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Bulls & Bears
This past week's Bulls & Bears: Pat Dorsey, Morningstar.com director of stock research; Eric Bolling, FOX Business Network; Tobin Smith, ChangeWave Research; Bob Froehlich, DWS Scudder; and Marc Lamont Hill, Temple University.
Trading Pit: Dow Drops Below 11,000 for First Time Since July '06
The Dow falling below 11,000 for the first time in two years on Friday. Blue chips did close above that level, but all three major stock indices did close in bear market territory. So with all the red numbers, why does someone here think we've got a green light for plenty of green on the screen — a big market rally!
Bob Froehlich: The stage set for a big rally! When the Fed cuts rates, the market reacts, but it takes 12 to 18 months. The bulk of these rate cuts haven't worked their way into the economy. We're also about to see an inflection point in the dollar which will help us with the price of oil. The foundation is in place for a rally, and I think we're going to have a good second half of the year.
Tobin Smith: Nothing normal is going on here. We have much bigger issues to deal with in terms of the physical nature of the mortgage market, corporate bonds, default rates, and the recession. We do have a real recession in this country and exports are the only things holding us up. We've got to go down to 10,000 before we get to value, and we've got a long way to go to get there.
Gary B Smith: First, this is the kind of rhetoric you hear at a bottom with people saying "I just can't think of one reason why the market will go up!" Second, the market has never failed to react when the Fed has cut rates this many times. The market doesn't always react positively the next month, but it does eventually react. The market is holding up – we dipped below 11,000 and then shot back up again. It's telling us it wants to go up.
Eric Bolling: What matters is getting the price of oil down. If you get the price of oil down, everything can improve, but until we see a $100 barrel of oil, it's going to be tough going.
Pat Dorsey: Oil is a big part of the equation, but I will point to a couple of other things as well. On a shorter term basis, the volatility index, the measure of the amount of "fear" that's in the market, is getting back towards the same levels we saw this past month at the bottom of the market. For the short term, that's a pretty good sign. Longer term, markets do tend to look forward and discount things. We are in a recession, but stocks will start to move before the numbers show it. Things like unemployment and corporate profits are lagging indicators; they tell you where you were, but they don't tell you where you're going. The market will start to come back before all of those statistics start to look better.
'Pay or Play' Health Care: American Job Killer?
Play by offering health care to your employees...or pay the government to provide it. This is Barack Obama's health care plan for small businesses. Some think it's healthy idea, but it has others feeling sick!
Bob Froehlich: This isn't play or pay, it's pay, or pay even more. That concept is going to kill small businesses. Everyone knows we've got a health care problem, but we can't solve it on the backs of small businesses, especially in light of where we are in this economic cycle. If small businesses, the engine of economic and job growth, have to pick this plan up, they are just going to stop creating jobs. It's a horrible plan.
Tobin Smith: Look at Massachusetts – we can talk about ideas, but how about reality. A bill which required health care coverage in Massachusetts in 2006 has done three things. First, it's cut small business creation in half over the last twelve months. Second, rates have gone up, which means that the state has now instituted a cap with too many people on it. Third, their credit rating has gone down, resulting in increased interest rates and cost of capital, and decreased job creation. That's a heck of a plan for an economy.
Marc Lamont Hill: You can't balance the budget on small businesses; you have to support small businesses. Barack Obama's overall plan is to support small businesses. We can't look at the health care plan outside of his broader project, which is to enhance small businesses, give tax breaks, eliminate capital gains, and give all types of entitlements to small businesses to expand them. Also, he's saying that while we're going to force small businesses to pay for health care, it's going to be on a sliding scale. Businesses that have the most revenue can pay a little bit more, those that have less will pay less, and some will be exempt. We have to find a way to pay for something that will help everybody.
Gary B Smith: This is a tax on small businesses, pure and simple. It's the government saying that this is how the small business must operate. I don't see this as any different than saying small businesses must offer day care, three weeks of vacation, or anything else. Once you get the government telling any business, small or otherwise, how to operate, they tend to operate less efficiently. The government's role in the whole health care situation is probably just to get out of the way and let the market operate, instead of dictating what businesses must offer.
Stock X-Change: $tock$ to Pay for A-Rod's Divorce
Stocks to help A-Rod pay for his divorce and help you beat the bear market. Batter up in the Stock X-Change!
If you want to watch what each had to say about each stock, click here.