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Neil Cavuto was joined by Jack Welch, CEO of Jack Welch LLC; Gregg Hymowitz, founder of Entrust Capital; Jim Rogers, president of JimRogers.com; Meredith Whitney, Fox Business News contributor; and Tom Dorsey, president of Dorsey, Wright & Associates.
Can Arnold Save the Golden State?
Neil Cavuto: He wanted it, now he's got it. Arnold Schwarzenegger said he'd take on California's problems. Now he'll get his chance. So what should he do first to fix the world's 5th largest economy? Jack Welch, you came into General Electric years ago. A huge company with money problems, similar to what Schwarzenegger is walking into. What should Arnold do?
Jack Welch: He needs to capitalize on the success he had with the election. I hope there are good young stars on his team. I like the diversity on his team. He has to lay out his issues, but he better not go near taxes.
Neil Cavuto: He seems to have put himself in a box by saying he can do this buy cutting through waste and fraud without hiking taxes. Can he?
Meredith Whitney: California mirrors a lot of what happened in corporate America, where the idea was why hire one guy when you can hire one guy and five guys to watch that one guy. Arnold needs to cut costs. The state is spending money like it still has revenues coming in during the height of the bull market back 1999 and 2000.
Neil Cavuto: The governor doesn't have a great deal of power in that state, right Jim?
Jim Rogers: That's right. The democrats control the state congress and they are waiting for him so they can hack him out at the knees. Jack is right. He has to come in strong with his vision, but he has to have more than just vision. If they go back to what they had expended in 1998 or 1999, there would be no problems. The Democrats, under Gray Davis, shot spending through the roof.
Gregg Hymowitz: Arnold's charisma is only going to get him so far. Any budget or tax bills need to be passed by 2/3 of the legislature. As Jim said before the legislature is controlled by the Democrats. He's already said he's not going to cut education and education is 50 percent of the budget. Ultimately, the guy is going to have to raise taxes. And by the way Jack, in 1967 Governor Reagan raised taxes. In 1991, Governor Wilson raised taxes. And in 2003 or 2004 Governor Schwarzenegger will raise taxes.
Jack Welch: That's your answer for everything Gregg.
Jim Rogers: Gregg, you said Arnold said he won't cut back education. I don't want Arnold to cut back on education but if he cuts back the education bureaucracy, we don't need all these bureaucrats.
Gregg Hymowitz: You can't cut that much. The most aggressive analysts say the most you may be able to cut would be about $5 million. You're facing a $10 billion budget deficit. That's as large as the aggregate deficits of the other 49 states.
Neil Cavuto: Let's say that Arnold does do what Jack wants him to do. What do investors buy in that environment?
Meredith Whitney: I think a pure play is California Municipal bonds. I don't own them though.
Jim Rogers: I would also buy California bonds. It's the only thing you can buy. Just because California is getting better doesn't mean you should buy stocks. I would buy municipal bonds, but I wouldn't have them for very long. I would sell them into a rally.
Gregg Hymowitz: In order for California to improve, Silicon Valley will have to improve. And if that happens, I own and like Microsoft (MSFT). Although, I think Microsoft will rally before California improves. Also, I didn't hear Jack comment when I mentioned two very well known Republicans who raised taxes in California. One of which is, I'm sure one of Jack's idols, President Reagan.
Jim Rogers: Gregg, raising taxes has never made an economy get better.
Gregg Hymowitz: Balancing budgets makes economies better. I don't see how you don't agree with that.
More for Your Money
Neil Cavuto: October is best known for Halloween and market crashes, with some of the biggest one day losses for stocks taking place then. But last October kicked off a new bull market and stocks are up so far this month. Tom, is this October different than traditionally feared Octobers?
Tom Dorsey: I think it's a little bit different. Most of the time when you have a bull market in October it started from very oversold levels. Which was the case last October, but now the market is overbought. We're in a very high risk area right now so investors need to be very selective. That said, the economy and market should continue to head higher next year, thanks to Federal Reserve Chairman Alan Greenspan, for printing money which will make its way into the market. Stocks should stay buoyant into the election and then we might end up with a Nixon '72, '73, which were a protracted bear market.
Jack Welch: I agreed the economy is improving. The only thing that is going to derail this is a terrorism issue or as we move further along, the prospects of President Bush being blown out of office.
Gregg Hymowitz: If the economy comes back and jobs continue to grow, Bush may be a shoe-in for 2004.
Neil Cavuto: Have you told your candidate this? Does he know you feel this way?
Gregg Hymowitz: I call them as I see them. The issue though is if the move in jobs will really stick.
Jim Rogers: The economy is definitely better. But Tom made a good point: after the election, the U.S. economy and stock market are probably going to be very different.
Neil Cavuto: Tom, how do you play this right now?
Tom Dorsey: Let's say an investor is still on the sidelines. You've got to look at perhaps buying an index and the play will be the Standard and Poor's equally weighted index, Rydex ETF Trust (RSP). That gives you the ability to have one stock, one vote. Even the small stocks have the same vote as General Electric. I think an investor starts scaling in maybe going in about 40 percent now.
Gregg Hymowitz: One of the names we own and like is Fannie Mae (FNM). We believe it has a great balance sheet. We can't figure out why Jim doesn't like this company. They are one of only two or three companies in the last fifteen years that have grown their earnings double digits.
Jim Rogers: Well I hope you can buy it because it's going to be a disaster before it's over. I would buy and I own Rio Tinto (RTP). It's one of the world's best raw material producers. It's fairly cheap and I've owned it for a while. Commodities are going through the roof. Nickel made a 13-year high. Platinum make a 23-year high. I know because I own them, but no one else has caught on yet.
Tom Dorsey: The Rio Tinto that Jim just mentioned is fantastic technically. I almost think you're a technician Jim.
Jim Rogers: I'm not smart enough.
Neil Cavuto: Do you think this commodity inflation is real?
Jack Welch: I think it is. The demand is clearly there.
Head to Head
Neil Cavuto: In Jack Welch's own words, before the first plane crashed into the World Trade Center, September 11th, 2001 was going to be one of the most exhilarating days in his career. His bestseller book "Jack: Straight from the Gut" was being released that day. And he was scheduled to be on my show, the Today Show and others to promote that book on 9/11. Jack, have we learned anything from that day?
Jack Welch: We started out with that terrorist attack and then we compounded it with corporate scandals. We've had reaction to all that and we've been in recovery mode ever since. We were already sliding into recession when that day came. That day just exacerbated it. Now we're on our way back. We're out of our depressed state. CEOs are starting to do things.
Neil Cavuto: Yes, but they're not hiring many people.
Jack Welch: No, but they're setting up deals. You see new IPOs. You see a sense of optimism. And the hiring is going to begin.
Neil Cavuto: But it's your own company, General Electric, that didn't warn but told Wall Street to expect the low end of profit estimates for the fourth quarter And that's troublesome.
Jack Welch: We had a great run up in power that's now being worked off. And plastics pricing remains in an over capacity situation. Jeff Immelt said this morning ten out of thirteen businesses are up double digits.
Neil Cavuto: To hear the media tell it, you'd think we were going to hell in a hand basket.
Jack Welch: There are so many outlets trying to tell that story, it's incredible. We're always under the threat of terrorism. But let's put it aside for moment. Jobs will begin to come back. It won't be a smooth ride but they'll come back. We're starting to have CEOs take aggressive action. The scandals are over and we're in the trial phase and cleaning it out. We are now at a point where the bubble has been flushed. We're still having compensation battles but nevertheless, optimism is back.
Neil Cavuto: Do you think the fact that we haven't had a terrorist attack in two years is the problem. In other words, people have become sanguine and even cocky about it, thinking it's a one time event.
Jack Welch: I think if you're president of the United States and you're Tom Ridge, there's no question that these people are not forgetting it.
Neil Cavuto: Do you think it's going to happen again?
Jack Welch: Neil, I have no idea. I pray to God no.
Neil Cavuto: If we had the attack of the magnitude of 9-11, what would be the fallout?
Jack Welch: The dislocation would be enormous. The markets would have a terrible hit. Consumer confidence would fall again. Fear would shock us. We can't even think about it because if you do, that's the downside of life. We have this with us forever and we have to deal with it.
FOX on the Spot
Tom Dorsey: Chips are up! Buy Semi Holders (SMH)! Charts show it should outpace market for next two years.
Jack Welch: Jobs growth picks up by end of year and beginning of 2004.
Meredith Whitney: Don't expect big hirings from big companies. Small companies will add more jobs.
Jim Rogers: NYSE trading floor turns into tennis courts! Floor traders are replace with electronic exchange.
Gregg Hymowitz: Arnold terminates promise and raises taxes.
Neil Cavuto: It will be a Cubs-Red Sox World Series but neither team will win, proving true to their curses!