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: Tobin Smith, ChangeWave research editor; Scott Bleier, HybridInvestors.com president; Pat Dorsey, Morningstar.com director of stock research; Mike Norman, BIZRADIO Network talk show host, and Brent Wilsey, president of Wilsey Asset Management.
Trading Pit: Dubai Port Fiasco: Will the Stock Market Be the Big Loser?
The Dubai Ports deal has been a fiasco on every level: the GOP breaking with the White House; Democrats claiming victory; and the President taking a beating. Will the stock market end up being the biggest loser in all this?
Gary B. Smith: Yes, the stock market definitely could be the biggest loser. Foreigners invest about $79 billion in the U.S. market. If they suspect we are closing our borders, some of that money could go elsewhere. This could hurt our economy, which will in turn, drive interest rates in a way foreigners don’t want, and foreign investors will get less return on their money and will look for countries that are better suited for them. It’s a real detriment to our market and economy.
Mike Norman: This is a tiny little country. The U.S. has such a large economy. It’s become fashionable to say that this is going to lead to a depression. That’s completely ridiculous. Despite what has happened with this fiasco, we are still the most open and competitive economy in the world. This is a security issue. Every other country would have to stop investing here, and that’s not going to happen. The stock market likes it.
Brent Wilsey: First and foremost we must think about homeland security. I'd rather have a flat economy or stock market than another attack on U.S. soil. With that said, I think we have a strong relationship with the UAE. While there might be some hurt feelings in the short term, in the long term I don't believe this will affect our trade. This will fade away, and the march up to Dow 12,000 will continue.
Pat Dorsey: A real security crisis could mean an economic security crisis. The Unocal deal last year was killed over political concerns. (A Chinese-owned company tried to buy a U.S. oil company.) We also had steel tariffs a few years ago. This is protectionism, which is the worst economic disease imaginable. It’s not a big deal yet, but if it continues in this direction and we start killing deals for political reasons, it could be a huge problem. In regards to the security issue, these port operators don’t really provide security. If security was that big of a deal, why weren’t we making sure the ports were secure for the past 5 years. It only becomes an issue when there’s a political point to be made.
Scott Bleier: I agree with Mike. America is open for business. There will always be industries and companies that are protected, whether it is economic or political. This will continue. There’s plenty to invest in here. Plus, there are other Arab countries that are clamoring to buy assets here.
It was six years ago March 10th, that the Nasdaq hit its all-time high of 5,048.62. It closed Friday at 2,262.04. There’s still a long way to go to get back up there, but we’ve got the best beaten-down Nasdaq stocks to make you money on the way.
Mike Norman: Cisco Systems (CSCO) epitomized the go-go days of the dot-com. It still makes the number one networking gear for the Internet, like switchers and routers. Now, with the acquisition of Scientific Atlanta it is in cable boxes. (Cisco closed on March 10, 2000 at $68.19. Cisco closed on Friday at $20.82.)
Pat Dorsey: Expectations are a lot lower than they used to be. This is a good pick.
Scott Bleier: After spending four years doing nothing, the stock has finally perked up technically. Fundamentally, it’s still a powerhouse company.
Brenda pointed out that it is a mature market packed with competitors.
Scott Bleier: I really like VeriSign (VRSN). It’s the gateway to the Internet. It’s involved in many businesses including online security, payments, and domain name registration. It sells at a cheap discount and I think it’s ready to go to $30. (VeriSign closed on March 10, 2000 at $239.94. VeriSign closed on Friday at $23.14.)
Mike Norman: I think the company’s domain name registration is going to go away. I don’t really like this stock.
Pat Dorsey: It’s definitely a better business than it used to be. However, I don’t like that it’s not very focused. The company’s involved in too many areas.
Pat Dorsey: My pick is Oracle (ORCL), the second largest software company in the world. It’s the application business that gets all the press, but the database business that makes all the money. 80 percent of Oracle’s business right now is the database business. With the Siebel and PeopleSoft acquisitions, we’ll see a surprise on the upside. (Oracle closed on March 10, 2000 at $40.80. Oracle closed on Friday at $12.90.)
Scott Bleier: CEO Larry Ellison is a maniacal leader. I don’t think the stock goes up until he retires.
Mike Norman: The database business is a tough one with lots of competition. Oracle’s a good company, but the stock isn’t going anywhere.
It’s a Chartman Challenge! We’ve got a new guy on the block and he’s picking his best stocks. Will Gary like them too?
Brent Wilsey: Intel (INTC) is one of my favorites. I really love it because it is cheap. Last year, the company spent $5 billion on research and development. It’s also coming out with chips that are more powerful and that take less energy. I own the stock and think it‘s going to the mid $20s by the end of the year. (Intel closed on Friday at $ 19.85.)
Gary B. Smith: The chart shows that the stock has no life in it. Stay away. It’s still in a downtrend.
Brent Wilsey: I also really love chicken producer Gold Kist (GKIS). It sells chickens to grocery stores, food service companies, and restaurants. Chicken’s not going anywhere and this company has strong fundamentals. (Gold Kist closed on Friday at $11.72.)
Gary B. Smith: This stock has been trending down for six months! Why start buying now?
Gary B. Smith: Brent, you really need to buy Research In Motion (RIMM). It recently had a huge breakout, which proves it’s going to keep heading up. I will admit that it is a little overbought right now. Just wait until it pulls back to the mid $70s and then it will be ready to soar. Get ready for it to hit the $100s. (Research In Motion closed on Friday at $80.60.)
Brent Wilsey: This is way too expensive for me. I like to buy low and sell high. Plus, it has a lot of competition from Palm and Nokia.
Gary B. Smith's prediction: Gonna be a hot spring: Dow 12K by Memorial Day!
Mike Norman's prediction: Gets much worse for housing market; slowdown just started!
Scott Bleier's prediction: There is too much oil! Prices fall to $50/barrel
Pat Dorsey’s prediction: Mittal (MT) strong as steel! Gains 40 percent in 1 year
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, “Hot Commodities” author; Gregg Hymowitz, founder of Entrust Capital; Ben Stein, “Yes, You Can Still Retire Comfortably” author; John “Bradshaw” Layfield, host of “The John Layfield Show”; Patricia Powell, CEO of Powell Financial Group, and Adam Lashinsky, senior writer of Fortune Magazine.
Neil Cavuto: Abortion taking center stage after South Dakota's governor signed a law banning nearly all abortions. And several states are looking to follow suit. So will abortion trump the economy as the bigger election issue this year?
Ben Stein: Abortion is the premeditated homicide of the most innocent among us. It’s always wrong except when literally the mother’s life is at stake. The moral evil of abortion is clear-cut. What the interest rate should be, what the discount rate should be -- these things are vague and uncertain.
Jim Rogers: But Ben. When people vote, they vote with their pocketbook.
Ben Stein: With all due respect, moral issues are what got the Republicans voted into office over and over again.
Gregg Hymowitz: I love you Ben, but I find what you’re saying very offensive. The thing I find hypocritical is constantly Conservatives want government out of their pockets. They want no government involvement when it comes to financial matters. But when it comes to a right to privacy, homosexuality and abortion, then they’re all in favor of government intruding in their private lives.
Neil Cavuto: Do you think it’s going to be an issue?
Gregg Hymowitz: I don’t think it’s going to be that big of an issue. Ultimately, the new Supreme Court will overrule Roe v. Wade and then it’ll go back to the states.
John “Bradshaw” Layfield: Look at the same-sex vote in Ohio. It was a swing state. Republicans did a great job in keeping in line with traditional American values. That is one of the reasons George Bush got elected. I do agree with Ben. Abortion should not be used as birth control. But Americans have become desensitized. When same sex came up, there was a huge outrage. People believe this is going to be decided by the Supreme Court, not by who they elect.
Patricia Powell: When the economy is good, then people pay attention to other issues, but if you make the average voter feel financially insecure, then that’s going to move to the top of their list. Twenty-one percent of people think abortion should be completely abolished. It doesn’t matter where you stand on this issue; you’re in the minority. Thirty-eight percent of us think abortion should be legal, but with restrictions.
Neil Cavuto: So you don’t think it’ll be a dominant theme?
Patricia Powell: Not if the economy tanks.
Adam Lashinsky: The economy always trumps an issue like abortion. Furthermore, the economy is a moving target. It happens to be a very positive target right now, which is very good for the Republican Party. Abortion is not a moving target. People don’t change their minds from one election to the next. So the economy will be far more important.
Gregg Hymowitz: Thomas Frank wrote a book called, “What’s The Matter With Kansas?” It talks about how Republicans lead with social issues, but he points out in the book how Republicans have never delivered on the social issues.
Neil Cavuto: Have Democrats ever delivered on social issues when the poverty rate is higher than it was when you started all your programs?
Gregg Hymowitz: Come on, Neil. Affirmative action, civil rights legislation…
John “Bradshaw” Layfield: Democrats think George Bush is responsible for everything including the Biblical flood. The last election was not about the economy. It was about the war, the Vietnam War.
Ben Stein: Gregg, the Republicans in Congress under Lyndon Johnson’s administration were the ones who passed the civil rights act. And the Republicans are going to deliver a pro-life Supreme Court.
Neil Cavuto: He is right about that. You’re too young to remember the Congress makeup when Johnson was in office, but that is the case.
Gregg Hymowitz: The Republicans have not delivered on the social issues that they’ve led with.
Neil Cavuto: But is there something to what Ben is saying? That it could become an issue when state after state is doing what’s happening inside Dakota?
Gregg Hymowitz: If it passes legislation it’s going to go straight to the Supreme Court. And we’ll hear what they have to say with a new group on the Supreme Court. If they overrule Roe, then it’s going to go back, and you’ll see a lot of dirty fights in the state.
Neil Cavuto: Would women be for or against Republicans if it goes back to the court, and the court overrules it?
Patricia Powell: It would work against Republicans.
Jim Rogers: Ben is right. There is 21 percent and they’re going to vote Republicans no matter what.
Neil Cavuto: The way the economy is right now, you think Republicans would get re-elected?
Jim Rogers: No, I think the economy will be slowing down dramatically by 2006.
Neil Cavuto: Adam?
Adam Lashinsky: The economy will be strengthening in November, and that’ll be good for the party in power.
Neil Cavuto: Ben?
Ben Stein: This economy is fantastically strong. Moral issues are everything in elections now. That’s how Republicans win.
John “Bradshaw” Layfield: This election will finally not be about an affair with an intern or the Vietnam War. It’s going to actually be about the economy and foreign policy.
Gregg Hymowitz: The focus of the election will be on the total incompetence of this administration.
Neil Cavuto: I’m waiting for you to say something good about the president. You are a hurtful, mean man.
Gregg Hymowitz: You missed the show where I agreed with you Neil. You were off on vacation.
Head to Head
Neil Cavuto: Twelve million illegal immigrants are in the United States. And the number grows every day. Is that good or bad for our economy? Time to go head to head.
Jim Rogers: Nearly everybody’s family watching this show came here from somewhere. And that’s what made America great. We need people with that kind of drive and that kind of ability. We need more of them. We need to figure out a way to let them come here legally. I’m not in favor of anybody doing anything illegal. We need to make it easier for people to get here.
Gregg Hymowitz: I agree with Jim 100 percent. No one is in favor of any illegal activity. We need to figure out how to get all these illegal immigrants on the tax roles. There are a lot of jobs that go unfilled because there aren’t enough Americans out there who want to fill these jobs.
Ben Stein: In my neck of the woods, we are flooded with illegal immigrants. They do everything here, and we probably could not get along a day without them, but they are killing the school system, the healthcare system, and the criminal justice system. This is our country. We’re not supposed to just give it to people who climb over a fence. We have to reestablish control of the borders.
John “Bradshaw” Layfield: Ben is exactly right. I grew up working on a ranch in Texas with a couple of illegal immigrants. They benefited the local rancher. That was it. They were a drain on the local economy. And they didn’t pay taxes. The latest study shows they’re costing our country $67-$87 billion.
Jim Rogers: What study? Whose study?
John “Bradshaw” Layfield: The Fair Immigration Study. I lived on a ranch. These guys do not pay taxes.
Gregg Hymowitz: If you legalized them, they would be able to pay taxes.
John “Bradshaw” Layfield: No, I agree with you. We should either make them American so they can pay taxes. Or round them up, and kick them out.
Jim Rogers: They want to be assimilated.
John “Bradshaw” Layfield: We have caused them to be a sub-set of our country.
Patricia Powell: And they should be. Anybody who comes in here illegally should not get a free pass just because they were able to evade the immigration authorities. We’ve got to open our borders in a rational way.
Gregg Hymowitz: We all seem to be in an agreement that immigration policy needs to be reformed. Are you actually saying we should deport all the illegal aliens?
Patricia Powell: Yes, absolutely.
John “Bradshaw” Layfield: We should help them become citizens but yes.
Gregg Hymowitz: Well, help them become citizens. That’s what I mean by an amnesty program.
John “Bradshaw” Layfield: But I’m not sure amnesty programs work because then they get homes, they get cards, and they get children.
More for Your Money
Neil Cavuto: Wish you had more money in your retirement nest egg? Stocks our gang say will juice up your savings and help you get more for your money!
Patricia Powell: This company is small and for those who are not risk averse. It’s called VeriFone (PAY). I stood in King’s grocery store recently and six people in front of me were standing in line using their debit cards to pay for things. This is a company that provides those systems. Last year there were more debit card transactions than credit card transactions. VeriFone closed Friday at $28.52
Adam Lashinsky: I don’t think you can play catch-up by buying a hot stock like this. This is a good company. It should still be part of Hewlett-Packard. But at 20 times forward earnings, it’s way ahead of its growth rate.
Neil Cavuto: Then what are you doing Adam?
Adam Lashinsky: I own Vanguard Emerging Markets Index Fund (VEIEX). So many Americans are way behind in investing in their retirement accounts abroad. And that’s where the growth is going to be over the next 20 to 30 years. Vanguard Emerging Markets Index is up 6.7 percent so far this year.
Patricia Powell: This was a great fund three years ago. But five of the last ten years of this fund were down. People are losing money. They don’t care if they’re losing it cheaply.
Jim Rogers: I’ve sold out of almost all of my emerging markets now. This is a fad, which is coming to an end.
Neil Cavuto: Ben, what are you doing?
Ben Stein: I love the emerging markets. They’ve been on a tear for the last few years. I love iShares MSCI Emerging Markets (EEM). I agree it’ll be a bumpy ride. But for the long term, it’ll be a good ride. Those economies are what America was 100 years ago. And they have a lot to go. iShares MSCI Emerging Markets closed Friday at $94.65
Jim Rogers: Some of them will turn out to be America 100 years ago, but not all of them. And right now people are indiscrimatinately buying emerging markets.
Neil Cavuto: Gregg?
Gregg Hymowitz: We like Williams Companies (WMB). It’s a natural gas company. We think their reserves are being very cheaply valued. Gregg’s firm owns stock in Williams Companies. Shares closed Friday at $19.96
Jim Rogers: But suppose they don’t find any natural gas?
Gregg Hymowitz: Their pipeline business will continue to keep them going.
Jim Rogers: But who pays a multiple for a pipeline?
Gregg Hymowitz: You’re not paying a multiple for a pipeline. You’re paying a multiple for the reserves they already have.
Jim Rogers: But their reserves are declining.
Neil Cavuto: If they’re looking for natural gas they can find it right here!
FOX on the Spots
Jim: Protectionism will lead to the next Depression!
Patricia: Oil falls to $50, but U.S. falls into recession
Gregg: Japan on a tear; buy Japanese stocks!
John: Roll in the dough; bet on Krispy Kreme comeback!
Ben: Hollywood's Oscar night snub of Military is a disgrace!
Neil Cavuto: My FOX on the Spot is: a sad day for America. Republicans might think they dodged a bullet on this Dubai thing, but not the country. The message to the world is that America "isn't" open for business and that we're very selective with whom we do business. The trade deficits will only get worse, if you can believe that!
Forbes on FOX
In Focus: Dubai Port Debacle: Costing Us an Ally in War on Terror?
Mike Ozanian, senior editor: This is a devastating blow against the war on terror because it damages our relations with our Arab allies. It’s also a potentially damaging blow to our economy because this is the most “protectionist” our Congress has been since the 1930s.
Rich Karlgaard, publisher: The fact is, Dubai has nowhere else to go. We’re still going to be military allies. We’re going to still have access to their landing fields. They’re still going to be a critical listening post in the Middle East. I also worry about the “protectionist” sentiment but at least the Republicans now will be back on the same page.
Jim Michaels, editorial vice president: This is American politics at its worst. A bunch of Democrats showing that all they care about is bashing President Bush. They don’t care about our foreign policy. And a bunch of Republicans who are pandering to the worst kind of bigotry. I think this is a black eye for America and I’m embarrassed by it.
Dennis Kneale, managing editor: This is a terrible precedent and it is fueled by fear but it doesn’t necessarily have to hurt the war on terrorism for one reason; I think that the Arabs are as terrified by radical terrorists as we are and they’re still going to work with us to try and stamp these guys out.
Quentin Hardy, Silicon Valley bureau chief: Radical terrorists benefit by us looking bad in the Arab world and this makes us look terrible. The Republican leadership has done a wonderful job of lowering the profile with this terrible racist act.
Jim Michaels: Most of the people who voted against this are Democratic. It’s a minority of the Republicans who opposed it. This is a bipartisan disaster. You can’t blame this on the Republicans.
Victoria Barret, associate editor: The reason I’m not too worried over this deal is I think that it shows a mutual understanding between the U.S. and Dubai about our political realities. This is a one-time event. We’re not going to see deals like this very often or possibly ever again.
Dennis Kneale: If we’re going to knock the Arabs from our ports then lets not buy 25 percent of our oil from the Arabs.
Jim Michaels: We’re trying to tell the world that we’re against terror not Muslims. This is saying we’re lying.
Mike Ozanian: The Congress and the Senate have lied to the American people about this deal from the beginning. First they said it was about safety, then they said the coast guard was concerned, then they said they wanted a 45-day review. Now they’ve killed it before that 45-day review. As far as I’m concerned, the people in the Congress and the Senate that killed this deal should be held on trial for impeachment.
Rich Karlgaard: The fact is this is taking the focus off of Iran. Iran is the real threat in the Middle East. We’ll forget about this little hiccup with Dubai. It’s an embarrassment for us.
Quentin Hardy: The Arabs don’t have a huge financial news system like we do so this hasn’t been a huge issue for them. Nonetheless, remember that Danish cartoon that percolated for a couple of months before it became an issue? Radical Islam will throw this in our face at some point.
Jim Michaels: This is racial profiling at its worst. This is a case where we’re profiling friendly Muslims. The bottom line is that we are saying that we don’t want Arab investors messing in our ports. If that isn’t a sign of bias and bigotry, I don’t know what is.
Flipside: Wall Street Is Stealing Your Retirement Money!
Quentin Hardy: Wall Street traders are trading much more than they have to so they can get their commissions. You should just computerize the whole system. You don’t pay computers commissions. It would work better.
Mike Ozanian: Quentin is painting all fund managers with the same brush. You just have to be choosey as to who you invest your money with.
Bill Baldwin, editor: Mike says it’s fine to give 20 percent of your money to managers as long as they’re gains. Look at the arithmetic. I’ve got $1 million. I give $500,000 to guy #1 and he doubles my money. I give the other $500,000 to guy #2 who rolls the dice and gets snake eyes. So I’m back to where I started. But guy #1 says he’s a genius and he wants $100,000 of my money! Now I’m poor!
Lea Goldman, staff writer: I don’t know why we’re babying investors. No one puts a gun to his or her head. The responsibility is on the investor to take responsibility for their actions. If you don’t like the fees you're accruing, take your money elsewhere.
Jim Michaels: The average 401(k) investor is actually giving 20 percent to fund managers. If he loses the fund manager doesn’t kick in 20 percent. Take a guy who has a $200,000 401K and is now 35, over his lifetime he’s going to pay $50,000 to fund managers. And what are they going to do? They’re going to give sub-average returns.
Rich Karlgaard: There is a scandal here but we’re naming the wrong villain. The problem is most employees have a 401k program with about 6 or 8 choices of big funds that do nothing but index these funds. You can’t blame these funds for taking their 2 percent management fees. The villains are these HR benefit people and the in-house lawyers who give such a narrow range of picks.
Mike Ozanian: What if Forbes writes a story recommending a stock and it goes down? It doesn’t happen often, but if it does, we don’t give subscription money back.
Jim Michaels: But we don’t charge 20 percent of your profits and not share in any of your loses. We just get the cover price of the magazine.
Lea Goldman: You know none of these investors are sitting at home researching their funds. So they are paying these managers for their expertise and experience. They’re outsourcing their homework.
Informer: Best Small Cap Funds
Dennis Kneale: I like Stratton Small-Cap (STSCX). If you put $10,000 in it 10 years ago it turned into $42,000. On the “Forbes Honor Roll” we give it a grade A, even in down markets.
Bill Baldwin: This is a small cap value fund? One of their hottest stocks is an oil well abandonment company. It’s trying to get 37 times earning. What’s that?
Lea Goldman: I like Jennison Small Company Z (PSCZX). I like this company because they’ve really spread their risk and they go after small cap growth, not value. So it’s all about growth. You’ll see upside very quickly. I like the management, I like the returns. It’s a very consistent fund.
Mike Ozanian: This is such a wimpy fund. Their biggest holding is another mutual fund. They don’t even have enough confidence to pick their own stocks. I like UMB Scout Small Cap (UMBHX). This has a great long-term record but very low expenses.
Lea Goldman: Small caps have been on a tear recently, so why has this fund done so badly over the past year?
Bill Baldwin: I like Pennsylvania Mutual (PENNX). The guy who’s running it has had a good run of 33 years with low expenses here.
Jim Michaels: All you guys are barking up the wrong tree. You’re looking backwards. For over 5 years small caps have out performed, that wave is going to crest pretty soon. I wouldn’t put additional money in now. If you don’t have a lot of international diversification I would buy iShares EAFE Global Index Fund (EFA). It’s a good hedge against the weaker dollar and foreign growth and gets you into the big cap area.
Dennis Kneale: I disagree. For over the past 5 years in a row small caps have handily out performed large caps. They more than doubled the returns of large caps.
Jim Michaels: This always happens. These things go in waves through out history. Small caps are up then they’re down and they’ve been up for 5 or 6 years.
Makers & Breakers
• Teva Pharmaceuticals (TEVA)
Andrew Seibert, senior portfolio S&T Wealth Management: MAKER
This is an Israeli-based company. It’s in the sweet spot with the new Medicare laws that are coming out. They are a generic drug manufacturer. They have several drugs that are on patents. With the pharmaceutical companies having a weak pipeline and a lot of their blockbuster drugs are coming off patent, Teva sits in the drivers seat.
David Asman: You think it can go to $54 in one year (Friday’s close: $40.78)
Victoria Barret: MAKER
This company is well positioned and they just digested a big acquisition. And they’ve gotten rid of some patent infringement lawsuits. Now they have generic versions of Zoloft and Zithromax. Great drugs.
Dennis Kneale: MAKER
More drugs are coming off patent than ever before. And plus Israeli tech is always good!
David Asman: Here’s a caveat, it is in Israel and Hamas was just elected. Is there a political problem down the road?
Andrew Seibert: There probably is, and if the stock drops it’s just a great opportunity to buy more.
Smith International (SII)
Andrew Seibert: MAKER
It's an oil and gas supplier. It does the bits and the piping. Very well positioned for deep water drilling because of the technological advancements its made with its bits and the piping that it uses.
David Asman: You think it can go to $49 in one year (Friday’s close: $36.06)
Dennis Kneale: BREAKER
This is a good company. But I don’t think oil is going to keep going up and this company thrives if oil keeps getting richer.
Andrew Seibert: If oil goes down I don’t think it will hurt the stock. We’ll always be looking for oil. We have to because it’s one of the things that drives the economy here and everywhere else in the world
Victoria Barret: MAKER
I think this company is in the right place at the right time. This stock has had a run-up but this stock is historically cheap. So I think it’s still a buy.
Our “Cashin’ In” crew this week: Wayne Rogers, Wayne Rogers & Company; Jonathan Hoenig, Capitialistpig Asset Management; Jonas Max Ferris, MAXfunds.com; Dagen McDowell, FOX Business News; Charles Payne, Wall Street Strategies, and Danielle Hughes, Divine Capital Markets.
Stock Smarts: Does Wall Street Want a Third-Party President?
Forget Democrats and Republicans! Wall Street really wants a third-party president, but Jonathan, would it really good for stocks?
Jonathan Hoenig, Capitalistpig Asset Management: It would be great for stocks and it would be great for the country. The two major parties have basically become the same thing. They’re both perfectly willing to trample over individual rights to get elected. If it’s the ‘right’ who’s in bed with the religious right or the ‘left’ who is in bed with the unions and the teachers, there are no political parties anymore who stand for life, liberty and the pursuit of happiness. I vote libertarian. They don’t have a hell of a chance of winning, but it’s either them or the green party. This is embarrassing.
Terry Keenan: Wayne, do you agree?
Wayne Rogers, Wayne Rogers & Company: No, but I love Jonathan’s enthusiasm about it.
Jonathan Hoenig: Well, what do you think, Wayne?
Wayne Rogers: The history of third-party candidates is a disaster in this country. There’s no way for them. I love the fact that somebody is around to knock on the doors to beat on the democrats and beat on the Republicans, but it’s just not going to happen. It doesn’t help the market, one-way or the other.
Terry Keenan: And you know, Charles, the last time we had a strong third-party candidate, we got President Clinton as the president.
Charles Payne, Wall Street Strategies: I do agree in the sense that I think it’s a good American thing to have a third party. The problem is that we can’t have clowns. Really I think that a lot of people feel like it’s not even about an ideologue. It’s about the fact that the best-qualified people aren’t running. I don’t think that you could even get a qualified person to run for the third party, but I think it would be good for democracy in America.
Dagen McDowell, FOX Business News: But what a third-party candidate can do, Jonathan, and you’re kind of hitting on this, is introduce at least one idea that pushes for change in this country. You saw it with Ross Perot in 1992; his central issue was the budget deficit. People started talking about it and something eventually got done in Congress. We need that right now, desperately about Medicare, Social Security and you name it.
Terry Keenan: Dani, do you see any potential third-party candidate that could get a 19 percent like Perot out there?
Danielle Hughes, Divine Capital Markets: Not realistically, not right now. The fact is that Americans care very much about their vote. We know how important it is.
Charles Payne: But they don’t vote.
Danielle Hughes: But we know how important our vote is, and we don’t vote with our conscience. We vote for the ‘lesser of two evils.’ That’s how things work right now. And that’s the problem.
Jonas Max Ferris, MAXfunds.com: I think that’s why you’re all underestimating the possibility that this could happen next time. A lot of people voted for Bush because they didn’t like John Kerry. And a lot of people who voted for Kerry just didn’t like Bush. They didn’t really like Kerry. That leaves a whole opportunity for someone to take votes. And to Jonathan’s point about libertarians, there are a lot of people who don’t like republicans right now because they are spending like crazy, and you can get that vote. There are a lot of democrats who really aren’t for the war, but the democrats have no policy on that because they keep flip-flopping to get votes. In theory, a small, third party candidate could consolidate that.
Jonathan Hoenig: But you know what? They could never get any traction, because of all these campaign finance reform laws that have been passed. That keeps the big parties big and makes it almost impossible for any small contender to raise any serious money.
Danielle Hughes: They can’t even debate unless they have a certain percentage of the vote, and the fact is, how are we going to hear about them if they can’t debate?
Jonathan Hoenig: And so the Chuck Schumers have all the vested interest in the world in keeping their club private.
Terry Keenan: Wayne, what about a John McCain or a Rudy Giuliani as a third-party candidate?
Wayne Rogers: As I said, the history of third parties is just not going to work for all the various reasons that you all have spoken about. If one of them got to be on the ticket of one of the major parties, it would be terrific, because that would at least stir up the pot. And I agree with you that the dissatisfaction with Bush and the previous president were enormous. You’ve got to have something here to shake it up. But it’s not going to happen with a third-party candidate.
Terry Keenan: Charles, going back to our first question, would Wall Street like to see three candidates competing for the pie?
Charles Payne: Well, yeah I think it would be OK. It would be pro-American and pro-capitalism and pro-opportunity. The thing is, though, who would it be? McCain would probably be the best choice; he really is probably the most centered guy out there. With Giuliani there are still a lot of question marks. He had his bright moment with 9/11. He sort of faded off into the sunset. But it’s about money. Giuliani doesn’t want to give money away that he’s making now, and whoever the third party guy is, he’d have to be rich. Maybe a Donald Trump could make a really good run for it, he wouldn’t win, but he’d get double-digits.
Jonathan Hoenig: What about Alan Greenspan? Would you guys vote for Greenspan?
Charles Payne: No one would vote for Alan Greenspan, because if you bumped into 100 people a day, they wouldn’t even know who the heck he was.
Jonathan Hoenig: He’s got the money now.
Charles Payne: He’s going to have the dough, but he’s too old and he’s trying to cash in.
Dagen McDowell: That’s why he wouldn’t run, Jonathan. He’s been a public servant for almost 20 years.
Jonathan Hoenig: He has called for a third-party presidential candidate and I think that the American people would just love to vote for somebody who they think actually has some morals and ethics. These pro-free-market republicans are now saying that we can’t sell a port to an Arab country, God forbid. And Bush is one for property rights - but not as long as it’s an abortion on your own body.
Dagen McDowell: Jonathan, I don’t even think it needs to get to a vote. I think so many people in this country just want to hear from somebody who will talk about issues that the republicans and the democrats won’t touch. The third rails like Medicare. Fix it and make sure we’ve got money down the road.
Jonas Max Ferris: Terry, to your point specifically, the strongest third-party candidate we’ve had in a long time, Ross Perot, was really the start of a very long bull market run, to some extent, on Wall Street. I have to say that I think everyone on Wall Street has written off that either party is not capable of controlling the deficit and not bankrupting this country. They’ve had a chance now of different mixes. These two parties cannot do it. They are so entrenched in spending plans that they will never be able to stop this deficit.
Terry Keenan: So you’re crediting Perot, in part, for the 1990’s stock market boom.
Jonas Max Ferris: I think bringing up some of the issues like budget deficits, which he did do –
Dagen McDowell: And helped lead to the republicans taking over Congress.
Jonas Max Ferris: I think there’s a lot of good that came out of it, overall.
Charles Payne: Perot was really great because he had the money and he had the balls, right? Iranians kidnapped his workers and employees and he went himself to take them out. Carter went over, we crashed and failed. This was guy who had the brains and the brawn. He was the ideal third-party candidate. Who is like that out there right now?
Jonathan Hoenig: Part of the problem is that the universities aren’t turning out any new, young talent. You’ve got these schools that are saying, ‘Bush is a little bit like Hitler,’ and ‘the Holocaust never happened,’ like the professor at Northwestern. It’s not like there’s this roster of new, young talent that’s coming up.
Terry Keenan: Wayne, do you see any scenario for a strong third-party run in 2008?
Wayne Rogers: No. As I said, the history of third parties is a dead issue. It’s DOA.
Terry Keenan: What do you think of Alan Greenspan for president?
Wayne Rogers: Well, if you want to be bored to death, I guess that would work. The first speech that he would make would put the entire nation to sleep. I don’t think he’s a good guy. Jonathan makes a point. If you have intelligent people, if you have rational people, those people are in the minority. They are not going to put themselves into public service. People who put themselves into public service, for the most part, are mediocre. You wind up with mediocre candidates. You wind up with a consensus guy. You are not going to get intelligence there. The best place for this to happen is right here where we are discussing this, where people in the press will talk about this and attack the systems that don’t work.
Jonas Max Ferris: Wait. Even if a third-party candidate can’t win, and he only gets 5 percent of the vote, let’s say he ran on a platform of small government. That would pull enough republicans away that they wouldn’t have won. George Bush didn’t win by a 5 percent margin of the popular vote. They’d have to adopt those policies, which they’ve been able to ignore because they wouldn’t lose the votes.
Best Bets: Third-Party Stocks
The stocks that could come out of nowhere and surprise the big boys.
Charles’ Third-Party Pick: Republic Services (RSG)
Friday's close: $40.28
52-wk High: $40.28
52-wk Low: $32.0
Charles Payne, Wall Street Strategies: Republic Services basically picks up garbage. They are in 20 states. Last year there were record numbers for this company. Margins are improving. It is definitely a great homegrown stock and it’s a great homegrown company. I think it’s going to continue to grow.
Terry Keenan: And there’s a bull market in garbage.
Charles Payne: There’s always a bull market in garbage.
Danielle Hughes, Divine Capital Markets: There isn’t a lot of bad to say about this company. They’ve had increasing dividends, they’ve got a great $500 million buyback. But let’s just say that there’s been a lot of accumulation in this particular industry. Those stocks have all been up. I don’t know about the stock.
Charles Payne: You’re worried about the timing and not the company?
Danielle Hughes: That’s right. I like the company a lot.
Dani’s Third-Party Pick: ADTRAN (ADTN)
Friday's close: $26.73
52-wk High: $33.48
52-wk Low: $16.96
Danielle Hughes: I picked ADTRAN. It’s in the telecom equipment space. I love telecom equipment and I love beat-up stocks. This company has 60 percent operating margins.
Jonathan Hoenig, Capitalistpig Asset Management: Did you love it before or after it fell 10 percent?
Danielle Hughes: I loved it before and after. I think this is in a space that’s moving forward in the next ten years. I like this stock a lot. And I like it even more now.
Jonathan Hoenig: I don’t have the next ten years. If I’m lucky, I have the next ten months. It’s a weak stock and it’s not for me.
Wayne’s Third-Party Pick: Genesee & Wyoming (GWR)
Friday's close: $44.99
52-wk High: $47.96
52-wk Low: $23.03
Wayne Rogers, Wayne Rogers & Company: I like Genesee & Wyoming. It’s a short-line railroad. It’s an evolution of a number of short-line railroads. Earnings were up 50 percent in the last quarter. The stock has done very well this year and I think it has some time to run.
Terry Keenan: You recommended it a few months ago and it has basically gone straight up.
Wayne Rogers: I did indeed. I own it and I’ve owned it for about 6-7 months.
Charles Payne: Wayne, I like the rails a lot. I just think that to tell people to buy it at this point is wrong. I would tell them to wait. This could be another one of these stocks to dip 10-15 percent from where it is. I also happen to like CSX (CSX) and some of the larger railroads a little bit more. I’ve been touting the rails for a little over a year, so I agree.
Jonathan’s Third-Party Pick: PIMCO Floating Rate Strategy (PFN)
Friday's close: $18.80
52-wk High: $19.72
52-wk Low: $17.35
Jonathan Hoenig: I’m picking a closed-end fund: The PIMCO Floating Rate Strategy fund. This is an asset class that I’ve talked about a couple of times. This is one of the few income securities that does well when rates rise. Rates are on the way up. I’m in this sector in a big way and I think the word is not out. This is a true third-party pick.
Terry Keenan: It’s a closed-end fund, but individual investors can still buy it through PIMCO.
Terry Keenan: What do you think, Dani?
Danielle Hughes: I actually like it. It pays about 8.5 percent. I think the only real risk is that this particular fund hasn’t been around that long. I think it started in October of 2004, so they don’t have that long of a track record, but it looks pretty good.
Question: "Will we ever see NASDAQ 5,000 in our lifetime again?"
Danielle Hughes, Divine Capital Markets: You know, I think that we will see it again. I know we’re all actually still feeling the pain from 2000 and 2001, but the market has changed a lot. The way that companies have to report their earnings has changed a lot, the way that the have to certify their earnings has changed, and also the way that we value companies has changed. I really think that we’re going to be able to see that 5,000, maybe in the next stage of this economic cycle, which should hit its optimum sometime between 2008 and 2010.
Jonathan Hoenig, Capitalistpig Asset Management: They’re going to need to get some new leadership, though. It’s not going to be Intel (INTC) or Dell Inc. (DELL). Terry, it’s about 122 percent away. As you said, forever is a long time, but it kind of makes me think of the Nikkei in Japan -- it hit 39,000 in 1990 and it’s now at 16,000. It’s still got a way to go.
Dagen McDowell, FOX Business News: Our economy is in so much better shape than Japan’s was. We can get back to NASDAQ 5,000 in something like 12 years, maybe. If tech and other small growth companies grow a little bit faster than the economy, that’s doable.
Wayne Rogers, Wayne Rogers & Company: The key to this question was ‘in our lifetime.’ Dani, you’ve got to be at least 15 years old. I’ll tell you one thing, it’s not going to happen in my lifetime, that I know. Maybe you will all get lucky.
Dagen McDowell: You’re healthy and sprightly, Wayne.
Wayne Rogers: Yeah, but I’m also old.
Terry Keenan: So you’re not optimistic on these tech stocks. A lot of them have disappointed this year.
Question: "What does the crew think about the exchange stocks? The NYSE went public this week, and the sector has been hot."
Wayne Rogers: I like all of these. I think all of these exchange stocks are going to do very, very well. They’ve done well in the past. They’ve hit new highs this week, and I’m happy about that.
Terry Keenan: As I recall, you like the NASDAQ, even though you don’t like the index.
Wayne Rogers: NDAQ, yes I like it. And I still own it.
Dagen McDowell: Not to sound like a broken record, Wayne, but if you’re already invested in the stock market, it’s like doubling up. You’re investing in stocks and investing in a business that is involved in stocks.
Wayne Rogers: And I’m making money. That’s the wonderful part.
Jonathan Hoenig: It’s a good business right now. It’s a hot business, and the stocks have a bid. I wonder if some of the gravy has been mopped up, Terry. The herd loves these stocks right now. I recommended ISE on the air, and I just don’t think you want to stand in front of this freight train right now.
Danielle Hughes: It’s been a hot business for so long, though. At some point we have to look at these exchanges as companies, instead of just saying, ‘it’s hot and everybody’s getting in on it.’ By the way, I don’t know if any of you guys own seats on the NYSE, but seat-owners got 80,000 shares of NYX, so they’ve had a pretty nice payday this past week.
Question: "Where does Google (GOOG) go from here? Is it a buy, or is it a stock to stay away from?" – Barry Wiggins, Las Vegas, NV
Dagen McDowell: Despite all of this company’s problems, it is not a buy. It’s about $340 a share. You only want to buy this thing if it’s under $100. Under $200, it’s a lottery ticket. At today’s prices, it’s nuts. It’s a one-trick pony. One company could come along with a better search engine and this company is gone.
Face-Off: Missiles V$ Medicine
Should the government cut spending on healthcare and boost spending for the military instead?
Jonathan Hoenig, Capitalistpig Asset Management: Terry, we have 42 percent of the budget going towards these entitlement programs. When you get right down to it, the government’s role is to protect me and my individual rights. The military is its job. Even a dollar spent on health care is a dollar wasted, because health care is not a right.
Jonas Max Ferris, MAXfunds.com: Jonathan, what’s with the blank checks to the defense department? Why is that something that has an unlimited budget?
Jonathan Hoenig: Because that’s their job. They’re the ones that have the guns. I can’t have my own military or my own sidewinder missiles. That’s what the government does.
Jonas Max Ferris: We’ll get to that in a second. Why should we spend a higher percentage of GDP than all the other major economies? Are we less secure? More secure? Why do we need to spend more than Germany, Italy or France?
Jonathan Hoenig: We have a lot more to protect here, Jonas.
Jonas Max Ferris: What does that mean?
Jonathan Hoenig: It means that we’re a free country and it’s not the government’s job to get into every business. Jonas, if you say, ‘let’s spend it on health care,’ wouldn’t you agree that maybe shelter is a more important thing that supports life than health care? What about food? Where does it end with you entitlement guys who say, ‘well, you’ve got a couple of billions…’
Jonas Max Ferris: Jonathan, there were so many empires that were destroyed by overzealous defense budgets; Rome, USSR, Old China, go down the line. Spain, the UK; it’s all because of big defense budgets.
Jonathan Hoenig: China and the USSR weren’t destroyed because they spent a lot of money on defense, Jonas. They were destroyed because they weren’t democracies.
Jonas Max Ferris: Jonathan, why are we the world cop?
Jonathan Hoenig: Because we’re right, Jonas. Guys like you want to take my tax dollars and spend it on any social service program.
Jonas Max Ferris: Stop for a second, Jonathan. There are 40-odd-million people who are paying taxes that don’t have health insurance. Those taxes are going to secure the world so Germans and French can pay for health insurance for their people. That’s ridiculous. Why are we the world cop?