tv On the Money CNBC May 4, 2014 7:30pm-8:01pm EDT
hi, everyone, welcome to "on the money." i'm becky quick reporting from warren's world. the berkshire hathaway annual shareholders meeting in omaha, nebraska. what is it, how does it work, and is it right for you? a clear vision how one online retailer is doing a reverse commute, moving from brick and mortar to the internet. and are you saving enough for retirement? tips that can help you jump start your plan and just how much should you have salted away? "on the money" starts right now. >> this is america's number one financial news program, "on the money." now, becky quick.
>> here's a look at what's making news as we head into a new week "on the money." a blowout jobs report for the month of april. the economy created 288,000 jobs last month and the unemployment rate plunged to 6.3%, the lowest level since 2008. numbers from the previous months were revised upwards, as well. there were fewer people looking for jobs than there have been in about 30 years. after setting its first record of the year on the last day of april, the dow kicked off may with a slight slump. the jobs report, to earnings, to the fed decision. stocks fell on friday. as expected, the federal reserve continued to taper its bond buying program, reducing the number of bonds it buys every month by $10 billion to help keep interest rates low. america's economy grew at an anemic pace for the first quarter of the year. the gdp rose at an annual pace of just 1/10 of 1%.
that is way below what economists predicted. of course, the number was hurt by bad weather. we a saw slower exports. earnings season is still going strong. e-bay beat expectations, as did twitter, but user growth was under expectations. april auto sales rebounded from a tough winter to an average rate of more than 16 million vehicles. gm was up 7%, ford was down 1%. chrysler was up by 14%, and toyota up by 13%. one of the big themes here at the shareholders meeting is always value investing, looking for equities that trade below their intrinsic value. joining us now are two of the best, mario gabelli, the chairman, ceo, and chief investment office of gabelli funds, and dave winters. thank you both for joining us here today. >> great to be here. >> quickly, broad thoughts on
the market and the economy, we got jobs number and gdp numbers that showed conflicting symbols. i just wonder, what does it tell you about the market right now? >> the economy's growing. i think the market is adjusting to the prospects that yellin will at some point accelerate the tightening of the monetary supply and hopefully, hopefully, we get after the election in november, the fiscal dynamics in place. >> we also heard from janet yellen this week, david, about another tapering of $10 billion a month again. do you think the fed's going at the right pace? >> i think she's being a very responsible central banker, because you had the bust, she's taking money out of the system, i think the economy will recover, confidence is returning, and i think that, you know, the prospects for hopefully a long period of time will be much better. >> you two are two of the best value investors out there. this weekend, the whole shareholders meeting in omaha for the berkshire hathaway shareholders is all about value
investing. can you talk about how you see value investing, how that kind of fits in with what warren buffett talk abouts? >> well, the same concept, what do we know where we can dominate the knowledge and understand the business and companies both today and over five or ten years. secondly, what price do you pay for the company and where's your margin of safety, and that's the same theme warren has. >> wintergreen can invest in almost any type of security, and we have what we call a trifecta, and what we're really looking for is a business with good or improving economics, management that's working for all shareholders, and a low price. and, you know -- >> a margin of safety, margin of safety. >> we think if you do this, what you do is stack the deck in the investors' favor, take risk out of the equation, and you look at mario. he's compounded money for a long period of time with very little risk and made his investors rich. >> no question it requires
staying power, because the other aspect is if you sell something and are taxable, not tax free, doesn't matter. you're compounding the deferred tax. that's what warren does, deferred taxes is an important engine of growth and capital formation. >> let me ask you both, we've been hitting new highs on the market. does the market here feel expensive to you, reasonable, is it cheap at this point and how tough is it to find good buys? >> i think there's lots to do, because the market movement has been in relatively few very popular securities, and you can see the corporate meeting dance going on, so there's deals to be had, and, you know, mario's an expert in all this. i think if you look globally and you're willing to do the work, there's lots of gems that are mispriced. >> within a context of the market, new highs on the dow and interest rates, the market has to at some point focus on what
interest go back to a more normal level, three on the t-bills and five or six on the ten-year. is the market already discounted as they adjusted to the tightening by the fed at some point and the answer is, no. when it happens, there will be some hiccups. the market's not overpriced, but there's no margin of safety. for some shock, it could have that old fashion 10% or 12% protection, but we see that happen all the time. >> mario, is this good mna or bad? >> right now, the concept here is growth. companies are starting to say i need global growth, how do i participate in the growing middle class of china and india, how do i participate in the recovery of europe, how do i participate in taking my intellectual property and sell it elsewhere, and do i do it faster by buying an existing company. >> david, i want to talk to you about coca-cola, because you've been leading the charge in what you think is excessive pay,
excessive compensation for management there. it looks like your pleas have been heard to some extent, there is expectation coke will step back from that plan. do you want to talk more broadly about why you think investors need to be speaking up on behalf of situations like this? >> the real issue is, even if the pie grows, if management takes too much from the investors, investors have less, and this effects everyone in society, especially the people, the teachers, the electricians, the hard working people in our country, and we need to have -- it's great pay for performance, but if too much goes to management, there's not enough and it affects investment performance. >> can i ask you both very quickly, is there a stock you like, a sector you think is really great right now? >> i think the united states has to maintain its energy independence. we spend $300 billion even today with shale that we give to countries that are not necessarily going to be our
friends. notice what's happening in russia. they have the gas, they have a lock on parts of europe, so how do we create that, how do we allow america's technology and ingenuity to get a good, friendly environment? planet earth, and also allow us to become energy independent of the world and save money, and so a company like national fuel gas, which owns almost 800,000 acres in marcellus, companies that provide the structure. >> david, how about you? >> little bit along the same theme as mario, we love the union pacific. union pacific is one of the greatest companies ever, and it's been around for 150 years. >> it's also based here in omaha. >> so the burlington is not available to you, huh? >> well, you have to own it through berkshire. the union pacific, they have this land bridge, the management's superb, and we feel very comfortable that they can compound our capital in a very
conservative and responsible way. >> david and mario, i want to thank you both very much for joining us, and appreciate your time. >> well, you're the best and we're glad to be here. >> thank you, guys, appreciate it. up next, we are "on the money." the future looks bright for one start-up. eye glass retailer warby parker is moving into retail stores with five locations and counting. is brick and mortar the right prescription for growth? and the bull market is better for the bottom line of retirement account balances, up over 95% over the last several years. but are you saving the month? before we take a break, look how the stock market ended the week.
traditional brick and mortar stores, which have struggled against their more nimble web rivals might have more competition than imagined. some retailers are eyeing physical outlets as the path to success. warby parker has opened five stores in just the last year. we spoke with co-founders neil blumenthal and dave gilboa about what they see as the future of retail. >> which pair do you like better? this one? or this one? i'm getting ready for the summer with a new pair of shades. usually, a pricey purchase with my prescription, but not here. it's $95, right? all right. i'll pay $95 for it. warby parker.com hopes to help the near and the farsighted. founders neil blumenthal and dave gilboa are offering retro-inspired frames for hundreds of dollars below other designers. >> we launched warby parker about four years ago out of hour apartments when we were in
business school. we were frustrated by how expensive glasses were. we would lose our glasses and started looking into the industry and could see there's no reason why glasses need to be so expensive. >> i just picked out my own pair of prescription sunglasses, $95, $150 total with the prescription lenses and even with the insurance and discount i got on the last pair, that's less than half the price i paid last time around. >> what we've been able to do, because we design our own frames and work directly with manufacturers, we effectively cut out the middle men, the traditional retailers, because we're direct to consumer through our website and stores. >> you get this lovely box that says warby parker and you open it up. >> thanks, war by, you're awesome. >> it was the home try-on program where customers were mailed five pairs to test out for five days for free that inspired fans and pushed the start-up to new heights. neil and dave have raised $115
million through investors. and they've opened five retail stores in new york, boston, and l.a. but one analyst is skeptical. >> they've had a very successful p.r. strategy. how financially successful they've been, i think, is still questionable. i haven't seen any publicly released figures that have been vetted and verified. >> what happens when you actually build a store? is it more of a marketing, or do you actually make money on the sales you bring in on the store? >> our stores are performing as any other best in class retailers. on a sales per square foot basis, we're on par with tiffany's and selling a $95 product. >> for warby parker, it was inevitable they needed some type of a physical presence. i think a significant part of that is to enable consumers to touch and feel the merchandise. warby parker isn't the only one. bonobos is a men's pants company
that has a similar strategy. other companies also have picked and selected their physical store presence. >> let me ask you guys, warby parker, where'd you come up with it? >> so we joked that naming the company was the hardest thing that we had to do, took us about six months, we went through over 2,000 names. >> what, 2,000 names? >> we kept talking about different authors and artists and spent a lot of time talking about the beat generation writers, jack keroac and one was warby pepper and zac parker. we decided to combine them and make it our own. >> it does have a unique ring to it. snooty snoot without being snooty snoot. and the sensibility is clear throughout the store with its minimal library vibe.
but can it generate sales of over $10 billion a year? the plan for stores, right now you have five. one has 7,000 stores. you don't see competing with that sort of thing, but you do see expanding additional stores? >> yeah, we don't have any immediate plans to have thousands of stores. >> we expect to open a few additional stores this year and more stores beyond that. >> do you think they see you as a threat, do they know you exist? >> i think that we've been a pioneer in selling glasses online and now a pioneer in the brick and mortar space, so i imagine they are watching us. they actually just acquired glasses.com, so we wouldn't be surprised if they start making a bigger push online. >> have you heard from lexotica? >> we chatted with them a couple years ago when we quickly
launched. i think they just wanted to get to know us and see what we were up to. >> but no plans in the works right now, no deals in the works right now? >> we're now focused on building warby parker. >> thanks to neil blumenthal and dave gilboa. and by the way, guys, i love my glasses. up next, we are "on the money." when it comes to your retirement, it's not just when you start saving, but how you save. by the way, everybody, you can find us on facebook, facebook.com/otm. female announcer: sleep train's interest free for 3 event
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a stronger stock market certainly means a stronger nest egg for many americans. since the worst of the financial crisis, 401(k) balances have surged, but is it enough? sharon epperson, personal finance correspondent, joins us right now. and sharon, thank you for being here this morning. >> my pleasure. >> you know, we are now five years past the market's lowest point, post-financial crisis. there is good news out there. what's going on when it comes to americans' retirement save sngs. >> there's good news. we're seeing an impressive 92% gain in 401(k) balances since the first quarter of 2009, since the economic downturn, and that's a tremendous gain, but we're only talking about the average balance being about $88,600, and about 75% of that money has been due to market gains. that's why we're seeing this increase, so only about a quarter of that increase is due to people actually putting more
money in their accounts. >> you know, it's great news to see gains like that, but when you put it that way, so much is coming from market gains and only 25% is coming from people putting more money in, it raises the question whether people are contributing enough to their 401(k)s or whether they are saving enough in general. what do you think? >> fidelity found about one-third of workers who have access to a 401(k) are not contributing to it at all and many are not contributing up to a company's matching contribution if they are offered one, so that's just leaving free money on the table, and, of course, not taking advantage of one of the best things you can do to ensure your long-term financial future. >> there are so many things to think about, and i've thought about this myself with retirement. a lot of times i shouldn't think about what i should be thinking about, a lot of times you just throw money there and hope it's going to be enough, but what factors should americans be thinking about? >> well, one of the main things to think about is what you want to do in retirement, because retirement today is not necessarily just sitting on a couch day in, day out, or
golfing all day. you may want to do some type of other enterprise. that could eventually bring in income for you, so you may not have to completely retire, but the big thing people don't really factor in is health care costs, because those are going to skyrocket, and, in fact, there was a survey done that showed the average person retiring at 65, average couple retiring at 65 last year, needed $360,000 to cover health care costs alone. while you're thinking about your financial health, you do need to think about your health, as well, because it will have an impact on your finances, so what you can do while you're a working person and able to exercise, to eat right, do all of those things, you don't think about how that's going to impact your finances long term, but it really will have an impact on your financial health, so taking care of yourself now and making sure you are able to get the checkups that you need, do the things that you need. i know the health insurance debate is a big one, but taking advantage of what you can now to make sure you're healthy today
while you're working and able bodied is going to be important to your financial future as a retiree. >> how do you figure out how much you're going to need for retirement? >> this is the million dollar question, right? >> this is it, how long are you going to live, how are you supposed to figure that out? >> that's also difficult to figure out, but fidelity has a rule of thumb it's at least a starting point to think about, a benchmark. they say by the time you retire at the age of 65, if that's the time you do it, many people may do it later, but you need eight times your salary at that point, your current salary, and at 45 you should be saving about three times your current salary. 55, five times your current salary, so think about it as a multiple of what you're making now and a lot of people are very worried about being able to save that much. the good news, people are saving more, about 8% of their salary in their 401(k). the bad news, it still may not be enough to retire. most financial advisers say you need to be putting away 10% to
15% of your pay, and starting there and if you're late to start, you're going to have to up that to 20%, maybe even more. and so it comes down to, if you want to have a financially secure retirement, you may have to make some sacrifices today to ensure that you're able to do that. >> sharon, thank you so much. that gives us a lot to think about. >> sure. >> sharon epperson. up next, we're going to take a look "on the money" on what's happening in the news for the week ahead. also, omaha's moment in the sun, what the annual influx means to the 42nd largest city in america. and the oracle they call a native son. h time hiring and not enough time in my kitchen. [ female announcer ] need to hire fast? go to ziprecruiter.com and post your job to over 30 of the web's leading job boards with a single click; then simply select the best candidates from one easy to review list. you put up one post and the next day you have all these candidates. makes my job a lot easier. [ female announcer ] over 100,000 businesses have already used zip recruiter and now you can use zip recruiter for free at a special site for tv viewers;
for more on our show and our guests, go to our website. and you can follow us on twitter @onthemoney. here are the stories that may move your money. earnings week moves on. on monday, early twitter investors will be able to sell their shares. and then the ism manufacturing index is out. tuesday, we find out if the u.s. is importing or exporting more goods with the international trade balance. and on wednesday, fed chair janet yellen speaks before congress's joint economic committee. we are at the centurylink center in omaha, where investors are gathering for the annual share holder meeting hosted by warren buffett.
this is a huge event for the city. it's 14,000 packed hotel rooms are averaging about $425 a night. that's right, $425 a night. one steakhouse, a favorite spot, expects to serve 1,500 pounds of beef this weekend. now the fifth most valuable company in the united states, berkshire hasn't always attracted the crowds. back in 1981, in fact, just 12 berkers attended the annual meeting, and my how it has grown since then. that's the show today, i'm becky quick. thank you so much for joining me. my guest next week, actor and director alan alda on his new role as a science educator. each week, keep it here, we're "on the money." have a great one, everybody, and i'll see you next weekend. female announcer: sleep train's interest free for 3 event