Published January 26, 2009
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; Tobin Smith, ChangeWave Research; Eric Bolling, FOX Business News; Pat Dorsey, Morningstar.com; Nancy Skinner, Radio talk show host.
Will Democrats' Stimulus Plan Create Millions of Jobs?
Gary B. Smith, Exemplar Capital: The stimulus plan is a big shell game. You're basically taking money from the private sector to the public sector where it'll be mismanaged. Some of the construction jobs they're talking about won't start for five years. Stimulus didn't work for FDR, Hoover, or LBJ. It won't work today.
Nancy Skinner, radio talk show host: The economy has stopped. Part of the stimulus is to create jobs, the other part to get money flowing again. The jobs will come. You could sit around and debate this issue while the country slides into a depression. The stimulus is what the country needs to get going again.
Tobin Smith, Changewave Research: Jobs are created by risk-takers taking risks. Let's say we cut tax rates to capital gains for two years, you would create probably five million jobs. But when it comes to public spending, if we take 850 shovel-ready jobs for example, many of them take 18-20 months to get approved. It doesn't make sense.
Eric Bolling, FOX Business Network: This stimulus package is going to create a lot of jobs in the oil, mining, and gold sectors. When you print money, you devalue money. And the amount of money proposed to be spent keeps rising; when is it going to stop?
Pat Dorsey, Morningstar.com: No entrepreneurial risk takers are taking risks right now. The stimulus plan is something you get to inject money into the economy, rather than cutting people checks. The stimulus package is by no means the perfect plan, but it's the best out there right now.
Nationalize Big Banks to Fix Financial Crisis?
Nancy Skinner: We're not talking about a hostile takeover of the banking industry. The federal government already has billions of dollars of skin in the game. Right now, no one knows which banks are insolvent or just illiquid. The banks certainly are not going to disclose it. The government should go in and figure out which banks are going to survive in order to protect the banking system as a whole.
Eric Bolling: If the government comes in and nationalizes banks, no private capital will ever make its way back. You've guaranteed no one wants to play in the industry any more. It rids it of any competition.
Tobin Smith: I think we should take on the "Sweden Model." Take over the banks we know are in trouble and take the bad assets and put them in a bank and sell them at low prices; that could work. It doesn't make sense for the government to keep throwing countless billions of dollars at these troubled banks.
Pat Dorsey: It creates perverse incentives. It gives someone much more incentive to put their money into a government run bank than a non-government bank. It rewards failure, and creates a very poor incentive system for banking. However, the government has a far bigger pocketbook than any private entity on the planet and could cover whatever losses the banks may incur.
Gary B. Smith: What government-run businesses work well? The postal service? I can't think of one. The government would run banks no better than it has run anything else.
Stocks Tank This Week; What's Wall Street Telling Us About New President?
Gary B. Smith: Wall Street is worried, it's confused. President Obama talks well, sounds great, but the question people have is whether it's all just a bunch of hot air that may not come true. I don't think the markets know what's going on, and Obama doesn't either.
Pat Dorsey: The liquidity flooding into the financial system right now should have some kind of positive effect sooner or later. But there is a lot of uncertainty in the market right now. This is the worst economic crisis we've been in for quite some time, and nobody seems to have any real good ideas of how to solve it.
Tobin Smith: Everybody gets nervous when they see countries like Britain taking major steps toward nationalizing banks, with stocks and their currency plummeting, and realize the U.S. could take similar steps in the near future.
Eric Bolling: There has been a lot of bad economic news coming out this past week. The market generally is waiting to see what Obama does. They like him. Obama is laying out his plan, and I think confidence will start to trickle in with time.
Gary B. Smith: Plow to profits with "CAT"; up 50 percent by end of 2009
Tobin Smith: "GERN" is the cure! Up 100 percent by 2010
Pat Dorsey: "SGP" is just what the doctor ordered! Up 50 percent in 2 years.
Eric Bolling: Gas up with Devon Energy! "DVN" up 100 percent in 1 year.
This past week's "Cavuto on Business" crew: Charles Payne, WStreet.com; Dagen McDowell, FOX Business Network; Adam Lashinsky, Fortune Magazine; Gary Kaltbaum, Kaltbaum & Associates; and Bill Press, "The Bill Press Show."
President vs. Pelosi: When to Hike Taxes
Charles Payne, WStreet.com: The timing of a tax hike matters. But compared to the amount of money the Democrats are proposing to spend, it's a drop in the bucket. Tax hikes as a policy are wrong unless we were in a serious war that required everything we had.
Bill Press, "The Bill Press Show": The country is facing major challenges right now—the economic crisis, war in Iraq, war in Afghanistan. President Obama will decide when the Bush tax cuts either expire or change. He sets the agenda, and Nancy Pelosi knows and accepts this. Obama has decided he has more important fish to fry, and will just let the tax cuts expire.
Dagen McDowell, FOX Business Network: We do have to pay more to help the economy recover, but don't raise taxes. Let them expire, but hiking them would be disastrous.
Gary Kaltbaum, GaryK.com: Taxes are going up sooner rather than later. The tax cuts should be made permanent, but obviously that's not going to happen. I don't understand how we continue to approach this economic crisis by rewarding failure, instead of giving it to people who are working hard, trying to be successful, and able to create jobs.
Adam Lashinsky, editor-at-large, Fortune Magazine: There are two issues around tax cuts—timing and application. It seems Obama is inclined to say that now is not the time to get rid of the Bush tax cuts. He will raise taxes on the people who got the most breaks and give it to people with fewer breaks, just not now. Obama is throwing a bone to Republicans. It allows him to walk the walk and talk the talk.
Is Government Going to Call You "Rich" and Raise Your Taxes?
Gary Kaltbaum: Politicians are famous for trial balloons — sending out signals just to get the public used to something before dropping a bomb.
Charles Payne: All throughout the presidential campaign, the Obama team kept lowering the tax bar. Things are tough out there. Many people want to get rid of the alternative minimum tax because it crushes millions of taxpayers. But we have to be careful with where and how we cut or raise taxes. We're spending so much money to solve this crisis; someone is going to have to pay for it sooner or later.
Dagen McDowell: No matter what way you look at it, Obama's pay freeze on staff is symbolic. He had to pick 100k because the most any White House staffer makes is 172k.
Adam Lashinsky: Obama was sending a message, but it wasn't about taxes. He's saying times are tough, and that he's not going to give his staffers a raise in this economic environment. When things are better, those people will get a raise.
Obama vs. Reagan: Who's Right on Government Helping or Hurting Economy?
Gary Kaltbaum: I don't mind government, but I do mind huge government. It's becoming this colossus gobbling up everything in sight. We're talking about trillion dollar budget deficits, and nobody seems to care. This has to stop. Government can't just take over any economic sector that's having problems.
Dagen McDowell: The size of government is a problem that has spanned presidencies and parties. President Bush didn't shrink the government either. It's not about size, it's about efficiency. Who brought us into this economic crisis? It was Wall Street.
Charles Payne: A great heavyweight boxer can't be 250 or 300 pounds. They have to be a certain size to operate optimally. The same goes for government. We cannot keep adding layers of bureaucracy.
Adam Lashinksy: We're in a period where we're giving President Obama the benefit of the doubt. Scale or size of government isn't the issue. It's whether or not we use government well. We deal with bureaucracy and red tape with the phone or cable companies. Government does not have a monopoly on bureaucracy and poor customer service. In terms of the bailout, the government is the only actor that can solve this economic crisis right now.
The Best Funds to Own for the Next Four Years
Adam Lashinksy: Vanguard Total Stock (VTSMX)
Gary Kaltbaum: SPDR Gold Shares (GLD)
Charles Payne: iShares Healthcare Provider (IHF)
On Saturday, January 24, 2009, David Asman was joined by Steve Forbes, Rich Karlgaard, Victoria Barret, Mike Ozanian, Neil Weinberg, John Rutledge, Quentin Hardy, Evelyn Rusli, Mike Maiello, Lacey Rose, and Elizabeth MacDonald.
Barack Obama: "What is required of us now is a new era of responsibility."
David Asman: President Barack Obama telling Americans we need to be more responsible. But, is the president's push for government handouts promoting more irresponsibility?
John Rutledge: Yes – he's talking responsible, but he's walking irresponsible. His tax cuts are give-backs, not cuts in tax rates. They will have no influence on behavior. This is not tax policy, this is social policy. The government stimulus, the stimulus plan, is all about spending more money on construction, old-fashioned stimulus stuff, not about changing behaviors. So this is an irresponsible fiscal policy wrapped up in responsible rhetoric.
David Asman: Quentin, is plan stimulating irresponsibility?
Quentin Hardy: No, I don't see it that way. Which is more irresponsible to you? The FBI agent in the field, the army sergeant in Iraq, the first responder in a disaster zone, the teacher who stays late to help some kid read, or a fund manager who turns out to be giving money to Bernie Madoff, or a Wall Street CEO who pays the bonuses early before his malfeasance is caught, or a mortgage broker who gives loans to people he knows can't pay them back? It's absolutely about personal responsibility. I get the point here. The kind of cynicism about government to do anything that Ronald Reagan introduced 30 years ago has run its course. It culminated in an SEC that did nothing, an interior department that did drugs with its contractors, and a justice department full of hacks. But, that's because we are cynical about what government can do, nothing about governments itself.
David Asman: But, government has given a lot of reasons to be cynical about what it does?
Steve Forbes: Yes, if the president wants us to behave responsibly, the government needs to behave responsibly, starting with a strong and stable dollar, instead of manipulating it… and strong tax code so that you don't have all of this corruption. It starts with government. We have to be responsible. But, our government has to be responsible as well.
David Asman: Lacey, do the new president's plan encourage irresponsibility in terms of hand outs?
Lacey Rose: No. You have to distinguish between short-term crisis policies and long-term goals. To jump start the economy requires bailouts and intervention. Long-term, he wants to usher in this new era of responsibility. I think what is really important here is that this is a deliberate move away from the kind of greed or irresponsibility and the collective failure to make the tough choices that got us into this mess.
David Asman: Rich, there is private greed and public sector greed as well?
Rich Karlgaard: Absolutely. This whole thing reminds me of something Senator Daniel Patrick Moynahan said whenever Bill Clinton would throw a trove to conservatives… he'd call it "Boob bait for the Bubbas." Obama's very clever, this is cat nip for the conservatives. It's good, conservative rhetoric, but it doesn't mean much. Meanwhile, he's putting all of his conservatives to sleep while he's going to slowly socialize the economy.
David Asman: But, would it engender responsibility or irresponsibility?
Neil Weinberg: I think he is showing a lot of responsibility here. All the socialism we are talking about come from the previous administration. So to blame this guy in his second day in office is not right. Secondly, I would say show some good leadership. He is going to limit pay for senior executives. He is going to have a more open government. These are the kinds of things that send a good sign. The bad sign is having a tax cheat in the treasury.
"Forbes on FOX" Debate
David Asman: As the president and speaker battle over when to hike taxes, Steve Forbes is urging the passage of a tax cut for everyone! It's called a flat tax. How ya gonna do it, Steve?
Steve Forbes: Well, it's simple, honest, and fair. I think Obama could get it through Congress – it'd be truly historic.
David Asman: Tell us how it works. There'd be a tax cut for everybody?
Steve Forbes: Yes. And that way we'd get away from who's helped and who's hurt. It'd also give people a choice. It gets rid of deductions for the most part. Family of four pays no taxes on the first $40,000 of income. No tax on savings. No death tax. Cut business taxes down to 17 percent. No more depreciation schedules.
David Asman: Would the government still collect income?
Steve Forbes: The government would collect more income than ever before! There'd be better enforcement. You'd have more economic growth. Get rid of half the lobbyists in Washington. What's not to like?
David Asman: Mike Maiello, the president said he wants to do what would work. Would this work?
Mike Maiello: It might… but it answers the wrong problem. The problem we have right now is growing inequality.
David Asman: We have not growing period!
Mike Maiello: We don't have an actual progressive tax system right now because the IRS tax code favors the rich.
David Asman: I don't consider myself rich and I pay 50 percent in taxes. Calm down, buddy! Victoria – will the flat tax work? If so – shouldn't Obama look into it?
Victoria Barret: He should certainly look into it. I don't know how you can make the claim that our tax code isn't progressive when its top 10 percent pays 70 percent of the income taxes. What more do you want? A flat tax would bring certainty to taxes. Right now, one of the problems in the market and economy is we don't have certainty. The government decides on thing one day and another thing another day, and that's a huge problem for investors. A simple tax code, a flat tax, would bring certainty.
David Asman: I have to say that Neil and Mike are going against the boss here… Neil, what do you say?
Neil Weinberg: This is not the right time. The rich are getting richer and the poor are getting poorer. This is not going to work for us right now. What we need to do is raise revenue. Maybe on Christmas Day, this will work and it will somehow magically create more revenue for the government.
David Asman: You know your boss is a magician?
Neil Weinberg: I understand he is a magician. But as Mike mentioned, investments, usually held by wealthy people, are taxed much lower than people on salary. We need to encourage people to work.
David Asman: But will a flat tax work?
Elizabeth MacDonald: Yeah! This is all about incentives. Tim Geithner, the Treasury secretary, would have loved to have had the flat tax. It would have simplified his returns… If it was such a bad thing, why would five states in this country have flat taxes? America's museum of mass confusion is the IRS – as the Heritage Foundation calls it. I'm all for simplicity. I think Steve's right.
David Asman: Quentin, that's what appeals to a lot of people about the flat tax… you could file your taxes on one postcard essentially.
Quentin Hardy: David, is there anything more comfortable than being in the biggest recession in memory and going on national television and telling your boss's boss that the boss is wrong?
Quentin Hardy: The flat tax works the way communism works, the way Socialism works, and magic pony and the singing peacock work. You take 'em out in the real world… and it just doesn't happen that way. The middle class would revolt because they'd lose their mortgage income deductions. In Iraq, they aren't collecting taxes. In Mongolia… well, it's Mongolia! In Lithuania, 300,000 people fled into the West. In Russia they had a flat tax… but it turns out oil taxes were supporting the country! It just doesn't work in the real world.
Victoria Barret: Quentin – I think it's change we can believe in!
Forbes on FOX Debate
David Asman: The number of new people lining up for unemployment benefits hitting a record this week. And President Barack Obama says that's why America needs his plan to create green jobs and a new green industry. But Mike, you're not buying it?
Mike Ozanian: No. The federal government does a terrible job of picking winners and losers. Look at what they did with biofuels. All those taxpayer subsidies did nothing to lower gasoline prices. All they did was raise the cost of food prices. Look at what they did with housing. Barney Frank… Chris Dodd They crashed the housing market with Fannie Mae and Freddie Mac.
David Asman: Mike, when the government tries to pick winners and losers, we all lose?
Mike Maiello: But, the government has picked winners like federal grants that support drug research… it's created really creative jobs… the kinds of jobs where you get a job in that field and your life improves and your work is rewarding. So, it can work.
David Asman: And Steve, they like to point out the Internet…
Steve Forbes: Well, you have to go to the private sector to have it flourish. Same thing with the Internet… In terms of green, we know most of that money will go to waste.
David Asman: You think most of the money will go to waste?
Steve Forbes: Let's just say a lot of it will… let's give them the benefit of the doubt.
Steve Forbes: But if they're serious about green – go nuclear. Don't do cap and trade. The electricity grid is currently wasting a lot of energy… there are positive things that can be done… and we know will work.
David Asman: … by the private sector?
Evelyn Rusli: We are not just throwing money down a rabbit hole in hopes that someone is going to come up with a great alternative to oil. If you listened to Obama, he is talking about things we can do now in terms of weatherizing our homes and insuring office buildings are green. Those are jobs to give construction workers immediately. And that's going to create a lot more jobs.
David Asman: We are missing the elephant in the room – which is $40 oil. Is anybody going to go green when oil is so cheap?
Rich Karlgaard: Yeah – it's not going to stay cheap for long. Oil will soon go up to $70 or $80. Look, I think the best investment, and I'm not generally in favor of stimulus, would be broadband, broadband, broadband. The more broadband communication we have, the less we need to drive.
Mike Ozanian: You already have the private sector pouring billions of dollars into green technology. Venture capital firms have hundreds of millions of dollars invested. Let the private sector decide – not a bureaucrat.
Evelyn Rusli: Private investment has slowed down significantly over the past few months because of the recession. We can get the government to jump start this industry again!
David Asman: We're back – with the stocks that will have you stuffing lots of freeing your pockets thanks to President Obama's green agenda!
Evelyn Rusli: ABB (ABB)
Mike Ozanian: Suntech Power Holdings (STP)
Victoria Barret: Cisco (CSCO)
John Rutledge: AT&T (T)
* John owns shares of this stock
Are Dems Bashing Capitalism to Promote "Socialism"?
John Bradshaw Layfield, www.layfieldenergy.com: The Democrats have the ideology that they want to spread the wealth. This is not playing well in Middle America. Americans built the greatest economy, I would bet on them every day of the week compared to a bunch of crooked politicians.
Tracy Byrnes, FOX Business Network: This is how they got here in the first place. This is not going to work. This is not going to help us at the end of the day. These are short-term fixes that don't have the economy long term. I think the American people are smart enough to get this. They know everyone has been pulling the wool over their eyes. They need to get out and let the economy work through this.
Wayne Rogers, Rogers & Co: Well, it may turn out that way, but this is not Obama, I don't think. This is the Congress. The Congress started this even while bush was in there. They turned the banks in there and gave them all of this money. This is not Obama. I think Obama, I think he's going to move closer to the middle. I think your going to see him trying to get his hands around this thing. This is not an ideological battle. I don't see it in those terms. This is an economic crisis, and it was started way back in the 1980s.
Jonathan Hoenig, CapitalistPig Asset Management: Capitalism is based on the notion of private ownership in the economy. Socialism is public ownership in the economy. The government is the sorority owner in Citibank and Bank of America, and basically the mange player in the financial market.
Jonas Max Ferris, MaxFunds.com: Those companies are failing and would fail without the government. Socialism, to get to Jonathan's definition is the government owning the methods of production. They are not taking over Exxon because they are making too much money. That would be socialism. These are losers, and they are costing the government a lot of money. These are businesses that would have failed in this real estate bubble, no question about it. So say it is socialism, it is just more of the same we saw in the last few years, which is big government.
Time to Stop Bank Bailouts and Start Breaking Up Big Banks?
Wayne Rogers: This all started because they allowed the banks to conglomerate. We have 800 banks in the less, and less than 25 of them have failed. Most of them were small banks. This has gotten way out of hand. They never should have canceled the Glass Stegall act. They said it was too big to fail. They did it with the auto industry and the banks. Break them up and let them fail.
John Bradshaw Layfield: We have to de-aggravate the big banks. We were bailing out Citigroup. We were bailing them out while they were paying $1 million dividends, while firing 52,000 people. That means U.S. taxpayers are paying for them to help their investment overseas.
Jonathan Hoenig: The problem isn't the absolute size of the bank. We have big companies in oil and pharmaceuticals. Your solution, Wayne, is more regulation. To pretend that the banking industry has been a free industry in this done for decades is a farce.
Tracy Byrnes: Regulations created this problem. You don't want to bring more regulation in. You want to let the banks make conscious decisions to say we have to focus on one thing and do it right. For the government to come in and say you have to break up, I'm not sure that is the right way to go. Here comes socialism again.
Jonas Max Ferris: First of all, Jonathan is crazy, but the drug companies don't need to be broken up. The government is going to step in when you fail, then they have a say in how big you get. Wayne is 100 percent right. These companies have blown portfolios in excess of 1 percent of GDP. Banks should not be that big. Some banking is gambling and commercial banking never should have been allowed. Glass-Stegall shouldn't have been overturned in the 1990s.
Obama: America Won't Prosper by Favoring the Prosperous: Really?
Tracy Byrnes: I completely disagree because this is what makes our nation grow. You want to prosper, and you want to be rewarded for it. The prosperous of the small businesses of the world. 70 percent Of the country are employed by small businesses. Encourage them to innovate and grow and hire more people so you get this country to grow. To slam them, then the whole thing is looney tunes.
John Bradshaw Layfield: There is a reason that Derrick Jeter makes more money than the bat boy because he wins games. If he is winning games, putting people in the stands, that bat boy makes more money.
Jonas Max Ferris: We don't favor the prosperous in this country. The reward you get is wealth and power when you are prosperous. The fact is when you get to a certain level of wealth, that is reward enough and you can afford to pay the higher taxes. We don't favor the wealthy, but we charge them more in taxes. That is a reasonable way to govern.
Jonathan Hoenig: Who do we favor in this country, not the prosperous, but the non-prosperous, they are not the net recipients of welfare programs. I agree with the new President. The rich get rich not only on the backs of the poor, but professoring a value and service. A lot of people bought a home with a mortgage backed security that actually paid their loan on time. I don't accept the fact that mortgage-backed securities caused any part of the crisis we are experiencing right now. It is not true.
Wayne Rogers: We should not be a nation that favors only the prosperous, and the word only is what qualifies it, and that is correct. We want a nation that favors everybody. We want the prosperous to be more prosperous and the people who are not property peruse to — prosperous to become prosperous.
Stocks to Own for the Next Four Years
Jonas Max Ferris: MICROSOFT (MSFT)
John Bradshaw Layfield: FPL GROUP (FPL)
Wayne Rogers: ULTRASHORT LEHMAN 20+ PROSHARES (TBT)
Jonathan Hoenig: DEVRY INC (DV)