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    Bulls & Bears

    Brenda was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Bob Froehlich, chief investment strategist at Deutsche Asset Management; and Price Headley, investment strategist for BigTrends.com.

    Trading Pit: $ocial $ecurity

    President Bush's plan to save Social Security allows taxpayers to invest a portion of what they pay into Social Security, into the stock market.

    So if everyone took full advantage of this plan, about $150 billion would go into the market annually. Now, to put this into perspective, that's about the same amount that goes into all stock mutual funds each year.

    But is this good for the stock market?

    Bob: The privatization of Social Security will be the single most important event in the history of the stock market — both in the short run (this year) and the long run! If it is privatized this year, the stock market will soar 25 percent instead of just 10 percent. In the long run we will be creating an even larger and more powerful investor class. Chile was the first country to privatize in 1981. At that time, those private accounts made up 1 percent of their economy. Now it’s 50 percent!

    Gary B.: I don’t know if this is going to help at all. Wall Street firms like large accounts and these are going to be a lot of small accounts. There will be a lot of administrative work for little pay back. It will flow in eventually, but won’t have a dramatic immediate impact.

    Tobin: This will be great for stocks because it is teaching young people to be investors. The plan is designed to have young people put $1000 a year into the market. But this is long-term money that will be going into index funds. This money won’t be managed or traded around; it’ll be “safe” money.

    Price: Social Security reform as it is now proposed, will not happen. The program has obvious problems. There will be more liabilities than assets by 2018. But the proposed plan is good for younger retirees, and not so for older retirees, which is why support is split down the middle. I think a diluted version of this reform will pass, which means it won’t have nearly as large an impact.

    Scott: There will be some type of privatization of retirement funds, but all the money won’t go into the stock market, especially if the market is going down. The money will most likely go into money market funds, which will help the savings rate of this country. Part of what caused the “seller’s strike” before the end of the year was anticipation of some type of Social Security privatization in 2005.

    Pat: No one knows if this is even going to happen. And even if it does, there’s no guarantee that it’s going to be consistently put into the market. Investors are no more rational than your average fund manager. They put money in when times are good and pull money out when times are bad, which is exactly the opposite of what you should do.

    Chartman

    Gary B. and Bob each picked a stock so good that you won’t need Social Security to retire rich.

    Gary B.: I like Johnson & Johnson (JNJ), which has been going up for 20 straight years. It’s one of only a few stocks to “buy and hold.” (Johnson & Johnson closed on Friday at $62.70.)

    Bob: This is a great stock. In fact, I like Johnson & Johnson so much, I own the stock. It’s a very diversified company with divisions in pharmaceuticals, medical devices and consumer products. J&J pays a good dividend. Plus, only 10 percent of the company’s sales come from Asia, which means there’s a lot of growth potential.

    Bob: My stock is the great American company, IBM (IBM). I own it. In the long run, if you are going to replace Social Security with an individual investment, the company has to reinvent itself. That’s what IBM is doing now. It is getting out of the PC business because it is so volatile and is focusing on other areas. It is a leader in many areas: semiconductors, mainframe computers and storage. (IBM closed on Friday at $94.10.)

    Gary B.: Big Blue has a tough road ahead. It took a shot at crossing $100, but failed. I’d only buy the stock if it hits triple digits, but that could be very difficult.