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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; John “Bradshaw” Layfield, WWE superstar and Northeast Securities senior vice president; and David Sirota, “Hostile Takeover” author.
Trading Pit: Is It the Government’s Job to End Poverty?
Presidential hopefuls John Edwards and Barack Obama are on the campaign trail calling for the government to end poverty. But is that the role of government?
John “Bradshaw” Layfield: Absolutely not! We are spending over half a trillion dollars on social services, affordable housing, and giving houses away. This is one of the reasons for this sub-prime mess right now, and government spending has done no good! We need to give people incentives, educate them, and let them realize the American dream. Handouts do not work! If you kill incentive in America, you kill the American dream. I was broke one time BUT I didn’t go to the government or ask for a handout. I pulled up my bootstraps and made a lot of money.
David Sirota: I think it’s absurd not to give money away. We give away tens of billions of dollars in corporate welfare every year. If we can provide those tax breaks and tax incentives for corporations, then we can make sure that people don’t have to starve and that they can have a roof over their head. We’re the wealthiest country on earth, and the idea that we can privatize everyone and throw people out on the street without feeling any moral obligation to end poverty is absurd! We need the government to provide a social safety net. I applaud the politicians who say it’s time to return to our moral duty to build that safety net.
Gary B. Smith: I agree with everything Bradshaw said. We’ve been trying to fight poverty in America for 130 years with bigger and bigger government programs. And what has it accomplished? Even larger welfare roles than we’ve ever had! The fact of the matter is that most people who are classified as poor, are poor for a few reasons: a single head of the household, they work about 16 hours a week, and they have no education past eighth or ninth grade. If you want to incentivize people, why not fix those problems by taking away taxes, taking away big government, allowing people to get jobs and education, and maybe even encouraging marriage. Then you would fix poverty.
Pat Dorsey: There are intelligent ways and foolish ways to provide a social safety net. I think we have some sort of moral obligation to do that. Ending poverty is probably a little too ambitious, but to polarize this debate with handouts on one side and complete privatization on the other side skews things in a really bad direction that doesn’t get us anywhere.
Tobin Smith: In the nineties Bill Clinton said we could cut the welfare by taking people off the service and giving them work. In other words, giving them incentive to not be on welfare. We were able to cut welfare roles more than any other time in our history. Welfare takes away people’s incentive and self-esteem and makes them less productive. Push them off and give them the chance to learn, and they do well! Why do we have to go back and relearn that?
Scott Bleier: The redistribution of wealth will never end poverty. The way you can do that is by making sure everyone is educated and incentivizing business—this is exactly what the Democrats don’t want. They don’t want to incentivize business. Bottom line, job creation comes from the rich because they risk their money to create jobs. That is what creates jobs and equalizes everything across the country.
What Could Derail This Hot Stock Market?
The Dow closed about 14K for the first time ever this past week. Not only that, we’ve had more than thirty all-time highs this year alone. But good investors have to know the red flags.
Tobin: Well the biggest one is if some of these morons running for President and Congress are stop capitalism in favor of protectionism. The understanding of free-market capitalism should be a test that every one of these guys has to take before they can run for President, and I’m sure they would all flunk.
Gary B: I’m more definitive. I’m worried about inflation. If the Fed raises rates, which I don’t think is out of the question, it would stop this rally dead in its tracks. And of course terrorism! By all accounts, there probably will be an attack on our shores sooner or later. These could cause at least a few weeks or months of a sell-off in the market.
Pat: What derails bull markets from time to time is something you don’t see coming. Let’s think back to 1998… How many people that year would have thought that a hedge fund run by two Nobel Prize winners was the greatest risk to the market? Absolutely no one. It’s usually the thing you don’t see that hurts most.
Bradshaw: I think the wild card here is the aversion to risk. Six senators out of 100 read the national intelligence report about whether to enter Iraq or not. These guys can’t even find Wall Street! If the merger and acquisition stops because it’s scared, and the debt goes up, there’s going to be a problem with liquidity. That, and oil prices present two major roadblocks.
Scott: I’m worried about interest rates. Gary B. hit the nail on the head. The market fears only one thing and that is higher interest rates. It doesn’t fear higher oil, as we see oil prices marching higher everyday. It’s all about interest rates. If rates go higher, this market gets derailed in a big way.