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, and Matt McCall, Penn Financial.
Trading Pit: Stocks 'Spring' Back Into Action -- Did the Bears Just Go Into Hibernation?
Forecast for Wall Street: all clear? Stocks were all over the place this week, but finally ended on a big up-swing, making it one of the best weeks of the year.
Did the bear just get scared into hibernation?
Matt McCall: From the action I have seen this week it leads me to believe the bears have gone back into hibernation. The combination of falling oil prices and the Bear Stearns blowup tells me the worst is behind us and that investors need to begin looking for buying opportunities.
The falling oil prices were caused by hedge funds and big money liquidating positions that were extremely leveraged. Now that the speculators appear to be exiting not only oil, but also other commodities it will lead to a high cash position. Because they must put this money to work, the funds will look for the best opportunity at this time and that happens to be stocks. The commodity trade is over in the short-term; bonds are overvalued, so that leaves one place to make money -- stocks. So yes, the bears have exited the building and will be forced to cover their short positions as the market begins to rise.
The overall market reaction to the Bear Stearns blowup was very bullish for the market. Investors have been looking for the "catastrophe" news that would send the fear level to new highs and we got it. What's amazing about the situation is that investors began buying only hours after the news was released. This is a perfect indication that the market is more concerned about market uncertainty than bad news. The release of better than expected earnings from a host of brokers helped diminish the uncertainty and has brought life back into the financials, which will be the leaders of the next market rally.
Tobin Smith: No. The markets big fear has been a real consumer led recession and now is how deep will the recession be...
If oil prices come down to 85 and stay there for a few months, that will lower depth of consumer spending pull back somewhat.
But it is the consumers' house value and the ability to refinance (or lack thereof) that is the big worry on Wall Street.
Gary B. Smith: Yes. Why? In five words: The Fed has our back! Translation: The bear is dead. As for dropping oil and the impact on the market, I am not really sure the worst is over for oil, but that doesn't have too much impact for the market. I still wouldn't touch oil for a long-term investment.
Pat Dorsey: The fear we are going to have a full-blown financial panic is over. That level of fear has left the markets. But let's not kid ourselves; we still have a housing market with a lot of unsold homes and a high number of foreclosures.
Scott Bleier: The sacrifice of Bear Stearns was the moment of maximum stress, pressure and pain for Wall Street.
It's like a nuclear bomb went off; there is still plenty of radioactivity around, but investors can now come out of their bomb shelters and begin buying.
The nuclear bomb was excessive leverage and borrowing by financial institutions like hedge funds. And they have been liquidating anything that is not nailed down. But that liquidation will not last forever and is actually almost over
The fall in commodity prices was long overdue and part of the unwinding process. Dropping prices will help the consumer if they get low enough -- but they are still way too high and will be damaging.
Reverend Wright's Comments: Wrong for Obama's Fundraising?
Senator Barack Obama standing by his controversial reverend. But could his loyalty be a threat to his record fundraising cash -- especially on Wall Street?
Gary B.: Donations will slow to a trickle from Wall Street. The reason? The rev. tape(s) are sure to get plenty of airtime either from Clinton, McCain, or support groups. (Think Swift Boat.) The last thing Wall Street wants is to alienate their clientele: white, upper middle class. Remember, Wall Street is ultimately in the money gathering business, so you have to cater to those you gather the money from.
Matt: The Wall Street money will not stop flowing to Obama's campaign because they do not care about Rev. Wright's comments. Everyone has their number one reason why they support a candidate. Race is not the factor for Wall Street and at the end of the day all that matters to the Fat Cats at Wall and Broad is Money! If they believe Obama has a great shot at being our next president, which he does, they will support him now for his support in the future.
The everyday voter may be put off by the Reverend's remarks and decide not to give $10 to the campaign this month because they are offended. Wall Street on the other hand has bigger and better things to worry about and needs a friend in the oval office.
What makes Obama so appealing to Wall Street is the connection he could make between Wall Street and Main Street. Right now, the average American cannot fathom what takes place on Wall Street and believes it is a rigged game. With Obama in office, Wall Street will have a conduit to the middle and lower class population, which will help relieve the negative stigma of "big business."
And if morality were an issue, Wall Street would not have backed Bill Clinton!
Scott: The way I see it, is that Wall Street, more than anything else, wants to be sure it is backing the right horse. And in that case, Obama -- even with this Wright thing, is still going to get the nom. Obama has already received huge sums of money from big investment banks and that will continue.
Tobin: He just lost the Wall Street crowd... and they give more money. If you see the tapes you never will think of Barack Obama the same again.
Stock X-Change: March Madness Cinderella Stocks
Gary B: Financial Select Sector (XLF )
Pat: Unitedhealth (UNH )
Tobin: Capstead Mortgage (CMO )
Scott: Harley-Davidson (HOG )
Matt: The St. Joe Company (JOE )
Tobin Smith: Weather woes are not over but oil is; buy UltraShort Oil & Gas (DUG )
Gary B. Smith: Gold has lost its luster! Buy DB Gold Short (DGZ ) for some extra sparkle
Scott Bleier: Financial freak-outs continue! Huron (HURN ) helps fix 'em; up 30 percent by fall
Matt McCall: Defense spending continues; PowerShares Aerospace & Defense (PPA ) up 20 percent by end of '08
Pat Dorsey: You can still get healthy with Novartis (NVS ); up 50 percent in two years
Bottom Line: Floods Smacking America: Will They Wipe Out Economy?
Pat Powell, Powell Financial Group: We normally handle wicked weather in stride, from hurricanes to tornados. But this is just piling up. This is all coming on top of the subprime mess. The thing I'm most concerned about with this weather is that Congress is going to be as reckless in this regard as they've been in other things. They're going to try and rush to get more money out to potential voters as we come up on the election.
Charles Payne, wstreet.com: I think the weather provides opportunity. I think it adds the spark that's been missing, particularly in regards to red tape and bureaucracy, things don't get done. When a bridge collapses because of water or flood, people are devastated. That is when the government does come into action. That is what we really want Congress for. The wicked weather obviously slows some parts of the economy but overall I actually think it is a boost to the economy.
Tracy Byrnes, FOX Business Network: There is a rebuilding process. Unfortunately the negative brings out the positive for a lot of companies. You're going to have people buying wood, building homes and rebuilding. That helps the economy. You also have that community spark, let's get out there and help!
Gary Kaltbaum, www.garyk.com: The effect of this weather depends on where we are in the economy. When Katrina happened, the economy was still strong, so it didn't have the biggest of effect. Now when you get these things, it does impact the economy. I don't see any way it helps the economy.
Adam Lashinsky, Fortune Magazine: I would never argue, as Charles did, that something like this helps. That is taking the cup half full to its ultimate extreme. In California we have all sorts of calamities all of the time. Although we're not experiencing any of these at the moment, it gives me perspective. Over the long haul, these things are a blip. They tend to be smoothed out by whatever else is going on with the economy. I am not saying they are not going to hurt regionally. What I am saying is if you had to draw up a list of head winds regarding the economy right now, the weather would be low on the top 10. Too many other things going on right now.
Head to Head: Obama's Former Pastor Says Rich, White People Rule America: Is He Right?
Rev. Dr Franklyn Richardson, National Action Network Chairman: There is no question that rich, white folks control things. There's no question that the culture and the country is disproportionately controlled by rich, white people. The culture being the things that get affirmed. Any time you speak outside of the normal tiff, the powers that be pounce on you and make you some kind of radical.
Charles Payne: I think obviously, when you look at the Forbes 400, the Forbes 500, the U.S. Senate, you'll find a bunch of rich, white guys. But blacks have a lot of influence on the culture itself. But I think society is closer now in terms of culture, particularly with young kids. They listen to the same music and dress the same and seem to get along a lot better now than in previous generations. My difference with the Reverend Wright isn't this statement. It is hard to argue that white people don't control most of the wealth and most of the corporations. But I think the tone of the message is not one of hope and self-reliance. It is one of victimization. With that kind of attitude it hurts blacks trying to penetrate the corporate world.
More for Your Money: Egg-Cellent Stocks for Your Easter Basket!
Gary Kaltbaum: UltraShort Oil & Gas ProShares (DUG )
Pat Powell: Adobe (ADBE )
Charles Payne: Cal-Maine Foods (CALM )
Adam Lashinsky: NCR Corp (NCR )
FOX on the Spot
Gary Kaltbaum: Oil tops out; gas prices heading down.
Charles Payne: Ryland homes (RYL ) rebuilds; up 20 percent this year!
Pat Powell: Buy Costco (COST ) for a 30 "rebate" boost in 2008!
Tracy Byrnes: JPMorgan will buy Bear Stearns despite naysayers.
In Focus: Best Buying Opportunity in Our Lifetime?
Elizabeth MacDonald, FOX Business Network: You know, I'm a big believer in not anticipating the end of the world, but yeah, it feels like the wheels are coming off the economy, we're headed for some kind of national nervous breakdown, but that's short-term thinking. We truly are in the first two innings of globalization. New middle classes are coming alive around the world, and I think now is the time to buy multinationals with the largest footprints in those emerging markets.
Quentin Hardy, Silicon Valley bureau chief: Well, I certainly think we should buy multinationals because we have to protect ourselves from the poor, weakening US currency. A currency which is going to be suffering from some time while we bail ourselves out from the excess of the tax cuts for the rich and the deregulation of Wall Street which we paid for this week in tens of billions of dollars.
Evelyn Rusli, Forbes.com anchor: This is perhaps the best time in 10 years to buy stocks. Really, it's the emerging markets. It used to just be a two horse race, but now it's Latin America, it's all over in Asia. We see these emerging markets, these middle classes that can buy US goods, and they're exports are really on the rise right now.
Neil Weinberg, senior editor: I think Quentin is totally wrong. Yes, the US dollar is weak right now. What you want to do is buy when there's blood in the streets. You want to buy things that are low. Do you want to buy things that are expensive? No. You want to buy things that are cheap. So what's cheap right now? Financials are cheap right now, homebuilders are cheap right now. There's lots of stocks in the US that are paying very good dividends. Over the long- term, 40 percent of your return from stocks is from dividends. Look out there for things that are beaten down, that are solid companies, and in the long-term you'll do great.
Victoria Barret, associate editor: Well, I hate to agree with Quentin because it's a pessimistic point of view, but I think he's right. There's going to be more blood in the street, the weak dollar is going to hit consumers in the form of higher and higher gas prices. I think we haven't seen the second wave of the downturn. All the turmoil has been in the financials, and I think we're going to see another wave that's really going to be focused on the consumer.
Rich Karlgaard, publisher: Well, I'm buying because I think most of us should be dollar cost averaging and stocks are cheap, but the question is what's going to make them go up? There are two fierce headwinds against stocks right now. One is the collapsing dollar and one is the expiration of the tax cuts that favor investments in a couple of years. We're going to have to see how all that plays out. Buy stocks if you have a 5 to 10 year time frame, if you have a 1 to 2 year timeframe, stay out of the market.
Is National Health Care Going to Cost You Your Job?
Evelyn Rusli: The Massachusetts experiment shows exactly why this will cost jobs. What happened was these Boston hospitals usually rely on a pool that they use for uninsured patients. Well, the government was dipping into that in order to fund their program. Which shows how expensive and how this will cause a loss of jobs, especially in the transition period, if we were to do this on a national basis.
Lacey Rose, senior reporter: I think this is a very specific case, a failure by the state of Massachusetts to properly implement this. I don't think the concern should be about jobs here. I think you're going to have to all of a sudden insure and regularly treat 40 million plus people here. There is going to be a demand for health care services and jobs. The issue is funding. How are we going to pay for this?
Jack Gage, associate editor: I agree to a certain extent but I think we have to zoom out. In a broader context this is really a danger if you look at companies like GM, like Ford, like Caterpillar, with a million of employees to pay for a take care of in this regard. It's really a problem where 900,000 employees are requiring more to cover their prescriptions and drug benefits and things like that, these companies are going to become less willing to pay for that. As a result they're going to downsize their work force. So, it's a problem that goes beyond the health care industry and beyond this example, but this is a great case study about universal health care.
Quentin Hardy: Well, you know, with coverage they could have some peace of mind and they could plan. They wouldn't be on this roller coaster, and they wouldn't be in this situation where wages are way underperforming the rising costs of health care. Look, Jack just talked about GM. Before the break, Neil just talked about buying Toyota. Why can Toyota produce cars so much cheaper than GM can? Because in Japan they have national health care! Don't blame the democrats. Look, national health care exists in Europe, it exists in Japan, it exists in many countries and those countries have a net benefit.
Elizabeth MacDonald: I did like the Michael Moore movie ‘Sicko', I thought it was terrific, and I liked what he was saying about Canada and I hear what Quentin's saying about Europe. But there was a big footnote that was left out of that movie, and this is why people in Europe and Canada can be so post modern in their criticism of the US – they have a microscopic military budget. In other words, our defense budget has their backsides, and so those are the choices we as a country have made to protect these other counties overseas. The second point is about wage compensation growth. The reason wages have been flat is because companies have been paying more in health costs and other benefits including retirement benefits. So, you have to look at it as a whole. The real issue is we don't have a free market in insurance. In other words, I live in New York, I can't buy a cheaper insurance product out in California, so when you break down those borders and have a true free market in insurance, maybe you'll see some cost savings in the health care space.
Victoria Barret: I agree with Liz and I think the Europeans should be saying ‘Merci!' because we pay for all their drug developments. This is where the innovation happens and it's because we have a free market system. We aren't dependent on the government for funding our health care. Right now the system is broken in part. We spend 15 cents of every dollar of health care on paper work. That's too much. We need to move toward a simplified system, and that doesn't mean injecting the government into the problem. That means putting the consumer in control of their health care.
Does Reverend Wright Prove Religion Has More Political Power Than Big Business?
Quentin Hardy: I'm very mindful that this, and not Christmas, is the most important weekend in the Christian year. I almost must say that in this country, this guy can say stuff. Pat Robertson can blame Katrina on the abortion movement, Jerry Falwell can say God allowed 9-11 because of the ACLU. You get all this nonsense. These guys are never denied. The human representatives of Christianity can make gaffs that businessmen could never make, but yet they still have power.
Jack Gage: I think we've seen it already in this presidential campaign. We've seen Pat Robertson endorsing Rudy Giuliani, we've seen John Hagee endorsing John McCain. Both have done more harm than good, this never works out as well as it's supposed to. I think that when you actually look at what gets traction with voters, it's business decisions, it's business policy. Responsible fiscal policy for the republicans, and for the democrats the idea of kowtowing to a certain degree to the hedge fund industry and others where policy is allowed to get away from them a little bit.
Lacey Rose: I think that religion really plays a significant role in the campaign season. Every four years when you're trying to align with people and get those votes, I think it's very important. I think when it comes to policy once you're in the White House then business takes the center stage.
Neil Weinberg: People are going to vote their pocketbook, especially in times like this when things are really bad. You know, issues in this country tend to go with a pendulum. Eight years ago we were talking a lot more about issues. We were talking about things like abortion. Who's talking about abortion now? We're not even talking about gun rights. That's an issue for the Supreme Court. This is all about meat and potatoes things. Are people going to have jobs, this is about the dollar? This is about the things that really matter to people. Health care is one of them, of course.
Rich Karlgaard: I thought Obama's speech was one of the greatest in political history, and I say that as a Republican who will not vote for him if he's the nominee. Lacey has it exactly right. During the campaign season religion is more important than business because you can disrespect business as a candidate, but you can't disrespect God and his flock because you won't get elected. Once you get elected, you're only going to stay in office if you have a good economy and that means you'll have to attend to business issues.
Informer: Dow Predictions and the Best Blue Chip Stocks
Camilla Webster: The DOW is going to be up, buy Johnson & Johnson (JNJ)
Victoria Barret: The DOW will go up, buy Home Depot (HD)
Evelyn Rusli: The DOW will go down, buy Verizon (VZ)
Neil Weinberg: The DOW will go up, buy Pfizer (PFE)
Our Cashin' In crew this week: Jonathan Hoenig, CapitalistPig Asset Management; Jonas Max Ferris, MaxFunds.com; Wayne Rogers, Wayne Rogers & Co.; Craig R. Smith, Swiss America Trading Corporation; Peter Schiff, Euro Pacific Capital; Dr. Carole Lieberman, psychiatrist.
Best Housing Fix: Cut Property Taxes?
Jonathan: Cutting taxes in general stimulates economic growth. Personally I'd rather see the income tax cut, because that's a tax on production versus the property tax, which is a tax on consumption. But yeah, the more you can reduce the tax burden on Americans rich and poor, the more you are going to see this economy get back on track.
Wayne: The part that's crazy about Jonathan's reasoning, I may say so, is the fact that when property values go down the assessment goes down and your taxes go down. This is an automatic thing. In other words, when the assessor comes out, in times like this when there are foreclosures and things like that, your property taxes are going to go down anyway. And by the way, if they take away, totally take away the property taxes, which support the school systems and all the other things that in your state and your county and your local place are, then your property value is going to go down even more because all these services are gone, so it's crazy.
Craig: I tend to agree with Jonathan: I think if you cut taxes, you should cut income taxes. But I also agree with Wayne. My big concern is if you cut property taxes and you lose good fire services, good police services, could you on the other side see interest premiums go up on insuring your home? I think the best bet to fix the housing market is to help people that can truly afford their houses and help the people to get out of the houses they can't afford to carry.
Peter: Fortunately, we are probably more likely to see property taxes rise because of falling values. But you have to look at all the other costs associated with home ownership that are rising. You've got mortgage rates resetting higher, you've got increases in utilities, in insurance, in maintenance. And of course homes are now depreciating in value, not appreciating and so depreciation adds to the cost of home ownership and new home buyers are facing tighter lending standards, they actually have to come up with down payments now, so there's so many things working to bring home prices down, that even if they could get a break on their property taxes it wouldn't amount to enough to stop the slide in home prices and that's what has to happen.
Jonas: I think Wayne was correct that tax assessments would ultimately go down. Homes are the most under taxed asset I can think of in the world. There's already at least a dozen ridiculous benefits to buying a home. It's why we got into a housing bubble in the first place. The first $200,000 you get for selling a home, tax free. Why? You don't get that with stocks. You get to deduct up to $1.1 million dollars in mortgage and home equity interest. What kind of a ridiculous deduction is that? The President had a very good policy where he sent a group out and they discovered this mortgage deduction is ridiculous. Now you are talking about adding more deductions and higher limits, say, on Fannie Mae, is only going to somehow, what, create another bubble in housing? I think there have been too many tax breaks, we've made the home too much the American dream and that was the problem. That's not get more of the hair of the dog that bit you to solve this problem.
Is Your Money Safe at Your Local Bank?
Following the collapse of Bear Stearns, is it time to worry whether your local bank could be next and your money could be at risk?
Craig: I think it is possible. Of course if the fed keeps giving investment banks like Bear Stearns and J.P. Morgan, maybe it won't happen. I think Bear Stearns is a perfect example of if you expect higher returns you better expect higher risks. Our top five banks in America are holding 95 percent of $135 trillion in derivatives. We have to be careful. It appears the fed is ready to do whatever they have to do to keep confidence in the American dollar and the American banking system. I don't think the way they are going about it is correct. I think loosening standards and lowers interest rates are what created the mess we are in now. We will see if it works.
Peter: Nobody's money is safe as long as Ben Bernanke is Fed chairman. It doesn't matter if your Bangor brokerage firm goes under and the government gives you your dollars back. They are not going to give you the purchasing power back. If you get your money back but lose your purchasing power, it is lost. If people are concerned about the atlas, they need to get it out of U.S. currency.
Jonathan: I think you will get your $100,000 but it probably won't be worth as much when you put it in. There have been two bank failures already this year…three in all of last year and zero in 2005 and 2006. Your actual assets are safe but the value of them, and we have seen the dollar fall in the last six months or a year and that is a trend likely to continue. But it is the FDIC insurance that creates the problem…It incentives banks to take a lot of risks. People more into the purchase of a plasma TV and looking at things. The market is not allowed to function.
Wayne: The FDIC has assured the banks you are not going to lose. We are talking about whether banks are going to fail. The question is the FDIC is going to support your bank and the deposits. So you are not going to quote on quote "lose your capital by putting your money in the bank." Certain smaller banks may go under but the federal government will bail them out. That is the purpose of the FDIC. The biggest problem is the Congress when they abdicated the Glass Stegall Act, allowing the investment banks to get together so that you have no correlation over the derivatives market; you have no regulation of the derivatives market, that's the problem that this has caused.
Jonas: Gold bugs are insane. You get your money back. No one is going to run on a bank because they are going to lose more than 2 percent of their purchase power. I was in a bank that failed last year. Net bank is going…ING bought it. Gold falling $80 or $90 in a couple of days, it is hard to make a case for that.
Should Sex Offenders Get Financial Aid?
A sex offender in Iowa is getting federal help to take college courses by mail, and he's not alone. Is this a good use of your tax money?
Wayne: The fact of the matter is they aren't just using the money for school. There are cases where they have bought television sets, they're buying movies with it. They're doing all kinds of things that have nothing to do with their education at all. And in fact, if you're incarcerated, if you're a prisoner, you can't get this. You can't apply for a Pell grant. It's only after you're "out of prison," and in some rehab, as it were, that you can do this. No, it's abused. It's a terrible idea.
Dr. Carole: Well first of all this is somewhat of a tempest in a teapot. It's not that there are a million sex offenders who are making a run on Pell grants. In the last five years, there have only been several dozen. But they are in treatment centers. And in fact, in my opinion, this is part of their treatment. Because the reason why sex offenders offend in the first place is because they feel powerless. Many times these people have been abused themselves and they feel powerless. And it's not just for sexual gratification, it's to overpower their victims. And knowledge is power. So if they get an education, then they will feel more powerful, they won't have to offend. They'll also have a better chance of getting a job if they get out and increased self-esteem. And a lot these sex offenders are actually in this treatment center, passed the time they were sentenced too.
Jonathan: I'm against paying for anyone's education. Honestly, if some private organization wants to give grants to sex offenders, go at it. But I object to any government involved in funding education, whether it be for sex offenders or non-sex offenders. If someone wants to get a college education, let them pay for it themselves.
Craig: No offense to the good doctor, but the fellow cited in this particular instance shouldn't be given a correspondence course, he should be given a cell of solitary confinement at San Quentin for the rest of his life. I mean this is instance. I mean if you are talking about a young person who's made a mistake at an early age with an underage girlfriend or something, I'm all for getting the person an education. But when you are talking about repeat offenders like this guy, you can't rehabilitate a guy like this.
Jonas: Besides the self-esteem problems they suffer for, the doctor left out the crazy part. What I want to get back to is that what this highlights is that there's a serious problem with the way student loans are doled out in this country. People can borrow money and spend it on all kinds of garbage and frankly go to these internet-based schools over the phone that is the fraud that is costing the government if not millions, billions of dollars. And the fact that a few sex offenders are taking advantage of this will hopefully highlight the real problem here.
Best Bets: Spring Stocks
Our money experts offer up their stock picks for the new season.
Jonathan's pick: SPDR Lehman 1-3 Month T-Bill (BIL )
Wayne's pick: Citigroup (C )
Craig's pick: Archer Daniels Midland (ADM )
Jonas' pick: Merck (MRK )