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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; Matt McCall, Penn Financial Group president; and Peter Schiff, Author "Crash Proof"
Trading Pit: Obama's Doom and Gloom Me$$age: Is He Right or Wrong?
Sen. Barack Obama telling voters this week that "our economy is teetering not just on the edge of recession but potentially worse." Is the democratic front-runner on the right track, or using financial fear to win votes in Tuesday’s critical Pennsylvania primary?
Gary B Smith: No, I won't even concede recession, even if we're in a recession, it's going to be mild. Let’s look at some the facts; the whole pillars of this down turn have been in two areas. One is the credit crisis, but bank lending is acutally up one percent since August when this whole mortgage mess more or less started. Two is housing prices, but if you look at the entire country home prices are down only about 3 percent over last year. In fact, in half the states, they're up about 3 percent from fourth quarter 2006 through 2007. So if we're going to have something worse in a recession, there are no facts behind that premise.
Peter Schiff: The problem is we are on the verge of an economic collapse not just a recession. What's happening is the foundation of our bubble economy, which consists of consumer credit and consumption, is giving way. We are going to have to transition or rebuild a sounder foundation based on savings and production. To get from where we are to where we have to be it's going to involve a protracted economic decline. Simultaneous to that we are going to have a substantial increase in consumer prices. Unfortunately, maybe Barack is identifying the problem. But what he's likely to do as president is going to slow down the free market forces, trying to correct these imbalances. He is going to make the situation worse.
Scott Bleier: Listen, we've had boom-bust cycle the last five years. We've had a nice boom and now a bust. The difference between this bust and other cycles are that housing prices got a little too high. There was too much leverage in the system, which has been unwound very quickly. All of this is going to work out just fine. We've got a booming worldwide economy. Peter Schiff has it half right. We're not destroying the foundations; we're going through our normal cycle. Once the cycle is done and the leverage is unwound, our 13 trillion dollar economy and globalization of the whole world is going to be beneficial to us.
Pat Dorsey: Well, I’m not as bearish as Mr. Schiff, but we've never been in a state of declining real estate prices. This hasn't happened on a national basis for an extended time. Rising real estate prices positively affect consumer spending and it looks like they're being negative on the way down. I don't think you can discount the possibility of something ugly.
Tobin Smith: People are missing how flexible our actual economy is. We have 1 1/2 billion new consumers throughout the world that have entered the economies of the world. That's a new dynamic that has changed to the positive ability for us to grow.
Matt McCall: How can Peter say that the global economy is good, but the U.S. is going to collapse? That's ridiculous, you can't have both! We're still the largest nation in the world and the biggest economy in the world. If the biggest economy in the world collapses you can't tell me it's not going to have an affect on the rest of the world. That's crazy!
'Gas Tax Holiday': Would It Rev Up Economy?
Gas prices hitting a new high. The national average now north of 3-40 a gallon and set to go higher. So is it time for a gas tax holiday? That's what Senator John McCain is calling for right now. His plan will get rid of that 18 cents a gallon federal tax from Memorial Day to labor day.
Matt McCall: Absolutely, any plan of attack is good for the economy. It gets in people's hands and suddenly they think, “hey I saved on gas today let's go out to eat”. It would be great for the economy.
Gary B Smith: I think they should make the cut permanent. Let the government get used to being without the “crack cocaine” of taxes for a while.
Tobin Smith: We should have a gas-guzzler tax on the guzzlers. Take that money and use it exclusively to fund non-fossil fuels.
Pat Dorsey: It's only about a 5 percent reduction in the cost of gas, so I don't think it's going to stimulate oodles and oodles of driving.
Scott Bleier: They say that they could save about 7 billion dollars to the U.S. consumer, but it's going to cost the government about 10 billion dollars. Remember, they need that money to fix the roads. If they don't fix the roads they have a deficit spend and raise your taxes somewhere else.
Stock X-Change: Stocks Set to Takeoff on the Next Big Takeover