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
This past week’s Bulls & Bears:
• Gary B. Smith, RealMoney.com columnist
• Pat Dorsey, Morningstar.com director of stock research
• Tobin Smith, ChangeWave Investing editor
• Scott Bleier, HybridInvestors.com president
• Charles Payne, Wall Street Strategies CEO
• Bob Beckel, Democratic strategist
Trading Pit: Indictment Rally
Is Wall Street trading on the White House?
The vice president's chief of staff, Lewis “Scooter” Libby indicted in the CIA leak case and immediately resigns.
But the president's right hand man, Karl Rove, not indicted, and it's unclear if he ever will be. The bulls on Wall Street took that news and ran with it. The Dow had its second best day of the entire year.
So is the worst over for the White House… and does that mean big things for the stock market?
Charles Payne: Absolutely. This is great news for the stock market, especially on the heels of Harriet Miers, when the Dow dropped triple digits. This has been the biggest week for Bush since his re-election. And don’t forget, the election started last year’s fourth quarter rally! We have a strong president and the country needs one because we have to push back the left. There’s a movement for oil companies to give back profits, pharmaceuticals to make drugs for free, and if Bush was weak, it would’ve happened.
Gary B. Smith: I don’t think this has any effect on stocks. In fact, stocks could’ve been up on the Miers news and down on the indictment decision. The market cares about things like hurricanes, oil, the new Fed chief, and inflation, but unless this blows up and becomes something bigger, it will have no impact.
Bob Beckel: This story is not over by a long shot. I think Libby will turn state’s evidence in three months. There are going to be more indictments. President Bush is facing a contrarian congress that wants to cut the budget and this hurts Republicans running in marginal seats.
Tobin Smith: We’ve just had great economic news. There was huge GDP growth last quarter. And don’t forget this was a quarter that had two of the largest hurricanes in the world. Earnings are up 13 percent this quarter which means stocks are undervalued.
Pat Dorsey: From day to day, the market may focus on anything. But in the long-term, it’s GDP growth and earnings. And that is what’s really driving stocks.
Scott Bleier: I usually think politics and stocks are totally disassociated. But last week, the political developments clearly buffeted the market and the two were totally intertwined.
We just spun our wheels and had some of the best and worst days of the year — all in the same week! I think stocks will start to head lower.
Stock X-Change: Housing Boom or Bust?
Tobin Smith: Home prices have topped out and the rate of price increases has slowed. New home sales are down. Home sellers have lost their edge.
Charles Payne: The hot housing market, as we know it is slowing down, but it is not going bust. Every single homebuilder has gone up and had higher than average selling prices in the most recent quarter. I still think the housing boom will continue.
Pat Dorsey: Certain areas of the country like California, Arizona, and Miami, will see a bust in the housing market. The rest of the country will still see decent growth.
Scott Bleier: The rapid price appreciation that we’ve seen over the past couple of years is finished and has been over for several months. A lot of houses have already come down in price and I think home prices will continue to level off.
Charles Payne: Homebuilder Ryland Group (RYL) is a good way to play the housing market. The company has done well with many home closings across the country. Plus, it is under good management. I recommend this stock to my clients. (Ryland Group closed on Friday at $66.46.)
Pat Dorsey: This is a solid company, but it is too exposed to the low-income consumer who can make a decision to rent or buy.
Pat Dorsey: I would rather go with Pulte Homes (PHM), which is the second largest homebuilder in the U.S. It’s very well diversified geographically and more importantly, spread out across a number of income brackets. (Pulte Homes closed on Friday at $36.28.)
Charles Payne: I’m worried because this was the only company that didn’t hit double-digit gains in average selling prices.
Scott Bleier: Luxury homebuilder Toll Brothers (TOL) is the way to go. Homebuilding stocks are down 40-50 percent from their recent highs and interest rates haven’t gone up sharply. Now is the time to buy. (Toll Brothers closed on Friday at $35.40.)
Tobin Smith: Toll Brothers is at the high end, and their homes are already pre-sold for the next year, which has already been priced into the stock. Sales for next year will be lower and homes will cost more to build. I’m a bear on the housing market right now.
Tobin Smith: I want to buy gold, and I like Newmont Mining (NEM). As long-term interest rates rise, so does the American dollar, which in turn makes gold more valuable. Plus, Newmont has a good amount of new mining operations starting up. (Newmont Mining closed on Friday at $44.13.)
Scott Bleier: It’s wildly overpriced.
The Chartman picked his best stocks to buy right now.
Gary B. Smith: First up, I like Yahoo! (YHOO). The stock has cleared both a resistance line and a downtrend line. I see it going back to its 2005 highs (in the upper $30s) by the end of the year. (Yahoo! closed on Friday at $35.58.) Brenda pointed out that it has a big competitor in Google (GOOG).
Gary B. Smith: I’m sweet for Hershey (HSY). The stock broke out from a downtrend line it had been in since July and pulled back into perfect buying position. Hershey should gain 10 percent by year-end. (Hershey closed on Friday at $56.97.) Brenda said that the bears might see it as too expensive.
Gary B. Smith: Another great chart right now is Priceline.com (PCLN). It showed strength and then pulled back. Buy now, but sell if it drops below support below $18. (Priceline.com closed on Friday at $18.63.) Brenda mentioned that the company is at a disadvantage because it isn’t as big as its competitors.
Gary B. Smith: Finally, I really like the banking company City National (CYN), which had a breakout and then a pause. It looks like it is headed to $80. (City National closed on Friday at $72.77.) Brenda pointed out that half of its loan portfolio is devoted to real estate, which is a big bet on housing.
Gary B. Smith's prediction: Oil "bubble" is over! Gas prices drop below $2.25
Tobin Smith's prediction: Crucell (CRXL) makes bird flu breakthrough; gains 50 percent
Scott Bleier's prediction: New Fed Head stops raising rates; Dow up 500 points
Charles Payne's prediction: Holiday $Ea$On Winner: Video Games! Buy GameStop (GME)
(Charles’ clients own this stock.)
Pat Dorsey's prediction: Biggest Christmas winner is going to be UPS (UPS)
Cavuto on Business
Neil Cavuto was joined by Ben Stein, author of “Yes, You Can Still Retire Comfortably!”; Jim Rogers, author of “Hot Commodities”; Leigh Gallagher, senior editor of SmartMoney Magazine; Gary Kaltbaum, president of Kaltbaum & Associates; Juan Williams, senior correspondent for National Public Radio, and Dave Nelson, CEO of DC Nelson Asset Management.
Bottom Line: Is Wall Street Worried About a GOP Meltdown?
Neil Cavuto: Lewis Libby indicted on charges of obstruction of justice, making false statements and perjury; Tom DeLay indicted on conspiracy charges; Bill Frist undergoing a Federal probe into a personal stock sale; Harriet Miers withdrawing amid a storm of criticism over her fitness to serve on the Supreme Court; high gas prices and public opinion on Iraq — add it all up and you have to wonder: Is Wall Street worried about a GOP meltdown?
Ben Stein: The Miers choice was extremely unfortunate and the way they treated her was extremely unfortunate. I think the whole business about Rove and Libby is a political vendetta. The Democrats have a very hard time winning elections nowadays, so they turn to the courts and to the media to try to pursue their agenda to try to subvert the elections. I don’t think any of it is going to have much of an effect on the stock market. The stock market as I like to say is about earnings and future earnings and about interest rates — none of that’s affected one bit by Scooter Libby being indicted.
Jim Rogers: I agree with Ben; the market doesn’t care about these events, and I suspect that, politically, most people by next November will have forgotten.
Neil Cavuto: Well do you think that what we saw Friday was a relief rally because the indictment didn’t involve Karl Rove?
Jim Rogers: Of course, the news was out. Once the news is out, we will have a relief rally. Sell on the fear and buy on the news.
Leigh Gallagher: I think that we have learned one thing this year after Katrina, after even the bombings in London, this market is resilient. This week has been by far the worst week for this administration, which has already been through two wars, and a terrorist attack, and still the market rallied. I do think it’s the usual suspects that the market ultimately reacts to — oil prices and interest rates and the like. But during the mid-term elections, we may see a pullback because the market hates uncertainty.
Neil Cavuto: On Friday, the prosecutor indicated that while the Grand Jury might be done, he’s not done, and Karl Rove isn’t done — the investigation continues. What does that mean, Juan?
Juan Williams: That means you have a high level of anxiety over at the White House. Friday what you had was the President and his top staff acting as if they dodged a bullet, but at the same time, there’s an awareness that they will have to bring new blood into that White House. I think they are now looking to shake things up a bit — either promote from within, but also maybe looking to Capitol Hill, maybe even looking to Ken Mellman who’s over at the RNC, looking to people like Ed Gillespie. We’re going to get new blood over at the Fed. The key for them is to avoid the “lame duck” tag. So you are going to see a renewed effort in terms of agenda coming from this White House.
Gary Kaltbaum: I think perception counts, and this administration has been sidetracked by everything under the sun and if they can’t get their pro growth agenda out – which worked so well in the first term — I do believe the economy will suffer. Just remember there are tax cuts that need to be extended, tort reform and all kinds of other things that need to get done.
Head to Head: How Low Will Gas Prices Go?
Dave Nelson: It’s likely that gas prices will hit pre-Katrina levels, but the important thing to keep in mind is that energy products have spiked to new highs this year, and the band is breaking out and going higher, and it doesn’t matter what the spike was, or what the low was, what matters to consumers is what’s going to be the average price for months and years to come, and clearly that is probably up.
Leigh Gallagher: I agree with Dave. We knew that a lot of the post-Katrina spike would be temporary and that’s been the case. Right now we are in this post-summer driving season and the pre-winter lull and we’ve actually, surprisingly, changed our behavior and demand is coming down, but I think that gas prices are child’s play compared to what consumers are going to face with their home heating bills this winter.
Ben Stein: I think we will see lower energy prices, but just for a little while. I think we are in a bear phase of a gigantic bull market for energy commodities. If you could see a chart of far eastern demand for coal, oil and other energy commodities, it would stun you. It’s like parabolic straight up growth, and I think this tells the tale for the next couple of decades.
Jim Rogers: There’s no question that supply and demand are out of balance. There’s been no major oil discovery anywhere in the world for over 35 years. All the oil fields are in decline, so the price of oil is going to go a lot higher; the price of gasoline is going to go a lot higher. We are having a normal correction right now; prices don’t go straight up, but over the long term, gasoline prices are going to $3, $4, or $5 a gallon.
Gary Kaltbaum: My bet is on oil prices going higher over time. We have a major trend in place, and these types of trends usually last a decade or more.
More for Your Money
Historically speaking, the best six months of the year for stocks is November through April. So what stocks does our gang think you should by this November?
Leigh: We think that 2006 is the year that tech is finally going to bounce back. Microsoft has a new operating system coming out; Oracle has a new database after that, and this is going to lift the entire sector, and a company I really like is Advanced Micro Devices (AMD).
Dave Nelson: Good product, numbers are going up, and under normal circumstances, I would be looking at this stock, but this company has a horrible record in terms of missed execution and fumbling the ball on the goal line.
Gary Kaltbaum: If there’s one group I like right now it’s the financials. PNC Financial Services (PNC) is breaking out to new highs. The group is getting great money flows, and I think there’s a lot more to go.
Jim Rogers: I’m short money-center banks, though not short PNC, but the financial sector is not the place to be right now — interest rates are rising; that’s where all the speculation has been; there are gigantic derivatives problems in the financial community, and all of this is going to fall apart.
Dave Nelson: The Brazilian economy is very strong and there is an explosion of credit there. Banco Bradesco (BBD) is one of the largest private banks in Brazil and
one of the most interesting products they offer are these payroll loans on which they are making 3 percent a month, and that’s pretty good money in my book.
Gary Kaltbaum: I like the company, but it’s had a big run, and I think most of the great news is already in the stock, and it’s not going much higher.
Ben Stein: We are glossing over the fact that the most astonishing thing here is that the “Sell in May, and buy back in November strategy” is true. We don’t know why, but most of the gains in the stock market do occur in the six-month period starting November. It’s a real major stock market mystery, but it does seem to work. I would buy the iShares MSCI Canada Index (EWC). I think it’s got everything we want. It’s got commodities, it’s ot a play on a stronger Canadian dollar, it’s got forest land. I love Canada right now.
Leigh Gallagher: I Like this pick, but this assumes of course that the Canadian dollar stays strong and that there continues to be demand for Canada’s natural resources.
FOX on the Spot
Jim: Fed implodes under new leader; Greenspan's to blame!
Leigh: Home heating Grinch steals Christmas from retailers! Buy now; stocks soar once inflation fears subside!
Gary: New Fed head brings economy to a grinding halt!
Juan: Americans choose leader who fights for diplomacy in '08
Neil: Worst is over for the White House; Wall St. rejoices!
Forbes on FOX
In Focus: Will Bad News for GOP Mean Tax Hikes Next Year?
Elizabeth MacDonald, senior editor: The Democrats are already talking about tax hikes, even if they don't win back the Congress in 2006. Tax hikes could be disastrous for the economy, and could be as bad as the hurricane effect.
Jim Michaels, editorial vice president: The Democrats are always talking about tax hikes. They love high taxes, particularly on upper income people and on businesses. We only got a tax hike in 1991 because George HW Bush was dumb enough to sign it. Any real tax cuts through Congress are pretty dangerous. Even Clinton had a hard time getting it through.
Dennis Kneale, managing editor: It doesn't matter if Republicans or Democrats win the White House, taxes are going up because the government spends too much money. Tax cuts without spending cuts don't work! Reagan was the greatest tax cutter in the history of the country but in every year of his presidency he ran a deficit.
Quentin Hardy, Silicon Valley bureau chief: Congress is going to spend more to get back in the good graces of the American people. They are also going to pass another tax cut. It's going to happen but it's going to be a bad idea.
Rich Karlgaard, publisher: There's not a chance in the world that we're going to get a tax hike. The President had a near death experience with the Harriet Miers nomination because he fractured his base. Fortunately, Miers withdrew and now the base is fired up. He's not going to jeopardize his relationship with conservatives by screwing them on tax cuts.
John Rutledge, Forbes contributor: Bush will have to be dragged, kicking and screaming, into a tax cut for the rest of his term. The problem is the tax cutting agenda died with Hurricane Katrina. We've got pressure not to do the estate tax cut, the income tax cuts and capital gains and dividend tax cuts could be at risk. They won't be raised, but we've lost the opportunity for the cuts we were hoping to get.
Elizabeth MacDonald: Wall Street is sensing that tax hikes are coming. It's why the market has been stuck in a frozen trading zone. The fear is that they are going to roll back dividend tax cuts and then the capital gains tax cuts. If the Democrats raise taxes they will not win the White House in 2008.
Dennis Kneale: In four years George Bush has run up government spending deficits of $1.4 trillion. It took Reagan about eight years to run up as much. Bush is the worst spender in U.S. history.
Rich Karlgaard: What Dennis is missing is that the balance sheet of America doubled during Reagan's 8 years and the balance sheet of America has gone way up since the recession.
Jim Michaels: They way to get tax revenues up is by growing the economy. The government is a partner of every business and wage earner in this country. You don't get tax revenues by raising taxes; you get them by growing the economy.
Elizabeth MacDonald: The tax cuts of 2003 raised tax revenues into the government by about 15 percent last fiscal year.
Quentin Hardy: Why do you all think that the boom of the 1990s was unrelated to getting the fiscal house in order? It had a lot to do with it.
John Rutledge: In my 30 years in this business, I've never seen anyone make a dollar using the budget deficit to predict anything. The budget deficit is a rhetorical tool in Washington to talk you out of money. We have $165 trillion of privately owned assets in this country. $100 or $200 billion of anything makes no sense.
Rich Karlgaard: Look at the balance sheet of American. They've gone up every time you cut taxes.
Elizabeth MacDonald: We're mixing two things. Tax cuts are very good for the economy. Spending is very bad. We've got a Social Security deficit! We're $12 trillion in the hole on Social Security alone. That is a big structural problem.
Dennis Kneale: You all keep praising tax cuts and how great it is for bringing in more money. If tax cuts are so wonderful, they should bring in enough to cover all of your spending.
Jim Michaels: The Reagan deficit bought us military superiority that eventually led to the collapse of the Iron Curtain. It put our economy on track for the boom on the 1990s.
Flipside: Save Lives and Billions: Scrap Homeland Security Department!
Quentin Hardy: Four years ago they decided to fight a war on terror with a merger of 22 government departments overseen by a whole new layer of bureaucracy, the Department of Homeland Security. Now the results are in. On their own website you can see that the morale at the department is the lowest of any in the government. A whopping 12 percent feel they are encouraged to improve in their job. I think it's time to divest, break it up and go back to the parts. It will work better.
Lea Goldman, staff writer: Quentin is basing this on low morale? That's the most absurd thing I've ever heard. If you want to compare this to a company, let's do what companies do when they're over budget and under performing. Cut costs and reassess our priorities.
John Rutledge: For the good of the country, get rid of the thing. You can't wage wars on "isms"; it's a waste of time.
Elizabeth MacDonald: Right after the 9/11 Commission report came out about a few years ago most of us were in agreement that we should have a Homeland Security Department where you would have intelligence agencies gathered into one and they would communicate to each other. Do not abolish it. It would cost too much money to get rid of it.
Jim Michaels: We have the CIA and the FBI and military intelligence. What we need to do is make them more effective. Putting a layer of bureaucracy on top of it does not make it more effective.
John Rutledge: You can shut down a government office but it has to come from the White House and it's not going to come from this White House.
Elizabeth MacDonald: Where's the proof of a problem here? Members of Congress have said that there were 10 domestic terror attacks foiled in the past few years. I don't see any proof, besides low morale, that we should abolish an agency that cost $4 billion of taxpayers’ money to put in place in the first place.
Quentin Hardy: I give you FEMA after Katrina. How did they perform Elizabeth?
Elizabeth MacDonald: I agree with that. I say get rid of the lawyers and the cronies that have infested it.
Makers & Breakers: Bird Flu Fighter$
Mike Norman, Economic Contrarian Update: MAKER
I like the second largest pharmaceutical company -- a French company, Sanofi-Aventis (SNY). The exciting thing is just this past week it was announced that European researchers along with Sanofi-Aventis have developed a vaccine for bird flu that's going to go into testing next year. If you're betting that bird flu is going to become a pandemic go with this one.
David Asman, host: You have a 12-month target price of $50. (Friday's close: $39.75)
Bill Baldwin, editor: BREAKER
Vaccine liability and price controls coming to the pharmaceutical industry are all worries about this stock.
Jim Michaels: BREAKER
Mike Norman: It's a large company with lots of room for research and development.
IDEXX Labs (IDXX)
Mike Norman: MAKER
This is a different way to go at the bird flu. This company makes testing kits for poultry. They're actually selling the equipment to check and see if chickens have the bird flu.
David Asman: You have a 12-month target price of $75. (Friday's close: $68.51)
Jim Michaels: BREAKER
At 30 times earnings, all the good news is already priced into the stock.
Bill Baldwin: MAKER
For humans, the medical system is crashing, but for animals it's not. So when I bring my pet rooster into the doctor's office I'm going to use some IDEXX products.
Bloggers: Are They a Threat to the Stock Market?
Dennis Kneale: The blogging revolution is the most exciting new media thing in years. There are 20 million blogs out there and 100,000 new ones a day. Now there is a tiny little sliver of them that are run by sleaze ball liars and short sellers. The bad thing is when Google (GOOG) and Yahoo! (YHOO) host these blogs and someone attacks you and says, "this guy murdered his mother," Google and Yahoo! protect their anonymity.
Rich Karlgaard: I think this is the most overblown threat since Y2K. The fact is the market place of words and ideas work. Americans are pretty bright; they can sort this stuff out.
Bill Baldwin: I agree with Dennis. It's one thing if Matt Drudge wants to take down Dick Cheney's chief of staff because he can defend himself. But what if I, out of total malice, call a teacher a child molester or say a heart surgeon kills people, or write about a dentist who has AIDS. It's a total lie, I destroy them and when they go to sue me, he can't find out who I am because Google has wrapped itself in the flag of the first amendment.
John Rutledge: I like the first amendment. Words don't hurt people, people hurt people. If they hurt you and lie, sue them. If you can't catch them, tough luck.
Victoria Barret, staff writer: Blogs are wonderful things. They keep companies and us more honest. Microsoft has over 600 employees blogging and it's great for the company.
Dennis Kneale: Look at what these people have done. A blog put up by a guy who called himself Dick Tracey ruined a company. He was a liar and he himself was charged with SEC crimes.
Bill Baldwin: If someone libels you, you can sue him or her. The problem is, what if he is anonymous and Google says we're not going to tell you who he is. I think political attacks can be anonymous-malicious, personal attacks can't be.
Rich Karlgaard: I don't believe-except in these rare isolated cases-that blogs can do that much harm.
Dennis Kneale: The Communication Decency Act of 1996, excepts Yahoo!, Google and anyone who hosts a blog from being legally accountable. Forbes magazine can publish stories, but if we liable someone, they can sue us. You can't sue bloggers. The way to protect yourself is to go on the attack and get another blogger to attack your blogger.
John Rutledge: The more words we have the better. People don't believe everything they hear from blogs. People need to wise up.
Our "Our Cashin’ In crew this week:
• Wayne Rogers, Wayne Rogers and Company
• Jonathan Hoenig, Capitalistpig Asset Management
• Dagen McDowell, FOX Business News
• Jonas Max Ferris, MAXfunds.com
• Tom Adkins, Re/Max Property Center
• Adam Lashinsky, Fortune Magazine
Stock Smarts: Home Wrecker?
President Bush naming his candidate to replace long-time Fed chief Alan Greenspan. Ben Bernanke says he will continue Greenspan's policies, which right now means higher interest rates. Jonas, is this trouble for the housing market?
Jonas Max Ferris, MAXfunds.com: I think it does, Terry. First of all, this is the most important role in government, except for maybe the president, to stock investors and real estate investors. The problem here is that he really thinks he’s got it all figured out. He thinks that the Great Depression wouldn’t have existed if monetary policy had been better. He thinks that Japan’s problems wouldn’t have happened with better monetary policy. He doesn’t believe in pricking bubbles. That’s key, because the housing market is in a little bit of a bubble. What this means is they will just allow people to take this 100 percent down/no money down mortgages, reverse amortization. That’s the trouble. People could get worried and it could lead to bigger chaos than what would happen if they got in there and stopped it.
Terry Keenan: Wayne, do you agree?
Wayne Rogers, Wayne Rogers & Company: Yes, I do. I think Jonas is right. He appears to be reactive as opposed to proactive. He appears to be someone who is going to let the disaster occur, and then try to fix it after the fact. And he has stated so, to a certain extent. Yes, I think Jonas is right. Interest rates will head higher, and it will hurt the housing market. There’s no doubt about it.
Terry Keenan: Bernanke says he’s not worried about housing prices. Tom, you’re in the same camp. What do you think of this Fed pick?
Tom Adkins, Re/Max Property Center: Well, at first I was kind of frightened. Now I kind of like him, a little bit. The first thing he is going to do is have some kind of rate increase. Why? Because, just like we said, there’s a new sheriff in town and his name is Ben Bernanke. Why? Because he has to. The whole world has to see the American financial markets as something they can rely upon and that they are serious about controlling inflation. I don’t care what the economic situation is; the first thing he’s going to do is jack rates up a quarter of a percent. It won’t hurt the housing market, though.
Jonathan Hoenig, Capitalistpig Asset Management: How are your properties selling, Tom?
Tom Adkins: I buy them. I don’t sell them. I buy them and keep them.
Jonathan Hoenig: How are the prices? I can’t find a lot of things doing well in the real estate world now. It seems to me like, to Wayne’s point, they’re putting a curse on anything that’s interest-rate-related now. The mortgage REITs, the regular REITs, the homebuilders - I’ve played a lot of these stocks for years and years, but I just don’t think real estate is your best bet right now. To Jonas’ point, those who are highly leveraged are going to be the first to get their you-know-what’s kicked.
Terry Keenan: Adam, the stock market seemed to like this Bernanke appointment on Monday. It didn’t seem to like it so much the rest of the week. Homebuilding stocks did kind of tank again this week. What do you think of this pick?
Adam Lashinsky, Fortune Magazine: Jonathan is right. President Bush could have named Jonas Max Ferris as Fed Chairman, and the housing market is still going to get hurt. There’s a simple reason and it does have to do with the Fed. The Fed’s one job is to keep prices stable. Prices have not been stable in the housing market. They’ve gone inordinately up. And they’re going to moderate or come down a bit no matter what Tom Adkins and his brethren say about it.
Dagen McDowell, FOX Business News: Well, that’s one reason, Adam that Bernanke is not that big a worry for the housing market, because the hot parts of the housing market are already cooling. You’re seeing sales slip in the northeast. Out west, you’ve got inventories at a record for new homes. And, by the way, short-term interest rates will already be at about 4.5 percent before Bernanke takes the job, so he’s going to be neutral for everybody.
Terry Keenan: Jonas, he also has the professorial idea of an inflation target that he’s going to use to fine tune the economy. We’ve seen a lot inflation, and that seems to mean higher rates.
Jonas Max Ferris: This is another disaster. He believes in targets. Greenspan likes to pretend no one knows what the inflation target is; therefore when it’s not at the target, no one’s going to get freaked out. When he says, ‘it’s going to be 2 percent,’ and then if it’s 3 or 1, everyone’s going to flip out and it’s going to cause chaos in the bond market.
Dagen McDowell: Actually, it’s the exact opposite, Jonas. Having a target like that will keep long-term interest rates in check.
Jonathan Hoenig: You were the one who just said you’re getting so much money in your money market account now. Bond yields are at multi-month highs. If everything’s great with the idea of inflation targets, why are interest rates going up and not down?
Dagen McDowell: I said for the long-term, an inflation target will keep long-term bond rates in check because it makes people feel like we’re not going to get the runaway inflation we did in the 1970’s.
Terry Keenan: Wayne, do you expect to see higher rates this time next year?
Wayne Rogers: The fact of the matter is, I think Dagen is right. The market has cooled. The absorption rate in the housing market is extended. Greenspan was right when he said there is froth. We know that the real estate market is a local phenomenon. For example, I think there was an article in the “Wall Street Journal,” this past week about what’s happened in the panhandle of Florida; about how they were selling properties through the exchange two times a day. Somebody would it buy it in the morning and sell it again in the afternoon. That’s crazy. That doesn’t go on forever. And eventually, that bubble does pop. It has to.
Tom Adkins: First of all, the Federal Reserve has one rate to crank up, the Fed Fund’s rate. That’s a short-term thing. That inspires confidence in long-term stuff. You routinely see the Federal Reserve cranking up rates on the short side, and the long-term rates coming down.
Terry Keenan: But 30 percent of Americans are buying their homes with adjustable-rate mortgages, or more perhaps.
Tom Adkins: And it will give a little bit more to the high side. You’re getting closer to that dreaded inverted yield curve.
Jonathan Hoenig: Tom, could you operate with a 70 percent vacancy rate and prices marked down 30-40 percent?
Tom Adkins: But we don’t have a 70 percent vacancy rate. Investors know this. Investors don’t buy in places with a 70 percent vacancy rate. What they do is buy in places with a 2 percent vacancy rate. That’s the whole point of letting the free market take care of it. Plus, there’s one more thing that’s very important. Bernanke understands that there is a big difference between commodity-based inflation and an overheated economy inflation. He stated it and he will not be the kind of guy that cranks up interest rates for no good reason.
Adam Lashinsky: Tom is absolutely right about that, and I think Jonas misspoke earlier to suggest that Bernanke’s not going to be attentive to the economy. He’s going to do a good job of explaining the economy as a good econ professor would.
Best Bets: $Tocks Heating Up!
Sky-high gas and oil bills expected this winter for millions of Americans. The stocks that could help you pay that monthly burden? They are our Best Bets!
Petrofund Energy (PTF)
52-wk High: $19.88
52-wk Low: $12.16
YTD Return: +50.59 percent
Friday's close: $17.74
Price Headley, BigTrends.com: I like Petrofund Energy Trust (PTF). This is one of these Canadian energy trusts. I think it’s a perfect hedge for your higher home bills coming from the heating, because basically you’re getting paid every month a dividend of about 9 percent, in U.S. dollar terms. Plus, as long as energy prices stay relatively high, I think you’re basically not going to see much downside. In fact, I think you’re going to see these stocks go even higher.
Terry Keenan: Are there some problems with some tax implications?
Price Headley: There are not really any major problems with it, but I’m always happy to pay taxes on gains and on money that’s coming in the portfolio.
Jonathan Hoenig, Capitalistpig Asset Management: Price, if oil prices stay high, if energy prices stay high, this is going to do well. But isn’t the news out? I mean, Wayne owns this in his Cashin’ In Challenge portfolio. Every other story in the business pages is the ‘high cost of energy.’ I just feel like the real money has been made on energy these days.
Price Headley: I think as long as it even stays flat, you’re going to be fine.
NASDAQ Stock Market (NDAQ)
52-wk High: $31.17
52-wk Low: $6.50
YTD Return: +195.69 percent
Friday's Close: $30.16
Wayne Rogers, Wayne Rogers and Company: I like the NASDAQ. Not the index, but the actual exchange. The advantage of this is that it is a monopoly. I love that. Their earnings have increased. I do own it.
Adam Lashinsky, Fortune Magazine: I don’t like it. The bottom line is that the exchange is tied to the NASDAQ economy, and it’s just not moving right now, Wayne. Intel (INTC) and Cisco Systems (CSCO) are going nowhere.
Jonathan Hoenig: But that stock is moving, Adam. The stock is moving.
Wayne Rogers: What chart are you looking at?
Jonathan Hoenig: Wayne, don’t listen to this guy. He’s never made money in his life.
Stillwater Mining (SWC)
52-wk High: $12.78
52-wk Low: $6.05
YTD Return: -11.55 percent
Friday's close: $9.96
Jonathan Hoenig: I picked Stillwater Mining (SWC) a couple of months ago. I got stopped out and I lost money. I’m back in it. I own a lot of precious metals right now. We own Stillwater. I think this is a great commodity play and I’m bullish on the sector.
Price Headley: It’s a very volatile sector, but it has picked up a little bit recently.
iShares MSCI Emerging Markets (EEM)
52-wk High: $85.92
52-wk Low: $58.59
YTD Return: +16.1 percent
Friday's close: $78.10
Adam Lashinsky: Terry, even though I’ve never made money in my life, I’m going to suggest the iShares MSCI Emerging Markets Index (EEM), because the US economy just doesn’t compare to the markets outside the United States, and that’s where the heat is. That’s the way to stay hot when things are cold here.
Jonathan Hoenig: Again, isn’t the story kind of out on emerging markets? I mean, I’ve played a lot of these countries like Brazil and South Korea. It’s not as risky as it one was.
Adam Lashinsky: I’ll bet you that a lot of people watching have way too little exposure, and that’s what they need to look at right now.
Cashin’ In Challenge
Check out their stats at: www.foxnews.com/challenge
Question: "Does Wall St. really care about all the stuff going down in Washington?" — Ken, Nassau, NY
Wayne Rogers, Wayne Rogers and Company: They absolutely should, because it means that there is insecurity in the stock market. The one thing that the market does not like is trouble. It wants something that is stable. All these things that are going on in Washington are instability.
Jonathan Hoenig, Capitalistpig Asset Management: Wayne, how did we do in the Clinton years? When ‘Monicagate’ was going on, the market was doing great. There was a lot of uncertainty back then too.
Wayne Rogers: It just tells me that sex sells better than trouble.
Terry Keenan: Price, second terms are always difficult. First or second years of second terms are even more difficult for the market and for the person in the White House.
Price Headley, BigTrends.com: Yeah, but Terry I think if it does go down much on this news, I think it’s a buying opportunity, because we’re just heading out of what is usually the bad part of the market between May and October. We’re about to head into the good part of the market between November and April. I think it’s a buying opportunity on any weakness.
Dagen McDowell, FOX Business News: Well, the market’s already down, Price. For most of October, it’s tanked and it looks like most, if not all the bad news, is already factored in.
Price Headley: That’s my feeling.
Wayne Rogers: I don’t see that, no. Look, he’s got to name another Supreme Court justice, right? That’s bound to be more controversy, regardless of who it is.
Terry Keenan: It can’t be.
Wayne Rogers: It doesn’t matter. He’s going to get shot at by the right. He’s going to get shot at by the left. It really doesn’t matter. It’s controversy again. And the market does not like controversy. It doesn’t like instability.
Price Headley: But, Wayne, it’s classic lame duck, second-term.
Wayne Rogers: I’m not saying it isn’t. What I’m saying is it’s not good for the market.
Price Headley: The market has survived through that in the past.
Terry Keenan: You know, a few good things happened this past week, Jonathan. Bernanke was well received, Harriet Miers is now out of the way, and do you think the market can go higher from here?
Jonathan Hoenig: Markets fluctuate. That’s what they do. I don’t see a lot of major leadership in stocks. I’m doing really well in the Cashin’ In Challenge, sitting in cash. ‘When elephants are dancing, mice get trampled.’ We’re all mice in the market. I don’t think now is a compelling time, for me at least, to put major new money into the S&P 500.
Wayne Rogers: I agree.
Terry Keenan: Price, why are you bullish, given the fact that the President’s approval ratings are the lowest ever, and if it was like this time last year, he wouldn’t have gotten reelected with these kinds of numbers.
Price Headley: Well, I’m looking at the big picture here, and I’m saying that I have been a little bit more cautious in recent times. We’re just about to head into a period from November 1st to April 30th; the market has made 93 percent of its gains since 1970. If you think about the number, coming out of this period and looking at the past, you’ve got to look forward and say, ‘where’s the surprise?’ I think it’s a positive surprise as opposed to a negative one.
Question: "Now that Roche might have to give up its patent for Tamiflu, could some U.S. drug stocks see a pop?" — Fred Window, Trenton, NJ
Jonathan Hoenig: This is all Senator Chuck Schumer’s idea, isn’t it, that property rights mean nothing and that just because you have a terrific drug, you have to share it with the rest of the world in times of crisis? I think it’s terrible.
Terry Keenan: And they get sued for it if it goes wrong, right?
Jonathan Hoenig: Of course. It’s their liability, but not their upside. I think that Chuck Schumer should go to jail. I wouldn’t buy a lot of drug stocks right now. To me, they’re very weak. Merck (MRK), Pfizer (PFE), Eli Lilly (LLY), Bristol Myers (BMY), Johnson & Johnson (JNJ)…. The strongest of the bunch is GlaxoSmithKline (GSK). We don’t own it, but it’s not a group I’m in right now.
Dagen McDowell: You actually have to look at that one. They have an anti-viral drug like Tamiflu and they’re working on a vaccine as well. So you’ve got to look at that one. Chiron’s (CHIR) another one. They’ve got a government contract for the development of a vaccine against the bird flu.
Terry Keenan: Wayne, are you playing any of these?
Wayne Rogers: No. I agree with that. If you’re going to get into the drug thing, you’ve got to look at some of the biotechs. Beyond that, I’m in agreement with Jonathan and Dagen.
Price Headley: Also, the pure play is on the bird flu. It would become very speculative, and I would say there’s more of a selling opportunity than a buying opportunity here in this sector.
Question: "I read about a memo from Wal-Mart (WMT) cutting employee health care costs by as much as $1 billion a year. Good for the stock?" — Bob, Bayshore, NY
Wayne Rogers: I think Wal-Mart is a great economic model. My beef with them is what they’ve done to small-town America in the moral sense. It’s never good for a company to say they’re going to cut employee benefits. I think that’s bad, and I don’t think it’s going to help the stock. This stock has been in decline all year, for four years it’s really been flat. It’s too big a ship. You cannot turn it around.
Dagen McDowell: It’s actually not cutting benefits. Actually, if you go through the memo and read it, they’re really just trying to cut the amount that they spend on the benefits and insure more of their workers at the same time. Like putting emergency care and health clinics in their stores so people don’t go to the emergency room.
Wayne Rogers: Dagen, I understand that, but it’s perceived to be that way.
Jonathan Hoenig: Trapper, they have to stay competitive. If these people just give it away for free, it’s going to end up being like Ford (F) or General Motors (GM), another company whose health benefits sunk the ship.
Terry Keenan: Well, they’re a long way from GM-type benefits at Wal-Mart.
Jonathan Hoenig: That’s what happens when you let the unions get out of control in a company, Terry.
Price Headley: Jonathan’s totally right. Basically, you’ve got to control costs wherever you can. I agree with you, Wayne, that it’s politically incorrect, but it’s the right thing to do financially.
Dagen McDowell: Wal-Mart’s trying to walk that fine line between Price and Wayne.
Wayne Rogers: The question was, ‘is this going to help the stock?’ I’m saying that the perception that they’re cutting, whether they are or not — you don’t write a memo about it and publicize it. That’s crazy.