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.
Brenda Buttner was joined by: Eric Bolling, FOX Business Network; Tobin Smith, Changewave Research; Pat Dorsey, Morningstar.com; Gary B. Smith, Exemplar Capital; and Leslie Marshall, radio talk show host.
Dow Down 12 Percent in February; What's the Message From Stocks?
Eric Bolling, FOX Business Network: The government keeps changing the rules by the week and keeps throwing billion, trillions of dollars out there. Wall Street doesn't like it when the rules get changed. The government will hint at nationalization, then peddle back, then they'll say we're going to spend billions of dollars one way, then another way. Investors and Wall Street are going to continue to sit on the sidelines as long as there's a question mark around the rules. People should stay out of the market right now.
Tobin Smith, Changewave Research: If President Obama pulls off these programs, he's literally defying gravity. He wants to grow the economy at 5 or 6 percent, cut healthcare spending, hold U.S. bond rates to 2.8 percent, all while injecting huge amounts of new money into the money supply. The math doesn't add up. I was scared out of my wits when I read the Obama budget proposal. If you want to invest right now, it should be in bonds or in ETFs that short the market.
Pat Dorsey, Morningstar.com: This huge new budget is going to be inflationary--there's no doubt about that. Wall Street's greatest concern right now is clarity in terms of what kind of the action the government is going to take with the banking system. We still don't know how these assets are going to be priced. A lot of critical details are simply unknown right now. Longer term, the earnings power of the market will warrant a higher valuation of stocks down the road.
Gary B. Smith, Exemplar Capital: Last week, despite the bad numbers, the market didn't do as badly as it could have. I think the market actually does have clarity. It saw over this past week that Pres. Obama is beginning a new era of big government. Big government is going to take your money and decide what to do with it. He wants to spend much more on education, despite the fact education expenses have tripled per student over the last 30-35 years without moving the needle. Now he wants to apply that same philosophy to renewable energy and other projects. The market is scared about this new big government era.
Did President Obama Just Lower the Bar for Tax Hikes in New Budget?
Gary B. Smith: President Obama is treading down a slippery slope. The Wall Street Journal had a great article this past week that said even if the government raised taxes to 100 percent of taxable income on people earning over $250,000, you still could not close the deficit. Pres. Obama's mantra of closing the deficit while conducting all this new spending has to get money from somewhere. The income level the government will go after will just keep coming down and down.
Leslie Marshall, radio talk show host: This is President Obama's economy to fix. Pres. Obama knows these plans have to work because they're his legacy. The small hit higher income earners are going to take on their mortgage deductions isn't going to send them into foreclosure.
Tobin Smith: Look to California. In that state, 1 percent of the people pay 50 percent of the state income tax. But California is seeing its collections rate plummet. People are moving out of the state or rearranging their finances to minimize their state tax burden. If you raise marginal tax rates on the wealthy, you'll see a decline in revenues. What Obama is avoiding right now is the fact he'll have to raise social security and Medicare on lower income Americans eventually to pay for all these new programs. Higher taxes on the rich just won't cover it.
Eric Bolling: Mayor Bloomberg of New York came out this past week and said almost the same thing. The top 1 percent of earners in New York City account for 50 percent of city tax revenue. If you lose only a handful of these people, tax receipts will nose dive. How do you incentivize people to stay somewhere? You lower their taxes.
Pat Dorsey: The typical tax playbook has been thrown out to a large extent. The tax rates you set depend on how high you want the deficit to go. Pres. Obama can keep all these promises he's making provided he lets the deficit continue to rise.
Government 401(k) Takeover: Solution or Disaster?
Tobin Smith: I'd love to get the deal congressmen, senators, and federal employees get. They get a guaranteed amount of money for the rest of their lives.
Eric Bolling: Uncle Sam keeps trying to take care of more and more of our lives--our health, our retirement, our homes. This is absolutely crazy.
Leslie Marshall: The government is merely offering a safer option for people who plan to retire. They wouldn't prevent Americans from making more aggressive investments with their money if they choose to.
Pat Dorsey: A lot of 401(k)s have very few investment options with fees that are absurd. Most Americans frankly don't have the time to make appropriate investments that will give them strong returns over the long term. If the government makes this an option, not a mandate, this is a fantastic idea.
Gary B. Smith: I hate this idea. If you can't figure out something as simple as a 401(k) that affects the bulk of your life, that's crazy. The government managing people's retirement accounts is ridiculous.
Gary B. Smith: H&R Block easing your taxes! "HRB " up 30 percent by year end
Pat Dorsey: A recession won't stop P&G! "PG " up 20 percent by 2010
Tobin Smith: Obama's class warfare loses! "SDS " up 50 percent by state of the union 2010
Eric Bolling: Speak the language of money! "BIDU " up 50 percent by Chinese New Year!
Neil was joined by: Ben Stein, Author, "How to Ruin the United States of America"; Charles Payne, WStreet.com; Dagan McDowell, FOX Business Network; and Adam Lashinsky, editor-at-large, Fortune magazine.
President Obama Talking 'Fiscal Responsibility' While D.C. Spends Trillions
Ben Stein, Author, "How to Ruin the United States of America": We left fiscal responsibility behind on January 20, 2001 when George Bush took office. He kicked off an era of huge deficits when we didn't need to have them. Eventually, the piper is going to have to be paid. I hope President Obama is doing the right thing here. But now is a very bad time to be raising taxes on the rich. He's doing the wrong thing by cutting down spending on mortgages and charities. This enormous budget deficit is very questionable.
Charles Payne, WStreet.com: I don't see how President Obama's budget is going to happen. He takes into account incredibly rosy assumptions. I don't think taxing the rich is going to help. The deficit with this budget will be $1.8 trillion. That's what they're telling us--it could end up being much higher. This budget just isn't realistic. President Obama keeps giving into peer pressure. As long as people like Nancy Pelosi keep getting to push their social agendas, we're in trouble.
Dagan McDowell, FOX Business Network: President Obama is making the same kind of rosy assumptions in his budget that George Bush made with his early budgets. The Bush administration had to keep revising the deficit numbers up. The White House is presuming the economy will grow at double the rate the Congressional Budget Office is predicting. Eventually, people are going to stop buying U.S. government debt. But until that point comes, we'll keep the new spending flowing like water.
Adam Lashinsky, editor-at-large, Fortune magazine: It's incongruous for the President to talk about responsibility and then propose spending this enormous amount of money. But if you think of a typical business start-up, it takes several years for it to be profitable. You don't make money in the first, second, or even third year. He's not going to cut spending now--he'll do that when he deems the time is appropriate. The tax rise on the rich is trivial compared to the projected effects of the stimulus.
Tax Hikes on the Rich, Longer Recession for Everyone?
Charles Payne: New York City is a prime example of what happens when the rich stop spending. There is a major negative trickle down effect. Obama and his team keep mentioning shared sacrifice. It is not. They have to stop using that word. Only one group of people is making all these sacrifices -- the rich -- and it'll backfire. And people who aren't rich are going to start losing their tax credits for first-time home buys.
Dagan McDowell: The tax cuts aren't going away until the beginning of 2011. These cuts were implemented with a phase-out timetable. I have no trouble reducing mortgage interest deductions. Those deductions helped encourage the housing bubble. The right time to raise taxes on the rich was when Wall Street and investors were making record profits during the housing bubble.
Adam Lashinsky: The question to ask is if we had the right tax structure over the last 10 years? Have we had the right regulatory framework over the past 10 years? Isn't it possible we didn't have it right? We're in bad shape right now, and that had nothing to do with Obama's proposed budget.
Ben Stein: There's no limit to how high the upper tax bracket can go. In the 1950s, the tax rate was over 90 percent on top earners. The rich have more money. If the government needs the money, it's fine to get more from the rich provided they spend it in an appropriate, lawful way. But now is not the time to raise taxes on the rich.
Best Money Plan for States: Don't Take Any Stimulus Cash?
Charles Payne: Vice President Biden's claim to embarrass states that don't spend the stimulus properly definitely sounds like a threat. Every state is different. We've seen what has happened to the banks that took government money. It's like signing a deal with the devil. You're going to regret it. States would be wise not to take this money.
Dagan McDowell: States need the money, they don't care about Joe Biden. There's no real way to track the money. The money gets handed off, and they use it for whatever they want. Biden is just putting out hot air.
Ben Stein: This is the same old democratic political machine. The Democratic Party hasn't changed. But the Republican Party would do it too if they had the chance. It's free money. Why not take it?
Adam Lashinsky: What Biden said wasn't gracious or professional. We shouldn't pay attention to Biden when he says things like that in times like these. He'll keep on saying things like this regardless. We have to make sure to keep our eye on the ball.
Charles Payne: Rent-A-Center (RCII )
Adam Lashinsky: T. Rowe Price (TROW )
Ben Stein: Berkshire Hathaway (BRKB )
$634 Billion Health Care Plan: Economy Killer or Cure?
Elizabeth McDonald, FOX Business Network: No. Everybody in this country wants the best quality care for the 40 million uninsured that don't have it and for the rest of Americans. Why this ideology that the government can fix everything is so misplaced. Look how they treated Fannie Mae and Freddie Mac. There are better ways ahead.
Quentin Hardy, national editor: Fannie and Freddie were peripheral. Wall street wrecked it. That is the debate. 40 Million people in this country live in fear because they don't have healthcare. They don't really get sick. They don't die alone outside the system. You know what happens? They go to the hospital too late with too little care, and they get taken care of, and the rest of us pay go it in our taxes and high insurance premiums. And somehow you think this is superior to what government health care could be? Why is that? Because from Ronald Reagan to Bobby Jindal, people have held that government is stupid and can't work. That kind of attitude is why the private insurers overcharged Medicare by 14 percent, relative to what they charge the private sector.
Steve Forbes, editor in chief: It will wreck the economy and it will wreck health care innovation in the United States. Name me one country that has the innovations and bringing new procedures to market the way the United States does. The way you cure health care in America is not having more government. You see how they wreck everything. You give patients more control over the dollars, not the government.
Neil Weinberg, national editor: I don't know how that is all that inconsistent with giving patients more choice. 50 Million People in this country show up at the emergency room when they have appendicitis or something. We have gone from using 7 percent of our gross domestic product to 15 percent, and we are not healthier. This is not a system we can sustain going forward. We have got to do something. The government stepping in to the extent this is a private system, all the better.
Jack Gage, associate editor: The bigger question is the economy. Why now do we want to nationalize this industry with $634 billion over the next 10 years? You are going to see job loss, and a slash in r and d budgets, a lack of innovation, and as a result you are going to have the government setting prices for U.S. Drugs. This is a big problem we can't have right now, right here.
Bill Baldwin, editor: We've already nationalized the banks, autos and insurance. Why not healthcare? Let me explain how this is going to work. You get appendicitis, and you go to the postal service, and you wait in line. That is how it is going to work.
Must America Take Over the Big Banks Now?
Neil Weinberg, national editor: Thank you for calling me a capitalist and this is a capitalist solution. This is like revenge of the zombies now. We have a bunch of banks not really dead or alive, and they are not helping the economy. I saw this same thing in Japan. It is getting worse throwing good money after bad. We need to bite the bullet, take them over clean them up, and sell them back to the public.
Rich Karlgaard, publisher: It is not a bad idea, but the thing is, it is only a good idea in theory. You would have people like Barney Frank, and Christopher Dodd and Timothy Geithner trying to shape the banking industry in their own image. We don't need to do this. We need to go mark to mark accounting, which worked in 1938, until we reinstated it. The banking system from 1938 to 2007 worked just fine. We need to go back to the old style of marked value.
Josh Lipton, staff writer: We already nationalized the big banks. The debate is over. This is semantics at this point. The government has taken Ownership of preferred stock and agreed to take ownership of the toxic stocks. Take them over. Rehabilitate them and then give them to someone else.
Steve Forbes: Rehabilitate, Fannie, Freddie, AIG? Look what these clowns have done. Rich is right. Allow banks to rebuild their balance sheets and get rid of not only mark to market, but short selling and the like, and we will get the banking sector to work again.
Victoria Barrett, associate editor: That is exactly true. The dangerous part of this is that lending will become politicized. We are seeing this with Fannie and Freddie. All the guys in Washington will decide who gets money and who doesn't. That isn't a solution out of our problem. It will just prolong the problem for decades and take us down the path toward socialism.
Elizabeth McDonald, FOX Business Network: We see it happening now. Poor Neil is a stand-alone guy. You have some creeping socialism there. I am teasing you, trying to make you feel better. Barney Frank made a move under the radar screen, gave tarp injections to One United Bank in Boston. This was an Internet bank that is under investigation. They were terribly managed, but they got the bailout because they knew Barney Frank.
Do Americans Need a College Education to Be Successful?
Steve Forbes: Instead of worrying about college, let's focus more on K-12 so kids have a sound grounding when they get to college. If a family wants to switch the school their child attends, they can. That's the way to social advancement. Kids need to learn the basics. School choice experiments have had considerable success here in the New York area.
Lacey Rose: This isn't an either/or issue. K-12 is certainly important, but higher education is critical to our country's global competitiveness in the long term. President Obama is trying to level the financial playing field with colleges so they're affordable and accessible.
Quentin Hardy: One of the most important lines of President Obama's address to Congress was when he said if you drop out of high school, you're not just letting yourself down, but your country. Obama is sending the right message that parents have to instill education and its virtues in their children. He didn't say everybody gets to go to college, just a high proportion. This is an information society, and you have to be qualified and willing to learn to succeed in life.
Rich Karlgaard: Liberal intentions can wreck a perfectly good university. Look at the City College of New York. From the 1920s to the 1950s, it was the Harvard of poor people. It produced Nobel Prize winners and other very successful people. But then it was decided the school should be open to everyone, standards dropped, and the university never recovered. Why force below average students when it comes to academic achievement into universities? It'll just lower the standards and quality of education at those schools.
Safest Funds for a Very Scary Market
Josh Lipton: Fairholme (FAIRX )
Bill Baldwin: Vanguard Balanced (VBINX )
Jack Gage: UMB Scout Small Cap (UMBHX )
Victoria Barrett: Vanguard Wellesley Income (VWINX )
New Tax Protests Over Government Spending: Justified or Not?
John Bradshaw Layfield, Layfield Energy: You better belief it. We need Paul Revere saying the socialists are coming. President Obama and his cabinet-have spent more in a month than Bush did in a year. His only answer is we are going to tax the rich.
Wayne Rogers, Wayne Rogers & Co: There are two parts to this. One is practical and one is theoretical. You have to dismiss the theoretical in this sense. Prior to the Bush tax cuts, the nine quarters before that, growth averaged 1 percent. After the Bush tax cuts, in the three years afterwards, growth averaged 4 percent. That is a big number. And tax revenues increased 13 percent. That tells you theoretically, backed up by the facts, that tells you that tax cuts are what we need, not mere taxing.
Jonathan Hoenig, Capitalistpig.com: Taxes don't help the country, especially spent on social programs. I don't think people are bothered by paying taxes for the proper role of government. But to see our tax money frittered away with home owners and other things, it has a lot of people upset and rightly so.
Tracy Byrnes, FOX Business Network: People are mad that their taxes are going up. Particularly, the people living along the water, California and Florida, $200,000 is the cut off for a single person. $200,000, Your taxes are going up. That is not a lot of money in these areas. If you have a single person making $500,000. That doesn't have to be income. It could be the income of his business that he puts on his tax return. He will see a decrease in take home money of $20,000.
Jonas Max Ferris, MaxFunds.com: That is why it is a disgrace to the Boston Tea Party to call it this. The fact of the matter is we are getting what we voted for. We had representation. They didn't have representation. Did people not think they
Were not going to get national health care with Obama and that was going to be expensive. He won by a large amount of the vote.
Will Cutting Mortgage Rate Deductions in Taxes Hurt the Housing Market Even More?
Jonathan Hoenig, Capitalistpig.com: Well, it is a mess. One thing I don't understand, what is a responsible home owner? How is that somebody not paying their bills? The people paying their mortgages on time are being scared out of real estate. It is this day-to-day uncertainties of what the governments is going to do next that is keeping people on the sidelines.
Wayne Rogers, Wayne Rogers & Co: What he is saying is, if I understand it is bill, he is saying the deduction for your interest that you are paying on your home mortgage is going to drop from 35 percent to 28 percent. That? That's not a big deal. The biggest problems we have right now in the mortgage business is the banks. The banks having to rewrite loans that they cannot rewrite. And people going back to refinance a mortgage cannot get it refinanced. I don't think the government is doing anything about that.
Tracy Byrnes, FOX Business Network: I think to Wayne's point, the thinking was… the wealthy are already in their homes. It is not like they are going to put their home up for sale to get out of it. The bill has so many gaping holes in it. It doesn't help the people who need it most, California, Nevada, Phoenix, Florida. Not helping those people, and it's not helping anyone whose loan in not secured by Fannie and Freddie.
Jonas Max Ferris, MaxFunds.com: This is a brilliant idea because it was proposed by a committee put together by George Bush. This is a joke. The notion you can have one point one million in mortgage deductions over three homes and deduct that is the most bizarre things and the main reasons we had a housing bubble in the first place.
John Bradshaw Layfield, Layfield Energy: This is not at all about stimulus. They are putting $75 billion into loan modifications for people who shouldn't be in there.
Dow and S&P Down 50 Percent From Oct '07 Highs: Is Now the Time to Buy?
Jonas Max Ferris, MaxFunds.com: I have been buying all the way down, it looks like I am throwing good money after bad. I intend to buy all the way down to 5,000. We may have a depression that it goes down 90 percent, but I don't think so. If you have a long time horizon, You are definitely going to beat real estate, bonds and cash. There is no way it is not going to happen if you can stop the current environment. This is the time to move conservative assets into the stock market.
Tracy Byrnes, FOX Business Network: Jonas made a good point about whether you can stomach it. If your hair is getting greyer, then put yourself in secure assets. Put yourself somewhere where you can sleep at night. People should be thinking about this because it probably will go lower before it comes back up.
John Bradshaw Layfield, Layfield Energy: Yes. They say Citigroup was an unbelievable buy at $15. It is now under $3. Warren buffet made most of his money after the 1973 crash. You need to invest alongside the government, but you need to be careful.
Jonathan Hoenig, Capitalistpig.com: That is what's so frustrating. Going back to even the tech wreck, there was always something doing well. I have never seen a market where essentially nothing is doing well. I blame Washington in creating so much uncertainty that folks are hesitant to put money to work. I just don't see a lot of bull markets, and I am cautious to wait until one becomes clearer.
Wayne Rogers, Wayne Rogers & Co: Yes, I am dabbling in DBT, the reverse of the 20-year treasury bills because I think they can print enough money. I think that interest rates will rise. They can't go lower. They went negative on the short treasury bills three times in the last five months. It can't go below zero, so therefore they have to go up. I think Jonathan is quite right. Uncertainty is what is causing all of this. The fact that the government can't make up its mind, the congress, if it has a mind, can't make it up. That presumes they have a mind, and most of those people don't. You can't make judgments on anything that is solid because there is nothing out there solid to make a judgment on.
50 Percent Off Stocks
Jonas Max Ferris, MaxFunds.com: MORNINGSTAR (MORN) Friday's close: $27.90
Jonathan Hoenig, Capitalistpig.com: Ishare Preferred Stock Index (PFF) Friday's close: $19.21
Wayne Rogers, Wayne Rogers & Co: WEB MD (WBMD) Friday's close: $23.18
John Bradshaw Layfield, Layfield Energy: PETROLEO BRASILEIRO (PBR) Friday's close: $27.73