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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 Joe Battipaglia, Stifel Nicolaus.
Trading Pit: What Does Wall Street Need to Spark a Rally?
Gary B. Smith: Wall Street wants Ronald Reagan…but unfortunately he is not available! But Wall Street does want a fiscal conservative in the White House so American can avoid turning into Europe – which is essentially a growing welfare state!
Joe Battipaglia: Here is what Wall Street needs to recover: the housing market to stabilize; the Fed to complete the rate-cutting cycle; the financial insurers to have a stabilization plan; and equity analysts to cut their unreasonable second-half estimates. Unfortunately, this is going to take some time with more headline risk before recovery can get underway.
Scott Bleier: Wall Street does not want a fiscally conservative president… Wall Street wants a president who is going to spend a lot of money! But Wall Street wants that money to be spent on things that will help American businesses and not on pork projects. Once the credit markets are cleaned up and expectations for earnings are lowered (which will take another quarter), the market will be ready for a nice upside surprise. And this will all be done quietly; there will not be one big even that everyone will cover.
Tobin Smith: Wall Street wants a president that will not raise taxes on capital, will not run a protectionist foreign policy and will extend the Bush tax cuts to permanence. And Wall Street also wants real transparency in the banking, brokerage and derivative businesses.
Pat Dorsey: Wall Street is too shortsighted to care that much about a fiscally conservative president. On what the market needs to rally, two questions need to be answered: 1. Is the consumer going to "roll over"? 2. Will the rest of the world's economy continue to grow and buy things from America? Because demand for infrastructure from other countries is still strong, big American exporters will continue to grow – for now.
More Bad News for Housing, Good Sign to Buy?
Gary B. Smith: There are several reasons to be positive on housing:
1. Housing stocks always move before housing prices start climbing. And they've been moving: PHM, for example, up over 30 percent since the end of 2007.
2. The Fed has our back: 30-year and ARM mortgages are back to being a steal.
3. Despite the slump, median home prices for houses sold are STILL in a long-term uptrend.
Joe Battipaglia: The housing recession will last through 2009 with median home price declines of 20 percent; a total of 3 million foreclosures; $300 billion in related securities write-offs and an anemic domestic economy for 2008.
Scott Bleier: What a great time for first time buyers! We hear about how miserable housing is, but the focus is on the areas that were way overbuilt in the last boom. Those places appreciated the most and the fastest and they will continue to be hit the hardest. But good houses in desirable neighborhoods are not cheap and probably never will be. If you're looking for a repeat of the bubble frenzy because interest rates are coming down, forget it…The extremes of all buyers and few sellers a few years ago did not last forever — and the extreme of few buyers now will not last forever either.
Bulls & Bears Lightning Round!
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Gary B Smith: Pepsico (PEP)