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; Matt McCall, Penn Financial Group; Damon Vickers, DamonVickers.com; Pat Dorsey, Morningstar.com, and Jordan Goodman, MoneyAnswers.com.
Dow Jumps 258-Pts First Trading Day of '09; Proof Bull Is Back?
Matt McCall, Penn Financial Group: The bulls are charging in. I think we're setting up for a very big rally in 2009. The first trading week of every New Year is indicative of what's going to happen for the rest of the year.
Jordan Goodman, MoneyAnswers.com: Everyone is feeling optimistic, except when these stimulus programs come in and end up not working. We're going to have a combination of inflation from all the money being printed, and deflation forces helping to keep the market down.
Gary B. Smith, Exemplar Capital: Everyone is trying to gauge sentiment. Will it be another lousy year, or a good year? They are using this week to try and predict that the market will be good this year. Unless the consumer begins to engage again in '09, at best the market will move sideways. There is something broken with the consumer right now.
Pat Dorsey, Morningstar.com: Everything is psychological right now. The amount of money people have isn't the issue; it's whether they want to spend it. Until the consumer comes back and is confident in spending again, there will not be a sustained rally.
Damon Vickers, DamonVickers.com: The consumer is the driving force of the economy, and they're broken and busted right now. A bull market will bring back the types of jobs we need, but there needs to be some kind of new technology development to help drive that.
More Bankrupt Retailers In '09 Could Be "Good" for Economy
Gary B. Smith: I feel badly for any company that goes bankrupt, but it shows that capitalism works. It rewards companies with good business models like Amazon, and punishes the ones that don't. These bankruptcies will help out the consumer in the long run.
Jordan Goodman: The retail industry can't go down—it's a huge portion of the economy. We have to support retailers
Matt McCall: Bankruptcy paves the way for new innovation, better pricing and better products.
Pat Dorsey: The employees losing their jobs in retail will only worsen the economy. But long term, these badly run companies have to be allowed to go bankrupt.
Will We See $3 Gas Is Hamas Missiles Hit Israeli Nuke Plant?
Damon Vickers: If they hit a nuke plant, gas will go through the roof, and stocks will implode, meanwhile they'll be singing and dancing in the streets of Iran and the Middle East.
Matt McCall: Gas prices will not explode upwards unless the economy completely takes off.
Jordan Goodman: We've had oil go from $35 to $46 in a week. Oil spikes if transportation routes or areas of supply get ruptured.
Gary B. Smith: Oil is in a reverse bubble right now. I think it's bound to go back up, it just needs the economy to rally.
Gary B. Smith: Oil is down but not out! ExxonMobil (XOM) jumps 30 percent by 2010
Matt McCall: Bank on JPMorgan (JPM) in '09; up 50 percent in 1 year
Pat Dorsey: Better bank is BB&T Corporation (BBT); up 50 percent in 2 years
Jordan Goodman: Shoppers still on strike in '09! Consumer Services ETF (SCC) spikes 75 percent by June
This past week, Dagen McDowell was joined by: Charles Payne, WStreet.com; Gary Kaltbaum, GaryK.com; Todd Wilemon, independent trader; Adam Lashinsky, Fortune Magazine, and Jehmu Greene, Democratic strategist.
Hike Gas Tax to Pay for Obama's Massive Stimulus Plan?
Gary Kaltbaum, GaryK.com: Raising the gas tax would be insane. Housing, jobs and the stock market have crushed the consumer. Now they want to raise taxes on gas too? This would affect the people that can least afford it. This would go right at the middle class and the poor. We cannot engineer the markets.
Adam Lashinsky, editor-at-large, Fortune Magazine: There are ways a gas tax hike could be managed where it wouldn't be so detrimental to consumers. You could implement it when the economy hits certain milestones, or give tax breaks to people who would be hit by it the most, like delivery companies or truckers.
Charles Payne, WStreet.com: At the end of the day, this country should not be about penalizing people for what they do or don't do. We should not put a de facto sin tax on gasoline. The people with kids at soccer practice or longer driving commutes would be crushed by a hike in the gas tax.
Jehmu Greene, Democratic strategist: A hike in the gas tax could kill two birds with one stone. Hummers are not the future of transportation, and the government cannot just print money to fund the bailouts. We know the consequences of borrowing too much, and the gas tax would help eliminate our need to print so much money. Tax policy is not just about revenue, it's about setting a policy to provide economic incentives to stop foreign oil dependency and improve the environment.
Todd Wilemon, independent trader: If you raise taxes on gasoline, you're going to have people drive less, and thus get even less revenue. Our economy is based on cheap energy. Thus, it doesn't make sense to raise energy costs.
Is UAW'S Money-Losing Golf Course Proof It Doesn't Deserve a Bailout?
Gary Kaltbaum: The UAW has helped the auto companies lose money hand over fist. The UAW has never helped the situation. They are basically insolvent and bankrupt, and we're going to give them another $15 billion so they can be knocking on our door again six months from now?
Jehmu Greene: This golf course is irrelevant. This bailout is not for the UAW, it's for the companies making bad decisions about what cars to build. The UAW doesn't make the decision on what car to build. The auto company bailout is absolutely necessary because the economy is at stake. Golf courses, corporate jets—they're all distractions.
Charles Payne: The UAW is not some innocent bystander. They've fought over the spoils for decades, and lost sight of what was going on. The UAW has helped protect horrible practices that eventually are going to need fixing for every auto company.
Adam Lashinsky: These old companies always have ridiculous legacies like golf courses—this issue is irrelevant. However, the UAW does share part of the blame. It's both the union and management. But union workers in the auto industry are going to have to accept that their jobs and benefits have to be redefined.
Todd Wilemon: The golf course is just indicative of how inefficient the UAW actually is. GM sold 9.3 million vehicles in 2007—clearly they are selling cars people want to buy. In overseas markets, GM is very profitable, but not here. Why? The UAW! The union has a work rule book that's 2, 000 pages long.
Will Stocks Repeat History And Dive 2 Years in a Row Like 1931 and 1932?
Todd Wilemon: History will not repeat itself. Back in '31 and '32, there was a trade war, income tax rates exploded upwards, the federal reserve bank of New York raised the discount rate, etc. These things won't happen—in fact the government is largely doing the opposite of what it did during the Depression.
Gary Kaltbaum: I'm concerned about the long term. I've never seen a government that massively expands the money supply without creating massive inflation. I'm concerned about two years down the road.
Charles Payne: This is a self-fulfilling prophecy. People say it can't get worse than last year, but it still could become very treacherous in '09.
Adam Lashinksy: The consumer will not recover in 2009. Without a consumer recovery, the stock market will not go up.
Best Stocks to Own for 2009
Todd Wilemon: Dow Diamonds (DIA)
Gary Kaltbaum: McDonald's (MCD)
Charles Payne: Arkansas Best (ABFS)
Adam Lashinsky: Chevron (CVX)
On Saturday, Jan 3, 2009, Stuart Varney was joined by Steve Forbes, Victoria Barret, John Rutledge, Quentin Hardy, Evelyn Rusli, and Mike Maiello.
Stuart Varney: This week, President-elect Obama's top adviser still promising a tax hike on the rich – despite the rough economy. But, someone here says Obama will be forced to cut taxes on the rich to help the economy. Who's right?
John Rutledge: No Stuart – Obama will not be able to raise taxes on the rich! Not in 2009 and not in 2010. I'd like to be able to say he's not going to be able to raise taxes because he's not an idiot and he'll realize that higher taxes will destroy the progress we're making in real estate and the stock market. The fact is, I don't think he'll be able to pull off a tax hike in an economy where stock prices and real estate prices are so low and we need recovery.
Stuart Varney: What say you, Quentin?
Quentin Hardy: Well some will call it a tax hike when the bad George Bush tax cuts for the rich expire when they were written to. It was a dishonest law written to expire after George Bush left office. What's that about? But I'll tell ya what they delivered: No particular income gains for the middle class, a false economic recovery – the ruin of which we live in today – and yeah, a benefit for the rich that benefited no one else! Why should Obama continue a bad policy?
Stuart Varney: Victoria – will Obama raise taxes on the rich?
Victoria Barret: I think Rutledge is right – and John, that can be the title of your next book! Look, in this kind of environment, it's going to be very hard to raise taxes. If you think about the Bush tax cuts, capital gains – are you really going to raise the taxes for essentially buying and selling stocks right now?? And then think of income taxes – are you really going to raise income taxes in this kind of environment? Everyone's incomes are dropping. The only one I think he may touch is estate taxes – because dead people don't vote.
Steve Forbes: Sadly, I think Obama will raise taxes on the rich. I think they feel the tax increases in the early Clinton Era - 1993 worked. But they didn't. They retarded recovery and slowed the economy down. But, in their mythology it worked. So they will try to raise incomes taxes on the so-called rich, raise dividend taxes, and leave the middle class alone – may even try to give them a rebate. Estate taxes, death taxes, will go up as well.
Stuart Varney: Should Obama's team cut taxes on the rich? Would that help the economy?
Steve Forbes: It would help the economy if they go with an across-the-board tax cut like Reagan and Kennedy did. But that's beyond them. They know how to spend but they don't know how to incentivize the economy. And by the way, the prosperity between 2003 and 2007 was real. What undid it was the crazy monetary policy and other regulatory mistakes.
Stuart Varney: Mike, back to basics – will Obama raise taxes on the rich?
Mike Maiello: I believe he will. I believe he'll have to. Right now the middle class has had no wage increases for 10 years. They need a tax cut. Fairness dictates that the middle class get a tax cut now. The only way to pay for it is to tax wealthier people.
Stuart Varney: But Mike, this is politics. What effect on the economy if you raise taxes on the rich?
Mike Maiello: I think we'll be absolutely fine. The rich have paid larger marginal rates and we've had growth. The Clinton years were proof of that. If you can stimulate the consumers, you'll get a recovery much faster.
Stuart Varney: Victoria – what say you? What effect on the economy if Obama raises taxes on the rich?
Victoria Barret: I think it would depress our economy. You're deciding some people get to be consumers and others don't? It doesn't make sense. If you think about it, two years from now we're going to have a stimulus program that people are probably going to be disappointed with because when the government does things, it doesn't do it very effectively. I think Obama's going to be under pressure to spend less and tax less – not spend more and tax more.
Steve Forbes: The problem is because they do believe in higher taxes, I think Obama will be told to get the pain out of the way in the first year – then he can play Santa Claus over the next two or three years. I think they may go for the bad stuff now, blame it on George Bush, and say any bad results are lingering effects of Bush economics.
Mike Maiello: We are talking about having to pay for a stimulus plan that is 5 percent of GDP. We have to pay for it somehow. The middle class doesn't have the money!
Steve Forbes: Depressing the economy does not stimulate the economy. What they don't understand is the effect of high rates on incentives. The economy will pay a price for lack of incentives.
Stuart Varney: John – if Obama lowered taxes on upper-income Americans – would that be good for the economy?
John Rutledge: Sensible tax policy is to not tax work and not tax capital income… that way you get more work and more GDP. If you left the tax rates where they are and don't increase them, you'd get a 20 percent pop in the stock market. If you raise taxes, you'll get 20 percent in the other direction. There's a huge amount at stake. And Mike – you can't cut taxes on people who don't pay them in the first place.
Mike Maiello: The middle class does pay quite a bit in taxes – they see it on their checks when they go home. There's room for a tax cut there.
Forbes on FOX Debate
Stuart Varney: America's financial crisis of 2008 is a sign American is about to collapse and never regain its superpower status – at least that's what one former Russian KGB analyst is predicting. But, I have a feeling some at Forbes think that guy is dead wrong! Steve what's your message?
Steve Forbes: Lay off the vodka!
Steve Forbes: If you look at American history, you'd realize that the United States has the most resilient economy in the world. We go through rough patches like we did in the 1930s, 1970s, but because we're flexible enough, adaptable enough, we find ways to get out of these things. Most countries don't. Look at Japan – it's still mired in a recession that began in 1989. We wouldn't put up with that. We'd figure a way around it. The Russian also doesn't realize that because of incentives and because we have a system that gives feedback, you don't stay in power if you pursue the wrong policies for very long.
Evelyn Rusli: I don't think America will evaporate in 2010 – we will survive the financial crisis, but America has to wake up to new realities that things have changed. America is no longer the indisputable, monolithic economic superpower. The global stage is shifting to multiple superpowers – including China, India, and other regions that are clearly emerging… you can't ignore that.
Stuart Varney: Victoria – are we dead ducks in 2010?
Victoria Barret: This Russian has been predicting our demise for quite a while now… and I think he's wrong. I agree with Steve – he should lay off the vodka. We are more interdependent, but if you think about it, we also have the most diverse economy in the world. Russia is dependent on oil and Russia is melting at the moment. China is dependent on us for economic growth. We need them, but in a way they need us more than we need them.
Stuart Varney: Quentin, are we going to lose our number one status any time soon?
Quentin Hardy: I think Steve put his finger on it when he said our genius is self-reinvention. That's why the Soviet Union collapsed. It defined itself as one way, and could never adapt past that. That said, self-reinvention means you can never be complacent. You always have to check yourself. And right now, we're finding ourselves in a corner. In the name of hating big government, we grew government! In the name of defending freedom, we starting kidnapping people and allowing torture. In the name of deregulation, we created irresponsibility in our financial markets. We need to check all these things.
Stuart Varney: John – no one here is really suggesting that we're going to fall apart in 2010. But, I think there's some argument here about America being forcefully challenged… what do you say?
John Rutledge: Stuart, I think America is being challenged, but as Steve says, the thing that made America great in the first place was our commitment to our idea and ideals. The only way to kill this country is from the inside. If people are too rich, too spoiled and lazy, and believe they are entitled to the good things in life, you can lose that number one position. We need to restore the greatness that got us to where we are today.
Stuart Varney: As of Friday, people in Massachusetts can get caught with marijuana and not go to jail! Some people here only agree with the new law – they want to take it a step further. They think legalizing pot and taxing it would actually be good for our economy.
Quentin Hardy: I have my 15 year old son Gus here with me – so I'm going to choose my words as carefully as possible.
Quentin Hardy: I think there are risks associated with having marijuana legalized, including a pot lobby joining the tobacco lobby torturing our Congressmen, and not to mention the return of 20 minute drum solos… and Dave's not here jokes, but even worse – I hate the idea of the prison industrial complex, the failed war on drugs, the billions we spend keeping this illegal, the pointlessness of incarceration. I think we can find the middle path. How ‘bout this one – why don't we charge Americans $500 a year to grow 2 or 3 plants. That way we'd wipe out the narco-terrorists and al Qaeda, which makes money on the drug business, and make revenue in this country.
Stuart Varney: You had a lot of time there to explain your marijuana plan. What about you Steve? What do you say?
Steve Forbes: I think if you think marijuana is going to save the economy, you've been inhaling marijuana.
Steve Forbes: Liquor didn't pull us out of the Great Depression. It's amazing the hypocrisy of politicians professing concern about our health, but they want us to do things that make us unhealthy so they can pick more money out of our pockets. I can't stand it.
Victoria Barret: Steve, I always thought of you as a libertarian and shouldn't people be able to choose what they want to do with their bodies and then the government can tax what they don't want you to do. It's what we do with alcohol; it's certainly what we do with cigarettes. A pack of cigarettes is what? $8 now? We can do it with marijuana. It'd be a really great revenue source of millions of dollars. And meanwhile, we'd wipe out a drug trade that we haven't been able to control for decades. You get rid of it, you tax it, and you regulate it.
Evelyn Rusli: I have to disagree with Victoria here. Even if we open up this Pandora 's Box – there would be very little financial at an enormous social cost. Just think about the health costs. Recent studies have shown that marijuana is more addictive and more damaging to your lungs than tobacco. That's really troubling because if you think about how expensive the tobacco habit is… and add on to it marijuana, the health costs are going to soar even more. We aren't going to be able to offset that – even if we tax marijuana.
Stuart Varney: This is an absolute split decision!
Victoria Barret: People are still going to smoke pot. The war on drugs hasn't worked. Smoking cigarettes has declined because it's now out in the open, we discourage it in public places, and we tax it.
Evelyn Rusli: But, legalizing it means more people will pick up the habit and suffer from lung cancer.
Stuart Varney: Retirement accounts took a beating in 2008 – but have no fear – our Informers are here with the best stocks and funds to help you rebuild your retirement fund.
Evelyn Rusli: Johnson & Johnson (JNJ)
Mike Maiello: Terex (TEX)
John Rutledge: iShares Dow Jones US Telecom (IYZ)
** John owns shares of this fund
Do We Need Housing to Bounce Back Before Stocks Can Rebound in 2009?
Jonas Max Ferris, MaxFunds.com: We are not going to see a significant stock market improvement until how prices come up. That is what started this mess, a bubble in real estate of epic proportions. We are not going to see new highs in the stock market until we see a year over gain in the housing market.
Jonathan Hoenig, CapitalistPig Asset Management: Jonas, history does for the bear that out. The economy recovered nicely in 2002 and 2003, and it is not because of Cisco and Sun Micro
Systems. We need housing prices to correct. Prices were overextended. No one wants to hear it, but you are going to need housing prices to go down and stay down for some time. The fact that government is spending lots of money to — keep people in homes they can't afford is going to be a drag on the economy.
Wayne Rogers, Wayne Rogers & Co: I am lost here. I don't know what housing has to do with medical practices. I don't know what housing has to do with electronics. I don't understand it. I don't think housing has anything to do with this. Housing is not going to lead us back; it is not going to help the stock market. The stock market is dependent on earnings in other industries. It doesn't have anything to do with housing. Housing is a credit problem. It is going to take a long time for housing to come back. Housing is not an industry in and of itself. Everybody thinks of it that way, and we talk about it that way. It is a place for people to live. It is going to take a while for the housing market to absorb itself.
Tracy Byrnes, FOX Business Network: To Wayne's point, there is a big disconnect between house —it is the market and the economy. As far as it is overall economy, it is not going to turn until housing turns. No one is out there buying homes. No one is buying additions or buying new appliances. That is not going to happen until we see the housing markets jump again before we can start to recover. We probably have another good year of down prices before the thing starts to turnaround.
John Bradshaw Layfield: Layfield Energy: I think we are going through a rough time in the next 12 months. The problem is with credit. The same fortified major banks have all of the mortgages and have all it is major credit cards. You see credit tightening. With this new regulatory environment, you are going to see credit taken out in massive ways. That kills the consumer going forward.
Dems Battle Over Obam's Senate Seat: Good or Bad for the Economy?
Jonathan Hoenig: Obama's plan and most Democrats' plan is that of big spending and big government. I believe there is a sense among them that free markets are destructive and that the government needs to spend a lot of money to make things right. So anything that can delay that process, yes, I think will be a net benefit for the economy.
John Bradshaw Layfield: We need gridlock in congress. The biggest Ponzi scheme ever was social security. These guys have never worked for a living at a real job. They are wanting to regulate Wall Street? The more we can take congress out of the economy the better. This plan they have could kill the economy.
Tracy Byrnes: The closer we get to gridlock, the happier the market will be. Everyone is applauding president-elect Obama for the people he has put on staff. But keep in mind, not one business guy. These are people with a lot of governmental experience, but no business experience. I hate to jump over to the doom and gloom camp, but it is not looking good. They are very smart people, but they don't have any business sense.
Jonas Max Ferris: At least we have a deflation area problem. All these short term stimulus's, they work in the short term. The problem is the long run. You can make the economy grow just by spending $1 trillion, especially when you borrow it. But it is going to hurt future prosperity. The last stimulus didn't work. I am not concerned about the next two years. It will help this plan. It is five or six years out when we are coming off the next boom and the next bubble, and we are going to be deeper in debt, and that is where the trouble starts.
Wayne Rogers: Talking about either Democrats or Republicans and who's doing a good job. The Republicans have not done a great job. Look at the situation we are in right now. I don't know that you can blame just them. I think J.B.L. is right. You blame the whole Congress for this. At the same time, — Jonas is rights. The stimulus for the next few years is going to help the economy. There is no way it can get much worse.
Divorce Rates Drop During These Tough Financial Times: Is It Better to Stay Miserably Married With Money or Get Divorced, Be Broke and Happy?
Tracy Byrnes: If you want to stick it out and try counseling to make it work, I am all for it. But you have other things. Unhappy couples, and then we have domestic violence. You can make it work. Go to mediators. You don't necessarily need attorneys. Attorneys are going to be e-mailing me now. But you can get it done economically. It is much more clostly to be divorced, absolutely. But at the end of the day it has everything to do with your heart and happiness. Who cares about the wallet?
Wayne Rogers: You have to divide it. One is an emotional decision. The other one is a practical one. If you can't afford it, you can't afford it. You can't mix the two. If you can't afford it, you have to stay together. If it's going to kill you otherwise then split up.
John Bradshaw Layfield: My wife is rich, so it is great for me to stay married. She is watching right now. So it's better for me to stay married. But if you're miserable, get out. One of the best things you can do as far as home ownership is stay married that help the economy. People buy more things when they own a home. But if you're miserable, get out!
Jonas Max Ferris: That is the irony. The American dream keeps people together when it is declining in value. They separate because they want the money from the home. Divorce can be good for the housing money. Right now if people got divorced, it would be excellent for the housing market. We need that demand. There are other things you benefit from being together. You have shared cost and more disposable income. If you are in an unhappy
Marriage with a lot of disposable income, you might buy things to try and make it better.
Jonathan Hoenig: For me, there is no difference between a relationship and a stock. If it is not working out, dump it. If it is not working out, cut your losses. It is going to be much cheaper in the long run.
One Must Own Stock for 2009
Jonathan Hoenig: Panasonic (PC)
Jonas Max Ferris: FTI Consulting (FCN)
Wayne Rogers: Proshares Ultra DOW ETF (DDM)
John Bradshaw Layfield: General Electric (GE)