The Cost of Freedom
David Asman: Welcome gentlemen. The question is, can we spend our way to prosperity?
Dennis Kneale, Managing Editor: I think it's a knee-jerk reaction by the government. Recessions happens for a reason and now the government is interfering with that. This is an attack on capitalism.
David Asman: This attack was an act of war. Doesn't the government have some type of role to play in the economy?
Steve Forbes, Editor-in-chief: The government should do two things: make the tax cuts effective now and accelerate the rate reductions. Another thing is Greenspan hasn't pumped sufficient liquidity into the banking system. It's like saying, gasoline is fifty cents a gallon but you can't buy any.
David Asman: So far the Bush administration has given $40 billion dollars to the Relief Aid, $15 billion dollars to the airline bailout, $5 billion dollars for combating terrorism, $3 billion dollars to state grants and $5 hundred million dollars to airport security. With a proposed $75 billion dollar stimulus package, we're going to have spent almost $140 billion dollars.
Bob Lenzner, National Editor: I think we have to spend the money because for the first time in fifty years the economy is not growing. It's the responsibility of America to pull itself out of recession so the rest of the world can do the same. I agree with Steve that there should be a major tax cut because these smaller measures will not make that much of an impact.
David Asman: We've got a lot of corporations and lobbyists demanding money from the government, some kind of bailout.
Jerry Flint, Columnist: I don't think we should commemorate the death of thousands by giving out more welfare or lowering taxes for the rich. The United States needs victory and veterans.
Dennis Kneale: The stock market is not going to make a bounce on its own so the government feels like it has to come in and help. But if airlines want people to fly again they should lower their fares.
Steve Forbes: The important part is to have these foundations ready for when we get back on track. These blockages in the arteries were there before these attacks.
Bob Lenzner: I'm for the government doing as much as it can to get the market back to stability as quickly as possible.
David Asman: Don't we need some incentives to get the economy going again?
Jerry Flint: The market is like an ocean and the things we're talking about are like spitting in the ocean.
Steve Forbes: Tax changes and monetary changes are not spitting in the ocean.
Jerry Flint: Long range you're right.
Steve Forbes: We should've learned from the Japanese that you can't spend your way to prosperity. What you can do is take the weight off of the American people.
The Informer
Bob Lenzner, National Editor: One of my sources told me months ago, years ago to sell on the manufacturers of telephone equipment. Several telecom companies could run out of cash soon.
Those that will probably survive are: Alcatel (ALA), Cisco (CSCO), Nortel (NT) and Tellabs (TLABS).
Those companies that are extremely shaky now: Juniper (JNPR), Lucent (LU), Foundry (FDRY), and Ciena (CIEN).
My source also says a list of twenty-seven carriers who will run out of money within the year, including Time Warner Telecom and Global Crossing.
Elizabeth MacDonald, Senior Editor: Does that mean that we're going to see an asset sale of Bell Labs?
Bob Lenzner: My source thinks they'll be a huge amount of conglomeration. The economic situation in that area is expected to get far worse.
Elizabeth Corcoran, Silicon Valley Bureau Chief: We've been hearing a lot about national ID cards. President Bush said he's not interested in them but airlines and other security venues might be. A federal tax force will have as one of its proponents a ID card of some sort. And so, this will mean a big call for databases. Oracle (ORCL) could be a huge beneficiary.
Peter Newcomb, Senior Editor: All entertainment has been hit hard, print, magazines, TV and radio. But Clear Channel (CCU) might be in a good position here. They're the country's biggest owner of radio stations. They're about fifty percent off their high. People are listening to a lot more radio than they were three weeks ago and advertising on the radio is cheap.
Elizabeth MacDonald: The markets are bracing themselves for these write-offs that are supposed to take place. JDS Uniphases' $50 billion write-off and Nortel's $19 billion write-off. These are record numbers. I hope that investors see through these write-offs and not get excited. These write-offs are because lots of companies overpaid for their acquisitions. This does not mean that companies are writing down their operating earnings.
Bob Lenzner: But aren't they admitting that they made a big mistake?
Elizabeth MacDonald: Absolutely. That's a reason to get out of these stocks. The management made a big mistake of over-paying for these acquisitions.
Elizabeth Corcoran: I agree with Elizabeth. What we're hearing from CEO's is it's going to be at least six months before anyone can predict where these companies are going.
Makers & Breakers
Check Point Software (CHKP)
Peter Cohan, Peter Cohan & Assoc: MAKER
Check Point is an internet security stock. They make firewalls that protects networks from intrusion. They have sixty-two percent of the market. They make $500 million in revenue, $330 million in net income. They very profitable. They have a higher profit margin than Microsoft (MSFT).
Dennis Kneale, Managing Editor: BREAKER
I don't think you should buy any tech stock now. IT spending is half of all capital spending and it's plunging. I don't think companies are spending a lot on the internet.
Matt Schifrin, Senior Editor: MAKER
I disagree. This company has incredibly high margins. They do it through outsourcing and they off lay their distribution to their partners. That means that their partners pay all the marketing costs so their margins are high.
Dennis Kneale: Their profit number is suspect. It's an Israeli company so they don't have to report every quarter. Having that high of a net income on that revenue number to me is questionable.
Citigroup (C)
Peter Cohan: Citigroup is the leading bank in the world and they're poised to benefit from lowering short term interest rates. They get free deposits, when you take into account inflation, which translates into free cost of funding.
Matt Schifrin: MAKER
Citigroup has strong management, a strong franchise. They're the leader in banking and they're very diversified. The company penny-pinches and in this market you want a company that does that.
Dennis Kneale: MAKER
I agree with Matt but when will we see a real synergy of sharing client lists between the different units?
Peter Cohan: That's a very difficult thing to do. I worked in the banking industry for years. That's one of the biggest challenges.
David Asman: What about these new rules about money laundering. Doesn't that cut back on the flexibility of any bank?
Peter Cohan: Sure, but I don't know exactly if there will be a financial impact on Citigroup.
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