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; Patricia Powell, Powell Financial Group.
Terror Abroad and Housing Slump in America: Will Stocks Stand Tall in 2008?
The Middle East rocked by the assassination of Pakistani leader Benazir Bhutto. Meantime in America, as Wall Street dealt with the eruption of violence over there, bad news on the housing market sparked more fears of a recession. So will stocks be able to handle these problems and stand tall in 2008?
Gary B. Smith: The Pakistan story is huge for Wall Street. Remember – we've gone six plus years here in America without a terrorist attack (there have been attacks overseas however). I think people haven't factored in the possibility of another attack over here. This assassination just raises the specter of an attack in America. It also makes us remember that there are things other than domestic economic issues that affect the market. The economic underpinnings in America are pretty strong. All that taken into account, I am a “mega” bull on the market for 2008.
Patricia Powell: I think the impact of the Bhutto assassination is already over. We had close to a 200-point sell-off the day she was murdered, and Wall Street has a very short memory. We (the markets) have survived assassination attempts on our own presidents, and we will survive this one. This is more of a political story than an economic story. I am a bull on the market in 2008.
Tobin Smith: Pakistan has spent $100 million making sure its nuclear weapons are secure – trying to keep them out of the hands of Al Qaeda. Also, remember that whenever we've seen one of these horrific attacks overseas, it has presented a buying opportunity here. The big issue going forward is to keep those nukes out of the hands of Al Qaeda. I am a bull on the market in 2008.
Scott Bleier: The market has gotten used to the specter of terrorism. It is something that we now live with every day. But I do not think that we in America are prepared for another domestic attack. Should that happen, then all bets are off for the economy and the market. I am a bear on the market in 2008.
Pat Dorsey: The Bhutto assassination brings to light how much unrest there is across the world; it really shows how important geopolitical events are to Wall Street. For a while this summer, the international stories really took a backseat to what was going on in America (like the subprime mortgage situation). But now we realize that there is more going on around the world. I am a mild bull on the market for 2008.
The best and worst calls from the past year!
No. 5: Patricia Powell picked Peabody Energy (BTU ) on February 17, 2007.
UP 60 percent SINCE THEN
No. 4: Pat Dorsey picked Apollo Group (APOL ) on January 6, 2007.
UP 73 percent SINCE THEN
No. 3: Gary B. Smith picked Navteq (NVT ) on June 2, 2007.
UP 78 percent SINCE THEN
No. 2: Scott Bleier picked Central European Distribution (CEDC ) on May 5, 2007.
UP 81 percent SINCE THEN
No. 1: Tobin smith picked Apple (AAPL ) on December 30, 2006.
UP 136 percent SINCE THEN
No. 5: Patricia Powell picked FedEx (FDX ) on February 17, 2007.
DOWN 22 percent SINCE THEN
No. 4: Gary B. Smith picked Hovnanian (HOV ) on July 21, 2007.
DOWN 60 percent SINCE THEN
No. 3: Pat Dorsey picked E*Trade (ETFC ) on September 5, 2007.
DOWN 75 percent SINCE THEN
No. 2: Scott Bleier picked Building Material Holding (BLG ) on December 30, 2006.
DOWN 76.1 percent SINCE THEN
No. 1: Tobin Smith picked Forced Protection (FRPT ) on July 21, 2007.
DOWN 76.4 percent SINCE THEN
Best Stocks to Own for 2008
Tobin Smith: Emcore (EMKR )
Pat Dorsey: American Express (AXP )
Gary B Smith: Bank Of America (BAC )
Scott Bleier: Marteck Biosciences (MATK )
Patricia Powell: Potash of Saskatchewan (POT )
On Saturday, December 29, 2007, Cheryl Casone was joined by Charles Payne, wstreet.com; Tracy Byrnes, FOX Business Network; Jill Schlesinger, StrategicPoint Investment Advisors; Gary Kaltbaum, Kaltbaum & Associates; and Peter Schiff, Euro Pacific Capital.
Bottom Line: Iowa Caucus: Kickoff to Great American Tax Debate?
Cheryl Casone: The Iowa Caucus officially starting the race for the White House. Someone here says this week's Caucus will also start a great debate about taxes in America. Let's get the "Bottom Line." Charles, do you think the election will come down to which candidate is the best on taxes?
Charles Payne: I do. The bottom line is taxes in this country. The Democrats are coming at it from an attack-the-rich standpoint. In other words, they're saying they want to take money from people who somehow don't deserve to have it anyway… and give that money to people who don't have it.
Cheryl Casone: Peter, do you agree with that?
Peter Schiff: I think taxes are going to be an issue, but I think the economy in general will be a bigger issue. I think by November, it'll be obvious that we're in a recession. I think a lot of the voters already know that, but some of the people on Wall Street haven't figured it out yet. Unfortunately, tax cuts aren't what we need. We need spending cuts. The government has to cut spending. If the government cuts taxes and prints the difference, we get inflation. So there will be more money in our pay checks, but we're paying more for food and for energy. Eventually, we'll end up with a big increase in interest rates because of the inflation.
Cheryl Casone: Gary, that's on the assumption that there will be job losses next year. Some people say there will be job growth in 2008.
Gary Kaltbaum: There's been a lot of people calling for a recession for many years. I'm not there just yet. There's no doubt that some parts of the economy are in a recession and are problematic. But, I think taxes are going to be a huge determining factor for one reason: The Parties are at polar opposites! You have pro-growth versus pro-government. I want pro-growth. The Republicans want you to keep more. The Democrats want you to pay more. I'm on the Republican side here.
Cheryl Casone: Jill, what do you think?
Jill Schlesinger: I think that when you see images from Pakistan like what we've been seeing over the past few days, the tax issue is way on the backburner. I think if there's more instability in the world, people are going to be hyper-focused on issues that are more global in nature. I host a weekly radio show in New England. I have not heard one person call in about tax issues.
Cheryl Casone: But, we haven't gotten to tax season yet!
Jill Schlesinger: The one thing people are calling in about is the different economies in this country right now. People seem to be more concerned about health care and their jobs. I have not heard, even during the last tax season, that people are hyper-focused about paying too much in taxes… because they're not!! We're paying the lowest level of taxes in the post-World War II era.
Cheryl Casone: Well, Tracy, some of the Democrats want to change that. They want to take away the Bush tax cuts.
Tracy Byrnes: Oh, and if they get into office, they will. To Jill's point: We're very short-sighted. Last week when they took a poll of the top issues, people said the economy, not the war on terror, was their biggest issue. If you took that poll today, I bet you'd get a very different answer because of what just happened in Pakistan. So as we get closer to the election, whatever the hot topic of the moment is… it will be the most important issue for the voters.
Charles Payne: Let's face it though; the war on terror has been put on the backburner by the liberal media because the surge is working. And because it's working, the Democrats won't talk about Iraq and the liberal media won't talk about Iraq. As far as tax cuts go, people aren't talking about it because they don't realize how close they are to being taxed to death! Peter, the low taxes have been working.
Peter Schiff: Charles, the biggest tax everyone is paying right now… especially the middle class… is the inflation tax. The average person is getting killed by inflation. The cost of living is sky-rocketing. Next year, you're going to see much bigger increases in the basic necessities.
Charles Payne: So imagine adding more taxes to that!
Peter Schiff: I don't want to add more taxes. We have to cut government spending.
Gary Kaltbaum: You gotta remember: It's all about what the politicians make of it. The Republicans right now have a really good entry point. You have this plan by Democratic Rep Charlie Rangel, where taxes would get raised on the highest-earners. Plus, a surtax?! As far as terror, that's going to be a moving target. We had a tragedy this week. If we end up with more in 2008, it's going to be a moving target. But, don't take taxes off the table. Dollars are important to Americans.
Tracy Byrnes: Cheryl, your point is a good one. Come March, when people start doing their taxes, and they're paying AMT, taxes will be on the forefront. So it might not be on the top of the list for the Iowa Caucus… but I think it will be for anything that happens after March.
Cheryl Casone: Jill, taxes are a tangible thing. We can see what we pay in dollars and cents. It becomes not a campaign rhetoric thing, but a real thing to your bank account!
Jill Schlesinger: I think it's always a funny issue. When you look at every single poll, people say "I pay too much in taxes. AND, I want increased spending on health care. I want better schools." There's an amazing disconnect that the electorate has always had, which is "I want more, but I don't want to pay for it." I think any Democrat who gets in and wants to raise taxes will be fighting an uphill battle. Republicans on the other hand are really good about taxes, but spend like drunken sailors.
Cheryl Casone: Who has been clear on the Democratic side about what they're going to do with taxes?
Jill Schlesinger: There are a lot of gaping holes in every single candidate's policies. And that mystified me! We're pretty close to the election. People are not talking about tangible plans.
Charles Payne: And the biggest gaping hole is that the so-called middle class is a moving target. You know, at one point we were going to attack everyone who made $1M. Then it was $500,000. Now it's around $200,000 - $100,000. A whole lot of people who are buying the whole "Robin Hood" thing may find themselves on the wrong end of this.
Head to Head: Economy in 2008: Boom or Bust?
Cheryl Casone: The US economy in 2008: Will it be a "Happy New Year" or not? It's time to go "Head to Head." Charles, look into that crystal ball of yours… what do you see?
Charles Payne: If it's between boom or bust, I'm going with boom! I know the first half of the year will be tough, but by the second half of the year, all the interest rate cuts will work through the system. I think the housing market will be better. Unemployment will stay at 4.7 percent. And I think inflation will be held in check.
Peter Schiff: Not a chance!
Peter Schiff: 2008 is going to be a really rough year for a lot of people. Home equity is going to continue to evaporate. Energy and food costs will go through the roof… and that's going to hurt a lot of people.
Cheryl Casone: But so far inflation's been held in check!
Peter Schiff: No it hasn't! Who says? Look as prices. Gold is up 33 percent. We haven't had a year like that since 1979.
Cheryl Casone: So why is the Fed cutting rates?
Peter Schiff: Because the Fed is foolish. They should be raising rates! But, the Fed is looking at the economy. We're in a recession.
Cheryl Casone: Gary, do you agree with that?
Gary Kaltbaum: Wow. Listening to Peter… I'm moving out of the country. Look, I'm in the middle. I don't think we're going to have a boom, but I don't think we're going to go bust. For a while now, I've been talking about something called the "wealth effect." It's been going north for a long time, but it's now going south. People feel less wealthy because of the housing situation. I don't see any recession. This economy has shown itself for so many years, even as people are calling for the end of the world! Next year won't be great… probably in the 2 percent range. Interest rates will remain low. I think we're going to be in fine shape.
Cheryl Casone: Jill, I'm going to put you on the spot. Boom or bust?
Jill Schlesinger: I'm going to go with boom. But, it's gotta be boom by the end of the year. It won't be a straight line. I agree with Charles that we'll have a slow start. We're seeing the Fed reflate. But, I think we're putting off our day of reckoning.
Cheryl Casone: You don't think we've had our day of reckoning? I think we've had a few!
Jill Schlesinger: No! Not at all, actually. The market had three horrible years of a bear market, but we didn't have the consumer re-trench. That is going to happen, but I don't think it's going to happen next year.
Cheryl Casone: Is that right, Tracy?
Tracy Byrnes: I think so! There's a reason people "spring clean." There's a reason people purge. I think the market needs to do the same thing. I don't know when the "R" word became a bad word. It's part of the natural business cycle. And who says you can't have growth during a period of time like this? I think the media is making people scared… like people are going to have to move out of their homes and live in their cars. It's not that bad!
Charles Payne: I do agree we're scare of recessions. The last two recessions were very, very short-lived. And, after those recessions, we really took off as an economy. I think with employment as strong as it's been… I just see so many great things happening! Our country still grew even in the face of the most disastrous housing market since the Great Depression!
Peter Schiff: Charles, the reason the recession in 2001 and 2002 was so shallow was because Alan Greenspan inflated the housing bubble to try to minimize the damage. Now, we have to deal with the effect of him trying to postpone the day of reckoning. Now, we're looking at something far worse. Sure, the stock market is up in terms of dollars. But dollars depreciated. Priced in gold, the Dow lost 25 percent of its value this year. US stocks are losing value. You cannot be fooled by inflation!
Jill Schlesinger: He's really not fun… you know that?
Jill Schlesinger: I think we're all in agreement that when you a lot of money into the system… it goes somewhere… dot.com, housing. My guess is this money from the Fed is going to go back into the market. Peter, I think you're right. We are going to have a day of reckoning. I just don't think it's going to happen next year with the Fed cutting so aggressively.
More for Your Money: Best $tocks to Own in 2008!
Cheryl Casone: Stocks that will make for a very happy new year for you! It's time to get "More for Your Money."
Gary Kaltbaum: Oracle (ORCL )
Charles Payne: Washington Mutual (WM )
Jill Schlesinger: BLDRS Emerging Markets 50 ADR Index (ADRE)
*Jill owns shares of this ETF
Peter Schiff: streetTRACKS Gold Shares (GLD)
*Peter owns shares of this ETF
FOX on the Spot
Jill Schlesinger: '08 Will be a Huge $ucce$$; Make Money with SPDRs (SPY )!
Charles Payne: Dow Hits 16k in '08; But Buy the Nasdaq (QQQQ )!
Tracy Byrnes: Resolve to Pay Attention to Your 401k!
Peter Schiff: Next Financial Me$$: Auto Loans & Credit Card Debt
Gary Kaltbaum: Smart Money is on the Patriots!
Cheryl Casone: Your New Year's Resolution Needs to be FOX Business Network
In Focus: Be$t Thing for Wall Street in 2008: A Third Party Candidate?
Elizabeth MacDonald, FOX Business Network: A recent Gallup poll showed that all Americans really want a viable third party candidate. There's a reason Ross Perot won 19 percent of the vote when he ran. It's an indication that it's what this country wants. We have Democrats who want to tax us into a recession and Republicans who are spending like L.B.J. It's why Congress' approval ratings are below freezing.
Quentin Hardy, Silicon Valley bureau chief: Wall Street may not like these guys because they are corrupted by big money but where do you think this money comes from? It comes from lobbyists and it comes from Wall Street. Wall Street is prospering and living by a corrupt system. For a third party system to succeed things would have to get so bad that the outrage will overwhelm the lock that these two parties have in our Democracy right now. I think Wall Street would like to keep things the way they are, it's the rest of the country who wants a third party.
Evelyn Rusli, Forbes.com reporter: I think competition is a mark of a free economy and it belongs in politics as well. The emergence of a good third party candidate would be wonderful because it would bring into focus certain issues that resonate on Wall Street and resonate with the centrists in America. I think that if you have a great third party candidate you could have what we had in 1992 with Ross Perot. Like him or not, he did bring to the forefront issues like campaign financing reform that Wall Street likes.
Victoria Barret, associate editor: Bloomberg is the guy everyone is talking about as the potential third party candidate. A lot of voters say they are going to vote for the person they dislike the least. This isn't a great scenario. And Bloomberg could be a great candidate but the problem is he would split the Republican vote. Then you get a skewed election and that could be dangerous for Wall Street.
Lea Goldman, senior editor: I think we're looking at the wrong third party candidate with Bloomberg. I think Ron Paul is the guy Wall Street has its eyes on. Wall Street wants a candidate who will promise and deliver smaller government. Ron Paul is a Republican, but he's the guy who is really generating the buzz. But he doesn't stand a snow ball's chance in hell of getting the nomination.
John Rutledge, Forbes contributor: I love the fact that in America we're free to have the chance to have a third party candidate, unlike other places like Pakistan. The real effect of a third party candidate is it will split the opposition. If the third party candidate comes from the right that would kill the Republicans and guarantee Hillary. So she'll be rooting for a third party rightwing candidate. But a lefty third party candidate would kill Hillary. Who comes in for the third party is going to nail this election down.
Home Prices: Better or Worse in 2008?
John Rutledge: I think we're going to see a bottom next year in the housing market and they'll be an opportunity there. The mortgage market is going to be coming back next year. The thing that caused this problem is not payment issues, it's the death of the bond market that handles mortgage backed securities. When the housing market comes back to life next year not only are home prices going to firm up. You're also going to see big opportunities in the stock market with financial related stocks.
Quentin Hardy: Twelve more months of downturn would be a very rare event but this is a monster that feeds on itself. The scary thing in the new home numbers is that there were also declines in the Midwest, that's not a speculative area. That's to say that it's spreading beyond subprime and into the greater market. That could take us into a recession and it's hard to think that the housing market could rebound during that.
Evelyn Rusli: I think it's going to be better at the end of 2008. When it comes down to it, the government and economy are still strong. People are still spending and people still have their jobs. Eventually people are going to start to go on the market. There is an inventory glut but builders are cutting back. Eventually the glut will tighten and demand will pick up.
Elizabeth MacDonald: Home prices rose 74 percent from 2000-2006 in this country. Median income only rose 15 percent. Those numbers aren't adjusted for inflation, however. We're going to see ARM resets of the order of $271 billion going on now through the second quarter. I think things will get better in 2009.
Victoria Barret: Housing prices went way out of whack. Home prices rose 74 percent in 6 years while incomes rose only 15 percent. It's going to take a long time to work that out.
Capitalism: Be$t Way to Bring Peace and Prosperity to Pakistan?
Elizabeth MacDonald: We need to foster a middle class in Pakistan. They need property rights which tend to lead to the rule of law. Property reforms, rights and economic development would help create a middle class. When we see poverty we often see Islamic fascists ruling these poor classes. That can take down societies.
Victoria Barret: Pakistan needs a whole lot of things to pave the way for capitalism. This nation has been plagued by radical Islam. They hate democracy. This is a country that has been under military dictatorship for six decades. That's why we have all those systematic failures like we saw earlier this week.
Lea Goldman: Pakistan is an Islamic state. We're getting ahead of ourselves talking about capitalism when there is no semblance of real democracy there. We need to get to point A before we rush to point B. It's a little early for this conversation.
Quentin Hardy: Capitalism and wealth are an end product of something even better; freedom and the open exchange of ideas. The problem here is the government doesn't trust its own people to have ideas, to have elections. We turn a blind eye to many of these countries. Trust the people, give them democracy. Eventually you'll get capitalism too.
John Rutledge: The reason they're having riots in Pakistan is the widespread belief on the street that the government killed Mrs. Bhutto. This is a very violent part of the world. She was booted out of the country for embezzling $1.5 billion for her family. It's pretty much bad guys wherever you look over there. Rich guys behave better than poor guys. I like the idea of helping them to develop and grow in order to provide a more peaceful atmosphere. Corruption is the real problem there and we have to find a way not to subsidize that corruption.
Informer: Best Stocks for 2008!
Quentin Hardy: Berkshire Hathaway (BRKB )
Lea Goldman: Research in Motion (RIMM )
John Rutledge: iShares U.S. Financial (IYF )
Victoria Barret: Aflac (AFL )
Baby Boomers in 2008: Beginning of Bankruptcy in America?
Jonathan Hoenig, CapitalistPig Asset Management: Well I think we all knew that the baby boomers were eventually going to retire but I think we underestimated the size of their entitlement mentality. And I think the extent of that is nurtured by people looking to get elected. Our country's economy is basically screwed. This country has not saved money like other countries have…. we are one of the lowest saving nations in the world. We are irresponsible and we are a generation who were not raised to be responsible and that is the problem here.
Wayne Rogers, Wayne Rogers & Co: I think this is a generation who is used to entitlement. They hear the word entitlement and they don't think of privilege, and Congress has absolutely no courage when it comes to dealing with it. Congress will put it off to the side and reject it. Our congress is intellectually bankrupt.
Dagen McDowell, FOX Business Network: People in Washington have been talking about this looming problem for over 20 years and it's disgraceful that they can't fix this. It's just social security, it's just money…maybe raise the retirement age, the salary cap, draw more from taxes, change the benefits. It's so simple! Yet they can't do it.
Matt McCall, Penn Financial: This has always been a problem but baby boomers are starting to get their checks so it's becoming headlines. Congress is going to be forced to change their retirement plan. But I do think this is good in a way because it will force Americans to start saving on their own. Baby boomers may not be saving, but they're spending and the fact that they're out there spending is going to keep the economy going. Money is going back into the economy.
Jonas Max Ferris, MaxFunds.com: The Baby Boomer mentality is actually great for the economy. They are inheriting a large amount of money from their parents, they're going to spend it and they're going to continue working probably longer than we thought they would. Don't slam the baby boomers…they might make this situation better than we think it is.
Silver Lining in Falling Home Prices: Less Money for States to Spend!
Matt McCall: The good thing here is this will make the government fiscally responsible. The state of Arizona 's spending went up 94 percent since 2000… fueled by higher home prices, and the taxes brought in, but there's so much bad spending going on. Now they have to concentrate on healthcare infrastructure and areas they need to be spending money on.
Jonathan Hoenig: I just don't see a bottom for housing or real estate. State governments are very good at spending money…I don't think they're the best allocators of assets. I think we should be starving them instead of feeding them more cash.
Wayne Rogers: The bottom is not here yet, and nowhere near. The banks don't even know where the bottom is. And as far as states being responsible for making an accurate budget, state governments are no more responsible then the federal government…they're all irresponsible. In California, Schwarzenegger is facing an estimated $8 billion deficit and they're afraid to raise taxes. Where are they going to get the money? Sooner or later one of these states are going to have a default and then you are going to see a big problem.
Dagen McDowell: States are going to get spending under control but when the good times come along again they're just going to ramp up spending like the money is going to last forever. Five years ago there was a budget crisis in California and today, there's another one! The ramped up spending, they drank from the punch bowl during the tax bubble and that burst, and they did the same thing during the housing bubble. It just makes no sense. It's politics and it's just infuriating.
Jonas Max Ferris: First off, state and federal government save spending problems by raising taxes. In regards to the housing market, this is another example of how rising prices inflates the economy on the way up and takes it down on the way down. They were relying on this money to spend, which boosts the economy, and now they're going reverse. This is why a falling housing market can hurt the whole economy.
Maine's Gift Card Plan: Good Business or Money Grab?
Jonathan Hoenig: Absolutely, this is a money grab. A case of thievery such as this could not even be imagined. If I get a $50 gift card to the Gap and I sit on it for 3 years, it's still my private property. What makes the state of Maine think they have any right to it, I just don't understand.
Jonas Max Ferris: I don't think this is such a crazy idea. I don't think it should revert back to the retailer whether it's used or not. What the law should be is the buyer of the gift card gets the money back on their credit card or the person who has the gift card gets the cash. Retailers shouldn't get the cash if both parties lost or didn't use the cards. It's not their money in the first place.
Best Bets: Best Stocks for 2008
Wayne Rogers: BE Aerospace (BEAV )
Matt McCall: CNH Global (CNH )
Jonas Max Ferris: Nakoma Absolute Return Fund (NARFX )
Jonathan Hoenig: CurrencyShares Mexican Peso (FXM )