, you know, I'm going to be this neutral person, I'm going to appeal to everybody, which is OK, but he just missed such a tremendous opportunity to move mountains in a public way.
And I'm sure, you know, a lot of athletes are saying, we do things behind the scenes. I guess the point is we're at a point in history now, particularly with our children, our children need to be inspired. You know, that's like if Dr. King would have given Martin Luther King's "I had a dream" speech at a local picnic, you know. And that would have been a nice speech. But 30 years later, people would not have been inspired.
So I just think that from Michael to Lebron to Carmelo, to other people, just understand that, "a," you have to do things together. But, "b," you're at a point in history where you were in a position to provide inspiration. That's what we need, just not as a black community, but as people in general. But particularly the African- American community.
WESTHOVEN: Bill, thank you so much. Your book is really something of a reminder that maybe we have a long way to go before we have liberty and justice for all. I personally have a soft spot for people in history who go out there, swing through the fences and they just fail and get forgotten. Your book is full of illustrations of people like that.
RHODEN: Thank you so much for having me.
WESTHOVEN: Thanks. There's a lot more to come here on IN THE MONEY. Up next a cooler way to beat congestion. Icons of the Asian street are making their way east. Find out if the locals are hitching a ride.
And risk versus reward. With war and inflation in the headlines, we'll see where the smart money is headed. Stay with us.
SERWER: In this week's "Brainstorm" segment, forget the yellow cab. The latest way to get around comes straight from Asia, Tuk Tuks, Rickshaws, and for those wanting a bit more comfort, karma cabs. They're turning heads in Britain, thanks to a hand full of entrepreneurs. Jim Boulden reports.
JIM BOULDEN, CNN CORRESPONDENT (voice over): As soon as it's sunny in Britain, the natives head to the beach. Those on Brighten's pebble filled beaches used to walk or wait for a crowded bus to get around. Now there's a new way to beat the heat and the traffic here in Brighten. All the way from India, it's the Tuk-Tuk. It took 26-year- old Londoner Dominique Dominique, my driver and the founder of Tuk-Tuk UK two years to get permission to import a dozen auto rickshaws.
DOMINIQUE DOMINIQUE, FOUNDER, TUK-TUK UK: We're in our third week. Every day's been busier.
BOULDEN: Those expecting to walk in the heat are pleased to see the Tuk-Tuks.
UNIDENTIFIED FEMALE: I didn't go on one in India but my husband did and he said it was quite an experience.
BOULDEN: Conner Webb and his brother Jordan can't wait.
CONNER WEBB, TUK-TUK RIDER: I haven't been in one before. I think they're good. I think it's going to be a good one.
BOULDEN: Tuk-Tuk plans to expand into London next year where it already faces competition from a few other alternative ways to get around. Cycle rickshaws ferry tourists to and from the theater, especially now with temperatures on the crowded underground subway topping 40 degrees Celsius.
For those in London looking for more comfort and maybe a philosophical lesson there is another India import, Karma Kars.
TOBIAS MOSS, KARMA KARS: When you come into karma cabs, you're not going anywhere. You're already somewhere. You're in a karma cab. Enjoy the smell of the incense, the touch of the fabric, the visual of the sounds, the world music we play. BOULDEN: Back on the beach, it is all about a cooler and greener way to travel. These Tuk-Tuks are fueled by compressed natural gas.
UNIDENTIFIED MALE: To make a difference, really, encourage people to use green fuel.
BOULDEN: Given the heat and the ride, tourists in Brighton say they didn't have to travel far to be reminded of an Asian holiday.
Jim Boulden, CNN, Brighton, England.
SERWER: Coming up next, surfing lessons for your cash. Things like wars can make markets get twitchy. We will look at smart strategies for your money when-
CAFFERTY: The Web master's here now, Allen Wastler with a look at where to put your money right now. He also has a "Fun Site of the Week." What do you got?
ALLEN WASTLER, CNNMONEY.COM: Well we always do our homework on this show, most of us, anyway. While Andy was off on vacation, sipping Maitais, Jennifer, Jack and I sat down with Ned Riley of Riley Asset Management to get his thoughts on where to invest in these uncertain times. We began by asking about the impact Middle East tensions have had on U.S. markets. And where we should be putting our money during this uncertainty.
NED RILEY, RILEY ASSET MANAGEMENT: Right at the moment, I think the Middle East issues are their issues. Unfortunately, Wall Street looks at things so objectively that this issue right now is not affecting the economy, it's not undermining oil supplies. It still hasn't. Hurricanes have hurt oil supplies more than any conflagration in the Middle East.
Bottom line is, I see the economy in the United States and globally slowing so dramatically in the next 12 months that we're going to see these little bubbles popping in oil, gold, silver, copper, nickel. We're already starting to see some of these little pockets and housing as well. Housing's going to be a real tough issue for the Fed to offset in about six month. We've only scratched the surface in terms of the pervasiveness of how much housing deterioration will hurt this economy.
CAFFERTY: So grandma Millie dies leaves me $20 grand. What do I do with it?
RILEY: If grandma dies and I hope she doesn't, let's just say she's a little sick. I would put my money first of all into the Spiders, the S&P 500s. I'd stay away from small cap. Because slower growth definitely undermines earnings of small cap. I also buy the tech. QQQs are the XLKs to Spiders, simply because everybody hates the tech sector now. It's 14 percent of the S&P, 11 percent of its earnings. The hedge fund is only 31 percent long. The price/earnings ratio has been cut in half.
Everybody loved Dell at 40. They hate it at 20. They loved Intel at 31. They hate it at 18. This is a beautiful time. You may have to be a little patient, but the bottom line is, this looks like 2003, 2002, when everybody hated tech at the bottom and we had a heck of a rally from the Qs, 20 up to about 42 before we had this recent retractment.
I also like the financial stock, Jack. XLF, the SPDRS. I still think that interest rates are coming down, inflation's coming down. Earnings are going to take a tertiary seat to those two factors and those are going to be the catalysts to get the market going. We're going to see some multiple expansions from lower interest rates and inflation and some multiple expansions because the earnings are going to deteriorate in the economy and cyclical earning companies.
WASTLER: Hey Ned, Allen here what about the foreign markets? They've been charging in the last couple years. You've said a lot of home grown equities. What about the foreign markets, going there at all?
RILEY: My cynicism prevails because too much money has been going over there. If you look at the mutual fund portfolios in the United States you find 60 percent to 70 percent of it going in the national funds or emerging market funds. What's their claim to fame? They're feeding off the U.S. economy at the moment. The fact is that the U.S. starts slowing down and then globally things start to slow down from a consumption perspective, I would say the emerging markets and also the mass -- you know, the index will be under some pressure.
Relatively speaking, if you put them in prioritizing, I would put domestic stocks first big cap. I would put EFA second. Emerging markets I'd watch out for. Because they've doubled, tripled, in the past two to three years. It has been U.S. money also that's been driving those markets up. And U.S. money can come up just as quick.
WESTHOVEN: Ned, we're getting close on time. But quickly, how do you think Ben Bernacke's doing? Are we finally getting more comfortable with this guy?
RILEY: Well, the good news is that he stopped using Marer (ph) as his spokesperson for the time being. I'm very pleased with that. Bottom line is the poor guy is confused; he is under a lot of pressure. You know you guys criticize the Fed, I'm happy they finally admitted such thing as the other side of the slope of the curve here, man. I'll tell you, they're saying inflation, and inflation is already tripled in the regular indexes. CPI has gone from 1 to 4.5 percent. The core's doubled in the last 3 years 2 years. Bottom line is, we are in a peaking of inflation but they should have recognized that maybe three or four months ago.
What's the difference between two-tenths and three-tenths? Jack, you remember way back when, we were worried about 9 percent, 12 percent, 14 percent inflation, not three-tenths versus two-tenths.
WASTLER: We'll have to get Ned Riley back in here after Bernanke's big test, which is on August 8th that is the next Fed meeting.
OK, enough serious stuff. Lets get to fun. All right. How good are you guys on urban myths?
WESTHOVEN: I don't know.
SERWER: I think --
WASTLER: Well, there's a site called Blufer.com where it will go and give you a question and tell you how many people got it wrong and you have to figure out whether it's way or no way. Ready for the first one. Baby rats. They're also known as kittens. True or untrue, way or no way?
SERWER: That's true. They're cute.
CAFFERTY: No way.
SERWER: They're cute.
WASTLER: Sorry, Jack, happens to be true. Ooh.
WESTHOVEN: Let me tell you, my kittens have eaten them.
All right, next one. Next one. All right, Bill Gates, you know about him, right? Largest individual landowner in America. True or not true?
WESTHOVEN: Ted turner.
WASTLER: Ted Turner. Uncle Ted. Of course. We all know that.
WESTHOVEN: Is it?
WASTLER: Here at CNN we know. Finally, all right this one, Fidel Castro, you know him, crazy guy, beard, and cigars? All right. He actually tried out for the Washington Senators baseball team. True or untrue?
SERWER: I think it's true unless it's a different team. But I think it's true.
WASTLER: But thanks for playing our game. He is a baseball devotee, loves baseball, but never tried out. The urban myth got you. The urban myth got you.
CAFFERTY: It's not the first time I've been got.
WESTHOVEN: Now for this week's "Life after Work" story. Walt Rosso spent 20 years in the Army Parachute Infantry. He gave up sky diving when he retired from the military back in 1975. He wanted to make a better living. Well 20 years later, the 69-year-old not only went back to jumping out of planes, he decided to do it in all 50 states. Valerie Morris has that story.
VALERIE MORRIS, CNN CORRESPONDENT (voice over): Walt Rosso He doesn't spend his retirement counting the days go by. Instead this retired U.S. army ranger is adding up his sky diving jumps.
WALT ROSSO, SKYDIVER: It's an adrenaline rush. When you're up in that airplane and they open that door and you're at 10,000 feet and you are relying on your training and your equipment, some people say it's the most fun you can have with your clothes on.
It was great. I got to stand up.
MORRIS: Rosso was in the military for 20 years. Most of the time he was in the parachute infantry. After his retirement, he spent another 20 years working different jobs, ranging from farmer to real estate agent, until he earned enough to retire. One summer while traveling, Rosso realized it might be possible to jump in all 50 states. Five years later, he reached his goal.
ROSSO: The only 50 state jumper I know, great jumping with you. To make my 50th jump, I decided I wanted to do it in Hawaii because Hawaii was the 50th state to come in the union.
MORRIS: Even with this feat, at nearly 70 years old, Rosso isn't done yet.
ROSSO: My new goal is to jump until I'm 82. Life is golden. I just want to keep going.
MORRIS: Valerie Morris, CNN, New York.
WESTHOVEN: Next week on "Life after Work" the story of a small business owner who left the hustle and beautiful of southern California for a quieter life on a ranch in Nevada. She's now breeding alpacas. They are cousins of the lama. They make great coats. We will have her story next week.
We'll be right back with more IN THE MONEY.
Time now to read your answers to our email question of the week about whether or not you watch TV with the remote in your hand. Arguably the lamest email question we have ever asked on this program. Never the less some of you wrote in.
Howard in California wrote this, "Do you really expect people to sit like zombies and watch commercials? When we watch your show, we hit the mute button during the commercials, and you wouldn't believe how much we can get done without missing a second of the actual programs."
Brian sent this, "I just sit back and relax. It takes a lot of discipline, but it actually makes watching TV more enjoyable in the end. When I flip from channel to channel, it really feels like a chore."
Bev wrote, "Funny you should ask, I stumbled across your show for the first time today while flipping through all the channels."
Here's next week's e-mail question of the week. Do you try to adjust your investments based on events that you see in the news? Send your answers to INTHEMONEY@CNN.com. You should also visit our show page at CNN.com/inthemoney, which is where you will find the address of our "Fun Site of the Week."
On that note my thanks for joining us for this week's edition of IN THE MONEY. My thanks to "Headline News" correspondent Jennifer Westhoven, "Fortune" Magazine editor at large Andy Sewer, and CNNMMONEY.com managing editor Allen Wastler.
Hope to see you back here next week, Saturday at 1:00, Sunday at 3:00 Eastern. Until the next time enjoy the rest of your weekend.
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