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This past week's Bulls & Bears: Gary B. Smith, Exemplar Capital managing partner; Tobin Smith, ChangeWave Research editor; Scott Bleier, HybridInvestors.com president; Adam Lashinsky, Fortune magazine senior writer, and Todd Schoenberger, Diligent Investor senior equities analyst.
Trading Pit: Will Iraq Defeatism Defeat Stocks?
Defeatism on Iraq — Americans are hearing it everywhere. From Newsweek declaring we are losing the war to Senator John Kerry's, D-Mass., careless and controversial remark about the intelligence of our brave soldiers. Will this defeatist attitude eventually spell defeat for stocks?
Tobin Smith: Yes it can. This defeatism basically means Iraq will be given to Al Qaeda. If that happens, we'll lose 2 million barrels of oil a day. I believe the main reason we went to Iraq was for oil. We can't afford to pull out because we all know what happened to the economy when gas went up to $3.50 in some areas.
Adam Lashinsky: There is no reason to believe that pulling out of this war, which is costing American lives and taxpayer dollars, will be bad for our economy and stock market. Pulling out would cut down on the killing of our soldiers and the cost to our taxpayers. Don't worry about Iraq's oil because it's not affecting the price of oil around the world right now.
Gary B. Smith: Pulling out of Iraq would be a good short-term solution, but horrendous for the long-term. This is especially true for the stock market. When people buy stocks, they are really betting on the future; that it will be safe and secure. The Iraq War has, in part, turned into a referendum on whether we can stand up to terrorists. Can we root them out and help rebuild that country? Pulling out now would be dreadful and would send a message to the terrorists that we just don't have the stomach to stay and fight.
Todd Schoenberger: I think investors are smart enough to know that the insurgents are playing our media, which is influencing public opinion. We've been dealing with this for quite some time. October saw most American casualties in a year — but the stock market still broke to new highs.
Scott Bleier: All of this negative talk about Iraq is a strategy to get the Democrats elected. The liberal media are left leaning and want to make the American public think that we are losing the war. This is a war that needs time to win and no one is giving it the time needed. The focus is now to root out all of the terrorists that have come to Iraq. There would be a direct negative effect if we were to pull out now because this would become another Vietnam.
Election Day Winner: Wall Street!
It's not what happens after Election Day that matters most to Wall Street — it's what won't be going on anymore — the mudslinging, Bush-bashing, and negative talk about the economy. Will stocks return making new highs once the ugly election season ends?
Gary B: I certainly think so. Stocks were down this past week, but should turn around when all this negative bashing stops. After the polls close, people will start to focus on the economy and more positive things. I expect the market to have a good end of November and strong December
Tobin: Representative Henry Waxman, D-Calif., is counting the days until he can be the head of the subpoena committee. That's what I fear. He'll go after a new company every week.
Adam: There are two kinds of people. Those that pay attention to all of these ads and those that go about their business. Wall Street has been doing the latter all year. It has been a very good year for stocks and will continue to be.
Todd: I want a political gridlock. I want the Democrats to take the House. Split government means status quo and less legislation. And less government intervention is always good news for the economy and stock market.
Scott: The market has done great during one of the most difficult election seasons in recent memory. Mutual funds closed their books at the end of October and the rally stopped. The next 2 months will be flat as the market digests its recent gains. I expect a correction at end of year, which will be a great buying opportunity.
Let's eat! Trans-fat-free is all the rage, but our guys have the names that care more about cash and less about calories.
Adam: I wouldn't buy it until the fat cat private equity investors are done selling.
Scott: I think this stock will double over the next 2 years.
(Burger King closed at $17.77 on Friday.)
Gary B: My pick is Molson Coors (TAP). The stock had done nothing for a long time, but it just broke out and should start sprinting up to the $80s.
Tobin: This stock is going nowhere fast!
Adam: Investor skepticism is ending and the stock is ready to move higher.
(Molson Coors closed at $70.51 on Friday.)
Adam: I am going with Cheesecake Factory (CAKE). This was a stellar performer, but has slowed of late, which has brought down its valuation. The stock has been tainted by options back dating, but this is meaningless to the valuation of the company.
Todd: I'm a bear on the stock and don't like it at all. Good restaurant concepts are few and far between and this one has run its course.
Gary B: Call Adam the "Junior Chartman"! This is a strong stock that will get stronger.
(Cheesecake Factory closed at $26.06 on Friday.)
Tobin: My choice is YUM! Brands (YUM). They own Taco Bell, Long John Silver's, and KFC, and are kicking butt outside the U.S. The company should continue to roll and I think the stock will double over next 2 years
Todd: I like this stock. Toby's right. Their aggressive expansion overseas is the reason to buy the stock.
Scott: They have great restaurants, but the stock has just made a big move, and I think it's done.
(YUM! Brands closed at $58.02 on Friday.)
Scott: My stock is J.M. Smucker (SJM). They make peanut butter, jelly, and dessert toppings. They had a problem with return on capital, but are improving, and that is the reason to buy the stock.
Tobin: This stock is fully valued. It's time to take your profits and sell!
(J.M. Smucker closed at $48.67 on Friday.)
Tobin's prediction: GOP Wins; buy Merck (MRK) for Big Pharma rally
Todd's prediction: GOP gets Senate & Dems take the House; buy ADM (ADM)
Gary B's prediction: Senate goes to GOP & Dems get the House; buy Pepsi (PEP)
Adam's prediction: Dems win; Ford (F) up 20 percent by end of January
Neil Cavuto was joined by Ben Stein, "26 Steps To Succeed In Hollywood" author; Gregg Hymowitz, Entrust Capital founder; John "Bradshaw" Layfield, VP Northeast Securities; Patricia Powell, Powell Financial Group founder; Charles Payne, Wall Street Strategies CEO; Sascha Burns, Democratic strategist.
Neil Cavuto: Democrats or Republicans? Which party is most likely to boost your paycheck if it wins control of Congress? Charles, if you hope to earn more, which party do you want in control?
Charles Payne: You want the Republicans Neil. The Democrats would destroy your paycheck first with raising taxes. They would put implements in to stop corporate profits. If corporations can't make money, how can they hire people and give them higher wages? They're going to stop imports from coming into the nation. It's not just about paychecks Neil. It's about the quality of life.
Gregg Hymowitz: Charles is exactly right. It's about the quality of life. And I'm shocked that he's saying this. When 13 percent of Americans live under the poverty level, when the minimum wage is $5.15, or when a 40-hour workweek is less than $10,000, I'm not exactly sure what Charles means by quality of life. The Democrats are going to bring the triple play to the economy by lowering the deficit (thereby lowering interest rates), and by lowering taxes for the middle class so people will have more spending, and by raising the minimum wage so finally more Americans will enjoy the quality of life that Charles enjoys.
Ben Stein: If you're a rich person, and especially if a lot of your wealth comes from capital gains or dividends, you will suffer if the Democrats get in because they're going to raise taxes on those forms of income. For the rest of us, it won't make a darn difference.
Sascha Burns: Who's going to get a better paycheck? I will. And I'm the one who needs it. I don't have stocks because I have to pay my health insurance. And that's the issue for the majority of Americans.
Ben Stein: Well, how will the Democrats affect that?
Sascha Burns: They're going to lower taxes for the middle class.
Ben Stein: That's just going to mean a bigger deficit. I don't know how they're going to do that.
Sascha Burns: No, because they'll take that money from the tax breaks to the oil companies, which had the biggest profits we've seen in years.
Ben Stein: Well, that's a good thing not a bad thing.
Neil Cavuto: Bradshaw, the feeling seems to be that under Republicans this Congress has spent like drunken sailors, which is an insult to drunken sailors because at least it's their money they're spending, while Congress is spending ours. So wouldn't you say a pox on both their houses? You step back from it, and say both Democrats and Republicans spend a lot of money.
John Layfield: Both of them do; they're both culpable of this. These oil companies are created because of inept policies on both sides of the aisle, but it's crazy to say: "Hey look you run a great company, so we're going to take your money and give it to these other companies that can't run theirs properly." Robin Hood is not real. This economy is absolutely fantastic right now. The Democrats say they're going to improve on this when we have low unemployment and the market is at an all-time high, and tax receipts are at an all-time high?
Neil Cavuto: Patricia, what do you think of that?
Patricia Powell: The best you're going to do is under the Republicans and that's to hold the line where taxes are. If the Democrats get in you're going to have tax increases. And it's very simple; when you raise taxes, you take growth out of the economy. If you lower taxes, you put growth into the economy. It may not be fair, but that's the way it works.
Gregg Hymowitz: First of all, no one is talking about raising taxes. The Democrats are not talking about raising taxes. The Democrats are talking about lowering middle class taxes and allowing more people to enjoy a quality life.
Neil Cavuto: This is one thing I'm unclear on about the Democrats' position. You say you won't raise taxes, but you can't guarantee that you won't be opposed to extending the President's tax cuts. If they expire in 2009, 2010, 2011 as they're apt to, then taxes go up. That's raising taxes, is it not?
Gregg Hymowitz: That would be. Obviously if they expire certain taxes would go up. I think the focus is to lower taxes on the middle class. And to Ben's point, how you lower the deficit is with Democrats who have a history of showing some fiscal responsibility. You lower it with lower spending and you reign in the Defense Department's budget, to protect the country, but to protect it sensibly.
Ben Stein: With the greatest respect, neither party ever keeps their promises to cut spending. We're going to have an increase in defense spending when we eventually withdraw from Iraq.
Neil Cavuto: Sascha, is it the Democrats' wish that the President's tax cuts — while still in place now — are allowed to drop after 2010? You'd allow the deadline to expire?
Sascha Burns: I'd say yes, but let's deal with it in 2009 instead of 2006.
Neil Cavuto: But you're not answering my question. You'd let them expire?
Sascha Burns: Yes.
Neil Cavuto: Gregg, that means taxes go up right?
Gregg Hymowitz: Neil, it's very cute what you're doing. You want the Democrats to say they're going to be raising taxes.
Neil Cavuto: If you let those tax cuts expire, do taxes rise: Yes or no?
Gregg Hymowitz: Certain taxes would obviously rise if certain laws were not extended.
Charles Payne: When the Democrats made Nancy Pelosi their leader they told us everything we needed to know. They could've put Harold Ford in charge. He's one of the most fiscally conservative Democrats out there.
Head to Head
Neil Cavuto: Is war really being waged on the middle class or is that an election-year myth? Ben?
Ben Stein: This has been a myth from the beginning. There is only one area where class warfare is going on and that is the fact that the tax on dividends and capital gains was cut dramatically compared to the tax on labor. There the rich class is winning. But anyone who really wants to can raise themselves to upper middle class status by acquiring education and acquiring more human capital.
Sascha Burns: Ben you just said people can raise themselves up through education, but people can't afford college. The cost of college is skyrocketing.
Ben Stein: It's skyrocketing at Yale. It's not skyrocketing at community colleges. My son goes to community college, and it's free; so there you go.
Sascha Burns: Ben, that's terrible because you can actually afford it.
Ben Stein: You bet I could.
Charles Payne: The Democrats will often use the word middle class and minimum wage interchangeably. It's divisive and it's tearing the country apart. I also think a lot of Americans don't realize how good they have it here. As far as dividends are concerned, Ben's always talking about risk, and people who take risks should probably get a better payoff.
Gregg Hymowitz: Charles, 25 percent of workers in the United States make less than $18,000 a year. That's appalling. In the 1950s, most middle class families were able to get by with one working parent. Today, 60 percent of mothers with kids under the age of six have to have — at a minimum — one job.
Patricia Powell: Gregg's trying to appeal to a child-like sense of fairness. Yes, it's not fair that some people make $18,000 a year. And it's not fair that some mothers have to work to support their kids. Where in life is anything fair? You have to deal with reality. And the reality is if you work in this country, you can move yourself forward. And if you don't work, you move yourself backward.
Sascha Burns: We can sit here and talk about these people, but we don't know what their reality is. The economy is doing great, but the reason it's not resonating with the American people and why they want the Democrats to control the economy is because we Democrats can do better for them.
Charles Payne: Sascha, I started at Wall Street at $11,000 a year, so I know what those people are like. It's about building yourself up. I'm not saying everyone's lazy, but I am saying there's a way to improve yourself in America.
More For Your Money
Neil Cavuto: Our guys predict who will win Tuesday and the stocks that will shoot higher as a result. John?
John Layfield: The GOP sweeps and that puts a cap on these ambulance-chasing lawyers. A favorable litigation environment goes for companies like tobacco. I like Altria (MO) and I own it. Altria closed Friday at $81.18.
Neil Cavuto: Pat, what do you think of that?
Pat Powell: Altria is in trouble. If there's not litigation here, there's going to be litigation in Europe. I think Americans are in the mood to gamble, and they're betting on the Democrats to win the House and the Senate. I think people should be looking at Wynn Resorts (WYNN). You can make more money owning the casinos than gambling in them. Wynn closed Friday at $73.44.
John Layfield: Steve Wynn has does a fantastic job with this company, but it's reached the saturation point.
Neil Cavuto: Charles?
Charles Payne: I think the GOP will sweep and I think defense companies are going to do very well. I like L-3 Communications (LLL). I think it has a great risk/reward ratio. No matter who wins, this is an undervalued stock. It will do well, but it'll do better under the GOP. L-3 closed Friday at $79.84.
Gregg Hymowitz: Charles and John have been body-slamming each other too much. Look, I think the Department of Defense budget slows down. Expectations are already built into this stock. I would not buy this stock.
Neil Cavuto: What would you own?
Gregg Hymowitz: Would you be surprised if I think the Democrats sweep? I think middle class America does do better here. I think they hit the malls pretty hard and retail stocks do better. We like (and own shares in) The Limited (LTD). It owns Victoria's Secret, Bath and Body Works. I also hear Victoria's Secret is coming out with the world's greatest bra, so it's another reason to own the stock. The Limited closed Friday at $29.70.
Charles Payne: The stock has already had a big move. I think it's overvalued here.
Gregg Hymowitz: Fourteen-times earnings, Charles.
Neil Cavuto: Ben Stein?
Ben Stein: I think the Democrats are going to take the House. And the Senate will stay in GOP hands. The stock I love is Berkshire Hathaway (BRK.B). I had dinner with Warren Buffett a couple of nights ago in Omaha. He is the most extraordinary genius I ever met in my life. He just blows my brains out with how smart he is. I own the stock, and I wish I owned a lot more. Berkshire closed Friday at $3501.
Neil Cavuto: How did you get a dinner with Warren Buffett?
Ben Stein: I told him I was a friend of yours.
Pat Powell: Ben is right. Buffett is one of the most brilliant entrepreneurs in the country, but he's at the end of his career, not the beginning. He's giving away his fortune.
Ben Stein: No, he is in robust good health, and he's got incredibly good people under him.
Pat Powell: And how old is he?
Ben Stein: He is 75, and I wish I had half his stamina.
FOX on the Spots
John: Dems lose Tuesday; stocks gain and rally for 3 months.
Gregg: Dems win; markets rally on D.C. gridlock
Charles: Fed says no inflation; huge year-end rally!
Pat: Dow drops to 11,500, then soars to 13,000!
Ben: No gov't program will replace hard work & savings!
Neil Cavuto: Numbers don't play politics. 4.4 percent unemployment... you do the math... by any standard, that's a great economy!
In Focus: Which Party Delivers Cheaper Gas?
Steve Forbes, editor-in-chief: The Republicans will deliver cheaper gas. The Democrats can't do it. They've blocked exploration of the outer Continental Shelf, which would supply enough oil to fuel 85 million cars for 30 years. They want to put on taxes and more regulations. That will lead to higher prices.
Lea Goldman, associate editor: The long-term solution that I think some Democrats have in mind is passing some of the incentives that go to the oil industries to alternative energy. It's a long-term solution. If voters think that this is going to turn around in a year, they are mistaken. The Democrats have a long-term strategy that will bring down prices over several years.
Jim Michaels, editorial vice president: The Democrats idea of incentive is to slap a tax on you. This is a market problem. The demand is growing faster than supply. What we need is more supply. You don't get more supply by taxing oil companies and putting price controls on them. The markets can solve this problem, and Democrats don't trust the market. The Republicans trust it more.
Quentin Hardy, Silicon Valley bureau chief: Who's kind of high prices would you want? The Democrats would probably put on more taxes and some of that money would go towards alternative sources and doing something about what our President calls our "national addiction to oil". Republicans have done nothing to solve our national addiction to oil, despite talking about it. And they've gotten us into this terrible war in the Middle East, which will likely get worse and lead to bigger prices.
Elizabeth MacDonald, senior editor: What we're really dealing with is a tight market. Ninety percent of the world's oil supply is run by state-owned enterprises. Shutting down loopholes and raising taxes on oil companies doesn't do anything. I think Republicans would do better at stopping regulations and over taxation of oil companies. They've paid billions of dollars in taxes over the years. They need all the help they can get to do more exploration.
Victoria Barret, associate editor: I think it's an even hedge. The Republican strategy in the Middle East is creating a lot of turmoil there, and that's going to boost up prices if supply is cut. The Democrats want to tax oil producers, and that's going to push up prices. What really matters is what is going on with the American consumer and China, where a lot of the demand is being created. What I thought was interesting this week was that GM reported that more gas-guzzling cars were sold. Americans are responding to lower gas prices and buying gas-guzzlers. That's going to push up prices over the long-term.
Flipside: Stock Market Does "Not" Care Who Wins Elections!
Rich Karlgaard, publisher: The Republicans are going to barely hold onto the Senate, the Democrats are going to likely take the House. That kind of split is what the markets want right now. Either party is going to have a very thin control of their body of the House. That means that not a lot is going to get done, and not a lot of destructive stuff to the market place.
Quentin Hardy: I think the market likes the split because opposition is healthy and it makes for better government.
Dagen McDowell, host: Looking at history, when you had a Republican in the White House and a Republican Congress the market did double the returns than under a split Congress or a Democratic Congress.
Elizabeth MacDonald: I never agreed with any of those data points. That mistakes coincidence for cause. Under Kennedy you had a unified government, the Dow went up 15 percent anyway. Under Nixon, you had a divided government, and the Dow went down 1 percent. Long term the markets care about interest rates and oil. But the big-government spending on the part of the Republicans is out of control.
Steve Forbes: Wall Street wants real principled Republicans. The Democrats are going to mean more taxes, more regulations, more lawyers and weak defense. That's going to hurt the stock market, not help it.
John Rutledge, Forbes contributor: The stock market doesn't care about politics. It cares about profits, interest rates and tax rates. Profits are growing 20 percent; interest rates are low; tax rates are at stake because, with a deadlocked Congress, they won't be able to pass an extension of the dividend and capital gains rates. That would be very bad for the stock market.
Jim Michaels: What Wall Street doesn't like is surprises. If the consensus is true and the Democrats narrowly take the House and the Republicans keep the Senate, the market might do a little jump for joy just because it's glad the thing is over. If we get the unexpected, and the Democrats sweep and give the Democrats the position to get their agenda across, the market is going to tank.
Informer: Election Winner$
Mike Ozanian, senior editor: I think the Republicans will keep both the House and the Senate and that will be good for payroll processor, Paychex (PAYX).
Lea Goldman: I think the Democrats are going to take both the House and the Senate. They've been backed into a corner and will likely raise taxes, and that's going to put a cooling freeze on the hiring market and hurt Paychex. I like Diebold (DBD), there's a lot of talk that the mess is going to be at the voting machines on Election Day. I think that's a bunch on bull. It's going to be fine, and Diebold, who has a small business in voting machines, is going to do well.
Mike Ozanian: I don't think that banks are going to order the ATM machines like they use to. That's 70 percent of their business, and that will hurt them.
Michele Steele, reporter Forbes.com: I think the Dems are going to take the House and that will help stem cell research. I like Geron (GERN).
John Rutledge: Stem cell research is good, but I'd buy the Korean market for that. This company is too small and volatile. I think the Democrats will win the House and I'll buy iShares China (FXI), that's as far from Nancy Pelosi as you can get.
Rich Karlgaard: I like China, but I don't like the lack of transparency in China, and for that reason I think it's more of a bet than an investment. I think Republicans lose 4 Senate seats, but they retain control with 51. I think they lose 19 House seats and lose it to the Democrats. I like Cisco (CSCO). Cisco has the best teleconferencing technology ever invented.
Michele Steele: Cisco investors don't care about losing Congress, they care about who is buying routers. I haven't heard about any conspiracy of Democrats earmarking millions for Cisco after this election.
Makers & Breakers
• DivX (DIVX)
Brian Hicks, New America Investor: MAKER
We're in a new tech bull market, and it's being lead by online video. DivX makes decompression/compression software for digital video. Without this technology, we don't have things like YouTube. I think it can go to $35 in one year. (Friday's close: $22.85)
Mike Ozanian: MAKER
This company hasn't been public for that long, but insiders own a huge part of it, which shows me that they have a lot of confidence.
Victoria Barret: MAKER
This company is in the right place at the right time, and it has great partnerships with companies like Google.
Dagen McDowell: Isn't this the kind of industry where a bigger player could come along and eat this company for lunch?
Brian Hicks: If this stock isn't acquired by a bigger company, I think you'll see it increase 50 percent on its own merits.
Brian Hicks: MAKER
This company makes credit card processing machines. Sales are booming, and earnings are growing. I think it can go to $44 in one year. (Friday's close: $30.50)
Mike Ozanian: BREAKER
This company paid over $750 million to buy an Israeli firm earlier this year. I think it was too risky.
Victoria Barret: BREAKER
I would look at VeriFone's competitor, NCR, which is cheaper.
Brian Hicks: That acquisition is a company that is in China. I like that!
Our "Cashin' In" crew this week: Wayne Rogers, Wayne Rogers & Company; Jonathan Hoenig, Capitalistpig Asset Management; Jonas Max Ferris, MAXfunds.com; Meredith Whitney, CIBC World Markets; Tracy Byrnes, The New York Post, and Cody Willard, CL Willard Capital Partners.
Stock Smarts: Tax Hike Fears?
The prospect of terror continues to loom. But is another major threat to the stock market and the economy an attack on the Bush tax cuts? A vote for the Democrats is a vote against the Bush tax cuts was the message from Vice President Dick Cheney when he sat down with Neil Cavuto:
(BEGIN VIDEO CLIP)
Vice President Dick Cheney: The Democrats, were they to take charge, if Charlie Rangel was chairman of the Ways and Means Committee — Charlie said there's not a single one of the Bush tax cuts he thinks should be extended, and he could achieve that objective simply by not acting.
(END VIDEO CLIP)
Terry Keenan, host: Wayne, is this bad news for the economy is these tax cuts go away?
Wayne Rogers, Wayne Rogers & Company: I think the problem is, Terry, that the public doesn't understand that. The public is not aware of it. Republicans have done a terrible job of selling that to the public. The Democrats have been smart, they played on the Iraq crisis and they haven't talked about the economy. The Republicans are just dumb, if you will forgive me, in that respect. They haven't sold the program. Of course the tax cuts work. The economy is in great shape. The announcement about unemployment being at the lowest point that it's been in many years is terrific. They just haven't sold it.
Terry Keenan: Jonathan if these go away, especially the dividend and capital gains tax cuts, that's bad news for the market, right?
Jonathan Hoenig, Capitalistpig Asset Management: I think it's bad news for the market, Terry, but to be honest, I think the GOPs record isn't as stellar as Wayne wants to believe. It's great if you don't cut taxes, but if you spend like it's going out of style, on entitlement programs and farm subsidies and Medicare and Katrina waste, that's just as bad as raising taxes.
Terry Keenan: You don't think the Democrats are going to cut spending, do you?
Jonathan Hoenig: Well unfortunately not, but, I wonder if they would impose the regulatory burden that George Bush has. Sarbanes-Oxley is driving capital out of this country. There is a lot that the GOP doesn't have to be proud of on their economic record, either.
Terry Keenan: But we're near all-time highs on the Dow.
Cody Willard, CL Willard Capital Partners: Even talking about the economy, 96 percent who want a job in this country have a job. That's what the figures showed. But when we talked about these tax cuts and whether or not at they are going to be extended, I don't even know why we are trying to pretend that Cheney has any idea what is it going to be going on in 2010. Even the Democrats don't know what they're going to be doing in 2010.
Terry Keenan: So you don't think it's worth worrying about?
Cody Willard: It's not. Cheney's job is certainly to, you know, throw out that rhetoric and get people out voting against the Democrats and that's what it is. But let's call a spade a spade.
Meredith Whitney, CIBC World Markets: I think he's using an excellent piece of Bush "strategery" in coming out and saying that taxes are going to go up. That is going to motivate people to vote against the Democrats at the polls, but it's a little too late.
Terry Keenan: It's a pocketbook issue but will it work?
Meredith Whitney: Absolutely.
Tracy Byrnes, The New York Post: We can't argue that $1.1 trillion has been infused into the economy over the last five years. What is ironic to me, though, is that the Democrats claim they are out for the middle class, but not one of them has brought up the alternative minimum tax, which is going to clobber the middle class. So while they're slamming Bush they are not protecting their constituents.
Terry Keenan: That's why Wayne has to run on that platform.
Jonas Max Ferris, MAXfunds.com: But the Republicans didn't move to fix that either. They went for the dividend tax cut and the capital gains tax cut. Terry, voting for the Democrats is a vote against the Bush tax cuts. It basically is. I don't think that is so bad for the stock market. The stock market likes tax cuts but the stock market likes a solvent government.
Terry Keenan: They don't like tax hikes, Wayne. Look what happened in Canada when it looked like they were going to raise taxes there.
Wayne Rogers: A disaster. This proposal in Canada to tax the trusts up there erased an enormous amount of wealth—$25 billion in one fell swoop for a guy to correct a tax deficit of $800 million. I'm not the brightest guy in the world, but I can do that math. That's dumber than dirt.
Meredith Whitney: And what happened in Canada is that the money went other places. So Canada loses, and this is basically supply-side economics.
Tracy Byrnes: It's taking from Peter to pay Paul. It's just a matter of who's going to decide where the money is going. It's the same money being juggled around.
Cody Willard: I think it's even worse than that. The tax cuts are a virtuous thing. It creates more wealth, it creates more money and it actually does well for the economy and the market. You take stuff like that away, the $25 billion that the Canadian market might have been hit for earlier this week, that goes away. It's not as if it flows somewhere else.
Terry Keenan: And Jonathan, unfortunately it knocked your friend Wayne out of first place in the "Cashin' In" Challenge.
Jonathan Hoenig: Yeah, I wouldn't count Wayne out. But Terry, I'm not focused as much on the taxes. That policy has changed, always will. I think it's which party is going to grow the entitlement economy a little slower.
Terry Keenan: Which one is it?
Jonathan Hoenig: Well, I hate to say it's probably the Republicans, but still, the regulatory burden; I can't tell you how much of the action right now is in other exchanges and other markets. It's not in the U.S. We're becoming an economic second power.
Meredith Whitney: But Jonathan, the point is that from a tort issue and from a regulatory issue, the Republicans have historically had a much better track record with keeping the government out of business.
Cody Willard: How can you argue that? Look at what the spending has been like under the Republicans.
Meredith Whitney: On a regulatory issue, from a legal tort reform issue, the Republicans typically want the government out of the way.
Wayne Rogers: In Jonathan's world everything is bad and it's a question of how bad do you want to be? But if they are both bad, Jonathan, wouldn't you rather have the lesser of two evils?
Jonathan Hoenig: I'm writing in Wayne Rogers this Tuesday, I don't know what anyone else is voting for, but you are my write-in candidate for everything.
Tracy Byrnes: I think that the economy is moving; people can't deny that and these tax cuts have made a difference. So, for Charlie Rangel to sit and do nothing makes no sense.
Jonas Max Ferris: The foreign stocks have been outperforming our market for years. They mostly all have higher taxes than we do, so how is it so bad for those stock markets if they have higher taxes in those countries? Wall Street was sold a temporary tax reduction and liked it. Wall Street went up. So why would honoring that original sale be bad? What's wrong with letting them expire naturally? That's what they were sold. Why would we sell them as permanent tax cuts?
Tracy Byrnes: If they expire naturally, that would be disastrous.
Jonas Max Ferris: They were sold that way.
Terry Keenan: Cody, remember what happened in 1987, they tried to raise capital gains taxes and a week later, we had the stock market crash.
Cody Willard: People always like to point to the political scene as some sort of catalyst for the near-term market action. The fact of the matter is that those types of things take very long to actually trickle through the economy and the market. I think you've got oil, back in 1987, which was a much bigger issue.
Terry Keenan: And interest rates were going through the roof.
Wayne Rogers: This is not going to take place until 2010, so you have got another election after this one, before the tax laws pass. Even if Charlie Rangel does this, there is going to have to be action before 2010 or after so we have a long time before that happens.
Cashin' In: Wal-Mart Winner$
(BEGIN VIDEO CLIP)
Jack Welch, Author, "Winning: The Answers": We believe that Wal-Mart is the greatest inflation fighter in America. And inflation is the most harmful thing to those among us who have the least. And, therefore, we think Wal-Mart creates jobs, creates opportunities for its employees, and, in fact, gives more buying power to more people with less than any other factor; better than food stamps, better than a whole mess of government programs.
(END VIDEO CLIP)
Terry Keenan: Jonathan does Jack have it right?
Jonathan Hoenig: Of course he does. It is an embarrassment that Wal-Mart is questioned as being an incredibly productive and beneficial part of society. They created millions of jobs. Jack is absolutely right. They save the average shopper about $2,000 a year.
Terry Keenan: They probably single-handedly rode up the trade deficit to record levels. Wayne, do you agree?
Wayne Rogers: I can't believe you've got Jack Welch saying, "…those among us who have the least." How could he possibly know?
Terry Keenan: He was worth three-quarters of a billion dollars the last time I looked, right?
Wayne Rogers: You've got this zillionaire talking about those among us who have the least. He wouldn't have the vaguest idea
Jonathan Hoenig: Wayne, he's got the point exactly right, though. Inflation does hurt the people at the low end of scale. And you are always, you know, slapping Wal-Mart. They are doing a lot more than food stamps or any of that stuff is.
Terry Keenan: Are they fighting inflation, Cody or just importing deflation?
Cody Willard: Wal-Mart is certainly making an impact on inflation, and it's a great thing for the economy in many ways. But before we go ahead and get on the Wal-Mart bandwagon, let's talk about the fact that they go into a small town and fight for tax breaks that the rest of the community doesn't get. So any other business owner in that town is on an un-level playing field against Wal-Mart. We can't exactly say that they are the capitalist engine that we want to say they are.
Tracy Byrnes: But the people are paid so poorly that they are on food stamps. I mean, my tax dollars are going to Wal-Mart employees.
Meredith Whitney: A lot of that is distorted because a lot of these guys are part-time employees. But one thing for sure is the reason why the United States' productivity numbers keep going up and up is because Wal-Mart doesn't allow unionized employees and that has been terrific for America. And that's why the Democrats hate them.
Jonas Max Ferris: Jonathan, do you think the nation's public schools do less to fight poverty than Wal-Mart? I mean, that is a little farfetched. I think Wal-Mart is more of a net neutral. They create jobs, but they destroy them at Kmart and local competitors just as well as they create them. So yes, they lower prices but they also keep wages down for certain people.
Cody Willard: Wal-Mart's impact on inflation is the Internet economy. The globalization of this world and empowering the individuals, those are the people that are actually creating new jobs and cutting prices.
Terry Keenan: Jonathan hasn't GE done a lot to create a lot of wealth.
Jonathan Hoenig: Business does a lot, Terry. Free, voluntary trade does a lot, but unfortunately, you don't get that with Wal-Mart. You get these legislators who say, "No, we can't let them buy a bank" or communities saying, "No we are not go to let them in unless they pay $20 an hour to stock shelves."
Terry Keenan: Why pick this as the poster child of great American business?
Jonathan Hoenig: Because Sam Walton started with one store and built a huge colossus that employs a million people. Terry, how many people does Wal-Mart Watch employ? 15 at some office somewhere?
Tracy Byrnes: You could say the same about McDonald's (MCD). To Jonas' point, educate these people. Let's talk about the minimum wage.
Terry Keenan: How about Starbucks (SBUX)? I mean, they give all of their employees healthcare.
Meredith Whitney: Starbucks is an excellent business model. A hard one to replicate. Starbucks' margins are so much greater. Margins for Wal-Mart are small and they're trying to increase those margins by driving costs other than personnel costs down.
Best Bets: College Football Special: Jonas' Top Rankings
Go long with the stocks in a special edition of Best Bets. Jonas brought his game face and five stock picks he says will score big for you. Wayne, Jonathan, Tracy and Cody will be running the defense. Jonas, you are smiling because you are in first place in our challenge. What's your first pick?
iShares S&P 100 Index (OEF)
Friday's close: $63.68
52-wk High: $64.80
52-wk Low: $55.25
YTD Return: +11.92 percent
Jonas Max Ferris: I'm going with a 1990's portfolio, which I think is going to come back. With mega cap stocks, I think that the iShares S&P 100 Index Fund is very cheap, super big stocks. Discuss among yourself.
Jonathan Hoenig: To your credit, Exxon Mobil (XOM), General Electric (GE) and Microsoft (MSFT) are in the lead. This is an index fund. It's going to track the market on the way up and it's going to track it on the way down as well.
Terry Keenan: So you like these big caps?
Jonathan Hoenig: Well, I know that Jonas does and they've certainly done quite well. Terry, I always say that my customers don't hire me to buy GE, but, to their credit, they've done quite well.
Terry Keenan: OK, they hire you to pick stocks that no one can pronounce, but they are doing pretty well. What's your second pick, Jonas?
Janus Global Life Sci. (JAGLX)
Min. Investment: $2,500
Jonas Max Ferris: Still into healthcare but, I'm moving towards the biotech area with the Janus Global Life Sciences Fund. Any of these funds with "life sciences" in the name are going to outperform over the next two to three years. It's been out of favor for a while, but it's a cheap fund.
Terry Keenan: Janus has also been out of favor. That's back to the ‘90s.
Jonas Max Ferris: I used to hate them on the show.
Cody Willard: You know, the entire healthcare industry, the premise of their business model is based on gaining the essentially controlled pricing paradigm of this country's healthcare system. And that central control is being eroded again by the Internet and the empowering of the individual.
Terry Keenan: And by Wal-Mart.
Jonas Max Ferris: The Internet has not removed the patent that protects America's pharmaceuticals that need to buy drugs from biotech companies to keep going. By the way, I own that fund.
Vanguard Info Tech ETF (VGT)
Friday's close: $50.80
52-wk High: $52.05
52-wk Low: $42.50
YTD Return: +5 percent
Jonas Max Ferris: I've got another 90s pick, information technology, Vanguard Information Technology ETF. It's got a .28 percent expense ratio. Stocks like Google (GOOG) and Microsoft, things you wished you owned in the 90s but held too long.
Terry Keenan: Tech has been pretty strong. I wished I owned Google in the 90s. That would have been a good one. Wayne?
Wayne Rogers: I'm not crazy about this because I don't think there is a lot of upside left in this and the ones that have been there that are just status quo are going to stay that way. I don't see any growth there.
Terry Keenan: And you are going across the Pacific for the next pick?
Morgan Stanley Asia-Pacific (APF)
Friday's close: $17.44
52-wk High: $19.04
52-wk Low: $14.05
Jonas Max Ferris: My last emerging market pick on this show for a while. It trades at a discount; it's a closed-end fund. Morgan Stanley Asian Pacific Fund. 10 percent discount is cheap for an Asia-Pacific fund. China still has a little potential; you've got six months left in this one to make money.
Tracy Byrnes: It's sitting on huge capital gains. People need to be aware of that.
Jonas Max Ferris: With a closed-end fund it doesn't matter.
Tracy Byrnes: At the end of day it matters to your tax returns.
Schwab Hedged Equity (SWHIX)
Min. Investment: $2,500
Jonas Max Ferris: Long/short fun, very hard to do in the mutual fund world, but I'm doing it with the Schwab Hedged Equity Fund. Yes, it's expensive but it's doing almost as well as the S&P with half the risk. You can't do that with a mutual fund. It's like a hedge fund with low fees.
Wayne Rogers: I like it; I think this is a good one.
Tracy Byrnes: It's expensive for a mutual fund.
Jonas Max Ferris: But not for a long/short fund. You can't find them under 2 percent. They don't exist, they stink.
Cody Willard: A wise man once said that if you get a hedge portfolio, you get twice the risk for half the return.
Question: "Do you think that taking trans fats out of their foods will help or hurt food companies, and should I buy them?" - Kathleen, Mt. Laurel, NJ
Jonathan Hoenig: I think it could hurt their stocks here. They can serve whatever they want. The point is the moral question. The government has no right. They are doing this in response to cities like New York and Chicago that are threatening to ban trans fat from menus all across the city. They have no right to do that. As far as I'm concerned this is sill a free country. You have the right to serve whatever you want. I thought the old chicken tasted pretty good. I mean, I thought it was pretty tasty and I think that like the smoking ban, this is government run way amok.
Wayne Rogers: Well, I agree with Jonathan in that it's a personal choice, I mean, I don't want the government telling me whether I can smoke or not smoke or telling me what I can eat. I would agree with that 100 percent. However, I do think it's good for the country in the sense that it's going to help health. And if it helps health that means that our cost of health is going to go down and that's good for everybody.
Terry Keenan: What about the stock?
Tracy Byrnes: It's going to help the stock because it's a marketing scam in a lot of ways. People are going to presume that without trans fat, they can eat the stuff. It's not fat free. It's still going to your thighs. It might save your heart a little, but it's still going to your thighs.
Question: "I've done great with some of Wayne's picks in the past. What does he think about Home Inns & Hotels (HMIN)?" - Keith, Midland City, AL
Wayne Rogers: Well, it just came public. I have not analyzed the financials, but it had a terrific run up just after it came public and it's only been public for what, three or four weeks. The Chinese economy is booming. All of the Chinese stocks, as you know I still hold a number of them, are good.