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 Research editor
• Scott Bleier, HybridInvestors.com president
• Bob Olstein, Olstein Funds president
• Gary Kaltbaum, Kaltbaum & Associates president
Trading Pit: Cut & Run in Iraq?
A top Democrat has called for America to pull our troops out of Iraq. What will happen to the stock market if we cut and run right now?
Gary Kaltbaum: I think Wall Street will have a negative reaction initially. If we pulled out of Iraq now, we lose our standing in the free world. Everyone will look at us as losers. This is the war on terror and is not just about today but about the generations to come. It’s not just about Iraq, but also about taking the offensive against any rogue states that believe in murder for the sake of murder. Wall Street will see this as not getting the job done. It also brings up a lot of questions, like what were we doing there in the first place, if we didn’t get the job done. But don’t forget, Wall Street will always concentrate on oil, interest rates, and earnings.
Gary B. Smith: If we pull out of Iraq now the market, as it has been doing, will shrug its shoulders and will be glad that it has one less thing to worry about. It also means that we will spend a few billion dollars less overseas. I don’t think we should pull out right now, but if we do, stocks will head higher on the news.
Bob Olstein: I believe that an early withdrawal from Iraq will create some short-term confusion, but will be a positive psychologically over the long-term. This war is wearing on the American public because we don’t knowing who the enemy is and it is tough seeing American soldiers die every day. I don’t think that we’ll totally pull out because there must be someone there to guard the oil. The markets always move on to the next event and over time, it really looks at earnings and cash flow.
Tobin Smith: Pulling out of Iraq is a negative for stocks. Wall Street wants to see a plan. Democrats have come out with a fairy tale idea. The reality is that we made a five to ten year commitment to Iraq and the idea of pulling out is preposterous. The price of oil at $60/barrel is just starting to come down and now we have a rally. If we pull out immediately, oil will shoot up to $85-90. We need to finish the job.
Pat Dorsey: The political repercussions aside, pulling out would mean less spending, and that means a reduction of the growing deficit. In general, this is positive for the economy because right now we have been spending beyond our means. However, the question is, “What is total victory?” There is a democratic elected government in Iraq now and the insurgents aren’t going to go away anytime soon.
Scott Bleier: We’ve got to finish the job in Iraq. We can’t leave until there is a functioning government. Less government spending means less stimulation to the economy, which means a lower stock market. If we pull out, it will cause a civil war in Iraq.
What have been the Bulls & Bears best and worst calls?
First, let’s take a look at the losers.
Back in October, Tobin picked Frontier Oil (FTO). The stock has fallen 23 percent since then. He said the stock probably fell because the cost of converting oil into gasoline collapsed. But even so, he said not to sell it here and thinks now is actually the time to buy. (Frontier Oil closed on Friday at $34.28.)
Last February, Gary B. said it was the time to “hire” Martha Stewart’s stock (Martha Stewart Omnimedia-MSO) because her Apprentice show would be a hit and the stock would follow. As we know now, her show hasn’t done too well and isn’t being renewed. And the stock is down 49 percent since Gary B’s prediction. Gary B. thinks it will continue to go lower. (Martha Stewart Living Omnimedia closed on Friday at $18.38.)
About eight months ago, Bob really liked RadioShack (RSH). But it hasn’t fared so well and has fallen 20 percent. He still likes the stock. He said he just bought it early and actually bought more shares. Bob likes that it has a great return on equity and has great cash flow and thinks it’s going to the low $30s. (RadioShack closed on Friday at $23.08.)
This past October Scott predicted that Apple’s (AAPL) video iPod would be a big flop and its stock would fall 20 percent. Not so. The video iPod is a hit and the stock is up 20 percent. Scott now says that the stock is over-owned and over-valued. He suggests waiting until after Christmas to see how the stock does. (Apple closed on Friday at $64.56.)
Last August, Pat predicted that Tempur-Pedic (TPX) would be heading up 30 percent in one year. The stock is actually down 42 percent since then. Pat said that he missed a slowdown in the company’s growth rate over the next few quarters. Plus, he added that people are trading down to cheaper Tempur-Pedic mattresses, which has hurt their margins. But he still likes it and thinks now is the time to buy more. (Tempur-Pedic closed on Friday at $10.31.)
In April, Gary K. thought that the Dow would fall to 9,000 before it would reach 11,000. However, now the Dow is much closer to 11,000 than 9,000 and it’s actually up 6 percent since he made this call. Gary K. admitted that he was wrong and said that he really thought we were going into a bearish market. He says that now we may break above 11,000. (Dow closed on Friday at 10,766.33.)
Now for the winners.
Tobin has really liked energy stocks this year and in March said Patterson-UTI Energy (PTEN) was a good one to buy. The stock has gone up 23 percent in that time.
He thinks the stock has a lot more to go and wouldn’t sell until hits $45. He owns this stock. (Patterson-UTI Energy closed on Friday at $31.03.)
Last February, Bob said Quanta Services (PWR) was a bargain buy. What a bargain! Up 82 percent! Bob owns the stock, thinks it is going higher, and should reach $20. (Quanta Services closed on Friday at $14.09.)
In April, Gary K. picked videogame maker Activision (ATVI). The stock has gone up 38 percent. Gary still likes the stock and said it will be great to have for the holiday season. He sees it gaining 20-25 percent in the next quarter. (Activision closed on Friday at $15.18.)
Five months ago Pat liked American International Group (AIG), which has seen a 23 percent gain. Pat said that the issues surrounding the company were more smoke than fire. He added that AIG will be able to increase prices due to the recent hurricanes. He said this is a good core holding and sees the stock going up to $80. (American International Group closed on Friday at $67.17.)
Last June, Gary B. thought AMR (AMR) was about to take off and go up 30 percent by the end of the year. The stock has soared up 47 percent. Gary said that it is going to keep flying high and it’s in perfect buying position. He thinks the stock could hit the high $20s. (AMR closed on Friday at $17.55.)
Here’s another summer pick. In July, Scott said JDS Uniphase (JDSU) was the top stock to own for the rest of the year. It was a top stock and has gained 52 percent. Scott still owns the stock and said that it is worth $3. (JDS Uniphase closed on Friday at $2.28.)
Gary B. Smith's prediction: Gas going even lower! Falls below $2/gallon
Tobin Smith's prediction: Stock investors come "home"! Knight Capital (NITE) up 50 percent
Bob Olstein's prediction: Christmas $urprise! Federated (FD) up 20 percent
Scott Bleier's prediction: Holiday shoppers buy online; Overstock (OSTK) up 30 percent
Gary Kaltbaum's prediction: Fatten up with Darden (DRI); gains 20 percent in 6 months
Pat Dorsey's prediction: American Power (APCC) powers up 40 percent in next year
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, "Hot Commodities" author; Herman Cain, "They Think You're Stupid" author; Gregg Hymowitz, founder of Entrust Capital; Ben Stein, "Yes, You Can Still Retire Comfortably!" author; Barbara Corcoran, founder of the Corcoran Group; John Rutledge, president of Rutledge Capital.
The Bottom Line
Neil Cavuto: China a greater power than the United States? Not now. Not ever. That's what someone here says. Herman to you first.
Herman Cain: Free market competition beats communism every time. Secondly, the U.S. economy is doing a lot of things right. The GDP is strong. Unemployment is low. Interest rates are stable. One of the biggest reasons why China will never be a bigger economic power is because of its infrastructure. China can’t be a consumer driven economy, so it’s going to try and be an export driven economy.
Jim Rogers: You can’t call them communists. They’re among the best capitalists in the world. They’re all trying to get as rich as we are. They save and invest 35 percent of their income while we only save 2 percent of our income. They’re not going to overtake us in our lifetime, but they’re really booming and on the rise.
Herman Cain: The key is property rights. Owners run things better than workers. They have a nation of workers. We have a system that will allow people to become owners.
Jim Rogers: They can buy property, and they own property.
Gregg Hymowitz: They’re not going to overtake the United States anytime soon. But they will be continuing to grow at a much more dramatic clip than the United States. Therefore, they are going to be the marginal player in the global economy for many years to come.
Ben Stein: China is one-tenth the GDP of the United States. It’s five times the population, roughly one-fiftieth per capita GDP. Obviously this is a matter of arithmetic. It doesn’t matter if they are a bigger economic power than we are. We’re still going to be terribly rich. If they’re rich it doesn’t make us poor.
Jim Rogers: Exactly. We can all get rich together. I hope those idiots in Washington can figure this out so that we can get rich together instead of getting poor together.
Neil Cavuto: John Rutledge, you’ve been to China many times. What’s your sense of whether the country is a threat to us?
John Rutledge: Last week we graduated the first MBA class from a university where I’m president in Bejing. These kids are capitalists. They’re in love with America. Our biggest risk is not bird flu here. It’s hubris. Countries in history that become too self satisfied and too lazy because they’re rich go over the top. We need to be working and doing the things that those kids are doing. They’re shifting from dinosaurs and oil to energy and humans. They’re educating the heck out of their kids right now and we need to be doing the same things. We need to be China’s friend, not do China bashing.
Neil Cavuto: Herman Cain, are you China bashing?
Herman Cain: I’m not China bashing. I’m simply being realistic. The kids are getting a better education and we do have some business people over there, but the gap between the haves and the have nots is so great that let’s say for example that they do continue to get an economy about the size of ours, they are going to have an inordinate number of people that simply will not be anywhere near middle class because of the lack of infrastructure.
Gregg Hymowitz: Herman, you have an inordinate number of people here where the gap is so wide. There’s plenty of people from your hometown in Atlanta, Georgia where the gap is tremendous.
Herman Cain: The gap is not tremendous.
Gregg Hymowitz: Do you know how many kids live below the poverty line?
Herman Cain: You are over-exaggerating. I came from poverty.
Gregg Hymowitz: So there’s not millions of people living under the poverty level?
Ben Stein: Gregg you’re totally right, but we’re talking about China. China will become an enormously rich country. We’re going to get rich along with them. We should be friends with them.
Gregg Hymowitz: I agree 100 percent with Ben. I just don’t understand what Herman’s point is.
Jim Rogers: Herman, they are working hard and they’re getting better and better every day. They have enormous infrastructure. They have better highways than we do in China now because they learn to build their highways from us.
Herman Cain: They will not overtake us in our lifetime.
Neil Cavuto: John Rutledge, the one statistic that kind of bothers me is how much they spend on their military. And we suspect in the United States it’s three or four times the official figures. Is that true and do we have to worry?
John Rutledge: Of course it’s true, partly because prices in China measured in purchasing power against U.S. prices are way out of line. There’s more tons under construction of naval vessels in China than the size of our entire fleet. They will project a lot of military power in the Pacific Rim, but although I’ve never agreed with Gregg on anything, I have to agree today. We need to learn something from the Chinese. We need to learn to lower the cost of educating kids in America. There’s no excuse why with today’s technology we can’t give every kid in America a quality education for almost no price at all.
Ben Stein: The excuse is that the American child is very lazy and the Chinese child is very hard working. The Chinese child wants to learn and the American child wants to play video games.
Jim Rogers: Neil, even if they’re spending three times as much on their military as they say they are, that’s still one-fifth of what we’re spending.
Neil Cavuto: Do you think they’re spending this money to be strong in the Pacific or beyond that?
Jim Rogers: Well, they have to have a military.
Neil Cavuto: So you’re not at all worried?
Jim Rogers: I’m not the least bit worried. China does not have a history of aggression like many countries in the world. They basically have not been an aggressor for over 2000 years.
Gregg Hymowitz: Like the United States.
Herman Cain: Yes but they are a national security threat. Look, you may want to grow rich with the Chinese, but not if they’re going to be our enemy and steal our military secrets.
Jim Rogers: Why are they going to steal our military secrets?
Herman Cain: They already have, Jim.
Jim Rogers: What about the English, the Israelis and the Australians?
Herman Cain: We’re talking about the Chinese right now.
John Rutledge: Stealing out military secrets is not the story. The story is they’re doing things to attract our high technology industry by not taxing incomes and by incentives and so forth.
Head to Head
Neil Cavuto: If home prices slip will it lead to a housing bust or a major buying opportunity? Barbara Corcoran says a dip in home prices is a big buying opportunity! So, Barbara I don’t mean to be cynical but you’re in the business so you’re going to hype it all you can.
Barbara Corcoran: Well, no I’m not going to hype it all I can. I’m also a buyer in the business and a seller in the business. There’s so much uncertainty in the market right now that it really is a great time to buy. And I don’t think it’s going to last very long. Come January, everyone who doesn’t buy their house right now for the price they can afford is going to wish they had because they’re going to be paying more in January.
Jim Rogers: What’s going to make them go up in January?
Barbara Corcoran: In January you can set your watch to Super Bowl Sunday.
Gregg Hymowitz: We’ve been talking about this for years now, right? And it’s always been about interest rates. Interest rates were low, and home prices went up -- money was cheap. Interest rates are up materially from where they were, and homes prices have stopped going up. It’s dead in the water for a long time to come.
Neil Cavuto: But not a crash.
Gregg Hymowitz: No there’s never been a crash.
Neil Cavuto: Well there was in the late eighties and nineties.
Gregg Hymowitz: In isolated places. Homes prices aren’t like stocks. It’s very geographically driven. Overall, throughout the country, there’s never been a home crash. It’s very much interest-rate driven.
Ben Stein: Well we most certainly had a crash in Malibu and in Beverly Hills where I live. Historically, just after the peak of a bubble is not the best time to buy. Historically, once you’re off the peak of a bubble it goes down quite a ways before it recovers. And as to why you can set your watch to Super Bowl Sunday, I’m mystified. Usually people have to have a reason for something. I’m not quite sure what Barbara’s reasoning was.
Barbara Corcoran: First of all interest rates are not high. You’re just comparing them. Even though we’ve had five big rate hikes by the Federal government, what has it done to mortgage rates? Really nothing. What I mean by Super Bowl Sunday is this whole media babble stuff that’s out there is going to get old and boring. The media is going to move on to something else.
Neil Cavuto: John Rutledge, I know you pay cash for all the buildings you buy, but what do you think of that?
John Rutledge: Barbara I love you, but we’ve got Barbara’s bubble-busting babble going on over here. Interest rates are all that matters. They’ve been priced into the market. Banks are now not financing spec houses. And Ben, I live in Greenwich, and you live in Malibu. We can buy homes now for less than $4 million. It’s a heck of a market. This is not a crash, but this not the right time, other than a busted spec deal, to buy a house. Stay in the stock market. Stocks are going to give you 10 percent a year.
Jim Rogers: Houses are going to go up in some parts of the country where they haven’t had the bubble, but buying a house in Greenwich or Malibu at these prices is total madness.
Barbara Corcoran: Those houses that you live in now are going to go up. I would put my life on it. More than that I’d put my money on it.
More for Your Money
Neil Cavuto: Stocks our gang says will get a Christmas bonus this year and give you more for your money! Ben, what do you like?
Ben Stein: Wal-Mart learned its lesson last year. It has to upscale itself and learn from Target. They’re going to have a better line of merchandise and be a better stock. Wal-Mart (WMT) is only at nineteen times earnings. For a juggernaut like Wal-Mart that is not bad at all.
Gregg Hymowitz: Ben’s right. Nineteen times earnings is not that expensive. It does bring up the main issues of whether or not they can execute on that. Also, their low-end consumers are going to be pinched by higher gas and heating prices.
Herman Cain: I believe Apple Computer (APPL) is the buy. Consumers are going for portable media, portable entertainment. They are even going to be able to download radio shows. So portability is what’s going to drive Apple’s stock up.
Neil Cavuto: Hasn’t that been priced in to perfection?
Herman Cain: It’s doing very well. Around Christmas time people like to get into the newest kind of gadgets. Everyone has a cell phone, so they need something else.
John Rutledge: I don’t like their closed source monopoly strategy. The iPod has been hyped up too much, and I’m not comfortable with the stock price right now.
Gregg Hymowitz: I like Williams Companies (WMB). There’s been a recent pullback in natural gas prices. It’s warm right now, but as it continues to get colder, natural gas prices right now are priced for perfection. If prices don’t move from here, we think the stock will be a thirty-dollar stock.
Herman Cain: It’s a solid company, but I wouldn’t buy it just because of an anticipated spike. I would buy it for the long term, not just because you’re going to get a temporary spike.
John Rutledge: Gas prices are very high right now. I think we’re going to see them soften off quite a bit. What I like right now is iShares MSCI South Korea (EWY). Anything you watch or listen to is made in Korea. Most of the Chinese technology’s roots are in Korea. We made a lot of money on that stock last year. I think it’s going to be a great year for that and the stock market.
Jim Rogers: John, I own some Korean shares and Korea is a great China play as you point out, but those ETFs have quadrupled within the last four years in Korea. It’s a very protected economy, so be a little careful.
FOX on the Spots
Ben: We need to quit talking and start thanking our military!
Barbara: Home prices head higher after Super Bowl Sunday!
Gregg: Stocks rally into the New Year!
Jim: U.S.-China relations improve after Bush's visit
Herman: House Conservatives demand new leadership in Jan.
Neil Cavuto: Ho-Ho… Huge Christmas sales, that's what I see. Hotels booked in New York, shows impossible to get tickets to, demand and sentiment up.
Forbes on FOX
In Focus: Biggest Gas Gouger? The U.S. Government!
Steve Forbes, editor-in-chief: The government makes two to three times more than all the oil companies combined, and that's in bad times as well as good times. Those excise taxes stay the same. So when you add up profits, royalties and everything else, the government is the real profiteer. Moreover, we're not like Europe and the rest of the world. We're a spread out country and we need gasoline to help us travel around our country.
Quentin Hardy, Silicon Valley bureau chief: We're spread out and we build these big super highways and we give subsidies to SUVs and they beat the fuel economy standards. Who do you think pays for this? It's government money, it has to come from somewhere. It comes from taxes and it should come from gas taxes.
Elizabeth MacDonald, senior editor: Taxpayers are getting run over by the pork wagon. When you factor in royalty payments, the government has collected $2.2 trillion over the past 25 years, which is triple the oil company's profits. They set up a trust fund that was supposed to sunset in 1972. That trust fund which was supposed to go towards our infrastructure has gone towards museums and bicycle paths.
Victoria Barret, staff writer: I think Uncle Sam should be charging us more by upping the gas tax! I think our current roads are appalling. We're not paying as much as other countries. In the U.K. they pay six times more than us. I think this will drive down consumption and we'll be able to pave our awful roads.
Jim Michaels, editorial vice president: People forget that the government is a 40 percent partner in every corporation in this country. When you make a profit, 40 percent goes to the government. That means ExxonMobil alone is going to pay close to $10 billion this year just on income taxes.
Dennis Kneale, managing editor: No matter what a gallon of gas costs, 46 cents of it goes to some tax agency and 10 cents goes to the oil companies in profits. So the government is grandstanding about high gas prices when they really ought to get their own house in order, make some spending cuts and stop spending so much money.
Steve Forbes: What's this prejudice about using gas and fuel? If prices are high people use less of it, if the price drops people use more. So what? If we really want more supply we should open up the outer-shelf. 85 percent of it is off limits. There's lots oil out there; the oil shales in Colorado and the tar sands in Alaska. There is no shortage. If people want it, why shouldn't they be allowed to use it?
Elizabeth MacDonald: We're talking about the control of spending, which is in the hands of Congress. Let's give it to the local state officials and the transportation executives so that they can control how the spending is done.
Quentin Hardy: (Responding to Jim about poor Exxon who has to pay so much in taxes.) The energy industry spends $300 million a year on lobbyists. That's not because they feel bad for lawyers.
Jim Michaels: I didn't say feel bad for Exxon. What's good for Exxon is good for the U.S. treasury. That's the way our tax system works.
Quentin Hardy: The $9 billion they spend disappears in subsidies and tax breaks that they get.
Dennis Kneale: The government has collected $1.34 trillion since 1977 in gas excise taxes. Oil companies collected only $643 million in profits over the same period. In the past 10 years there's been a 10 percent increase in the taxes that the government is taking in. The government is just going to waste this money so I don't know if raising taxes, like Victoria is saying, is the right answer.
Victoria Barret: I think we want to drive down consumption here. Right now we are funneling American dollars to OPEC nations.
Steve Forbes: There is no shortage. There's so much out there unexplored, like in the Outer Banks.
Quentin Hardy: So we drill there and hope for the best?
Steve Forbes: That's the essence of capitalism, risk taking.
Elizabeth MacDonald: If we have higher gas taxes you're basically taxing people to go to work because the mass transit systems aren't in places where people work.
Flipside: America Should Be Like France and Take Care of Us!
Mike Maiello, staff writer: We've been talking a lot about what's wrong with France lately but we haven't been talking enough about what really works in France. For one thing, they have one of the best public education systems in the world. There's a 35-hour workweek with 5 weeks of mandatory paid vacation. And our government should be doing the same things for our citizens.
Victoria Barret: There are a lot of things I like about France but their system is wrong. You want to encourage people in a society to take responsibility for their own lives. If you think that we should look more like France, look no further than San Francisco. We have the highest welfare payments in the Bay area and we also have the largest number of homeless people. That’s because they come to San Francisco to get those payouts. Our hospitals are full when they get those payouts because they’re often dealing with drugs and alcohol issues.
Neil Weinberg, senior editor: France has 1/3 the childhood poverty that we have. France spends 25 percent less on healthcare and it insures everybody. Under President Bush, our discretionary spending has gone up 25 percent. So pretty soon we’ll be just like France anyway.
Jim Michaels: The French pay a very high price for that cradle to grave security. They have almost no economic growth. They have 10 percent national unemployment and 40 percent among young people. Young people are leaving the country because there are no jobs and no growth. Their medical system may be free but it stinks!
Steve Forbes: Eight out of ten new drugs come out of the U.S., not France and Europe. French socialism has French-fried its economy. All the entrepreneurs come to this country, they can’t do it in France. A 35-hour workweek is nice but who pays for it?
Mike Maiello: There’s more to life than economic growth. The salaries in the U.S. have not kept up with inflation for five years and we’ve supposedly had economic growth over that time.
Neil Weinberg: The French are screwed up when it comes to incentives for entrepreneurs. We have this safety net, which costs a huge proportion of our gross domestic product, and we still have tons of people in poverty and without medical care. So maybe we should just get off our high horse and look at the things that do work in France and learn from them.
Victoria Barret: What is lacking in France is that if you are a young person you just don’t have a lot of opportunity. I lived there for a year and there were 20 year-old guys playing video games all day because they could make just as much money doing that.
Jim Michaels: There’s a price to pay for cradle to grave security. It puts a straight jacket on business and entrepreneurship and the price is higher than I think the American people want to pay.
Bribery: The Best Way to Stop North Korea's Nukes?
Neil Weinberg: I applaud President Bush for his ethical instincts in not wanting to do a deal with North Korea. But the fact of the matter is, we’ve tried to isolate them for four years and it has failed. And unless China and South Korea are going along with isolation, then our current policy is dead in the water. So I think it's time to pay off North Korea with economic incentives to get them to stop their nuclear program.
Jim Michaels: If you payoff one gangster then you have to payoff every gangster on the planet. It doesn’t make any sense. We should lean on the Chinese to bring this guy under control. He’s in their backyard and they have no great affection for him. We should lean on China instead of paying this guy off.
Victoria Barret: I think we’re trying to do that now. There’s no great answer but I think we have to take action in some way. You have this dictator who is basically holding these people hostage. He’s banned cell phones and he’s banned the free trade of grain. What’s the alternative, going to war? That would be much more costly.
Steve Forbes: We tried this in 1994. Clinton tried to pay them off. He gave them food and aid and they cheated. If you’re going to bribe them, make sure you have verification. They won’t go for this because they have a great game going.
Quentin Hardy: You can only pay them off if you have a vague idea that you can trust them. These guys have gone back on their word before. By the way, exporting nuclear missile technology is how North Korea makes money. If we pay them off, we’d be cutting off their key export. They won’t do that. They’ll cheat us and end up with nuclear missiles and our money.
Neil Weinberg: We have to get the Chinese and the South Koreans in on it. We have to make sure that North Korea understands that it is in its own self-interest not to cheat because they will get more out of not cheating than they got out of cheating last time. How are we going to pressure the Chinese? Are we going to blockade them? Are we going to tell them to stop buying our bonds? Are we going to tell them that we are not going to buy their sweaters anymore?
Jim Michaels: The Chinese government wants better relations with the United States. We also know that they have no use for the North Korean leader. They’re trying to rattle our cage a little bit. The truth is, it’s really their problem and they could strangle this guy if they wanted to.
Steve Forbes: Another thing we should do is put pressure on the South Korean government to allow North Koreans to come into the South. They don’t want the North Koreans. That’s how we brought down East Germany. East Germans had a way to get into West Germany. That’s how the wall fell.
Victoria Barret: This is a huge risk. But you’ve got a guy here who treats every citizen like a crook. I don’t think putting pressure on China will be that effective.
Neil Weinberg: North Korea is not going to collapse unless China and South Korea go along. China doesn’t want U.S. forces in North Korea and they don’t want all the refugees.
Quentin Hardy: What we have to do is flood the place with our technologies and our goods and ideas and try and force the collapse of this regime. It’s corrupt and it will collapse in time anyway.
Makers & Breakers
• PowerShares Dynamic Energy (PXE)
Ray Lucia, "The Ray Lucia Show": MAKER
This is an exchange-traded fund with intelligence. They actually do valuations. They have some great companies in there like, Valero, EOG Resources and Burlington Resources.
David Asman, host: You think it can go to $20 in one year (Friday’s close: $16.00).
Dennis Kneale: BREAKER
I’m a breaker. I think energy companies have benefited greatly from the soaring oil prices and I think they’ve done as well as they’re going to do for a while.
Elizabeth MacDonald: MAKER
I think that oil is going to go back up to $65. There are going to be more hurricanes wiping out refineries. This is a great idea. They have 30 stocks of exploration companies.
• Health Care Select Sector (XLV)
Ray Lucia: MAKER
This is a healthcare exchange traded fund. A lot of the healthcare pharmas are bleeding, creating a good buying opportunity. This fund has big pharmaceutical companies like Johnson and Johnson, which is a great company and Pfizer, which is trading at 50 percent of its 1999 price.
David Asman: You say in one year it's going to $38 (Friday’s close: $31.26).
Elizabeth MacDonald: BREAKER
I think it’s top-heavy. It has half of its assets in just 10 stocks. And 25 percent of its assets are in just two names.
Dennis Kneale: MAKER
Bet on healthcare. Michael Milken, one of the best investment minds of all-time says $400 billion in extra revenue will move into healthcare. This is a good bet on healthcare.
Our "Cashin' In" crew this week:
• Wayne Rogers, Wayne Rogers & Company
• Jonathan Hoenig, Capitalistpig Asset Management
• Rebecca Gomez, FOX Business News
• Adam Lashinsky, Fortune Magazine
• Bob Froehlich, Scudder Investments
• Jeff Kleintop, PNC Advisors
Stock Smarts: War on Bu$H!
Democrats are firing shots at President Bush over the war in Iraq, some calling for our troops to begin an immediate and complete withdrawal. Now the president and his team are firing back, basically saying if anyone is lying about the war, it's the democrats!
Is this war on Bush a bad thing for the stock market?
Bob Froehlich, Scudder Investments: I think it is. In essence, whatever the news focuses on tends to dominate investors’ minds. This is dominating investors’ minds. It ultimately plays out into the marketplace as well. I think it gives investors a reason to just sit back and do nothing.
Jonathan Hoenig, Capitalistpig Asset Management: Yeah, but Bob, isn’t the market up big time this year?
Terry Keenan: 500 points since the Libby indictments.
Bob Froehlich: It should be up 1000. Look at the earnings that are coming with it. I think it’s still undervalued. I think we have a December rally yet to come.
Jonathan Hoenig: Don’t you at least support the democrats’ right to free speech? The marketplace of ideas is the beauty of what this market is about. Listen, sometimes I may want to wring Chuck Schumers’ neck, he makes me so angry, but I support the right to question Bush about the war and hold the man to task about his strategies, thus far.
Terry Keenan: This is what we’re trying to get in Iraq: free and open dialogue.
Rebecca Gomez FOX Business News: But Terry, the day that Congressman Murtha called for the troops’ withdraw from Iraq, the markets all closed up higher. The NASDAQ, in fact, hit a four-year high. So yes, maybe long-term, this might weigh on the economy, but right now, Wall Street is more focused on earnings, all these mergers that we had this past week, and the economic factors look good.
Jeff Kleintop, PNC Advisors: The real risk to the market is related to dividend-paying stocks. We’ve seen dividend growth exceed earnings growth this year. The real risk is if this division in Washington extends to the dividend tax cuts; that they don’t get extended. That’s a real risk. It’s been a real support for the market. Increasingly, we’ve seen those stocks lag the market. This can be one of the reasons.
Terry Keenan: Wayne, does the market care about Bush’s numbers right now?
Wayne Rogers, Wayne Rogers & Company: Yes, I think it does. I think Bush is under fire to improve everywhere. The Iraqi war is the focal point of it. He can’t get through with Social Security, and taxes (tax reform) are probably dead. You remember when he came in and he talked about having currency to spend? He’s blown all of that currency. He does not have political currency to spend anymore, unless he stops the war in Iraq. Our fundamental policy out there is what’s strategically wrong. You can’t impose a democracy on people who have 1,000 years of a tribal existence, who desire a theocracy. It’s just a stupid policy.
Terry Keenan: Adam, what a difference a year makes. The president got more votes than any other president when he was reelected last year. Wayne has a point. The political capital has been spent.
Adam Lashinsky, Fortune Magazine: He absolutely does, but Jonathan hit the nail on the head right out of the gate here. The market has spoken clearly that it just doesn’t care. I mean, just in the last week, it cares far more about a rejuvenated Hewlett-Packard (HPQ) and Google (GOOG) going over $400 a share, than it does about this spat between the president and the Democrats. Look, typically when the president’s poll numbers are good, it’s because the economy is good. Right now, the economy is good, the stock market is performing well, and the president’s numbers are bad for completely different reasons.
Jonathan Hoenig: Adam, do you think the president lied to get us into the war in Iraq? That seems to be at the heart of what a lot of the dems are saying. Did he lie? Did he manipulate the facts to get us into the war?
Adam Lashinsky: Of course he didn’t lie. But did he massage the facts? It looks like he did. We should refocus the argument, Jonathan. That’s not what the democrats are fighting about. The most important thing that they’re fighting about is what we should do now. This spat is really an ugly one, I think, with the democrats and the president calling each other names.
Terry Keenan: Bob, it is ugly, but the market doesn’t seem to care and the economy is looking very strong.
Bob Froehlich: It is. It’s certainly shrugged it off, but I think Wall Street has a better time focusing in on earnings, but Main Street is clearly focusing in on this and I think it would be a huge mistake if we underestimate when the president of the largest stock market in the world, because that’s what President Bush is, and the president of the largest economy of the world, is under siege. That will eventually work its way into international investors, and I think this thing does have a ripple effect.
Rebecca Gomez: But look at Wal-Mart (WMT) saying that they are expecting a good holiday season, if consumers are doing the talking here – I was out this week talking to consumers, and they’re all out saying they are spending their money, and they do expect to spend money this holiday season.
Wayne Rogers: Adam, you are all talking about something that is immediate. This is going to affect the market. What you are talking about is saying, ‘earnings are great,’ ‘the market was great.’ That was wonderful last week, but we’ve got to talk about what’s going to happen in the next 90 days. That’s what’s going to be important for the market.
Adam Lashinsky: Wayne, let me give you a scenario. If, in the next 90 days, the political pressure keeps up on the president, we could see a way toward many more troops coming home next year. That could contribute to spending less money on the war, which could contribute to solving our budget deficit problems. So I see a way where this situation, even with the president’s political problems, gets better.
Wayne Rogers: Wait a minute. Let me ask you something. Hold on. How long did it take you to work out that equation?
Adam Lashinsky: About 20 seconds, Wayne.
Wayne Rogers: That doesn’t make any sense.
Jonathan Hoenig: I think Wayne is onto something here. The war wasn’t about building a democracy in Iraq. It wasn’t about getting popular with the Muslims. It was about protecting American interests. If anything, I think that Bush has to refocus the war effort on that. I mean, Iraq was a threat, but you know what? Iran is a threat. Saudi Arabia is a threat. Syria is a threat. Let’s get back to the nuts and bolts of what being Commander-In-Chief is all about. It’s not about building a school in the Middle East.
Wayne Rogers: Jonathan is exactly right.
Terry Keenan: Wayne, you correctly said the market is a discounting mechanism. Are you saying that the market is going to start to look at these problems with the president and start to sell off here?
Wayne Rogers: Absolutely. I don’t know that it’s going to sell off here; I’m saying that’s going to affect it. It affects every program that he’s doing, and Jonathan is absolutely right. We can’t focus on imposing democracy on countries who do not understand it.
Jeff Kleintop: Too much is being made of the president’s low approval rating at 37 percent. The democrats in congress have an approval rating of 36 percent. Basically this mudslinging is just tarring everyone. The American people aren’t hearing constructive criticism, they’re just seeing this mud slinging. It’s not good for anyone, but I’m not sure that it’s really changing anything. The market continues to go up.
Rebecca Gomez: Terry, I think also the American people and maybe even Wall Street see this as what happens on Capitol Hill. There are a lot of blowhards there, blowing off steam, and this is partisan politics. Let’s look at the fundamentals, let’s not let this distract us. Maybe it might have a factor in the long-term, but right now the president’s approval ratings are low and Wall Street is high.
Terry Keenan: But Bob, the president’s agenda has been stopped dead in its tracks. We have the spectacle of him overseas with his own party criticizing him – something that would not have happened a year ago.
Bob Froehlich: Absolutely. When we said earlier that the president has lost his currency, he hasn’t just lost it. He’s in deficit. Certainly that shift has really changed. It’s going to make it really difficult to get the tax proposals in place and get them approved. There’s another thing going on. Not just the president’s approval rating, maybe this is part of it, but keep in mind hurricanes Rita, Katrina and Wilma also changed the legislative priorities as well, so I think there’s a lot of things going on at the same time.
Best Bets: Bu$H Bets!
If you think the president will make a strong comeback from the democrats’ attacks, then these stocks could be ready for a "Bush boost."
• Jeff’s Bu$H Bet:Texas Instruments (TXN)
Friday's close: $31.88
52-wk High: $34.68
52-wk Low: $20.70
Jeff Kleintop, PNC Advisors: I own it. We own it at PNC, we recommend it to our clients. It’s going to benefit in two ways. First, it’s the leader in low-cost chips for cell phones. Emerging market demand is exploding. Second: its technologies for digital television. They have a cheaper alternative to LCD and Plasma. Remember that there is a federal mandate that all TVs have to be digital by 2009. Lots of demand in the coming years. I love Texas Instruments.
Bob Froehlich, Scudder Investments: I don’t like this one. It’s all about valuation. I just don’t like companies whose price-earnings ratio is higher than the market’s PE, and whose earnings-per-share is lower than the market’s. The fundamentals are just what concern me.
• Bob’s Bu$H Bet: Merrill Lynch (MER)
Friday's close: $67.26
52-wk High: $67.26
52-wk Low: $52.00
Bob Froehlich: My presidential pick is a bull. Merrill Lynch (MER). I think the dividend tax rate is going to zero. Merrill Lynch has a lower PE ratio and a higher earnings-per-share. The fundamentals are just there. It’s a screaming buy. I own it by the way, big time.
Terry Keenan: They’ve had a lot of cost cutting. Can that continue?
Bob Froehlich: I think they’ve really continued to shrink the part of the business they need to. More importantly, I think with some of the mergers that we’ve seen going on, I think Merrill Lynch stands to benefit from those as well. So it’s not just the brokers, it’s the investment banking. It’s a great 1-2 punch.
Wayne Rogers, Wayne Rogers & Company: I like all of those stocks. I think Merrill’s earnings, which increased enormously this last year, I think they’re on to something.
• Wayne’s Bu$H Bet: VimpelCom (VIP)
Friday's close: $44.23
52-wk High: $46.17
52-wk Low: $25.00
Wayne Rogers: My presidential pick is VimpelCom (VIP). I’ve had it before. I’ve talked about it before. It’s a Russian telephone company, the second biggest in Russia, and they’re expanding. They’re earnings were up 91 percent in the last quarter, so it’s a strong buy.
Jonathan Hoenig, Capitalistpig Asset Management: Wayne, isn’t it hard though, to go back to a stock that you’ve already been in? I mean, you were in this a while back, I think you got stopped out. Isn’t it kind of hard to buy it back at a much higher price?
Wayne Rogers: You know Jonathan, we’ve talked about this a lot. I don’t think it’s hard to buy back a stock. You have to admit to yourself that if this company is really sound and if the chart tells you to buy it back, you buy it back.
Jeff Kleintop: It’s too risky. They just spent a lot of money to enter Ukraine and that’s a lot of spending. It’s a heavily penetrated market. I really think they’ve overspent there. I see a lot of risk here over the next 12 months.
• Jonathan’s Bu$H Bet: streetTRACKS Gold (GLD)
Friday's close: $48.46
52-wk High: $48.58
52-wk Low: $41.02
Jonathan Hoenig: I’m into gold big-time. It’s my fund’s largest position. My pick is GLD. It’s a relatively new ETF that basically allows you to bet on the price of gold. It had a big move this week. I think $500 gold is an inevitability. Whether it’s platinum, palladium or copper, the metals are like the new oil to me. I’m cuddling up to my bar.
Wayne Rogers: I love a lot of Jonathan’s picks, I’m not too sure about this one. You’re actually just buying gold bullion. It’s an excuse to buy bullion now. If you think gold is going to continue to go higher, yes. But it’s had three big moves in this last week and I just don’t know how much is left in it. At some point it’s going to top out. I just think it’s a little shaky here.
Jonathan Hoenig: Maybe at about $800 an ounce, Wayne. Where is it going to top out? It could happen.
Jeff Kleintop: I think gold is going to shine. People think of gold as an inflation hedge, but think of it as a high-end luxury retailer. We’ve seen them do really well here. Salary growth is terrific. I think bonuses are going to be good this year. Buy gold.
Bob Froehlich: I would hold. I love the commodity play, but I don’t know that I would put all my eggs in just the gold basket. I would really rather play the diversified commodities. The metals are good, but I like the oil still.
Cashin’ In Challenge
Check out their stats at: www.foxnews.com/challenge
Question: "I think a national sales tax would make the economy explode, create new jobs and rally the stock market. What do you think?"
Jonathan Hoenig, Capitalistpig Asset Management: It’s a great idea. First of all, it’s a much more moral tax, to tax people on what they spend instead of what they earn. Even more importantly, Terry, it’s a much more simple tax. I’m a pretty smart guy, but I can’t do my own taxes. That’s wrong. The fact is, people spent billions and billions of dollars just trying to figure out what their tax liability is. It’s a huge drain on the economy. Make the tax plan simple. Make it fair. A consumption tax is the right way to go.
Terry Keenan: Are we ever going to see it in our lifetime, Wayne?
Wayne Rogers, Wayne Rogers and Company: I don’t think so. Jonathan may be right. They average about a 15 percent vat (value added tax) over there, which is a form of sales tax. The problem is, I don’t know how, in this country, are you going to be able to raise the same amount of revenue. There are going to be exceptions to write this bill. It will never happen. Congress will not agree to it. That’s the problem.
Terry Keenan: Come shopping with Rebecca and me. You’ll see how much money you can raise.
Rebecca Gomez, FOX Business News: Good luck trying to get any of this tax reform passed through congress. That’s where the big hurdles are.
Adam Lashinsky, Fortune Magazine: At a pointy-headed, academic level, this thing’s got a lot of appeal. I think it’s going to happen right after the real estate lobby allows the mortgage-rate deduction to be eliminated. It’s not going to happen.
Terry Keenan: Are you calling Jonathan pointy-headed?
Adam Lashinksy: No, I would never do that, Terry.
Jonathan Hoenig: You could call me academic.
Adam Lashinsky: I would never do that either.
Question: "What do you think about Cendant (CD)? Has it formed a base that makes it a buy, or has it not yet hit a bottom?"
Wayne Rogers: I don’t know. It’s had a rough ride here. They are going to break it up into four divisions and it is making a bottom. I won’t know until that bottom is complete. In other words, if you see something in the chart that suggests to you that it’s not going to go down further, I wouldn’t venture out into this at this point. I would wait and see about that.
Adam Lashinsky: I actually do like it Terry. The big problem here is that 40 percent of its revenues are real estate related and that’s topped. So I’d hold it, but when it splits up, I’d get out of that real estate portion of it.
Question: "I'm looking for a good international mutual fund that doesn't kill me on fees. Any
Adam Lashinsky: I have something. It’s something I own called the Vanguard Emerging Markets Stock Index (VEIEX). It’s extremely cheap on expenses, it gets you good exposure to all the world, which everyone watching should have.
Question: "What is going to happen with General Motors (GM)? Is the government going to help bail it out, and would that be good for the market?"
Jonathan Hoenig: If the government steps in, Terry, I think all hell is going to break loose, honestly. I mean I happen to think that GM is going to go bankrupt. Take a look at some of its long-term debt. This stuff is yielding 12-13 percent. I wouldn’t bet on GM, and if the government steps in, it’s a gross violation of what the role of government is. You’re going to see the markets crash. You’re going to see bonds crash and the dollar. It would be terrible for the markets.
Wayne Rogers: You can look at the bonds at GM. The bonds are very strong right now. The equity may not be indicating debt. I’m not going to necessarily speculate ion the bonds, but there are a lot of distressed funds that will. The fact that the government may or may not step in, though, in the Chrysler situation they did step in and it was a successful thing and it did work out. If they can plot that for GM, more power to them. I don’t believe in it, though, and I agree with Jonathan. I don’t think that it’s a thing that should happen. I think they’ve got enough assets there, they can turn this thing around themselves.
Rebecca Gomez: It’s a tragedy because GM is an American icon. I mean, it’s been around forever. This is the American car company and the CEO this week issuing that internal memo saying that they’re not going to declare bankruptcy but, come December, that’s a deadline and a crucial one for them.
Adam Lashinsky: I don’t know if they’ll make it. I think that in this day and age, no company is too big to fail. The government would let it go and help its workers.