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This past week's Bulls & Bears: Gary B. Smith, Exemplar Capital managing partner; Pat Dorsey, Morningstar.com director of stock research; Eric Bolling, FOX Business Network; Tobin Smith, ChangeWave Research editor; Matt McCall, Penn Financial Group; and Mike Papantonio, Radio talk show host.
Stocks Up Despite Bad News: Sign Bulls Are Ready to Run?
Matt McCall, Penn Financial Group: The market is discounting the future. The market is pricing in what's going to happen six months from now, and six months from now the market will start to improve. The only way to go is higher. The Fed is putting trillions of dollars into the marketplace, and this will help markets rally in the New Year.
Tobin Smith: Changewave Capital: The really bad news has not even hit the wire yet. The economy fell off a cliff in November and December. It won't even start to be reported until mid January or early February. The markets will not rally for quite some time.
Pat Dorsey, Morningstar.com: What's not priced into the market is that earnings expectations are unrealistic for next year. People are expected the S&P to earn around $80 aggregate. That number will come in more around $60. People's expectations for earnings next year are still too high.
Gary B. Smith, Exemplar Capital: Despite wave after wave of bad news, the market just isn't going down significantly. I think we could see a sizable market rally over the next couple of months.
Eric Bolling: FOX Business Network: Investors are ready to light the fire. Consumers are doing better because prices are lower and mortgages are lower. Consumers are doing very well. This is a 70 percent consumer driven economy. I think we're at the bottom, and have no where to go but up.
States Hiking Taxes to Raise Cash But Does Economy Need Tax Cuts?
Gary B. Smith: Everyone is feeling the pinch right now. If governments start raising taxes across the board, we're going to have even bigger problems. The states got addicted to having high revenues and property taxes in flush times. Plus, government employees refuse to budge or adjust salaries given declining revenues. State and local governments are actually spending a higher percentage of their GDP on infrastructure projects than they did in the previous two decades.
Mike Papantonio, Radio Talk Show Host: The fact is that democracy requires a tax for infrastructure. Most states are running out of funds for infrastructure. Schools are closing, bridges are crumbling. Not wanting to raise taxes is the same formula that the fiscal conservatives used to bankrupt the federal system. Now they want to bankrupt states like Alabama, or Massachusetts where they're saying they don't have enough money to pay for roads.
Tobin Smith: California screwed itself by raising state expenditures two times over their revenue. These fiscal problems shouldn't come as a surprise to anybody. If we cut taxes on people who take risk and invest capital, these bailouts wouldn't be necessary.
Eric Bolling: How about we cut spending? The governor in New York wants to raise taxes on 137 products -- cab rides, sodas, etc. -- and then apply for a bigger state budget!
Pat Dorsey: What's not being talked about is that in many cases public employees have benefits that would put the UAW to shame. Those are the folks you least want to disappoint and most want to please. When times are good, you increase health and pension benefits, which never come back down again.
Obama Says Work for Common Good: Good or Bad for American Dream?
Tobin Smith: Adam Smith said that only a beggar would have his or her success be dependent on the benevolence of his fellow man. Successful economics is based on the idea that all parties at the table will act in their self-interest. When that goes away, the system dies, and welcome to Russia.
Mike Papantonio: Most Americans today distrust banks, Wall Street, corporate CEOs, etc. That's the picture of American capitalism today. Americans rightfully believe that Wall Street is made up of a bunch of thugs, hustlers and boobs. The only way this gets turned around is to go to the heart of the problem and turn this mentality around.
Gary B. Smith: Is there any institution out there with more thugs, hustlers, and boobs, than the federal government? The dealmakers in Congress are good, or the inept people running the SEC? You want to give them more money and empower them? The government is not smarter than the American people.
Tobin Smith: Madoff's out, "NITE " is in! Up 50 percent by next Christmas
Gary B. Smith: Profit from Obama's "New Deal II"…"GVA " Doubles in two years
Pat Dorsey: Go back to school! "APOL " Up 20 percent by next winter break
Eric Bolling: No more tears with "JNJ "! Up 25 percent in one year
This past week's guests: Ben Stein, author of "How To Ruin The United States of America"; Adam Lashinsky, Fortune Magazine; Charles Payne, Wall Street Strategies; Gary Kaltbaum, Kaltbaum & Associates; Patricia Powell, Powell Financial Group.
Bankruptcy Not an Option for Big Three?
Gary Kaltbaum, Kaltbaum & Associates: GM already has $44 billion in debt, and this is after having years of a generally good economy. They really misallocated that capital. The private equity company that owns Chrysler will not put another dollar into it because they know they'll lose money. Why should taxpayers be on the hook? An auto bailout will in reality end up costing tens of billions of dollars over an extended period of time.
Charles Payne, WStreet.com: I don't see how an auto bailout will work without bankruptcy. It's because of the UAW. The union has prevented the restructuring necessary to make these companies viable. The auto companies need to go into Chapter 11.
Ben Stein, author, "How to Ruin the United States of America.": It's going to take years to fix the auto companies, not months. Wages are going to go down. Bond holders will have to take losses, along with shareholders. But we have to keep them in business. We can't give the economy another kick in the head. The possibility of a serious depression is very real.
Adam Lashinsky, editor-at-large, Fortune Magazine: President Bush's point was that bankruptcy is not an option at this time. I respect that position. One of the provisions of Bush's plan is to have the companies pay down a lot of debt even as they are taking on new debt from the government. It'll be interesting to see how this works.
President-Elect's Big Spending Plans: Gift or Time Bomb for Economy?
Patricia Powell, Powell Financial Group: A government spending spree would be a horrible idea. We're already spending $1 trillion on the financial bailout. When's enough going to be enough? This will take generations to pay off.
Adam Lashinsky: The economy needs money right now. It's a gift from us to ourselves. It could be a ticking time bomb, which is why we have to be careful. But it's the right thing to do.
Charles Payne: Short term, this is a gift. Long term, it's a nightmare. We could create an environment for rampant inflation. We have to do things that will bring about job creation and investment. TARP doesn't get to the heart of the matter.
Ben Stein: We haven't spent $700 billion. We have loaned and guaranteed loans. But we haven't laid out trillions of dollars, like some people are implying. Typically the government gets repaid on these loans.
Gary Kaltbaum: This is a time bomb. Infrastructure investments and hundreds of billions in bailouts won't help the economy in the long run. We need tax cuts across the board for corporations and individuals.
Are Government Bailouts Creating More Deadbeat Homeowners in America?
Patricia Powell: The bailouts are creating more deadbeats. Everybody wants in. People who know they can make their mortgage payments are getting behind on purpose. Politicians are leading American down a road to financial destruction. Purposefully not paying your mortgage is a horrible idea. Banks will come after you and garnish your wages.
Adam Lashinsky: This isn't pervasive, it's at the margins. But the idea of it is reprehensible. It was this mish-mash of government policy that encouraged people to buy homes they couldn't afford.
Charles Payne: People are now enticed to do this. Right now everybody paying their bills, doing the right thing, has to feel like a sucker.
Ben Stein: We're becoming a nation with a lot of moral hazard. There are a lot of dishonest people out there. Not paying your mortgage will completely screw up your credit. People should not be tempted to default on their mortgages. No matter what the government does, it will destroy your credit rating.
Stock Gifts That Keep on Giving!
Ben Stein: Berkshire Hathaway (BRKB )
Charles Payne: Career Education (CECO )
Patricia Powell: Barclays Bond (AGZ )
Adam Lashinsky: Disney (DIS )
David Asman was joined by Steve Forbes, Rich Karlgaard, Victoria Barret, John Rutledge, Quentin Hardy, Elizabeth MacDonald, Mike Maiello, Mike Ozanian, Jack Gage and Neil Weinberg.
Forbes on FOX Debate
David Asman: President Bush giving automakers a lifeline for the New Year. But someone here says the White House bailout loans will fail because they don't demand concessions from unions. Steve, apparently this bailout loan is not going to force any concessions from the unions?
Steve Forbes: Well, and that is why it is going to ultimately fail unless they have a real reorganization in January and February. These companies can be turned around. GM and Ford sell well outside of North America. Foreigners show you can make cars that people buy inside North America. But if you don't demand concessions and cave in like this president did… it shows that this Administration is brain dead and waiting for January 20th and also, they think they'll avoid being Herbert Hoover by doing this. It won't work.
David Asman: So a bailout without concessions from the union is nonsense?
Mike Maiello: I don't think you need the concessions from unions. If you back out the legacy costs, American autoworkers don't make much more than other workers. They have the same take-home pay. It's just the legacy costs.
David Asman: Just the legacy costs?! That is a fortune.
Mike Maiello: If you are building a GM car, you are basically taking home the same amount of money as someone building a Toyota or Honda.
Victoria Barret: That's not true, Mike. The New York Times did a study on this, and it shows that US autoworkers make $10 an hour more than what foreign automakers pay their workers here. That is the straight comparison. And it is still more.
David Asman: Quentin, the point is that we seemed close to getting concessions until the White House said "Ok, we will give you TARP money."
Quentin Hardy: There is a fundamental reality of cash flow here. You had talk in this direction and in that direction. Aim it the way you want. Mike is right. The pension obligations are a huge factor. Look at what Rick Wagoner, the head of GM, said on Friday! This is the negative part of a 100-year legacy. The foreign companies haven't been here that long. They didn't ask concessions from the top executives or from anybody else.
David Asman: Well, they did. They asked concessions and the executives said they would take $1 a year. But, Rich, jobs banks alone, the fact that they pay workers who are laid off about 95 percent of their income… at least get rid of that. But apparently not with this new deal?
Rich Karlgaard: Well, you have the jobs bank issues and worker productivity. The absenteeism is higher than the plants in the south and then you have stifling work rules. It isn't just pay. If it were only pay, I think that the Big 3 would be better off than they are now. But, there is a lack of creativity on the factory floor.
David Asman: John Rutledge, what say you about the White House bailout plan?
John Rutledge: They didn't get concessions from anybody. These guys just want to get out of dodge in one piece. The unions have got to make concessions, obviously, but so does management. What we need to do is get the management out of these companies and guys in the know run them a profit. The best thing about the White House statement is it says if a company fails to come up with a viable plan by March 31, it will be required to pay its loans to the Federal government. How dumb is that?
David Asman: But, will they fail without union concessions?
Quentin Hardy: Which is it on the unions? Are they evil geniuses who engineered this masterful thing and put the White House in a corn or are they utter fools who aren't giving up any concessions and will die? Why is it up to the unions? They is more than one player.
David Asman: Because the car companies down south are doing a heckuva lot better because they don't have the UAW union rules.
Victoria Barret: That is true. Quentin you are right that there is blame to share here. Management does not get away scot-free. The fundamental problem is that these companies have not built appealing cars.
Quentin Hardy: Which has nothing to do with the UAW.
Victoria Barret: Well, yes it does, Quentin. These are the workers who are building these cars, the work rules that are stifling how you can change a factory. At the heart of every plea for a bailout is we will finally build the cars you want. I don't see it.
David Asman: Hold on a second. It is not just the cars they are building. There are crazy rules about financing that they have been dealing with the dealers, that Mulally, Ford CEO, got rid of about a year ago. He has turned around that company. They are in a lot of trouble, still burning cash, but nowhere near as much as GM.
Steve Forbes: Ford really battened down the hatches a couple of years ago, they took every penny they had and started making major restructuring, which is a good thing. For GM, bond holders know they are going to have to give up 2/3 of their principal and shareholders have already been wiped out. If you make the concessions, including CAFÉ standards, allowing companies to bring in fuel efficient cars from overseas and have it count towards their standards, then it is going for help.
David Asman: Mike, the concession I am surprised you are not concerned about, is the fact that Cerberus, which is a private equity firm, only committed 7 percent of their assets towards Chrysler. They are rich people, and yet the taxpayers are bailing them out.
Mike Maiello: I am very upset about that. I'm very upset about a taxpayer bailout for a bailout for Dan Quayle. It absolutely bothers me. And they are giving up nothing.
David Asman: We finally find something about the bailout that Mike is upset about. Are you upset about that?
Quentin Hardy This is like a hanging. Don't kid yourself. This will focus the mind. This $17 billion dollars won't solve the problem. It just buys time. From my point of view, if they went down this weekend right before Christmas, it would be a disaster for them and their families and their entire system of suppliers and dealers. Now, they have a couple of months to get their act together. It's a much better situation.
David Asman: Hold on. If we are just buying time, Steve, aren't they going to be coming back for more money?
Steve Forbes: Yes. And a week ago they could have make this a reorganization where everyone puts stuff on the table and focuses on the reorganization. Now, we are going to go back to step one come March, and you know they are going to extend it again. They had an opportunity to get a deal where everyone made concessions and got these companies on their team.
David Asman: Outage is growing over that unbelievable $50 billion Ponzi scheme on Wall Street. Turn out allegations were made years ago about the scam's mastermind, Bernie Madoff. This week, the top dog at the investor watchdog agency admitting they dropped the ball. Now, someone here's warning to don't trust Wall Street with your money! But, is that a smart money move? Mike, you're supposed to defend Capitalism!
Mike Ozanian: We are not having Capitalism. Look at this huge bailout of taxpayer money to help Wall Street and these investors who created phony securities. I have absolutely no faith in the integrity of Wall Street, its products, or people.
David Asman: What do we do with the cash?
Mike Ozanian: If you want to invest, you have to do a couple of things. Number one, diversify. And do your homework in terms of who you give your money to! Don't give a lot of money to one person or brokerage. Spread it out.
David Asman: So the only people you trust is the guy in the mirror. Jack?
Jack Gage: You have to do your homework, as Mike said. But giving 2 and 20 percent to an investment manager doesn't entitle you to not do the due-diligence that buying a single stock does. You have to do your homework. These are exotic set ups as we have seen. This is going to be something going forward where we will have to restore investor confidence.
David Asman: John Rutledge, should we trust Wall Street?
John Rutledge: Trust no one. I agree that you should never invest in anything you don't understand… which implies for most investors no fancy investments, no structured products, nothing involving derivatives or any sort, no hedge funds. Stick to cash and simple bonds or stocks in solid companies.
David Asman: Victoria, would you trust Wall Street with your cash?
Victoria Barret: Everyone is giving very sage advice right now. I think right now the market will be more trustworthy in the next few years than it was the past few years. You have to allow me a somewhat ugly analogy, David. It's kind of like the tide has gone out and everyone has been stuck with their pants off. All the fraudsters are going to get caught. You can't run a Ponzi scheme in this kind of market.
David Asman: I'm going to have nightmares about what she just said… Do you trust Wall Street in this type of market?
Elizabeth MacDonald: No, no you don't! Chris Cox himself said the SEC missed the ball on the Madoff scandal when they knew about the problems years ago. The SEC has been compromised; there is a revolving door between the SEC and law firms that represent Wall Street firms. You get like a Stockholm Syndrome where the SEC is help captive to the law firms that represent the crooks. And then, the regulator hammers out settlements where the crooks neither admit nor deny wrongdoing. The SEC does not have enough firepower.
David Asman: Should the SEC have caught Madoff?
Elizabeth MacDonald: Yes! And Bear Stearns.
David Asman: Mr. Capitalism! I saved the best for last. The Capitalist tool is what you call Forbes the institution. Has Wall Street left that Capitalist trade?
Steve Forbes: In part? Yes. But in terms of trusting, you don't trust abstractions like car dealers or Wall Street. You do what Reagan did. Trust but verify. Trust buy diversify. In terms of your own money, you have to spread it out. If you don't have time to babysit your money, you give it to mutual funds and track their fees. You can do it if you take the time to do it. But, these abstractions? No. You have to do some due-diligence on your own. If you don't want to do it, put your money in a CD in a bank.
Forbes on FOX Debate
David Asman: New home construction plummeting nearly 20 percent last month – hitting the lowest level on record. But, Elizabeth says there's still way too many new houses on the market and if we want to start rebuilding those home, we need to start bulldozing! It seems like a waste…
Elizabeth MacDonald: It's not actually. The WSJ has come up with this. They have started doing it in depressed housing markets because of safety. Baltimore and Cleveland do it. What we do is increase the value of existing homes. I say why not give it a shot?
David Asman: Is it as simple as supply and demand?
Rich Karlgaard: Yeah, and excess inventory is always the enemy of pricing. This would be a strain on the national character. This is a gut moral issue. One of the genius of America is not only do we have a balance between Capitalism and government, we have the world's best charitable non-profit organizations. Here is where you bring in organizations like Habitats for Humanity and work out some deal there.
David Asman: Neil, what do you think?
Neil Weinberg: I think this could win the lame-brain Olympics gold medal. We have something called market mechanism. You let the prices go down until people buy the homes. Viola! Capitalism!
Steve Forbes: I say bull to bulldozing houses. You restructure Fannie and Freddie so we can get some of these 4.5 percent and 5 percent mortgages in the marketplace. You do that, and you have existing homes starting to move and those bulldozed houses will come back to life.
Elizabeth MacDonald: You are going in the exact wrong direction, Steve. What you're talking about is refloating bad borrowers. I'm not talking about advocating a moral stain. I'm talking about these foreclosed properties that are already seriously depressed. Get rid of them because the policing of those areas costs the taxpayers.
Quentin Hardy: It's kind of interesting. So you're going to let the banks get paid off by the government and then level the houses? That's setting a market price that isn't expected and will keep housing prices artificially high. What you have to do is keep as many people as possible in their houses, paying off by restating the principal and giving the banks something on the other end.
David Asman: Don't let the scams and selling on Wall Street scare you away! Our Informers have stock picks that should last a life time.
Neil Weinberg: Dell (DELL)
Mike Ozanian: Intel (INTC)
Jack Gage: Centerpoint (CNP)
Victoria Barret: Vanguard Inflation-Protected Secs (VIPSX)
Will President-Elect Obama Boost $17B Already Promised to Autos?
John Bradshaw Layfield, www.LayfieldEnergy.com: You better believe it. This is like giving a guy with a brain tumor an aspirin for his headache. This is the tip of the iceberg and does nothing but add to the problem. All this talk about brush about deadlines and business plans means nothing. On January 20, this president and congress who were pro union are going to give them whatever they want. They are going to give them untold billions. You might as well flush it down the toilet. It is a reward for ruining a great American business.
Jonathan Hoenig, CapitalistPig Asset Management: This is theft. There is no other way to look at it. AIG is now $140 billion. The automakers have no rights. I don't care if it is a dollar of taxpayer money. The free market is shunning these companies. Our viewers could have bought them any time in the last 40 or 50 years. They didn't. They didn't buy the products and that is why they this should end up in bankruptcy.
Wayne Rogers, Wayne Rogers & Co: Well, why is anybody any different? We might as well get in line, get a bag and say give me the cash. It is outrageous. The devil is always in the details. John is right in the following sense. JBL is saying sooner or later they are going to have to pony up more money. That is true. Whether or not it is to the unions, management or whatever, if you are going to support that kind of industry? You remember what happened to buggy whips? We had horses and carriages before we had automobiles. You don't see any buggy whip companies around now. It is the same thing.
Tracy Byrnes, Fox Business Network: I don't think Obama is going to have to deal with it. This is a $17 billion loan so they can get their ducks in a row and properly file chapter 11. There's no way in 90 days with the current economy that they can fix things, change things and come out swinging on March 30. It is not going to happen. What we are seeing now is really buying time. Unfortunately we just gave them a gift because we are not getting this money back and they will file Chapter 11.
Jonas Max Ferris, MaxFunds.com: I don't know if we are not going to get the money back. Chrysler went down this road before. They borrowed money and they paid it back. I don't think they are going to achieve financial viability by March 31st that this loan seems to dictate. So there will be another loan. I would like to see the government have more up side because actually own the company. Why not? We are giving them the money. I think there is a possible they get viable in the next two years.
Mortgage Rates Fall Below 5 Percent: Best Time Ever to Buy and Re-Fi?
Jonathan Hoenig: Now is the time to buy a home you can afford. Honestly, what hurt people wasn't real estate, the asset class who bought the home. They overleveraged themselves. Real estate has been in a ferocious bear market, and while I don't think it is in a bull market yet, now is a good time to get into the market.
Tracy Byrnes: Absolutely. I think we are going to see long term rates coming down more because finally we have the Fed buying up loans. I think that come January 20th once Obama is in, we might actually see perks for the first-time buyer and tax breaks. By the time you are ready to close your loan, you might be benefiting on both ends.
Wayne Rogers: I don't think there is a quote on quote end as you are saying. I can produce a two thousand square foot, three bedroom, four bathroom home with three garages for under $200,000. That is an affordable house. Somebody can qualify for that loan. That allows the banks to lend the money. The biggest problem we have is the government is shoving money into the something, the people can't qualify for the loan. It doesn't matter what it is priced at. If they can't get the money, it is all meaningless.
Jonas Max Ferris: All this government stuff makes sense if you aren't trying to stop a flow of selling, which is what people would do if they thought their homes were that way. But again, the payment and affordability don't make it a good investment. You can raise your kids in a rental unit if it is a better rate. People have lost grasp of reality and value of property, and that is still not completely undone in rewinding.
John Bradshaw Layfield: It is a great time to buy. A house is not necessarily an investment. House prices may come down another 10 percent to 20 percent, but if you need to be in a home and you can afford it, then buy the home. Credit is deteriorating rapidly. Banks are not lending money. You have seen $l3 billion in credit lines coming through you are probably going to see up to $2 trillion. If you can get the loan, remember it is not an investment. It is your home.
Will Santa Prove Experts Wrong by Bringing Out Shoppers?
Tracy Byrnes: They are going to come out, but it is not going to do jack for the economy. There are always last-minute shoppers, no offense to the panel here, they are going to come out and shop, but it is going to be so discounted that companies are going to make no money and at the end of the day. It is going to do nothing for the economy accept we will have a bump of happy people Christmas morning because they will get what they want after all.
Wayne Rogers: I disagree in the following sense. Instead of going out and buying -- and this is symbolic – instead of buying a ten foot Christmas tree, they are going to by a six-foot Christmas tree. Everybody is going to be buying the same things. They are just going to be priced lower and they are going smaller things. They are not going to get big things, not expensive gifts, but less expensive gifts. Does that mean the profit margins are better or worse? Not necessarily. Wal-Mart is going to do very well. I have a daughter in law who works for Nestles, they are up this year. There are some businesses that are going to do very well.
John Bradshaw Layfield: I bet you are going to see some retailers make a lot of money. Wayne is right, Wal-Mart is going to do well. The mid and higher range stores are not. We debuted two stores. They blew away sales expectations. It surprises us. It tells us consumers are still willing to spend if you have an attraction and something of value. I think Wayne is right though, they are going to buy a 6-foottree instead of a 10-foot tree.
Jonathan Hoenig: Consumers do not create wealth. The consumer is the end of the cycle. It is the producers that matter. Without producers, consumers have nothing to consume. We have spent all this money trying to stimulate consumption. That is going to force us into a very deep recession.
Jonas Max Ferris: Not in total dollars, but yes, t is going to be terrible. If it is slightly less than really bad, we are going to have a rally on Wall Street. Some think next year's: '09 Christmas sales are going to be bad. If consumers pick it up in the next six to 12 months, it is going to be good for the economy. We need buyers. Cars are piling up all over the place because there is no demand.
Stocks That'll Pay Off Your Credit Cards
Sure the holidays bring joy, but they can also bring huge credit card bills! What are the names to help you pay off your balance?
Wayne Rogers: Leucadia (LUK)
JBL: DryShips (DRYS)
Jonathan Hoenig: SPDR Lehman International Treasury Bond ETF (BWX)