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This past week's Bulls & Bears: Gary B. Smith, Exemplar Capital; Tobin Smith, ChangeWave Research; Eric Bolling, FOX Business Network; Pat Dorsey, Morningstar.com; Malia Lazu, Democratic strategist
Stocks Dive Despite Stimulus and Housing Plan; What's the Market Telling Us?
Tobin Smith, Changewave Research: The market is worried about this "Obama savior" economy. If we have a problem, we'll just borrow from people who don't like us very much, throw it at troubled homeowners and be their savior. The market actually went down before the plan was announced. There was no market pop-up. There's a reason: Treasury Secretary Geithner has had two whiffs at the bat thus far when he's needed to hit it out of the park. These small, incremental moves by the administration have to stop.
Eric Bolling, FOX Business Network: The market is testing its lows. But five years from now, are you going to want to be in the stock market? Absolutely. This is a fantastic buying opportunity. If you're retiring, it's not the best time to get in obviously, but for anyone else, this is a great time. In terms of financial stocks, Congressional financial committee members saying that the government may need to take over some banks scare the heck out of anyone willing to invest any new money in those banks.
Gary B. Smith, Exemplar Capital: I agree this is probably a great time to get in a buy stocks. The exception I think is that many people are afraid of this being something like 1929--the beginning of a decade or so of horrible growth where stocks do badly. But if that's not the case, then obviously this is a great time to buy. It's just that a lot of investors have dipped their toes into the market these past weeks, and then it goes down another 20 percent.
Pat Dorsey, Morningstar.com: It's important that the Obama administration has come out and said the banking system will remain in private hands. But the emphasis was on the "system"; it didn't rule out temporary nationalization of specific insolvent banks. Clear lines need to be drawn for the banks. If they fail certain tests, the government will step in, wipe out private shareholders, and that'll be that. We need clarity.
Obama's Housing Fix: Is Home Ownership Now an Entitlement?
Gary B. Smith: We've moved passed birthright and into government mandate. It's almost like the government is forcing people into homes. The people who have been responsible and paid their mortgages now have to pay to keeping their homes who can't afford it. These people shouldn't have been in these homes to begin with. And the idea that 9 million people are going to become homeless overnight if this program isn't implemented is ridiculous.
Malia Lazu, Democratic strategist: This isn't the people's fault; we need to fix the system. The system did not protect people from receiving mortgages they couldn't afford. Subprime mortgages were handed out like hotcakes. Barack Obama needs to help make sure we don't have 9 million people become homeless. It's a far cry from saying it's a government mandate to own a home.
Tobin Smith: If we're going to fix this system, then we need to do it correctly. We had a system that ran amok. Ultimately, we need to get the money to people who can afford to live in their homes, not those who can't. The market is taking home prices back down to affordable levels, and the government shouldn't mess with that. In any successful market economy, you have to allow for failure.
Eric Bolling: Ultimately, we can't start giving incentives to individuals and families who can't afford to pay the mortgage on a home. We can't just allow people to refinance their home every time they enter bad financial straits and may not be able to make their mortgage payments.
Pat Dorsey: This new government housing program just kicks the can down the road a bit. We have to let the market drop to a point where buyers and sellers can meet. Otherwise, the housing crisis cannot be solved. But the government subsidizing mortgages in some capacity is nothing new--it's been going on for decades.
Cap UAW Execs' Pay Before Giving Automakers More Bailout Bucks?
Eric Bolling: I find it incredible that the administration is saying sure, here's another $22 billion to the auto companies. GM is willing to lay off 49,000 employees to protect pensions and health care costs of lucky few who get to keep working there. This is a bad idea. The auto companies need to be cut off at the legs.
Tobin Smith: The auto companies shouldn't get another dime until the auto execs and UAW leadership say they'll work for a dollar until they get this whole situation worked out. It's amazing how a dollar a year sharpens the mind. These CEOs need to take some pain.
Malia Lazu: CEOs get compensated on how well they run their business. The auto industry has been driven into the ground by the current executives, and they should be held accountable for their actions. But the workers don't deserve to bear the brunt of bad management.
Pat Dorsey: There is definitely that very important question of why people like Rick Wagoner are still at the helm of these auto companies? In addition, these stifling legacy costs have to be reduced to give the auto companies any chance of surviving.
Gary B. Smith: The auto industry has made very bad mistakes, and they need to pay for it. It must be held responsible for its actions.
Gary B. Smith: GM goes bust! "TM " gets a 10 percent bump by 2010
Tobin Smith: Advice for "octuplet" mom: "TEVA " up 25 percent by kids' 1st birthday
Pat Dorsey: Big pharma starts outsourcing! "CRL " doubles in 2 years
Eric Bolling: You're no fool for buying gold! "AUY " up 50 percent by end of '09
This past week, Neil was joined by: Ben Stein, Author, "How to Ruin the United States of America"; Charles Payne, WStreet.com; Adam Lashinsky, editor-at-large, Fortune Magazine; Nancy Skinner, radio talk show host.
White House Not Ruling Out "Another" Stimulus Package: Time to Stop?
Charles Payne, WStreet.com: We need a stimulus package, not a spending package on a bunch of pork products. If Americans got a 3 to 6 months tax holiday, we could truly stimulate this economy right now. What I don't like is how the government won't help citizens who have problems with jumbo loans. If the government is going to step in and help people, it should help all Americans.
Nancy Skinner, Radio Talk Show Host: We need more stimulus, we need more medicine. The passage of this stimulus package isn't the medicine, it's the prescription. The Congressional Budget Office is saying we won't get back to sustainable economic growth until 2014. The package ideally should have been about $1.2 trillion. Investments in infrastructure, education, science, etc. all will help stimulate the economy.
Ben Stein, Author, "How to Ruin the United States of America": We don't know how big the budget deficit is going to become. This stimulus bill is really a Democratic Party voter retention bill. We have no idea if it will work, or if letting the housing market find a bottom is the best course of action. I wish President Obama had at least read this bill. No member of Congress even read the bill in its entirety.
Adam Lashinsky, editor-at-large, Fortune Magazine: I wouldn't say the market is necessarily responding negatively to the stimulus package. I think it's possible the market is much more concerned with what's happening with the banks right now. The stimulus package has nothing to do with the financial sector. What Obama has to keep in mind is not just doing a little bit and then quitting. He has to be prepared to stay the course, which could include a lot more stimulus spending. No matter what the administration does, there will be a moral hazard.
Will President Obama Be Able to Prove $787 Billion Stimulus 'Saved' Jobs?
Ben Stein: This is all a bait and switch. First it was 4 million, down to 2 million, then up to 3 million. I don't doubt for a second Obama or Geithner want to do the right thing. They just don't know what they're doing. But to be honest, I'm not sure anybody else does either. A lot of money is going to be spent, the taxpayers are going to be heavily burdened, and we have no idea what the result will be. But getting the banks up and running again would certainly help things tremendously.
Nancy Skinner: You can prove it because if I have a job, I'm going to go get a pedicure, buy a new car, etc. Consumer spending will be a key indicator. Analysts are able to pretty accurately tell how much spending created how many jobs.
Charles Payne: The stimulus package was sold on the premise there were all these shovel ready projects just waiting to get money from the federal government. Every time Obama speaks, he pushes blame for this economic crisis off on somebody else. He's wrong. He wanted this problem. He wants people to be dependent on the government to save them.
Adam Lashinsky: Obama won't be able to prove specifically how he saved a job here or a job there. When he has to start thinking about reelection, people will be looking at the macroeconomic numbers from the federal government and be able to say whether the economy has gained or lost jobs. It's the ultimate measuring post.
Does Market Need a More 'Hopeful' President Obama?
Charles Payne: I think the market definitely wants a more positive President Obama. He has to stop starting every speech with a worst case scenario. Look at how many people bought into his mantra of hope. He has to spread that feeling of hope, especially because much of what happens in the economy is self-fulfilling.
Nancy Skinner: The truth hurts. President Obama likes to tell people how it is. Obama had to get his plan passed, and then he can start giving the American people hope.
Ben Stein: Confidence is everything in the economy. If you read the text of FDR's 1933 inaugural speech, he was very upbeat. That year, the Dow went up 54 percent. There's no problem laying out the issues, but he has to say we're going to get through them. The condition of the stock market is of vital concern for almost any American looking to retire, and Obama needs to give significant consideration to that.
Adam Lashinsky: FDR may have been upbeat in 1933, but the depression lasted for years after that. So the optimism wasn't worth it then, maybe it isn't worth it now. Additionally, the President shouldn't be so mindful of the stock market--it's not his concern. If you're going to retire or are retired, you shouldn't be heavily invested in equities anyway. There will be plenty of time for hope and optimism after he convinces Congress to act. Obama has to be concerned with the long term.
Charles Payne: Transocean (RIG )
Ben Stein: Boeing (BA )
Adam Lashinsky: Centene Corp. (CNC )
On Saturday, February 21, 2009, David Asman was joined by Steve Forbes, Neil Weinberg, Mike Ozanian, Jack Gage, Mike Maiello, Evelyn Rusli, Josh Lipton, and Elizabeth MacDonald.
(BEGIN VIDEO CLIP)
PRESIDENT OBAMA: Through this plan, we will help between seven and nine million families restructure or refinance their mortgages so they can avoid foreclosure.
(END VIDEO CLIP)
David Asman: A $275 billion plan to rescue troubled homeowners. But, will it rescue or crush the troubled housing market?
Steve Forbes: It's going to be bad for the housing market… at best it's going to be neutral. They're going to be overwhelmed with applications from people who think they can get a cut of this thing. We already know that in terms of renegotiating these terms, 55 percent go back in 6 – 8 months anyway! So they don't have the answer. If they're serious about saving the housing market, they should have the Federal Reserve go to banks and say "We will buy mortgages that you refinance for people at 4.5 – 5 percent." If they do that, the housing market will start to perk up with life again.
David Asman: $275 billion. Is it going to help or hurt the housing market?
Mike Maiello: It's really going to help. I mean, there's no way that stopping 9 million foreclosures is not going to help! You have to remember – it only takes a small amount of foreclosures in any one zip code to bring everyone's home prices down. You know, when your neighbor gets kicked outta their house – that hurts your house! This is obviously a great idea. I'm all for it.
David Asman: Mike Ozanian, when housing prices come down, sometimes they come down far enough so people will want to buy them. Is that going to help or hurt the housing market?
Mike Ozanian: David, it's going to hurt. Whenever the government subsidizes something, whether it's education, housing, or ethanol, the price always goes up. That makes it less affordable. The fact that something becomes more expensive doesn't increase its value. This is just going to make it more expensive for other people to be able to borrow and buy a home. This is a disastrous plan. This $275 billion is just the beginning.
David Asman: Neil?
Neil Weinberg: I don't get this. So we have 9 million people who aren't going to get thrown out, 9 million homes that are not going to come on the market. Let's say in "worst case" half of those people are back in foreclosure, you still have 4 million…
David Asman: Wait a minute. You don't know that those 9 million homes are not going to be sold. They might be sold at the right price.
Neil Weinberg: We're talking about restructuring these mortgages for 9 million people. Even if half of those people are back in foreclosure in 6 months, we still have 4 million homes that didn't come on the market. How that does not help housing… I don't understand.
David Asman: E-Mac?
Elizabeth MacDonald: You have to look at the reality of the situation. It's a well-meaning plan that I think, as Steve said, is going to prolong the inevitable. We're talking about people who took out no income/no documentation loans… with little equity in those homes who are now going to modify these loans and show their income stubs? I don't think so.
David Asman: Evelyn, we're supposed to be against those teaser loans that got a lot of people in trouble. What is this, but a teaser loan from the Federal government?
Evelyn Rusli: I think it gives people more breathing room to have lower payments and actually be able to afford their homes.
David Asman: Yeah, but in 5 years, their rates go sky-rocketing again.
Evelyn Rusli: Right now, we need to stabilize the economy and stabilize the housing industry. And if we can prevent at least a few million foreclosures, that's going to do wonders for the stabilization of prices.
Forbes on FOX Debate
David Asman: This week, two of the "Big 3" automakers sticking their hands out again. GM and Chrysler say they need another $21.6 billion to survive. But, Neil Weinberg says it's not only time to stop the bailout – it's time to stop making American cars?
Neil Weinberg: Yes, time to stop making American cars, but not making cars in America. You know, it doesn't really matter in this day and age if it says Toyota, or General Motors, or BMW… the amount of that car made in the United States can be the same or more for the so-called "foreign" cars. So what's the difference? The problem we have with Detroit is Detroit has dysfunctional management and has a choke-hold by labor unions. So if we get rid of them, we will have better cars at a lower cost and all of us will benefit.
David Asman: The American model's part of the problem?
Evelyn Rusli: I disagree. The economy is hemorrhaging. You don't take out a vital organ. The auto industry is key to America on so many levels – I'm talking about the suppliers, the dealerships… there are so many components. The auto industry is key to keeping our economy chugging.
David Asman: Josh – we need those American car companies?
Josh Lipton: Absolutely not! Listen, the central question is what is so special about Detroit's "big 3"? There is no reason you have to continue with these open-ended, taxpayer handouts to American car companies when you have transplanted Japanese, and German, and Korean car companies employing Americans that can make a better product at a lower cost.
David Asman: And E-Mac, people are fed up to here with those bailouts.
Elizabeth MacDonald: I'm afraid of like "Stimulus Plan 4.0 or 3.0." It's almost like Washington is suffering from post-dramatic press syndrome. They have to maybe have another stimulus plan before the mid-term election in 2010. We do need the auto manufacturers. We need them in times of war to build tanks, for example. Here's the thing, we're mixing up the apples and oranges. Yeah, we need a car manufacturer, whether it's foreign-based or not, but we need the Big 3 to stay because they do hire a lot of people. We've known that they've had problems since 2005. GM posted a loss in a bubble year… get rid of the management! That's the issue.
David Asman: Mike Maiello, for defense alone, it's important to have an American auto industry?
Mike Maiello: The problem is I don't see an American auto industry. I look at Chrysler and I see a front for Cerberus Capital. That is a giant private equity firm. And if Cerberus, and they're in the business of buying and rehabbing businesses, really thinks Chrysler can be turned around with a cash infusion, then Cerberus should go out, raise that money, and either loan it to Chrysler or buy out the other 20 percent. If they won't do that, then I don't see why I should do it for them.
David Asman: That's a point. The people who own Chrysler aren't even putting their own money into the game. But what about an American auto industry. Do we need one?
Steve Forbes: In terms of that? No. But the fact of the matter is these companies can be re-organized. The real question is can you do it under the government or do you have to go through Chapter 11? If they reformed fringes, reformed factory rules, a much smaller GM could be a viable company. Chrysler would be a prime asset for a foreign company. So they can be saved. The question is whether it's under Chapter 11 or the government.
Forbes on FOX Debate
David Asman: Capitalism under attack… from big government fixes to nationalizing private companies. There's no name more synonymous with capitalism than Forbes – both the man and the magazine… so lets get his take on it all!
Steve Forbes: Hey, it's like Tony Soprano coming over before he blows your brains out. It's nothing personal… it's just business.
Steve Forbes: In Washington, they don't understand entrepreneurial capitalism or free markets. They don't understand wealth creation and risk taking, which is why they're doing the stimulus package and a crazy housing bailout that won't save the housing market. If they truly understood markets, which is people, they would be cutting tax rates, stabilizing the dollar, getting rid of regulations so people can thrive again!
David Asman: Mike Maiello, like it or not, as an employee of Forbes you are a tool for capitalism. Are you here to defend it or destroy it?
Mike Maiello: Capitalism is not under attack. What's going on here is the American taxpayer is basically like Pam Anderson in Baywatch… pulling suited corporate-ists out of the ocean and saving their lives. And now they're gasping and getting water out and saying "Oh my God, stop attacking me"?! Come on.
David Asman: Jack, you don't think capitalism is under attack?
Jack Gage: Without taking Mike analogy any further, I think Steve's absolutely right. I think capitalism is under attack. Bureaucrats on Capitol Hill don't have a capitalist bone in their bodies. Capitalism is about regeneration, growth, and taking risks… it's about risking failure, it's about dancing defeat. But, they're not willing to do that with mid-term elections coming up.
David Asman: Neil, even some conservative Republicans like Senator Lindsay Graham are calling for nationalization of banks.
Neil Weinberg: This is something like a fraternity boy who drinks a bottle of whiskey and then blames the distillers for the hangover. The fact of the matter is there were a lot of mistakes in Washington, but this was primarily a mistake of capitalism gone wild. Just like "Girls Gone Wild"… it went over the top. What you had was greed on Wall Street, greed among housing companies, greed, greed, greed and that's what brought us to this point and that's why we need the government to step in.
David Asman: Mike Ozanian, Alan Greenspan keeping rates so low that money was virtually for free! It was mana from heaven. Did that start it?
Mike Ozanian: We've had too much regulation, too much government intervention. Look, there's no coincidence, David, that every time Timothy Geithner unveils a plan the market tanks! When Barack Obama came out with his stimulus plan, the market tanked. There's a reason. People know this is bad for economic growth and capitalism.
David Asman: You asked for it and we're gonna give it to ya! Solid stocks for less than $5 each!
Jack Gage: JetBlue (JBLU )
Evelyn Rusli: Manitowoc (MTW )
Mike Ozanian: Wendy's/Arby's (WEN )
Josh Lipton: MGM Mirage (MGM )
Will the $787 Billion Stimulus Package Lower Wages in America?
John Bradshaw Layfield, Layfield Energy: There's no doubt about it. This is not a stimulus package. This is a safety net. They are trying to stop home prices and people from losing jobs. They are trying to save jobs. We are in a savior economy where they are not trying to save anything. G.M. is talking about 47,000 jobs. All pressure in this economy is downward on wages.
Tracy Byrnes, FOX Business Network: This whole notion that they are going to create 4 million to 5 million jobs is crazy. We have seen report after report that says if we get 200,000 jobs out of this, it will be a lot. The pressure comes in many forms. Your taxes will go up. Small businesses will have no choice but to lower wages on people. We will feel this all the way down.
Cody Willard, Host, "Happy Hour": This is going to crowd out private investment, the good-paying jobs and replace it with public jobs. We are politicizing what used to be profit-driven markets. But the fact is we are printing trillions of dollars, and that is going to create inflation which creates an upward pressure on wages. The wages will go up by the number itself, but the purchasing power of the dollars you are paid goes down.
Julia Piscitelli, Assistant Director of American's University's Women and Politics Center: Absolutely. What this C.B.O. Study we are all talking about is that at worst, it is going to create 2.9 Million jobs over the next three years, at best, 7.8 million. Wages have been going down, and yes the CBO study does say that, but it also says that this is going to create jobs. This is the same nonpartisan study we were talking about earlier.
Wayne Rogers, Wayne Rogers & Co: Well, at the risk of correcting everybody, you all talk about the Congressional budget office saying these things like they are the final arbiter, and I have to read from the report. It says the CBO's estimate in the short term the legislation would raise GDP and increase employment by adding to aggregate demand, therefore boosting the utilization of labor and capital that would be unused in the recession. You can't have it both ways. They say in the long term, yes, in the short term it is going to boost it. If you are going to quote this thing and stick to the facts, that is what it actually says. I am not saying they are right by the way. That is what they say.
Jonas Max Ferris, MaxFunds.com: In the short run it is going to raise wages, but in the long run it is going to lower wages. It can't create high-paying jobs. The more government you have involved, the lower the wages are going to be. But it can create employment. No private investment is going to be going on in banking or the auto industry. If we do lend money to the auto industry, there will be a lot of firing and wages will be going in areas like Michigan.
Did President Obama Create Welfare State by Signing $787 Billion Stimulus Bill?
Tracy Byrnes: President Clinton and the Republican Congress passed this sweeping reform. 12 Million were on welfare, in 10 years he had it back to 4.5 million. Now in this stimulus plan there is a line item that says there is $3 billion in emergency funds set aside to be given to the states in case their welfare rolls increase. That means you are rewarding the states for putting people back on welfare because then they have access to this money.
Sascha Burns, Democratic strategist: Well, of course they did. It was a different economic time. We are in an economic meltdown, and of course people are going to go on welfare because they are losing jobs. If you are talking about welfare to work, there's no work. That is the whole point. 20,000 Americans are going to lose their jobs today. We are not talking about dead beat free loaders. We are talking about millions of American families that were trying to keep afloat. So we need something big, and broad and now. Is it going to be perfect? No. Will some of it be misdirected? Probably. But in the great scheme of things, if you save or create millions of jobs and keep millions of Americans afloat, then it is worth it.
Wayne Rogers: I'm not quite sure how you equate jobs on the one hand with welfare reform on the other. It doesn't make any sense. If you are going to incentivize a state to put somebody on welfare, they are not crazy. They are like all the other politicians, their thievery at the state level is no different than the federal level. They are going to try to steal as much as they can and pack the welfare roles. Don't understand it. The incentive is upside down. It should be the other way around and create jobs.
Cody Willard: Let me throw out to counter this that we are now guaranteeing $10 trillion for corporate banking America. We pumped $10 billion in the form of welfare in banking America. We are talking about welfare here for hard suffering people in America. I'm certainly no liberal, but I have to put context here. Billions versus trillions? What the heck are we talking about? At this point, I guess its just a rounding error.
Jonas Max Ferris: That is what happens when you do tens of billions of dollars in corporate welfare. Welfare is growing. You have existing policy plans in place. They are going to grow the people on it because the economy is in the crapper so to say. But the plan could use the stimulus to create more jobs to start more businesses and put people to work. It is not ideal, but it has to be done on some level because you are going to see roles go up.
John Bradshaw Layfield: This isn't a stimulus package. We can't forget that. This is a safety net. House prices have never fallen across the board nationally since the great depression. Once they fell, all bets are off. Until they stop falling, we don't know how deep this recession is going to get. This entire package is intended to put a floor under housing prices to stop the recession.
State Lawmakers Calling for 'Sin' Tax to Raise Cash: Can This Be Used to Pay Off Our Stimulus Bill?
Jonas Max Ferris: And alcohol is critical to get out of a depression. I fully expect to see marijuana legalized at least in California to get us out of this crisis. If it gets any worse, I don't see any other choice. You are talking about something that makes a state tens of billions of dollars. It is like liquor in Virginia, like a state authorized thing, but you can't promote it. A huge goldmine. It is all going to organized crime in Colombia now. It is not going to hurt the consumer.
Cody Willard: I always have fundamental objections against any targeted tax tricks. Who gets to decide what a sin is? Who is watching the watchers? It is going to end up in the big corporations and the most politically well connected people.
Julia Piscitelli: I think a sin tax is actually a good idea. Studies showed that consumption does go down. What you are really doing is lowering everyone's health insurance by fewer people getting lung cancer and drunk driving accidents. S-chip, the child health care plan was paid for while the Republicans were still voting for it. It was paid for by the tobacco tax.
Tracy Byrnes: I take issue with the government deciding what I am doing is sinful. Who is to say anybody is abusing these products. It is in the eye of the beholder. If you are going to use tax to pay off this $787 billion, do it across the board and do it for everyone. Don't just do it for the guy who eats Hostess cupcakes, that is not fair or a small glass of wine. Your going to tax me on that?
John Bradshaw Layfield: To get out of this recession, we don't need to tax Michael Phelps for hitting a bong. I don't think that is going to do anything. We need fiscal responsibility. The dollar is going to get killed. We don't need to raise taxes. Somewhere this Congress needs to balance the budget.
This week the markets hovering near the bear market lows again. We've seen stocks test those lows then bounce back before.
Which stock do you think is set to rebound now?
John Bradshaw Layfield: Vodafone (VOD ) Friday's Close: 18.08
Jonas Max Ferris: Apple (AAPL ) Friday's Close: 91.20
Wayne Rogers: AT&T (T ) Friday's Close: 23.58