Stock Smarts: Saddam’s Bull!
Uncertainty – the market hates it! And right now there’s plenty of it going around. Over there, Saddam Hussein. He’s prepared a 12,000 page confession on his weapons stash, but he’s lied before. Over here, a White House shake-up. President Bush’s top two money men quit, raising concerns that our economy may be in worse shape than we thought. What does all this mean for the market?
Jason Trennert of ISI Group says he thinks the market can weather both Saddam and the shake-up. His firm has looked at market performance during past military conflicts and he says the only one in which the market performed poorly was Vietnam. But, he says, Vietnam was a long drawn out war with very different problems than the ones we face right now. As for the shake-up in Washington, he says Paul O’Neill’s and Larry Lindsey’s resignations look like a prelude to a new tax package that could eliminate individual’s taxes on dividends which would be a huge benefit for the market.
Wayne Rogers of Wayne Rogers & Co. agrees with Jason. He points out that Saddam was in power all throughout the 1990’s bull market and that whether he is in or out is immaterial to the market unless we have a drawn out conflict to get him out. And the market will then be concerned about who will run Iraq once Saddam is gone.
Jonathan Hoenig of Capitalistpig Asset Management says Iraq and Saddam are low on his list of concerns for the market. He says the O’Neill and Lindsey resignations are his number one concern. He’s also wondering if the latest tech rally can last.
Hilary Kramer of Montgomery Asset Management says she’s not concerned about the resignations at all. Like Jason, she sees the shake-up as a positive that will ultimately result in a new tax package that will be bullish for stocks.
Jonas Max Ferris of Maxfunds.com says the abrupt nature of the White House shake up makes it appear to him as though there may be some very bad economic news coming down the pike and he thinks the market may suffer some jitters as a result of that suspicion.
We made big money, and then many of us lost our shirts! Now tech is a four-letter word (not the good kind!), but the very same names than inflicted the pain are rallying again. Do we dare buy them?
All-time high: $58.13
Fell to: $16.62
Friday's close (12-6-02): $28.65
Jason thinks Dell is a buy here and that it has a great business model. Hilary likes it, but thinks it’s a little pricey here. She would buy it on a pullback. Wayne owns Dell shares. He bought some at $11 and some more at $17, but he thinks the stock is too expensive here. Jonathan says if he had a loss in Dell, he’d take it for the write off and swap into something else. But if he were sitting on a winning trade he would let it ride.
All-time high: $121.88
Fell to: $27.94
Friday's close (12-6-02): $68.54
Wayne is not buying eBay. He thinks it’s a good long-term holding, but too pricey to buy here. Jonathan says there’s a mini bull run in these Internet stocks and they can make for great trades. Hilary and Jason both like the company, but think the stock is fully valued.
All-time high: $69.50
Fell to: $27.43
Friday's close (12-6-02): $40.19
Jonathan likes this sector but most of the telecom’s on his buy list are international, not U.S. Hilary says it’s too expensive. Wayne says it has a great chart with a “double bottom” but it’s moving into territory where you would trade out of it and maybe buy back later because it could suffer a pull back. One concern he has about the company is whether its pension plan is in good shape or not. Any problems could haunt shareholders down the road. Jason likes it and says it is a buy now. He thinks it will get a big push from a tax cut down the road because it pays a good dividend.
Mutual Fund Face Off: Best Bet For Wimps!
It takes a lot of guts to invest in this market, but if you don’t have any guts, it doesn’t mean you have to sit on the sidelines. What’s the best fund for wimps? Dagen and Jonas picked a couple for the faint of heart.
Dagen – Vanguard LifeStrategy Moderate Growth Fund (VSMGX)
Year-to-date (as of 12-6-02): DOWN 8.8 percent
Minimum Investment: $3,000
Expenses: $2.80 for every $1,000 invested
Jonas – Gartmore Morley Capital Accumulation Fund (NMIRX)
Year-to-date (as of 12-6-02): UP 3.9 percent
Minimum Investment: $1,000
Expenses: $10.00 for every $1,000 invested
Wayne, Dagen and Jonathan capped off the show by answering some of your questions including one from Fox funnyman, Andy Richter.
Andy Richter might Control the Universe (Sunday nights at 9:30 on the FOX network), but he got a little out of control when it came to his finances. He wants to know what to do with all the shares of AOL that he bought at the height of the bull market.
Dagen says while AOL will probably never get back to where Andy bought it, she thinks it could get as high as $20 based on the value of Time Warner’s businesses alone, and she thinks Andy could hold on and try and get some of his losses back. Jonathan suggests though that Andy put stop losses on shares now, and let the market trade him out of the position. Wayne thinks AOL’s big bet on broadband will take a long time and he’d sell the shares now.
Question: “I bought Enron, WorldCom and Adelphia well after they filed for bankruptcy. Will the shares have any value after they emerge?”
Dagen says buying these stocks is gambling not investing. She points out that in a bankruptcy, the stock holders usually end up with little or nothing. They are behind the creditors and the bondholders in the line to get paid. She says to sell these stocks and move on and adds “Please don’t buy United Airlines (UAL) stock!” Jonathan points out that even if any of these companies emerge form bankruptcy they may want to do a reverse stock split so the number of shares you hold could end up being greatly reduced anyway.
Question: “What do you think about Lucent (LU)?”
Jonathan wouldn’t touch Lucent with a long or short bet. Wayne thinks there is a better play in Nortel (NT) but if you own Lucent now hold onto it. Dagen says it’s too soon to buy Lucent.
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