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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; Joe Battipaglia, Ryan Beck & Co chief investment officer, and Adam Lashinsky, Fortune Magazine senior writer.
Trading Pit: Dow 14,000
History at Wall and Broad. The Dow smashed through 13-thousand for the first time last week. 129 trading days. That's all it took for the blue chips to catapult from 12 to 13-thousand. Can the bulls run to 14K this year?
Tobin: YES!!! The world is growing faster than the US and is buying our exports at record rate. We’re benefiting from global growth. Anyone who thinks this subprime mess will bring down the American economy is wrong. Earnings growth will take the Dow to 14K.
Gary B: No, I don’t think the Dow will get to 14K this year. We’ve gone straight up. The market’s current run reminds me of late 1999 and early 2000. Stocks were just jumping then as they are now. We’re overbought and due for a big pull down.
Pat: Our fair value for the 30 Dow stocks is just below 14,000, so I think we could see it this year. Blue chips are cheap and are where the value is at right now. Investors have left wonderful stocks like Johnson & Johnson (JNJ) and Wal-Mart (WMT) for dead the past 6-7 years. And a stock gets cheap when it doesn’t go anywhere, but its earnings keep growing and growing.
Joe: No 14K for the Dow this year. In fact, we may see a lower Dow by year-end. The next problem for the market will be out of our hands. China wants to tamper down on all the speculation in their market. When the Chinese market fell 10 percent in February, we took a tumble too. The Japanese want to end the carry trade. If they move forward on that, it will present a problem for the global market. I think investors should take a defensive posture because we may see Dow 12K before 14K.
Adam: We’ll hit 14K, but I don’t think we’ll stay there, or end the year at that level. The Dow making a gain of a thousand points isn’t as tough as it used to be. To get from 13K to 14K is only a gain of 8 percent. Private equity boom will continue to manifest in an interesting way. They’ll continue to put more money into stock market, which will take companies off of the stock market, and that will raise the value of the stocks remaining.
Scott: No way the Dow will hit 14K this year. The domestic economy is clearly slowing and $3.00 gas is hurting the consumer. The only thing saving corporate America’s strong earnings is overseas business. The main thing fueling our markets is unprecedented corporate takeovers.
The More Bush Vetoes, the Better for Stocks?
When President Bush vetoes the war spending bill this week it will be only his second veto since he took office. Does Wall Street want the President to start making up for lost time with that veto pen?
Gary B: Absolutely! I hope he vetoes often. Obviously, this will not make the Democrats happy. But, it will create a giant stalemate. Thankfully the government will grind to a halt and then we’ll be able to get something done in this economy.
Adam: It would not be good for stocks. I'm not a fan of the school of thought that says that gridlock is good. We have a very complex government doing lots of important things. We have some huge tax issues to resolve. The President has every intention of working with Congress.
Pat: If the president doesn’t mind vetoing spending bills, it’ll be good for stocks. Congress has been spending out of control over the past 4-5 years. Less spending is good for stocks. It’s usually the threat of veto that makes Congress change a bill. If the legislature branch and executive branch are split, like in the 1990s or now, Congress won’t get all their bills approved with a rubber stamp.
Joe: The more Bush vetoes the better it is for the economy and stocks particularly when it comes to bills with frivolous spending attached. He better use the veto pen or Wall Street will run for the exits.
Scott: I don’t think gridlock is good in this circumstance. Wall Street is primarily worried about the capital gains and dividend tax cuts. If Bush vetoes everything the Dems put forward, they will then reject keeping the dividend tax cuts on purely partisan grounds. In reality the Democrats want to keep these cuts because they are great for the economy and they know it. If the President can master the art of compromise—even a little bit—then they can be protected, because if the cuts are not protected, the market will take a nasty hit.
Tobin: Stalemates are always good for stocks. President Bush needs to start using his veto pen—often! The more he vetoes the better for stocks. The President needs to use his veto power to fight off Democrats’ desire to start taxing oil.