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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; Tracy Byrnes, New York Post business writer, and Adam Lashinsky, Fortune Magazine senior writer.
Trading Pit: When Will The Bulls Return?
No two ways about it, a bad week for stocks. The Dow hit hard—call 'em the black and blue chips—dropping nearly 600 points. It's the worst weekly point loss in 5 years. So when will the bulls be back on Wall Street?
Tobin Smith: The market got hit with the "perfect storm." About every six months we get this sort of pull back. But look at what happens after these pull backs—it's been a buying opportunity. Investors are going to come back. The economy is still good and that means you want to buy stocks.
Gary B. Smith: We saw incredible volume all last week—particularly Thursday and Friday. It was one of the highest ever on the stock exchange. A lot of these weak holders of stocks are being washed out. We're having a lot of turnover here and I'm not sure if it's the exact bottom, but we're pretty close. The housing stocks are selling half of book value right now. That's pretty cheap and means there are probably a lot of bargains in the market.
Adam Lashinsky: Two weeks ago when the Dow was approaching all time highs, I said to be cautious there were still a lot of risks. These risks were real two weeks ago and they're real now. The most important one is not housing! The most important risk is that private equity firms have been buying every company they can get their hands on. This is causing other stocks to go up in anticipation of also being bought.
Tracy Byrnes: Companies are still making money. American companies are multi-national now. You have to look at the whole world. We're making money overseas. Money is still coming into our country and being invested here. We need to reassure people that investors are selling at the bottom and that's the typical mistake that investors make. The market will go up, but not in a straight line. It's a zigzag. You can't hit the "Sell" button during this time.
Scott Bleier: The bull market is over for now. Let's get realistic here. We've had a huge run over the last year. We've known that the financials, which has been the leadership for this market over the last four years, was going down. Credit is getting tighter. The bull market is over.
Pat Dorsey: The reason people get freaked out when credit markets tighten up is that companies can't borrow more money and invest and hire more people. Corporate America has its best balance sheet in twenty years. That means it doesn't need to borrow money to invest and keep the economy moving forward. This means earnings are still going to grow and valuations are still reasonable. We are still going up. The bull market is not dead.
Best Solution to Fix Health Care: Tax Breaks?
Fixing health care with a tax break, not a tax hike! The White House is pushing a plan to give families who buy their own health insurance a $15-thousand tax deduction. Is this the right cure?
Gary B. Smith: It's a step in the right direction. People who have to buy their own health care insurance are at a disadvantage. People that can get it through their employers have an incentive to use it more, since the costs are low. Any kind of tax break gets the government out of the health care business. It's this continued deregulation, which will ultimately positively benefit the whole health care industry.
Tracy Byrnes: This tax break makes no sense to me! Families don't have the money to pay for health care now. How are they going to be able to afford the premium in order to get this deduction? Not to mention the folks that are covered at work are covered for more than $15,000 and are going to owe tax on the difference. So if their employer can give $20,000 in health care, they're going to owe tax for $5,000. People are not getting off for free here. I think that at the end of the day, this is actually going to hurt the little guy. The little guy doesn't have enough money to buy this to begin with, and that's why he's uninsured.
Scott Bleier: Tax breaks are great! Businesses get breaks for paying out health insurance as a benefit. Why shouldn't people who buy their own health care be able to do it? That's only part of the cure. The other part of the cure is to deregulate the insurance business completely.
Adam Lashinsky: Giving a $15,000 tax break will only do so much. The only way to help the situation is to let people get their health insurance through the government. The government is already giving health care insurance.
Tobin Smith: You can't deduct your premium. And the premium should be income. Companies pay huge premiums which is not income to the employee. If it were income, then the employee would understand that they paid for it and that it had some value.
Pat Dorsey: This may cause a loophole. It really obscures the issue that we pay far too much for far too little health care in this country. We pay more per capita than anyone else and our health system is by and large worse. It is important to have a system that encourages preventative care because that will help more in the long run.