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; Scott Bleier, HybridInvestors.com president; Tobin Smith, ChangeWave Research editor; John "Bradshaw" Layfield, WWE superstar and Northeast Securities senior vice president; Cheryl Casone, FOX Business correspondent and host of 'FOX Business Now' on Yahoo! Finance.
Trading Pit: Stocks Post Best Week Since April: Thank "Capitalism"?
August 20-24…The best week for stocks since April. So far, not even close to a meltdown and no government bailouts. Proof the free markets work?
TOBIN: The free market works! Failure is part of capitalism. That’s a piece that people miss. Failure makes this stuff work. We have new capital, new money and because the government isn’t involved, that’s why we came back.
CHERYL: We still have some rough days ahead. We still don’t know about these credit worries. There was no bailout. The Federal Reserve was just doing its job. The liquidity the Fed put in the market was the best thing it could have done to help the market along. The Fed is helping the economy and market in a good way.
GARY B: Can it be this easy? We are up over two-percent across the board! Capitalism does work, but it would work even better if we didn’t have the Fed! Almost every crisis we go through we look to the Fed as masterminds to determine our economy... like they’re smarter than the free market! The Fed is always getting beat up for raising rates too fast, or for not raising enough. If we got rid of the Fed, and let the bond market and stock market work things out, we might have not even been in this situation!
BRADSHAW: I’m a total free market guy. Stupid money being replaced by smart money is the way efficient markets always work. Debt is going to come back and it looks like the subprime mess is contained. Let free markets reign and keep the government out of it.
PAT: It’s interesting that people don’t define the Fed as part of the government. The Fed did step in and bail us out. Things would have gotten a lot worse if it didn’t open the discount window.
SCOTT: Of course this was a bailout! The Fed pumped hundreds of millions of dollars into the system! That’s not capitalism, that’s a government intervention. The markets breathed a huge sigh of relief this past week. We made back half of what was lost a month ago. But the bottom line is that it’s low volume, and all the problems have not gone away. This rare combination of fear and greed had everyone holding onto their money.
Can Michael Vick Ever Be Good "Business" Again?
CHERYL: Everybody loves a comeback story. If he goes to jail, comes back, apologizes, helps out the ASPCA, he could go back to play football if the NFL lets him back
GARY B: I agree with Cheryl that America loves a comeback story. But you cannot harm children and you can’t kill pets. By killing puppies, you’ve almost done both! Forget it: he’s dead, he’s untouchable and you’ll never see him play football again!
BRADSHAW: He’ll play football the day he gets out of prison. He will serve his time. The NFL has had 50 arrests since 2006; they’re going to step down on people. There’s a difference between the good old boys like a Jim McMahon and pure thugs. Michael Vick is a thug. He’s not just a good player: he is awesome! He sold out Atlanta stadium by himself and took those guys to the playoffs. He will play football again, but he will never get an endorsement deal.
TOBIN: He has one chance. And it has to be scripted out. He is going to need to first come clean, set up a foundation and fund it with his own money. If he does come back he gets one chance!
You know the saying: "change is good". Well, the Chartman couldn't agree more. Gary B names his exclusive picks changing for the better!
GARY B: United States Steel (X)
GARY B: Dick's Sporting Goods (DKS)
GARY B: M&T Bank (MTB)
GARY B: Wal-Mart Stores (WMT)
Tobin’s prediction: Rehab Overdose! Psychiatric Solutions (PSYS) gains 25 percent
Gary B's prediction: Median Home prices rise in 4th qtr; buy Beazer Homes (BZH)
Bradshaw’s prediction: Subprime mess good for Bank of America (BAC)! up 25 percent by 2008
Scott’s prediction: Subprime mess also great for Hudson City (HCBK); up 30 percent
Cheryl’s prediction: "High School Musical" next huge franchise for Disney!
Pat’s prediction: Whatta bargain! 99 Cents Only Stores (NDN) up 50 percent in 2 years
On Saturday, August 25th, 2007, Neil Cavuto was joined by Ben Stein, “The Real Stars” author; Charles Payne, “Be Smart, Act Fact, Get Rich” author; Tracy Byrnes, NY Post Business Writer; Laura Schwartz, White House Strategies; Gary Kaltbaum, Kaltbaum & Associates; and Ray Hennessey, foxbusiness.com.
Head to Head: Sanctuary $lap!
Neil Cavuto: Stop sending money to sanctuary cities. Is that the best way to stop towns from protecting illegals? Let’s go “Head to Head.”
Tracy Byrnes: Yeah! I don’t get it. Illegal… They’re not here legally. Why do they get to be here, enjoy our country, all its benefits, and kill our people? It makes no sense to me. You know what? Go out and hire the Taliban at this point… let’s just get them all in here. I mean, let’s think about what we’re doing. Let’s protect our people! The first question you should ask when you arrest somebody is “Are you supposed to be here?”
Neil Cavuto: Well, to get back to the point of whether the government has the option of cutting funding to cities that sort of look the other way… what do you think?
Charles Payne: It’s tough. You don’t want to hurt basic services for regular citizens, but by the same token, sanctuary seems to apply to protection from breaking all laws. So if you can break the law by illegally entering the country and being accepted, then obviously you can break all the other laws. Federal law can make Newark, NJ cut back on being a sanctuary city; they have that sort of financial influence over them.
Neil Cavuto: Ben Stein, if you cut back on Newark, NJ, then you’d have to do the same to New York City.
Ben Stein: Well, the whole idea of a sanctuary city is insanity. It’s like my son when he was younger. He’d say, “You can’t come into my room! I can do anything I want!”
Ben Stein: The federal government is the daddy and the mommy. They can go wherever they want in the house. The cities have no legal say. I say don’t cut off the money because there are poor people, there are teachers, there are police, there are firemen who need the money. But, by all means, ignore the sanctuary city BS. And that doesn’t stand for Ben Stein. Ignore that sanctuary city BS. Just go in there, arrest those guys, and get them the heck out of the country.
Ray Hennessey: I don’t like the idea of the government even getting involved. What I like is this idea of the victims suing the cities. I think that’s great! And then you’re letting the courts decide. If this affects people, give them the opportunity to sue and get money.
Neil Cavuto: Well Laura, you like big government right?
Neil Cavuto: Kidding. Kidding. But, isn’t it the “daddy” government’s role to police this sort of stuff?
Laura Schwartz: Or have a law and enforce it. How can you take away federal money from a city, when they aren’t breaking any federal law? These so-called sanctuary cities are dealing with the reality of a high illegal immigrant population. And for the sake of the greater good, you have to let people call in crimes without admitting their status. Crime has gone down in cities that allow that. And, if people are sick, you have to get them health care because you don’t want communicable diseases going around the cities and infecting the legal children. Until the federal government says you must run everybody you pick up against the ICE database, there’s no retribution.
Neil Cavuto: Gary Kaltbaum, I want to bring you into the mix here and the notion that New York’s Mayor Bloomberg said it’s actually good for us to have this sanctuary system, and I’m paraphrasing here, but it’s made New York a vibrant economy with low unemployment and it’s not the federal government’s responsibility to interfere. How do you feel about that?
Gary Kaltbaum: I agree with Bloomberg. Look, you can’t cut federal funding. It does too much good for cities. What are you going to do? Arrest 12 million workers? The federal government created this mess in the first place and now it’s trying to dictate policy to cities and states? I disagree. I do believe something should be done. I do believe that anyone who commits a crime should be put into a federal database. But to go after illegal immigrants by cutting funding? It just doesn’t work for me.
Tracy Byrnes: But Neil, at some point you have to pull the trigger on this. It’s always going to come back to money. Maybe the economy should suffer a little for this. Get these people out. And the minute you get them out, they’re going to turn around and stand in line to get back in legally because they know this is where they want to be, legally. So let’s just get this over with already. And if the economy has to take a hit, so be it.
Charles Payne: To Laura’s point, you’re saying illegal immigrants are just in these cities. The reality is these cities are welcoming them with open arms. The cities are making it easy for them. I think it’d be great if we could solve this problem at the local level. And one of the ways to get these local guys to get their act together is through the pocketbook.
Laura Schwartz: This is a national problem. It has to be solved by enforcement and economics. Local cities are dealing with a problem we created federally by letting all these people come in and not finding them once they’re here. In reaction to the Newark case, the state of New Jersey has said all indictable crimes including drunk driving have to be pushed against the ICE database.
Ray Hennessey: But already there are cities in New Jersey saying they’re not going to enforce it.
Laura Schwartz: Who’s saying they’re not going to enforce it? It came down in an edict last week.
Ray Hennessey: The attorney general is in Trenton and the local prosecutors and the cops are not going to be enforcing this. By the way, there isn’t enough jail space to lock up people, whether they’re illegal or not. It’s all good to say that this is what we should do, but if it isn’t practical… there aren’t enough cops on the street, they don’t have enough services to deal with the problem, which is why we’re in this mess in the first place…
Laura Schwartz: Nor is it their responsibility. It’s a federal responsibility for cracking down on immigration, not at the local level…
Neil Cavuto: Alright Ben, if Laura’s right, then the federal government can’t do anything?
Ben Stein: No, the federal government should make sure it’s a crime to not arrest the person who commits a crime. There’s already statutory law from the post-Civil War era that say that under color of local law you may not break the law. Breaking the law includes not punishing a person who breaks the law. So I think under the statutes that exist, the federal government can punish local people for not prosecuting crimes.
Bottom Line: Back to School; Back to Dow 14,000?
Neil Cavuto: We know that consumer spending makes up two-thirds of our economy. So if we see a strong back-to-school season, will we see Dow 14,000?
Charles Payne: [Consumer spending] is part of the way to get back to Dow 14,000, but we also have great fundamentals – low unemployment, real wages are increasing, low gas prices. I think we’re going to have a fantastic retail season.
Neil Cavuto: If it is, normally the rule of thumb is “they do well, everyone does well.” What do you make of that?
Tracy Byrnes: We have to remember right now that the financial markets are not a surrogate of the broader economy. Like Charles was saying, things are good! Real wages are up 7 percent. I don’t think we paid enough attention to Target’s earnings this week. The people who shop Target are a really good economic representation of what’s going on out there. People are shopping! Target has said it sees no reason for the consumer to pull back. So the consumer is out there. And God love the consumer. The consumer has held on through everything that’s going on. The consumer is what’s going to keep us out of a recession.
Ray Hennessey: I’m actually hoping it’s more like Wal-Mart than Target. Wal-Mart is expecting a disappointing season, which means the consumer’s going to get more sales. You’ll see the little game they’ll play… where they warn about how retail sales are going and then they drop prices. The consumer may feel a little unconfident because of the market, but if they go to the stores and see the discounts, they’re going to buy more. This is the first time in a couple of years where I see the deep discounts driving the consumers to the stores.
Neil Cavuto: Ben Stein, you’ve argued that if we put the whole mortgage situation into perspective, the subprimes are actually a small percentage of the overall mortgage market, and the economy is sound. Will the back-to-school season reinforce that?
Ben Stein: I think the back-to-school season is a very small portion of the total economy, too. The market is looking for stability in the financials. It’s not looking for back-to-school. It’s looking for stern yet generous actions from the Federal Reserve. It’s not looking at back-to-school. Back-to-school is a great thing, but it’s a blip. And it’s a much smaller blip than mortgages.
Neil Cavuto: Gary, let me ask you about this. I know you love to go back-to-school shopping, but I’m wondering if there’s an appetite that’s just about hit an end. We hear the consumer is always taxed and can’t refinance anything, and some think we’re going to see signs of that this season. Are we?
Gary Kaltbaum: Neil, it usually doesn’t pay to bet against the consumer. But, right now there are some definite issues. You can see it in the stock market. I don’t think we’re going to get to 14,000 because of the consumer. Look at the new lows at Best Buy, Wal-Mart, Circuit City, JC Penney, and Kohl’s. The market is telling you that retail is a bad place right now and the consumer definitely has some problems. Just to go one further… next year, $600 billion in mortgage resets will happen in the first six months. That’s going to hurt things going forward.
Tracy Byrnes: I think some of those numbers are misleading. Companies like Wal-Mart and Circuit are intrinsically bad companies, so they’re not a litmus test for the consumer.
Neil Cavuto: Wal-Mart’s a poorly run company?
Charles Payne: They have company-specific issues.
Tracy Byrnes: So, with that, you can’t use it as a litmus for what the consumer’s going to do this season. I mean, we have people who are ready to get out there. I’m going out next week with my kids to help the economy.
Neil Cavuto: When you’re shopping, do your kids thank you?
Tracy Byrnes: Never.
Neil Cavuto: See...
Ben Stein: Ahh! Good! That’s a good one! See, that’s what this show should be about… ungrateful kids.
Neil Cavuto: For once I’d like to hear any one of my kids to say, “Hey dad, that was nice!”
Charles Payne: Ironically, Wall Street would like to see the shopping season be sloppy so the Fed will step in.
Ben Stein: Yes.
Gary Kaltbaum: And Wal-Mart is the consumer. They do $350 billion in revenue. That is not company-specific. It’s ridiculous to say so. And when you see all these other company stocks at yearly lows… that is retail.
Charles Payne: But, Gary. Look at the entire market.
More for Your Money
Neil Cavuto: Week after week our market guys tell you what to buy. So, we decided to turn the tables on them and find out what they’re buying with their own money! It’s time to get “More for Your Money.”
Ben Stein: Cohen & Steers Income Quality Realty Fund (RQI)
*Ben owns shares of this fund.
Charles Payne: Valero (VLO)
*Charles owns shares of this stock.
Tracy Byrnes: iShares MSCI Emerging Markets Fund (EEM)
*Tracy owns shares of this fund.
Gary Kaltbaum: Procter & Gamble (PG)
FOX on the Spot
Charles Payne: Housing Picks up in November; Buy TOL
Gary Kaltbaum: September Sell off: Dow Drops to 12,600
Ben Stein: Ride out Rocky Market with Annuities
Tracy Byrnes: Gas Falls Then Spikes: Buy XOM, CVX
Ray Hennessey: College Fees Go up after VA Tech Shooting Report
Laura Schwartz: GOP’s Biggest Threat is the GOP, not the Dems!
Neil Cavuto: Political Promises Costly for All Americans
In Focus: Rebuilding Homes In Risky Areas: Should Taxpayers Foot The Bill?
Mike Ozanian, senior editor: Taxpayers should not pay to rebuild homes in risky areas if we care about human lives. When the federal government bails out these kinds of areas more people move there. We’ve had an increase in the number of people who moved to costal areas. This causes another problem. Local governments do not have the infrastructure in place to take care of their people because they expect the federal government to take care of them.
Dennis Kneale, managing editor: I think at a time when people have been wiped out it’s heartless to say that we shouldn’t help them out. Like it our not, millions of people are already in these flooded areas and they need the government’s help. This is almost like saying, lets not bailout people hurt by 9/11. Sometimes government has to step in. It’s terrible for the government to pull the rug out. I think the entire society can bear the cost better.
Elizabeth MacDonald, senior editor: This is a horrible catastrophe, but I have to agree with Mike. Insurance companies won’t offer flood insurance so the government has to bailout the taxpayers. The exposure to flood insurance has hit $800-$900 million a year, quadrupled since 1980. I would say to these people, don’t live there. The risk is too great!
Josh Lipton, Forbes.com markets reporter: I think we are a big, strong, rich country and we can afford to help our neighbors out. I also think the appropriate role of government is to step in and lend a helping hand during a crisis. When looking at these natural disasters, you have to ask is it the disaster that is destroying the community or is it also the failure of the government constructed infrastructures, like bridges and levees. And if that is the case, then the government has a responsibility to come in and help out.
John Rutledge, Forbes contributor: People need to be responsible for their own choices. We can feel bad and have great empathy for people. Paying for people to move from a flood zone is like paying for folk’s loses in Las Vegas or in the stock market.
Lea Goldman, associate editor: Let the markets decide. If you’re a homeowner and want to live in a high-risk area then find insurance that will cover you. And if you want to take on the high-risk premium, pay for it. But if an insurer won’t cover you, don’t expect the government to be in the business of bailing out recklessness.
Flipside: Mean Bosses: Better for Business and America!
Lea Goldman: Mean is good for business. I think mean is a synonym for demanding. These are the guys that deliver results. Say what you will about Leona Helmsley, she raised occupancy rates at Helmsley properties. Some of these guys aren’t liked because they have very high standards. And if you can’t meet them, go work at Chuck E. Cheese if you’re looking for a good time.
Rich Karglaard, Publisher: Being mean is clearly not good for business. The main fact about the economy today is that value is created by talented, creative people. Look at Google, it’s one of today’s best companies and one of the best places to work! If you want talent and the most creative people you can create high standards. But you can’t treat them poorly.
Josh Lipton: Mean is good for the bottom line. Look at some of the toughest bosses, like Steve Ballmer of Microsoft. Good reputation for hard-nosed, tough management. He gets the job done. I do think it has to be accompanied by other values like knowledge, vision and experience, but mean can help.
Dennis Kneale: There is no room for meanness. There are plenty of CEOs who are demanding and they do it without being mean. You’ve got to be direct and demanding but you don’t have to be mean.
Victoria Barret: I think you do have to be mean. What no one will say is that at heart, we’re all a bit lazy. We don’t really want to get into the office at 7am, so we need someone who can motivate us to do this. Sometimes that means that that person has to be tough.
Mike Ozanian, senior editor: There is a big difference between mean and being tough. What you want is a person who is mean to the competition, but fair and treats the employees like he wants to be treated.
Want to See Stocks Pick Up? Tell Candidates to Shut Up!
Elizabeth MacDonald: Presidential candidates should shut up until November. This presidential campaign is too long, too expensive. There is voter fatigue. There is concern that voters won’t come out to the polls. It’s 2 years out from the election, it’s ridiculous. Meanwhile, Social Security, Medicare and immigration reform is lying on the operating table while these campaigns are getting increasingly expensive.
John Rutledge: People have died for the first amendment. It’s the only thing that separates America from the rest of the world. I say, let them talk their butts off. The longer they talk, as long as they spend their own money, the greater the probability that we’ll find out that they’re an idiot or evil.
Victoria Barret: This is just a chronic distraction. The top 4 candidates have raised $183 million so far. That means that they’ve made a lot of promises to people. So whoever does show up in the White House is going to have to keep a lot of promises to people.
Rich Karlgaard: Let them spend their money. This is how we find out that people like John Edwards are phonies and that people like Barack Obama is an empty suit.
Dennis Kneale: We work because of advertising. You should never ban any type of advertising!
Informer: Stocks for Mike’s New Baby Girl!
Our Cashin’ In crew this week: Wayne Rogers, Wayne Rogers & Co; Jonathan Hoenig, CapitalistPig Asset Management; Jonas Max Ferris, MaxFunds.com; Jerry Bowyer, National Review; Leigh Gallagher, Fortune Magazine; and Kendra Todd, Host of “My House Is Worth That?"
Stock Smarts: Are Dems “Investing” In Defeat To Win The White House?
There’s been talk of defeat from Democrats on the campaign trail all year long: warnings about the war and economy to dire predictions about the housing and stock markets. Are they investing in failure in a bid to win the White House?
Jerry: The Democrats have already started to do this. In the futures markets, there are odds makers for whether the Democrats or Republicans will win the White House and I overlaid that with the probability for recession in 2008. What I found was astonishing. When you chart it out, the two are moving together: the greater the risk of recession in ’08, the greater the probability of a Democratic victory. Yes, they are invested in defeat and do have a stake in the economy going badly. They are the political equivalent of short sellers.
Jonathan: The Dems are going to run with everything they can and the Republicans are going to run with everything they can. The Democrats just don’t seem to celebrate capitalism. That’s where wealth comes from. If you listen to everyone from John Edwards to Hillary Clinton, they are collectivists. They think it is the government’s job to make a free society more “fair”. It will be hard for anyone who embraces capitalism to get behind a Democrat.
Wayne: You’ve got to separate cause and effect. You can’t say the Democrats are causing the housing problems, but they are taking advantage of it. I don’t blame them; they are trying to get elected. That’s what a politician does. He’s going to do whatever he can. He takes advantage of the fact that someone is unemployed or jobs are going overseas. Even though it may be a benefit to the United States, these politicians will take advantage of everything in order to get elected.
Jerry: There are two different ways to get elected. One way is to constantly harp on what’s wrong and the other way is to be part of the solution to fix the problem and take credit for that.
Wayne: People don’t get elected based on doing a positive thing. Anyone that gets elected gets elected targeting the negative.
Jerry: Ronald Reagan did.
Wayne: He got elected because the other people didn’t know what they were doing.
Jonas: Dems definitely want to highlight what is wrong. If we have another recession under George Bush, of course that will help any Democrat get elected. A bad economy helps the opposing party. There’s nothing wrong with highlighting troubles in the housing market or the economy. The problem is some of their solutions are questionable. You can’t deny the fact that ours is the slowest economy in the world right now. I would say the solution would be to lower the corporate tax rate in order to be more competitive with other countries.
Leigh: The distinction here is that the Democrats aren’t pouncing on the subprime and credit crunch so much. They are doing what they always do, which is take a populist stance on economic realities for the average American, not for the people on Wall Street. Dems are talking about wages, health care, and jobs. That’s what they have always been doing and is not unexpected. This is also a reason why Democrats are getting a lot more support from business on both the left and the right this year.
Jerry: We’ve seen an incredible Presidential leadership vacuum. Sen. Chris Dodd, D-Conn., gave the press conference on Tuesday that steadied the markets. Where was the President? It’s time to end this vacation. The Fed is doing its part, but there are regulatory hurdles. The trial lawyers are sharpening their knives to go after the mortgage industry. This credit disruption is coming from the threat of litigation and regulation and the President needs to get on it fast. The Democrats own it politically and they are setting the agenda policy wise.
Jonathan: There is a regulatory risk to this market. Unfortunately, that’s a message that many Democrats tend to get behind in any crisis. They think the answer is more regulation. Every element that these guys talk about, whether it be health care, social security, or a more progressive tax structure. The market would love it and America would love it only if it was a more capitalist message instead of the populist one.
Bull Market for “Wholesome” America?
High School Musical, the squeaky clean money-maker is taking over America. In the meantime, celebrities gone bad like Michael Vick, Lindsay Lohan, and Paris Hilton are on the way out. Are we in a bull market for a “wholesome” America?
Jerry: I sure hope this is a sign of a bull market for a wholesome America. It’s amazing to see footage of teenagers without the ubiquitous navel showing. Hollywood’s approach is when all else fails, try something good. We’ve played out the Paris Hilton, Britney Spears career path from “Mickey Mouse Club” to soft porn. Now we are going for more wholesome entertainment. As a father, I love the idea! I have three teenage daughters and I don’t want them to grow up in a culture where “sexualization” starts at age 10.
Jonathan: The good news is that America has got it all! If you want Perez Hilton, we’ve got Perez Hilton. If you want something like the Mickey Mouse Club, there’s High School Musical. I happen to think there’s a lot more money to be made in being good like Zac Efron, than being bad like Bobby Brown. That’s the great thing about America. We’ve got as much porn as you want and we’ve got High School Musical.
Jonas: Society does get a little dirtier every year both environmentally and morally. There’s an attraction to not be involved in that. Parents want their kids to be immune to the Internet and what’s on network television. When you see something to watch that’s clean, it will be very popular.
Wayne: When I did “M*A*S*H,” we were subject to restrictions that are not in place today. I hope Jerry is representing most of America. Jerry’s right in that he doesn’t want young daughters subject to all the dirtiness at such a young age. The fact that this movie got such great ratings is very meaningful. I don’t know if it’s necessarily a trend, but Disney is very good at putting out great stuff.
Leigh: I do think there are a dozen more Lindsay Lohan’s just waiting to fill her shoes as soon as she peters out for good. The world is schizophrenic right now. High School Musical doing very well. Also, take a look at the movie Knocked Up. It was a huge box office hit and was about unplanned pregnancy, but it also had a very sweet, happy ending. This is very different from all the comedies like it that had come before. The really wholesome thing to do is not stay inside to watch High School Musical, but go outside to play or read a book.
Best Bets: Be$t American Buy$!
Leigh: J.M. Smucker (SJM) (Friday’s Close: $56.07)
Wayne: HLTH Corporation (HLTH) (Friday’s Close: $14.18)
Jonas: Del Monte (DLM) (Friday’s Close: $11.18)
The Real Housing Story
Wayne’s been right on the money when it comes to the housing market. Kendra Todd wanted to take him on.
Wayne: There are three stages in the market downturns of housing: a stretch in the absorption rate, discounting prices, and finally the foreclosure period. We are in the beginning of the foreclosure stage right now and I don’t see it coming to an end anytime soon. It could get a lot worse depending on where you are. Housing is a local thing, not a national thing.
Kendra: This is a wake up call, but this is not Armageddon. I’m tired of all the mass hysteria surrounding the housing market. Worst case scenario is 2 to 2.5 million people lose their homes to foreclosure over the next year. That’s bad, but it will only account for less than 1 percent loss of household wealth. That is not enough to affect consumer spending. If you really think about it, there’s little precedent for a massive real estate downturn in the absence of an economic one.
Wayne: I don’t know if a housing recession can trigger an economic recession or not. Goldman Sachs put $3 billion in to save one of its funds having to do with housing. Bank of America put $2 billion in Countrywide to save it. The Bank of China has $9 billion of exposure into this market. This thing is worldwide and people don’t realize how deep this goes. We also don’t understand how far into the banking system all of these delinquencies go.
Kendra: I don’t know about that Wayne. You’d have to rip out the jugular of the labor market in order to have a big impact on the economy. The fact of the matter is that more than half of the foreclosures are limited to 5 states. It really is localized. Yeah, there will be some trimming down of buying power in this country, but it’s going to affect those who weren’t qualified to begin with and those on the higher end of the market who will have trouble getting jumbo loans. This is not a crash!
Wayne: 5 states are not so bad? Three counties in Florida have foreclosures that are up 74 percent over last year. That’s not good. It’s a readjustment in the asset value of underlying assets.
Kendra: It’s regional. You can take numbers like that and apply them to the whole country.