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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; Scott Bleier, HybridInvestors.com president; Tobin Smith, ChangeWave Research editor, and John "Bradshaw" Layfield, Northeast Securities.
Trading Pit: Blame the Primary Election for Wall Street's Historic Sell-Off?
Gary B. Smith: Absolutely: The election will have a big impact on how the White House treats certain sectors, as well at how it treats taxes (including corporate taxes).
Tobin Smith: Its not helping…but the killer is the REAL unemployment rate which is REALLY about 5.5 percent and going to 6.5 percent because we are in a recession. Yes ChangeWave Research is now forecasting that we are in a stalled economy that goes to negative 1 percent growth in Q2 and Q3. We are moving from correction to bear market unless the FED goes ½ point cut pre-meeting and ½ point at meeting. But we are in a consumer led recession and it's going to be a real recession. So get ready for 3 percent Fed Funds rates by summer….
John "Bradshaw" Layfield: There is not an incumbent defending the economy, consumer sentiment guides spending, so yes, every candidate saying we need change is hurting. All of this talk of a recession and housing woes is hurting spending, cash on consumer balance sheets is up 10 percent. Consumers still have cash to spend; the question is will they? Fear is driving down this market; there is no doubt about it. Unemployment is still low as are rates. Europe is in trouble with debt and the strong euro, they will have to lower rates which is not what some countries need, this helps the dollar this year.
Scott Bleier: The election is having little to no effect on the market at this time. In a more "normal" market and economic environment I would say that the prospects of higher taxes would be a concern. But with an economic contraction that is spreading, home and stock prices dropping and the prospect of higher unemployment, the last thing investors are worried about right now are taxes they may have to pay a couple of years from now.
Pat Dorsey: It is uncertainty…but not about the election. It is about the economy. There's been a tug-of-war for months between the "mild slowdown" scenario and the recession scenario, and the difference between the two is not merely semantic. Economies are like airplanes: at too low a speed they go into a stall and roll over. Up until recently, the evidence was reasonably balanced on both sides, with the jobs picture being the crucial positive data point. Last Friday's jobs number moved the weight of the evidence much more strongly into the "ugly" camp.
The silver lining in all this is that many retailers and financials are already pricing in a very nasty recession. Industrials, however, seem to be still trading on fumes.
Time for a "Wicked Weather" Tax?
John "Bradshaw" Layfield: Yes: if you are in a flood plain and it floods, too bad. That is what insurance is for, not the government. This is not a socialist state. We cannot afford to keep bailing out people who don't buy insurance and look to the government for help. Should I get a bonus because I don't live near the coast and haven't lost my home, the answer is no. We don't legislate ignorance, or at least, we are not supposed to.
Scott Bleier: No way. Are we next going to see a crime tax for New York City? Natural disasters are mostly random. You cannot tax people on problems that have yet to occur. Those people at risk have to pay for repairs and that is enough of a cost. It's all about choice. If the advantages out way the risk, then that are the chose they've made.
Gary B. Smith: Yes (to the tax), and it should be levied by the State! Why should people who don't live in flood plains, near potential wildfires, and in tornado zones, be taxed to help out those who do?
Pat Dorsey: Alaska, Hawaii, Maryland, Virginia, North Dakota, and New Mexico are currently at the top of the federal expenditures per capita list. Should their residents have a "federal largesse" tax? Better yet, Utah, Wisconsin, Oregon, Minnesota, Nevada, and Illinois (my home state) are at the bottom of the ranking. Can I get a rebate?
"Comeback Kid" Stocks!
Click here to watch this segment in its entirety
Gary B Smith: Lowe's (LOW)
Pat Dorsey: Vulcan Materials (VMC)