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.
This past week's Bulls & Bears: Gary B. Smith, Exemplar Capital managing partner; Pat Dorsey, Morningstar.com director of stock research; Tobin Smith, ChangeWave Research editor; Scott Bleier, HybridInvestors.com president; Charles Payne, Wall Street Strategies CEO, and Cheryl Casone, FOX Business correspondent and host of "FOX Business Now" on Yahoo! Finance.
Trading Pit: Will Stocks Do Even Better in 2007?
2006: An historic year for the Dow as blue chips hit all-time highs again and again, gaining over 16-percent on the year. But could 2007 be even better?
Charles Payne: 2007 will be better. There is a lot of value in the market right now, and I think 15,000 is a reasonable target for the Dow next year. Large caps are going to come out the gate faster than other classes of stocks in part due to the uncertainty about the economy and the Fed and also because these stocks are still very cheap.
Gary B. Smith: No, I think 2007 will be a fairly flat year. I think the market comes down a couple thousand points before we rally and reach old highs, but not make much headway after that.
Tobin Smith: 2007 will certainly be better due to the start of a huge multiple technology upgrade cycle. And the Fed will cut short-term rates. I thin think the Dow will go up 1,000 points, but the Nasdaq will have an even better year.
Cheryl Casone: 2007 will not be as good as 2006. The Fed will not cut rates in the first half of the year. And the economy will continue to tread water through the first half of 2007. Plus, inflation isn't going anywhere. We will see an earnings growth slowdown next year.
Pat Dorsey: The Dow is fairly valued with a decent yield. I don't see any super gain for next year, but the Dow should continue to outperform the Nasdaq and S&P.
Scott Bleier: 2007 will not be better. In fact, I think it will be worse. After a strong start, we will finish the year flat.
Best Thing for Wall Street: More CEOs Like President Ford?
Charles Payne: Yes corporate America would be much better off with guys like President Ford. It's not just his skill at handling the mess but his manner—which was less about hype and more about getting the job done.
Pat Dorsey: President Ford did something unpopular, but necessary. We need a few thousand more guys like that. More CEOs need to do the right thing for the long term, meaning, it might ding quarterly earnings, but will create lasting shareholder value.
Tobin Smith: What was great about Ford was that he did what had to be done when it was not easy.
Cheryl Casone: I've heard it said that Gerald Ford was a nice guy, but probably too nice a guy.
Business is a tough environment and you have to be able to make decisions and take actions that don't feel so good, but are good for business.
Gary B. Smith: This is a good question. Ford put the long-term needs of the country (his company) in front of the short-term desires of his shareholders (who wanted Nixon's head). That's a very tough decision, but probably what companies need, despite how Wall Street reacts.
Scott Bleier: Only after a problem do companies need a man with an impeccable ethical standing like Ford. Companies that want to make big money need a CEO like Nixon—aggressive and paranoid!
The best and worst calls of the year!
Let's start with Scott. In the beginning of July he said to buy Take-Two (TTWO). Anyone who did is doing a double take. The stock making a very nice gain of 64 percent. And he still likes it! (Take-Two closed 2006 at $17.76.)
But he couldn't get too cocky because back at the start of the year he liked Massey Energy (MEE). It hasn't done too well, down 40 percent. He thinks the stock can comeback and is a good value. (Massey closed 2006 at $23.23.)
Onto Gary B. In February he said Blackberry maker, Research in Motion (RIMM) had a strong chart. And it looks like these are known as "Crackberries" for a reason—making a move up of 81 percent. Gary B. thinks the stock may be volatile, but has potential for a lot of upside. (Research in Motion closed 2006 at $127.78.)
However, in March he picked NetLogic (NETL). An illogical pick? It's lost 43 percent since and he wouldn't touch it now.
(NetLogic closed 2006 at $21.69.)
Now to Pat. At the end of May he was buying MasterCard (MA). And it's more than doubled, gaining 120 percent! He's taken some profits, but still likes it and thinks the stock is a good one to have over the long-term. (MasterCard closed 2006 at $98.49.)
But Pat would sure like to forget this one. In late March he predicted the Nasdaq's stock (NDAQ) would gain 50 percent in a year. His year's almost up and the stock is down 24 percent. Pat is still bullish on the stock even though it's not as cheap as he originally thought. (Nasdaq Stock Market closed 2006 at $30.79.)
And finally, the best call of the year belongs to... Toby! How'd that happen?!?!? At the start of the year he chose Allegheny Technologies (ATI). Wow! What a move! Up 125 percent! He said not to get greedy and take your profits. (Allegheny Technologies closed 2006 at $90.68.)
But he also had the worst call. In the middle of March he picked, Cree (CREE), which has been almost cut in half, falling 46 percent. However, he said to stick with it and still likes the stock. (Cree closed 2006 at $17.32.)
A special round of Predictions! The Bulls & Bears each picked their best stock for 2007.
(If you want to watch what each had to say about his stock, click here.)
Charles Payne: Rite Aid (RAD)
Tobin Smith: Apple (AAPL)
Gary B. Smith: Starbucks (SBUX)
Pat Dorsey: Western Union (WU)
Scott Bleier: Building Materials (BLG)
Neil Cavuto was out this week. Stuart Varney hosted and was joined by Ben Stein, author of "26 Steps To Succeed In Hollywood"; Patricia Powell, founder of Powell Financial Group; Mike Norman, BIZRADIO Network host; Tracy Byrnes, New York Post business writer; Jon Najarian, OptionMONSTER.com founder; Laura Schwartz, Democratic strategist; Tom Adkins, ReMax Fairlawn agent, and Peter Schiff, Euro Pacific Capital president.
Stuart Varney: As the nation pays tribute to former President Gerald R. Ford, Wall Street remembers a pro-business President who warned that too much government regulation raises the cost of doing business and hurts consumers. But will the incoming Congress heed President Ford's words? Pat?
Pat Powell: No way! They didn't run as Republicans; they ran as Democrats. And if you want to get re-elected you have to give people what they wanted when they elected you. Gerald Ford was an anomaly. He was an un-elected President and he said some wonderful things like: "Any government that is big enough to give you everything you want is big enough to take away everything you have." I think that sums up his presidency more than anything.
Ben Stein: He really was not a wildly pro-business president. He wasn't a big Wall Street booster like the present administration. We don't really need any new regulations. It is illegal to use any scheme or artifice to defraud in connection with the sale or issuance of any security. That's enough. We don't need any new regulation; we just need to enforce the ones we already have.
Jon Najarian: I don't think the incoming Congress will heed what Gerald Ford was all about. Gerald Ford was all about deregulation — airline deregulation, rail deregulation, even brokerage firms were deregulated, and all of that while he was President. The fact that we're now able to trade stocks and options so cheaply, the fact that we're able to fly so cheaply — that's all because of deregulation. Congress is likely to stay on the path it's on — which is the opposite direction — and keep lumping more and more rules on top of us. It will be bad for business and bad for the United States.
Stuart Varney: Laura, you're a Democrat. You're not going to tell me that the incoming Congress is pro-business now are you?
Laura Schwartz: The Democrats who were elected in this mid-term election were primarily Blue-Dog Democrats. They're fiscally conservative and more pro-business than the other more left-wing Democrats, and they control the majority of the caucus in the House, so I think they'll be tepid at best with trying to put more regulations out there. Remember, two years from now is a presidential election that the Democrats want very badly, and they want to make sure that they keep those seats that they won this last fall.
Tracy Byrnes: Look at this stock options scandal. If it hadn't been for a top-level someone looking down on us, if it wasn't for the fact that we had whistleblowers, and we now have someone looking after all the greed, it would get out of hand. So, while I don't support the Democrats coming in and coming down on us altogether, I do think there needs to be someone at the top-level watching the action.
Mike Norman: I agree with Laura Schwartz. The new Democrats that won in these mid-term elections were more centrist than anything else. I also agree with Ben Stein that Gerald Ford was kind of a mainstream Republican. When the economy had some difficulties, his big idea was to walk around with this… "Whip Inflation Now" button. We had a mild recession in 1974 or 1975, and then he had a tax act that gave back tax rebates. I think the Democrats are now looking at 2008. They're not going to want to do anything to upset the economy. With the President's approval, they'll probably put through a hike in the minimum wage, and I don't think that's going to harm the economy.
Ben Stein: Ford presided over the worst recession of the post-war period up until Reagan's recession. There was 9.2 percent unemployment by 1975. He did propose a tax cut, but only a mild tax cut. In a period of high employment like we're having now, massive prosperity, an unlimited number of millionaires and a very large number of billionaires, we need to raise taxes on the very rich.
Pat Powell: These statements are at best incomplete. Yes, the "WIN" buttons were not a stellar idea, but Ford came into the Presidency at a period where this nation was hurting. A less secure Democracy might've toppled under the impeachment threat we had under Nixon, and yet he came in and acted as a man of courage, and he pardoned President Nixon. That was not a wildly popular move at the time. He was responsible for a lot more than people are giving him credit for. Remember, he came into a wildly Democratic Congress. He was able to get through tax cuts and anti-trust reforms. And he was able to decontrol energy prices.
Tracy Byrnes: But he wouldn't work today. We need more than that. You said it. He wasn't even elected. We need more control today.
Pat Powell: He stepped up to the plate.
Jon Najarian: The fact that he was so willing to veto is a big thing that I think this President should look at as well. There's going to be legislation coming across his desk, much of which is the same sort of pork that we're used to seeing. It should be cut, and since they don't have a line-item veto, he's just going to have to veto a lot more than he's ever thought of vetoing.
Head to Head
Stuart Varney: The IRS is now offering whistleblowers up to 30 percent of what the agency recovers from the tax cheats they turn in! The person who snitches can be a relative, even a spouse. Is this good for America and the economy? Mike?
Mike Norman: This is unbelievable. This is designed to turn neighbor against neighbor, citizen against citizen. This is going to turn the country into a dark and paranoid place. This is a terrible and dangerous move.
Ben Stein: It seems to me that we already allow people to report tax cheats and get a rebate. They're just raising the amount of the rebate or reward. Why should the rest of us pay our full amount of taxes while other people are allowed to cheat on their taxes?
Stuart Varney: But we really are changing the rules here. It's not just the amount of money that goes to the snitch, but we're setting up a whole system. The law calls for a special "Whistleblower's Office" to be set up to facilitate the process.
Ben Stein: That's absolutely fine with me.
Mike Norman: He must be looking for a reward then.
Tracy Byrnes: The IRS needs help. This is aimed at corporate America more so than the individual. We're not talking about snitching on our neighbor because they fudged the math on their charitable contribution. We're talking about $2 million in back taxes and penalties that have to be owed in order to even collect on this 30 percent.
Laura Schwartz: Hey, money motivates, and that's the way it's going to be. The IRS is the epitome of government bureaucracy. Something has to be done. The laws haven't worked.
Pat Powell: It opens the doors for lawyers of divorcing couples to walk in and say: "If you don't give us the settlement that we want, we're going to the IRS." There are a lot of unintended consequences here. This whole thing is creepy.
More for Your Money
Stuart Varney: Will your home be worth more or less in 2007?
Tom Adkins: Home prices will go up about 10 percent. That's the kind of appreciation you get in a regular, normal market which is what we are going to see in 2007. The hit that the housing market took was understandable when you have oil prices going up and the Fed aggressively raising interest rates and still prices only fell 3 percent.
Peter Schiff: Today's home prices are completely unsustainable. They were bid up to these artificial heights by a combination of temporarily low adjustable rate mortgage payments, a complete absence of any lending standards, and speculative buying. What's going to happen in 2007 is that a lot of these artificially low ARM payments are going to be reset upward. You will start to see both the government and the lenders re-imposing lending standards and tightening up on credit, and you are going to see a lot of the speculative buyers turn into sellers, and these sky-high real estate prices are going to come crashing back down to earth.
Ben Stein: It would be a very, very unusual correction if it didn't take a few years to run its course, and this one's only a year old, but I say if you find a house you love, buy it, and it will be worth a lot more in ten years.
Pat Powell: I think prices are still going to come down. I think Ben is right that it's not over yet, and prices have only barely come down so far. Every time you have a 1 percent change in the mortgage rate, there is an 11 percent change in the mortgage payment, so unless the Fed comes in and seriously lowers rates, I think we are going to continue to correct, but it will be a mild correction.
Mike Norman: I agree with Tom. I think home prices will be up, probably about 10 percent. We only have a tiny default rate on mortgages, and that only applies to sub-prime lending — people with the lowest level of credit standard. The economy is still very strong — we have 4.5 percent unemployment, GDP is growing — all the things that factor into housing are playing in here, and that is why we have not had a crash.
FOX on the Spot
A special "FOX on the Spot:" Our gang picks their best stocks to own in 2007! (If you want to watch they had to say about their stocks, click here)
Mike: Toll Brothers (TOL)
Ben: BLDRS Emerging Markets 50 ADR (ADRE)
Jon: Evergreen Solar (ESLR)
Tracy: Lockheed Martin (LMT)
Pat: Cisco Systems (CSCO)
Gerald Ford's No. 1 Le$$on to Congre$$: Stop Spending Our Money!
Elizabeth MacDonald, senior editor: God bless Gerald Ford. He left a great lesson for Congress that they haven't learned, which is the super-size me government hasn't worked. Deficits do matter. We spend hundreds of millions of dollars a year on interest on the federal debt alone. The government's out of control spending of taxpayers' money has to stop. Under Ford the economy went from negate 4.7 percent GDP growth in the first quarter of 1975 to 9 percent GDP growth.
Steve Forbes, editor-in-chief: Stop spending the people's money would be great but if you really want to stimulate the economy, create more wealth and create more jobs, then you cut tax rates which changes incentives in a positive way. Today we have a larger economy compared to the 1970's, which allows our economy to deal with lawmakers' inability to restraint themselves.
Quentin Hardy, silicon valley bureau chief: Ford believed in balance. He cut taxes when the economy was in a soft patch. And he knew what government waste was because he spent a lot of time on the Appropriations Committee. And he could veto spending bills because he was a bipartisan politician. Let's hope President Bush can learn to use the veto power in a bipartisan way.
Mike Ozanian, senior editor: Cutting spending should not be the number one priority today. The federal deficit does not matter because it is so small compared to the size of the overall economy. A pro-growth president doesn't worry about cutting spending to save American households 5 cents a week, he or she cuts taxes to give households an extra $100 a week in growth to spend.
John Rutledge, Forbes contributor: Government spending is a bad idea because politicians take your money and use it for the wrong purpose and it's bad for productivity. But budget deficits are an overblown rhetorical item. It would be better to cut taxes to stimulate economic growth.
Michele Steele, Forbes.com reporter: Cutting government spending will slowdown the economy because the government spends money on everything from the military to Medicare. That money stimulates the economy.
Steve Forbes: If government spending was the real juice for economic growth, then the Soviet Union and Argentina would own the world today.
Flipside: Best Thing for America in 2007: More Wal-Marts!
Mike Ozanian: We need more Wal-Mart stores. It's one of the best things for our country, especially for the low and middle class. We would have 200 to 300 more Wal-Mart stores, if it wasn't for the politicians. By blocking new Wal-Marts they are blocking growth.
Quentin Hardy: Building more Wal-Marts would be good for growth in the short run, but terrible for the environment and economy in the long run, because big-box stores being built in the suburbs has created sprawl and has turned us into a car driving culture.
John Rutledge: Wal-Mart means more growth for economy and lower prices for consumers. It also has freed up capital for small businesses because its hi-tech logistics system frees up a lot of inventory. And that additional capital help create more growth.
Michele Steele: Every dollar you spend at Wal-Mart you're spending to send your job overseas. We're paying Chinese producers to sell us Chinese products.
Elizabeth MacDonald: The more Wal-Marts the better. There is a spillover effect in areas where a Wal-Mart is built. Other stores follow Wal-Mart and that creates even more economic growth.
Steve Forbes: When Wal-Mart opens a store, 10 people show up to apply for each job. People love to shop there because the stores have variety and low prices.
In Focus: 2007: Boom or Bu$t for our Economy?
John Rutledge: The economy will boom in 2007. It will grow by more than 3 percent, profits will be up 15 percent and the Dow will hit 14,000 by summer with a chance to hit 15,000 by the end of 2007.
David Andelman, Forbes.com editor: The economy will grow less than 2 percent next year. I think the Federal Reserve Bank raised interest rates too high again and that will slowdown the economy.
Steve Forbes: The fundamentals of our economy are very powerful right now and that will allow us to overcome the idiocy of the Fed and Congress. The real threat to our economy is if the Middle East blows up.
Elizabeth MacDonald: I think the economy will grow 2.5 percent, which is twice as good as France and Germany and is outstanding considering the challenges we've faced.
Mike Ozanian: I'm looking for growth of 2 percent. We should be doing twice that growth but it was a big mistake not increasing the Bush tax cuts and spending on information technology will only be in the middle single digits next year.
Informer: Best Stocks to Own in 2007
Elizabeth MacDonald: Anadarko (APC)
David Andelman: Hovnanian (HOV)
John Rutledge: Qualcomm (QCOM)
Mike Ozanian: Ford (F)
This week, Terry Keenan was joined by Wayne Rogers, Wayne Rogers & Co.; Jonathan Hoenig, Capitalistpig Asset Management; Jonas Max Ferris, MAXfunds.com; Gary Kaltbaum, Kaltbaum & Associates, and Leigh Gallagher, SmartMoney.
Stock Smarts: Pelosi & Co.: Friends or Foes to the Economy and Market?
It's a new year, a new Congress and a new direction for Washington and Wall Street, with the Democrats taking control of Capitol Hill. And Nancy Pelosi and company have a big agenda they want to push during the first "100 hours" — including a minimum wage hike, immigration reform and lots of investigations.
So will the new Congress be a friend or foe to the economy and stocks?
Jonathan Hoenig thinks that neither party truly supports capitalism, but the Democrats are on the record in their support of anti-free market programs, like universal health care, an increase of the minimum wage, protectionist trade policies and environmental regulations. There is nothing to hold on to from the Democratic Party that speaks to capitalism.
Wayne Rogers says that you can't just make blanket statements about the Democrats being against capitalism, and he thinks the economy is too strong for the Democrats to really do anything in terms of hurting it too much. There is too much balance in the Congress right now for any sort of radical Democratic policy change.
Gary Kaltbaum is fine if the Congress wants to raise the minimum wage or go after the tax breaks for oil companies. But he would not be fine if they started governing from the "way left" and go after tax hikes of any kind. That would hurt both the economy and stock market. His biggest worry is that the rhetoric so far has been a little too anti-business. If the rhetoric becomes action, then the Congress would be a foe.
Jonas Max Ferris says that most of the talk coming from the Democrats is just that: talk. There isn't going to be much action on the talk. But raising the minimum wage wouldn't be such a bad thing for the economy.
Leigh Gallagher thinks that the policies the Democrats will go after, like raising the minimum wage and education reform, are pretty "low-voltage" issues that aren't too radical. She thinks this is because the Democrats are keeping an eye on the 2008 Presidential elections. And historically the market likes political gridlock, which is what we have now.
Best Bets: Best Stocks For 2007
Wayne's pick: China Mobile (CHL)
Friday's close: $43.22
Jonathan's pick: RMR Asia Pacific Real Estate Fund (RAP)
Friday's close: $23.41
Jonas' pick: Marsico Flexible Capital Fund (MFCFX)
Minimum Investment: $2,500
Gary's pick: Time Warner (TWX)
Friday's close: $21.78
Leigh's pick: Diageo (DEO)
Friday's close: $79.31
Gerald Ford: Best President Ever For Stocks?
When Gerald Ford took over as president in August of 1974, the country was in a state of crisis over Watergate and the economy and stock market were in trouble. But after a few months, Ford had his footing and things started to turn around, especially with stocks, as the Dow rose 66 percent from its lows in December 1974 until he left in January 1977.
So all things considered, was he the best president ever for stocks?
Wayne Rogers says that Gerald Ford was a man who inspired confidence in America during a time when the country was divided. He was a man who had the confidence of both sides of the aisle. He sought rational conclusions to problems. Ford was a rare breed of a politician in his decency, and Wayne thinks that over time his stature will grow greater.
Jonathan Hoenig thinks that overall, Gerald Ford's economic policies were mixed, but what Ford does deserve a lot of credit for understand the negative impact of inflation on an economy. He understood that the government, though entitlement programs and the expansion of the money supply, was the biggest factor in creating inflation.
Gary Kaltbaum only wishes we had more politicians with the demeanor of Gerald Ford. But he notes that while the stock market did really well under Ford's administration, it was Ronald Reagan who really unlocked the potential of the economy and stock market. But Gerald Ford was definitely the right man at the right time.
Leigh Gallagher says that in some ways, Gerald Ford did set the stage for the policies of Ronald Reagan. She notes that inflation was indeed a huge problem in the 1970s and that it was Fed Chairman Paul Volcker, a Carter appointee, who started to bring it under control. But Ford's economic legacy goes largely unnoticed.
Jonas Max Ferris says that while we've had more important presidents than Gerald Ford, he was one of the best for the stock market. He had laws passed that basically established what are today's 401(k) plans, and he also created policy that changed the way brokers could charge commissions, paving the way for discount brokers to open up businesses. So in many respects, the modern individual investor owes a lot to Gerald Ford.