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, Exemplar Capital managing partner; Tobin Smith, ChangeWave Research editor; Pat Dorsey, Morningstar.com director of stock research; Scott Bleier, HybridInvestors.com president, and Danielle Hughes, Divine Capital Markets president.
Trading Pit: $3 Gas: Time to Cut Ties With OPEC and Mideast?
Gas prices soaring! Coming in at about $3 a gallon. Oil now gushing to record highs. If we're going to pay this much anyway, is it time to cut ties with OPEC and the Mideast and make the move to ethanol, or some other type of fuel that we can make right here at home?
Gary B. Smith: It's definitely time for us to make some type of alternative fuel here at home. Some entrepreneur will start searching for alternatives because it is not the government's job to do it. The government didn't decide when it was time for us to move from the horse and buggy to the car. It will be one of the auto companies or an entrepreneur. As the prices get higher, there will be an opportunity for alternative energy, and it will come from private industry.
Pat Dorsey: The basic problem is that there isn't enough consumer demand for alternative fuel cars. Toyota's hybrid gas-electric car, Prius, is selling well, but consumer view it as niche product and Detroit isn't committing the resources to develop these types of cars. If we did move to ethanol, the whole energy infrastructure of the U.S. would need to be overhauled. This could happen, but it would take a lot of time and money, and oil could be back down to $40 or $50 a barrel by then. Also, we don't have enough corn to both feed people and produce ethanol. We just don't have enough acreage.
Tobin Smith: The only way we'll get over our oil addiction is if there is a $3 per gallon tax on gasoline. This will curtail driving and will get us the $10 trillion to build the infrastructure needed for an alternative fuel. We need something like the Marshall Plan that was used in World War II. No one is going to change their behavior until gas goes to $6 a gallon.
Danielle Hughes: Big oil will never allow Toby's idea to happen. We are the problem and the reason OPEC is so powerful. We have spent no money on infrastructure and haven't done so in many, many years. Now that oil and gas have gone up so much, these alternative fuels have become more viable because they will become less expensive.
Scott Bleier: Most of the American people would love to tell OPEC to stick it! We're on our way, but it must be the number one priority of the government. The government has to lead the way. We don't need a huge tax; we get enough in taxes already. If Brazil can make ethanol fuel work using sugar, then we can do it with our corn. It will take 5 years and billions of dollars but we have to do it now.
Who has made the best and worst stock picks on Bulls & Bears?
Scott started things off with the good calls. Last October, he picked Monsanto (MON), which among other things makes corn seed, an essential for ethanol. It's doing great and has gained 48 percent since Scott picked it. He thinks the stock could go higher, but it is now expensive. (Monsanto closed at $88.49 on Friday.)
Dani was next. In August of last year, she really liked Corning (GLW). It was just starting to move up then, and has really taken off since, gaining 54 percent. And Dani thinks Corning still has more to go and thinks the stock could go to $40 in the next year or so. (Corning closed at $29.09 on Friday.)
Gary B's turn for glory! Just five months ago, he loved NVIDIA (NVDA) and said it was going to keep running higher. It certainly has—to the tune of 48 percent! But has it come too far too fast? Gary doesn't think so. He admits it is fading a bit but he wouldn't sell the stock unless it falls below the uptrend it has been in all year. (NVIDIA closed at $28.07 on Friday.)
Last summer, in another edition of the Scoreboard, Pat's loser was Steel Dynamics (STLD). But he stuck with the stock and said he still liked it. Good thing he stuck to his guns! Steel Dynamics has more than doubled, gaining 140 percent! Pat advised to sell now and put your money into another stock because this one is too pricey. (Steel Dynamics closed at $63.36 on Friday.)
Toby first recommended Allegheny Technologies (ATI) about a year ago. And it's really paying off. Up 200 percent! He recommended this stock again in January, and it's up huge since then too! And he thinks the stock is still going to go higher! He said he'd buy it on any pullback because it still can go up another 50 percent! (Allegheny Technologies closed at $72.27 on Friday.)
Now onto the not so good calls:
Dani had a pretty big miss in July when she picked Nordic American Tanker (NAT). This ship's sinking, falling steadily, losing 25 percent. But Dani doesn't think it's time to abandon ship because there is still a tanker shortage worldwide. Also she said the stock did come down, but it pays a 25 percent dividend, so if you stick with it for 6 months, you'll still beat the market's average. (Nordic American Tanker closed at $31.20 on Friday.)
At the beginning of this year Pat picked a stock called Educate Inc. (EEEE). But he got schooled. In fact, if you were still in school the teacher would've written, "See Me" at the top of this paper. But even though it's down 32 percent, he's going to stick with it because the stock got clobbered when the company focused too much on their acquisitions and not running their business. (Educate Inc. closed at $8.23 on Friday.)
Gary B. couldn't run and hide from his Sirius (SIRI) call in the middle of December. Back then he said the stock broke out and was starting its next leg up. But apparently, that leg broke because the stock has fallen 36 percent. However, he said the chart is “healing” and is making a comeback. (On Friday, Sirius closed at $5.00.)
A little over a month ago, Toby really liked Merge Healthcare (MRGE). He said even though the stock had just gotten hammered it was the perfect time to buy. But it looks like Toby was hammered when he picked this one because the stock is down 24 percent. He admitted he was dead wrong and advised anyone who bought it to take the loss because he think it will take the company about a year to get their act together. (Merge Healthcare closed at $13.30 on Friday.)
And in August, when the stem cell debate was raging, Scott said to buy biopharmaceutical company, Geron (GERN). So far, it looks like high risk and no reward with this biotech stock. It's down 23 percent. Scott explained that these stocks are risky, but he thinks this one will make it and investors will make money if they buy it. (Geron closed at $7.65 on Friday.)
Tobin Smith's prediction: Gas goes to $5/gallon by mid summer; Valero (VLO) up 40 percent
Scott Bleier's prediction: $ummer $ale! Nasdaq drops 10 percent this summer but up 25 percent in 2006
Gary B. Smith's prediction: Stay away from eBay (EBAY)! Cut in half by end of year
Pat Dorsey's prediction: Invest and chew gum at the same time; Wrigley (WWY) up 30 percent
Danielle Hughes' prediction: 24/7 Real Media (TFSM) gains 15 percent by end of June
Cavuto on Business
Neil Cavuto was joined by Gregg Hymowitz, founder of Entrust Capital; Meredith Whitney, executive director at CIBC World Markets; Rob Stein, managing partner at Astor Asset Management; Ben Stein, author of "Yes, You Can Still Retire Comfortably"; Leigh Gallagher, senior editor at Smart Money Magazine; Greg Church, founder of Church Capital Management, and Jack Wheeler, former adviser to President Reagan and editor of ToThePointNews.com.
Neil Cavuto: Why has the government made it illegal for Wal-Mart to sell you gas at a bargain price? Wal-Mart wants to sell gas at discounted prices to lure shoppers into its stores. But most states actually have laws that prevent anyone from selling gas at cheaper prices. The states say they're protecting "mom and pop" stations from being priced out of the market. Rob, whatever happened to free markets?
Rob Stein: That's a great question. I think it actually hurts the consumer. I don't know why this law is on the books. The Ma and Pa stations should go buy the cheaper gas at the other places. Why are people concerned about predatory pricing? It's never happened in the past where someone has created a monopoly based on predatory pricing.
Ben Stein: I'm probably the only one on your panel who regularly shops at Wal-Mart. I love Wal-Mart and I love the fact that they have cheap gas. But I don't want to put the Mom and Pop shops out of business. I need them for directions. I need them to use the bathroom and buy diet coke. In principle I agree, we should let people sell things at the lowest price possible. But I think this is a special case where we don't want to put the Mom and Pop shops out of business.
Neil Cavuto: Do you have a problem with critics who say by having a successful Wal-mart you put Mom and Pop businesses out of business?
Ben Stein: No, I don't care as much for those other businesses because I don't stop at antique shops or candle shops to ask for directions.
Gregg Hymowitz: I think the predatory pricing laws are more relevant when you already have a monopolist power in an industry. Wal-Mart isn't really selling gas.
Ben Stein: But they are Gregg. They are already selling gas.
Gregg Hymowitz: But they're not rolling it out in all their stores.
Ben Stein: That's true. You're totally right.
Gregg Hymowitz: My opinion here is sure go ahead. I'm surprised they're going to be able to do it because they can't buy gas from China and given that that's where they buy all their products from, it's going to be hard to get the pricing pressing.
Leigh Gallagher: These prices are reaching record levels and they're here to stay. You have to remember that this is what Wal-Mart does. It does it with DVDs and with Harry Potter books. The other thing is we shouldn't be worried about protecting the retailers. We should be worried about protecting the consumers.
Neil Cavuto: Greg Church, how damaging would it be if Wal-Mart got into this business?
Greg Church: I don't think it affects it at all. Why are we asking the question at $3 a gallon? We should be asking the question at $1 a gallon.
Meredith Whitney: This is a sheer political move. People love to be shopping at Wal-Mart. The consumers would love to buy cheap gas at Wal-Mart. But it's the politicians who are driven by lobbyist's dollars that keep this issue at bay.
Gregg Hymowitz: We all sit around here and say it's a free market but we all know there are rules that govern varying economic issues.
Neil Cavuto: But is there a point at which you suspend those rules if it's better for the collective people to give them those cheaper prices?
Meredith Whitney: Well, keeping these Mom and Pop stores alive is like keeping them on welfare, right? These businesses are going to go out of business anyway. So it's just extending their lifeline.
Ben Stein: With all due respect, small local gas stations fix people's cars and it provides a place for people, like a safety net, if their cars break down. The Wal-Mart gas stations, I know about in Idaho, will not fix your cars.
Neil Cavuto: Greg Church, do you think that the 17 or 18 states that have this makes it almost impossible for someone to come in and get undercut pricing, that that will go by the way side when we get to $3, $4, even $5 gasoline?
Greg Church: They'll be plenty of competition around. The point is, for the consumer we should let this happen. They'll always be new people coming into the market to replace things that are gone.
Gregg Hymowitz: If we had an oil company representative here they'd say if you let Wal-Mart into this business and they use gas as a loss leader and you lower prices and hurt us, we're not going to spend the money on RND, we're not going to drill as much.
Rob Stein: That's a loose argument. No business is going to indefinitely produce it at a below market price. They wouldn't know when to stop.
Gregg Hymowitz: Conceivably, Wal-Mart could subsidize this loss leader for a long time.
Rob Stein: Gas stations will not go out of business because the price of gas is cheaper somewhere else. In fact, the amount of money they make on the gas is not as relevant as the amount of money they make on other things.
Ben Stein: I love Wal-Mart beyond words. There is some value to the general store in the small American community. And the gas station performs a function of the general store. It is beyond economics.
Head to Head
Neil Cavuto: Illegal immigrants giving birth in America so they can stay and collect money from taxpayers. Is it time to close this loophole? Any baby born here is automatically a citizen -- eligible for welfare, Medicaid and everything else this country has to offer. The baby's family can get aid too and eventually become citizens. Time to close this loophole? Jack?
Jack Wheeler: Absolutely. This myth of birth right citizenship is one of the great frauds that is being perpetrated on Americans today. It's based on a misinterpretation of the 14th Amendment of the Constitution. The liberals say they have a Constitutional right to become citizens. This 14th Amendment was meant to make sure that freed slaves were citizens so they weren't looked over by the government. The Supreme Court said that it excluded citizens of foreign states.
Greg Church: Absolutely. The 14th Amendment was not intended to be this way. Australia and Britain got rid of this arcane rule of theirs. You can't justify an illegal act.
Gregg Hymowitz: I always chuckle when I hear conservatives talk about this. Not only because I disagree with them but because of the way they interpret the Constitution. They're usually called strict constructionists. If you read the Amendment, anyone who is born here is a citizen. That being said, I think there's clearly a group amongst the illegal aliens who are coming here and really abusing this. We have to differentiate. People who have been here for fives years, have been working here, who have children here, I think those children have a right to get citizenship. But the one who comes over the border while they're pregnant just to get the citizenship and medical care, that's a different story.
Meredith Whitney: There are these anchor babies and anchor families who come here to work and build roots here. But who we're really afraid of are the people who are here just to work and then send all their money back to Mexico. That doesn't do our economy any good.
Neil Cavuto: Ben Stein, how many illegal immigrants do you think come here for that specific reason to have a baby to get citizenship?
Ben Stein: I'm very flattered you asked me that. I have no clue. But we have a major labor shortage in this country now. It may be the worst labor shortage we've had since World War II. We need these workers desperately.
Jack Wheeler: The figure is about 300,000 illegal alien women a year who come over and give birth to babies. Your guest is flat wrong about the interpretation of the Constitution. The people who wrote the 14th Amendment were very very explicit. It excluded citizens from foreign countries.
More for Your Money
Neil Cavuto: There's always a bull market somewhere. So where is it now and which stocks will benefit? Leigh, where do you see a bull market?
Leigh Gallagher: I say technology Neil. Microsoft is coming out with a new operating system and I think that will have a ripple effect throughout the entire market. Texas Instruments (TXN) has a lot of potential right now. This is a semiconductor maker.
Meredith Whitney: I think Leigh is exactly right. The real growth opportunity is with all the emerging markets. And there's huge growth there.
Rob Stein: I think the bull market is in gold. Gold has been rallying. You can now buy gold with iShares. Right now with supply shrinking and demand increasing you'll see gold prices and gold stocks continue to go up. I like streetTRACKS Gold (GLD).
Neil Cavuto: How far do you see gold rising?
Rob Stein: If you take inflation adjusted back in the ‘80's gold would be about $1600. I think $1000 is probably not too far. And two years ago I had the opposite view.
Ben Stein: Gold to me is a pure bubble. We are having a price point for gold now, which is wildly in excess. To me, gold this year is the equivalent to the Internet stocks in early 2000 and 1999. I love gold when it's around $300. But at these prices it is just a bubble waiting to happen.
Meredith Whitney: The fundamentals for the capital markets have not been better in over 25 years. Goldman Sachs (GS) is up almost 30 percent for the year and have at least another 30 percent to go. Estimates are too low.
Rob Stein: I love Goldman Sachs but a lot of their revenue comes from proprietary trading. And that is very difficult to get your arms around.
Meredith Whitney: Proprietary investment and the private equity market is on fire.
Rob Stein: But it's very hard to get your arms around that right now. Wall Street likes to know where it's going.
Ben Stein: I love the emerging markets. I love small caps. I like iShares Russell Microcap (IWC). Micro caps have done incredibly well. The data on long-term performance of Micro caps is absolutely overwhelming.
Neil Cavuto: Haven't they had a long run though?
Ben Stein: Yes, but even if it has a pullback, over long periods of time it will do incredibly well.
Leigh Gallagher: I like Micro caps in general and I hate to disagree with Ben but I would say that these should be a small part of the portfolio. They tend to be a bit riskier. And I think Ben might even agree with that.
Ben Stein: I agree with that but it depends on your time perspective. If you're a young person and can wait out the standard deviation, you'll do great.
FOX on the Spot
Ben: Quit complaining; America is a great country!
Leigh: Get used to it; $3 gas is here to stay!
Meredith: Ethanol stocks soar on high demand!
Rob: The Fed starts cutting rates before the year is out!
Gregg: Rumsfeld's stubborn, but I still say he goes!
Neil Cavuto: $5 dollar gas is coming. Credit strong economies everywhere, and China and India, and fears, and you name it... just get used to it!
Forbes on FOX
Flipside: $4 Gas and $100 Oil Would Not Hurt Our Economy and Market!
John Rutledge, Forbes contributor: The U.S. economy is stronger than dirt. High oil and gas prices won't hurt it. We're going to do fine with $4 gas.
Quentin Hardy, Silicon Valley bureau chief: Bigger Americans driving bigger cars, living in bigger houses with less savings than ever before. I think a 25-50 percent rise in oil prices has got to hit someone's pocketbook.
Victoria Barret, associate editor: It hasn't hit our pocketbooks yet. You look at the carpool lane on the California freeway and it's empty during peak hours. People aren't changing their behaviors and they are still buying flat screen TVs. The economy hasn't slowed yet and I don't think it will, even if gas prices go higher.
Rich Karlgaard, publisher: I'm worried in an indirect way. I'm worried because there is a populist backlash out there that is increasingly anti-capitalistic and if we have persistent $4 gas and $100 oil we're going to end up with Speaker Pelosi after the 2006 elections.
Mike Ozanian, senior editor: We shouldn't worry about $100 oil because the free market will prevail which it has over the past 30 years. We only use half the amount of oil now than we did 30 years ago and we're producing the same amount of stuff. That trend will continue.
Jim Michaels, editorial vice president: Tell this to a working family that has three cars. When the price of oil doubles, that's not a luxury to them, that's getting to work and getting the kids to school. Of course that's going to hurt. That's less consumer spending. That will mean less travel and that will mean that the economy will slow down.
John Rutledge: It's painful for the people who buy it, but almost all the growth in the U.S. economy is in the service sector. The only oil you use there is on your Caesar Salad at lunch. It's not going to slow GDP growth. But it will cause pain for people in certain areas of the country.
Quentin Hardy: This is a consumer economy. It's starting to show up at the pump now. It's going to show up in the choices people make with their budgets and the credit cards that they are going to have to cut back on. This is a consumer society and one of the key things they buy is getting more expensive.
Jim Michaels: So far the pain has been eased by a strong economy and growing employment. But when you're at full employment, the economy isn't going to be growing as fast.
Victoria Barret: We could also see rising wages. We've seen these gas price increases and we've also seen massive increases in consumer spending. If gas prices triple tomorrow it will affect the economy in a negative way. But we're not going to see that. And so far we've proven to be very resilient.
Rich Karlgaard: People will adjust. We're not an oil driven country like we use to be. But you can't just pull the politics out of it. The mischief that will come out of Washington can cause a lot of harm to the markets and economy.
Mike Ozanian: I think people are smart enough to push that stuff aside in the long-term. The problem with these doomsayers is that they are looking at the economy as a zero sum game. You will have some losers, but what about the people who own energy stocks, they benefit.
Jim Michaels: It's a service economy. One less trip to the gas station means one less trip to the hairdresser. That hurts the service sector.
John Rutledge: If oil prices spike it will be because a big oil producer like Iran will get shut down. But that's a temporary story. Long-term growth of China and oil demand is a much bigger story.
Quentin Hardy: China is a big consumer and is investing in Canadian tar sands. But right now there's a long line for that development and we're waiting for the oil that's being pumped out of the ground.
Mike Ozanian: Lets not forget the factor of inflation. If you take $4 gas and adjust for inflation going back 30 years, it's not that bad at all.
Rich Karlgaard: What really worries me is that when I listen to conservative talk radio I hear people say that they think that oil companies are rigging the game.
In Focus: Firing Donald Rumsfeld Would Threaten Our Lives and Stocks?
Mike Ozanian: Thanks to Rummy we caught Saddam fairly quickly, we brought democracy to Iraq quickly. We haven't been attacked in this country since 9/11. Our economy has been booming because we've been safer and the stock market is near a six-year high.
Bill Baldwin, editor: George Bush has a "Rum" bunch running the military. The Generals are saying that Rumsfeld is a clunker. He invaded the wrong country. It's Iran who's the problem, not Iraq.
Jim Michaels: Lincoln's Generals thought that he was screwing up and he turned out to be right and the Generals were wrong. Generals may be good tacticians but they don't understand geo-politics.
Quentin Hardy: Donald Rumsfeld has been wrong on troops, wrong on weapons of mass destruction. He took about a year and a half to catch Saddam, he was wrong in Afghanistan. We're bogged down on both sides of Iran. I don't think this is a successful guy. I think a smart President recognizes problems and fixes them.
John Rutledge: I'm no fan of Donald Rumsfeld, but do we give him credit for no attacks before 9/11 also? I think if Rumsfeld is fired it's because of a weak President. And a weak President means weak power to push through tax rates and other economic policies. That would be bad for our economy and market.
Victoria Barret: I think it would show strength if Bush got rid of Rumsfeld. So far they've only done symbolic hits taking people out. If the Department of Defense was a publicly traded company it's stock would have been slashed in half from the start of the Iraq war and Rumsfeld would have been out of there a year ago.
Mike Ozanian: The Generals that are complaining about Rummy didn't like the strategy from the beginning. Some of them didn't even want to take Saddam out in the beginning. A lot of them don't like Rummy because their empires are being taken down because Rummy is going towards a smaller more nimble army.
Jim Michaels: No one has ever heard of a General who didn't want more troops. At some point the politicians have to say we have to get the job done at a reasonable cost.
Bill Baldwin: Rates on treasury bonds are going up. Someone's got some suspicions that the U.S. isn't doing so well.
Quentin Hardy: Remember mission accomplished, remember this will cost $2 billion and we'll be out of there. None of that stuff was true.
Mike Ozanian: What cost are you going to put on defending this country? We should spend every dime possible.
Victoria Barret: We have finite resources and we should be using them wisely. That doesn't seem to be the case. If Rumsfeld was a CEO, shareholders would see that and they would find someone new.
Mike Ozanian: Our stock market is at a six-year high.
John Rutledge: We could have pushed the cost of this war off on the Gulf neighbors of Iraq, their land prices and stock prices have tripled since the beginning of the war. That's where the value has been produced.
Jim Michaels: The bottom line is this is not Rumsfeld's policy, it's Bush's policy. It doesn't matter whoever thought about it, Bush whole-heartedly adopted it. You're asking Bush to repudiate his own policy at a time when we're winning in Iraq.
Quentin Hardy: I thought courageous and intelligent people admit when they've made a mistake and fix them.
John Rutledge: This war wasn't Rumsfeld's war, it was Bush's war. So if you don't like it get rid of Bush. Moving Rumsfeld won't change things.
Ga$$ed Up Stocks
Rich Karlgaard: I like General Electric (GE). They are the maker of jet engines that are using new materials and are very fuel-efficient. If we have long, high oil prices the airlines are going to need new jet engines for fuel efficiency.
Bill Baldwin: GE is not a jet engine company, it's a bank. Banks do badly when prices go up and inflation goes up. I like A. Schulman (SHLM), it makes the resins that goes into plastic parts that go into cars. Plastic weigh less and will give better mileage.
Mike Ozanian: I'm skeptical because I think that natural gas, which is one of the things used to produce this resin, is going to go up in price and that's going to effect profits. I like the troubled automaker, General Motors (GM). They are losing a lot of money. I think that higher gas and oil prices are going to speed up GM's restructuring. It will become a much smaller company but a profitable company.
Victoria Barret: This is like catching a falling knife. They'll be able to cut costs but they're still going to struggle to sell their cars.
Mike Ozanian: The stock is beaten way down, so there's a lot of upside potential.
Victoria Barret: I thought this has been played out a long time ago, but I like ConocoPhillips (COP) and here's why. They've got crude oil refining capabilities and they've also got retail outlets and the stock looks cheap still.
Rich Karlgaard: This play is too obvious. Everyone piles on when prices go up.
Makers & Breakers
• Watts Water Technologies (WTS)
Eric Fry, editor of "Rude Awakenings": MAKER
If you want to cash in on China's booming economy, water purification is a great long-term investment opportunity because China is going to invest in improving its water pollution. Watts is a global provider of water systems and it is still reasonably priced. I think it can go up to $45 in one year. (Friday's close: $36.05)
John Rutledge: BREAKER
The air and the water in China both suck but the plumbing business isn't one I like.
Victoria Barret: MAKER
They're seeing great growth in China. And as the commercial construction market picks up, that's where they have higher margins that will show in their profits.
• Nalco (NLC)
Eric Fry: MAKER
This is another water purification play. This one is focused on industries and institutions. Again a growing presence in China and a global leader in its field. I think it can go up to $28 in one year. (Friday's close: $19.04)
Victoria Barret: BREAKER
You can make the argument that this stock is cheap, but they're going after smaller customers, which can be tricky and they also have a lot of debt and under-funded pensions.
John Rutledge: BREAKER
Too expensive for me. If I were playing this in China I would go for other sorts of pollution pick-ups.
Eric Fry: Microsoft was too high 20 years ago, a lot of stocks were too high. But tell this to GE. They just bought a money losing water company for $1 billion and they love it.
Our "Cashin' In" crew this week: Wayne Rogers, Wayne Rogers and Company; Jonathan Hoenig, Capitalistpig Asset Management; Dagen McDowell, FOX Business News; Jonas Max Ferris, MAXfunds.com; Gary Kaltbaum, Kaltbaum & Associates, and Barbara Corcoran, The Corcoran Group.
Stock Smarts: Iran and Nukes: Can We "Buy Off" Religious Fanatics?
With religious fanatics in charge of Iran, is a military confrontation our only option?
Jonathan Hoenig, Capitalistpig Asset Management: You can't negotiate with people who want to kill you. Iran wants the bomb, they want it to blackmail and ultimately annihilate their enemies. Guess what? That's us. Any negotiation just gives them legitimacy and gives them more time to make a nuke. So we can't play games with these guys. We need to get our bombers in the air, annihilate their potential to actually build nuclear weapons. And if it comes to during Ramadan, that's ok, too.
Terry Keenan: We tried this with North Korea; all we did was give them some time.
Jonathan Hoenig: Exactly. That's exactly it.
Jonas Max Ferris, MAXfunds.com: If anything, the North Koreans are actually more insane than the Iranians.
Terry Keenan: How do you know that?
Jonas Max Ferris: They (Iran) are actually acting very rationally, in my opinion. They jacked up the price of oil, that's their main export. They made, in my estimates $2 billion extra from just they heap they put on the oil markets in recent months. So that's rational. Why wouldn't they want a nuclear weapon? A nuclear weapon is the only reason to invade a country. When was the last time a country was invaded? Would Kuwait have been invaded by Saddam if they had a nuclear weapon? No. I'm not saying that we want them to have it. That's why they want it. It's very irrational. They're not as disturbed as we think they are and I think war is the last solution before negotiation.
Barbara Corcoran, The Corcoran Group: I say military options should be taken out of table. I think it is bizarre. First of all, it's not even an option. We don't even know where half their nuclear plants are. And most importantly, the American people won't even tolerate it. They don't have the confidence in the president. They are not going to follow him into another ridiculous war. They just won't tolerate it. It's not going to happen.
Jonathan Hoenig: You think this would be ridiculous? You don't have the moral confidence or the moral assuredness to say that the leadership of Iran is evil mullahs with big weapons who want to slit your throat?
Jonas Max Ferris: The Soviet Union had 10,000 warheads and we negotiated with them for decades. Ronald Reagan did it very well. We didn't bomb them because they moved missiles into Cuba.
Terry Keenan: But if we did before they got the nukes, we wouldn't have had The Cold War for 40 years.
Jonas Max Ferris: I don't think we could have bombed the Soviet Union into oblivion before they got nukes. I think that wouldn't have worked as well as people think it would work with Iran, maybe.
Terry Keenan: Wayne, Jonathan is not talking about bombing them into oblivion. He's talking about surgical strikes on these nuke sites. Where do you come down?
Wayne Rogers, Wayne Rogers & Company: Well, I'm not sure what Jonathan is talking about. I know that Jonathan wants to blow them all up, and I understand that. I think you negotiate; you try negotiation constantly. I have some friends from Sicily who say when you keep your friends close, keep your enemies closer. Well, that's very important. These are our enemies; keep them closer. Negotiate with them -- use negotiation constantly as a guide.
Jonathan Hoenig: Is that how you treat an enemy though? Do you take them out for lunch at the Drake Hotel? If these are our enemies, let's treat them like our enemies.
Terry Keenan: That's what we've been doing. We have been treating them as enemies. We've had sanctions on Iran for 27 years.
Wayne Rogers: I'm saying that you should keep that up. You constantly negotiate. You are always in negotiations. Negotiation is part of the fraud that you invent so that you can get what you really want. You talk to them. You use the Europeans; you use everybody and do that constantly.
Gary Kaltbaum, Kaltbaum & Associates: Wayne, they are religious fanatics, they don't care. They want to impose their religious will on the world. They don't care if the rest of the world croaks. You cannot negotiate with these people.
Barbara Corcoran: It sounds like you are describing President Bush. I could use those same words. I trust Iranians as much as I do our own president.
Jonathan Hoenig: Barbara, you are kidding me. Are you kidding me? I can't believe that. You trust the Iranians as much as you trust the president?
Jonas Max Ferris: To Gary's point, what's worse? The religious zealot who wants to install their religion, or the Soviet Union, who was anti-religion, blew up all the churches, had no religion, and wanted to spread atheism across the world. What is the crazier country?
Wayne Rogers: Well, what difference does it make whether you are talking about religion or not? In other words, if it is a religious fanatic that you are dealing with and you are telling me that you cannot negotiate with him? Of course you can. You use it as a guise. I'm saying you are not doing this for realistic negotiations; you are doing this as a guise so that you find out what you want to get from him. If we said that we were going to abandon our diplomatic relations with all of those people, we would never be able to get a spy system in there. We need to negotiate for the purposes of get deviousness, don't you understand that?
Dagen McDowell, FOX Business News: Absolutely. We don't take a military strike on this country at all. We get the rest of the world on board, keep negotiating, because, frankly, even if we did drop a few bombs strategically, Jonathan, what? It delays their nuclear program for five years?
Terry Keenan: Worked with Iran when the Israelis took out the Iranian nukes
Dagen McDowell: A five-year delay is not going to cut it.
Jonas Max Ferris: A lot of nuclear countries like China and India -- we do so much business with them that they would never do anything to us, because they want our money. We already alienated this country 25 years ago. If they had more business to lose with us, they wouldn't want to piss us off. But now they can because they don't do any business with us.
Jonathan Hoenig: This isn't like Norway we are talking about here. This is a country whose culture celebrates death. These are the guys that want to blow up a Tel Aviv falafel stand because it gets them to Allah that much faster. And I just don't think you can negotiate with people whose goal is your destruction. You can't make nice with them; you have to meet them with force.
Terry Keenan: Gary, is that the only thing that they understand, force? They are supporting Hamas, they want Israel off the map.
Gary Kaltbaum: I've got some news for you about the rest of the world. Russia is building a nuclear reactor. China needs their oil. Europe, France and Germany are negotiating trade with them. We don't have anybody else to go after them. Everybody is silenced. The silence is deafening. I hear what you are saying, Wayne, but how long do you negotiate for? How long to the point where you say these people are lying. North Korea did it to us in the 90's. We gave them the assistance, they accepted the assistance, and then they told us to take a flight. They kept building.
Wayne Rogers: Hold it, you are not listening to me. I'm saying the negotiation is a fraud - a guise, in order for you to get what you want. You are thinking I'm sincerely negotiating? Of course not. I'm trying to find a way to get information out of these people. Trying to find a way to get my spy system in there, find ways that I can do things that will help me ultimately, knowing they are religious fanatics and there is not an honorable person on the other side of the table. What's the matter with that?
Dagen McDowell: One thing that every American can do is if we all use less gasoline, it would drive the price oil and gas down across the world market. That hits them in the wallet. That's how you hurt them.
Terry Keenan: Is there a chance in Hell of that happening, Jonathan?
Jonathan Hoenig: I hope not because I like to drive my car and go cruising. But if you want to hurt Iranians, don't conserve gas. Get a map, find out where the nuke sites are, get the bombers in the air...
Dagen McDowell: They will rebuild in a matter of years. It is a vicious cycle. Stop driving so much; make them feel the pain.
Gary Kaltbaum: Take them out.
Cashin' In: Record Gas Prices: Death Knell for Housing Market?
Temperatures are heating up and so are the oil and gas prices. With Americans shelling out huge amounts at the pump, is that going to be the straw that finally breaks the back of our housing market?
Gary Kaltbaum: Absolutely. There is a direct correlation to what happens in the economy and in housing with oil prices spiking. I have to tell you, I think they are only going higher. You combine the fact that we already had a major move up already, you have all these crazy speculators in there. You've got the crazy mortgage lenders with the exotic mortgages and you have a cocktail there that's going to cause some problems. It's already happening around the country right now.
Dagen McDowell: Gary, the only thing that is really going to crater the housing market is not higher gas prices, but higher interest rates. You've got people facing mortgage resets. About a quarter of all mortgages in the next two years, people are going to be paying hundreds of dollars more every month on their mortgage. With gas prices going up, you are only looking at a few hundred dollars more every year. It's not gas; it's interest rates.
Terry Keenan: Barbara, you've been a bull on the housing market. Are you still? Even with mortgage rates at 6.5 percent
Barbara Corcoran: I'm not worried about the mortgage rates because they are a little fraction of a percentage at a time and people have been able to absorb it. But I am very worried about the higher oil prices, and the reason for it is you have relatively 2 percent of all the people in the nation are out looking for a house at any given point of time. But instead of that, you have 100 percent of the people who need the gas at the gas tank. So that hits them right in their face every day of the week and they cut back on spending and the first thing that goes is a new house.
Terry Keenan: So you put off a new house because your gas bill has gone up $10 a week?
Barbara Corcoran: It's not just $10. It's $10, then another $5, and then another $2. They start to feel like they can't afford it.
Dagen McDowell: They shouldn't be buying a house then.
Barbara Corcoran: I'm telling you that it's every day of the week and it's not an option.
Dagen McDowell: Don't eat at the Olive Garden.
Barbara Corcoran: You don't buy the new house when you're feeling like your expenses are running away from you. I'm telling you that people put it on hold immediately.
Terry Keenan: Wayne, do you agree with Barbara here?
Wayne Rogers: No. Energy costs effect everything, not just the gas in your automobile. The truck that the guy drives to the job site, the fork lift that they are using to move dirt. Our entire economy is based on energy. That causes inflation. Inflation has to be controlled by raising interest rates, so it is a whole cycle that is going to happen. By the way, Barbara, it hasn't happened for you yet in New York but it is happening. It's happened in other parts of the country. The market has softened and what I talked about six months ago where we are going to stretch out the absorption rate. That is going on right now. Prices are coming down, not a lot yet, but they will come down. You wait and see.
Barbara Corcoran: Prices have gone up. It's the rate of sales that has gone down, but I am worried about the oil prices. They hit people in the head every day of the week.
Terry Keenan: Jonathan you have been right about interest rates, are you worried about the housing market?
Jonathan Hoenig: Well, I think they are correlated and the biggest trend I'm seeing is shorting bonds right now. So yes, energy has an effect on real estate. But so do interest rates. And I wouldn't want to be too heavily invested in real estate right now.
Jonas Max Ferris: Getting back to energy, I think the oil and energy prices are high because of the housing boom. That stimulated the economy with hundreds of billions of dollars, it creates demands for cars, gasoline, the building construction, lumber. When the housing prices dip, that will lower the price of oil because it will cool the economy.
Gary Kaltbaum: The higher oil prices change consumer behavior. That's the key to all of this and that is what will spread. And it's not just housing.
Jonas Max Ferris: Housing prices started to crank up before oil.
Dagen McDowell: First and foremost, the consumer behavior that gets changed is people driving less, they start carpooling; you saw it after Hurricane Katrina.
Terry Keenan: When did we see people carpooling after Hurricane Katrina?
Dagen McDowell: Absolutely. You saw demand drop after Hurricane Katrina. Demand dropped.
Terry Keenan: Ever so slightly. Barbara, do you think we are going to see a major crack in the housing boom or just a slow decline?
Barbara Corcoran: I think you have seen a slowing down, which everybody confirms. But I think what is most important is the psychological blow for people: the cost of the gas. I'm telling you people are more afraid of that than interest rates.
Terry Keenan: Wayne, you said prices are going to drop more? How much?
Wayne Rogers: Yes, I said first of all, we had the stretching out of the absorption rate and that has taken place so you see that prices are flatter. And Gary is right. Energy affects everything in the economy. Housing is just one element of it. Take it from me, it's going to get flatter and it is ultimately going to start to decline.
Best Bets: "Green" Stocks!
For Earth Day, let's get the picks that may not be environmentally friendly but will put a lot of green in your wallet. We've got the stocks that care more about making you money than Mother Earth.
• Jonas' "Green" Pick: Hovnanian (HOV)
Friday's close: $41.91
52-wk High: $73.40
52-wk Low: $40.01
YTD Return: -16.4 percent
Jonas Max Ferris: These homebuilders are the worst for the environment, they're rolling up these “Mc-mansions,' plowing down fields, lots ever lumber, lots of heating and air conditioning. They're not near any cities so you have to drive really far. The worst thing for the environment, however, is that it's a very profitable business.
Jonathan Hoenig: A terrible stock. One of the weaker stocks in a weak group. You say you don't like real estate, why pick a real estate stock?
Jonas Max Ferris: It's down about 50 percent since I started hating real estate, so I think it's enough at this point. And it is an anti-green stock.
Wayne Rogers, Wayne Rogers & Company: Not true, they got with the Good Housekeeping approval seal. Tell me how bad that is?
• Wayne's "Green" Pick: Halliburton (HAL)
Friday's close: $83.33
52-wk High: $83.97
52-wk Low: $39.65
YTD Return: +34.8 percent
Wayne Rogers: Well, mine is Halliburton. It has been accused of doing all kinds of things, probably most of them true, about destroying the environment, but the stock has been sensational. It's gone up like a rocket. It is still climbing, made an all-time high in the last week. So I don't know how you can go wrong except that they are probably bad people when it comes to the environment.
Terry Keenan: Fabulous earnings out on Friday. What do you think, Jonas?
Jonas Max Ferris: I agree: I don't see the government contracts ending any time soon for Halliburton.
Jonathan Hoenig: You could have owned anything tech in the late 90's and made money, and this is the second renaissance of oil. So anything you own of oil these days are all super strong right now. I'm not playing the trade but playing oil in a different way.
• Jonathan's "Green" Pick: U.S. Oil Fund (USO)
Friday's close: $72.81
52-wk High: $72.16
52-wk Low: $67.40
Since Launch (4/10): +7.3 percent
Jonathan Hoenig: I love oil, I don't think it is an addiction; I don't think it is evil and I own oil. USO is a brand new exchange-traded fund. Tracks the price of price of oil and the truth is that even at $3 a gallon, gas is cheap. We could see another $8-15 in crude, no question. And this is the only security, to my knowledge, that directly participates or correlates with the price of oil itself.
Jonas Max Ferris: Buying oil futures when oil is over $70 is going to prove to be a really bad investment. And the guy who launched this fund doesn't think it is very good investment because in his other fund he doesn't buy a lot of oil stocks. Explain that.
Jonathan Hoenig: Look what has happened to silver, in the last couple of months. You can see that the markets often go even higher than you think.
Terry Keenan: Wayne, you have been a bull on oil, we are at $73. Can we go higher?
Wayne Rogers: Yes, I think oil stocks have been very good. I have stuck with them through this period. They had an adjustment there about five or six months ago, but oil stocks are still strong and I think they have got a lot left in them.
Question: "What is Wayne doing with Petrofund (PTF) now that it is merging with Penn West?"
Wayne Rogers: I think it's a terrific combination. It's going to make them, if not the largest, one of the largest in the Western world. Their earnings are going to increase. They're going to have an exploratory base also. And they have got an enormous amount of reserves -- enough to last them for ten and a half years. The stock is paying like an 8 or 9 percent return right now. I still own it and I have owned it for a long time. I think it is still a good play.
Dagen McDowell: I might not get into oil but I wouldn't sell any oil or gas stocks that you have got. Particularly going into the summer. The Iran situation is not going go away and you have the hurricane season. So oil prices will probably stay high for the coming months.
Jonathan Hoenig: Yeah, a rising tide lifts all boats. I sold my San Juan Trust (SJT) about 300 percent too early.
Terry Keenan: That was a great one.
Jonathan Hoenig: I wouldn't go against any of these energy related stocks. It worries me that this is on the cover of every business section in the country, but I think again, as we said in the last segment, you could see $100 crude and $10 or $15 dollar natural gas before this is all over. Tons of money flowing into commodities right now. I wouldn't fight PTF here.
Question: "What does the crew think about Bema Gold Corp (BGO)?"
Jonathan Hoenig: Well, what a long, strange trip it has been. From $300 to $600 in gold.
Terry Keenan: And you got no respect all the way.
Jonathan Hoenig: People are starting to put money into gold right now. I would rather own the physical bullion more than the mining stocks. If what happens in silver happens in gold, we will see are gold at $700 an ounce before it's all over.
Dagen McDowell: What is scary about these gold companies is that the stocks are priced like gold is never, ever going to go down forever. Housing stocks look so cheap. Do you really think gold, in the long run, is going to do better than housing?
Wayne Rogers: I like gold but I don't like it at this price. What he said about oil, you have to say about gold.