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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, and Lenny Dykstra, TheStreet.com columnist and former MLB All-Star.
Trading Pit: $10 Gas — Only Way to Break Our Oil Addiction?
Gas prices now north of $3. And many believe we'll see $4 soon. But is that enough to change our habits? Would paying ten dollars be enough?
Scott Bleier: No! Not even paying $10 would be enough! As long as gas is available, people will buy it and won't change their ways. There is not enough political and economic will to change our habits until there is no gas. When there finally is no gas, then we will change our ways.
Gary B. Smith: For the first time in twenty-five years, gas consumption and miles driven are actually down. I think one of the big reasons causing this trend is higher gas prices. So if people have already started curtailing their use at $3 gallon, at $10 a gallon, no one will be driving!
Lenny Dykstra: It doesn't matter if gas is it at $5 or $10. People will pay it. It's like if you go to a baseball game and want to buy a hot dog. You're trapped at the game. A hot dog costs $5 and that's what people pay. So what are you going to do if gas is $10 a gallon? Stay at home? No! You have to go to work, so you'll pay it!
Tobin Smith: At $5 a gallon, we'll get to the same point we were in 1982 when there was the huge spike, and consumption dropped fourteen percent. Gas doesn't need to get to $10 for us to kick our oil addiction. It only needs to get to about $5. If prices soar to $10, we will have the biggest recession in the history of the United States. Gas at $5 will tip it. Fortunately we haven't gotten there yet, and I don't think we will.
Pat Dorsey: Even at these levels, we are seeing a demand response to gas prices. At $6 a gallon, we would see a much stronger demand response with carpooling and choosing alternative means. But to structurally change our gas consumption over the long-term, we need many more fuel-efficient vehicles, better mass transit, and changes in living patterns. This doesn't change overnight. This is a big country and we are not as densely populated as Europe. And that means we're almost always going to consume a lot more gas per capita than other places around the world.
Dow's Amazing Run: How Much Is Left?
No rest for the Dow! More record highs. Two dozen this year alone! And get this—it's now seven weeks in a row that blue chips have racked up plus signs. How much more is left?
Tobin Smith: We may take a breather, but every time we take a breath it's time to buy, not time to sell. Look at what you're getting out of the corporate bond market. Five and a quarter percent for Triple A bonds! If you value that against stocks, the Dow would be at 17,000 right now! A reasonable price-earning rate reflects how safe the economy is and how much better companies are run.
Gary B. Smith: The Dow is up almost ten percent during the last two months! But the Nasdaq has really done nothing. This is a rather troubling sign because it indicates that at least part of the market—other than these 30 Dow stocks—is weak.
Pat Dorsey: Odds are we are due for some kind of short-term pullback. At the moment, liquidity is strong, money is very cheap, and what that means at the end of the day, is that there is more money. A trillion dollars in private equity is waiting to be invested, and it's chasing less stocks. It's pretty simple, more money chasing less equity pushes the market up.
Lenny Dykstra: Every week I sit in my living room and watch the Bulls & Bears, my American Idols. And for the past several weeks they've said the Dow can't go any higher, it's got to come down. Yet the Dow has gone higher and higher. But they're right. There's not much left because Wal-Mart is the only Dow stock that is undervalued by ten percent or more.
Scott Bleier: The Dow has been up eleven out of twelve months, gaining twenty-five plus percent. A lot of money is chasing deals, some of which are very speculative, and not every company is going to be bought. The Nasdaq has been flat and has not been doing well. This is an excellent time to sell stocks not buy them because there is trouble brewing. The American consumer is slowing down and the whole world will slow down with us.
American "Stock" Idol: Each guy picked his own American Stock Idol. But will our Simon Cowell, Pat Dorsey, agree?