DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
Bulls & Bears
Brenda was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; and Gary Kaltbaum, president of Kaltbaum & Associates.
Trading Pit: The State of the Stock Market
On Tuesday night President Bush will deliver the State of the Union. (Fox News Channel coverage begins at 9 p.m. ET.)
What is the state of the stock market? The Dow, Nasdaq, S&P 500 are all much higher than they've been in a long time, but all are still well below their all-time highs.
Gary K. said the stock market is strong as an ox. He made his case by explaining that stocks have rocketed back up after every pullback, every stock he’s sold in the past 6 months has headed higher, and 800 stocks are at new highs. He believes that the market will head higher and that investors can make money by rotating from sector to sector, because when there is a pullback in one, another heads higher.
Gary B. agreed with Gary K. that the market is as strong as an ox. The Chartman then charted the Nasdaq and showed that it’s gone almost straight up since last March. In this time, the Nasdaq has typically made upward moves of 10-12 percent and then taken a “pause” for a few weeks. Even though the “Nas” has been moving up since December, Gary B. doesn’t think it has reached a point where it will “pause” just yet.
Not surprisingly, Pat is not finding a lot of stocks at bargain prices. He explained the only bargains he is finding are “boring” or defensive stocks like Colgate (CL), Sysco (SYY), and Budweiser (BUD) because everyone has been chasing Nasdaq stocks for the past 6 months.
Tobin thinks Tax Day, April 15th, will be like Christmas for investors because everyone will be putting their returns into the stock market. He said the economic news we’re getting looks so good because we had been getting so much bad news. Also, there was a prolonged period when companies were not spending money; so just recovery spending gets us back to even.
Scott told investors that when they have a nice profit, take it. He advised investors to stay with the trend, because right now the market is giving great gains, but be ready to sell. Also, he believes that Wall Street is back to playing the expectation game, by keeping expectations low and then just beating them.
Scott, Tobin and Pat each took part in the Stock Caucus. One of the guys picked his favorite stock from the Dow, Nasdaq 100, and S&P 500.
Scott picked General Electric (GE) as his favorite Dow stock. He said it reported good earnings on Friday and has good leadership. Also, a European acquisition will help it continue to grow. He thinks it will hit $38-40 in 2004. (General Electric closed on Friday at $33.35.) Tobin thinks 2005, not 2004 will be the year for GE. Pat said GE is a great company, but the stock is too expensive right now.
Pat chose Sallie Mae (SLM) from the S&P 500. Sallie Mae is one of the largest providers of student loans. Pat said it has a phenomenal return on equity, doesn’t have to worry about debt, and thinks it will hit $50 within a year. (Sallie Mae closed on Friday at $37.92.) Toby doesn’t like it. Scott thinks it’s similar to Fannie Mae (FNM) and Freddie Mac (FRE) and he thinks there are better opportunities than Sallie Mae. Pat said Sallie Mae is not similar to Fannie and Freddie because it is under attack, like Fannie Mae and Freddie Mac.
Toby picked the Nasdaq 100’s VeriSign (VRSN). He said it just was selected to administer a radio frequency ID device, which is going to be one of the newest waves on the technology scene. He also likes that the company has 18 individual businesses that are all operated through the Internet and are very profitable. He thinks it will be $25 by the end of the year. (VeriSign closed on Friday at $19.72.) Pat said the company has turned around but he doesn’t trust its management. Scott said technology stocks like this one, are the stocks to own in this market and economy. He thinks it will surpass Toby’s $25 mark and hit $30.
The “Garys” faced off in the Chartman. Gary K. brought his two favorite stocks and hoped Gary B. gave them the Chartman stamp of approval.
Gary K. first picked Nokia (NOK), because it has strong demand and is getting stronger. Gary B. agreed and called upon a chart that indeed demonstrated that Nokia is a stock that is strong and getting stronger. Gary K. thinks it will hit $30 and Gary B. believes it go to $25. (Nokia closed on Friday at $20.92.)
Next, Gary K. chose Smith International (SII), a supplier of products and services to the oil industry, because he thinks oil prices will stay up and there are higher prices to come. Gary B. said he loves the name, but not the chart. His chart showed that it has not broken above $45 in 6 years and there’s no reason to buy this stock until it can close above that price. (Smith International closed on Friday at $42.50.) Gary K. said he is looking more short term than Gary B’s chart. He liked that it closed above $40 and thinks it will hit $45 and above this year. Gary B. did say his chart was looking more toward the long term and in that case, investors should stay away from it. He agreed, however, that it might be a good stock for the short term.
Tobin's prediction: I like what I see! Silicon Image (SIMGE) doubles in '04
(Tobin owns and recommends Silicon Image)
Pat's prediction: More bank mergers; Regional Bank HOLDRs Trust (RKH) up 20 percent in 1 year
Gary K's prediction: Big Blue can make you lots of green; IBM (IBM) up 20 percent by spring
Scott's prediction: Tune into this! Semiconductor HOLDRs Trust (SMH) up 25 percent by summer
Gary B's prediction: Picture not so perfect; Kodak (EK) falls 25 percent
Cavuto on Business
Neil was joined by Jim Rogers, president of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Ben Stein, author of "Yes, You Can Time The Market!"; Meredith Whitney, Fox News Business contributor; Jack Welch of Jack Welch, LLC and former CEO of General Electric.
Neil Cavuto: The high price of disloyalty! Shockwaves were felt from Washington to Wall Street when former Treasury Secretary Paul O'Neill came out guns blazing last week. Bashing the President, the Vice President and just about anyone else he ever came across at the White House. Can criticism like that from a former insider actually be helpful to the guy he's criticizing? Jack, can it ever be helpful when someone from the inside leaves and really blasts you?
Jack Welch: It's not pleasant at all. The White House probably handled the firing of Paul O'Neill the worst they could have by having Vice President Dick Cheney call O'Neill and can him.
Neil Cavuto: I actually agree. Ben Stein, would it have made a difference if he were more kindly dumped?
Ben Stein: It would've made a huge difference. Life is personal not political or mathematical. They should've been much more kinder to him. That being said, I think it's very useful if an insider comes out and says all the guys that are talking to the President are not giving him the straight scoop. If that had been done in a credible way, I think it would've been useful. It was not done for Mr. Nixon and he suffered terribly. And I hope someone will start telling the truth to Mr. Bush.
Jim Rogers: There's no question about that. You really need someone to be the nay-sayer and say that the emperor has no clothes.
Meredith Whitney: I think this has had a backlash effect on O'Neill. I think Bush was kind to tolerate him for as long as he did.
Gregg Hymowitz: This isn't the first time someone has written a book bashing an administration. Jack, we praise whistle blowers in corporations. What's wrong about a whistle blower talking about policy in this administration?
Jack Welch: Praising whistle blowers in corporations is nuts. 90 percent of them are disgruntled employees. Very rarely do you get a whistle blower coming forward during a smooth time. What I said was that this was bad management practice to have someone else call someone who works for you and can him.
Ben Stein: I think Paul O'Neill raises an important point in his book that should be debated. And that is, have we gone too far on the tax cuts? That's really what the book is about in public policy terms.
Jim Rogers: I think what has gotten to the press is the Iraq question. Under the Clinton administration, it was a government policy to attack Iraq. So I don't understand why all the fuss if he came in just to follow policy.
Neil Cavuto: Jack Welch, a lot of people are saying the issue is on security and examining again the reason for going after Saddam Hussein. And criticizing the administration after the fact. Is that a good practice, even as Ben said, if it opens some eyes?
Jack Welch: I don't think you take a disgruntled person and allow them to create a whole new debate. The administration deserves it because they canned O'Neill the wrong way. But I don't like the practice at all.
Meredith Whitney: He would've had far more credibility if he had raised these concerns while in office.
Neil Cavuto: To be fair, I knew Paul O'Neill and interviewed him a lot while he was in office. And he did have these concerns. Certainly about the tax cuts. The first two he was for, the last one he was not.
Meredith Whitney: Outside the office though it looks like sour grapes. And now you have people like Larry Lindsey coming out and saying this administration is a well oiled machine and is doing great things.
Gregg Hymowitz: The problem is he was raising the issues all along while in office but he was constantly being shut down. I think the problem a lot of people have is that policy seems to dominate in this administration. When O'Neill voiced concern about the tax cuts and the President raised the question maybe we have given the wealthy enough. Karl Rove then came in and said he needed to stay on principle.
Neil Cavuto: And policy didn't dominate in the last administration?
Gregg Hymowitz: I think if anything the Clinton administration took policy and the process over board.
More for Your Money
Neil Cavuto: Is it time to buy tech stocks to really get more for your money? The Nasdaq is still roaring in the new year after a huge gain in 2003. In just a little more than two weeks, tech is already up about about 6 percent. That kind of gain every month would send the Nasdaq well above 3000 this year. Meredith, you called the tech rally months ago. Still bullish?
Meredith Whitney: Very bullish. The things that happened last year were the market responding to a very discounted stock scenario. But the other factor was that there was a ton of money in the system. That remains and I think if anything interest rates are going down. That's when you really want to own technology shares.
Jim Rogers: I owned them too and I sold them much too soon. So my hats off to you Meredith for sticking with them. But I wouldn't buy them with Neil's money these days. Earnings will go through the roof because the dollar went down a lot.
Ben Stein: If interest rates go up then the dollar will rally, because interest rates and the dollar are generally linked. But tech stocks have been on a tear that has literally been insane. The earnings are just not there to back them up. There were some tech stock earnings released a couple of days ago, I won't mention their names, and they had fantastic earnings. But they're still selling at a hundred times earnings. That's a very high multiple. These stocks are living on rumor and hopes.
Jack Welch: I agree with Ben and Jim. I wouldn't buy one with your money Neil. With the exception of Microsoft. I happen to think that's lagged. It has a reasonable P.E. and its franchise is just overwhelmingly powerful. I don't own it, but if you had to buy a tech stock that's where I'd go.
Gregg Hymowitz: I like Microsoft (MSFT). And I also like agreeing with Jack and agreeing with Ben twice in the same show. The valuation on most of these tech stocks is just absurd. Clearly it should not be any surprise that the growth stocks did best when inflation was low and interest rates were falling. But at these levels, I think valuation is a bit stretched. Microsoft has not participated in this rally and it's a gigantic franchise.
Neil Cavuto: Well, Meredith you have to be right because everyone at this table is dissing you. But what would you do in this environment?
Meredith Whitney: A lot of the big names have outperformed the Nasdaq in general. Your safer play for the broad market is to buy the Nasdaq 100 (QQQ). The smaller caps outperform and I own this stock. Here you benefit from a huge basket of goods.
Ben Stein: There's no earnings for the QQQ's. I like Cisco (CSCO) but overall I say sell the QQQ's, unless you have a 30-year time horizon.
Jim Rogers: The closest I own to any technology stock, and I don't own any is Matsushita Electric (MC), which makes Panasonic. That's about all I would do. I own it but I wouldn't buy any of the technology stocks.
Gregg Hymowitz: I think the question is, is the capital expenditure spending really for real? Is it going to be enough to drive earnings?
Neil Cavuto: Jack Welch, do you think it is serious? We are seeing a lot of companies saying they're doing a lot more spending.
Jack Welch: There's clearly going to be more spending. And where you have modest P.E.'s, you can put your money. But in these stocks that have a 130, 140 P.E.'s that are already up 120 percent, it's just a tough bet for me to make.
Meredith Whitney: I think it's interesting. Expectations don't incorporate the tax cuts that the Bush administration is planning for this year. Businesses have been slow to spend so we don't see really what that is translating into. So earnings estimates are much more conservative then they'll prove to be I think.
Gregg Hymowitz: We've all lived through the internet bubble and you still have people buying stocks at 150 times earnings.
Neil Cavuto: Well listen there Mr. Schmarty Pants, Meredith has been right on this for a year. So when she sells, maybe take note.
Head to Head
Neil Cavuto: Are the people trying to clean up Wall Street really helping investors? Let's go inside Jack's head to find out: Jack Welch back with us. Jack, I'm talking about these sheriffs of Wall Street led by New York Attorney General Eliot Spitzer. Now he's trying to regulate fees from mutual fund companies, possibly seeking to recoup money that CEO's were legally paid ... even if the packages were excessive. Going too far at this point?
Jack Welch: Eliot Spitzer has done some positive things. And we had to restore investor confidence. He and the S.E.C., together, have made moves that have in fact helped in restoring faith to Wall Street. These mutual funds are owned by people with different salary ranges all across the country. And they can't be frightened into thinking that they're being cheated.
Neil Cavuto: When I had William Donaldson, the chairman of the S.E.C. on my daily show, one of the issues he raised with me was this notion that Alliance was willing to cut fees after pressure from the New York Attorney General's office. I'm wondering if any outside body then gets itself in the uncomfortable position of setting how much a business can make.
Jack Welch: Neil, that's crazy. We can't have that happen.
Neil Cavuto: But don't you argue that if we're not careful, that is what's going to happen?
Jack Welch: In the heat of this thing, Alliance may have made a settlement to get out of town. But in the end, this is not the fundamental way we want to do business. We want these organizations to regulate, find wrong behavior, and to clean it up.
Neil Cavuto: You don't think it goes too far when an outside body says, back in your days at GE, if they had said, 'We think you charge too much for your refrigerators. We think you should knock 10 percent off that price.' That's government telling GE and Jack Welch what to do.
Jack Welch: The only time that could happen is if we performed illegally in price fixing, and that's the last thing we would ever do.
Neil Cavuto: So you would accept what's being done in Alliance's case and some of these of others that might be caught up?
Jack Welch: No, I don't think that's the right way to go. Only if in fact there's a legal action that can be taken like in the case of Fastow, where I believe they got $25 to $30 million back because he did something wrong and they took appropriate action. I think going after someone because it's perceived that they're making too much money, even though it's legal. That is wrong.
FOX on the Spot
Jack Welch: Economy steams ahead; We start adding 150K jobs monthly!
Jim Rogers: J.P. Morgan/Bank One deal a top for banks: Sell!
Meredith Whitney: All markets up double digits again 2004; Nasdaq leads.
Gregg Hymowitz: Dean finishes 3rd in Iowa; My guy Gephardt wins; Kerry 2nd.
Ben Stein: A first for everything! Gregg's right; Gephardt wins Iowa.
Neil Cavuto: The tightness of presidential race will keep more candidates slugging it out longer. As I said last week, it won't be Dean in a walk and it's all coming to fruition now. By the way, Gephardt wins Iowa!
Forbes on Fox
How are politics and global events affecting your wallet? We’ll put the story In Focus and give you the bottom line.
David Asman: Another giant leap for mankind? Not only does President Bush want us back on the moon in the next 15 years, after that he wants a man on Mars! But is the mission worth all the money? And how much are we talking here? NASA figures it will take $120-billion dollars to get us back on the moon, and then over to Mars! Steve, is it worth it?
Steve Forbes, editor-in-chief: Absolutely. Mankind is curious, curiosity leads to knowledge, knowledge leads to prosperity. We’ve been in a 30-year hiatus, the shuttle program is out of date, and I’d rather have, in terms of people worrying about ‘pork’, I’d rather have ‘green cheese’ than ‘pork’ in terms of a program like this. And instead of simply doing it the old way of throwing Washington money at it, let’s go early aviation days and have Washington offer up a $30 billion prize and have private enterprise go to Mars instead of the government.
Quentin Hardy, Silicon Valley bureau chief: I think if you want to do scientific discovery, it’s a wonderful idea. There’s great science to be done. I don’t think it should be decided over the course of 5 or 6 days because some really terrific pictures came back from Mars. I do think there are places, right here on Earth, where there are forms of life we don’t understand, huge beasts, vastly uncharted areas. The bottom of the ocean – let’s explore that. We’d learn far more for far less money.
Jim Michaels, editorial vice president: Well, I suppose Queen Isabella should have said ‘why risk spending all that money? I can buy another diamond tiara with the money. Let’s look and see what’s around Madrid and Seville.’ That’s not the way the human race advances. The human race advances by taking big chances.
Steve Forbes: Go in the ocean as well as space. The ocean is unexplored as well. Do them all.
Elizabeth MacDonald, senior editor: We might as well build a bright and shiny city on the surface of the sun. Why do we need to ship people out there? The shuttle, of course, killed a lot of people. Look, we have real, severe healthcare insurance problems for the poor, we have to fight terrorism. I just see shipping astronauts out to the moon or Mars as a big waste of money.
Mike Ozanian, senior editor: It’s not that expensive, first of all. At $120 billion, it’s $30 billion less than the moon project cost us in today’s dollars. Secondly, it’s half a percent of our economy. We may actually need to live there someday. Every 20,000 years or so a meteor or an asteroid hits the Earth. We’re going to need another place to live, eventually, and we’ve got to start today.
Quentin Hardy: Have you had a look at Mars? It’s like a really bad part of Arizona, except there’s no oxygen. I’d rather be in downtown Baghdad.
Steve Forbes: We’ll send developers from Las Vegas to Mars, and then everyone will want to go there.
David Asman: Steve, you’re for the moon mission, but you think we should do it a little differently to Mars, right?
Steve Forbes: That’s right. That’s why we should take what happened with Lindbergh in the 1920’s, a fellow named Orteig put up a prize for it. It stimulated a lot of exploration and big things then. And why not do it today?
Jim Michaels: Well, you can privatize it, but the taxpayer still has to pick up the bill. You’ll subcontract it to private companies. That’s how the British ended up ruling the seas. They offered a prize for the first clock that would work at sea. A huge amount of money, and by god, it worked.
Steve Forbes: The nice thing is that the government does not spend the money, it puts up the money and let’s private companies do the job.
Elizabeth MacDonald: What about the Hubble telescope and the Mars rover? Those are great projects. I worry that those programs will get cut in this overhaul. We’ve got to keep those programs in place. They have been astronomically successful.
Quentin Hardy: I love the exploration of space. I love the unmanned exploration of space. Sending people does not make economic sense. I love Steve’s idea of a $30 billion prize, because to send a man there and back, someone would have to spend so much more. I guarantee that prize would go unclaimed, but it would stop the argument over it.
Mike Ozanian: $120 billion, Quentin, is peanuts. We have to start today, and we’re going to have to eventually send people and now’s the time to start.
David Asman: Since when has $120 billion been peanuts?
Mike Ozanian: When it’s less than one half of one percent of our economy. It’s like investing in NASDAQ. It’s the high-risk, but high-gain part of investing for the government.
Jim Michaels: There’s another point here. Until you actually have human beings do it, it isn’t real to people. You can call it theatre if you want, but a lot of history is theatre.
Steve Forbes: Even the best made teleconferencing is no substitute.
Quentin Hardy: There is life and there is intelligence on Mars. We put it up there again this week. That is no small achievement, Jim. You think having a guy walk around somehow improves it. That’s what killed the moonshot program, guys hitting golf balls up there and doing nothing productive.
Tired of hearing the same investing advice from every side? We’ll give you the contrarian approach to investing in our Flipside segment.
David Asman: Your tax dollars could soon be paying for a plan to encourage lower income couples to get married, to the tune of about $1.5 billion! And this program is worth every penny!
Rich Karlgaard, publisher: We have 2 million Americans in prison, most of them are from single-parent homes. We have a 76 percent divorce rate in the buckle of the ‘bible belt’, Oklahoma. A great American attribute, upward mobility, is basically ruined at the level of single-parent, poor kids. So the shock is that no president before this one has spoken up on this national tragedy.
Victoria Murphy, senior reporter: Look, I agree with Rich. Our ghettos and our prisons are full of single parents. It’s this huge problem I our society, but also marriage is a joke in our society and I don’t think this is going to change that. Pamphlets, booklets on how to be hitched and happy, I think we’d be better off taking that $1.5 billion and putting it into after-school programs and mentor programs, especially. They’re the ones that actually show real records in working.
David Asman: $1.5 billion is a lot of money, Steve, is this money well spent?
Steve Forbes, editor-in-chief: I think the idea is a good one in a sense. Not the brochures, per se, but society finally saying ‘marriage is a critical institution, we need to shore it up, we need to end the anti-marriage bias in the tax code.’ And why not do marriage reform as we did welfare reform? Why not make divorce a little longer process, have a one or two year cooling off period. It won’t save all marriages, but it might save some. We need to shore the whole thing up, instead of the whole culture trashing it and knocking it down.
Jim Michaels, editorial vice president: Let’s cut to the chase. The polls show that most married people vote Republican, and most single people vote Democratic. I think this is what this is all about. I think it’s a lousy idea. Marriage is a matter of character and the heart and you’re not going to buy it with a few bucks.
Mike Ozanian, senior editor: If it cost us $1, I wouldn’t do it because I don’t think we should have the government get involved in social engineering. I mean, let’s take it a step further. I’ll bet that in Olympic marriages they are even happier than non-Olympic marriages. Should we give an extra tax credit to people if they get married and they’re Olympians and have children? How far are we going to take this?
Rich Karlgaard: Mike makes a principal libertarian argument here, and I would normally be on his side, but Mike is also a good economist. If you tote up the costs from all the social, criminal, drug abuse dysfunctions that afflict kids, especially poor kids from single-parent homes, I think $1.5 billion, maybe we can do it better than brochures, we’ll get a huge bang for buck.
Mike Ozanian: OK, but there are a lot of good causes outside of marriage. Let’s say that somebody helps alcoholics recover from alcoholism. That’s doing a lot of good to society. Should they get the deduction too? How far do we pull the string along?
Steve Forbes: Marriage is the foundation of society. This society, this culture, has been anti-marriage. Let’s have a level playing field and stop the bias. Anything that shores up, that enables kids to grow up in a stable environment, we all come out ahead.
Victoria Murphy: I think Mike made a good point. Do we really want the government to try and do social engineering? Moreover, I don’t think that it will be successful.
Steve Forbes: How about non-anti-marriage engineering? The tax code’s biased against marriage, the culture’s biased against it.
David Asman: I don’t think that Victoria is in favor of the marriage tax.
Victoria Murphy: No, and I am certainly not in favor of anti-marriage proposals, but I think that if you look at where that $1.5 billion, how it’s actually going to be targeted, I have a sense there’s going to be a lot of excess in terms of brochures and marriage counseling. Those things, I’m pretty critical of.
David Asman: Steve, what about, to Jim’s point, that you should not use tax policy or the government to engineer social behavior in any time, way, shape or form?
Steve Forbes: Well, all taxes affect social behavior, affects economic behavior. And the current code today is anti-marriage, is anti-children. 50 years ago you got a far higher deduction for raising kids than you do today. It’s very difficult for young people, money is often a source for breaking up marriages, so let’s stop the bias.
Jim Michaels: Getting single people married isn’t going to turn them into republicans--
Steve Forbes: Jim, I want to help the children and every study shows that children that grow up in a household with husband and wife have a better chance than those that get broken up.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: So if we're sending Americans to the moon, Mars, and to the marriage altar, plus everything else going on like Iraq and the war on terror, we are spending incredible amounts of money! So are your taxes going up?
Bill Baldwin, editor: Read my lips, "taxes are going up." I think there are two places where there are really obvious targets for tax increases. One is to take away the deductions for vacation homes. Why do millionaires need those? Now here’s another one that is an awful lot more money: they’ll raise the ceiling on which you pay your basic social security tax from $80,000 to everything.
David Asman: So, Steve, somehow you’ve got to get up the tax money in order to pay for all of this.
Steve Forbes, editor-in-chief: Well, the way you do it, and the one spending program I’d like is “Remedial Education for Politicians and Economists in Washington.” When you lower tax rates you get more tax revenue. When you have a vibrant economy, you get more revenue. Lower the burden, you end up with more to spend. Why they can’t understand that, I don’t know.
Elizabeth MacDonald, senior editor: Listen, I’m all for that, but Bush himself has also said fiscal restraint too, to balance the budget. Remember, PJ O’Roarke said ‘if you think healthcare is expensive now, wait ‘til you see what it costs when it’s free.’ Look, we’ve had Medicare coming down the pike now. It’s supposed to cost $2 trillion in 2030. They said it would cost $10 billion annually when it started in 1965. Now it costs $250 billion annually? That’s going up.
David Asman: Quentin, what’s going to happen with taxes?
Quentin Hardy, Silicon Valley bureau chief: Look, Bush is no one to talk. He has not vetoed a single spending bill during his administration, and that is appalling. As for continually cutting taxes, I sometimes think that you guys think that cutting the right taxes would make things warm in the northeast right now. It’s about tax simplification at this point. It is not about cutting them further.
Mike Ozanian, senior editor: Discretionary spending has only gone up about 4 percent. What’s going to happen next year is that we’re going to make the temporary tax cuts permanent. That’s going to send stock prices even higher.
David Asman: Steve, even if it’s true that if you lower taxes you get more people into the economy and more revenue, you’ve got to cut spending somewhere. Is Bush going to do it?
Steve Forbes: I don’t think he’s going to cut much spending. Spending is the real problem, not low taxes. But in order to get the money for spending, you’ve got to cut tax rates. Then you’ll have the money to spend.
Bill Baldwin: So, some practical advice, don’t buy a vacation home. Secondly, don’t be an employee. Become an independent contractor. You can turn some of your employment income into business income, you won’t get hit with that.
Makers and Breakers
• American International Group (AIG)
Sean Clark, Chief Investment Officer of Clark Capital Management Group: MAKER
We like AIG for a number of reasons. One reason in particular is that we think on both a short intermediate term and longer-term basis the stock has a lot of room to run. We think leadership is going to shift in the market, which is going to directly benefit stocks that lagged the market last year. AIG was one of those names.
David Asman: It’s now about $70 (Friday’s close: $69.81), how high do you think it will go?
Sean Clark: Our eventual target price, at some point this year, is in the neighborhood of $90 a share.
Elizabeth MacDonald: MAKER
I agree. I’m a maker on this stock. This is a solid stock. It’s run by one of the most powerfully connected individuals in the world. And also it’s really cheap, on a free cash flow basis, which is how you want to look at it. Transparency on the balance sheets is a problem, it is so cheap at 10 times free cash flow, I would buy this stock.
Bill Baldwin: MAKER
This is a company that is an old hand at globalism. I think they’re going to do great as financial markets become more competitive, internationally. And I like investing in big, mean companies. This is one, Microsoft (MSFT) in one, they’re great stocks to own.
David Asman: I’ve got to put in a caveat. It’s trading at around it’s 52-week high. It’s still not too high?
Sean Clark: Still not too high right now, especially because of what they have going on internationally in the world. They’re very well positioned.
• QUALCOMM (QCOM)
Sean Clark: MAKER
We’ve been in QUALCOMM for a little while now. Again, it’s a global play with specifically targeting Asia. They get 80 percent of their revenue from international markets, Asia being one of them. They’ve got great growth prospects.
David Asman: Now more or less $60 (Friday’s close: $59.67), how high do you think it will go?
Sean Clark: We think about $80.
Bill Baldwin: BREAKER
Well, this is a small, nice company. I don’t like small, nice companies. I am definitely a breaker on this stock. You could wake up one day, and suddenly all of these QUALCOMM patents don’t mean anything because people have switched to Wi-Fi cell phones. You never know.
Elizabeth MacDonald: BREAKER
Unfortunately, I am a breaker on this stock too. Yes, it’s trading at about $60, but when you look at its total market cap, it’s at about a $50 billion market cap, that means there’s a lot of stock out there for QUALCOMM. Plus, Bill is right. There’s heavy-duty competition in this sector, consumers are changing their cell phone fashion tastes every nanosecond. I would just stay away from this sector.
Sean Clark: I absolutely think that QUALCOMM has room to run to the upside. Their CDMA (Code Division Multiple Access, refers to frequency usage in cell phones), technology is the standard for 3G (third generation) cell phones, and I think that’s going to continue for some time to come.
Stock Smarts: Bill Clinton: Stock Market Hero?
Bill Clinton was at the helm for the mega-bull market of the 1990’s. Well, he’s back – this time on the sidelines behind Wesley Clark -- at least that’s the buzz, though neither Bill nor Hillary has endorsed Clark yet.
But would a President Clark be as well received by the market as President Clinton was?
Adam Lashinsky of Fortune magazine says Wall Street would receive a Clark presidency as well as it did Clinton’s. He says Wesley Clark is a “foreign policy guy” and he’s going to turn over domestic policy to the “Clintonians”. He says a Clark presidency would be like a third Clinton administration as far as economic policy goes because Clark would make Robert Rubin the Federal Reserve Chairman. He believes Clark would reduce the deficit -- which the market likes -- and he calls his tax policy “fairly benign” because it does not suggest any change in capital gains taxes.
Stuart Varney of Fox Business News says you can’t give Clinton credit for the stock market rally in the ‘90s. He says you have to give credit for that to the Republicans who took control of Congress in 1994. And, he says, if you give any credit at all to President Clinton for the bull run, then you have to give him some blame for the catastrophe that took place in March 2000 when the Nasdaq imploded.
Stuart says he reads General Clark’s policy as unfriendly to the market. He says Clark plans to abolish most of President Bush’s proposed tax cuts, and then spend 700 billion dollars in health insurance for the uninsured. That will raise taxes and hurt the market. He says “you don’t tax your way out of deficits, you grow your way out of deficits” and Clark’s plan will not help us do that, but President Bush’s plan will.
Rep. Anthony Weiner, D-NY, says if you liked the Clinton years, if you did well then, and you had a good job, you are going to like Clark. He says Clark will get the deficit down and keep the economy moving.
Jonas Max Ferris of Maxfunds.com says Clark’s is a very conservative economic plan. It’s designed to address the growing deficit. He thinks it’s a good plan, but says he does not believe it will be well received by the market in the short term. It’s not a short-term stimulus plan. It’s a long-term deficit reduction plan.
Wayne Rogers of Wayne Rogers & Co says: “The devil is in the details. You need to understand what Clark is saying. Clark’s plan says everybody who earns fifty thousand dollars and has two children will not have to pay any tax. In fact, they won’t even have to file a tax return. That’s not a tax plan; that’s a population explosion.” He says Clark’s plan is “nuts,” and the market will hate it.
Jonathan Hoenig of Capitalistpig Asset Management says Clark’s plan is a classic “expand the government” approach that he does not agree with. He calls it a “tax the rich” plan, and does not believe the market will receive a Clark presidency favorably.
Cashin’ In Challenge 2004
It’s a new year and the “Cashin’ In” crew gets a fresh $10,000 in “play” money to invest in a whole new challenge They can own up to five stocks or funds and any amount of cash they like. Each stock trade will cost them $15 and all expenses on funds must be covered. Here’s what they’re buying:
• TCW Convertible Securities Fund (CVT)
• ICON Covered Call Fund (IOCIX)
• Potomac OTC/Short Fund (POTSX)
• ICON Telecom & Utilities Fund (ICTUX)
• Excelsior Energy & Natural Resources Fund (UMESX)
Stock of the Week
Last week’s pick was Adadarko Petroleum (APC), made by John “Bradshaw” Layfield. For the week of January 12-16, it was DOWN 3.5 percent.
This week Jonathan Hoenig says Plum Creek Timber (PCL) is the stock to own. He already owns it.
The market opens Tuesday, and when it does Jonathan says buy Plum Creek Timber. He says it’s the right stock at the right time. He points out that Real Estate Investment Trusts and timber companies are “white hot” right now, and Plum Creek is a REIT in the timber business. The company will report earnings on Thursday, and Jonathan thinks it will get a boost from the report when Wall Street is reminded how well it’s doing.
Adam says Plum Creek Timber generally does not move when it reports earnings, and it’s a REIT with an unimpressive dividend. Unless it offers a dividend increase next week when it reports, he doesn’t see the stock going anywhere.
Wayne, Jonathan and Dagen answered some of your questions.
Question: “Is Wal-Mart’s (WMT) push into China going to be good for the stock?”
Wayne says the company has about 35 stores in China now, and does plan to continue expanding there. He says China is a great market -- he loves it, and has purchased many Chinese stocks this year. He thinks Wal-Mart will do well there. Dagen thinks China will be a great market for Wal-Mart in the long run, but in the short term she does not see it adding much value to the stock. Jonathan says he doesn’t love the stock, but if shares break the $60 mark, he’d pay closer attention to it, but not before.
Question: “Is Research in Motion (RIMM) still a buy?”
Jonathan says this stock’s performance has reflected its great product (the Blackberry), but ideally you want to buy a stock before it rises 400 percent, which this stock has done in the last year. Wayne says the stock has skyrocketed, but it’s massively overpriced right now. He says if you own it, put a stop under it, and let the market take you out if it starts to fall. If you don’t own it, he says he wouldn’t buy it here, but he wouldn’t bet against it either. Dagen says this company has a giant target on its back with competition coming at it from all sides, including from Microsoft (MSFT). She wouldn’t buy RIMM now.
Question: “Which companies can I invest in that test for mad cow disease?”
Dagen says there are more than fifty companies around the world that test for mad cow disease, but there are no clear winners yet. If you really want to invest in companies that deal with mad cow, then Abbott Labs (ABT) is your best bet. She says Abbott does diagnostic testing for humans as well as for cows. Jonathan says he never finds success investing in the “headlines” but Conagra (CAG) and Groupe Danone (DA) are two food stocks that he says are doing well right now, and he’s keeping an eye on that trend.