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: Judge Andrew Napolitano, Fox News Senior Judicial Analyst; 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; and Joe Besecker, president of Emerald Asset Management.
Trading Pit: $upreme Decision
Supreme Court Justice Sandra Day O’Connor retires from the Supreme Court. Now the battle begins for her replacement. What kind of justice does Wall Street want?
Gary B: Wall Street will want the new justice who is most pro-business, but the Supreme Court doesn’t really get a lot of cases that directly affects business. I think Wall Street will like the one that gets confirmed the fastest. However, I don’t think there are any real potential names out there right now and a successor probably won’t be named until October 1st.
Judge Napolitano: Sandra Day O’Connor was generally seen as someone who was an ally for business. She was seen as someone with a conservative instinct in respect to the economy and someone who believed in the free market. She sometimes did things that seemed to contradict this, but the business world liked them anyway. A good example is when she wrote the opinion authorizing affirmative action, allowing businesses to be more diverse. President Bush isn’t going to appoint a big social reformer; he’s going to appoint someone who basically believes in the free market—and that’s what Wall Street wants.
Tobin: Wall Street is really looking to the second nominee because the first one won’t get through. I disagree with Gary B. because there are many business issues the Supreme Court decides. For example, the recent imminent domain verdict, which essentially allows a business to bulldoze a home, was a very big decision for commercial property development in the U.S.
Pat: One of the most interesting things to watch will be the battle between the religious right and the business community. The religious right tends to favor the rulings of states’ rights, which usually get socially conservative items pushed through. However, businesses would prefer if these cases were handled at the federal level, putting aside the huge jury awards from the state courts. That’s an area where conservative groups don’t always align with business.
Joe: I agree with Gary B. Let’s get this over with. However, it probably won’t happen quickly. And as the weeks and months go on, all the other things that President Bush wants to do, like the Social Security reform, will get lost in this bruising battle. For investors, this is going to get very old, very fast.
Scott: Wall Street is in the process of spinning its wheels. This is just another way to keep the market in this miserable range. Nothing is getting done. Social Security reform is all but dead. Tort reform is very important, but probably won’t be addressed until next year. There is such partisanship in Washington that nothing is getting done.
The best and worst calls from the first half of the year.
First, the good ones.
This past May, Toby liked Urban Outfitters (URBN), a clothing retailer that caters to teenagers. And in just two months the stock has definitely seen tremendous growth, up 25-percent! Toby still likes Urban Outfitters and thinks it will head up to $85-90. (Urban Outfitters closed at $57.50 on Friday.)
Gary B. knows that a "google" is a very large and powerful number. He also knew that Google (GOOG), the search engine, was a good stock. On April 23rd, he said the stock was ready to take charge as a new leader of the market.
And, since his pick, Google has gained 35-percent. Gary said the stock shows no signs of stopping and hold onto it. (Google closed at $291.25 on Friday.)
In April, Scott predicted that semiconductor maker, LSI Logic (LSI), was going up 30 percent by this fall. Just after this prediction, technology started looking up and LSI has gained 64-percent. Scott still likes it and thinks the stock can hit $10. (LSI Logic closed on Friday at $8.69.)
And the best call of the first six months? It belongs to Pat. On April 23rd, he said the Chicago Mercantile Exchange (CME) a.k.a. “The Merc”, sold off for stupid reasons. Right he was! The stock has made a huge move, gaining 72-percent. In fact, since Pat first recommended “The Merc” about a year and a half ago, it is up over 300- percent! But Pat didn’t recommend the stock again. He said it’s getting expensive and once it got over $300 he would sell. (The Merc closed at $294.15 on Friday.)
But now, the losers.
Back in January, Toby said that Armor Holdings, a company that makes body armor, would gain 20-percent. But ever since he picked it, the stock has headed lower and is down 7-percent. But Toby said President Bush’s speech to the nation about Iraq last week changes everything and the stock should start heading higher. (Armor Holdings closed at $39.87 on Friday.)
Onto Pat, who in the middle of April said that Steel Dynamics (STLD), a company that produces steel for cars and construction companies, was a takeover target. But it looks like the only thing that's taken over this stock are the bears. It has lost 10-percent in the three months since his pick. However, despite the stock’s poor performance, Pat still likes it and thinks the stock is at an attractive price. He says this is the cheapest steel producer in the country and the stock could hit $40. (Steel Dynamics closed on Friday at $26.63.)
In March, when spring break was in full swing, Gary B. said Ventiv Health (VTIV), a drug marketing company, was ready to party. But instead this stock looks hung over, losing 17-percent! Gary said almost immediately after he made this pick, it started heading down. He would only buy Ventiv if it breaks above the downtrend it has been in since March. (Ventiv Health closed at $19.59 on Friday.)
And the worst call of 2005, at the halfway point, belongs to Scott. In the middle of March he made a prediction that the housing bubble would burst, mortgage rates would rise, and home builder, Toll Brothers (TOL), would fall 25-percent. Well, he got a trifecta of sorts. Housing's stronger, mortgage rates aren't higher, and Toll Brothers has moved up 23-percent. He admitted making a wrong call on housing, but still thinks Toll Brothers won’t head higher because the stock is fully valued. (Toll Brothers closed on Friday at $100.48.)
The year is half over. What’s the best stock to own for the rest of 2005? Each of the Bulls & Bears gave their pick.
Joe: Genentech (DNA)
Gary B: Doral Financial (DRL)
Tobin: Patterson-UTI Energy (PTEN)
Pat: IAC/InterActiveCorp (IACI)
Scott: JDS Uniphase (JDSU)
Cavuto on Business
Neil Cavuto was joined by Gregg Hymowitz, founder of Entrust Capital; Gary Kaltbaum, president of Kaltbaum & Associates; Charles Payne, CEO of Wall Street Strategies; Kendra Todd, “Apprentice 3” winner; Mark Levin, author of "Men In Black: How the Supreme Court is Destroying America"; Ben Stein, author of "Yes, You Can Be a Successful Income Investor"
Neil Cavuto: Could gimmick mortgages like "no money down" be the housing market's big downfall? It used to be when you bought a house, you put 20 percent down and got a 30-year mortgage. Not anymore. Last year 25 percent of homebuyers put absolutely no money down! That's up from 18 percent the year before. Others are taking interest only loans and other unconventional mortgages. Bottom line: People own bigger and more expensive homes, but they are also carrying a ton more debt. Kendra, does that worry you?
Kendra Todd: It does worry me. There is a difference between leveraging and over-leveraging. The idea is to create more money to roll over onto other investments, not to spend your equity on things that diminish in value.
Ben Stein: I think it's a problem, but not an overwhelming one. There is likely to be a leveling off, but it won't be caused by the no-money down phenomenon. If a real estate crash happens, no one will be spared, but there is no history of real estate crashing without some precipitating factor. There has to be something to kick off this housing crash.
Charles Payne: There's no doubt the industry is getting stretched right now. They need new ideas to keep the momentum going.
Stuart Varney: I smell trouble if I see the inventory of unsold homes in key markets start to go up. And I smell trouble if I see the initial asking price way above the actual selling price.
Neil Cavuto: Are you seeing that now?
Stuart Varney: I expect to see it fairly soon. I think this boom has run its course.
Gregg Hymowitz: Some of these exotic mortgages are tapering off now. As the Fed has raised rates, the middle part of the yield curve has stayed the same or come down. So now you're seeing these interest-only mortgages, these 100 percent loan-to-value mortgages. The tenure is so cheap relative to where short yields are that it's starting to become more attractive. Housing crashes tend to take a long time. It's doesn't happen overnight.
Gary Kaltbaum: The lenders have lowered the bar as far as they can go right now. The people with no money down are building no equity over time. And housing prices have already gone up over 100 percent in the last few years. The potential is there for problems.
Kendra Todd: It depends on which area you're investing in. I tend to stick my clients into second-home markets because second-home owners will be driving and fueling the real estate market for the next ten or so years. If you're in a $250,000 or lower price point, in the right area, then I think that you can weather some sort of correction or leveling off.
Ben Stein: This is not like the dot.com boom where there were no earnings and people were just buying hopes. Houses have a rental value and it's a substantial rental value. It's like the value of a bond.
Stuart Varney: I wouldn't be talking in terms of a housing crash. I'd be talking in terms of a modest problem for the overall economy if housing prices simply level off because 10 percent of people who bought houses as an investment are relying on a capital gain.
Ben Stein: The 10 percent who are buying as speculators is a very small number.
Gregg Hymowitz: Maybe it's wiser not to put that equity into your home. In other words, use that equity and invest it somewhere else.
Charles Payne: I don't think these people have that option. It's not like they have a million dollars and they can put a hundred grand down. They're putting everything they have into it, and they're just lucky these types of mortgages are available right now.
Gary Kaltbaum: All this lax lending is going on now after the big move. Housing is an investment also and investments go up and down. I know a lot of people who have ten grand in the bank and they're getting quarter million dollar mortgages, putting nothing down, building up no equity. What if that house drops to $200,000. You're talking about underwater city, and that's going to be your catalyst right there.
Neil Cavuto: Does it bother you Kendra that everyone thinks the end is coming?
Kendra Todd: I have a joke that bubbles are for bathtubs. You just have to stick to specific markets. It's about price point, and it's about location.
Neil Cavuto: Yes, but have you seen the bathtubs in some of these homes? They're outrageous. But you're arguing that everyone should just calm down right?
Kendra Todd: If you use your equity for another investment, whether it be stocks or real estate, at least you’re reinvesting your equity. If you're taking out equity, and you're completely leveraging your home, and you have no money, then there is a problem with your situation.
Charles Payne: A couple of weeks ago I said to sell homebuilding stocks. I went back, did my numbers, I ended up raising my target price for all but one of those homebuilders. Trying to predict the housing bubble and when it's going to burst is difficult. Those homebuilders have boxed this industry in like a cartel. They're more powerful than OPEC. They control the supply.
More for Your Money
Neil Cavuto: Will the housing boom continue or is it a bubble about to burst? Our gang says what they think and names the mutual fund to buy as a result so you can get more for your money. Charles, what do you think?
Charles Payne: It's a bubble, but it’s going to keep going at least for a while. I like Alpine US Real Estate Equity (EUEYX). Their top holding is Toll Brothers, which is the best individual stock play out there.
Gary Kaltbaum: I'm bearish on housing stocks. They've already had a big run. In this fund I think nine-out-of-the-top-ten stocks are pure housing plays. Short term and long term they're risky.
Ben Stein: I like iShares Cohen & Steers Realty Majors (ICF) because even if housing prices do plateau, they've got fabulous commercial holdings in real estate. They pay an extremely good dividend. Their performance over the past couple of years has been excellent. It’s managed by amazingly capable people.
Gregg Hymowitz: I like Fidelity Select Construction & Housing (FSHOX). It's 37 percent homebuilders so I understand Gary's not going to like it. But the fact is these stocks are still very cheap. And Charles is 100 percent right. These guys have done a brilliant job of controlling so much of the supply.
Gary Kaltbaum: I stay away from construction and housing. I think we're in a bubble, and bubbles take time. I'm betting against the bond market. I like Rydex Juno fund (RYJCX). It's a pure play on higher rates. The timing now is perfect here. I think rates have bottomed in the last couple of days.
Charles Payne: I'm shocked because I know Gary likes momentum and you use charts and this is an ugly looking chart. I take my hat off to you for trying to predict when this is going to turnaround. It's a risk you really don't have to take at this point.
Cost of Freedom
Neil Cavuto: Could a shakeup on the Supreme Court shake up your stocks? Mark Levin, you're big worry isn't the fight over the nomination process, but the court we end up with regardless. What do you mean by that?
Mark Levin: For some reason no matter who Republican presidents nominate to the court, there always seems to be a majority for big government, a majority against individual liberty. This court decided that the commerce clause meant no commerce at all. We have a court right now that looks at international law to try and determine what's in our constitution. What we need here are citizens who are put on the court who have fidelity to the constitution, have integrity for the rule of law, and most importantly who have respect for the American people. Every time this court imposes its personal policies on the American people it disenfranchises the public.
Neil Cavuto: So Conservatives should be careful who they wish for because they'll change their stripes once they're in the court?
Mark Levin: All Americans should want somebody who has a record of fidelity to the rule of law. What's happening at the Supreme Court is this committee of nine wise men and women who sit in judgment of everything and everyone. That's not why we fought a revolution in this country. The framers never meant to create an Olympian council like this. So all of us need to keep that in mind. Just stick to the Constitution. Why that's considered extremism and radicalism and right-wingism, I'll never know. Just interpret the law.
Neil Cavuto: What worries you more Mark, the activities in Congress or the activity in our nation's courts?
Mark Levin: I'd worry about the courts because as Congress we can change and we always do change. The courts are limiting our individual liberties.
Neil Cavuto: But are they limiting business interests? Are they anti-business?
Mark Levin: I think that's up in the air. Businesses enter into a contract and they expect people to read the language that's in the contract. When parties are in front of the Supreme Court, whether they be businesses or not, they have every right to expect that the court will look at the law and not set policy.
Neil Cavuto: Do you think this activist court will change any time soon?
Mark Levin: No, we need a few more retirements. I'm not talking about the originalists. I think Anthony Kennedy would like to go do something, maybe Stevens, you know just a few more of them.
FOX on the Spots
Ben Stein: Housing dips; could take 10 yrs to return to '05 prices!
Kendra Todd: Forget stocks! Buy a 2nd home and beat the market!
Gary Kaltbaum: Congress negates Supreme Court rule on taking property
Gregg Hymowitz: Forget Social Security; it's all about school prayer
Charles Payne: Video games win big; buy Electronic Arts (ERTS)
Neil Cavuto: The Supreme Court vacancy. I don't think it will be that heated, or be debated that long, precisely because everyone thinks it will be. Both sides have an eye to the 2006 elections and neither wants to look obstinate or worse, obstructionist.
Forbes on FOX
Flipside: "$Upreme" Battle Will Kill Social Security and Tax Reform!
Elizabeth MacDonald, Senior Editor: Social Security and tax reform are not going to happen anytime soon because it is going to take a lot of political capital to get a replacement for O'Connor's as well as Rehnquist's if he steps down next year.
Steve Forbes, Editor-in-Chief: Capital comes from political leadership. If the White House gets its act together with Social Security and puts a specific proposal out there so people know what it is they can turn the tables. The President can set the national agenda. Leadership trumps the conventional wisdom.
Lea Goldman, Staff Writer: The Democrats have been waiting months now for this moment to happen. This issue is going to boil down to all the big buzz words, like abortion and affirmative action. And there is no way that the Democrats are going to sit down with the Republicans on a Supreme Court Justice like they did with the energy bill.
Rich Karlgaard, Publisher: Last week the Supreme court bared its Communist soul when it redefined eminent domain, giving the ability to take property for whatever the reason they want. This has completely energized conservatives and even sensible people in the center. I think the fight now is for Conservatives to win. And I think they will win it.
Quentin Hardy, Silicon Valley Bureau Chief: This administration is lousy at political leadership and lousy and making policies like Social Security and tax reform. Case in point, they already put off tax reform until they were done with Social Security. This is red meat for these guys. Bill Frist will like this because it will help him run for President. Bottom line. . .no proper governing.
Jim Michaels, Editorial Vice President: In spite of the deadlock over the UN appointment and the justices, Bush just got an energy bill through the Senate. If they play their cards right, they can still get their agenda passed.
Steve Forbes, Editor-in-Chief: The key thing here is that they haven't put the details out there. There's a lot of confusion. Everyone over the age of 50 figures it involves tax increases and benefit cuts. If they were to focus on what was real they would realize this doesn't effect them and then real reform can get through.
Lea Goldman: You can't fight so many battles on so many fronts. There's not enough political capital.
Jim Michaels: You've had AARP spend millions of dollars to mislead the public on Social Security. If the administration can counter that information they'll get it through, regardless of the Supreme Court.
Rich Karlgaard, Publisher: This President is lousy when he's coasting on a lead and he's great when his adrenaline is up. And last week's Supreme Court decision has gotten the whole conservative base up.
Quentin Hardy: The point is, they don't like governing. They don't like trying to win people over to their point of view. They like expressing fear and hatred. They don't like working with Congress to make laws.
Steve Forbes: President Bush got a good tax bill through two years ago. They got the Central American Free Trade Agreement (CAFTA) through the Senate when no one thought they could do it. The key thing is turning around public opinion. If you do that, you can overcome the Democrats and Capital Hill.
Elizabeth MacDonald: These are great instructions but no one is doing it. Lea is right, abortion is going to be a hot button issue. And by the way, with the Supreme Court ruling on eminent domain, they did that to the Indians for years.
Rich Karlgaard: Property is now the hot button issue and the Supreme Court walked right into Bush's strengths.
In Focus: Oil Prices: Up or Down From Here?
Steve Forbes: Prices are heading down. Every time a commodity goes up we get more supply. The most foolish four words in investing are, "this time it's different". It isn't different. Oil prices are coming down in the next 12 months to $35 a barrel.
Quentin Hardy: Oil may retreat a little bit, but the long-term trend is up. India and China have a huge amount of demand. You can try to get as much out of Alaska and the Rockies but you will add only about 5 percent to the world's supply. The fundamental trend in demand is India and China. It's away from our shores and it's not going away.
Jim Michaels: For $60 a barrel you'll get oil out of the moon. Well, maybe not the moon yet, but you're going to get more nuclear power, you're going to get more conservation, you're going to get more deep water drilling. The present price is a panic price over India and China. The price of oil is coming down.
Mike Ozanian, Senior Editor: Since Reagan deregulated the oil market in 1980, reserves have doubled and output has more than doubled. In the short-term, prices will go up because the Federal Reserve printed too much money. In the long-term, prices are going to go down as long as we keep the market unregulated and let the free market take hold.
Neil Weinberg, Senior Editor: Prices are going to go down, because everyone is saying that they are going to go up. Yes, China and India have a lot of demand but now they are very wasteful users of energy and they will begin to get more efficient as prices go up.
Elizabeth MacDonald: Oil will be going up. The futures markets are saying that it's going to be bouncing around $65. $30 is the new bottom. I think you're right when you say that when oil prices go up it leads to more oil exploration but it takes some time to get that oil on the market.
Quentin Hardy: I was covering the oil business last time oil cracked and in those days the guys in the Middle East had an extra swing they could do. Now they are pumping full out and the Royals aren't as productive. Iraq was suppose to come on and lighten prices up. They haven't come on like we thought.
Jim Michaels: Quentin may know oil, but I know supply and demand. When prices go up it pays to go into deep Siberia. The oil is coming out, it's just going to take time.
Steve Forbes: We're finding new ways to drill for oil. Fields are lasting longer. When the price goes up, commodity prices eventually go down.
Elizabeth MacDonald: Refining capacity is still really tight right now. 2/3 of the world's oil supply is still coming from the Persian Gulf. It's going to take a while, like 2007, for oil prices to come down.
Mike Ozanian: That doesn't mean anything. Look at 1980, during the embargo, oil was at $35 a barrel. When you take oil today and adjust it for inflation it's only $27 a barrel. Thanks to technology the long-term trend in prices is down and will stay down. That's why output per barrel and reserves have doubled.
Neil Weinberg: If there is strong demand, people will learn to use it more efficiently.
Quentin Hardy: Places pumping oil right now are pumping oil flat out because they are in an economic disaster. And they are going to continue to pump flat out and it's not going to be enough. Alternatives coming on means people are walking away from oil because the price is too high. If the price dropped the alternatives would drop and the price would go back up.
The Informer: Bet With the Be$T
David Asman, Host: Warren Buffet is betting billions on utility and energy companies, should you?
Lea Goldman: Yes. I like Aqua America (WTR), this is the nation's largest publicly traded water utility. This is a reliable stock in an industy that is highly regulated. It basically owns Pennsylvania and is moving towards the west and it pays a nice dividend. It's been on a tear this year. It's the biggest player with the lowest operating costs and it's primed to grow.
Rich Karlgaard: This pick screams financial engineering. It's done 15 acquisitions this year. It has little cash and lots of debt. It's using its stock price to make all of these acquisitions. If it was a telecom company I would call it WorldCom.
Jim Michaels: I like Dominion Resources (D). It's a utility company from Richmond, Virginia. They do all kind of stuff. It's in nuclear power, it's in liquefied natural gas. Four percent yield and a good 3-4 percent growth.
Mike Ozanian: I don't like this one because the fuel is costing them more and they are not going to be able to recoup those costs for about 2 years.
Jim Michaels: You're getting 4 percent growth and a dividend in the meantime.
Mike Ozanian: I like Ameren (AEE). They have a big cash dividend, 5 percent dividend yield.
Lea Goldman: This utility epitomizes the problem. In the Midwest they are going to lift caps on rates and now every legislature is coming in.
Rich Karlgaard: I'm against all these plays because there are two Warren Buffetts. The great picker of individual stocks and then the guy who hates the Bush administration and thinks the country is going down. That's the Warren Buffett that bet against the dollar and has lost $1 billion this year. That's the Warren Buffett who thinks energy costs are going to the moon
Jim Michaels: That's a red hearing. This isn't about Warren Buffett, this is about utility stocks. We think he's on to something. Lots of growth and it's a good place to put some of your money.
Rich Karlgaard: I would follow Buffett on individual stocks but as far as trends, he's not a good macro-economic forecaster.
Mike Ozanian: At some point this industry will be deregulated and when it does there is going to be a lot of money to be made. And some of these companies pay very good, cash, tax advantage dividends.
Makers & Breakers
Grey Wolf (GW)
Jordan Kimmel, Magnet Investment Group: MAKER
Everything I do works off a quantitative model. We're looking for revenue growth and we're looking for margin growth. More than anything we are looking for cash flow. This is an oil drilling company and everyone is looking for oil. Everyone is being emotional trying to figure out where oil is going. I'm following my model and it looks higher.
David Asman: You've got a target price of $10. (Friday's close: $7.41)
Jim Michaels, BREAKER:
This stock has gone way up. I don't think there's much left in it.
Lea Goldman, MAKER:
As supplies remain tight, the pressure is on specialty drillers like this one and I think it's primed to grow even further.
Powerwave Technologies (PWAV)
Jordan Kimmel, MAKER:
This is a wireless company. Bottom line, not only does this only rank as one of the top tech stocks in my group, tech is not dead. Huge revenue growth, huge margin acceleration. The stock just broke a downtrend
David Asman: You think it can go to $13. (Friday's close: $10.23)
Lea Goldman, BREAKER:
I wince when I hear that tech is not dead. This stock gives me the willies. I'm a breaker on this stock. The cost pressures on companies in this area are tremendous. It's bad news.
Jim Michaels, MAKER:
If a lot of people feel willies about this stock that means that the price is probably low. I think it's in a good space. Wireless is where the action is going to be.
Stock Smarts: Aruba Ob$E$$Ion
From the mystery in Aruba, to the BTK Killer, murder and intrigue have been grabbing the headlines in the summer of 2005, but are these stories diverting attention from other pressing issues like our own financial well being?
Herman Cain, Host, “The Bottom Line”: I believe that it is attracting too much attention. It’s unfortunate what happened in Aruba, and I hope they eventually find that young lady, but everyday you hear another story and they are reporting on the same thing. The time that they are spending on that obsession, I believe, could be spent talking about serious issues like the tax code. That’s what’s affecting our stock market and our investments more than the fact that we haven’t gotten any new information about this particular case.
Terry Keenan: Dagen, it reminds me of the summer of 2001 and the Chandra Levy story grabbing the headlines day after day in August, and of course our attention in September 2001 diverting to much more serious issues.
Dagen McDowell, FOX Business News: If it’s not one story, it’s going to be another, but it is a travesty that business news falls by the wayside when these more titillating stories come up. And it does hurt people. They need to pay attention. It’s their money.
Jonathan Hoenig, Capitalistpig Asset Management: Come on, Dagen. You’re surprised that a hot, young girl disappearing in Aruba sells a little bit more than the tax code?
Dagen McDowell: I’m not surprised because I would much rather watch a marathon of some bad reality show on the weekend than read back issues of “The Economist”. Everybody falls victim to it, but don’t fall victim. That’s the message. I’m preaching to myself.
Terry Keenan: Wayne, you and Jonathan know as well as anyone that you can make these issues interesting. Making money is fun and it is interesting. Yet we gravitate towards these other stories.
Wayne Rogers, Wayne Rogers & Company: Well, to the extent that sex, drugs and rock & roll sell stories, yes. Does it make money? Yes, if you want to be in that business. But I don’t want to be in that business. Herman is right. It steals from the financial news. It steals from international news. It steals from legal news like the Supreme Court, for example, which happened this week. That’s going to be a massive change in our political and legal system, because of so many 5-4 decisions depending on whom the court nominates. All those kinds of news stories are much more emphatic and much more influential on what’s happening in the economy.
Terry Keenan: Jonas, I bet most Americans know more about the runaway bride than they do about Sandra Day O’Connor.
Jonas Max Ferris, MAXfunds.com: Yeah, and there’s nothing wrong with that. First of all, stealing is a harsh word. There wasn’t even business news 30 years ago, so we’ve stolen all this audience from the regular news. All most people need to do is spend less money than they earn and save a little differently. They don’t need to obsess about investing, if they want to be entertained by this stuff, look; watching TV is cheaper than going to the movies and going out to eat. So, maybe it’s not so bad for them to just be watching these stories.
Herman Cain: And Terry, one of the other problems is that old saying, “if it bleeds, it leads.” It’s easier to report negative news than it is to report positive news.
Jonathan Hoenig: But Herman, why not just turn it off? You’ve got 500 channels, you’ve got a million web pages. If you don’t like what this network or some other network is broadcasting, why not just turn it off?
Herman Cain: The problem is that all of them are reporting the same thing to the same degree. So it’s easier to say you’re going to turn it off. But if you turn it on in the morning to find out what’s important - I want to hear about the Supreme Court decision. We just heard that Justice O’Connor is going to retire. That’s a big story. We ought to talk about that. The public needs to understand the recent rulings by the Supreme Court, because they will impact this country both financially and otherwise for decades to come.
Jonathan Hoenig: Well you’re buying stock, aren’t you Herman?
Herman Cain: Of course I am.
Jonathan Hoenig: And you’re making money. You’re a director at 3 different public companies?
Herman Cain: I’m a director on several. You’re absolutely right. We are making investments. And this is one of the other things that people are overlooking. The economy is strong. It is going great relative to where it could be and relative to where it was before September 11, 2001. So the focus should be on taking a look at the positives in the economy. I’m not saying we shouldn’t report on bad things that happen, but let’s report more on the good things that happen.
Terry Keenan: Wayne, the Federal Reserve raised rates again, the market fell off the cliff again, and those stories were buried earlier this week.
Wayne Rogers: Well, I think the fact that the Fed raised rates was already built into the market. Everybody knew that was going to happen. It was a predetermined fact that it was going to be a quarter of a point raise. The next one that will probably be at the end of August is probably going to be another quarter of a point. So it’s not really a big news item. But there are other big news items besides sex, drugs and rock & roll. Jonathan may want to look at that stuff all the time, but it’s not going to make you a large buck unless you’re out there investing in houses of ill-repute.
Jonas Max Ferris: Wayne, the more people that don’t invest, the greater the returns for the people that do invest. One of the things that really killed the bull market was that everybody started investing in 2000, and when everybody invests, the returns for everybody else goes down. The reason why the market was strong over the last 70 years is because very few people thoughts stocks were a good idea. So you don’t want everybody focusing on investing, because who’s going to buy the stuff of the company that we’re investing in.
Wayne Rogers: We’re not talking about everybody focusing on it. We’re talking about a few intelligent people. For God’s sake, I’m not going to apologize for the stupidity of the American public.
Herman Cain: Terry, the good investors watch their investments all the time. I don’t care if you do have a lot of bad stories. Good investors aren’t going to take their eyes off the ball.
Terry Keenan: You’ve got it - especially in this market, Dagen.
Dagen McDowell: And the point is that everybody should be an investor. You have a third of people who don’t participate in their 401(k) plans. That’s ridiculous. Money is sexy. You’ve got to think about how you’re going to be spending it in your retirement years. That’s hot. Why people don’t get that, I have no idea.
Herman Cain: That gets back to my earlier point. If people are not economically literate, they don’t know there’s a great opportunity and they don’t take advantage of it. This is what we should be spending some of this time doing; better educating the public on elementary economics 101.
Terry Keenan: Jonathan, if people knew as much about stock investments as they do about baseball statistics, there would be a lot of rich people out there.
Jonathan Hoenig: People tell me that they know exactly who’s going to get drafted in the NFL and they don’t know what the balance is in their 401(k), so I think the panel is right. Unfortunately I tend to err a little bit on the obsessive side.
Terry Keenan: So what are you obsessed with right now? What are some stocks grabbing your attention?
Jonathan Hoenig: Well, Herman is a director at Aquila (ILA), right?
Herman Cain: Yes I am.
Jonathan Hoenig: You’ve been buying that stock lately?
Herman Cain: I bought some not too long ago. I’ve been on that board for quite some time.
Jonathan Hoenig: Great turnaround there.
Herman Cain: Absolutely. And the management there has had its challenges.
Wayne Rogers: Herman, I know you. You give a great speech. You are one of the best teachers I know, of our economic system. I’ve heard you. You are wonderful at that. I think you are one of the best prophets for our side of the business for economics and a healthier economy and all of that. It’s just terrific and you’re good at it too. That propagates the word, by the way. That’s what people want to listen to. I’ll tell you what else happens. You make it exciting. I’ve seen you make it exciting. It’s a great show.
Herman Cain: You know, we do live in an age of hi-tech. There are a lot of options out there for people to watch. I just happen to believe that we can put some educational material between all the bad news to help better educate the people. Thank you for the compliment.
Question: "What does the acquittal of former HealthSouth CEO, Richard Scrushy mean for the stock market?"
Wayne Rogers, Wayne Rogers & Company: This is terrible. It’s a travesty of justice. Here you have Martha Stewart who went away on much less, you’ve got Bernie Ebbers… This guy was a major thief. Let me tell you something. When I talked, a few weeks ago, about the legal system being corrupt, this is a perfect example. You’ve got a judge down there who’s probably an idiot.
Jonathan Hoenig, Capitalistpig Asset Management: Are you more outraged about Scrushy getting off, or Michael Jackson getting off?
Wayne Rogers: Forget Michael Jackson. He doesn’t affect the stock market. This does. This was the first test of Sarbanes-Oxley and it failed. The prosecutor didn’t know what she was doing, didn’t know how to strike a jury. You’ve got 12 jurors who are morons. This judge gave them instructions, and they had to ask after the second day, ‘oh, are we supposed to do a unanimous vote here?’
Herman Cain, Host, “The Bottom Line”: Wayne, how do you really feel? You’re not passionate about this at all. But you do raise a good point. Sarbanes-Oxley, which I believe was overkill, has already caused a lot of corporate executives to take a closer look. I don’t think that decision is really going to change anything directly. I don’t think it’s going to make people feel as if they can get away with stuff. I believe that, first of all, 99 percent of corporate America was honest in the first place. So one decision, in this case, I don’t believe is going to have a big impact.
Terry Keenan: Sarbanes-Oxley is the law passed by Congress that holds CEOs accountable for what they sign off on their bottom line. Dagen, Wayne has a point. This judge wouldn’t even let the jury hear any comparison between HealthSouth and Enron, because HealthSouth is still limping along and it’s not totally out of business.
Dagen McDowell, FOX Business News: There were clearly problems in this trial. But, Wayne, do you know what would be even worse? Scrushy wants to go back to work at HealthSouth. The fact that it’s even possible would be horrible for the market.
Terry Keenan: You’re laughing, Jonathan, but you know one of the jurors even said that she would invest in a Scrushy-run company.
Herman Cain: This is where you have to hold the board of directors accountable.
Jonathan Hoenig: You know what? We have jury trials in this country and he was found innocent, so the jury is spoken. I’m ready to move on.
Herman Cain: I agree. Let’s move on.
Wayne Rogers: No! No! Don’t move on. Educate the jury, for God’s sake. You’ve got 12 of the dumbest people in the world. It’s a reflection on the African American community. It’s a reflection on the state of Alabama. These people are idiots, and it’s going to make it look terrible.
Terry Keenan: That’s your home state, Wayne. And let me just say, Manhattan juries? Convictions, pretty much across the board.
Herman Cain: I like both of the drugstore stocks. The reason is, number one, the performance has been solid. Secondly, both of them would be a decent buy, and that is because of one big reason: the baby boomers. The baby boomers are going to be buying more and more prescription drugs soon because, unfortunately, they want to live forever and they think they’re going to find it in a drugstore. So I think both of those are very solid, but I would recommend that she take a look at some of the other underlying financials on the balance sheet before she makes a decision.
Terry Keenan: Jonathan, I know you’re hoping for another 80-90 years. Do you like these stocks?
Jonathan Hoenig: I love Walgreens, Terry. What a major achievement in humankind; a 24-hour pharmacy. I love Walgreens. You can get anything there. You can get food. You can get drinks. You can get drugs. And 24 hours a day. It’s always on the corner. Herman, you’re right. These are both strong stocks. I’m partial to Walgreens, being a Chicago guy. These stocks are in the zone right now. Don’t fight them.
Terry Keenan: Dagen, we have Duane Reade here. That’s pretty much our only choice. What do you think of these stocks?
Dagen McDowell: They’ve had a good run. I wouldn’t jump into them right now. And it’s a very competitive business. And, one word: Wal-Mart (WMT).
Cashin’ In Challenge
With $10,000 on the line and half the year gone, who's on top of the Cashin' In Challenge?
As of June 30, 2005:
Jonathan Hoenig, Capitalistpig Asset Management: $10,857
Dagen McDowell, FOX Business News: $10,003
Wayne Rogers, Wayne Rogers & Company: $9,744
Jonas Max Ferris, MAXfunds.com: $9,255
Check out their stats at: www.foxnews.com/challenge
Mutual Fund Face-Off
What's the hottest fund to buy for the rest of the year?
READY TO BREAK OUT!
Dagen Says Marsico Focus (MFOCX)
Minimum Investment: $2,500
Year-to-Date: DOWN 1.1 percent
Dagen McDowell, FOX Business News: Hopefully the Federal Reserve will get out of the way of the market. Marsico Focus, growth stocks, is where the action is going to be in the second half of the year. Growth stocks look cheap compared to traditional value stocks.
Terry Keenan: This fund manager is a Janus alum. We won’t hold that against him.
Dagen McDowell: He left a long time ago and he has a great record at his own firm.
Jonas Max Ferris, MAXfunds.com: That used to be a positive. You know, $4 billion, or something, in this fund? Isn’t it a little expensive for a fund with $4 billion in it? 1.3 percent expenses?
Dagen McDowell: You’re going to own it for six months. What are you worried about expenses for?
Jonas Max Ferris: Just saying it’s a little pricey for the amount of cash it’s got. This whole ‘growth thing coming back’ is a little overplayed as a contrarian idea, I’ve got to say.
Dagen McDowell: You like it and you know it.
READY TO BREAK OUT!
Jonas Says Vanguard Pacific Stock Index (VPACX)
Minimum Investment: $3,000
Year-to-Date: DOWN 3.5 percent
Jonas Max Ferris: For the last six months, here’s what’s working in Japan’s favor. Oil prices have turned down; they’re going to $45, I say. That economy imports more oil than we do. The Vanguard Pacific Stock Index is a very cheap way to get heavy Japan exposure. I also think our dollar is coming back. So you’ve got two things working for Japan in the next six months.
Dagen McDowell: The place is a good pick, but the fund is a bad one. Why not go with an all-Japan fund?
Jonas Max Ferris: Is Dagen criticizing Vanguard? This is the cheapest way in. I hate the other pacific-region areas. I think the whole area is going to benefit from falling oil prices.
Dagen McDowell: T. Rowe Price has a Japan fund (PRJPX) - you were lazy.
Jonas Max Ferris: I own that fund. I’ve got clients in it. But this is a cheap way for the next six months to own Japan.
Terry Keenan: Are you market-timing Japan, because this economy has come in and out of a recession so many times?
Jonas Max Ferris: I’ve been pretty much in Japan for about 3 years. I owned it in the Challenge a couple of years ago; this is a good call for the next six months. I was worried earlier in the year, because our dollar was falling so much, their exports were going to collapse.
Dagen McDowell: The US first, Japan second, because the US has to do well for Japan to do well.
Jonas Max Ferris: The US is doing well.
Dagen McDowell: Exactly. Go with US first.
Terry Keenan: Either one of you going to put these funds in your Challenge?
Jonas Max Ferris: I’m debating putting the Japan fund back in, actually. I’ve got some other stuff that I like that’s beating the market, and I don’t want to dump this thing that I think is going to come back so I don’t know right now.