Cavuto on Business

Recap of Oct. 4: If Arnold Wins, Will Wall Street?

Neil Cavuto was joined by John "Bradshaw" Layfield, WWE Wrestler and author of Have More Money Now; Gregg Hymowitz, founder of Entrust Capital; Jim Rogers, president of; Ben Stein, economist; Price Headley, investment strategist at; and Dan Colarusso, deputy business editor at the New York Post.

If Arnold Wins, Will Wall Street?

Neil Cavuto: Despite recent allegations surrounding Arnold Schwarzenegger, some of the latest polls show Californians may still be planning to kick out their governor this Tuesday, and vote in Arnold! So, if he does win, will Wall Street win too?

John "Bradshaw" Layfield: Absolutely. Regarding these new allegations that have come out, you're electing a governor not a pope. Gray Davis has shown himself to be absolutely inept as a leader. They have a worse credit rating than Latvia. Something has to change. You've lost about two hundred thousand jobs out of Silicon Valley alone. We're having to import things that should be made here in America. Arnold has said he will make California a business friendly state. And he's got one of the greatest investors, Warren Buffett, on his advisory committee.

Gregg Hymowitz: I don't think it's going to make a bit of difference whether Arnold wins or Gray Davis serves out the rest of his term. There has to be some tough choices made here and one of the things they have to do here is raise taxes. It's not going to be a popular thing but there's going to be some serious issues. I don't think it will have any effect on the market either way.

Ben Stein: I think people are looking forward to a change. Gray Davis has been a complete incompetent. I hate to say this but I agree with Gregg that any change Arnold makes to the business climate will be marginal. It is not really going to effect the semiconductor industry or the high tech industry very much. If we get a rebound, I think it will coincide with Arnold's governorship but I don't think it will be because of Arnold's governorship.

Jim Rogers: I happen to agree. Arnold will make marginal differences. The best he can do is make it a more business friendly state. The State is $38 billion in the hole and no matter what he does it will still be $38 billion in the hole.

Neil Cavuto: The idea is that hopefully he won't have it $38 billion in the hole for very long.

Jim Rogers: If he can cut spending dramatically, and it would have to be very dramatically, it's not going to help the state economy. And it's not going to effect the stock market at all.

Ben Stein: Silicon Valley was booming and it went into a cyclical dip. That's coming back and Arnold doesn't have much to do with that.

Gregg Hymowitz: The problem is also the procedure. It took a million dollars to get enough petitions to get this recall done. What is going to stop another million dollars being spent on another recall by a wealthy Democrat to get Arnold recalled? The process is what bothers people. I don't know Gray Davis that well but he was dealt a very difficult set of cards.

Jim Rogers: Wait a minute. He hasn't been dealt a difficult set of cards. He's been governor for five or six years now. He's the one who played the hand and ruined the state.

Gregg Hymowitz: Jim, I don't think there is a state in the union that is economically sound right now and part of that is because of the national economy. All of these states spent way too much money and none of them put away rainy day funds.

Neil Cavuto: Yes, but California exceeds all of those states put together.

Ben Stein: Gray Davis's contempt for the law was the real problem. During the electricity crisis, he set up structures that would've turned us into a socialist state. Regulating electricity and not even allowing judicial review of his own hand picked regulators. That was arrogance on a huge scale.

Neil Cavuto: Bradshaw, you're arguing that if Arnold gets in he can change this whole dynamic?

John "Bradshaw" Layfield: In three days, we have the chance to change the head guy. That's all you can change at this point. You can't change the gridlock in Congress. You can't change the $10 billion accruing every single year in debt. Gray Davis didn't see the internet bubble coming, and a lot of people didn't. But he hasn't done anything to correct it.

Jim Rogers: If spending went back to where it was three or four years ago before Davis starting raising spending through the roof, the state would be okay. He raised the spending, he spent all the money. He caused the problem.

More for Your Money

Neil Cavuto: This Thursday marks the one year anniversary for what appears to be the stock market bottom after the bubble burst. Since October 9, 2002, the Dow is up 31 percent and the Nasdaq is up 69 percent. Price, where do stocks go from here?

Price Headley: After a volatile October, I think stocks will head higher over the next year. We're in an heading into an election year and that usually fares well for the stock market. There could still be some bumpiness in October, and people worry about that. But I think once you get through the earnings cycle, we can really see some fireworks ahead.

Gregg Hymowitz: So basically you're saying that the Conservatives who don't like big government will spend a lot of money as they approach the election?

Ben Stein: Democratic Presidents also spend money in an election year. So the phenomenon of stocks rising during election years due to more government spending works for both Republicans and Democrats. What's been happening under President Bush is brilliant fiscal and monetary moves that have rescued us from a potentially catastrophic recession, that started by the way in the last year of the Clinton presidency. We're now seeing a recovery. Having said that, the market on the Nasdaq side is insanely over priced.

Price Headley: We've had leadership coming from the Nasdaq so I think that's a good sign for the bull markets, as opposed to when the Dow is leading. I get concerned about that.

Jim Rogers: Ben, it may be a brilliant move politically but it's not a brilliant move for the economy. It's over heating the economy and the move is much too fast. It is not good for us long term. They're debasing the dollar. Yes, there's been a huge rally. But remember, you can have huge rallies in bear markets. I've been selling.

Neil Cavuto: What have you been selling?

Jim Rogers: My most recent selling short has been Citigroup (C), because I think Citigroup has a lot of problems on its balance sheet.

Gregg Hymowitz: I think Jim is a 100 percent wrong on this. I own Citigroup and I have no idea what's he's talking about regarding these balance sheet problems. The company is trading at 13 times earnings while the market is trading at 18 times earnings.

Neil Cavuto: How is everyone else playing this market?

John "Bradshaw" Layfield: I think the market is better than it was a year ago. What you have through this recession are companies that were good companies that are better companies now. Right now I love pharmaceuticals and I'm buying those as well as financials. I own and like Home Depot (HD) because a ton of people have been buying homes and are spending money on remodeling their homes. Home Depot will benefit from that.

Price Headley: I'm recommending clients to buy Express Scripts (ESRX). It's a pharmacy benefits management company with a very steady business. Their earnings are at about 25 percent a year.

Ben Stein: Well, there are two markets out there, the Nasdaq, which is wildly over valued and the Dow which I think is fairly valued. So as usual, I like and own the Dow "Diamonds" (DIA). One caveat though, is that I am worried about two Dow components that could hurt the "diamonds." One is Eastman Kodak (EK), which is under intense competition. The other is General Motors (GM), which makes great cars but has some big financial obligations from all its retirees who are collecting big pensions and costly healthcare benefits.

Head to Head

Neil Cavuto: Does the media actually root against a strong stock market? A recent mild example may be from an USA Today headline: "Uneasy investors wonder if it's time to cash in." What the heck are they looking at?

Dan Colarusso: People are uneasy. We had irrational exuberance. And I think now we have a very rational caution. I think we have a very stealth bear market and you don't read about it the way you read about it the first time around. This time everyone is being a little cautious and I think it's being reflected in the media right now.

Neil Cavuto: I notice that the media is busy looking at the half empty aspect instead of the half full aspect. Every good economic number is portrayed as a big asterisk.

Dan Colarusso: I don't buy that.

Neil Cavuto: Well, I'll use an example. The big consumer confidence numbers. They dropped but they're still up 40 percent from where they were a year ago.

Dan Colarusso: Fair enough, but you may be forgetting how the media the way we rooted the bull market during the late 90s, when things were clearly over-valued, through the first year of the bear market.

Neil Cavuto: So you now feel an obligation to be very careful to categorize anything good?

Dan Colarusso: No, I don't think it's an obligation. I think we're reflecting what we're seeing right now. Money managers are cautious and individual investors haven't jumped back into the market despite what we're seeing in margin numbers.

Neil Cavuto: The same kind of skepticism and worry is the same kind of activity I saw after the 1987 crash. It's the same kind of jaw-boning I saw after the 1997 Asian Market meltdown.

Dan Colarusso: Right, and you can discount it all to misplaced optimism in early 2000.

Neil Cavuto: I'm not saying you should be a willy-nilly parade leader. But I am saying you're raining on this parade.

Dan Colarusso: I think we're spoiled. I think the financial journalists have become embedded.

Neil Cavuto: Will you admit this much. The data that we get is better than it was?

Dan Colarusso: I think we've come to mistrust the data.

Neil Cavuto: Oh, ok. So you now you don't even trust the data. But it is better than it was.

Dan Colarusso: It is.

Neil Cavuto: Jobless claims are picking up.

Dan Colarusso: They are. And personal bankruptcies are at historic levels.

Neil Cavuto: But still at very low levels. My question is, when does the media finally step back and say, all right this isn't that bad.

Dan Colarusso: I don't think it's our job to say it's not that bad. We should never say it's not that bad. And we should never say it's good. After the excess, both in the coverage and in the stock market performance of the late nineties, everyone is just more cautious.

FOX on the Spot

Gregg: U.S. gets stiffed at Iraq donor conference. We will come away with much less than the $26b we are requesting.

Price: Jobs rebound helps Dow hit 11K in 2004!

Ben: Price is right! Dow up 10 percent with in a year.

Bradshaw: Buy Vodafone's (VOD). It's new cell phone technology rings up sales!

Jim: Former tech financier, Frank Quattrone, will do jail time.

Neil Cavuto: Arnold Schwarzenegger wins. And markets will like it, perceiving the world's fifth largest economy will get back on track!