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Bulls & Bears
This past week's Bulls & Bears: Gary B. Smith, Exemplar Capital managing partner; Pat Dorsey, Morningstar.com director of stock research; Tobin Smith, ChangeWave Research editor; Scott Bleier, HybridInvestors.com president; Charles Payne, Wall Street Strategies CEO; Laura Schwartz, White House Strategies principal, and Peter Schiff, Euro Pacific Capital president.
Trading Pit: The "Real" War Against America's Middle Class
If you listen to some reports, the middle class has never had it tougher. But holiday sales — ringing up a very merry season. Home ownership — at record numbers. And the stock market—much of it owned by individuals — trading at an all-time high. So if all that is true, who's "really" waging war on the middle class?
TOBIN: The liberal media and John Kerry, D-Mass., are waging the war. When you hear "the middle class" has never had it so bad, DON'T believe it. Middle class families live with luxuries that used to be only for the rich; things like lawn services, housekeeping services, and plastic surgery. These claims are trumped up and are being used to create class warfare.
LAURA: The benefits of the growing economy have yet to trickle down to the middle class. The American public sent that message to Washington a month ago! Median household income for the middle class has declined under President Bush by $1300 a year, while other costs like healthcare, education, and energy have gone up almost $5000. This is one of the reasons why minimum wage hike has been endorsed by Democrats, a lot of Republicans, and religious groups that are concerned about poverty. There is a widening gap between the have and have-nots.
GARY B: Adjusted for inflation, total median household wealth is at an all-time high.
Laura mention income is dropping, but if you include total compensation — healthcare, Social Security, paid days off, etc. — it's also at an all-time high. Home ownership is at an all-time high. Unemployment is at an all-time low. I can't see how is the middle class is NOT benefiting.
PAT: I've never seen why this is a partisan debate. These trends are long-term in nature.
They don't happen exclusively in Democratic or Republican administrations. Income inequality in this country has been widening since the 1970s. The issue needs to be addressed, but placing blame on one side or the other doesn't really get us any further.
CHARLES: Moving up is the American dream. I think it's despicable when liberals and Democrats make people, who are doing very well, feel like they're doing poorly. We have a society where some people are making others feel bad because they are doing great. Let's enjoy the fact that we live in a country where people are allowed to ascend and be great. The middle class is not doing poorly. We're hearing about all these record Wall Street bonuses. Some of these people getting them came from nothing. This is the reason why so many people are coming to this country.
SCOTT: The good news is that the middle class has never been bigger. But the bad news is that the middle class is getting hit harder than ever by the government. It's not the Republicans or the Democrats. Federal, state, and local taxes take up 50 percent of the middle class paychecks. And when you add in property and sales taxes, and it totals to 60 percent! That means the middle class is working for 40 percent of their money. The government is waging war on the middle class. That's the bottom line.
Housing Market Killer?
There has been a lot of optimism about home prices in 2007, but what if interest rates go higher? Would it be a housing market killer?
Peter Schiff: Anyone that calls a bottom in the housing market, including Alan Greenspan, is just wishful thinking. Interest rates are just one problem for housing and they are going a lot higher. Interest rates, like all prices, are determined by supply and demand. In America, there's lots of demand. Everyone is borrowing money and no one is saving money. Our domestic pool of savings is shallow and we've borrowed a lot of money from abroad.
Charles: Interest rates are going down. The economy is stronger than everyone thought it was going to be. The U.S. economy is not going to go off a cliff. The Federal Reserve may be able to slow the housing market down, but I think home prices are going to be up big time next year.
Gary B: I don't think there is a link between interest rates and housing. Median home prices keep going up. The only thing that derails the housing market is high unemployment and we don't have that right now. To Peter's point, I have heard that people aren't saving, but as we discussed in the first segment, household net worth is at an all-time high when adjusted for inflation.
Tobin: At anytime you can say that Americans don't save enough money. We are a country that imports excess capital because other countries are bad users of capital. We are the best users of capital.
Scott: Of course if rates go up, housing could slow down, but rising rates won't kill home prices. Housing is bottoming. Historically, interest rates are remarkably low and remarkably stable. They will continue to be low for the next several years.