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: Chris Wallace, host of "FOX News Sunday;" Gary B. Smith, RealMoney.com columnist; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; and Adam Lashinsky , senior writer at Fortune Magazine.
Trading Pit: Bulls & Bears in DC!
On Friday, Usama bin Laden (search ) released a taped message to the American people. But did the al Qaeda leader just hand the president a landslide win and the market a huge rally?
Chris Wallace: This is the October surprise. It’s absolutely stunning. I think it will help President Bush. Terrorism is the prime concern of most Americans and Bush leads John Kerry by 10-20 points on the issue. But the very interesting thing is that because it happened so close to the election, we won’t see it in the polls, only in the votes.
Tobin Smith: You get a sense that this will help Bush because he is the person who has gone after bin Laden. Make no mistake about it, terror is the most important issue and this tape again brings it to the forefront. Usama thinks he can affect the election. But he’s wrong. When he put the planes into the towers he thought we would cower and go away; we didn’t. I think he’s underestimating the United States again.
Adam Lashinsky: This tape helps the president, but it’s also embarrassing for him to have bin Laden come on TV and taunt him. This is not the surprise that Bush wanted. The one he wanted was that bin Laden was captured or killed. But if this is the best that Usama can do—releasing a tape—it’s good for the market.
Gary B. Smith: I don’t know if what bin Laden’s saying will translate into a terrorist attack. I also have to wonder if it really is going to be good for Bush. But what this tape does is put the terror equation back into the market. And this means more risk. If you’re thinking about buying stocks, I’d take a wait and see attitude at least until after the election.
Scott Bleier: Stocks will probably go lower and then the market will hold its breath and wait for the election. But if this is the best that bin Laden can do, start buying stocks. I’m not sure that this tape will help Bush, but it is interesting that everyone around the world wants Kerry to be president. Only in America is he not getting a ringing endorsement. No other country wants Bush to win because he makes America strong and other countries are afraid of a strong America.
The country is divided like few times in our history. Can the stock market move higher after the election, if half of America is angry about the outcome?
Gary B: Stocks can absolutely conquer in a divided country. I like eBay (EBAY ), which is a bit expensive, but looks good. Once it breaks $100, it’s going to keep skyrocketing. (eBay closed on Friday at $97.63.)
Chris: The country will be very upset if there is a repeat of the 2000 election, when there was such uncertainty. Relief will come on Wednesday, once we know there is certainty and a winner.
Tobin: We know the election will be close, but people are still upset about high gas prices. Valero Energy (VLO ) is a great play on this. This company has the ability to refine the crude oil that has a lot of sulfur—which is what we’re buying now. (Valero Energy closed on Friday at $42.97.)
Scott: Oil prices have been coming down a bit, but that will end. Oil prices are near or at their peak. We have been a divided country politically for a long time, but more radically so in the last decade. Stocks will go up, and I think defense stocks will be the real winners. My pick is L-3 Communications (LLL ). (L-3 Communications closed on Friday at $65.93.)
Adam: Chris hit the nail on the head. We’re going to know Wednesday morning if there will be a repeat of 2000. If there is, the market will hate the uncertainty and go into a holding pattern. However, if we have a clear winner Wednesday morning, we’ll have a huge rally.
If there is a repeat of the 2000 election, which stocks will win?
Tobin: I like the Rydex Inverse Small Cap (RYSHX). It’s a mutual fund that goes up when stocks go down. And if there’s this type of uncertainty again, stocks are going down. (Rydex Inverse Small Cap closed on Friday at $48.47.)
Scott: Don’t do this. If you’re not quick, you’re going to miss it.
Gary B: If the election is contested, we’re all going to be watching TV, including cable TV, so buy Comcast (CMCSA). It has become the dominant player in cable TV and the Internet. Looking at the chart, it broke through a downtrend it had been in since February, then tested it, and is now moving higher. I think it could reach $35 by next summer. (Comcast closed on Friday at $29.50.)
Adam: I say stay away because satellite is crushing cable TV.
Scott: If the lawyers take over the election, they’re going to use information, like what Lexis Nexis provides. I like Reed Elsevier (RUK), the company that owns LexisNexis and think it can go up 5 points. (Reed Elsevier closed on Friday at $36.00.)
Toby: Great idea, but I think this is a crazy pick.
Adam: I like technology consultant, Accenture (ACN ). It has helped many states get the technology they needed to prevent another hanging chads debacle. (Accenture closed on Friday at $24.21.)
Gary B: Accenture headed down 10 percent when it came out with great earnings. I think the stock will be in the teens soon, and that’ll be a much better time to buy.
Scott's prediction: Bush wins 51-49, but loses election! Nasdaq rallies & oil prices drop
Tobin's prediction: Bush wins by smallest fraction; buy Semi HOLDRs (SMH )
Adam's prediction: Kerry wins by smallest fraction; market rallies as uncertainty ends
Gary B's prediction: Bush wins 49-46; Dow up 500 points by Christmas; Vote Chartman in '08!
Cavuto on Business
Neil Cavuto was joined by Jack Welch, former CEO of General Electric and currently CEO of Jack Welch, LLC; Jim Rogers, president of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Charles Payne, CEO of Wall Street Strategies; Meredith Whitney, executive director at CIBC World Markets; Bob Beckel , Democratic Strategist.
Neil Cavuto: Tax the rich to pay for big government programs. Some call it class warfare. But does Wall Street think it's a plan that will allow stocks to rally? Even after the Bush tax cuts, the wealthiest 1 percent of American's pay a third of the nation's tax bill.
The top 5 percent pay more than half. What's more, the overall share of their taxes is more now than before the tax cuts. Still, Kerry wants the so-called rich to pay even more. Jack Welch, what do you think?
Splitting the Bill:
|Income Group||Tax Share|
|Top 1 percent||33.7 percent|
|Top 5 percent||53.8 percent|
|Bottom 50 percent||3.5 percent|
Jack Welch: I think people are pretty up to speed on this and I don't think it sells a lot of votes. People really do understand who's paying for what. This class warfare battle is not a winner.
Neil Cavuto: Bob Beckel, obviously Al Gore played this populous theme four years ago, thinking that if they play this record again it will have more success. What do you think?
Bob Beckel: Class warfare has always been a bad deal for the Democrats. Why, because they say it's us against them. The problem with that is that puts the middle class in with poor people. They don't want to be there. But this time around the middle class are convinced that the rules of achievement have changed and favor people at the top. The ladder has been pulled from under them and that's why they're rebelling against these tax plans.
Gregg Hymowitz: It's amazing how Republicans have been able to talk so much about how Kerry is raising taxes. What his tax plan actually calls for is to cut taxes on 98 percent of the families in America. Also to cut taxes on 99 percent of the tax paying corporations in America. So it's amazing they've taken the tax hike back to where we were under Clinton on 1 percent of the population.
Neil Cavuto: You say top 1 percent but they even said that if you rescind the tax cuts for the top 2 rates, you actually go down as low as $89,000.
Gregg Hymowitz: It effects the top 1 percent of taxpayers of America.
Neil Cavuto: No, no, no. I'm reminding you that the top 2 rates are the ones Senator Kerry wants to rescind. That includes people who make as little as $89,000.
Gregg Hymowitz: There may be a change in the marginal tax rates but I'm telling you that if you look at his plan, the plan calls for rolling back hikes on the families who make more than $200,000.
Neil Cavuto: And you buy that math?
Jim Rogers: Part of the problem is that over 90 percent of people pay less than 50 percent of the taxes. So it's an easy issue for the Democrats. It's not good for the country. We have to increase savings and investing. And with all due respect to Mr. Kerry, he does not want to increase savings and investing in this country.
Gregg Hymowitz: That's not true. His plan is designed to cut the budget deficit.
Jim Rogers: That's not what I said. I said he wants to tax savings and investing.
Meredith Whitney: Cutting taxes is a proven stimulus policy. By raising taxes for the top 1 percent it's a clear pressure on spending and the economy.
Bob Beckel: Gregg is exactly right. On the $200,000, there is no way that Kerry is going to be able to raise taxes on people making under $200,000.
Neil Cavuto: How do you know that?
Bob Beckel: It won't get through a Republican congress.
Neil Cavuto: You think your $200,000 and over tax cut will?
Bob Beckel: Oh sure. Absolutely. I'll tell you why. There are enough smart deficit hawks on the Republican side who are tired of seeing Bush run up these deficits.
Neil Cavuto: The deficits are run up, not through tax cuts, but through a lot of spending. And there I'll blame the Republicans as well.
Bob Beckel: Good. I'm glad to hear you say that. This recovery was driven with these tax cuts for the middle class, which came in before wealthy people. There were people shopping at Wal-Mart, people refinancing their homes. When the rich tax cuts cut in, nothing has gone on in this economy that shows that they've invested in anything.
Neil Cavuto: Jack Welch, I seem to remember that after the tax cuts we took a recession that could've been very bad and made it very shallow and short lived.
Jack Welch: Absolutely. The idea that the tax cuts haven't created stimulus, and looking at these GDP numbers, it's insane.
Bob Beckel: Has he brought stimulus on the 1 percent?
Jack Welch: They trickle down jobs to people in their small businesses that are in fact outspending.
Bob Beckel: You bought into that Bush bull?
Jim Rogers: Bob, the good news is that you're right. There will be at least one house controlled by the Republicans. If Kerry did get in and pass what he wants, the stock market would cave in.
Neil Cavuto: To be fair Jim, many thought the stock market would cave in when Bill Clinton got elected.
Jim Rogers: That was a whole different period, a whole different time.
Bob Beckel: Clinton raised taxes on the wealthy and we saw the greatest expansion on the economy and the stock market in history. Bush inherited a surplus of $396 billion. And now we're a trillion something in debt! I don't know what they do in Crawford, Texas but they don't educate you on math.
Neil Cavuto: All right Bob. There's no need to get nasty.
Jack Welch: Thank God he had a Republican congress from '94 on. George Bush, the first, had the economy going when he came in. And then Clinton was going to blow it with all the spending. And the Republican congress came in and saved the day.
Jim Rogers: If you think the greatest bubble in American history, caused by fraudulent bookkeeping, is good for America I'm sorry. We had the greatest bubble under Clinton. That's not good news.
Gregg Hymowitz: On Tuesday people are going to vote and test this guy on what he's done in the last four years. We've seen his economic plan for the last four years. Two million people more unemployed. Five million more people under poverty level. Five million more people without health insurance. We don't need to hypothesize on what's it's going to be like. We've seen it and we're seeing it now.
Jack Welch: You've got to be ashamed of yourself. Look at this recovery under him. He inherited the biggest blowup in history. He then had 9-11. This economy was tanking beyond belief.
More for Your Money
Neil Cavuto: It's no secret that most of Wall Street is rooting for President Bush. And it's even less of a secret that most of the media is rooting against him. But could the media's Bush-bashing actually help him get re-elected and get you more for your money? From CBS's "Rathergate" to the New York Times' "Weaponsgate," the presidents' supporters argue media bias against him is heating up in the home stretch. But so is the backlash against this kind of reporting.
Charles, could that backlash cost Kerry the election and give Wall Street the candidate they want?
Charles Payne: It could cost him a lot if you consider the margins are very thin. I think the liberal media's doomsday clock is one minute to midnight. And this election could be the strike of midnight. Americans like to be sold but they're not as gullible as the media thinks they are.
Jack Welch: I don't think it makes that much of a difference. They're losing a lot of credibility. People are going to make up their own minds.
Gregg Hymowitz: I'm ashamed that I agree with Jack.
Neil Cavuto: I don't even know what you're agreeing with.
Gregg Hymowitz: Neither do I.
Neil Cavuto: Do you think it hurts the media companies, those that are perceived to have a bias? Let's talk about the New York Times (NYT ). Is it affected negatively?
Gregg Hymowitz: I don't think so at all. I can't even believe we're talking about the liberal media when I'm sitting here with the four of you. Talk about contradiction. It's four against one so I don't know which way the bias is leaning right now.
Neil Cavuto: What about Viacom (VIA.B ), the parent of CBS?
Gregg Hymowitz: We like the stock. We own the stock.
Neil Cavuto: Do you like the way they research stories over there?
Gregg Hymowitz: Do you like the way Sinclair Broadcasting (SBGI ) puts up propaganda?
Neil Cavuto: Do you like it as a stock?
Gregg Hymowitz: I think what Sinclair did was absolutely disgusting. The fact that they pre-empt Ted Koeppel when he's listing the names of the soldiers who died, how unpatriotic is that?
Jim Rogers: I do agree with Gregg that there is an enormous bias at this network and in all the networks. You have your ax to grind and CBS has its ax to grind.
Neil Cavuto: I like to grind everyone's ax.
Charles Payne: Everyone here is a numbers person. Let's take a look at the numbers. Look at the operating profit margins over the last year. It's interesting that the ones that are so called liberal aren't doing that well. Take Lee Enterprises (LEE ) for instance. Their advertising rates are up through the roof. Viacom has problems on a fundamental basis. The New York Times has problems on a fundamental basis.
Jack Welch: The news element of Viacom is a peanut. CBS is doing very very well.
Gregg Hymowitz: But also Jack, you owned a major network. If there is a bias, does it really come from the top or is it just the personalities that are working at the firm that tilts things?
Jack Welch: It's the personalities at the firm.
Jim Rogers: We're still going to use the media and watch TV. So the profits will still be there. And Viacom's problem is not the media. It's elsewhere.
Head to Head
Neil Cavuto: Presidential campaigns are big business. So, in this election season, who ran the best business? It's time to go inside Jack's head. Jack, just take a look, regardless of your political leanings, at how their campaigns have been run.
Jack Welch: Clearly with all the trouble that has gone on, and this is not an election bias this is a factual look at the management, Bush has won this election management job. He's kept the team. They've stayed focused. And they've kept the message simple and straight. John Kerry on the other hand has thrown his team out twice.
Neil Cavuto: Who cares. It's worked.
Jack Welch: No. I think you can't because he's had to change his message. John Kerry should be winning this election. The fact that it's close is a testimony to Bush's management, and that's what you're asking me.
Neil Cavuto: Yes but I can remember in your days of running GE, people were criticizing you for the laying off and the pollution problems. You were always on message and on offense, not responding to the critics but trying to stay ahead of them. I see this administration having to deal with missing weapons issues always on defense.
Jack Welch: They've come back pretty hard on the missing weapons issue. Neil, I am saying from a management stand point, keeping the team in place, keeping the message straight, has worked. Otherwise this election would be over. Look at the troubles we've had. We've lost troops.
Neil Cavuto: What keeps Bush surviving?
Jack Welch: A ground organization. A well honed message.
Neil Cavuto: But what about all these president former officials who are barking criticisms about the Iraq war? Isn't that a sign of fraying at the edges?
Jack Welch: Relatively speaking, for the chaos that's going on now and the number of second guesses you could have, they're holding it together pretty well. That's from a management standpoint. I'm not saying anything about the choice here. And John Kerry has had to throw out Ted Kennedy's aide. He put the Clinton people back. That change is disruptive. You say that they're tied. But being tied, with the problems on the table, with an incumbent president, isn't too good.
FOX on the Spot
A special election edition of FOX on the Spot: Our panel predicts the outcome of the election this Tuesday.
Jack Welch: Bush 50.5 percent, Kerry 48.5 percent, Nader 1 percent
Meredith Whitney: Bush 53 percent, Kerry 46 percent, Nader 1 percent
Gregg Hymowitz: Kerry 53 percent, Bush 46 percent, Nader 1 percent
Bob Beckel: Kerry 50 percent, Bush 49 percent, Nader 1 percent
Jim Rogers: Neil was confused last week. Bush wins if Redskins win!
Neil Cavuto: It's the Red Sox. Again, I predicted that their unlikely taking of the World Series would boost Kerry. But there is a caveat: Kerry first has to learn who the heck plays on the team! So far, he hasn't. Potentially, good news for Bush. We'll see…
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: Election lawyers: are they putting our democracy and your stocks in jeopardy? Dennis, the Kerry team has said they will have 10,000 lawyers to deal with this mess. And then of course Bush has his team as well.
Dennis Kneale, Managing Editor: I got two words for this: “Occupational octopi.” These lawyers will wrap their blood-sucking tentacles around every swing state and suck the life out of the democratic process. This is a horrible thing, but it’s not just the democrats. The republicans are going to have their lawyers ready in there to fight like crazy. And don’t we know that anytime several thousand lawyers get involved in anything, the results are not going to be very good?
Lea Goldman, Staff Writer: What did you expect, four years after an extraordinary constitutional crisis? Nothing has changed. Now this time around it's worse because we have 35 million new voters showing up at the polls in record numbers. We have new technologies that are being rolled out on Tuesday. And counties are differing on their rules about provisional ballots, absentee ballots, and military ballots. We're looking at a nightmare.
David Asman: So, Steve, we asked for this? All these new provisions and everything, gives lawyers great access to our electoral process.
Steve Forbes, Editor-In-Chief: We've always had different election rules in this country. But the key is why not require valid ID in order to vote? You need a photo ID to get on plane and a photo ID to get into most buildings in this town. Why not for voting? The lack of an ID is where you get the rampant fraud. No one can check whether you are valid.
Quentin Hardy, Silicon Valley Bureau Chief: Hope for a landslide on either side so great that they don't bring their lawyers out. But don't count on it. It would help the market a little bit, it will hold the market back long-term. It’s a much bigger problem for the economy, because any president who wins at the end of a long legal battle is a dork. Bush got elected, really, on 9-11 when the country came behind him. Before that he had nine months of being ‘President Dork,’ and the same thing can happen again.
David Asman: Let's look at what happened to the market during the 2000 election fiasco: The DOW dropped more than 180 points over the 5 weeks it took to decide who actually won. So Jim, how would the market be affected if the same thing happens this time?
Jim Michaels, Editorial Vice President: It could be worse, because this may be an indication that these crises are chronic and not just freaks. The last one, there was some real statistical freaks in there that probably will not be repeated again. But if they do, it could really literally cause a constitutional crisis. And with 10,000 lawyers, you can be damn sure it will cause a crisis.
David Asman: But what about the market? What’s going to happen?
Dennis Kneale: They always say that fear and greed rule the market. The two bedfellows are hope and uncertainty. Lately, uncertainty has been kicking the stuffings out of hope, and more uncertainty with this election problem is going to make it even worse.
David Asman: Rich, what do you think about the lawyers in this electoral process?
Rich Karlgaard, Publisher: Well, I'm going to be contrarily optimistic and say even if the market goes down over a protracted legal fight, it will create a tremendous buying opportunity. This market is coiled to strike. There is more corporate cash around. Earnings are great. I think 2005 is going to be a great year. So don't get too discouraged.
David Asman: Even if the lawyers hold back the progress, they can't keep the market down for long?
Steve Forbes: Not for long. But the fact of the matter is who wins the election ultimately will have a huge impact. John Kerry wants to hurt the economy by raising taxes. Bush wants to help it by cutting taxes.
David Asman: Rich, you say the market will go up no matter what happens with the election. Does that include no matter who is elected?
Rich Karlgaard: Yeah, I'll go on record and say in 2005 it goes up 20 percent with Bush and 10 percent with Kerry.
Lea Goldman: I don't know what guru or psychic you are seeing.
David Asman: And what about the democrats who come right out and say they have swat teams that are prepared to go? Is this the sort of thing that makes us all quiver?
Lea Goldman: The republicans have been doing the same thing, but they’ve been a little sly about it. In July, the republicans were already training attorneys down in Florida. Tallahassee will have more republican poll watchers than Bosnia had just general UN watchers for their last election.
Steve Forbes: That's because with this massive registration, especially in absentee ballots, fraud, no ID; it's rife for corruption and rife for bad voting habits.
Lea Goldman: On both sides, let’s be fair.
Steve Forbes: The fact of the matter is there was a lot of it in 2000 and Gore, unlike Nixon in 1960, when he lost a very narrow race, whether it was fraud in Texas, fraud in Illinois, Nixon said it won't help the country to have a protracted process. He conceded the election. Gore fought it and set a terrible precedent.
Quentin Hardy: What you are hearing from the democratic side is resentment over what happened in Florida, where clearly there was a massive level of fraud that disallowed Gore votes. Pat Buchanan himself said the way they designed the ballots prevented Gore from getting elected president. Now, on the republican side, they came down very hard in 2000 and Gore threw up Warren Christopher against James Baker.
Steve Forbes: Quentin, if Gore really thought he was cheated in Florida, why not call for a statewide recount? He didn't because he thought he would lose it.
Quentin Hardy: Because he couldn't get in the butterfly ballots that had ruled him out altogether.
David Asman: Let me ask a question. The Supreme Court essentially decided a lot in the last election. They may be reluctant to do the same again this year. Does that mean that it will be the local courts, the state supreme courts that will decide if the lawyers bring it up?
Steve Forbes: The Florida state Supreme Court in 2000 was so blatantly democrat, made such bad rulings, that it went to the federal level.
David Asman: Do you think the Supremes really want it after what happened in 2000?
Steve Forbes: They didn't want it in 2000.
Dennis Kneale: You bet they’re going to want it. The Supreme Court is drunk with power. You think they will let some local court decide the fate of the nation? There is one point we're missing. I know we are "Forbes" magazine and want to blame the lawyers for everything. You know who I blame? Neither one of these candidates has truly built an overwhelming great case for the vision of this country and what they want to do. That's why it's so close because we don't like either one of these guys.
Rich Karlgaard: Florida is beyond the margin of error. There will not be a legal challenge. Look for Ohio and Wisconsin on election night. Kerry is going to take Ohio. But Bush will take Wisconsin and the win.
Jim Michaels: This business of going back and declaring the last election illegitimate is exactly the kind of problem that we've got. If this continues, and people will not accept the result of elections, our democracy is seriously hurt.
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 taxes are going up and it doesn't make any difference if John Kerry or George Bush is in the White House. That's what Editor Bill Baldwin says.
Bill Baldwin, Editor: Read my lips, ‘new taxes.’ Let me tell you about one of them. It’s already on the books; you didn’t know this. It’s the ‘fat cat tax.’ You thought fat cats were George Soros or Ted Turner? Guess how many will be captured by the fat cat tax in 2006, under existing law: 18 million. That law will capture a lot of people paying the AMT, (the alternative minimum tax,) and that's without any new legislation.
David Asman: Jim, what do you say? No matter who is elected, there will be tax rises on the margins. And all these little taxes we don't think about.
Jim Michaels: There may be marginal tax cuts but the issues in the election are very clear. Kerry says he will raise taxes and Bush says he will take a leaf from Ronald Reagan's book and not raise taxes. And instead he will stimulate the economy, bring in increased revenues, and keep the tax cuts. It’s very clear.
Quentin Hardy, Silicon Valley Bureau Chief: Well Jim, a kid like you doesn’t remember the history clearly. Reagan cut taxes in 1981, raised them in 1982, raised gas taxes in 1983, raised corporate taxes $120 billion in 1986. To say Ronald Reagan just cut taxes is false.
Jim Michaels: Quentin, I feel like I've been here before. I’m hearing the same things that they said about Ronald Reagan. He ran tremendous deficits, he caused the stock market to crash in 1987. Come on. Look at the history here.
Quentin Hardy: No, Ronald Reagan cut taxes and then raised them.
Steve Forbes: The 1981 tax cuts were far bigger than any subsequent tax increases and they did it again in 1986 when the top rate was reduced to 28 percent, the lowest since before the First World War. So there were massive tax cuts and they worked.
Quentin Hardy: And they raised corporate taxes.
Steve Forbes: And revenues went up. Income tax revenues went up.
Elizabeth MacDonald, Senior Editor: If it wasn't for Iraq I do think that the deficit would be the number one thing that would be on voters' minds. Remember, conservatives are even saying that spending is out of control. Ross Perot, in 1992, ran on the deficit and won 19 percent of the vote. I think our taxes will go up because we have the boomers retiring and, like Jim, I feel like I've been here before. Medicare and social security are huge expenses. How are we going to pay of them?
David Asman: You don't think the economy will grow enough to bring in more revenue to pay for these?
Elizabeth MacDonald: We can't borrow our way out of this problem. Deficit financing is not free. It equals tax increases later on.
Steve Forbes: The worst thing you can do is make the economy smaller and weaker. Tax increases do that. The Europeans have been trying that for 30 years and have twice the unemployment.
David Asman: Aren’t we going to have to cut back on something? Spending is out of control.
Steve Forbes: No, it isn't. On the discretionary side they got their act together. This year discretionary spending is going up just a tad above inflation, unlike the previous three or four years.
David Asman: Quentin, do you buy that?
Quentin Hardy: The manufacturers' tax break bill Bush just signed had pork all over it. It had loopholes for filmmakers as manufacturers, unless they make adult movies which isn't manufacturing. It's ridiculous. They were giving it away.
Jim Michaels: There was a lag in the 1980’s between the tax cuts and a balanced budget.
Bill Baldwin: Elizabeth was saying off camera that two percentage points of tax increases would solve our deficit problem. No, it's more like 12 percentage points.
Elizabeth MacDonald: I didn't say two percentage points. But we can't ignore the fact that the entitlement programs are out of control. And at this point in his presidency, Ronald Reagan vetoed 39 spending bills. Where is Bush's veto of any spending bills? It's out of control.
Steve Forbes: First of all, you want a strong economy. You reduce taxes, simplify the tax code. You want to deal with social security, let workers have their own retirement accounts. You want to deal with health care, let patients control the money as those savings accounts will do.
Makers & Breakers
• MBNA (KRB)
Jim Fisher, Senior Portfolio Manager at Univest: MAKER
The president gets re-elected. Not a landslide but he will get re-elected. And the dark clouds of uncertainty will rise from the market. The economy will continue to grow.
David Asman: Which is good for credit cards and good for?
Jim Fisher: For MBNA, the largest credit card issuer in the world. High credit quality, which is really important for an investor. They are going to be the first company to issue American Express branded credit cards, which is going to significantly increase their transaction revenue.
David Asman: And you put your money where your mouth is and you own the stock. The target is $31 (Friday’s close: $25.63), do you think it will make it?
Bill Baldwin, Editor: MAKER
Jim is right about this. This is a credit-addicted society. An example set from the very top in Washington by our politicians. And I think this company has skillfully exploited that. They have great software for discriminating between out and out deadbeats and the people like the federal government who are merely overextended.
Elizabeth MacDonald, Senior Editor: BREAKER
Ordinarily I would like this stock but the company is under fire because its board lacks independence and I'm worried a little bit about interest rates going up and what that will do possibly to the rise in defaults in the portfolio. Even though it has been good about that.
• Sysco (SYY)
Jim Fisher: MAKER
Sysco: the largest food distributor in North America. It has over 150 locations. It had a little bit of a rough year because of product inflation and high fuel costs, but they came through that OK. They finished out the year with a major acquisition, which I think is the catalyst for them going forward. They acquired the International Food Group, which is a US-based company.
David Asman: You see a 30 percent rise, your target is up to $42. (Friday’s close: $32.27)
Elizabeth MacDonald: BREAKER
I'm a breaker on the stock. I think that the population is getting more refined tastes for food and you can train a monkey to cook with Sysco’s food products. And I think that their offerings need to be upgraded before I would buy the stock.
Bill Baldwin: MAKER
I’ve got to protect Jim from Liz's savage attack. This is a great stock. There are three trends in food in the United States. There is junk food, fast food and lazy food. By lazy food, I mean you get table service. Sysco is very strong in the restaurant market. Great stock.
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Want to know what the new hot stock will be? Look for the hottest gadget to hit the market. It’s on the cover of this week's edition of "Forbes" magazine. It looks at the gadgets creating the biggest buzz. So you know what a hot product can do for a stock, look at Apple Computer (AAPL) since iPod came out. Up 230 percent. Chana what hot gadget to you think will help its maker's stock?
Chana Schoenberger, Staff Writer: palmOne (PLMO), they make a product called the Treo. The newest model is the 650, but there’s also the 600.
David Asman: The Treo cell phone. A fun cell phone that combines the Palm gadgets with it.
Chana Schoenberger: A cell phone PDA. We talk about it in this issue because you can get full web browsing on it, Google (GOOG) on it. I'm about to buy their entry-level gadget, less than $100, and I'm a big fan.
David Asman: And Pete, you have the gadget that's on the front cover.
Pete Newcomb, Senior Editor: This is the RAZR V-3 phone from Motorola (MOT). It’s a half an inch thick when closed. It takes great pictures. It’s got all the great features of all the hip phones. It’s not cheap. The earpiece is voice activated. You say "Dennis Kneale" and it dials it automatically.
David Asman: The coolest looking design. This is Motorola so it will be good for the stock.
Pete Newcomb: That's right.
Dennis Kneale, Managing Editor: We’ve got the Apple AirPort Express. If you’ve ever tried to set up a wireless network in your home, it’s a nightmare. You take this baby and plug it into the wall outlet and take the cable from your cable modem out of your laptop. And you plug it into the AirPort Express and you have a wireless network that works. I got rid of 20 feet of coaxial cable in favor of a nice wireless product. I can be in the back room and it still works. I can play music off my 1986 stereo receiver. One caution: Apple's stock is up 60 percent in just three months. Be careful.
David Asman: The stuff that goes into these gadgets is what you are touting.
Mike Ozanian, Senior Editor: I like Texas Instruments (TXN), it makes the chips that makes a lot of these gadgets run. The stock is in the low $20's. I think it is near its 52-week low and a great bargain and I think it’s a good time to buy it.
David Asman: And Dennis is saying yes.
Dennis Kneale: Yes. I think he’s got a really good point there.
David Asman: And does Texas Instruments' stuff go into Apple?
Mike Ozanian: You know, I don’t know. I just know that Texas Instruments makes a lot of money.
Chana Schoenberger: It’s true. Chip stocks are a good buy right now.
StockSmarts: Wall St. Wins!
It’s down to the wire as President Bush and John Kerry get out the vote heading up to Tuesday’s election. But no matter who wins, the real winner could be your stock investments.
History tells us that November kicks off the best six-month stretch for stocks each year:
Dow Since 1950:
May – October: DOWN 1,909 points
November – April: UP 10,175 points
So should the stock market get our vote?
Stuart Varney of FOX Business News says the stock market does indeed get his vote. The market wants to go up, and he thinks that the “post election rally” has already started. If President Bush holds on to the White House for another four years (and Stuart thinks Bush wins the election by five points), the market will have a very solid November rally. If John Kerry, we will still get a modest rally, because everyone knows he can’t get his tax hikes and spending plans through a Republican congress. Stuart thinks that Americans really want an optimist running the country, and that is what they get from President Bush. John Kerry seems to pessimistic.
Danielle Hughes of Divine Capital Markets also says that the stock market and investors will win – as long as we don’t have a repeat of what happened in the election of 2000. And she points out that the market made a very big move in the week leading up to the election, so some people are starting get more confidence in the market.
Jonas Max Ferris of MAXFunds.com quips that some people still don’t know who won the 2000 election. But all kidding aside, he says that the November-April period is a strong season for investing (although he doesn’t really like “seasonal” investing). Since stocks are cheap right now (relative to the economy), the next six months should be pretty good for the market – no matter who wins the election. Historically, the market does well under a Democrat. Bush needs this market strength heading into the election.
Wayne Rogers of Wayne Rogers & Company thinks the market is driven by earnings economy and international events. It really doesn’t matter to the market which candidate gets in – because the Congress controls things more than the President. When an election is this close, you can’t use it as a mandate. Wayne thinks certain stocks are cheap – but not the entire market. Energy has been good and will continue to be good, although we do have a refining problem here in America – meaning that even if we discovered new oil sources, we would have trouble processing that oil.
Jonathan Hoenig of Capitalistpig Asset Management says it’s all a matter of risk: what risk do you want to take in this market. You can’t invest based on election, and you can’t invest based on the calendar. The S&P is not the best risk right now – the same is true with the Dow. You need to take very specific risks in very specific areas. Jonathan is currently making money in the utilities and in non-U.S. stocks.
Dagen McDowell of FOX Business News says there are so many risks already factored into the market (Iraq, terrorism, voting problems), that once some good news comes our way, the market could totally take off. And the recent action in IPOs also shows that market might be headed higher soon.
Best Bets: Stock Leaders
Which stocks will lead the market in the next Bull Run? Our crew came up with some bets.
Danielle says Home Depot (HD)
Friday's close: $41.08
Dani says this one is a winner no matter who wins the election, for a couple of reasons. The global growth of this company makes it an attractive buy. Plus, this can be a play on commodity prices (lumber costs go up, prices go up). The stock has also been a great turnaround story. (Dani owns this stock). Jonathan says this is just about the strongest Dow component you can find, but he still can’t make a great case for buying any Dow stock right now. Wayne also owns this stock and really likes the company.
Wayne says First Horizon Pharmaceutical (FHRX)
Friday's close: $24.58
This stock had strong earnings in the last quarter, and Wayne says its outlook for 2005 is also strong. (Wayne owns this stock). Jonathan says the company’s market is women and children, which is a good market to be in for pharmaceuticals. He thinks that a lot of these biotech companies are at the whim of the FDA. Dani likes this stock – the breakout has been huge.
Jonathan says Suez SA (SZE)
Friday's close: $23.50
Jonathan is making money in foreign utilities. SZE is a big French utility, part of a sector that Jonathan loves right now. (Jonathan owns this stock). Dani likes this stock, but we need to watch it carefully going forward. Wayne thinks it’s a terrific company.
Stock of the Week
Last week’s pick from Gary Kaltbaum, Newmont Mining (NEM), was up 3.0 percent from October 22-29.
This week, Jonas says that Merck (MRK) is the one to watch, because it could be one of the of the beet stocks for a Bush reelection. Bush wants to take out liabilities for drug companies if the FDA approves a new drug. This would take a whole level of pressure away from these companies. Jonathan says that Jonas is thinking about this way too much. Basically, the drug sector is totally weak right now and he would stay away from any drug stocks.
Wayne, Jonathan and Dagen answered some of your questions.
Question: "The stock market seemed to like the last Democrat in office – Bill Clinton. Why wouldn’t the market like John Kerry?"
Jonathan says, "correlation does not show causation." And although we have been talking about the election, it doesn’t really matter to the market. You have to remember that during the Clinton administration, we had that little thing called the Internet bubble. So just can’t look to the guy in the Oval Office to flip the switch and get the Nasdaq back to 5,000. Wayne agrees with Jonathan – Clinton didn’t cause the market to go up, just like Bush or Kerry won’t make the market go up (or down). Dagen says that one thing that keeps government spending in check (or did during the Clinton administration) was a Democrat in the White House and a Congress controlled by the Republicans. If we have that again (Kerry as President, Republicans in Congress), it wouldn’t be a bad thing.
Question: "No matter who is president, how is he going to deal with the huge deficits we have built up?"
Wayne says you can do the supply-side thing (like Reagan), where the economy is stimulated and grown so that it can essentially pay for itself with the increased revenues that would come from a bigger economy. You can also get rid of government waste in order to keep the spending down. Dagen says we also have a looming problem with the baby boomers getting set to retire, so there will be a huge gap in revenue created. Jonathan wants to look at this from the market’s perspective, and that the dollar continues to lose value overseas. And that’s not good for us.
Question: "Is it possible that George Soros is hurting the market before the election?"
Dagen says this is a conspiracy theory. George Soros is one of the richest men in the world, but even a man that rich can’t take down the market. Jonathan says that Soros isn’t a great political mind, but has no problem with him putting money into a campaign against President Bush – and that doesn’t affect the market. Wayne says Soros can’t affect the market.