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.
Bulls & Bears
Brenda Brenda was joined by: retired U.S. Marine Corps Lt. Col. Oliver North, host of "War Stories"; Gary B. Smith, RealMoney.com columnist; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Adam Lashinsky, senior writer at Fortune magazine; and Jeff Macke, president of Macke Asset Management.
Trading Pit: Election Rally?
Sunday was an historic day in Iraq. It was the country's first true election in about half a century. Over 80 percent of Iraqis planned to vote. The world was watching, and so was Wall Street. But will these elections work?
Col. North: I’m bullish on the Iraq elections! In my opinion, these elections have already been a success for three reasons: 1) The terrorists have tried very hard to prevent them from happening. 2) Over 17,000 Iraqis have registered as candidates. 3) Women are going to turn out in enormous numbers that will change the region forever. This election will be followed by another election, and then a third election. We won’t see any significant amount of troops withdraw from the region until after the third election. In the last election in the United States — where the only danger was waiting in line in the rain — only 50 percent of the population bothered to vote. In Iraq, people are going to have to deal with real dangers: bullets, threats, and intimidation by terrorists and former Baathists. But Iraqis will go to the polls.
Gary B.: I agree with Colonel North. If the elections are successful, and if everything he says comes true, the effect on Wall Street will be very positive. The market is in a good position to rally. Its recent pullback was just due to some profit taking from the good quarter we just had.
Adam: I also agree with Colonel North! I don’t think Wall Street has any more jitters about this election than it has had over the past several months. It’s a very difficult situation. But for investors, this election isn’t going to change much for tomorrow or next week. If it does make any changes occur, they won’t happen until months down the road. However, Wall Street would be very interested if our troops can pull out, especially after the third election, like Colonel North mentioned.
Tobin: This election is good for the market unless a civil war breaks out. Iraqis are proud they’ll be able to vote. But they will be taking risks and there are going to be people killed voting. These elections are good because they make things more difficult for the people who are fighting the spread of democracy. And that’s a plus for stocks.
Jeff: Elections in Iraq make me feel better as a human being. However as an investor, I feel as though it’s a “sell the news” kind of story. Over the summer, the handover of power to the Iraqis was supposed to be huge. People were buying stocks because things were going to take off. But it happened in the basement in the Baghdad Marriott or some place and they had to do it on the sly because the country wasn’t yet put together.
Scott: Americans have set very, very low expectations for the Iraq election. I think anything less than a complete disaster will be deemed a success. Stocks sold off due to the big rally we had at the end of last year, the fear and trepidation leading into this election, and because oil prices have spiked back up to almost $50. I believe this fear will be removed, oil prices will come down, and stocks will bounce.
The White House wants $80 billion more to fight terror in Iraq and Afghanistan. Toby, Scott, and Jeff each picked the stocks that will get a big boost if that money is approved.
Scott: I think United Defense Industries (UDI) will benefit from this money because it makes armored vehicles like the Bradley armored infantry vehicle. Humvees have been a disaster, whether they’ve been armored or not. Our troops need the best and need to have vehicles that don’t have tires that burn. The stock is cheap as well. (United Defense Industries closed at $47.08 on Friday.)
Jeff: I think it’s good, but there are more exciting stocks to buy.
Toby: I like it because they’ll grow through acquisitions.
Jeff: I think Alliant Techsystems (ATK) will get a boost because if we’re going to be in Iraq, we’re going to be firing guns and this company makes bullets. (Alliant Techsystems closed at $66.65 on Friday.)
Scott: This company also makes a lot of things for space exploration, and that has been a big drag. It’s also a bit on the expensive side.
Toby: I don’t like it. The stock is way too expensive.
Toby: My choice is Armor Holdings (AH). It makes body armor, which a lot of money will be spent on. The company is making additional acquisitions and from a technical standpoint, it’s pulled right back to support. I think it’ll gain 20 percent, which is good in this market. (Armor Holdings closed at $42.95 on Friday.)
Jeff: I don’t like this stock.
Scott: Body armor is going to be made for a long time. This is a good stock.
If you bought stocks when they fell before our election, chances are you made money. Gary B. and Adam each picked a stock that's been beaten down, but they think will post-election rally.
Gary B: I think Delta Air Lines (DAL) will benefit now that’s the election is over. The elections means there will be more cooperation in the Middle East, which will ease oil concerns, and will be especially good for airlines. Delta broke out near the end of last year and is now just having a normal pullback. Buy it now and get ready to take off. (Delta Air Lines closed at $5.03 on Friday.)
Adam: I don’t like Delta. It’s not a good stock to buy. It’s losing revenue per passenger and is now cutting fares on its most lucrative moneymaker, business class, by 50 percent. Nothing is going right here. It’s going to take forever to turn Delta around.
Adam: My pick is Piper Jaffray, a regional investment bank. It’s been whacked from $60 to $40 due to some weak results. I think you should buy stocks when the market is going down. If I’m wrong about the Iraqi election, and it does provoke a rally, this stock will definitely be a beneficiary of it. (Piper Jaffray closed at $40.00 on Friday.)
Gary B: Piper Jaffray’s chart is a mess! It keeps getting weaker and needs to get to the mid $30s before I’d think about buying it.
Gary B's prediction: Iraq elections a success! Dow hits 11K by May
Scott's prediction: Worries about Iraq election and oil end! Oil going down to $40/barrel
Tobin's prediction: Great move buying Gillette (G)! P&G (PG) up 25 percent by end of 2005
Jeff's prediction: Start selling! S&P 500 falls 15 percent and dips below 1,000 by October
Adam's prediction: Make Tax Day a Pay Day! Intuit (INTU) up 20 percent by April 15th
Cavuto on Business
Neil was joined by Jim Rogers, President of JimRogers.com; Gregg Hymowitz, founder of Entrust Capital; Meredith Whitney, Executive Director at CIBC World Markets; Zell Miller, former United States Senator from Georgia; Charles Payne, CEO of Wall Street Strategies; Mike Norman, founder of Economic Contrarian Update; Archie Drury, producer of "Voices of America."
The Bottom Line
Neil Cavuto: Is a post-election pullout of Iraq about to send stocks on a tear? Senator, how do you think it's all going to go?
Zell Miller: I don't want to dampen anybody's optimism, but the mission will not be accomplished tomorrow. Tomorrow is just the first step in nearly a full year of electoral and political activity. They're going to choose a prime minister and then they're going to start on a Constitution. It's going to take some time. We remember how hard it was to write our constitution back in 1787. And then when they do come up with a constitution, they will then bring it to the people to be voted on. If the constitution is adopted, then there will be an election for these permanent members.
Neil Cavuto: I know what you're saying. This is sort of like the Iowa caucus tomorrow. But I guess for The Street to get giddy about this might be wrong. Gregg, what do you think?
Gregg Hymowitz: That's exactly right. Senator Miller laid it out. I don't think The Street is going to give a damn about this quite frankly.
Neil Cavuto: They'd give a damn if it didn't go well.
Gregg Hymowitz: I think we've become so desensitized to the violence there that even if there is violence there, and there already has been, it's not going to make a difference to The Street.
Charles Payne: In respect to what Zell Miller said about the Constitution, we don't really remember the Constitution when we put this country together. We've read about it, but first impressions mean a lot. And in this case it means so much. It is important that it goes well. If it goes badly, it will affect the stock market.
Gregg Hymowitz: What is the market going to do?
Charles Payne: I'm not saying the market is going to zoom if it's great. But if it's bad, the market is in trouble.
Meredith Whitney: Look at what the market did on Friday. It pulled back. There's fear that something could go wrong. And this is best laid plans for Bush. If this goes well, you can bet that tort reform and social security reform will go well also.
Neil Cavuto: Jim Rogers, what do you think is going to happen?
Jim Rogers: I can assure you that the election will go well, at least we will announce that it went well. I'm sure Fox already knows the results, don't you?
Neil Cavuto: But Jim, does the turnout mean anything to you? Everyone says if there's a 40-30 percent turnout, it'll be very disappointing. If it's more, then that'll be very encouraging. Does that mean anything to you?
Jim Rogers: There've been large turnouts already in places like Germany or Sweden or Los Angeles. The surprise this year will be that George Bush is going to get out of Iraq as soon as he can. He cannot get out of there in February, but he's gearing up to get out.
Neil Cavuto: You still say this year, don't you?
Jim Rogers: Oh yes, it'll be this year. And with all due respect to Zell Miller, the Iraqi government can ask us to pull out sooner than October.
Gregg Hymowtiz: The question is how do you define: "well?" By the turnout? By which turnout -- the Sunnis or the Shiites? That's why the market isn't going to react, because the question of if this turns out well is so amorphous. What does "well" mean here? And I disagree with Jim. We're not going to pullout for a long time to come.
Jim Rogers: To Neil's point, if we do pullout, the stock market will go through the roof, the bond market will go through the roof. And the U.S. dollar will go through the roof.
Neil Cavuto: Senator Miller, if participation is low, or if there are a lot more violent incidents along the way, do you think our financial markets will lose faith in this process?
Zell Miller: I'm very optimistic. I think they'll be a big turnout. I think it's going to be widespread geographically. But these folks are dreaming if you think we're going to move out of Iraq in the next couple of months. The job is not done. It's not complete. We haven't even seen the seeds of democracy begin to sprout. We're probably going to be there till 2006 based on what Allawi has said. Right now you've got the American troops doing 12,000 patrols a week. The Iraqis themselves have been doing 1200 a week. You're going to begin to see that reversed. You're going to see the troops do more training than they've been and less of the fighting that we've been seeing. And for those who said they didn't remember about 1787, I've been around a long time but not that long. I know enough history to know that on several occasions it almost broke up, and they went home. The only thing that held them together to finish the job was the personality of George Washington.
Neil Cavuto: Well, actually Jim Rogers was there.
Jim Rogers: Yes, I was there. I remember everything. But Senator, do you think it's good for America and our economy to be in Iraq till 2006?
Zell Miller: I think it's good for the world. It's good for history. Look, these people are on a noble cause. If you look at all of history of mankind only one out of a hundred people have ever lived in freedom. That's what they're about over there. Trying to bring freedom to this part of the world that hasn't seen democracy before.
Meredith Whitney: To Gregg, your guy Clinton won with less than 50 percent voter turnout.
Gregg Hymowitz: I can't believe you're comparing Bill Clinton's election to the elections in Iraq.
Meredith Whitney: I am because having an 80 percent turnout doesn't mean it's more democratic.
Neil Cavuto: You all point out in varying degrees that we all just have to chill.
Gregg Hymowitz: My problem is, what is the objective standard that we're going to measure success against?
Charles Payne: Unrest can go on, but there are still areas where democracy rules. Spain has its terrorists, but it's a democracy.
Neil Cavuto: Gregg, do you want us out of there now?
Gregg Hymowitz: We cannot get out of there now. But I'm just curious. People want a result or a goal.
Jim Rogers: I would love for us to get out of there this afternoon.
Neil Cavuto: See what you started Senator?
Zell Miller: They want instant gratification. I can see that.
More for Your Money
Neil Cavuto: Freedom and capitalism often go hand in hand. So as democracy spreads, what stock benefits?
Mike Norman: What do people do in an environment of freedom and democracy? Jim, you should know the answer to this.
Jim Rogers: They drink!
Mike Norman: They travel! They can leave their country. That's why I like British Airways (BAB).
Neil Cavuto: Airlines?
Mike Norman: Yes, the most hated industry in the universe. British Airways has 550 destinations to 140 countries.
Jim Rogers: If you had been watching Fox you would know that I've been saying that for weeks. But British Airlines is the worst.
Neil Cavuto: Charles, you're not quite keen on that are you?
Charles Payne: It's going to be a long time before we start to see the influence of a new democracy on the airlines.
Neil Cavuto: So what are you doing?
Charles Payne: I like a company called Rofin-Sinar (RSTI). They actually make industrial lasers used for cutting and welding. These guys are headquartered in Michigan and Hamburg.
Mike Norman: They need lasers to rebuild Iraq? Come on. What are you talking about?
Gregg Hymowitz: There's some serious stretching going on here.
Neil Cavuto: Gregg, what about you?
Gregg Hymowitz: I can't top the laser pick. One company we've owned for a long time is Citigroup (C). This is about the emerging middle class throughout the world.
Neil Cavuto: So, they're going to need ATM cards?
Gregg Hymowitz: They're going to need banking services. It's the leading banking company in the world.
Jim Rogers: Citibank is not a democracy play. It's essentially a financial engineering play. Their balance sheet is basically a sham. As you know I usually play it on the short side. To Neil's point, there is no such thing as a democracy stock.
Neil Cavuto: Let's assume things go nicely there, is there a way to play it for you?
Jim Rogers: If things go right, the stock market will boom. You can buy the SPDRs (SPY).
Gregg Hymowitz: Here's a guy who's focused on balance sheets and earnings. Tell me how getting it right in the elections in Iraq helps earnings in the S&P 500. Make that connection for me.
Jim Rogers: It has to do with getting out of Iraq. We don't spend all that money. We're not killing all those people.
Mike Norman: The S&P is up 35 percent since we started the war. And you're saying get in now?
Head to Head
Neil Cavuto: Archie Drury, a former United States Marine put 150 video cameras in the hands of ordinary Iraqi people for six months and made the documentary, "Voices of Iraq." What did you find out Archie?
Archie Drury: What I found out is the average Iraqi isn't angry at the Americans and the coalition. They're angry at the insurgents in the neighboring countries that are preventing them from having a democracy. And when you get to know the average Iraqi and talk to them, you start to understand that these are people with hopes and dreams like everyone else in the world. And they want an opportunity.
Neil Cavuto: Did you get that same sense when you went to hot spots like Mosul and Fallujah? Places where Americans seem to be held in low regard.
Archie Drury: There are definitely concentrated areas that are against the Americans, where they have a predominately Sunni population. But that's a minority of the country. About 80 percent of the country really wants a democracy. 20 percent are insurgents with the fundamentalist ideas and then there's about 30,000 insurgents.
Neil Cavuto: But you always here this idea that democracy is such an unusual concept to that part of the world. Since women are second class citizens anyway, how are they going to be indoctrinated into a system where equality supposedly has to reign.
Archie Drury: In Iraq the women have been part of the country, but now they're really going to have their freedoms. The national assembly has many women on it now.
Neil Cavuto: One in three elected have to be under this new set-up, right?
Archie Drury: That's right.
Neil Cavuto: When there's this constant violence and images of Iraqis killing Iraqis, what are Iraqis' reactions?
Archie Drury: It's mostly Islamic fundamentalists. It's not so many Iraqis. A lot of these guys are Zarqawi's men that are being recruited. So when you say Iraqis, it's a little shocking for me.
Neil Cavuto: Archie, you did good work here. It's important for people to see it. Thanks for joining us.
FOX on the Spots
Meredith Whitney: Successful election? Bet on Bush's reforms!
Charles Payne: Iraq rebuilds after election; Buy Caterpillar (CAT).
Jim Rogers: Four more coalition countries pull out of Iraq!
Gregg Hymowitz: Republicans raise the Social Security age.
Mike Norman: Economy & stocks get hurt as Bush trims deficit!
Neil Cavuto: The Iraq elections will likely be messy but they will send a powerful message to the region, that democracy has a way of catching on. Not quickly, maybe not our way, but eventually the seed holds... this will hold.
Forbes on FOX
In Focus: Success in Iraq Means Success for Social Security Reform?
Mike Ozanian, senior editor: Despite the musings of Ted Kennedy and old Europe, we have the selection of individual freedom or individual self determination. That is what President Bush is trying to do with Social Security Reform, by giving individual retirement accounts and allowing people to invest some of their own money. Also, I believe that a successful Iraq election will give Bush more power for tax cuts and tort reform.
Steve Forbes, editor-in-chief: I think when it comes to Social Security, the President finds himself between "Iraq and a hard place". Any euphoria that comes out of this election is going to be short lived. Ted Kennedy and other democrats are going to fight to the end on this. The President has to sell Social Security directly to the people.
Jim Michaels, editorial vice president: Steve, it's not only the obstructionist Democrats, it's the wimp Republicans in the Senate that are obstacles. As Steve said, the President has to go over the head of the Senate and go directly to the people. Certainly his credibility and popularity is going to be enhanced if we get an improved situation in Iraq.
Victoria Murphy, staff writer: I give the elections this weekend a little more weight. The liberal columnist for the New York Times, Paul Krugman, wrote a piece this week sort of condemning Bush's Social Security plan and he linked Iraq. Some how he linked the two together and said that the two can equally be a failure. I think that the elections in Iraq will not enable these columnists to link the two and say failure here and failure there. I think that is very relevant.
Mike Maiello, staff writer: Bush has already made this mistake of claiming 'mission accomplished' too early. I don't think he is going to make the mistake again and if he does he's not going to have any credibility on it. And that is why what happens in Iraq is not going to give him any capital that he can spend on Social Security. And as Jim points out, people in his own party who were war hawks, people like Katherine Harris who are Bush puppets in a lot of ways, are opposing the Social Security plan that we are seeing now. He's got to get his own side.
Elizabeth MacDonald, senior editor: You need 60 votes in the Senate. Right now you have 55 votes by Republicans. You have no Democrats crossing the line. Social Security is a Democratic stronghold, it's how they get elected every year. I think the Republicans are botching it. You see the administration doing such things as getting Social Security employees themselves to tout reform. That's a bad thing in the era of now. Propaganda payola. This is really bad for Social Security reform. And plus, people don't trust what is going on. They really feel insecure about reform.
David Asman: Wall Street really wants this thing. They want the capital or at least a piece of the capital that is going into Social Security savings. Will that factor into this at all?
Mike Ozanian: I think it will, but I also disagree with Elizabeth. I think most people want it and I think back to when Reagan was elected and how he freed the hostages and how much power and prestige it gave him to push forward his agenda and tax cuts.
Elizabeth MacDonald: I don't think more people want it when they hear that their benefits are going to be cut down the road and there is no one plan as to who is going to administer it.
Steve Forbes: I think the euphoria will be short lived. Primarily because once these elections are over and this parliament meets they've got to write a constitution that rules in for super majorities. You are going to have 20 different parties. So when you get into the muck of the politics, yes it's working, but it's not going to rub off on him and Social Security.
Jim Michaels: Bush has to get his own party in line in terms of Social Security. He can only do this by going to the people themselves.
Mike Maiello: These elections, for one thing, are going to be questioned. There are over 200 slates of candidates. People who are fighting now are going to keep fighting after the elections because they are not going to believe that these elections are legitimate. The war goes on. Is this a step? We hope so. But it's too early to talk about democracy spreading through the Middle East.
Victoria Murphy: Many elections are hotly contested and this is a step in the right direction. I think what Bush does need to work on is articulating his plan to the American people. I think there is a lot of confusion and a lot of rhetoric and that has given the Democrats this wide open gift to say Bush is trying to steel your retirement fund. That's really not the case.
Steve Forbes: Bush hasn't sold his plan well at all. He's put nothing on the table. They led off with benefits cuts in the future. That just plays to the Democrats.
Elizabeth MacDonald: What is really scaring people, rural Americans, who don't have 401K accounts is, who's going to administer this thing? Kofi Anan's son? It's really scary for people.
Mike Ozanian: I think it will make a lot more money and have a lot higher benefits if they get to put some of their money to work themselves. We have 117 Democracies in the world right now. In 1776 we were the only one. We are moving forward with freedom.
David Asman: What about Elizabeth's point that the devil is in the details?
Jim Michaels: The devil may be in the details, but the broad principle is you have your own retirement plan that belongs to you and your family.
Elizabeth MacDonald: Right now you can't bequeath it to your heirs. That's where the administration is messing up, that's how they should sell it.
Flipside: $80 Million More Is Not Enough
Elizabeth MacDonald: It's not chump change. We started off with $50 billion for our War on Terror in Afghanistan and Iraq and now it's six times the original estimate. So you can never say what the correct amount is. But this is the quickest way to bring our troops home, by giving them the money. I want a one-way ticket home for those troops. This is also proof that you can not fight a guerilla war. It's so incredibly expensive. This is money that should have been put up there, out front, to give the men and women what they need to fight this war.
Dennis Kneale, managing editor: This is ridiculous. People are saying $80 billion isn't enough, let's give them $200 billion! $80 billion is enough for right now and at some point this gets vastly more expensive than the strategic merit of being there.
Mike Ozanian: I think $80 billion is chump change. We are only going to spend 3 1/2 percent of our economy on defense. Greece spends 5 percent, during WWII we were spending 45 percent. We need to stop spending money on government programs, like the department of energy and paying money towards developing windmills and crap like that. We need to triple our military budget and fight this war on terror like it should be fought.
Steve Forbes: The fact of the matter is, it's not the amount, it's how it's spent. We have 200,000 people in the military today involved in procurement. That's dinosaur kind of numbers. It should be about 50,000 and we should have the rest out in the field. It's a lot of bureaucracy. We need to build up our forces elsewhere. $80 billion is enough for Iraq and Afghanistan but we have to do a lot more elsewhere.
Neil Weinberg, senior editor: Of course it's not enough money. The only way to fight a war is with overwhelming force. Obviously we don't have overwhelming force here. Instead we have George Bush saying, why don't we have Iraqi boys do what American boys ought to be doing. It sounds like LBJ in Vietnam all over again. The point is you have to win a war, you have to win it fast, you have to do it with whatever resources it takes and we are just not doing that. Eventually, we'll just surrender and walk home and we'll say we won, declare victory and the bad guys will take over.
Elizabeth MacDonald: Remember that we were going to pay for this war with Iraqi oil. What I would prefer spending on would be more space exploration to Mars. Maybe we can find oil there and pay for the war.
Mike Ozanian: If you want to get more money to pay for the war, cut the marginal tax rate. That will grow the economy faster and bring in more tax revenue. That's the way to do it.
Steve Forbes: That is the way to do it. But in terms of military spending, again, it's not just the amount it's how it's spent. We need to spend it more wisely, we need to build up our forces here at home. The national guard needs to be rebuilt. There's a lot that has to be done outside Iraq and Afghanistan.
David Asman: Some people say the President is doing a great job in this war but he hasn't done enough to convince the country that we are at war.
Dennis Kneale: A lot of folks in this country, even if you voted for George Bush, you agree with him when he says that Iraq was a catastrophic success. It is a catastrophe. He can have his $80 billion but he ought to have it on three conditions. Number one, spend the money on protecting people, not more machines. Number two, make sure you have someone like Elliot Spitzer or Elliot Ness overseeing the spending of this extra money. And number three, promise us if we give you that $80 billion you will pull those troops out by the end of the year of 2006.
Steve Forbes: That's totally unrealistic. Nobody knows how war is going to go. Abraham Lincoln's initial estimate was 1/100 of what the Civil War actually cost. $80 billion is enough for Iraq and Afghanistan. It's not just the people we put in there, it's training the local forces, it's rebuilding our military for facing North Korea and here at home. There's a lot that has to be done outside of those two theaters.
Elizabeth MacDonald: I do have to agree with Nancy Pelosi when she asked 'why hasn't the Pentagon given the Congress and the American people a full accounting of where this money went?' It's a heck of a lot of money, it's six times the original estimate of what it was going to cost. Remember when Donald Rumsfeld was asked if it was going to cost $200 billion? He said bologna!
Mike Ozanian: I want to see Nancy Pelosi give her own tax payers an accountability of where her money goes. The money that we spend on this war could save us from spending more on other wars down the road.
Neil Weinberg: You can talk all you want about waste, fraud and abuse and all that kind of stuff, but the bottom line is if you don't put enough troops in Iraq, it's not going to get done.
The Informer: Mighty Stocks!
Bill Baldwin, editor: Warfare is going electronic. An electronic company I like that sells gear to the military is L-3 Communications (LLL). What's interesting about them is this company that is also in the business of airport scanners. I think in five years this company is going to have a roadside bomb-sniffer for Baghdad. We'll still be there in five years.
Lea Goldman, staff writer: Call me old fashion, but I don't like L-3. I don't like to buy high. The CEO of this company recently said that he doesn't think that the defense department's spending can keep up with the rate it's been for the last two or three years. I think that the stock is going no where but down.
Bill Baldwin: I think he's being way to optimistic as to how quick we are going to get out of that country.
Dennis Kneale: I like Halliburton (HAL). Halliburton has never had more scandal going on than in the past year with its alleged links with the government. Yet Halliburton is up 60 percent in the past year despite that controversy. They are going to continue to win and they are going to continue to go up the longer we are in Iraq.
Neil Weinberg: It's an oil play. The stock is way up so you don't want to buy it right now. So you don't make any money in what they are doing in Iraq. I like Wolverine World Wide (WWW). They make hush puppies shoes, but they also make the boots on the ground in Iraq. They have a contract with the Department of Defense. This is a company with it's feet on the ground and they are selling a nice steady product.
Bill Baldwin: Wolverine makes moccasins. I think Neil is under the impression that we are still fighting the French and Indian War.
Dennis Kneale: The best thing going for Wolverine is that it's stock symbol is WWW and I think a lot of investors buy it thinking that they are investing in the world wide web.
Lea Goldman: I don't like Wolverine either. The DOD does not have a firm contract in place with them right now. I like Teekay Shipping (TK). They are an oil shipping company. My attitude is, as long as oil fields target and so are the tankers. I think that supply will be tight going forward.
Bill Baldwin: You're buying at the top. All of the smart money is getting out of those tankers.
Dennis Kneale: I think capacity is really strange throughout the entire shipping industry because of high China demand. I think this is a good stock.
Neil Weinberg: The stock is cheap. It's trading at about seven times earnings, it is not an expensive stock.
Makers and Breakers
• Patterson Energy (PTEN)
Eric J. Green, senior portfolio manager and principal at Penn Capital Management: MAKER
They are the second largest land driller in the country. Commodity prices are extremely strong. The prices for day rates are going up dramatically. It's a nine month wait for some parts of the country for a rig. It's a great management team and the stock is trading at a historically low value.
David Asman: You think it can go up to $28, that's about a 40 percent rise. (Friday's close: $19.18)
Bill Baldwin: BREAKER
I'd like to talk about historical norms. The norm for oil is $35 a barrel. When we get normal prices for oil we'll get normal earnings for this company. This thing is trading at a very huge multiple of those normal earnings.
Jim Michaels: BREAKER
I wouldn't short it because it's facing rising earnings, but I wouldn't buy it at this level either. It's entirely in the United States. I'll pass on this one.
Eric Green: The recount right now is not growing much more than it is right now. It's almost fully utilized. The exploration production companies make a ton of money at $35 oil, $5 gas. We think long term, that's what the price is going to be.
• MeriStar Hospitality (MHX)
Eric Green: MAKER
MeriStar is a hotel and real estate investment trust company. As you might have noticed lately, hotel prices are going straight up. It's hard to get rooms. This stock is way off its old high.
David Asman: You think it could go up to $12, that's about a 30 percent gain. (Friday's close: $7.88)
Jim Michaels: MAKER
I like this one. It's kind of a turnaround story. Very little downside risk, considerably upside potential.
Bill Baldwin: BREAKER
The whole point of a real estate investment trust is to pay a dividend. These guys can't afford to pay a dividend because they are too busy paying off their debt. Also, some of their best hotel rooms just washed out to sea due to the Florida hurricanes.
Eric Green: They do have debt, but they paid a lot of it down. They are insured for their loses in Florida which were pretty minimal.
Stock Smarts: Iraq and Cheap Oil!
Will the election in Iraq be the start of cheaper oil prices? Iraq is one of the richest oil countries in the world. So as they move closer to freedom and a functional democracy, that can only be good news for the oil market. But the election is the first big step.
Dan Senor, former spokesman for the Coalition Provisional Authority: I am (optimistic about the January 30th elections). I think turnout will be especially high in the southern part of the country from southern Baghdad all the way down to the Kuwait border. I think turnout will also be high in the northern part of the country from sort of north of the Sunni triangle right up to the Turkish border. The question mark about turnout is in the Sunni areas because of security and some of the extremist threats there. But I don't think it will affect the legitimacy of the election in the eyes of most Iraqis. I actually think that most Iraqis will be onboard.
Jonathan Hoenig, portfolio manager at Capitalist Pig Asset Management: What about the oil market? That's the question, Terry. And I’ve got to tell you, I applaud the fact that there is an election in Iraq, but I see a lot of oil related, commodity related equities doing real well right now. And to me that's a harbinger of higher oil prices. Not lower oil prices.
Terry Keenan: Wayne, Dan was our man on the scene, he was giving us an assessment of how the elections may go. What do you think about that first and oil second?
Wayne Rogers, founder of Wayne Rogers & Company: I think Jonathan is absolutely right. First of all it's not a democracy. This is a pretense in a certain sense. We use the word because it's going to make it sound good. Iraq is filled with a people who are extremely religious. They oppose each other. Even if we have a vote and it looks great to the west, that doesn't mean that the oil spigot is going to go on tomorrow morning. There is going to be sabotage. The insurgents are still going to be there. All of the things that we're seeing today are going to continue. It's a wonderful idea, and I love the idea. But it's not reality.
Stuart Varney, FOX Business News: That's absolutely correct, in the very short term. The spigots are not going to be opened all of a sudden just because we have an election tomorrow. However, if you look to the longer term, you realize that Iraq has not been surveyed for oil deposits for 30 years. When new technology gets in there, they are going to discover reserves larger than Saudi Arabia. It's a very big deal in the long term for the price of oil.
Terry Keenan: In the short term, what about this not being democracy? It’s a big first step.
Stuart Varney: You can't discount this as some kind of illegitimate election. It is an election. The first they've ever had. That's a huge step forward toward democracy. It’s a great thing.
Dagen McDowell, FOX Business News: In the short run, you could see a couple of bucks come out of the price of oil next week, if we have fairly solid turnout like Dan is talking about, because the oil markets are factoring in the absolutely worst situation.
Stuart Varney: Not if the insurgency comes back with a vengeance.
Dagen McDowell: That's true.
Jonas Max Ferris, founder of MAXfunds.com: I think that in the short term, oil will go lower if things go well (in the elections). It is actually in the longer term that we won't see oil return to like 1990's level, in the $20 a barrel range. And that’s actually because we’ll have a democracy in Iraq. Let's not forget, ExxonMobil (XOM) is not running for office there. We’re not making a puppet dictatorship where they can just drill all they want. This is their country. And they're going to do what's in their best interests, which means stay part of OPEC. And yes, unfortunately, keep up with the quotas and keep oil prices high to maintain their revenues. So we're not going to see $20 oil in Iraq.
Terry Keenan: If Iraqis can, in large numbers, safely go to the polls, can they start to safely patrol their own oil reserves?
Dan Senor: Oh, I think it's going to take time. To Wayne's comments, this is not a pretense. That's offensive to the millions of Iraqis who are risking their lives tomorrow to go to the polls. It’s an amazing thing. There are 22 Arab countries, none of which their citizens can hold their governments accountable. Iraq will be the first. There are many Iraqis who are taking enormous risks for this. As for where the oil situation is going to go on the ground there, I think it's going to be a long time before the Iraqi oil resource capability can have any impact on Iraq or the region. The oil production infrastructure of the country is in dreadful condition, completely dilapidated after three decades of chronic under investment by Saddam.
Wayne Rogers: When I say pretense, I mean the result. I'm not saying the intent is not admirable; it’s a great intent. You can't fly in the face of 2,000 years of history. You got the Kurds and the religious part of the Shiites and you’ve got the Sunnis. They're going to battle each other. There is not one Arab nation in the world that is a democracy today. They are all kingdoms. They are all based on tribal instincts and tribal relations. I think that's crazy.
Dan Senor: Wayne, what about Turkey?
Stuart Varney: No one is suggesting that this is going to become overnight a perfect democracy like England or America.
Wayne Rogers: Well, that’s what Dan is suggesting.
Stuart Varney: However, it's a very important first step. It's the right move at the right time in the right direction. And I can't argue with that.
Terry Keenan: Dan makes a good point. Turkey is about to enter the EU, perhaps in the next couple of years. It’s a thriving democracy.
Dagen McDowell: That's right. And Dan is right. You have an important first step that’s going on there. The oil and stock markets are going to be looking at that. If they can look down the road even 10 years, and see oil production, even rivaling Saudi Arabia, that will be enormously positive and stable for our global economy.
Jonas Max Ferris: I'll take it further: Oil production only has to get back to where it was before the war in Iraq, and it will settle the oil markets. It will not go real low but bring it back down below 40, I believe.
Stuart Varney: Indonesia is the largest Muslim country in the world, it’s just had an election, a peaceful transfer of power. Turkey is a Muslim democracy. Afghanistan has just had its first democratic election. It is a Muslim society. What is this that Muslims can't have a democracy just because they haven't had it in the past? That's nonsense.
Wayne Rogers: Wrong, wrong. Afghanistan is not a democracy. Afghanistan is a federal relationship between those tribes there. Ahmad Karzai is the mayor of Kabul. He’s not head of the country. That's unrealistic.
Dan Senor: Muslims operate in democracies around the world. They fully participate. There is nothing about the Islamic DNA that precludes Muslims from participating in democracy. So don't count them out. And the same arguments have been used about the Russians. I remember during the Cold War, ‘the Russians aren't capable of living in Democracy, they have lived under autocratic rule for millennium.’ They have pulled it off. The same has been said of eastern Europeans and Chinese and yet in Hong Kong and Singapore and Taiwan, people of Chinese descent have been able to pull off democracies. So don't count them out so quickly.
Terry Keenan: And I remember a young John Kerry saying exactly the same thing about the Vietnamese when he testified before the senate in the early 1970's. There is huge potential here.
Jonathan Hoenig: Individual rights are a man's birthright. But to be honest, I don’t think the elections in Iraq have much to do with the oil market. There are a lot of these stocks that are the harbingers of higher oil prices. Remember San Juan Basin Royalty Trust (SJT)? That stock goes up and up and up. BP Prudhoe Bay Royalty Trust (BPT). All these energy-oriented trusts are super strong right now.
Terry Keenan: You're a bull on oil no matter what happens in the election?
Jonathan Hoenig: Strong asset class, absolutely.
Best Bets: Betting on Iraq
Success in Iraq could mean success for these stocks. The crew came up with some potential winners.
Jonathan says: Duke Energy (DUK)
Friday’s close: $26.14
Jonathan Hoenig: I honestly think the time is on the horizon where there will be like five or six major utility companies in the world. And I think Duke is one of the last men standing. You got to love all the assets here; Electric utilities, natural gas, pipelines, even bandwidth that this company is involved in. I played utilities last year. And that with the floating rate funds are really where my focus is this year.
Terry Keenan: Do you think Duke could be taken over or is it an acquirer?
Jonathan Hoenig: I think utilities are where you want to be right now. I’m seeing tons of them, like El Paso Electric Co (EE), Green Mountain Power Corp (GMP), National Fuel Gas Co. (NFG); we own all of these.
Jonas Max Ferris: I have two questions, ‘Mr. Ticker Symbol.’ What's the Iraq angle? It seems like the utility business does not benefit from high-energy prices. They have to burn coal and natural gas to generate electricity. It’s a variable cost and they can only charge a certain amount for the electricity.
Jonathan Hoenig: It might be, someday, that you write your check to the same utility company as an Iraqi gentleman or an Iraqi family might write their checks. They have to have stable regulated power there as well.
Wayne Rogers: I think Jonathan is right. I like it. The company earned 44 cents versus a nickel last year. The company is in great shape with a good-looking chart. I think Jonathan is absolutely right. In fact, I want to put my own with Jonathan.
Wayne says: BHP Billiton Limited (BHP)
Friday’s close: $25.03
Wayne Rogers: I'm also playing in the same arena that Jonathan is. BHP is one of the largest natural resource companies in the world. They're into coal, they're into oil, and they’re into diamonds. It's an Australian company. The ADR’s trade on the New York Stock Exchange. And the chart looks very good. I think it's a winner.
Jonathan Hoenig: Wayne, don't you get queasy when it goes parabolic? This thing is through the roof, literally. It's at an all-time high. It’s basically doubled in a year's time.
Wayne Rogers: So is Duke, by the way. I still think it (BHP) has a way to go.
Jonas Max Ferris: Jonathan only likes his strong charts, Wayne. The commodity angle needs a real hot economy to keep going at these levels. And we just saw GDP was not quite as strong as people thought.
Terry Keenan: But China is growing at 9 percent.
Jonas Max Ferris: That's true but the US is still the biggest and greatest economy in the world and it’s cooling down a little now.
Jonas says: First Israel Fund (ISL)
Friday’s close: $15.21
Jonas Max Ferris: This is more of a pure play on the Middle East. The First Israeli Fund is a closed fund. Israel has not been able to do a lot of business in Iraq, because Saddam hates the Israelis. And without an evil dictator, and a lot bombs over there, there is potential for this very developed country to have businesses there do more business in developing Middle East countries. This is more of a direct play there.
Terry Keenan: What do you think, Jonathan? Do you like it?
Jonathan Hoenig: Two of the major holdings are Checkpoint Systems (CKP) and Teva (TEVA), which aren't lighting up the fire these days. We used to own ISL. But if I wanted to buy an emerging market fund I would go back to the tsunami theme like Thai Fund Inc (TTF) or the Indonesia Fund (IF).
Wayne Rogers: I'm not as enamored with this pick as Jonas is. I think there are better places to put your money. It’s a safe place but not my pick right now. Not at this price anyway.
The State of Stock$
President Bush gives his State of the Union Address this Wednesday night and no doubt the stock market will react the next morning. What does Wall Street want to hear from the president?
Jonathan Hoenig: I like what the president has been saying. He is a capitalist. He’s talking about Social Security reform and tax cuts for the rich and the not so rich. What I want to hear more than anything is this ownership society message. I think this is fantastic. That's one of the things that make America great. Wealth is not owned by the state. It's owned privately. The market would love to hear that.
Terry Keenan: That’s a great message Wayne, but ever since he started talking about this, the market has gone straight down.
Wayne Rogers: Well, I'm like Jonathan. I'm an eternal optimist. I would love to hear that, but I don't think it will happen. He has a huge plate that he is talking about. Social security reform, he's talking about health care, he's talking about immigration. He's talking about tort reform. All of these things are wonderful. They are idealistic. The battle over Condoleeza Rice should tell you something. The Democrats are going to oppose a lot of this; it will be very difficult for him to get anything done. We're not going to get anywhere with this.
Jonathan Hoenig: But Bush has been bold. And if you want to see a real jump in the market, get Bush out there saying he will abolish the FCC, the SEC, the FDA and the postal service, you will see a huge jump in the stock market. What I want to see is Bush's motivation. He always talks about tax cuts or social security reform as the pragmatic, the practical thing to do. It's also the moral thing to do. And I think Bush's confidence in his capitalist message, that's what the market is looking for.
Wayne Rogers: I agree with him. I think he is absolutely right on the rhetoric. But it's rhetoric. You’ve got to accomplish something. He is running in the face of a huge deficit. You’ve got a war in Iraq, you have the dollar going south, you have interest rates going north; these are all things that are going to stand in the way. It is an enormous accomplishment just to try to get a modicum of this stuff done.
Question: "If the elections in Iraq are a success, when will you be able to get a Big Mac in downtown Baghdad?"
Jonathan Hoenig: People always want to “dis” Big Mac or McDonald's. But the truth is that it is a terrific company, lately a terrific stock. And the Americanism it represents is a benefit for wherever it goes. So I wouldn't bet against McDonald's and even some of the other restaurant stocks like Sonic (SONC) or IHOP (IHP) or Darden Restaurants Inc (DRI). Some strong stocks right now. People have to eat. I wouldn't bet against them.
Terry Keenan: IHOP in Iraq. What do you think, Wayne?
Wayne Rogers: I think it’s a terrific idea. It's not culinary the most exciting thing, because you see that the whole world is being homogenized by American fast food. And I resent that from a culinary point of view, but it’s a great economic idea.
Dagen McDowell, FOX Business News: What's not to like about their fries? They are the king daddy of all fries. If you are in the Middle East you might not be able to get a Big Mac in Baghdad for years to come, but Saudi Arabia has McDonald's. Kuwait, Amman, lots of other countries.
Question: "How does Wayne determine where he puts in a stop loss order?"
Terry Keenan: And Wayne, a good question this week as you were stopped out of a stock that you had in our challenge, Norfolk Southern (NSC). Explain how you set your stop losses?
Wayne Rogers: It was a terrible timing pick of mine. I bought the stock and three days later I get stopped out. I put the stop generally between 7 percent and 10 percent of the price at which I bought the stock and try to look at a support level on a chart to see if that confirms where my stop should be.
Terry Keenan: So 7 percent to 10 percent below the price you purchased it at. Jonathan, would you follow that same rule of thumb?
Jonathan Hoenig: The thing with stops is not where people put them but that they keep them. What messes up most people is that when it does drop 15 percent from their purchase price, they don't actually take the loss. They say, ‘all right, well, I'll get a dead cat bounce.’ Whether 7 percent or 10 percent or 20 percent, pick a level and stick with it. It’s the discipline that counts.
Dagen McDowell: What messes up most people is they might think the stop loss is a sort of magic pill that helps you make money and not lose money. And you can get stopped out and the stock might go right back up.
Jonathan Hoenig: But it’s an insurance policy, Dagen. If you cut the losers and let the winners run you will make money.
Question: "Do you think the housing market is going to slow down anytime soon?"
Wayne Rogers: Well, I think that real estate is a local phenomenon. For example, in southern California right now, the market is still hot. It's beginning to taper off a little. In Florida, certain places in Florida, certain places throughout the United States, the housing market is still very hot. I think interest rates would be the first thing that would mitigate that.
Terry Keenan: So that would be what you look at most closely?
Wayne Rogers: Yes, I would be watching interest rates.
Dagen McDowell: But Wayne, affording a home is becoming a problem for a lot of Americans and about half of the top 30 metropolitan areas in the country. That could keep a lid on gains in the coming years.
Wayne Rogers: That's true.
Terry Keenan: Jonathan, where do you come down on this argument?
Jonathan Hoenig: The only real estate stock I'm making money on is Inversiones y Representaciones SA (IRS). They own property in Argentina. The weakness in REITs lately has worried me but the homebuilders like KB Home (KBH) and D R Horton (DHI) are actually strong.
Terry Keenan: The jury is still out?
Jonathan Hoenig: I’m staying out of the sector in general.