Stock Smarts: Don’t Blame Saddam?

Is the bear market Saddam Hussein’s fault, or is there another problem hiding behind the war talk?

Dow: Down 5.8%
Nasdaq: Up 0.4%
S&P 500: Down 5.3%

(Since January 1, 2003)

Rob Stein of Astor Asset Management doesn’t think Saddam is to blame for the market’s woes. Hey says Saddam is more of a mask for a bad economy, and that there is too much emphasis being placed on the war’s impact on the economy. This is much different than past wars, in that no matter what the cost, it will be a fraction of GDP. He says that oil is a much smaller percentage of disposable income than in 1999, and even though people spend more on gas, mortgages are lower. The loss of jobs is what is killing the market, and adding jobs would help turn him bullish.

Dagen McDowell of FOX Business News says war is a big part of the problem. Higher energy prices are causing companies to lay people off, and when people have to pay more an the pump, they spend less. The uncertainty and fear is weighing on the psychology of the market. As for putting new money to work in the market she says stocks are cheaper than bonds right now.

Jonathan Hoenig of Capitalistpig Asset Management says people always want to look at the headlines and apply them to what is happening in the market – essentially using the news as an excuse. He is focusing not on the headlines, but on the market itself and how stocks are trading.  He sold out of his positions in the energy trusts he owned, including San Juan Royalty Trust (SJT). And he covered his shorts on the Dow Diamonds Trust (DIA).  Jonathan notes the good rally of the past week, but is not putting new money into stocks.

Wayne Rogers of Wayne Rogers & Co. says the market was weak before Saddam, and the market will be weak after Saddam – he is not the problem. The problem is a lack of earnings and companies not meeting projections. Saddam is a political problem – not an economic problem – unless he destroys his oil fields. He thinks volume on the upside will signal the start of a turnaround.

Hilary Kramer of HFR Asset Management thinks that Saddam is absolutely a problem – we’ve worked through so much in terms of corporate scandals - the war is much more of a factor now.

Be$t Bets: “War Chest” Buys

It takes a mighty big “war chest” (lots of cash) to win in this war-weary market. Which companies have one?

Hilary's "War Chest" Buy: Microsoft (MSFT)
52-week high: $32.50
52-week low: $20.71
Friday's close (3-14-03): $24.86

Hilary says Microsoft has $40 billion in cash, and they can spend it on things like online software applications. Wayne wonders if Microsoft will use the cash well. This isn’t one of Jonathan’s favorite stocks, and Rob thinks this is dead money.

Wayne's "War Chest" Buy: QUALCOMM (QCOM)
52-week high: $44.65
52-week low: $23.21
Friday's close (3-14-03): $37.48

Wayne thinks that the wireless sector is “sleeping”, and that QUALCOMM is a solid wireless company. He likes the chart, and thinks the company will do well once the economy turns. Hilary likes QUALCOMM for the cash it has. Rob thinks QUALCOMM missed some overseas opportunities.

Rob's "War Chest" Buy: Automatic Data Processing (ADP)
52-week high: $58.56
52-week low: $27.24
Friday's close (3-14-03): $28.54

This company has $2 billion is cash, and this is a payroll company – Rob thinks an economic recovery will boost this company. Jonathan thinks this is a “falling knife”. Wayne agrees with Jonathan.

Jon's "War Chest" Buy: iShares GS InvesTop (LQD)
52-week high: $111.06
52-week low: $101.00
Friday's close (3-14-03): $109.57
 
Jonathan is still a bond bull, and LQD allows you to buy high quality corporate bonds. Rob thinks the chart of the bond market should give people a bit of concern. Wayne doesn’t think it will have great appreciation, and thinks that we will have a rise in interest rates, which will hurt a fund like LQD. Jonathan owns LQD.

Mutual Fund Face-Off: “War Chest” Funds

Guts and cash! That’s what you need to take advantage of a depressed market. Which fund managers have enough of both to help make you money? Dagen and Jonas have a couple “War Chest” funds that might do the trick.

Dagen – Eclipse Asset Manager Fund (NIMBX)
1-year performance (as of 3-14-03): DOWN 14.7%
Minimum investment: $1,000
Expenses: $8.30 for every $1,000 invested

Jonas – FPA Crescent Fund (FPACX)
1-year performance (as of 3-14-03): DOWN 4.6%
Minimum investment: $1,500
Expenses: $15.60 for every $1,000 invested

Money Mail

Wayne, Jonathan and Jonas answered some of your questions.

Question: “Should we refinance our home loan before we go to war (if we do)? What will a war do to interest rates?”

Wayne doesn’t think a war will have much of an impact on interest rate – they are at historically low levels right now, and there really isn’t much more room to go. So refinancing right now would be a good thing to do. Jonas thinks the war will raise rates. Jonathan says most people’s assets are in their homes – and while he isn’t a mortgage expert, he does like a variable rate right now.

Question: “What would happen to the market if bin Laden was found?”

Jonas thinks the market will definitely go up on news of a bin Laden capture – it will signal a bit of safety for the world economy. Wayne doesn’t think it will make any real difference. Jonathan thinks the risk is towards a big sell off.

Question: “I own Alliant Tech (ATK). War or not, ATK sells a lot of missiles and bullets to the military. Should I buy more?”

Jonathan doesn’t think you should add to a position in this stock – he doesn’t like the stock at all. Jonas does say the stock is up over the past few years, but the “bullet business isn’t really a growth business.

Question: “I have invested in Wal-Mart (WMT) for about 5 years. I bought it at $62.50 - it's now around $50. Should I sell, or will it come back?”

Wayne says it’s not a great stock in that it isn’t a growth stock – you can’t get a big bump from a stock like that. It’s already so big. It will come back, but not a place to put new money. Jonas says the fundamentals have to catch up to the high price of the stock. Jonathan says it’s not the place for new money.

Question: “What’s up with Pfizer (PFE)? Will it ever hit $40 again?”

Jonathan says it’s not a place for new money. Wayne says you need a sound economy (which we don’t have yet) for a stock like this to come back.