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Analyzing the Success of Obama's 2010 Job Focus A Year Later; Obama's Approval Soars Despite Republican Sweep in the Midterms; 2011 Priorities: Bringing Down Unemployment, Bringing Down the Deficit; The China State Visit: What It Means For Americans and American Business; Investing in Media; When Smart People Make Bad Money Decisions; Dear Mr. President, By Ali Velshi
Aired January 22, 2011 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, HOST: President Obama has the stage to himself. If he can't convince the American people that more jobs are on the way, his own job could be in trouble.
Welcome to YOUR MONEY. I'm Ali Velshi.
It was one year ago the president used his State of the Union to assure Americans that he shared their top concern.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I realize that for every success story, there are other stories of men and women who wake up with the anguish of not knowing where their next paycheck will come from, who send out resumes week after week and hear nothing in response. That is why jobs must be our number one focus in 2010.
(END VIDEO CLIP)
VELSHI: Number one focus in 2010.
Let's look at the results, more than 1.1 million jobs added in 2010. Look at the right side though, that is the interesting part, 1.3 million jobs were added in the private sector. The reason we only come out with 1.1 in total is because there was a loss of 200,000 government jobs. That brought the final tally down.
By the way, we prefer that our jobs are created in the private sector, because taxpayers don't pay for those jobs.
Stephen Moore is editorial writer for "The Wall Street Journal."
Stephen, all of us agree we need more jobs. So what do you as a conservative need to hear from the president on Tuesday night?
STEPHEN MOORE, EDITORIAL WRITER, "WALL STREET JOURNAL:" Well, Ali congratulations, I think I'm finally having an influence on you.
You are right the private sector jobs are the ones that we want. You played that clip from President Obama and he could almost say exactly the same thing in this State of the Union address. The economy is improving; there is just no question about it. The stock market is strong. We're seeing recovery in manufacturing and a lot of industries, even housing seems to be picking up a little bit, but it still hasn't translated into the one issue that Americans care most about, obviously, which is their job; and if they don't have one, getting one.
So this is the big problem -- there's still 14.5 million Americans unemployed. One last point, you are right the good news is we've created 1.3 million jobs over the past year. The bad news is we need to create about two to three times that many start bringing the unemployment rate down.
VELSHI: Chrystia Freeland is a global editor at large with Reuters.
Chrystia, the question is whether or not the president says what Stephen or anybody else would like him to hear, when you ask Americans who they think has more influence over the direction of the nation over the course of the next two years.
Take a look at these results, 56 percent choose congressional Republicans, 36 percent say President Obama. So if unemployment is stubbornly stuck above 9 percent, 9.4 percent right now, does the president necessarily want to convince anybody that he has sway over or is responsible for where the country is going to be when he is up for reelection in November of 2012?
CHRYSTIA FREELAND, GLOBAL EDITOR, REUTERS: You know Ali, I think that is a brilliantly astute political question and I think we're going to see something really interesting happening in this sort of dance between the White House and Congress over the next year. Because I think, you know, the Republican-controlled Congress is now going to face a really difficult question of how much responsibility do they want to be perceived to have over the economy, and also frankly in, you know, not to be too cynical about it, but do they really want the economy to get that much better?
You know, if the economy is booming in 2012, job numbers are looking a lot better, I think that looks better for the Democrats than Republicans. So I think that there is going to be a really delicate political dance and I think the main thing we're going to be seeing that the president tries to do - you know to be honest, we love to analyze policy and what does it mean and how can he create jobs.
The truth is he can't do that much anymore. They did the big tax deal at the end of last year, that's -- that's their big bullet that they have already fired into the economy. His big job now, I think, is to show Americans he cares. And that's what I think he's failed to do last year.
VELSHI: Who takes the credit for it if things do actually get better? Hang on a second, Stephen and Chrystia, I want to bring Lakshman Achuthan into this, he is the managing director of the Economic Cycle Research Institute, because Lakshman is often one who says it doesn't really matter what the president said. Lakshman, you have said that the fear of a double-dip recession is behind us. Take a look at how people are feeling about the economy. This is a brand-new CNN Opinion Research Corporation Poll, and broken down by region.
In the Northeast, 19 percent of people think the economy's good, 81 percent say it's bad. In the Midwest, 24 percent say it's good, 75 percent say it's bad. Take a look in the West, 26 percent say it's good, 74 percent say it's bad.
Let's go over to the other side again and take a look at what they say in the south, 27 percent say it's good, 73 percent say it's bad. Not a whole lot of variation across the country.
Lakshman, as an economist, first of all, do you think that poll captures what people are feeling about the economy? And as an economist, do you care much what President Obama says about job creation on Tuesday?
LAKSHMAN ACHUTHAN, MAN. DIR. ECONOMIC CYCLE RESEARCH INST: All right. So the first thing about that recent poll, as bad as those numbers are, I suspect they're better than they were. Because we were really in a hole and we're climbing out of it. And so, what's really important when you're looking at a cyclical move in the economy is the direction.
So, as bad as those numbers are, they number one, they're better than they were. Number two perceptions. Typically these kind of coincide, how are you feeling polls, they tend to lag the reality because it takes a little while to catch up to things that are shifting.
And here we have an economy; look there is no double dip. We've discussed that before. In fact there's a revival in growth. I think Stephen alluded to that in his opening comments that is coming in 2011 that is here, it's imminent, and it is right in front of us. And so -- and it will include continued jobs growth.
So minimally I think what you saw in 2010 you'll see again in 2011. You may see something a bit better in terms of job growth in 2011 and who takes credit for that?
First off, nobody -- I think policy wonks in Washington like to say that they control the business cycle, but actually it's the other way around. The business cycle, the private sector, controls the policy wonks. They're really much more in charge. You have to make I think a kind of a tactical decision, do you want to take credit or do you want to blame about it.
VELSHI: Let's bring Stephen in, because I know he had some thoughts about that.
Stephen, now that we've laid out, you know, who we think could actually do anything about this, what's your response?
MOORE: A couple points. One is, Barack Obama's going to knock this speech out of the park. He always does. He's a great communicator and there's no question that what he says is going to be very comforting and reassuring to the American people.
The real question is, is it going to work. And I do think that we've seen some reassuring signs the president has moved to the middle. The tax cut that he signed in December which is something I was always in favor of, I think is going to help the economy.
Look. I do -- the one thing I would disagree with is I think policy matters. I wouldn't be in the business that I'm in if I didn't think that these different policy choices didn't have impacts on jobs.
My opinion is the last couple of years the president really governed way to the left with the spending and now I think we're going to see policy shift more to the middle and I think that's going to be the advantage of the president and the Republicans.
But one last thing, the president, it's always the president's economy. It's always no matter who runs Congress; most people don't even know who runs Congress. It's always the president who gets the credit or the blame.
VELSHI: Chrystia, you made the point that there's not as much as can you do now, if I'm interpreting what you're saying, you're saying that when President Obama took office there was more to be done by government. They needed to pick up the slack for businesses and individuals who weren't spending but at this point the cycle has kicked back in and is doing what it's supposed to do.
FREELAND: Yes, that was partly what I was alluding to and the other thing is we are now going to have real gridlock in Washington, so I think that we're not going to have any big decisions happen there.
The one area that we haven't talked about that I think will be very significant for the economy in this coming year is what happens at the state level. And as you guys all know, state budgets are in real trouble, and there are real signs that -- whether it's Democrats or Republicans in the state house, one of the things we're going to be seeing all state governments do is cut spending and that means cutting jobs. That's where some of those government jobs that you saw going away in those numbers you cite at the beginning --
MOORE: There's going to be no bailout this year for the states that's for sure.
FREELAND: So that will be interesting and significant to see you know what is the net impact of that.
VELSHI: Stephen, that's interesting because whatever you think has improved at the federal level has actually in some cases been shifted down to the state level, which for most of our viewers means the municipal level as well. That means like we saw in Camden, New Jersey, half the police force being fired. That means firefighters.
VELSHI: That means garbage collection. That means pools and libraries.
MOORE: You are exactly right. I mean there's huge pressure on state and municipal budgets. What the states and cities need most from Washington is to get this economy moving. Because if the economy starts growing and by the way, we're starting to see signs, Ali believe it or not, of increased revenue growth at the state level for the first time in two or three years. So there is some good news on the story but it's still going to be a tough year because there ain't going to be a lot of federal money coming to the states this year.
VELSHI: All right. Stephen, I know have you to catch a flight. Thanks very much for being with us.
Chrystia and Lakshman, don't go anywhere.
The Republican sweeping victory in November was supposed to spell big trouble for Democrats so why is President Obama's approval rate soaring? We'll talk about that on the other side.
VELSHI: Republicans who were on the ballot in the last midterm election spent a great deal of time trying to tie their Democratic opponents to the Democratic leader, President Obama. That was with good reason as the president's approval rating dipped as low as 42 percent in September.
But look at what has happened as the Republicans took over the House this month the president continued to gain support. His approval rating now stands at 53 percent, 11 percentage points higher than it was in September.
Lakshman, you are an economist, it means you look at numbers and not exactly -- not always just the policy of it, so I want to ask you has there been some fundamental change in the economy over the last five months that would lead to such a big jump in the president's ratings?
ACHUTHAN: Yes. In a word, there was a slowdown that started at the beginning of last year. It's run through the end of 2010, and right about here the economy has kind of had its soft landing or landing bottoming in the growth rate and it's starting to reaccelerate into 2011.
And I think people are feeling that first and foremost in the jobs market. Because if you're afraid of a new recession you're talking about actual job losses again.
And that's just -- I don't think, the nation as a whole, I think as that fear recedes, some confidence comes back. Not only for the people who are looking for jobs but maybe even more importantly for people who have jobs. And they almost are permitted to go out and spend more. So you saw at the end of the year spending really ramp up not only for the wealthy but also for the middle and lower income levels, and that's continued into this year, and if people are buying more you have to produce more, you have to hire more, you have to pay more, and it's the virtuous part of the business cycle.
VELSHI: The opposite of with a we talked about for the last three years.
Chrystia, President Obama tapped General Electric CEO Jeff Immelt to lead his president's council on jobs and competiveness, in fact he just changed the name of that council. You just spoke with Jeff Immelt. What is the job that he's going to do and can he actually do anything?
FREELAND: OK, so you're right Ali, I interviewed Jeff on Wednesday, and I think that this is a really brilliant step by President Obama and one of the things that helped to explain why his popularity has really increased.
We've seen since the midterms and even a little bit before that the president really working to reach out to business and to create a sense that he is pro business. You know, pro jobs and he gets the fact that the economy can only grow if business is growing. I think appointing Jeff Immelt, who is a Republican, a lifelong Republican to be in a way his chief business adviser.
FREELAND: Is really significant. What's also significant about it is we've seen a lot of people with financial backgrounds close to the president, Bill Daley recently who was at JPMorgan has just come in to be his chief of staff, GE I think occupies a different space in people's minds. It's a company that believes in manufacturing.
And when I spoke to Immelt on Wednesday, his big view was for the U.S. to compete in the global economy it has to have an export, a manufacturing and export-led strategy.
And that's with a we've seen, not just China do but actually if you look at around the world, which is the western industrialized country is faring the best, the answer is Germany. And the Germans, you know, for decades have had a real focus on export-led growth. So I think we're going to hear that from the White House.
VELSHI: Although they've lost their top spot to China now and the reality is unskilled labor in China costs less than $1 an hour. Lakshman tell me if that's -- great, we've never had a real good manufacturing policy in this country and we've been losing manufacturing jobs for 15 or 20 years now, is that really where our future needs to be?
ACHUTHAN: Partly. OK. I think if we -- we should certainly reinvent that sector, and I think it already has been reinvented, to tell you the truth. A lot of the manufacturing sectors have become very lean, very competitive, hyper productive, and they're actually profitable. And as you have currencies starting to normalize a little, there's a lot of inflation in China, so they might let that currency rise a bit, that's going to even help more.
I'd be careful of saying we want to become like the manufacturing floor for the world again, because when you look at cycles, and I think it's important that policy starts to figure out some of the basics about cycles, because I really don't think policymakers get it, but when you embrace, say, manufacturing sector and if we were all kind of exporters, we would be very cyclical, much more cyclical than we are now. Meaning we would have big booms and big busts.
VELSHI: Chrystia Freeland and Lakshman Achuthan great to see you both.
Coming up next, two big challenges cutting the deficit and creating jobs. Both are noble goals but can both be done at the same time?
VELSHI: Bringing down the unemployment rate and bringing down the deficit. Two tasks high on President Obama's priority list. Which one do you tackle first? Former White House economic adviser Larry Summers told CNN's Fareed Zakaria last week that the president has done it right, by focusing on accelerating economic growth.
(BEGIN VIDEO CLIP)
LAWRENCE SUMMERS, FMR. CHIEF ECONOMIC ADVISER TO PRESIDENT OBAMA: If we had attempted that first, if we had attempted deficit reduction as the first, as the first step, the likelihood is that we would be looking at a much weaker economy and as a consequence, ultimately we'd be looking at much larger debt problems.
(END VIDEO CLIP)
VELSHI: David Walker is the founder and CEO of the Comeback America Initiative, he is the former U.S. Comptroller General. He believes very strongly in deficit reduction and debt control.
David, unemployment around 9.4 percent. Is this a realistic time to tackle the deficit? Or do we still have to wait a little longer before we start cutting across the board and handling that deficit and finally bringing down the debt?
DAVID WALKER, CEO, COMEBACK AMERICA INITIATIVE: We need to do two things. We need to do what it takes to try to stimulate economic growth, create jobs and reduce unemployment while at the same point in time create a plan to deal with the truth rather than threaten this nation's future and those are the deficits that lie ahead that we have to come to grips with because they literally could bankrupt this country. You need a plan.
VELSHI: Part of that plan was that big commission that the president put together that came out with its report just before the end of the year. What did you think of that plan? WALKER: Well, the commission I think did a great job in building the case for the need for fundamental reforms where everything was on the table.
WALKER: They noted it was primarily spending problem rather than revenue problem and now we need to hear from the president, what is he going to do with that plan? It was his commission, what is he going to do with the recommendations?
VELSHI: That's one of the things I'd like to hear from him in the State of the Union, that it's not going to be shelved and it is not going to be pushed aside. In simplest terms let's just talk about why it's important to reduce the deficit over the long-term. Ultimately if we do not reduce the deficit your taxes go up, the services that the government is able to provide for you would decrease dramatically and the government's flexibility to respond to crises like the one we saw in this past recession, would also decline.
These are all bad things, to say the least. Jeanne Sahadi on CNN Money has got a great, great article on this to say if we just let this go, Roland Martin, if we just let this go, eventually we will have eight cents left of every dollar to be able to spend on government priorities. Should the president focus on the deficit before we see a meaningful drop in unemployment, Roland?
ROLAND MARTIN, CNN CONTRIBUTOR: Look. I don't understand why Republicans and Democrats don't understand that you can actually do both. So let's have some honesty here. First of all on the Deficit Commission it was a Republican idea. When the president said fine, create it, Republicans didn't want to do it so therefore he had to do it himself. So they frankly failed their fiduciary responsibility to the American people.
But also the American people should stop lying to us every day. The CBS Poll this week showed it best. They don't want any increase in taxes. But they also don't want any cut in Social Security and Medicare. The House Republican Conference put forth $2.5 trillion in cuts, did not touch the fence. And so you can't keep sitting here lying and playing games here.
But also we also have to be honest. We talk about spending. Well, guess what? The Republicans sat here and wanted tax cuts in the stimulus bill. One-third of that project was tax cuts but they still didn't like it. We got tax cuts for the rich, but then we say well it's good for them but also don't put money in infrastructure. So make up your mind what you want, because frankly it's confusing.
VELSHI: David makes this point always; he makes the point that you're going to have to attack this on a few fronts. I want to give people an idea of what I was just saying before we talk to Roland for a second, take a look at the expected federal tax revenue in 2020. OK? According to the Government Accountability Office 92 percent of revenue will go to pay for, as Roland just said, Social Security, interest on our debt, Medicare and Medicaid, leaving 8 percent or eight cents on the dollar for everything else. So David the reality is if you don't talk about Medicare, Medicaid, Social Security and defense, you are left with very little to actually cut. How do we deal with this?
WALKER: Ali, everything has to be on the table. Social insurance reforms, defense and other spending cuts, comprehensive tax reform that will raise more revenue among other things. Look here's what we need to do. We need less government consumption spending, more targeted investment, renewed innovation and partnership with the private sector.
In addition to that, we need to impose tough statutory budget controls as part of the debt ceiling, raising the debt ceiling limit that will have meaningful pay as you go rules without trillions in loopholes, tough by realistic discussionary spending caps that does not exempt defense and Homeland Security and in addition to that specific debt to GDP targets that will kick in at about 2013, 2014 with automatic spending cuts and tax surcharges if Congress does not act.
MARTIN: You left one thing out.
VELSHI: David's been very consistent in saying that over the years regardless of administration. Roland, is any of that going to happen?
MARTIN: Yes. But he left one thing out. You need politicians with guts. We saw this week where the mayor of Camden, New Jersey, said; look we've got a $26 million shortfall. Police and firefighters and city employees, I need you to have a pay freeze and pay more for health care. They said no. She whacked 45 percent of the police force, now people are upset. Governor Jerry Brown in California, he has been saying tough love. David Paterson in New York was saying, you've got to change, Albany saying, no, no thanks we don't want to listen to you, now Governor Cuomo is saying I might have to shut the government down.
So the taxpayer, the average person has got to stop demanding more, more, more, but then saying I don't want to pay taxes. If you don't want to pay more taxes you're going to have to slow down spending and also stop spending and making priorities as to what we really care about.
VELSHI: Yes. I think you both agree on that. Thanks to both of you, David Walker, Roland Martin.
A lot of discussion about the debt coming up, and lots to talk about China this week. Is China a growing threat to America or a growing opportunity? We're going to head to Beijing to find out if the people of China really believe that America is in decline.
VELSHI: All eyes were on Chinese President Hu Jintao's visit to Washington and to the United States last week. Our viewers all know this is the most important economic relationship in the world. But what do you think about it?
Take a look at this a recent ABC News/"Washington Post" poll showed that 61 percent of Americans see China as a threat to American jobs. Just 29 percent see China as an investment opportunity.
So as China's economic growth continues at the pace that it's going, what does that mean for the fear of America's economic future? Stan Grant is our senior correspondent; he is in Beijing joining us in the middle of the night because he knows about this better than anyone.
Stan, tell me how the Chinese perceive America. Do they see themselves as in remarkable economic assent and the U.S. as in decline?
STAN GRANT, CNN SENIOR INTERNATIONAL CORRESPONDENT: You know, Ali, there is a real sense here in China that the U.S. is in decline, although it is still obviously very important in that China is continuing this inexorable rise. The economy last year grew over 10 percent, it's likely to continue this year, and there is a real sense of that self-confidence. You can feel that here in China. You saw that with Hu Jintao visit to the United States. They're recognizing this as a state visit.
So there is that sense that China can eyeball the United States now and can't be pushed around. They still do look to the United States, though, as obviously a big market to sell into. It is the biggest market that they can target for their goods and they're still attracted to U.S. culture as well. Let me just tell you this Ali, I spoke to a Chinese rock singer during the week and this is how she put it. Chinese people don't mistrust the United States, but they think the U.S. mistrusts them and doesn't understand them.
VELSHI: Very interesting way of looking at it and one thing we have to continue to understand is these are two nations that need each other to some degree.
Richard Quest is host of CNN International's "QUEST MEANS BUSINESS."
Richard, President Obama talked tough all week including in a joint press conference which China's President Hu Jintao basically saying you need us too. Listen.
(BEGIN VIDEO CLIP)
OBAMA: China's extraordinary economic growth has lifted hundreds of millions of people out of poverty. And this is a tribute to the Chinese people. But it's also thanks to decades of stability in Asia made possible by America's former presents in the region, by strong trade with America and by an open international economic system championed by the United States of America.
(END VIDEO CLIP)
VELSHI: OK. Stan and Richard Quest, I want to hear from you on this one.
Richard, he told China, give us the due credit for where you are today and he also kept on saying to China, we want to sell you stuff, we want to sell you cars, we want to sell you airplanes. Tough words. What leverage does the U.S. actually have when trying to ensure that the U.S. continues to gain from China's growth?
RICHARD QUEST, HOST, "QUEST MEANS BUSINESS": It reminds you of your old grandparents saying so what have you done for me lately. Look what I've done for you in the past. The truth is this of course both parties know they need the other. But from the U.S.'s point of view, they have to rethink issues like completeness and the sort of products that are manufactured and at what price they're sold.
Forget the idea of the yuan being undervalued, that will take time over time. The core point and we're seeing it only in the last few days as President Obama has changed the name of his advisory council to put competitiveness into its title talking about jobs.
Ultimately, the Chinese will become the largest economy and simply by size of country and population. But being biggest does not mean being best, and the U.S. still has an enormous, enormous amount of mileage once it gets going.
VELSHI: Although this is a world in which bankers hold more sway than bullets do.
Stan, we spent a lot of time in this past week focused on President Obama's perspective, the American perspective. Give us the Chinese perspective on the visit. What did Hu Jintao who's going to be leaving office over the course of the next couple of years, what did he need to achieve? What were his goals and how was it seen in terms of what he accomplished?
GRANT: Well, first of all, the fact that this visit took place, the fact that it's being billed as a state visit, that he was being phased by President Obama with a state dinner, that didn't happen when he visited before during President's Bush's, George W. Bush's tenure, there it was only an official visit, that is important, symbolism is very important.
Look at how the Chinese are reporting it here, they're calling it a diplomatic master strike. They are saying he's contributing to world peace. This has been a testy relationship, Ali, as you know over the past year. Richard's touched on some of the issues there with the economy, of the currency issue, the trade imbalance between the U.S. and China, but also that the military buildup of China, the tensions over North Korea, what they're saying is Hu Jintao walk that back a bit and has tried to right this relationship. He is giving a lot of credit for it.
VELSHI: Richard, you've covered so many of these stories, you've seen it all. Did anything about this visit and the meeting between President's Hu and Obama, anything surprise you or impress you in particular about it? QUEST: Well I think it was the size and the scale and the hoopla that was made of the visit. These men have met numerous times, or at least at heads of state level, the U.S. and China's met. Whether it be APEC or G-20, maybe not a presidential level but they certainly know the arenas.
But for the two to actually have such an important state visit, it's a reflection, whichever way we look at it, turning point, break through, whatever you want, that there's a G-2, and that bilateral economic relationship is going to define and for one simple reason, Ali. Because the U.S. may hold the leadership, if you like, particularly in relation to the transatlantic and the European sphere, but you got China, with Aswan, with APEC, and we've got other sides of the globe, together they need each other.
VELSHI: Stan, since we don't often have a chance to talk to you, you know I've spent a lot of the week talking about how Americans can profit from or benefit from the growth in China.
One of the things we talked about was kids learning Mandarin in schools in the U.S. and I asked one teacher how do you convince your students about the importance of learning Mandarin or understanding China? She says, I tell everybody at the first opportunity they get, go to China. Go to Beijing. Go to Shanghai.
What did she mean by that? I know what she meant by that, but tell our viewers, what does that mean for an American who for the first time gets off a plane in Shanghai and drives downtown, what will that tell them about economic growth?
GRANT: You'll see an enormous city in Shanghai. You'll see a space age city in many respects, a city of great wealth but still more so of many, many challenges. There's still a lot of poverty here in China and that's a big challenge too, this gap between rich and poor for Hu Jintao. The American will see opportunity.
I was just in Shanghai just a week ago and we spoke to Americans who are living there and are making a killing there. These are people who are running restaurants. These are people who are restoring buildings. They're teaching in schools. They're making good money, and as they said to me, this is the land of opportunity. This is not a back boarder anymore. These cities are big, they're cosmopolitan, and they're sophisticated.
The Chinese are becoming more aware. Richard just touched on something a moment ago, where the U.S. has the advantage in terms of technology and skill and so on but that's rapidly -- China is rapidly bridging that gap as well.
As China becomes more skilled, that's going to put more pressure on the U.S. to actually improve and be more competitive to be able to hang on to those jobs they've got. Just before I go, though, remember this. Over the past 20 years, exports to China from the U.S. have multiplied 12 times. This is still a very big market. It is still open to some degree; it is there for the taking for U.S. companies. VELSHI: It is a real treat for us to have both of you on here, two of my favorite guys Stan Grant in Beijing, and Richard Quest in London, I think the three of us need to meet up somewhere in the world again soon and talk business as it were.
Good to see both of you. Thanks so much.
GRANT: Thank you.
QUEST: Thank you.
VELSHI: Well back home now for a little while. It is official, Comcast and NBC Universal will soon be one company. Are there ways that this mega media merger could actually make a difference to you? I'm going to talk to you about investing in the media when I come back.
VELSHI: This week the Federal Communications Commission and the Justice Department signed off on Comcast's merger with NBC Universal. But a lot of debate about what this mega deal will mean for consumers. Now there is a list of conditions placed on the new company. You can read about those at CNNMoney.com.
Consumers are still concerned about higher cable prices and fees for content that used to be free. But what about the other side? What about investing in this new company? Or other stocks in the media sector?
Diane Jaffee is a group managing director of U.S. Equities for TCW a firm that manages investments for pension funds, universities and big investors.
And Diane, your company's two largest media holdings are Comcast and CBS, full disclosure, the third is Time Warner, the parent company of this network.
Let's start with Comcast; they are in the news, this deal with NBC, the takeover, really, of NBC Universal. Do you like this deal and do you think investors can benefit from it?
DIANE JAFFEE, MANAGING DIRECTOR, U.S. EQUITIES, TCW: We do like this deal. Comcast is transforming itself from a cable distribution company, all be it a very good one, into a full diversified media company now with content and distribution.
VELSHI: All right. How does that make a merged company, let's say, more valuable than those stand alone companies? One that's a cable distribution company, one that's a content company?
JAFFEE: It's being vertically integrated, meaning that you have the content that needs to be distributed and that's more powerful as a company.
VELSHI: And that's -- is that something that provides them with enough savings that the investor can then benefit from that?
JAFFEE: Absolutely. They can make better programming for their customers. They can target their audiences better because they have the distribution and the content.
VELSHI: All right. So compare that to the other companies out there, like CBS, like Time Warner, the parent of this company, like Disney, who do you like right now?
JAFFEE: Well our largest holding is Comcast and we look at these stocks typically on price to cash flow. And Comcast typically trades at a discount because it was seen really as a cable or adjusted distribution company. Typically the content companies are -- have a higher value and they trade at typically a range of seven to 13 times price to cash flow, and with this acquisition of NBCU, Comcast now can really power its way into a higher valuation range.
VELSHI: Another one of your big holdings is CBS and you like that stock for investors as well.
JAFFEE: Yes, we do. We think that they took advantage of the low interest rates to refinance their balance sheet. They have a steady stream of income from their distributions which are the TV stations, as well as having the content of the studios and broadcasting.
VELSHI: Great dramas on. Is there anything in the media area that you are steering clear of right now?
JAFFEE: I think that, you know, it's good to be diversified. I think that some companies have really propelled themselves, like the Discovery Channel with the Oprah Channel, so they're very expensive. Our background is a relative value background so we're looking for a little bit more value for future growth.
VELSHI: And for our viewers who are sort of novice investors, when you say value, you mean a company that is -- whose stock price is lower than others in its space. Compared to how much it earns.
JAFFEE: You're exactly right. In fact the media companies generally are later cycle companies so they typically trade at a discount to the overall market on a price to cash flow basis, there are some exceptions that you want to be selective, but certainly Comcast and CBS and even Time Warner are attractive valuations.
VELSHI: Well great to talk about you about this Diane. Thanks very much for being with us.
JAFFEE: Thank you so much, Ali.
VELSHI: We would like to help you be a little smarter about your money. You would like to think that you're pretty smart about money already, right? We all would. But our next guest would say that even smart people do dumb things with their money. I'll explain, next.
(COMMERCIAL BREAK) VELSHI: My next guest is an old friend, a business journalist and the author of "Moolala: Why Smart People Do Dumb Things With Their Money and What You Can Do About It." Bruce Sellery joins me from New York.
Bruce, great to see you on the show. Welcome back to New York.
The book, you emphasize that people need to figure out first what their money is for before they learn how to manage it. Why does that make a difference?
BRUCE SELLERY, AUTHOR, "MOOLALA:" Because that's their vested interest. No one wants to do the boring stuff. And managing your money can be really, really boring. But when you have an answer to the question of what my money is for, you are more likely to do it. So people say in my work shop money is for adventure, money is for freedom, money is for travel, money is for my kids. When you're clear on that, there's a way higher probability that you're going to do the boring stuff, signing up your 401(k).
VELSHI: So if money is just for saving that's not really all that motivating.
SELLERY: Insufficient. It's like saying marriage is for security.
VELSHI: Right. OK. Good point. That's a good way to do it. Now, we're all familiar with the food pyramid which tells you how you should eat. You sort of developed a pyramid that explains how to manage our money. You're really looking to make this very, very simple for people. Let's start with the foundation of the pyramid which is the heartbeat of all business.
VELSHI: You say it's the heartbeat of people's money, cash flow.
SELLERY: Yes. If you're not earning more money than you're spending stop right there. You've either got to raise your revenue like a business does or cut your expenses like a business does. You have to do that in your own life. If you haven't done that, there is no point in listening to your Uncle Frank who's telling you about this hot oil and gas junior that really you should get into. You need to focus on your cash flow. Nothing else is relevant.
VELSHI: OK. And then Christine says this all the time, you say it too. This is the next important thing is handling your debt.
SELLERY: That is a 19 percent return in a heartbeat. And so many Americans carry massive amounts of credit card debt and then they're distracted by all this other talk about Ponzi schemes and Q4 bank numbers when the only thing at that level of the pyramid they need to do is nail that credit card debt.
VELSHI: There are very few investments that you can get that will give you the return of paying down your debt as you said you might be paying 19 percent for. Now, after you've handled cash flow and after you've handled debt, then and only then do you start thinking about the next level, savings.
SELLERY: Ten percent of your gross income. A lot of people say to me, Bruce, all of this is so complicated, how do I keep track of it all. There's so much to think about. There isn't. Save 10 percent. Are you doing that? Yes or no. I do these call-in shows and people ask me all sorts of questions. I take them through the priority pyramid and I am ruthless about this. If you focus on this in order, you'll have a way higher probability of getting a handle on your money.
VELSHI: All right. At some point you've got to deal with taxes.
SELLERY: Yes. They're a big chunk. Even in America they are a big chunk of money. So there are different way that YELLIN: can offset your taxes. You've got to be looking at ways to do that.
VELSHI: All right. Now you get to the part that I love the most.
VELSHI: It takes a while to get there, but then it's about investment. Then you really have to do something to grow your money.
SELLERY: And specifically, this is the part you're not going to like so much, getting the performance of the benchmark index. I'm not talking about shooting the lights out, I'm talking about getting the performance of the S&P 500 or the Dow or whatever your bench mark is over time. Because you know what, if you do that, you're ahead of 90 percent of people.
VELSHI: And those benchmarks historically do quite nicely.
VELSHI: They'll return 10 percent or more in the average year over time. That's fine. If you're growing your money at 10 percent over time, you're doing quite well.
SELLERY: You're a rock star.
VELSHI: That is a really good point. Don't look for the hot stock tip; just do what the market does. Now, once you've done all that, you massage it a little bit to try and tweak it?
SELLERY: Yes. Sector stuff, maybe you want to work on some international stuff, alternative energy stocks. You're optimizing your returns. But a lot of people head up the pyramid and then they get to the top and then they say I don't actually like that stuff. I don't want to spend the time there, which is perfectly fine, because again, if you're getting the performance of the benchmark, you're doing pretty well. If it's not your thing, then don't fuss about it. If it is your thing great. But you have earned your way to the top of the pyramid. VELSHI: So that's brilliant because people come to me without having looked at any of that stuff on the pyramid and tell me do you think I should sell this stock and buy that stock. Your point is, wait a minute, have you handled everything below that before you start to tweak or optimize right at the top of your pyramid.
SELLERY: Absolutely. And I'm not even going to talk to you about that stuff until you've done the stuff at the lower levels.
VELSHI: All right. Bruce, you've written an entire book on this. It is based on the feedback that you've gotten from working with people. What do you think? Tell my audience what the biggest impediment to achieving financial success the way you described it is likely to be.
SELLERY: They're not clear on what their money is for, the context for money and they also mismanage the level of complexity. No offense, Ali but they listen to the media and they think oh I should know what the Dow did, I should know what is going on with the state of the economy, it doesn't matter. What matters is what is within their circle of control.
VELSHI: OK. In that case, what can we do better? What should I do better to feed that? Because if people are misreading what we're telling them, what should we be telling them more of?
SELLERY: We have to keep focusing on these base messages. And hopefully have some fun while we're doing it. That's why I called the book "Moolala." Because it's not about money itself, it's about the tool. So often people disconnect their dreams with the financial fuel that will bring them to life.
VELSHI: That is excellent. Bruce, thanks so much. I've been looking forward to this book for a long time. You are a guy that thinks that if people are not getting the message, that it's not worth putting that message out, so I hope lots of people get it.
The book is fantastic. "Moolala: Why smart people do dumb things with their money and what you can do about it" by my good friend, Bruce Sellery.
OK, I've got a message for President Obama, but since I don't think I'll be making it to the White House this weekend, I'll share exactly what I would tell the president next.
VELSHI: Time now for "The XYZ of It."
Ahead of the State of the Union on Tuesday night, I have written the president a letter which I'd like to read to you.
Dear Mr. President, I saw a survey put out by Adecco, a human resources firm, asking Americans who they'd most want to trade places with. Eleven percent says they would like to switch with you; you tied Martha Stewart and came in third behind Steve Jobs and Warren Buffett.
Let me say I do not envy the position you're in and I wonder how bad that 11 percent has it that they would want your job.
That said, you did want your job. You campaigned hard for it with your eyes wide open about what a mess you'd inherit if you got it. That mess is now yours.
As you and your potential opponents gear up for the 2012 presidential election, it's going to get harder and harder to focus on the tough and unpopular job of governing.
I commend you and Congress on the great compromises you reached in December, and hope that the next two years holds more of the same. The stock markets have enjoyed your presidency so far, and the housing market continues to improve, although foreclosures continue to plague us. But what we really hurt the most in is job creation.
It must frustrate you that as much as you'd like to, you can't really create jobs. Business has to create them. What you can do and what you are doing is to continue to reach out to business leaders, leaving no room for those who call your administration anti-business.
And please, Mr. President, say something in your speech to acknowledge the growing crisis of those millions of Americans we call the 99ers. Americans who have been out of a job for more than two years and have exhausted the maximum 79, 89 or 99-week limit on state and federal unemployment benefits. Your end-of-year deal with Republicans to extend the Bush-era tax cuts in exchange for extending unemployment benefits did nothing for those who are the worst off, largely forgotten, and growing.
As I said at the start of this letter, I wouldn't wish your job on anyone and I certainly wouldn't want it, but like most Americans, I wish you good luck.
Sincerely, Ali Velshi.
Well, that's my XYZ. Thanks for joining the conversation this week on YOUR MONEY.
We're here every Saturday, 1:00 pm Eastern and Sunday at 3:00 p.m. Eastern. You can also catch "YOUR BOTTOM LINE" with my good friend Christine Romans, Saturday mornings at 9:30 a.m. Eastern.
Stay connected 24/7 on Twitter @ Ali Velshi and @Christine Romans.
Have a great weekend.