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, columnist for RealMoney.com; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, editor ChangeWave Investing; and Scott Bleier, president of HybridInvestors.com; Adam Lashinsky, senior writer at Fortune magazine, and Bob Olstein, president of the Olstein Funds.
Trading Pit: $aving $ocial $ecurity
In an exclusive interview with Neil Cavuto, President Bush once again made it clear that Social Security will be a big priority in his 2nd term.
In the interview, the president mentioned progressive indexing as a plan to that could help fix the Social Security problem. In this plan, poorer people will get more benefits than richer people, but everyone could get higher returns by investing some Social Security money in stocks.
Most other plans essentially call for higher taxes, mostly on the rich.
Which of these plans makes most sense? And which one will make the most money for investors?
Tobin Smith: It doesn’t make sense to tax the rich, because who’s going to do the investing? If the rich are taxed, it will essentially kill the economy, especially with the high oil prices. A very simple way to fix Social Security is to change the lifespan to 21st century expectations, not keep at 19th century levels. Then raise the benefits to inflation rates, not income, and increase the initial benefits age to 62, allowing people under 55 to put money in private accounts.
Adam Lashinsky: Higher taxes on the rich is an option and should be pursued as part of the package. There’s no reason why you only pay the Social Security tax up to $90,000. Raising the cap a little bit, just to $105,000 or $130,000 will plug a huge hole in the gap that the Social Security system has right now. And this raise will only affect a small portion of taxpayers.
Gary B. Smith: Personally, I think the best way to fix Social Security is to scrap the whole thing. Why does the government need to force people to save? But at least with the private accounts, you get to have some control and you own the asset. Raising taxes on the rich, who are our entrepreneurs, is not good because it means they’ll be putting less money into their businesses and the stock market. There are other ways to fix the problem without raising taxes. For example, cut down on the benefits of people entering the Social Security system.
Scott Bleier: Personal accounts are a great idea. However, people must understand that money you give to Social Security now, goes to today’s retirees. It doesn’t go into some bank and wait for you. It’s a pay as you go system. If we get private accounts, the government is going to have to borrow a ton of money.
Bob Olstein: Social Security should be turned over to private money managers who qualify. The money should be pooled together in an account that is run by a director of pension investment. The director of investments will then portion out the funds to qualified managers, who will invest the money. If individuals are in charge of investing their own money, they will lose it, and the situation will get worse.
Pat Dorsey: I like that we’re focusing on the problem of fixing Social Security. Private accounts do nothing to solve this problem. I like both ideas of raising the cap and progressive indexing because both try to solve the problem. It’s not a tax hike on the rich; it’s removing a tax exemption for the rich. I agree with Adam that raising the cap will go a long way to fixing a problem.
Accountability is big on "Bulls & Bears." It’s time again to look at their best and worst calls.
In October, Tobin liked Valero Energy (VLO), the country’s largest independent oil refiner. Since then, Valero is up 73 percent. He owns the stock and still likes it. The company has the ability to refine crude oil from Saudi Arabia that has a lot of sulfur and not many refiners are able to do that. He thinks Valero can go to $100. (Valero Energy closed on Friday at $74.09.)
Last summer, Gary B. was in tune with the college students when he suggested buying Domino's Pizza (DPZ) and Abercrombie & Fitch (ANF). Both have made tremendous moves: Domino’s Pizza is up 58 percent, while Abercrombie & Fitch is up 84 percent. Gary thinks Domino is done running up, but Abercrombie still looks terrific. He charted the stock and showed that it has been strong. He thinks it will stay strong and is heading to $80. (Domino’s Pizza closed on Friday at $21.95. Abercrombie & Fitch closed on Friday at $67.09.)
Just over a year ago, Pat was betting on Panera Bread (PNRA) and Weight Watchers (WTW). Pat has been eating up profits from both. Panera Bread is up a whopping 95 percent and Weight Watchers is up 44 percent. He said both are strong businesses and there’s still upside. Panera’s same store sales are growing about 7 percent. He recommended holding on to the stock until it reaches $75. As for Weight Watchers, he said it keeps attracting new customer because it attendance continues to go up. He owns this stock and thinks it’s headed to $60. (Panera Bread closed on Friday at $64.59. Weight Watchers closed on Friday at $48.73.)
In November, Scott liked kids’ clothing company, Carter's (CRI). It’s up 59 percent in just 7 months. Scott said he sold the stock around $42, just before it bought OshKosh. But he thinks it has about 20 percent more upside. (Carter’s closed on Friday at $50.10.)
In May 2004, Bob picked UNOVA (UNA), which specializes in data collection and computing products. UNOVA is up 23 percent since then. Bob now thinks the stock is fully priced, but RFID technology will be a big thing in the future. He still owns the stock, but suggests waiting for a pullback before buying more. (UNOVA closed on Friday at $20.85.)
Now, the calls that weren’t so good:
Six months ago, Bob said major media mergers were coming and investors should buy Gray Television (GTN). No media mergers yet and Gray Television is down 29 percent. Bob said he was too optimistic on its cash flow, has lowered his expectations, but still owns the stock. He said it’s now a bargain and is worth $15. (Gray Television closed on Friday at $10.72.)
Gary B. liked media stocks too. In October, just before the election, he recommended New York Times (NYT) and Dow Jones (DJ). Both have suffered. New York Times is down 21 percent, while Dow Jones is down 15 percent. Gary doesn’t like New York Times any longer, but does think Dow Jones is still worth looking at. He said the chart for Dow Jones shows that it has had a horrible year, but is getting stronger. Gary suggests buying once it crosses the upper $30s because it will cross through a downtrend. (New York Times closed on Friday at $30.80. Dow Jones closed on Friday at $35.69.)
Last November, Tobin said it was time to sell TiVo (TIVO) and buy Verizon (VZ). TiVo has heated up 30 percent, but Verizon has cooled off and is down 16 percent. Tobin said that TiVo turned things around once it struck a deal with Comcast (CMCSA). He said hold on to TiVo until it hits $8. He also said to hang on to Verizon due to the new fiber optics system it’s planning to roll out. (TiVo closed on Friday at $7.23. Verizon closed on Friday at $34.85.)
Also in November of last year, Pat said it was time to take profits from computer storage company, Emulex (ELX), and buy electronic trading system, eSpeed (ESPD). Like Toby, Pat got it backwards too. Emulex is up 45 percent and eSpeed is down 16 percent. (eSpeed has even fallen below our show’s $500 million market cap minimum.) Pat now says that if you didn’t take his advice and sell Emulex then, definitely sell it now because it’s very expensive. He admitted that the eSpeed call was a blunder. He misjudged the company’s competitive position and suggests selling now. (Emulex closed on Friday at $18.89. eSpeed closed on Friday at $8.97.)
In December, Scott said Harman International (HAR) was a good way to play the consumer electronics boom, but Harman has gone down 30 percent. He said that the stock did fall hard, but it’s coming back. The electronics business for automobiles is going to be good for the company and will take the stock higher. Scott recently bought the stock around $75 and thinks it’s going back to $110-120. (Harman International closed on Friday at $89.37.)
Bob's prediction: It's a stock "buyer's" market! S&P 500 up 10 percent by 2006
Gary B's prediction: Get back to school! Bed Bath & Beyond (BBBY) gains 50 percent
Pat's prediction: Go Cubs! Newspaper/Cubs owner Tribune (TRB) up 20 percent in 1 year
Tobin's prediction: Semi HOLDRs Trust (SMH) gains 20 percent by end of the year
Scott's prediction: Get specific Toby! Intersil (ISIL) up 30 percent by fall
Cavuto on Business
Neil Cavuto was joined by Charles Payne, CEO of Wall Street Strategies; Leigh Gallagher, senior editor at Smart Money; Gary Kaltbaum, president of Kaltbaum & Associates; Cheri Jacobus, Republican strategist; Alan Colmes, co-host of "Hannity & Colmes"; and a special taped interview with the President of the United States.
The Bottom Line
Neil Cavuto: Earlier in the week, I sat down for an exclusive interview with President Bush at the White House. A top issue worrying him: gas prices.
President Bush: I do think there are some troubling signs in the economy -- one is the fact that we haven’t passed an energy bill in four years and we’re dependent on foreign sources of energy and therefore gasoline prices are up.
Neil Cavuto: So you think the fact that we are dealing with these high gas prices is wiping out whatever benefits we are seeing in other areas?
President Bush: To the extent that some say, “Well, I’m unsettled about the future of our economy,” they’re basically, I think, reflecting the fact that gasoline prices have risen quite dramatically, and I’m concerned about that too, because I understand a gasoline price rise is like a tax -- it’s a tax on families, it’s a tax on small businesses.
Neil Cavuto: The President is concerned about rising gas prices. Should we all be?
Charles Payne: Absolutely. But first of all Neil, when we talk about gas we're really talking about crude oil. A lot of people are saying on an inflationary level it's not that bad. It's not like in 1973 or 1980. But the way I see it, $55 a barrel is a yellow flag and you see it reflected in the stock market; over $60 a barrel, and all bets are off. It's not just going to hurt consumers, but businesses as well.
Leigh Gallagher: I don't think it's a big worry here going forward, and I know I'm in the minority here. I think that there are other things that have a far stronger impact, like interest rates and geopolitical situations. And if you ask consumers, they don't care.
Alan Colmes: This is a president who said the previous administration should be jaw-boning the Saudis. And now he has Prince Bandar over to Crawford, Texas more than you've seen him lately Neil. Clearly gas prices have a big effect. What is the President doing about it?
Neil Cavuto: But do you think they have as big of an effect as they used to?
Gary Kaltbaum: If you would've told me a year ago that oil prices would be up, I'd have thought we'd be in a recession already. That tells you how strong the economy is. I think a big issue is that consumers are using their houses as ATMs right now (tapping equity through loans and cash out re-financing). When that ends, the economy could definitely decelerate. The pullback for oil recently stopped at $48. We may head up into the $60's now. If that occurs all bets are off.
Cheri Jacobus: Here's the thing about gas prices Neil. They are a very small part of a family's budget. It's the psychological and political impact every time you fill up the tank, every time you see those rising gas prices, and we think of it as being a bigger deal than it is.
Neil Cavuto: But it is a big deal, right? If every time you go to the pump and you feel that?
Cheri Jacobus: It's not good for consumer confidence. I don't think people are blaming the President.
Neil Cavuto: But they would blame Congress for not getting an energy bill through, right Charles?
Charles Payne: Absolutely. Alan, with all due respect, I didn't understand what you were saying about what's the President's plan. You can't have it both ways and say he's trying to help the Saudis and he's trying to help American businesses. Opening up Alaska and conservation, Bush has pushed hard for this, but unfortunately the roadblocks in Congress are just outrageous.
Alan Colmes: My point is when he was running he was hitting the previous administration saying Clinton should be jaw-boning the Saudis and the President jaw-bones them, who knows about what, and he wants to blame the previous administration.
Charles Payne: How about we make ourselves self-sufficient and we drill in Alaska?
Neil Cavuto: You raise a good point on the Saudis, but they are now producing more oil for us on a daily basis then they ever have before yet we still have these high energy prices. Is that the President's fault?
Alan Colmes: I don't know if it's all the President's fault. Where's the Republican Congress on this? And is Alaska going to solve the problem when apparently indicators say there's maybe six months of oil there?
Gary Kaltbaum: We can sit here all day and all night and blame the President for everything under the sun. The bottom line is this is a supply and demand issue. He's put ideas on the table. Congress and the Senate have to get their act together.
Neil Cavuto: Leigh, do you think this economy is hurting the President -- his poll figures certainly show it -- and is that one of the things depressing the Street?
Leigh Gallagher: The economy does have something to do with that. I do think that's what we're seeing in the polls.
Neil Cavuto: Let's say we get to $60 per barrel oil, which I don't think is out of the question Cheri, or we get to $3 gasoline, what's the point in which Republicans start saying, uh-oh?
Cheri Jacobus: The President is right to press Congress to pass the energy bill. Republicans and Democrats will both suffer if they don't take the President seriously.
Gary Kaltbaum: The most important thing to talk about though is the future. Every time we have had an oil shock, a contraction in the economy has happened. With the ampunt of debt outstanding and what’s happening with housing right now, the economy can't stand a contraction. One thing I do agree with Alan on is when they see $2.50 at the pump, they are going to look to the President whether it's his fault or not.
Leigh Gallagher: You mentioned the 70's. We are not in an oil shock right now. Seven percent of our disposable income now buys the same amount of gas that took twelve percent in the 60's and 70's.
More for Your Money
Neil Cavuto: News of big layoffs at General Motors last week turned into big gains for shareholders. So what other companies are planning changes that could help you get more for your money? Gary, which company is making the right changes for you?
Gary Kaltbaum: I'm going with American International Group (AIG). I think all the bad news is out. It has a shot here for better gains. That said, if there's anymore bad news use a 10 percent stop on the downside just in case.
Charles Payne: What happened at GM laying employees off was a company decision, but what's happening at AIG is because of foul play. These types of situations take a long time to work themselves out. It might be too early to put money into this.
Leigh Gallagher: People are saying AIG does look attractive right now, but it makes me a little queasy. I really like IBM (IBM) right now which is in the news lately because Apple deserted it in favor of Intel for its chips. But that is actually a very small part of IBM's business. It's cutting 13,000 jobs worldwide, which will help save and help the bottom line.
Gary Kaltbaum: Revenue growth for this company is decelerating. Insiders of the company are selling stock right now. There's nothing I like about IBM. It's the worst acting stock in the Dow.
Charles Payne: I like Symantec (SYMC), which is a technology play and Internet security. They blow away their competition and they always have. About a year ago they announced they were going to take over a software company called Veritas and ever since then this stock has been crushed. It's under pressure and no one likes this deal, and yet I think it's a smart idea.
Leigh Gallagher: There's a reason no one likes this deal and that's because Veritas just isn't growing as quickly as Symantec's core business and it could drag the stock down. I think it's better for Veritas stockholders than Symantec.
Charles Payne: But the stock has been dragged down a lot already.
Neil's Interview with President George W. Bush
Neil Cavuto: Let me ask you about the real estate bubble people talk about in this country. Do you think there is one?
President Bush: You know, I'm not a very good economic prognosticator, but I do know that there are a lot of first-time house-buyers or homebuyers entering into the market. And the reason I know that is, for example, more minority families own a home today than ever before. And a lot of that has to be one: good policy -- for example, we're helping poor families with down payments; a lot of it has to do with interest rates. But, you know, I'll let the experts determine whether or not there's a housing bubble or not.
Neil Cavuto: When you have regions like Florida and Silicon Valley going up 30, 40 percent a year, even Alan Greenspan worries that we might have pockets of bubbles. Do you?
President Bush: You know, if Alan Greenspan worries about it, I should worry about it, because he's done a heck of a good job, and he's a smart guy.
Neil Cavuto: Is he gone next year? Does he leave next year?
President Bush: Let me just finish on the housing market right quick.
Neil Cavuto: Sure.
President Bush: One thing is for certain is that people have got more money in their, more after-tax disposable income, and interest rates are such that people are now enjoying homeownership, which is a really important part of America. Let me just talk about ownership real quick. First of all, Alan Greenspan has indicated that he is going to finish his term. And then we'll find a suitable replacement, hopefully somebody as good as Alan Greenspan, although that will be hard to do...
Neil Cavuto: A Democrat? Would you consider a Democrat?
President Bush: I would consider somebody who can do the job.
Neil Cavuto: Robert Rubin?
President Bush: No -- I mean, here you are trying to get me to, right on your TV show, make news by naming different people, which I refuse to do. Let me talk about ownership for a minute.
Neil Cavuto: Go ahead.
President Bush: One of the -- if you look at a lot of our policy, we encourage ownership, and the reason why is because an ownership society is an optimistic society. And the fact that more people are owning homes says we've got a more hopeful country.
Neil Cavuto: Let me ask you, if you don't mind, Mr. President, switching gears a little bit to China.
President Bush: Sure.
Neil Cavuto: We have sort of this maybe, I don't know, love-hate relationship with the Chinese.
President Bush: (Laughs.)
Neil Cavuto: They're a booming economy, a great market. They see us as a great market. But invariably, we fight over the value of their currency. Without getting arcane, do you find it odd that this country, who your own Defense secretary has said is not really threatened by anyone, is putting so much money into its military, by some reports, close to 3 percent of its GDP?
President Bush: Let me step back and characterize the relationship with China this way: It is a complex relationship. It is complex because we deal with each other on a variety of fronts. One front, of course, is our defense posture.
Neil Cavuto: Well, do you trust them?
President Bush: Trust on defense matters?
Neil Cavuto: China, period.
President Bush: Well, that is a -- that's a broad question. So far, I do. We'll see. I mean, we're getting indications out of the government, for example, that they understand they've got to do something with their
currency. Time will tell.
Neil Cavuto: North Korea has said that it would be maybe interested in multi-party talks again. Are you considering, since they've talked back and forth on this issue, Mr. President, U.N. sanctions?
President Bush: Well, that is option down the road.
Neil Cavuto: Not now?
President Bush: Well, it's option. It's on the table. And what North Korea must understand is that the United States is serious about working with five -- four other countries to convince them to get rid of their weapons systems, their ideas of having a -- and their plans and their actual equipment that develops nuclear weaponry, including what we may think is a plutonium-type device.
FOX on the Spot
Charles Payne: Housing stocks collapse 20 percent within weeks!
Leigh Gallagher: Hot new trends make Hot Topic and A&F hot buys!
Alan Colmes: If Dems nominate Hillary in '08, GOP picks Condi.
Gary Kaltbaum: Howard Dean is gone in 90 days!
Cheri Jacobus: Dean gone but not forgotten; Dems lose big in '06.
Neil Cavuto: Once again, despite my interview with the President, his Republicans will lose control of Congress next year. President Bush says they'd lose control if they didn't tackle tough issues like Social Security; I say they're losing it because he is.
Forbes on FOX
FlipSide: Best Way to Make Money: Sell Your Home and Rent!
Neil Weinberg, senior editor: The economics of this are impeccable. If you're sitting on a big housing gain, you can sell your home tax free with no capital gains tax. You can then invest that money into something that is a lot more sane than the housing market is right now. And in many markets you can rent and pay about half each month of what you would have paid for your mortgage. It makes sense.
Jim Michaels, editorial vice president: This is a bad idea. If I had to move now I would rent instead of buying. But if I had a house I wouldn't flip it to make a profit. It just doesn't pay.
Lea Goldman, staff writer: You can make a big profit right now. You have to bank on the fact that the bubble will burst but first sell your house. And don't necessarily invest in the stock market. Put it towards your kid's education or towards retirement. Take the money and run. Odds are in a down market that house prices are going to fluctuate and you'll never be able to capitalize as well as you can now.
Quentin Hardy, Silicon Valley bureau chief: What Lea is talking about is shorting the market. Borrowing something expecting it to climb and making a profit on the difference. The problem is, if this is a frenzy and you can never predict the top of a frenzy. This market could keep doing this for a year or more.
Steve Forbes, editor-in-chief: Housing is for habitation not speculation. It's not like selling a stock. If you want to make money off the housing market, look into parts of the country where you can get great housing, like near university towns, for a fraction of the cost of homes on the coasts. But unless you're ready to move, stay in your house.
Victoria Murphy, staff writer: Rents in San Francisco are far more affordable than the cost of owning right now. If I owned, which I don't, I would consider this. I'm under 30 years old. I don't have children. I have a lot of mobility. I think you can make money off this spread, which at this point is at an all-time high in some places. I would move and consider investing in the stock market. I think it's a reasonable idea, but it's not for everyone.
Quentin Hardy: We were having this conversation three years ago when the market fell. We said take that money and put it into real estate and it looked like house prices were overpriced then. You never know when the top is going to come.
Jim Michaels: People also forget the tremendous transaction cost: 5 percent going in, 5 percent going out. This is not a market for speculation. It's a market for finding a place to live.
Lea Goldman: Transaction costs can be significant, but they are far out-weighed by the profit you can make. And you can get a great deal on a rental in this market.
Neil Weinberg: If you really love where you are living, you should stay there. But if there is some reason why you're thinking of moving, maybe you want to get a bigger place. Then rent a bigger place for a couple of years.
Steve Forbes: Or move to a part of the country where you can buy five times as much of a house as you can on the west coast. But do that because that's where you want to live, not to turn a profit. Save that for the stock market.
Victoria Murphy: Your monthly mortgage could look really high if housing prices fall, which I think will happen in a lot of markets. The fact that we're talking about a housing bubble is an indication that it probably is one. People act differently when they think it's a bubble.
Steve Forbes: When housing prices do collapse, it's not going to be anything like what happened to the NASDAQ back in 2000. Even the Silicon Valley didn't take that kind of a hit, although the valley was devastated.
Jim Michaels: The top is coming when people say that housing prices only go up. When they say that, that's the end.
In Focus: Are Tech Stocks Ready to Take Off Again?
Dennis Kneale, managing editor: I think that tech is going to come back. We all know that tech will come back someday we've just been waiting five years for someday to happen. We need two things to happen. Businesses need to start spending again on tech and investors need to start feeling better. Now this week we heard positive announcements from Intel, National Semiconductors, Texas Instruments, and that's a good forerunner as to what's going to be happening. Now we have to see how investors are feeling and see if they realize that the tech comeback is here. Don't miss out on it.
Quentin Hardy: What happened with the chip companies was good, but what about companies like Lenovo, IBM's old computer business. Terrible outlook. Look at the CIO surveys that actually say we're cutting back. That's corporate software. That's where the big money is in the NASDAQ and that's not coming back right now. There's been a 10 percent gain on the computer stocks, the rest of it is dragging. I think the computer stocks are fully valued right now. I don't see them going up.
Chana Schoenberger, staff writer: I talk to a lot of companies and what we're hearing is that they are spending more money. They're buying things like back-up storage. The news of lost data and privacy issues is going to spur companies to use back-up servers instead of back-up tapes. They are buying all kinds of software to protect themselves and make themselves more productive.
Jim Michaels: This is the question. Should you own tech stocks? Of course you should own tech stocks. The question is, is the tech average going to do better than other stocks? I think there is absolutely no reason why they will do better. They are already priced at a premium to the rest of the market. People were badly burned and they are not going to jump in for a while. Tech stocks will track the market in my opinion.
Steve Forbes: The fact that people are leery about tech is the same reason why you should be bullish on it. If you want a cautious buy, buy Microsoft (MSFT). It hasn't gone anywhere in 10 years, earnings are still up and they're paying a nice dividend. Cicso (CSCO) is coming into its own. That should go up 50 percent in the next 12-18 months. Don't buy the whole industry, buy good individual stocks. They're out there.
Dennis Kneale: I've got some numbers. The NASDAQ is still down 60 percent from its peak in 2000, that three times the big broad market indices. Dell is down 30 percent even though its profits have double. Cisco is down almost 75 percent even though its profits have almost tripled. Microsoft, down 50 percent even though its earnings are up 40 percent.
Jim Michaels: Those were bubble prices. They weren't real prices. They are still at a premium to other stocks.
Dennis Kneale: Right now the NASDAQ is less than two times as expensive as slow growth stocks.
Steve Forbes: Tech stocks are at a premium precisely because they have a lot of growth. This is where it is happening. And as we start to remove barriers to technology, like sending the Federal Communications Commission to North Korea so we can get real broadband, there are a lot of potential good stocks there.
Jim Michaels: There is a lot of potential there but it's already priced in.
The Informer: Best Tech Buys
Dennis Kneale: I like Yahoo! (YHOO). Yahoo! at its peak was at $250 a share. It was earning $50 million. Today it's earning almost $1 billion and you can buy that stock for less than $40.
Mike Ozanian, senior editor: It's a great company, but my problem is that it is priced like a super great company. I don't know if it can keep growing at 30 percent a year. I like IBM (IBM) because I think they are doing the right thing, they're shrinking. They are getting rid of debt, they are in the middle of selling their PC business. They are buying back stock. And I think in this year of diminishing returns in technology you want smaller and not bigger.
Victoria Murphy: Why do you want a company that is shrinking? It's trying to expand services and that's hard to scale because you need a person for every sale. I like a little company called Blue Nile (NILE). Blue Nile sells engagement rings and other jewelry online. They've got a great business model. And a lot of these online companies are getting bought. So you could be getting in early on an acquisition target.
Lea Goldman: I don't like this pick. I don't think we're ever going to reach a point where we feel comfortable buying precious gems online. I recommend the best tech stock ever, Microsoft (MSFT). This stock at $25 a share is a screaming buy and I'll tell you why. It's got X-Box, which this Christmas is going to blow PlayStation out of the water. It's developing it's own desktop search engine to compete with Google (GOOG). And it's sitting on $37 billion in cash.
Mike Ozanian: I think Microsoft is getting killed by European regulators. And they are coming out with all this new software, which is kind of dubious as to what it's going to do to profits.
Makers and Breakers
• iShares Russell 2000 Index (IWM)
John Rutledge, chairman of Rutledge Capital: MAKER
I like small cap stocks. I like it because the companies that make up that index are the companies that have to borrow money from banks. Banks have opened their doors big to business lending in the past year. Their performance is dramatically improving and I think we're looking at 15-20 percent earnings growth there. I own this, it's my second largest position right now.
Dagen McDowell: You've got a target price of $75. (Friday's close: $62.45)
Mike Ozanian: BREAKER
My problem with the small caps right now is that they are getting so regulated by Sarbanes-Oxley and all these other regulations. I think that's actually going to hurt the best part about small companies, which is that they're nimble and they're quick. We're chocking them with regulations right now.
Jim Michaels: MAKER
I think that the trend has a long way to go. Politicians can hurt business but they can't kill it. If you're not in this area you should be. I think it's a good buy.
• Endo Pharmaceuticals (ENDP)
John Rutledge: MAKER
This also is one of my largest positions right now. I like it and own it because they manage pain. Baby boomers are getting older and will need medicines to manage their pain.
Dagen McDowell: You think it can go to $30. (Friday's close: $25.08)
Jim Michaels: BREAKER
I think it's a little dicey for the public because it's a thinly traded stock. Any time it has any trading volume the stock spurts up.
Mike Ozanian: BREAKER
Their sales are flat, their margins are down and they don't pay a dividend.
John Rutledge: In the last week this company won a court case which gives them the right to distribute generic OxyContin, which will probably increase their earnings this year by a third.
Stock Smarts: Kill the Lawyers?
Want to save the market? How about getting rid of the lawyers and feds who are cracking down on big business? Government lawyers are pushing to clean up big business, but are they now overdoing it?
Jonathan Hoenig, Capitalistpig Asset Management: Yes, they are overdoing it. If it weren’t for Eliot Spitzer, the Dow would be at 15,000. It’s true. This is the problem: In a free market there is the rule of law. And if people are wronged, cheated or defrauded, there have legal recourse. Regulation doesn’t do that. It punishes innocent business. Whether it's red tape or costs or fees, it's a huge hindrance to innovation that's keeping our economy under water.
Lis Wiehl, FOX News legal analyst: But regulators are supposed to regulate and prosecutors are supposed to prosecute. That's what their job is and they really shouldn't care about the affect on the stock market. I know you all are concerned about it but if I'm a regulator I shouldn’t care.
Jonathan Hoenig: Of course, Lis, that’s what their job is. Who benefits, of course, are the regulators - the lawyers themselves. It’s a growth business these days.
Mike Norman, Economic Contrarian Update: The thing here is we have clearly seen the pendulum swing from the one side, in the 90’s pretty much everything went. By the way, Jonathan is right.
Terry Keenan: Who benefited from that?
Mike Norman: Shareholders and CEO's.
Terry Keenan: Not if you are Enron or Worldcom or dot-coms.
Mike Norman: There were some bad apples, of course. Now in reaction to that, those bad apples got the ball rolling. The pendulum has now swung in the other direction. We see the emergence of Sarbanes-Oxley, which is an enormous cost to small businesses and they're finding it harder and harder to deal with these higher costs. It's bringing down risk-taking and innovation.
Lis Wiehl: I think that's a temporary effect. I think, more permanently, people will realize in the stock market that if things are being more regulated and prosecuted, they are going to have more confidence and invest more.
Terry Keenan: Where's the pendulum from your point of view?
Wayne Rogers, Wayne Rogers & Company: Mike, there wouldn't be any Sarbanes-Oxley if those guys who ran Enron and HealthSouth and Tyco, hadn't violated the rules, if they hadn't been idiots and thieves there wouldn't be any Sarbanes-Oxley.
Mike Norman: There are rules on the books about fraud.
Wayne Rogers: Let me tell you what else, too, the problem is this: the legal system, both judges and lawyers, have lost their value system. That's what's wrong. The lawyers themselves have preyed on the system. They've become competitive. The idea of winning is more important than standing up for something that's right and that's what's wrong with the system.
Jonas Max Ferris, MAXfunds.com: First of all, Wayne is right. We earned our onerous regulations one fraud at a time, unfortunately. But getting back to why there’s such a crackdown right now with the drug companies, Bush is going to increase the size of government by spending more money on drugs when you have to increase the size of rules and crackdowns on all the people who are going to line up to rip off the government because they're spending more on drugs. Why isn’t that proportional? That’s what you’d expect.
Terry Keenan: Also the Bush administration did ease up some of these FDA regulations. That pendulum may be swinging also. Some drugs got approved that maybe shouldn't have.
Lis Wiehl: Exactly. This is not the strictest administration ever. Let’s face it. People are being prosecuted for the right reasons and they should be.
Jonas Max Ferris: The pendulum is going back towards Jonathan, anyway. Why complain? Look at Chris Cox, the new SEC guy. He’s a softy on business. We have Arthur Anderson turning around. We have the cigarettes from $120 billion down to $10 billion. It’s totally going the other way.
Terry Keenan: William Donaldson is being run out of town as if he's some wacky anti-liberal businessperson. It's a little crazy out there.
Mike Norman: I think he couldn't get along with some of the insiders, the republican insiders in the administration.
Terry Keenan: He was hardly cracking down.
Mike Norman: The United States has recently fallen off the top place of the list as the best place in the world to invest. It's number two. It's the first time that's ever happened.
Jonathan Hoenig: Mike, to your point, regulation does kill business. It does kill innovation. How many small companies have gone private in the last six months because they can’t afford Sarbanes-Oxley? How many foreign companies have pulled their listings?
Lis Wiehl: Even if you're right, it doesn't matter. The fact of the matter is that regulators have rules that they have to regulate. Laws are being broken. They have to be prosecuted.
Jonathan Hoenig: Exactly. Lis, I agree with you, but regulation punishes innocent business, not guilty business.
Terry Keenan: Wayne, you just have to go to a nursery school to see that the whole class can be punished with the fault of a few. We are paying the price of those rules not being enforced in the late 1990's.
Wayne Rogers: There's no doubt about it. We are paying the price, and you cannot legislate honesty. Either people are honest or they're not. And the guys that ran those companies, and I'm talking about Ken Lay and Dennis Kozlowski and all of those people. If they had been honest and run their companies well, you wouldn't have needed the regulation.
Jonathan Hoenig: There are 10,000-plus publicly traded companies. I have to give up 30 percent of my income because of 2 bad apples in the bunch?
Wayne Rogers: Wait a minute, Jonathan. 10,000 companies? How about the millions of stockholders? How about the people who had the pension plans? What about that?
Jonathan Hoenig: So why punish the people themselves, the stockholders?
Wayne Rogers: You're sending a message to those guys who are stealing their money. That's what you're doing.
Jonathan Hoenig: I disagree with you. Regulation raises costs to the innocent business.
Terry Keenan: What would lower the cost is putting a few guys in jail and you'll see people comply without any regulation pretty happily.
Jonathan Hoenig: How many cases have your friend Spitzer won?
Terry Keenan: He settled a lot of them. He's not my friend, anyway.
Jonas Max Ferris: Who is in jail that shouldn't be right now? Who is even in jail? They pay money but no one gets in trouble.
Mike Norman: To what Wayne says, you can't regulate or legislate honesty or ethical behavior, nor is adding additional regulation going to achieve that. So I don't understand his point. I don't understand Wayne’s point.
Terry Keenan: What about enforcing the rules that were on the book that weren't enforced.
Mike Norman: Good point. They should have been enforced.
Lis Wiehl: You can't regulate honesty, that's true. That's why we have the laws to punish dishonest people.
Jonathan Hoenig: Do you think that if there wasn’t regulation, that businesses would be running wild?
Jonas Max Ferris: Jonathan, we had a period with no regulation, no SEC, which is called the 1920's, and didn't everyone run wild and didn’t we have a Great Depression and didn’t we have a market crash of 90 percent? Why did that happen if no regulation is so great?
Mike Norman: If you can't ascribe the market crash of 1929 to that there was no regulation. You know, there were a lot of things going on that caused a market crash and then a depression. You look at a country like Hong Kong that is very lightly regulated. It's been one of the models of Asia for decades upon decades upon decades.
Lis Wiehl: If you take Jonathan's logic and spin it out, what it says is that if you have somebody that murdered somebody, we’ll let them go because their families are innocent victims and might be hurt by this. That's exactly what you're saying.
Jonathan Hoenig: No it’s not, Lis.
Lis Wiehl: You’re saying ‘don’t punish, because there will be some innocent victims.’
Jonathan Hoenig: You do punish people who have done something wrong, Lis.
Lis Wiehl: That's why these laws are here.
Jonathan Hoenig: If somebody murdered somebody or somebody defrauds somebody, they go to jail.
Terry Keenan: Where does it go from here, because we have millions of shareholders who aren't investing in this market because they got burned?
Wayne Rogers: On the other side, Jonathan is right about the lawyer part of it. The lawyers have taken over the system, and if the lawyers are corrupt and the judges are corrupt, and a lot of them are, and I don't mean that by taking bribes. I mean that they're not interested necessarily in the values that come out of it. They're interested in competing and winning and that's all they care about, and that's one of the problems. And if you can correct that, if you can have legal reform, then you can help that system. All of this will pass.
Question: "Why can't the government take part of the Social Security fund and invest it directly in the stock market?"
Wayne Rogers, Wayne Rogers & Company: I think it's insane. I mean, if the government can't even deposit cash in a bank account, you know, and help Social Security that way, they've been stealing from Social Security forever, how in the world are they going to pick stocks? What are you going to do, let the government pick stocks? That's the most insane thing I've heard in my life.
Jonas Max Ferris, MAXfunds.com: Yeah, the only thing I’ve heard that’s worse is people picking stocks. He makes a point. If stocks beat bonds in the long haul, which they do, which is the whole foundation of private accounts, then why hasn't the government been investing this thing like a real pension in stocks and bonds and getting a better return?
Wayne Rogers: Because they are crazy - they're terrible people.
Jonathan Hoenig, Capitalistpig Asset Management: They're bad mathematicians, Wayne.
Wayne Rogers: Yes.
Jonathan Hoenig: We’ve talked about the fact that Social Security is a Ponzi scheme again and again, but Terry, what I don't understand is, why can't Barry just make his own investments?
Terry Keenan: He's putting more than 6 percent of his income into Social Security.
Jonathan Hoenig: If he's counting on the government to save it for him, why can't individuals just save their own money? If you're so interested in a government-centrist economy, go 90 miles south to Cuba, see how quickly people are trying to float back to the U.S. down there.
Wayne Rogers: He's right. Even if the guy makes a bad investment and goes to the racetrack, he’s better of than the government doing it.
Jonas Max Ferris: Apple is not that big a PC player at this point. But in the long haul, this is very interesting because Apple stock is very overpriced because of the iPod sensation. If they can use these smaller chips to make even cooler laptops, they might be able to grow their PC business a lot stronger than they have in the past. And maybe they can make an iPod-sized, really cool thing. Maybe in a year or two it could, but short term, it’s not going to mean a whole lot.
Jonathan Hoenig: Jonas, I think you're right. I was bearish on Apple a little too early. I think Intel looks a little bit more interesting now. The Apple bubble hasn't burst yet. Semis; I'm not buying them. I'd rather buy Intel than Apple right now.
Wayne Rogers: I talked about STATS ChipPAC (STTS), which is a Singapore company that's in the chip business, too (Wayne owns shares of STTS). And all of those companies have come back fairly strongly. I think Intel has done very well, too, and I own it.
Question: "I doubled my money on Wayne's call of BHP Billiton (BHP). Does he have a good long-term pick for me?"
Wayne Rogers: Well, I love this because we talked about this a couple years ago. I like General Electric (GE) over the long period. I think GE is a good long-term play. GE tends to reinvent itself all the time. (Wayne owns shares of GE)
Jonathan Hoenig: You think that's going to be a double, though, Wayne?
Wayne Rogers: I don't know. I didn't say it was going to be a double. I said it was a good long-term play. What can she sleep on? That's a company I think she can put her money in and not worry about it.
Terry Keenan: What do you think? They're transforming the company to being a bit more medical, buying a water company as well.
Jonathan Hoenig: GE, when it was the biggest company in the S&P, that's when we were short. I wouldn’t fight it right now, but it is not where I'm putting my money to work.
Jonas Max Ferris: I prefer GE over BHP Billiton. I'm not big on commodities at all at this point.
Best Bets: Ca$h in on Stocks!
Question from a viewer: “I am about 80 percent cash now. Anybody able to talk me back into stock investments?"
Wayne Says: Endesa Chile (EOC)
Friday's close: $24.81
Wayne Rogers, Wayne Rogers & Company: It's a Chilean utility. I know I'm late to the game for Jonathan. I'm surprised Jonathan didn't pick this one. This is a terrific company.
Jonathan Hoenig, Capitalistpig Asset Management: We talked about this on the show before. I think you're fishing in the right area here. I made money on all of these south-of-the-border utility plays like, Companhia Paranaense de Energia (ELP), Companhia Energetica de Minas Gerais (CIG), CPFL Energia (CPL), Companhia de Saneamento Basico de Sao Paulo (SBS), we still own EOC. I think you're barking up the right tree with this one.
Wayne Rogers: EOC has had a period here where it hasn't moved -- the stock hasn't moved for the past couple of months. But, I think it's in preparation of a move.
Terry Keenan: Jonas, would you own this thing?
Jonas Max Ferris, MAXfunds.com: No. I think foreign bonds and income-producing stocks abroad are appealing when our dollar is falling. The US dollar has been strong lately and our economy is stronger. I would say no.
Jonas Says: Microsoft (MSFT)
Friday's close: $25.43
Jonas Max Ferris: Little stock some people may have heard of called Microsoft (MSFT). Dead for five years. They're really moving into these little cell phones, which are becoming more like computers, which is Microsoft's territory.
Terry Keenan: Where were they the last five years?
Jonas Max Ferris: They're late to this game.
Jonathan Hoenig: Jonas, everyone still owns this stock. There are still 10 billion shares outstanding. I can name 10 software stocks like Adobe (ADBE), Intuit (INTU), Take-Two (TTWO), we don't own these but they're much stronger than Microsoft. Do you know anyone that's made money on Microsoft in the last three years?
Jonas Max Ferris: I haven’t been recommending Microsoft in the last year, but I’ll tell you that there are 10 utility stocks that are as expensive as Microsoft today.
Jonathan Says: Energy East (EAS)
Friday's close: $29.04
Jonathan Hoenig: I'm picking a utility stock. This, to me, is where the action is. Woody Allen said 90 percent of it is showing up. I'm showing up. I’m buying Energy East. We own this stock.
Jonas Max Ferris: You got to cut the old economy crap. You can buy a company like Microsoft, a monopolist in software, or some stupid utility company.
Terry Keenan: A lot of those are monopolies also.
Jonathan Hoenig: Jonas, if you want natural gas in Maine, in New York, in Connecticut, you are going to talk to Energy East. It's a strong stock.
Jonas Max Ferris: If you want to turn your computer on, you have to pay money to Microsoft.
Wayne Rogers: I'm not sure that people watching this show are not watching a lot of natural gas right now. Edison International (EIX) is another company I like. I've owned this one for a long time. I think the utility stocks are a place where you can put safe money. And back to Microsoft – it’s dull. I mean, when you ask who's made money out of Microsoft, it’s the founders.
Jonas Max Ferris: You both sold the semiconductor stocks six months ago when I picked them and you know it.
Jonathan Hoenig: Who is in last place in the Cashin’ In Challenge? Let’s let the viewers go to the Web site and see that.
"Cashin' In" Challenge
Check out the $10,000 Cashin’ In Challenge at: www.foxnews.com/challenge
Stock of the Week
Mike Norman says you can watch your profits grow with AGCO (AG). They make farming equipment. Jonas says no-go to AGCO. Mike, the stock's down about 15 percent this year. Why are you buying it?
Mike Norman, Economic Contrarian Update: I know you don't like commodities Jonas, but I think you’re talking about industrial commodities. These are farming commodities. AGCO makes agricultural equipment. They tend to follow trends in these farm commodities. We've seen a big downturn in farm commodity prices. But I think we're at the point now where they're going to start to go back up. You have drought in Australia, in Brazil.
Jonas Max Ferris: It's got some contrarian appeal; I’ll give you that. With our dollar strengthening, these old companies are not going to have the juice that they had when our dollar was weak.
Mike Norman: Bottom line here is if you see a rise in wheat prices and corn prices, and that's probably going to happen because of these droughts, you are going to see AGCO's business go back up. It's not an expensive stock. Eight times forward earnings. It's very cheap.
Terry Keenan: It’s a seasonal play as well, Jonas. You don't like it?
Jonas Max Ferris: I just think this old economy stuff has got to go. It’s had its five-year run. It’s time to move on.