tv Wall Street Journal Rpt. CNBC September 6, 2009 7:30pm-7:59pm EDT
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welcome to "the "wall street journal" report." i'm maria bartiromo. once again coming to you from outside the stock exchange on wall street. the work of interpreting the jobs report. a crucially and closely watched piece of economic data. what does it mean, and what's next? a rare interview with a sitting federal reserve president. how he sees the economy, what keeps him up at night and when he thinks the recession will end. if you are facing a cash crunch, how you can save up to $500 a month making the nickels and dimes and dollars add up. "wall street journal report" begins right now. this is america's number one financial news program, the
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""wall street journal" report." now maria bartiromo. now here's bill griffith with a look at the stories making headlines this week. bill. >> here's a look at what's making news as we head into a new week on wall street. it is the mother of all economic data these days, and the closely watched jobs report was released on friday. it showed the economy lost 216,000 jobs in august with the unemployment rate climbing to 9.7%. that's the highest level we've seen since 1983. since the beginning of the recession, the economy has now lost 6.9 million jobs. after its best august since 2000, the dow did not get off to an auspicious start in september. the market fell 180 points on tuesday on concerns about financial stocks, but it did break a four-day losing streak on thursday. on friday the dow rose after the jobs report. meanwhile, new vehicle sales had their best month in nearly two years, but in spite of the cash for clunkers program, it was a mixed picture. for example, gm sales were down
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17% in august from the same period a year ago. ford's were up 21%. toyota's gained 10%. chrysler's were lower. spiderman has a new address. the wall disney company is buying marvel entertainment. for $4 bill. >> anne: in cash and stock. characters like ironman and spiderman will join forces with mickey mouse and wall-e and the company says that they hope that the move will attract more boys to the brand. even though it is considered a lagging indicator, the jobs report is still considered a crucial piece of data. the markets watch closely. joining us now to talk about what it means for the markets and the economy, ken volpert at vanguard who he oversees $225 million in bond funds, and michelle girard, senior economist at rbs. thank you for joining us today. >> hi. >> michelle, what did this jobs report tell you about the economy? >> it didn't really advance the ball much. it really came in very much as
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expected, but i see good news in the sense that the pace of job losses are waning. private jobs were down 198,000. that's the smallest drop in private sector employment that we've seen since before the lehman bankruptcy last fall. we're making progress. there are early hints here that we are getting some stabilization even in the labor market. >> ken, what about you? i know you were looking for a smaller jobs loss number. >> yeah. we were looking for something under 200, but this 216 was a good number. you know, it definitely was better than what the market was expecting, and they did revise last month's number worse than previously expected, so when you look at the change actually from month to month it's actually a fairly large change. about 60,000 fewer job losses. it's a very good sign, i think, for the economy in terms of the trend that we're moving in. >> michelle, we get the minutes from the most recent federal reserve meeting, their august meeting. they said the economy is on the mend. they seemed to strike a more hopeful note about the future. do you agree?
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>> yeah. i think that you can sense that growing hope, if you will, among the committee members. they noted that the downside risk for economy had decreased considerably, but i have to say in reading the minutes that i do sense what i hear when i listen to the various fed members speak, that will is a growing sort of divergence of opinion. you've got one group that i think is more optimistic about the recovery. they see it unfolding. they want to even be talking about exit strategies. that is, when will the fed begin to unwind all of the stimulus that's been put in place. you have another camp that i think is still very worried about the economy, the vulnerabilities, and the risk going forward, and they don't think it's any -- that it's appropriate to sort of even be talking about that at this point. >> ken, what about that exit strategy? at some point if the economy continues to improve, the fed will have to raise rates and take back some of the stimulus, as michelle suggests. what would that do to the bond market, and how should they carry that out, do you think? >> well, i think -- so they
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pumped a lot of excess reserves into the banking system that ultimately they need to drain those reserves in some way or at least get the banks to not -- not lend those reserves out and basically multiply the lending in the economy that would cause it to grow, and they now have the ability to pay interest on those excess reserves, which actually gives them a way to get the banks to actually not do anything with the reserves, and that's essentially a way of pulling effectively pulling the reserves out. they have that flexibility. certainly increasing fed funds is another way of doing that, and they have a bunch of securities that they've purchased, as some of those maturities mature. that drains reserves out of the system. then really kind of the last option that they have, i would say, is really selling a lot of these securities. >> michelle, we're at that time of the year. we've seen a pullback in the stock market the last week or so. the expectation is, as usual, that the fall brings some sort of a swoon for the markets or maybe a correction.
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whatever term you want to use. what are your expectations? >> i have to say i think the economic data are going to continue to show the economy is, you know, exiting from recession in the early stages of recovery. i'm not sure what that means, though. i don't know if that is good news, if you will, on the employment -- on the broader economic front that's going to help the market to prevent that september sell-off. the psychology in the market has swung dramatically. even though the economic data has persistently been getting less work, less worse. the psychology in the marketplace has gone from all that optimism about green chutes in the spring. we had a setback in june where we had a disappointing jobs report. we swung to brown weeds and then we got optimistic again. the psychology in the market, the swings in psychology, have been a lot more violent than the economic data would have indicated. >> and, ken, you're the bond guy. the yields have been going down, which does not suggest that the bonds are expecting a sharp recovery in the economy at least
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not for the foreseeable future. where do you see opportunities along the yield curve right now? >> well, clearly, the corporate market still is pretty attractive. if you look at corporate one to five year part of the market versus treasury, you are getting an extra 2% yield right now, which is very wide by historical cycles. it's certainly a lot less than it was six or nine months ago when it was over 500 basis points or five percentage points. but we still are now, if we have a recovery, which we think we do, a recovery taking place, we would expect those spreads would continue to tighten. really, the technicals are extremely strong for that to happen, because money market funds at close to 0% yield with a lot of money moving out of money market funds into some of the short corporate funds and even intermediate and corporate funds as well as in the stock market. >> good to see you both. thank you for joining us. >> thanks. >> thank you. >> back to maria now for the rest of the program. >> thanks, bill. coming up next on the "wall
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street journal report," will the u.s. central bank take its foot off of the accelerator as the economic picture begins to brighten? a rare interview with the active president of a federal reserve regional bank. in ways you can save a little or a lot every month so that it adds up to real money. it might be easier than you think. i'm okay with cutting back a little, but i still want to put my best face forward. with crest whitestrips advanced seal, i get whiter teeth that lasts for 12 months. all from one little box, i say that's a pretty good deal. crest whitestrips advanced seal. the no slip white strips.
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welcome back. in the last year we've seen creative action coming out of the federal reserve for the first time in generations in terms of stimulating and sustaining the economic recovery. in a rare interview i spoke with the philadelphia federal reserve bank president charles plosser. we talked about unemployment as well as interest rates, and if the federal reserve has a plan to head towards light at the end of the tunnel. mr. plosser, nice to have you on the program. welcome. >> thank you very much. i'm glad to be here. >> it's good to see you. can you characterize where we are in the economic slowdown, first off. tell me what you are seeing. we have the fed minutes from the last meeting. get your viewpoints on this
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slowdown. >> right. well, i think that clearly the economy is in a transition period from very sharp contraction that we had in the last quarter and first quarter of this year to an expansion, and we're sort of bouncing around and making that transition. we're going to have some good news, and we're going to have some bad news yet to come, i suspect, as the numbers come out, but gradually over the course of the next few months i expect the good news to become more dominant, and i'm looking for some growth in the second half of this year. >> where is the good news? can you take us through the growth part of the story within the u.s. or globally? where are you seeing the good news, specifically? >> well, certainly it's true that we're seeing improved growth overseas. that's going to help our exports. we're seeing improved growth in factory orders. our own business outlook survey here in philadelphia and the third district shows that manufacturers are a lot more optimistic, and, in fact, our business outlook survey became positive for the first time since december 2007, so there's clearly optimism, and there's opportunity for growth. >> so where are still the
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troubling parts of the economic slowdown? i mean, clearly unemployment remains a worry for many people. where would you say we remain seeing the biggest issues? >> well, i think unemployment clearly is a problem. unemployment rates tend to be a very lagging indicator in the economic recovery, and the unemployment rates don't come down until well after economic recovery takes hold. that's going to continue to be an issue for many people, and it's a concern to us as well. i think the other big issue that we're waiting to worry about is the commercial real estate market and its effect on the financial institutions in our economy. commercial real estate has not been doing well, even though residential real estate is beginning to recover. there's still lots of concerns about the impacts of declining values and commercial real estate and what that will do to our financial institutions. >> what is the fed's exit strategy? >> well, the exit strategy is really quite simple. we have to begin to pull back from our extraordinary programs. we have to begin to shrink our balance sheet. otherwise, we will fuel inflation in the months and years ahead. i don't think inflation is a problem in the very near term
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for the next several quarters, probably, but if we don't execute an exit strategy carefully, we could be setting the fires for inflation down the road in the next year or two, so we to be very careful. we have the tools to do that. the question is will we be able to discern the appropriate time and the timing of that to do it in a way that will head off any future inflation? that may mean raising interest rates very rapidly. at least as aggressively as we cut interest rates if the team is right. >> in 2009? >> probably not. >> would you expect that once we were to see a beginning of a cycle of rising interest rates that happens for some time or what? what would be the scenario? >> i think monetary policy is what we call state contingent. that is, it's going to depend on the state of their economy and how it's evolve examining how our outlook is evolving. monetary policy works with a fairly long lag. so what we are really looking at
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is not just what the economy looks like today, but how we think it's evolving and how the forecasts are evolving and that is what it depends on. >> let me ask you about the role of the federal research. of course, preserving independent and decentralized central bank has been also a major topic. where are you on the reform that is on the table, and do you worry that having a single regulator overseeing the system could be troublesome? >> well, the congress has given the federal reserve its objectives, which is the dual mandate to promote economic growth and maintain price stability, and in order to do that, as i said, monetary policy works with some fairly long lags. so we have to look at the future and the forecasts determine policy acts. particularly in the realm of monetary policy. that means we often have to make decisions that at the time may
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seem politically very difficult, and having independence to be able to make those choices at the right time is an important effort -- part, element, of making an effective central bank. history has shown and the data shows that banks that don't have that political independence to make monetary policy -- take monetary policy action even when it seems politically undesirable, end up with higher inflation rates and less economic performance. it's very clear that monetary policy needs to be independent of the short-run political pressures that many people try to place on it. >> are you expecting a you shape or w shape or v shape of economic recovery? what do you think the recovery looks like? >> i really don't like any of these letters. if you want to know the truth. >> i know. okay. so what -- how would you describe the recovery? >> here's the way i think about it. i really do think we had a very massive shock to economy. and to some degree, it is going to be a permanent shock or at least it's going to be a very persistent. the notion that the level of output is going to get up to some path that we were on before
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i think is pretty -- i's probably not true. i think our trend path or potential output is lower than we thought it was just a couple of years ago. that means that we're not going to get this really, in my view, this really sharp, you know, 4%, 5% rebound that sometimes you see after recessions. we have more of a steady growth rate back to what the trend was that perhaps not the strong rebound that sometimes we see after recessions. >> in terms of the most critical part to that recovery, the business investment? is it the consumer sentiment and spending or what? >> all of the above. all of those are clearly relevant. >> my thanks to charles plosser of the fed. coming up next on the "wall street journal report" counting the ways you can save money when it comes to finances and your family. every dollar adds up, maybe to even as much as $500 a month. as we take a break, take a look at how the stock market finished the week. you like your health coverage, but worry what happens... if you get sick, or change jobs.
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e. call or click today. no matter how much money you make every month, you probably wish you could save more of it every month. my next guest is donna rosato. she is senior writer of "money" magazine. donna, good to have you on the program. >> great to be here. >> this is a subject certainly near and dear to my heart because i'm a big saver. $500 a month seems like a lot to save though. some people are saying, i'm living paycheck to paycheck and how the heck am i going to save
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$500 a month? >> everybody wants to save more, but we came up with more than 100 ways that you could save money. really trim the fat from your budget without really feeling a lot of pain. there are a lot of things you can do. >> how do you identify those cost cutting strategies that will actually add up? give me the strategies. >> well, think about all the costs -- the biggest costs in your life. tackle those things. for example, a lot of people use credit cards. credit cards are costly, and rates are going up, and feeps are going up. one of the things you want to think about is there a way i can negotiate a lower rate on my credit card, and a lot of people can. >> what do you do? just call the credit card company and say i want a lower rate? >> you can do that, but you'll have more leverage if you have been a long-time customer, if you have not been late on your credit card, and if you have a decent credit score, which today is about 750 or higher. the thing to say is that i'm going to do a balance transfer and i'm going to take the balance to transfer it to another company, and can you give me a lower rate? if you have had a good relationship, you'll have some leverage. >> then you won't have those
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late fees? kill two birds with one stone. >> we know the banks are hurting, and fees are valley gone up. the average bank charges $39 if you are late, and if you are late, your rate will probably go up, too. set up a text or an e-mail alert so that you are never late on your payment. >> this seems sort of like the low-hanging fruit. what else is the low-hanging fruit, the easy stuff to cut out of my -- >> let me give you another one very easy. car insurance. very expensive. there are so many ways you can save. a really simple thing that won't really cost you anything, you have a deductible. if you raise your deductible to $250 to $500, you will save an average of 7% on the monthly premium. if you go from $500 to $1,000, you'll save about 15%. another thing with car insurance, you can get a discount if you are a safe driver. if you are a safe driver, can you get a discount. if you are a student who has good grades, you can get a discount for that. there's a lot of things you can do. another thing is if your car is kind of old, if you live in the city, you might have an old car. >> like a clunker. >> you may not need that collision insurance anymore, but
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here's a rule of thumb to know whether you need collision or not. if your car is worth less than ten times of what you are paying annually for collision insurance, you probably don't need it anymore. >> now, you write in the article also one thing that people may take advantage of, credit unions. how can they help a borrower save month to month? >> i'm a huge fan of credit unions. we all have to borrow sometimes, whether it's for student loans, a car loan. credit unions have much lower overhead than banks, so -- and they also cater to their members. you have lower rates. for example, if you are going to have a four-year car loan, the average rate at a major bank for a car loan is 7%. credit union the average rate is 5.25%. if you borrow a lot, you will save over time, because those interest rates really add up. >> at the same time you are trying to save money, you also have goals in mind. you want to save for college. you want to cia for your child's wedding. how do i save for college? >> well, you want to make the cost of savings for college not
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cost you money. 529 plans are a great way to save money for college because you get a lot of tax advantages, so you don't have a big tax bite. two-thirds of new 529 plans are sold by brokers, and brokers charge a really steep fee. you don't have to buy it pray broker. you can go to a website called saving for college.com and find out good plans and buy directly from a broker, you'll save a lot. >> you also want to have some fun, though. you don't want to always seem like you are hoarding your cash. what about saving for vacations, saving for kids' activities. how do you do that? >> well, that is right. kids can be expensive, but you want to send your kid away to camp. you know, you're still going to do it, but here is a smarter way to do it. with all of the flexible spend counts that allow you to put money away tax-free for medical costs, out of pocket medical costs. most people don't know that you can do that for child care expenses as well, so if you are sending your kid to camp or have daycare or elderly dependents, you can put $5,000 a year away tax-free in one of these savings accounts. you know, only 6% of people take advantage of them, but over 85% of large employers offer these kind of dependent care accounts. >> that's amazing.
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so many, you know, things that are sort of obvious, but you forget. donna, great advice. thanks very much. we appreciate it. donna rosato, money magazine. coming up, we'll take a look at the week ahead and what will have an impact on finance and your money this upcoming week. the united states' capitol was not always on the banks of the potomac. it was once in the heart of wall street. we'll take a look when we come back.
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guests, check out our website, wsjr.cnbc.com. you will also find a link to my new blog, investor agenda. hope you'll check it out. now for a look at the stories coming up that may move the market and impact your money this upcoming week. on monday it is labor day. all u.s. markets are closed in observance of the holiday. thursday we get the international balance of trade. that reports whether the u.s. is importing or exporting more goods right now. then on friday the latest university of michigan survey of consumer sentiment will be released. well, the last few weeks we have been happy to be bringing you this program from right here, the historic corner of wall street and nassau in downtown lower manhattan. we reon the steps of federal hall's national memorial. this is the same site where george washington, our nation's first president, took the first presidential oath of office back in 1789. in fact, the bible used in that inauguration and the original balcony rail washington stood behind are on display in these walls. the current building was
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constructed as the first u.s. customs house. that was in the 1840s. this corner was also the site of the first congress, supreme court, and executive branch offices. wall street and politics have always been close neighbors, and we have been proud to come from these steps to you for the last several weeks. we thank everybody at federal hall for allowing us permission to do so. that's it for us. thanks so much for joining me on the "wall street journal report." my guest next week nouriel roubini who said we could be faced with a double-dip recession. the economist saw the economic implosion comingk and he will tell us what he sees coming next. each week keep it right here where wall street meets main street. have a great week, everybody. i will see you again next weekend.
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