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Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
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; John “Bradshaw” Layfield, WWE superstar and Northeast Securities senior vice president; and David Sirota, “Hostile Takeover” author.
Trading Pit: Is It the Government’s Job to End Poverty?
Presidential hopefuls John Edwards and Barack Obama are on the campaign trail calling for the government to end poverty. But is that the role of government?
John “Bradshaw” Layfield: Absolutely not! We are spending over half a trillion dollars on social services, affordable housing, and giving houses away. This is one of the reasons for this sub-prime mess right now, and government spending has done no good! We need to give people incentives, educate them, and let them realize the American dream. Handouts do not work! If you kill incentive in America, you kill the American dream. I was broke one time BUT I didn’t go to the government or ask for a handout. I pulled up my bootstraps and made a lot of money.
David Sirota: I think it’s absurd not to give money away. We give away tens of billions of dollars in corporate welfare every year. If we can provide those tax breaks and tax incentives for corporations, then we can make sure that people don’t have to starve and that they can have a roof over their head. We’re the wealthiest country on earth, and the idea that we can privatize everyone and throw people out on the street without feeling any moral obligation to end poverty is absurd! We need the government to provide a social safety net. I applaud the politicians who say it’s time to return to our moral duty to build that safety net.
Gary B. Smith: I agree with everything Bradshaw said. We’ve been trying to fight poverty in America for 130 years with bigger and bigger government programs. And what has it accomplished? Even larger welfare roles than we’ve ever had! The fact of the matter is that most people who are classified as poor, are poor for a few reasons: a single head of the household, they work about 16 hours a week, and they have no education past eighth or ninth grade. If you want to incentivize people, why not fix those problems by taking away taxes, taking away big government, allowing people to get jobs and education, and maybe even encouraging marriage. Then you would fix poverty.
Pat Dorsey: There are intelligent ways and foolish ways to provide a social safety net. I think we have some sort of moral obligation to do that. Ending poverty is probably a little too ambitious, but to polarize this debate with handouts on one side and complete privatization on the other side skews things in a really bad direction that doesn’t get us anywhere.
Tobin Smith: In the nineties Bill Clinton said we could cut the welfare by taking people off the service and giving them work. In other words, giving them incentive to not be on welfare. We were able to cut welfare roles more than any other time in our history. Welfare takes away people’s incentive and self-esteem and makes them less productive. Push them off and give them the chance to learn, and they do well! Why do we have to go back and relearn that?
Scott Bleier: The redistribution of wealth will never end poverty. The way you can do that is by making sure everyone is educated and incentivizing business—this is exactly what the Democrats don’t want. They don’t want to incentivize business. Bottom line, job creation comes from the rich because they risk their money to create jobs. That is what creates jobs and equalizes everything across the country.
What Could Derail This Hot Stock Market?
The Dow closed about 14K for the first time ever this past week. Not only that, we’ve had more than thirty all-time highs this year alone. But good investors have to know the red flags.
Tobin: Well the biggest one is if some of these morons running for President and Congress are stop capitalism in favor of protectionism. The understanding of free-market capitalism should be a test that every one of these guys has to take before they can run for President, and I’m sure they would all flunk.
Gary B: I’m more definitive. I’m worried about inflation. If the Fed raises rates, which I don’t think is out of the question, it would stop this rally dead in its tracks. And of course terrorism! By all accounts, there probably will be an attack on our shores sooner or later. These could cause at least a few weeks or months of a sell-off in the market.
Pat: What derails bull markets from time to time is something you don’t see coming. Let’s think back to 1998… How many people that year would have thought that a hedge fund run by two Nobel Prize winners was the greatest risk to the market? Absolutely no one. It’s usually the thing you don’t see that hurts most.
Bradshaw: I think the wild card here is the aversion to risk. Six senators out of 100 read the national intelligence report about whether to enter Iraq or not. These guys can’t even find Wall Street! If the merger and acquisition stops because it’s scared, and the debt goes up, there’s going to be a problem with liquidity. That, and oil prices present two major roadblocks.
Scott: I’m worried about interest rates. Gary B. hit the nail on the head. The market fears only one thing and that is higher interest rates. It doesn’t fear higher oil, as we see oil prices marching higher everyday. It’s all about interest rates. If rates go higher, this market gets derailed in a big way.
Stock X-Change
Think it’s too late to get into this bull market? Here are our guys’ cheap stocks!
If you want to see what everyone had to say about these stocks, click here.
Gary B: Hovnanian Enterprises (HOV )
Pat: Western Union (WU )
Tobin: Force Protection (FRPT )
Scott: Abbott Labs (ABT )
Bradshaw: Applied Materials (AMAT )
Predictions
Gary B's prediction: Dow plummets 500 points one day in next month
Bradshaw's prediction: Dow 15K is coming... but not until July 2008!
Tobin's prediction: Gary & Bradshaw have no bulls! Dow 15K by Halloween
Scott's prediction: Don't be a Vick! Pamper your pets; VCA Antech (WOOF ) up 30 percent
Pat's prediction: Fuel Tech (FTEK ) has more gas in its tank! Up 50 percent in 2 years
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
On Saturday, July 21, Neil Cavuto was joined by Ben Stein, "Yes, You Can Get a Financial Life” author; Charles Payne, “Be Smart, Act Fact, Get Rich” author; Tracy Byrnes, NY Post Business Writer;; Patricia Powell, the Powell Financial Group; and Alexis Glick, FNC Director of Business News.
Bottom Line: Market and Economy Are on a Hot Streak. Who Deserves the Credit?
Neil Cavuto: We have seen the Dow at 14,000 and reports are showing that the economy is not too hot, not too cold, so we’re told, just right! Alexis, who gets the credit?
Alexis Glick: First, let’s just give some credit to the global economy. If you look at the growth right now and earnings, much of that growth we are seeing in overseas markets. If you look at overseas markets as well, and you look at technology, 500 million households right now are connected to the Internet, and half of them live in emerging worlds. First of all, look at the global economy. Second of all, taxes -- receipts. We’ve got some great fiscal opportunities right now that have been in existence for a while. And I think the third thing is psychologically, look at the war in Iraq. The global war on terror to some degree, no matter when we get out, whether you’re a Democrat or a Republican, it’s winding down. The dollars and cents associated with that should start to slow and psychologically for Americans I think that makes them feel a little bit better.
Neil Cavuto: Well if she’s right, Tracy, that means a rally that keeps going.
Tracy Byrnes: Well I think so. I think that we also need to give credit to the consumer -- to people like us. As long as we’re employed, we’re going to keep spending, shopping, and taking our kids out to dinner. And that helps the economy move along as well. And also to Alexis’s overseas point, foreign money is pouring into this country faster than ever before. This is still a very safe place to invest. You have all this money coming in; couple that with the fact that there’s all his M&A activity going on, so you have more money fighting over fewer stocks, which actually is pumping stock prices up.
Neil Cavuto: Ben Stein, to your point about the dollar on previous shows, and about it dropping fast, but the markets seem to be ignoring that, to their peril?
Ben Stein: Well I don’t think so. I think the market is being propped up by low interest rates which is the exact same factor that is keeping the dollar down. I would give number one credit to Mr. Bernanke and the Federal Reserve Open Market Committee. I think that we have had masterful monetary policy. I think we had masterful monetary policy under his predecessor. But let’s be honest about this. This is not a great economy for everyone. I mean I’m the oldest Republican on the panel, but I don’t think this is a great economy for everyone. It’s a great economy for the upper and middle class and for the stock investors. But for the regular guy working in Wal-Mart of K-Mart, it’s not such a great economy at all, and that’s going to be a problem.
Neil Cavuto: But you could argue that the divide between the “haves” and “have nots” is certainly not new in this cycle, is it?
Ben Stein: The divide is greater than it’s been since the late 20s. The fraction of income concentrated in the top one percent, and the top tenth-of-one percent is greater than it’s been since the late 20s. Inequality is a really serious problem. I don’t think it’s Mr. Bernanke’s problem. I don’t think it’s the Federal Government’s problem, but it’s a problem.
Neil Cavuto: Charles on the notion that the markets are either dismissing problems like that, or just going on because they see something else?
Charles Payne: I think that this is the Bush rally! Here’s the key. The markets around the world have exploded since March, 2003, when the war began. It’s not about the war winding down. It’s about peace and prosperity around the world. We’re fighting in Iraq and Afghanistan and we’re keeping terrorists at bay, which creates a certain calm that allows the rest of the world to enjoy comfort and security. The adoption of American style capitalism is one of the keys to this thing. If anyone’s going to take a bow, I think President Bush has to take a bow—not just for the U.S. economy and the stock market, but for the global economy.
Neil Cavuto: Well, I don’t see Bush getting much credit. Patricia?
Patricia Powell: I don’t see him getting much credit either. And I think that’s really a shame because we’ve had a very business-friendly administration that has really helped both the economy and the rally. The tax-cutting Congress also added to the overall robust economy and the robust stock market. And I think that we really have to look at this in the context of really long term. When you let free markets decide your economic issues, you get the most efficient possible solutions. These are the kinds of things that central planners can’t even imagine what it would be like.
Neil Cavuto: Alexis, you used to work on Wall Street, so you know these knuckleheads better than I do, but they always overshoot, right? So if now everyone’s becoming bullish, and now that bullish camp is getting very heavy, does that give you qualms?
Alexis Glick: Well, the question is: Are we living in a new paradigm? When I think about all the noise about sub-prime markets, and I think about Long Term Capital — I lived and traded through Long Term Capital — and if you thought back to those years and about leverage and oil prices being at $75 dollars; if you’d think about that back then you’d say, “How can we continue to be as profitable and successful as we are?” I think if you look at the Wall Street environment — and I talked to a couple of traders yesterday — their big area of focus is the global economy. That’s where they’re seeing revenue growth. They see opportunities over there in spades — more so than over here. And look at how many jobs we’re farming out. Look in the services sector.
Neil Cavuto: But still that foreign money lately has been coming here.
Alexis Glick: Yes. But to the point of the weak dollar, yes the dollar has been very weak, but on the other hand, tourism here in the United States is phenomenal. People are coming here. They’re spending a lot of money here.
Charles Payne: And also profits are multi-national. Exports are records. Every month exports have records, but we talk about the market being expensive simply because it’s up. The S&P 500 ratio — the PE ratio is like 17. Really, this is as cheap as the stock market’s been in 10 years.
Neil Cavuto: What are you saying? Where does it go?
Charles Payne: I think it’ll go for another three years.
Neil Cavuto: Alright, but to what levels?
Charles Payne: Well, this year I said 15,700, but I think over three years, 17 or 18 thousand.
Tracy Byrnes: Because you have to couple that with the fact that companies these days have got it together. The market is undervalued and you have strong fundamentals. And once this subprime thing actually works through, you’ll have good debt on balance sheets, too.
Patricia Powell: You know that subprime thing is actually contributing to the stock market because investments compete with each other, and the money that was going to real estate a few years ago is not going there. You can’t make a quick buck there anymore. Where can you make a quick buck? Well, some people think you can do it in the stock market. So I think there’s sort of a balancing act of all the negatives actually pushing the market higher.
Neil Cavuto: On a quick point, Ben mentioned earlier the President and why he does not get credit for this. Does it go back to this angst you say a lot of people are feeling?
Ben Stein: Well, people are furious with the war in Iraq. I admire Ms. Glick’s optimism, and I wish I could share it. The war on Iraq is a total disaster. The War on Terrorism is a total disaster, but I think he’s handled the economy brilliantly.
Neil Cavuto: How could you call the war on terror a total disaster?
Ben Stein: Because there was a story, which perhaps you saw in the New York Times yesterday saying that Al Qaeda has gotten appreciably stronger…
Neil Cavuto: So since you’ve written for the New York Times now you’ve taken it full face value for every single article?
Ben Stein: Well it was also in the Wall Street Journal. I think it’s also going to be in National Review Online and The American Spectator Online.
Head to Head
Neil Cavuto: Welcome back, everyone. Well CIT stunning Wall Street this past week, taking a charge of nearly $500 million dollars to get rid of its home lending business – which was mostly in the subprime market. But to take that kind of hit just to get out of the business? Does that mean that there could be bigger problems down the road for mortgages in America? Time to go Head to Head.
Alexis Glick: I think there’s a two-fold issue here. You know one thing you have is [Federal Reserve Chief, Ben] Bernanke signaling to the marketplace that yes, foreclosures and mortgage rates are an issue. But he also signaled to us: “You know what, lenders? You have to participate in the battle.” There’s this question over liar loans and who’s responsible. Is it the consumer because they lied? Is it the lender because they didn’t do their fiduciary responsibility? And I think the signal he sent to the marketplace is, “You know what? I’m going to put pressure on the banks to come up with a suitable solution to make sure that people can pay down their debt.” Do I think it’s a colossal issue for the marketplace? No. I think it is a specific issue, but it’s something we will look at, and regulate, and determine if this kind of thing can happen again.
Neil Cavuto: Where I slightly disagree with Alexis, is when Bear Stearns essentially writes off two funds effectively saying, “They’re worth zilcho.” I begin to think of all the other guys out there who also support, finance, and, indirectly or directly, countenance these funds. It’s just a matter of time before others drop too.
Patricia Powell: All of those shoes have not dropped yet. I agree with that. I think Bear Stearns, and CIT -- and GE announced they were selling off their subprime business -- I think that’s the tip of the iceberg. And I think we’re all going to feel that pain. It’s not a quick fix…
Neil Cavuto: When you say “feel the pain,” what would happen?
Patricia Powell: Well it’s already started to happen. You see credit tightening. So you see real estate falling. Last year, according to the Wall Street Journal, 20 percent of the mortgage loans that were outstanding were subprime. So if you think about that, that takes 20 percent of the buyers, perhaps, out of the market this year. Real estate has a long way to go. The average guy in this country uses his house as a piggy bank. Now he can’t necessarily find the credit line anymore for getting money out of that house. In May we had a surge in consumer debt—9.8 on an annual basis in the category that deals with consumer credit. That means to me that the average guy is going out there and putting things on his credit card, when he used to take it out on of the home. That’s not even tax deductible.
Neil Cavuto: So it would be bad on the consumer? Ben Stein, do you agree that we have a consumer hiccup to worry about?
Ben Stein: Not at all. I think Ms. Glick was totally correct. This is a tiny blip in the overall markets for this country. Subprime makes up 15 percent of mortgages. Of that, roughly 15 percent of that 15 percent is either delinquent or late in paying. Of that there will be a recovery of 70-80 percent, and the total loss is going to miniscule when compared with the size of the mortgage market altogether. This is just an excuse for hedge fund traders to manipulate the markets. It’ll be very bad for those few who lose their homes. It will be very bad for a few mortgage companies, but over all, it’s just a hiccup. I wouldn’t let this stop me from investing for one second.
Tracy Byrnes: Well, I think Ben is right in that it’s a blip to the economy. But I think how we’re going to feel it is to Alexis’s point, Bernanke wants the banks to crack down. You’re going to start to see the big financial institutions struggling to get loans because people don’t know how to handle this going forward. Credit availability is going to get tougher. Not just for the people buying homes, but for corporations that want to build plants in other parts of the world, I think that’s where we’re going to start to see it too.
Neil Cavuto: Well wouldn’t lenders distinguish between those guys and people of marginal credit?
Tracy Byrnes: At this point, they don’t know how to digest this problem. This problem is very new to the market.
Ben Stein: With respect, we do know how the market is handling it. It shows in the metric of the increase in the rate on junk bonds, and that increase has been very small. Really, the junk bond market is digesting the junk mortgage problems quite nicely.
Charles Payne: I agree with Ben. I don’t think this is going to be a problem for Wall Street. But for the average person out there who’s struggling to buy a home, it’s a disaster. All the big quality names are getting out of this business. There are just a lot of snakes left lying around. Also this week, Bernanke talked about licensing mortgage brokers and bankers federally because already it’s a racket to a certain degree. So, I really feel sorry for the average folks who are busting their butts trying to make it because they’re going to get taken to the cleaners when all of the big quality names in this industry move away. As far as the economy is concerned, everything is talking about subprime as being a problem, but no one’s saying Alt A or Prime. This is not going to be a problem.
Neil Cavuto: The sad thing is that even though a small percentage of people go belly up on these loans, the vast majority who have paid on time are going to get screwed.
More for Your Money
Neil Cavuto: Record highs for the Dow and S&P 500, but is it the NASDAQ that’s about to make the big move?
If you’d like to see what each had to say about the stocks, click here.
Pat Powell: Garmin (GRMN)
*Pat owns shares of this stock
Tracy Byrnes: Broadcom (BRCM )
Charles Payne: SanDisk (SNDK)
*Charles owns shares of this stock
Ben Stein: PowerShares QQQ (QQQQ)
*Ben owns shares of this ETF
FOX on the Spot
Ben Stein: Oil co's do nothing wrong; leave them alone!
Pat Powell: Oil spikes to $100 per barrel in Jan '08!
Tracy Byrnes: Summer gas prices flirt with all-time high!
Charles Payne: NYC pipe explosion is reason to buy Perini (PCR )!
Alexis Glick: I take “Winky” Wright vs. Hopkins in split decision
Neil Cavuto: That Canadian vacation won't be a bargain for long!
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Flipside: Candidates Ba$hing the Rich Should Not Take Their Money!
John Rutledge, Forbes Contributor: You should be allowed to do it legally, but you should not be able to morally. There is a witch hunt under way, there’s a class war. Edwards, Hillary and Obama are all preaching against the rich.
Lea Goldman, Associate Editor: The fact that Edwards is highlighting the plight of poverty does not mean he’s attacking the rich. Second of all, he should go after the rich for donations. The richest people in this country are also the biggest supporters of eradicating poverty across the planet.
Steve Forbes, Editor-in-Chief and Sr Policy Adviser for Giuliani Campaign: Edwards deplores money as long as other people have it. He should use some of his $400 haircut money to help people in Africa but he doesn’t do that. If you want to fight poverty you have to push free enterprise. That is the best eradicator of poverty and that is something that people like Edwards will never understand.
Quentin Hardy, Silicon Valley Bureau Chief: This is hypocrisy on all sides. They’re all millionaires. Mitt Romney paid $300 for a cosmetic consultant.
Mike Ozanian, Senior Editor: We have more economic mobility than any other country. The bottom fifth of this country has seen its after-inflation-income grow by 17 percent. No other big country has matched that. No country is ever able to sustain a strong economy by punishing successful people.
Elizabeth MacDonald, Senior Editor: Edwards is right to speak about the poverty in America. But hypocrisy is an issue with him. Edwards talks about “Two Americas”. At the rate he’s going, neither of them are going to vote for him.
In Focus: $600 Billion for War on Terror: Bargain at Twice the Price?
Michelle Steele, Forbes.com Reporter: Absolutely. We have to look at this from the economic standpoint. From the economic standpoint, we have not had a terrorist attack, the U.S. market is at record highs, the deficit is actually shrinking, and that means that spending becomes less and less significant. It may not be cheap, but it is a bargain!
Victoria Barret, Associate Editor: Well it isn’t really about the money. What we’ve done wrong is tactical. We’re fighting a guerilla war with tanks. And what do we have? Al Qaeda is expanding in the Middle East, Europe, and probably the U.S. I don’t see this as a great development.
Steve Forbes, Editor-in-Chief: In terms of the way we fight in Iraq, that’s finally beginning to happen. The money itself is the equivalent, if you do all the adjustments, of about three week’s spending in WWII. The money part is the easy part. The fact of the matter is, we haven’t done it right in Iraq. Finally we are, and now the question is do we have the political time to let this play out?
Quentin Hardy, Silicon Valley Bureau Chief: No. We aren’t doing it right. This whole thing’s a logic problem to begin with. If there hasn’t been an attack it means we’re spending enough? If there has been an attack it means we haven’t been spending enough? This just is a moral flaw. Americans are being killed by Al Qaeda. They’re being killed every week by Al Qaeda in Iraq. National intelligence tells us this week Al Qaeda has been built up. We spent a lot of money there and they’ve blown it back in our faces. It’s a waste of money.
Rich Karlgaard, Publisher: No. Not at all. Al Qaeda’s goal was to bring down global capitalism, that’s why they picked the World Trade Center. What’s happened since? The global economy is now $15 trillion a year bigger than it was on 9/11. The U.S. economy is $3 trillion a year bigger. The stock market evaluation is tens of trillions of dollars bigger. They failed hugely in their goal because we went after them.
Bill Baldwin, Editor: I think that every single penny spent by homeland security is wasted on the wrong technology. We need electronic national IDs, we need much better bomb sniffers.
Dow 18,000?
David Asman: Well, forget 14,000. Get ready for Dow 18,000, which is what Rich Karlgaard is predicting.
Rich Karlgaard: There are four reasons: 1) greatest global boom ever; 2) the world is awash in liquidity; 3) the Dow 30 stocks are all great multi-national players that are all benefiting from the global boom; and 4) treasury Yields are so poor that nobody wants to go into those and so they go into stocks.
Mike Ozanian: Rich is wrong. He’s not going to be able to retire any time soon on his 401K. Here’s the problem; the Dow’s going to be at 12,000 long before it ever gets to 18,000. There’s too much liquidity, too much money in the economy.
Dennis Kneale: We will get to 18,000, but not before we first get to 16,000, and then go down and have a correction and rebuilds. We’ll be at 16,000 within a year and a half.
Victoria Barret: Well, I certainly hope Karlgaard is right but I think he’s way too optimistic. 18,000 is a huge jump and the market has already had a nice run. Companies have really high margins right now. The market is pretty well valued right now. I think we’re going to end this year above 14,000 and we’ll feel good about that.
Steve Forbes: Rich is right. After November of 2008 when Giuliani, who I’m backing, wins the election in 2008 and when people realize that there will be tax cuts, tax simplifications, we’re going to get the Fed in line. Then in a couple of days the market will go up 4,000 points!
Informer: Dow “18k” Stocks
If you want to hear what each Forbes panelist had to say about their stock pick, click here.
Rich Karlgaard: Boeing (BA)
Dennis Kneale: General Electirc (GE)
Bill Baldwin: Coca-Cola Enterprises (CCE)
John Rutledge: Caterpillar (CAT) “Forbes on Fox” was taped on Thursday, July 19th, the day before Caterpillar (CAT) released earnings and its stock fell 4 percent. John Rutledge says this is a buying opportunity.
Elizabeth MacDonald: United Technologies (UTX)
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Our Cashin’ In crew this week: Wayne Rogers, Wayne Rogers & Co; Jonathan Hoenig, CapitalistPig Asset Management; Dagen McDowell, FOX Business News, Jonas Max Ferris, MaxFunds.com; and Jerry Bowyer, National Review
Stock Smarts: Does The Soaring Stock Market Help The Majority Of Americans?
The Dow hitting 14,000 for the first time this week. When the stock market wins, does all of America win?
Wayne: The whole country benefits. It creates more jobs. It creates more capital. We live in a capitalistic society, so everyone wins. In fact, the question should be rephrased, whom does it hurt? It cannot hurt anyone.
Jerry: It hurts short sellers and those that have been listening to the doom and gloom of the past four years. It hurts those that get their news from the front page of the New York Times or watch Lou Dobbs and invest accordingly. If you were a short seller, you lost big.
Dagen: I don’t think there is the great trickle down effect that you would think. Buybacks by big companies (which hit a record in the first quarter) have been driving a lot of the market’s move up. I’d argue that if companies had taken some of that money and invested in new growth, new businesses, and new factories, then the effects would be felt farther down.
Jonas: A winning stock market benefits everybody, but half the country doesn’t hold any stake in the stock market directly. Of course there are indirect benefits.
Jonathan: Everything benefits. The poor in this country are wealthy on the world stage. Even the poorest person in this country who has never given Google a dime has benefited from the fact that the Google (GOOG) stock is basically at an all-time high. Wealth doesn’t grow like a weed. It has to be created and that’s what a vibrant economy and a soaring stock market do.
Dagen: By my calculation, of half of the households that own stock, one third of them own it through an employer sponsored retirement plan. That is not money directly in someone’s pocket. It has a great psychological effect and people feel upbeat when they see those balances going up, but it doesn’t help pay for $3 gas. There’s a limited impact.
Jerry: People do look at those retirement statements closely. Retirement matters and that’s why we have 401K’s. I would consider people who have 401K’s or an IRA to be direct owners in the stock market. There are a lot of people who are indirect owners in the stock market. If you have a traditional pension plan, what’s in that plan? Stocks and bonds. Non-profit organizations have these large portfolios. I’m on the board of a church. Our portfolio went up, which means the church can hire a priest full time so that he can go out and visit sick people. You don’t have to be a direct owner to benefit from stock appreciation.
Dagen: Maybe the Dow has to hit 15,000 for people to feel more upbeat about what is going on in the economy and stock market. I think people still have a hangover from the tech crash. People still talk about Cisco’s (CSCO ) stock and how it’s not back to where it was when they bought it.
Jonathan: The point is, even if you aren’t directly in the stock market, you benefit from the productivity and the wealth that the profit seeking companies achieve. The fact that their stocks are near all-time highs is a good thing.
Start Paying Government Workers “More” Money!
Would dumping “salary caps” for government workers bring in better talent to help run the country?
Jonathan: Yes! What motivates people is money. Any type of salary cap is just an artificial barrier to a free market. If you want to attract skilled people that are going to make your company more efficient, you pay them more. The real problem isn’t so much that the salary cap is in place, it’s that we are now hiring hundreds of thousands of people to do things that are outside the scope of government. If you start paying people more, you’ll get more qualified workers and have a more efficient system.
Wayne: I believe in salary caps because that one salary doesn’t include the whole package the workers receive. There are retirement benefits and other items like tenure. Many judges are appointed for life. You don’t get that in the private sector. Some people do want a life in tenure and that attracts them to that work.
Jerry: I really struggled with this a number of years ago. I chaired a commission on setting executive compensation for government employees in the Pittsburgh area. We really struggled to figure out how to determine if someone was performing well enough. The problem with comparing executive salaries in the private sector with those in the public sector is that those in the private sector have a profit motive. There is that way to measure performance. I’m very skeptical of saying that in order to get a good guy to run a Fortune 500 company you pay “this much”, so you have to pay that same amount for someone to run an equally large government bureaucracy.
Dagen: One idea would be to have some sort of incentives in place with government jobs in order to get people to do a better job and be more productive. For example, if you work at the SEC and you bust some big scam, then you get a percentage of how big the scam was. Or you get a big bonus for how efficient your department or agency is.
Jerry: I actually tried that. I suggested to the commission that the county manager’s salary should go up and down with the average income of a family in the country. They didn’t go for that.
Jonas: The government is not-profit oriented. You don’t have a share in equity and you can’t measure the value. The reason for high CEO pay is that he or she is raising the value of the company. You can’t raise the value of the government in that way. We do need salary caps for government workers and low pay. If any thing, we need a lower payroll for government.
Could Ban on Trans Fats Make America Even Fatter?
Jonas: The whole crackdown on trans fat is misleading. In this country, we have a pattern with all sorts of diets: fat free, low calorie, no carbs, no sugar, etc. However, Americans are getting fatter! We believe that we can eat more of the product because it has less of the bad stuff. The only problem is that no one wants to exercise.
Dagen: People who eat fried chicken and French fries are still going to be eating fried chicken and French fries. Fat is fat. It’s just a different kind of fat. People aren’t so dumb that they don’t know they are still consuming food that will make them gain weight.
Jerry: Banning trans fats is a heart thing, not a weight thing. Trans fats are artery-clogging fats. There are other fats and oils that are good for your heart, but you can still put on weight if you eat too much of it. The other thing that strikes me about this controversy is that the consumer advocacy groups that are now trying to ban trans fats are the same people who 20 years ago were pushing trans fats on us.
Wayne: Jerry makes a good point. There’s a big difference in saying no to a negative and yes to a positive.
Jonathan: The fact that Americans are so fat should be a source of pride for us. You don’t think that every starving African kid wants to be a fat American? This is a major achievement that a poor person in this country is obese. This is the first time in history that this has happened. The problem here is that the government is regulating what citizens can put in their own bodies, instead of people making the decisions themselves.
Dagen: This crackdown could actually cause people to lose some weight because some of these fast food companies are having a hard time replicating the way the food tastes.
Best Bets: Underdog Winner$
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Wayne: GMarket (GMKT ) (Friday’s Close: $21.90)
Jonas: Sprint Nextel (S ) (Friday’s Close $21.98)
Jonathan: CurrencyShares Mexican Peso (FXM ) (Friday’s Close: $92.99)
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