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 was joined by: Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; Charles Payne, CEO of Wall Street Strategies; and Mike Norman, founder of the Economic Contrarian.
Trading Pit: The New Cold War?
In the biggest meeting between an American and Russian leader since Ronald Reagan and Mikhail Gorbachev, President Bush and Vladimir Putin got together to discuss, among other things, some big differences our two nations have on democracy. The meeting: cordial. But there is still a lot of disagreement. Can stocks stay hot if we have another cold war?
Tobin: If we have another Cold War, it will be a war of words. We won’t have 5,000 missiles aimed at each other. Stocks will do great because they need our money and we need their energy. The U.S. and Russia may have a dysfunctional family battle once in a while, but it won’t be anything like the old Cold War.
Scott: If our relationship were to spiral downward, which I don’t think will happen, it would be disastrous for the world markets. Toby’s right. They need our money and want their capitalistic system to expand. Eastern Europe loves America and capitalism.
Charles: Our two countries can dislike one another and still do business. At the press conference last week, Putin had the nerve to call American democracy an oxymoron. Stocks will stay hot. The old Cold War lasted for 45 years and the market did fine. However, Russia could be a thorn in our side because Putin has made a lot of mistakes and his country is desperate for money. Not as desperate as North Korea, but they are desperate.
Mike: Our stock market loves all these new countries opening up to capitalism. Interest rates aren’t going up due to the potential of all these new countries. It will continue to have a positive effect on our market as Russia and these new countries open up to this system. Also, the Russians are dying to get into the World Trade Organization. We hold the key to that door. They’ll have to “play nice” to get our OK to get in.
Pat: I don’t think this is something to worry about. Even if our relations do get icy, it won’t be anything like it was in the past. But, Russia is the largest exporter of natural gas to Europe. Energy is an important issue. Europe needs Russian gas. I don’t think there will be a Cold War between the U.S. and Russia because we need their oil—as does the world—and Europe needs their gas. This trumps any disagreement over democracy.
President Bush coming off a big win in Europe last week. What stocks are going to soar here due to his success over there?
Charles: Altria (MO) is the quintessential American brand. The “Marlboro Man” went to Europe and Marlboro sales should go up because of it. (Charles’ clients are long on Altria.) (Altria Group closed on Friday at $65.70.)
Mike: I disagree that the stock did well because of foreign return. It’s going down, while the dollar goes up.
Tobin: I like Monsanto (MON), which makes genetically modified seeds that are sold everywhere in the world, except for Europe. Each country in Europe has its own deal and with warming relations, Monsanto should see a growth in sales. There will be competition, however, from Syngenta (SYT), the main seed company in Europe. I own Monsanto and see it hitting $80 by the end of the year. (Monsanto closed on Friday at $59.16.)
Pat: This is a solid business and there’s good cash flow. The seed business is going very well, but I don’t see a lot of upside for this stock.
Scott: Unilever (UN) is set to soar. Based in the Netherlands, it is the largest consumer products company in the world. The thaw in relations could let it come here and buy a U.S. based company, like Colgate-Palmolive (CL). This would allow them to compete with Procter & Gamble (PG)/Gillette (G), which will be the largest consumer products company in the world once the merger is completed.
Charles: Everyone knows that Unilever has to make its next move. Colgate-Palmolive is going to go for such a huge premium and that will take a year for it to work out of the system. (Unilever closed on Friday at $66.87.)
Mike: McDonald’s (MCD) is the quintessential American brand, not Altria (MO). The Europeans were trashing McDonald’s and now that we should have better relations, we’ll see the return of the Big Mac. (McDonald’s closed on Friday at $32.98.)
Scott: This stock has already had a turnaround and is fully valued. It’s not going anywhere.
Pat: I like drug company, Novartis (NVS). Thanks to a recent acquisition, it is now the largest generic drug manufacturer in the world. I think the stock is going to $60. (Novartis closed on Friday at $50.30.)
Tobin: This is a fantastic stock. Hold on until it reaches $75.
Lights, Camera, Lightning! Hollywood celebrated the Oscars; while the Bulls & Bears celebrated the real stars…the stocks!
First up, Regal Entertainment (RGC), which is the nation’s largest theater owner. (Regal Entertainment closed on Friday at $19.22.)
Tobin: Bear. Nobody’s going to the movies and earnings are down. Regal had a nice move the past couple of years, but I don’t like it. Sell it.
Charles: Bull. Americans love going to the movies. This company doesn’t have a lot of competition, so this is a great one to be in.
Mike: Bull. I agree. There is so much product coming out of Hollywood.
Pat: Bear. Regal has lots of debt. Plus, it’s facing all sorts of competition from Direct TV, cable and Video on Demand.
Scott: Bear. The reason Regal doesn’t have competition is because all the other companies go out of business.
What’s a movie without popcorn? ConAgra Foods (CAG), maker of Orville Redenbacher. Is this full of hot air or about to pop? (ConAgra Foods closed on Friday at $27.43.)
Pat: Bear. This stock is fully valued. With all sorts of product recalls and accounting shenanigans, forget about it.
Mike: Bull. I can see that this is a bit fully valued, but I see more room on the upside. If we have a weaker economy in 2005, investors should be in a food stock.
Charles: Bull. ConAgra has some company specific issues, but the decision makers at the head of the company are tremendous. It’s a very innovative company.
Scott: Bear. The costs of materials are going through the roof, which means less profit.
Tobin: Bull. China is one of their biggest markets.
With lots of glitz and glamour on the red carpet, does Polo Ralph Lauren (RL) make the best-dressed list? (Polo Ralph Lauren closed on Friday at $39.52.)
Charles: Bull. After the crash of the Internet bubble and once everyone got over the California Izod shirt fad, many clothing companies have done well.
Tobin: Bear. This is a wonderful business, but way over-valued. I don’t want to be near it.
Pat: Bear. The stock is extremely expensive and most of the company’s sales are in department stores. Who’s shopping there anymore?
Scott: Bull. The reason it’s expensive is because the company is great and very well run.
Mike: Bull. Polo Ralph Lauren is a great brand with great profit margins. It will continue to grow.
Finally, Time Warner (TWX), home of Warner Brothers pictures, which had two films nominated: The Aviator and Million Dollar Baby. (Time Warner closed on Friday at $17.14.)
Scott: Bull. Someday, someone will recognize that this company has a lot more value than its current stock price and it will go up.
Pat: Bear. All the accounting problems are still getting cleaned up. I can’t trust their books. Plus, AOL is deteriorating and the stock isn’t that cheap.
Tobin: Bull. Cable is the secret fuel. Going to $25.
Mike: Bear. I agree with Pat about the accounting issues. There will be competition from Direct TV and its subscriber growth will slow down.
Charles: Bull. I like the risk/reward on this stock. It probably won’t go up as fast as the broad market, but I’m bullish.
Mike's prediction: Interest rate hikes keep the market down until October; then a BIG rally
Scott's prediction: After Martha gets out, her stock (MSO) falls 50 percent in 1 year
Pat's Prediction: SYSCO (SYY) the food company up 20 percent; the other Cisco (CSCO) goes nowhere
Tobin's prediction: Iron is golden! CVRD (RIO) up 30 percent by summer
Charles' prediction: Head South of the Border; Telmex (TMX) up 30 percent in 1 year
Cavuto on Business
Neil Cavuto was out this week. Stuart Varney hosted and he was joined by Gregg Hymowitz, founder of Entrust Capital; Jim Rogers, author of "Hot Commodities"; Ben Stein, author of "Yes, You Can Be a Successful Income Investor!"; Tom Adkins, founder of CommonConservative.com; Leigh Gallagher, senior editor at Smart Money Magazine; Nancy Skinner, radio talk show host.
The Bottom Line
Stuart Varney: He’s been called “clueless,” and chided by Europe as “reckless” and “war mongering,” but in each case he’s proven his critics wrong. Who is he? Could be President Bush, but it could also be former President Ronald Reagan. The Dow soared 82 percent in President Reagan’s second term. If it did the same under President Bush, the Dow would see 19,000! Could it happen?
Tom Adkins: Well, each of these presidents proposed the outrageous idea of freeing people from tyranny, and both of them were opposed by liberals. The difference is Ronald Reagan succeeded. The majority is still out on President Bush. Back then there was only one enemy — the Soviet Union — which made it easier for the business world, but now it's a very different world.
Gregg Hymowitz: I don't think George Bush has proven anything yet. What we're seeing now is a complete back stepping of the foreign policy. This week President Bush is trying to make amends in Europe, and to think the market is going to 19,000 is ludicrous.
Ben Stein: President Bush has already proven himself a much better friend to the market than Reagan ever was. I think he can push the market up. Whether he can push it to 19,000, I doubt it. But Bush is a visionary.
Nancy Skinner: Bush has been reading from the Reagan playbook — budget-busting tax cuts and huge increases in federal spending. And now Bush is looking at the same things Reagan did – raising the Social Security payroll tax. These two presidents have the biggest budget deficits in history. Not a single Republican though has balanced the budget.
Stuart Varney: I do want to remind you Nancy that raising Social Security taxes is just an idea.
Nancy Skinner: That's what Reagan said. When he wanted tax increases, he called them revenue enhancements.
Ben Stein: Lots of Republicans have balanced the budget. Nixon balanced the budget in 1969.
Jim Rogers: Bill Clinton did it with phony bookkeeping. President Bush has done some wonderful things. He has tried to help encourage saving and investing, which we desperately need. But will the market go to 19,000? No. The market is going down this year.
Gregg Hymowitz: First of all, it's somewhat telling that Ben Stein has to go back to Hoover to name a Republican who's balanced the budget.
Ben Stein: I mentioned Nixon, Gregg. Wake up.
Gregg Hymowitz: Sorry Ben, I just heard Hoover. Nixon and Hoover, those are equally depressing. Jim, you mention President Bush encouraging saving and investing, but you can't do that without looking at the other side, which is that he's been an incredible spender. We're running the most enormous deficits that we've ever seen, and what that'll do to interest rates...I'm afraid to find out.
Jim Rogers: What I'm saying is he is trying to change the tax code to encourage saving and investing.
Gregg Hymowitz: But he's doing it irresponsibly.
Tom Adkins: No, he's not.
Jim Rogers: Balderdash.
Stuart Varney: Is there something wrong with running a deficit when you're recovering from the Nasdaq crash, the attacks of 9/11, fighting two wars, and coming out of a recession?
Nancy Skinner: Deficits do matter, and that's what Ronald Reagan tried to say when the supply side theory didn't work. When you run a deficit what happens is you put a demand on the money supply. As you know, we have current account deficits, we have budget deficits, and they're worried about the Social Security deficit in 2052.
Ben Stein: Deficits do matter in the very long run, but they don't matter in the short run. And of course it was perfectly sensible to go into a deficit position fighting a recession, fighting a stock market crash, fighting a war. It would've been madness not to have a large deficit under the circumstances.
Nancy Skinner: The biggest deficit in history?
Ben Stein: It's the biggest deficit in nominal dollars, but it’s not even close to the biggest deficit in real dollars.
Tom Adkins: Let's remember the last three tax cuts we had. Reagan, Clinton and Bush all generated much more revenue and this one is going to be kicking in for the next four years.
More for Your Money
Stuart Varney: What's the single best stock to own for the rest of President Bush's 2nd term so you can get more for your money? Leigh, you can only own one stock until January of 2009. Which is it?
Leigh Gallagher: I'd go with FedEx (FDX). I don't think we're going to have a raging bull market like we had in Reagan's second term, but if you want a stock that's going to be a barometer of an economy that's growing modestly, this is it. It's a small business play, an Internet play, an international play and an anti-post office play.
Gregg Hymowitz: The one thing that concerns me about this company is Kinko's. I think the profitability of that stock will be sidelined until they deal with the profitability of that unit. If you look forward for the next couple of years, oil continues to be a strong market. One company I've recommended before is Holly Corp (HOC). We own the stock. It's relatively cheap so you can hold it for different cycles, even if oil dips down.
Ben Stein: It seems like a perfectly good stock to me. I hate to break your heart about it.
Tom Adkins: You can't go wrong with refinery because you keep needing more and more oil.
Gregg Hymowitz: The fact that both Ben and Tom like it, may lead me to rethink it now.
Stuart Varney: Ben, you're one stock pick?
Ben Stein: I like Dimensional Emerging Markets (DFEMX). When you buy the emerging market, you're making a bet on the countries that are generating most of the new growth in the world today. You're betting on diversification. You're betting against the dollar, which typically is a good bet.
Gregg Hymowitz: I hate to make this show kum-bah-ya, but I agree with Ben. More and more, the opportunies are away from the U.S. markets and more in the foreign markets. So this is an interesting play.
Stuart Varney: Tom, what do you like?
Tom Adkins: I like Toll Brothers (TOL). Last year I picked it to double, and it did. I'm going to pick it again to double again this year. The housing market is continuing to expand. Not quite at the same rate as the last two years, but still at a very, very strong rate.
Leigh Gallagher: Even if it's as good as you say it is, how much farther can this and other housing stocks go?
Ben Stein: In this arena, Toll Brothers is a wonderful company. But the class of the group is Ryland Homes (RYL). It's an amazingly well run company and it's only selling at ten times earnings.
Tom Adkins: They specialize in a slightly lower price range. And the higher price ranges are where the money is going right now in housing.
Head to Head
Stuart Varney: Jim Rogers says the market is heading for disaster. Ben Stein says Jim should be heading to a doctor to have his head examined. Time to go head to head. And you know what? To make it really interesting, Gregg said he wanted to stay. So he's going to throw in his two cents as well. Jim, for the next two years, how do you see the stock market performing?
Jim Rogers: The market is going down in 2005. It's going to be worse in 2006. I don't think the world is coming to an end, but it's not a time to own shares.
Stuart Varney: Why is it going down?
Jim Rogers: It's going down because we've hyped up the market in the last two years. Washington has spent huge amounts of money. Greenspan printed gigantic amounts of money. But that's over now. We've had that hype. It's over; it's finished. So the economy is going to slow down over this year.
Ben Stein: With all due respect, I love Jim like a brother. We have cheap cost of capital, low inflation, startling high corporate profits, the dollar is becoming an impetus to exports. There could be a dollar crisis, but if it happens, it will be very slow motion.
Jim Rogers: Ben, I love you like a father. Of course corporate profits are at a high at the top. Everything always looks great at the top. The market looks forward. Don't give me those inflation numbers. Those numbers are a lie. The government is lying to us about those numbers.
Gregg Hymowitz: Jim, I love you like a grandfather. I think your facts are right, but I think your conclusion is wrong. I think the market is going to react positively to what Bush is doing now, which is basically saving himself from all the mess he made before. Now they're going to get the deficit under control. I don't think interest rates are going to go much higher. Now I think you may have seen the worst of the dollar. And the market is going to react positively to an improving budget.
Jim Rogers: You really think they're going to cut spending?
Gregg Hymowitz: Not only are they going to cut spending, I think that was their grand plan the whole time.
Jim Rogers: The only thing Bush could do that would give a huge rally to the market would be to admit a mistake. If he got out of Iraq, the market would go up for a long time.
Ben Stein: All signs are go for the market to rally, and Gregg is in a conspiracy Never-Never Land.
FOX on the Spots
Nancy Skinner: "Gannon" full blown scandal; Rove goes down!
Gregg Hymowitz: U.S. strikes deal with Iran; market rallies!
Tom Adkins: Europe still tries to stick it to Bush.
Ben Stein: Rates WILL rise; Beware if it's done wrong!
Leigh Gallagher: Ad market roars back; buy WPP (WPPGY).
Jim Rogers: It gets even worse for Fannie Mae (FNM); I'm short!
Forbes on FOX
NOTE: MOST OF THE FORBES ON FOX SHOW WAS PRE-EMPTED FOR BREAKINGS NEWS REGARDING THE CAPTURE OF THE BTK SERIAL KILLER. WE APOLOGIZE FOR THE INTERRUPTION.
In Focus: Are Lawyers Threatening Your Health Care and Stocks?
Mike Ozanian, senior editor: Yes, lawyers and class action lawsuits are the reason why there are less availability of drugs and they are the reason why the cost of drugs are higher.
Lea Goldman, staff writer: I disagree. That is a simplistic view of the argument and blaming lawyers is like shooting fish in a barrel. There are other issues affecting the drug industry like consolidation of health care providers and drug makers that undercut prices, as well as insurance companies setting high premiums that gouge consumers. Neither of these have anything to do with lawyers.
Victoria Murphy, staff writer: It is a complex problem, but lawyers are indeed a big part of the problem. Many of these medical liability lawsuits lead to ineffective and very expensive medicine and health care. And injured patients and consumers get nothing out of these lawsuits. Only the fat-cat lawyers reap the rewards. And much of the so-called science supporting these costly lawsuits are later debunked. For example, lawyers like John Edwards, our former Vice Presidential candidate, made millions suing doctors who delivered babies with cerebral palsy. This led to more cesarean section births, which are more dangerous, costly and new science has proven those type of C-sections to be unnecessary.
Bill Baldwin, editor: Tort lawyers are rightly forcing drug makers to not distribute drugs to patients who do not need them. For example, Merck sold Vioxx as a medicine for millions of people who should not have been using it.
Steve Forbes, editor-in-chief: Lawyers and lawsuits are driving up costs of drugs, driving good doctors out of state with high mal-practice insurance premiums and forcing doctors to conduct useless expensive procedures to protect themselves from future lawsuits.
Elizabeth MacDonald: The tort problem reaches $230 billion a year and that directly has an effect on cost of health care. More tort reform is needed. Lawsuits have hampered the development of new vaccines and we do not have great contraception because of lawyers.
Lea Goldman: Lawyers helped pass the patients bill of rights, which puts decision making back in the hands of doctors. We are confusing the issue of protecting shareholders with the issue of protecting patients. And for too long, profits from biotech companies have come on the back of patients' health.
Flipside: Open Up Our Borders to Save Social Security!
Mike Maiello, staff writer: The problem with social security is that we don't have enough workers to support retiring baby boomers. So we need to allow more immigrant workers to enter the U.S. to fill that void. There are already 6 million illegal immigrant workers here. If you made them legal and brought more in, you'd have an extra $11.6 billion dollars a year contributed to social security fund. That is a rolling number and those immigrants would make more over time and contribute more.
Steve Forbes: I'm all for immigration, but this know solution to fix social security. This is a band aid fix. We need private accounts that strengthen the economy and provides future resources to help pay for future obligations. Don't confuse immigration reform with social security reform.
Chana Schoenberger, staff writer: We should liberalize the work visas for smart immigrants and continue the brain-drain from foreign countries, which benefits our economy and shareholders. Also, we can do personal accounts for Americans and for new immigrants.
Victoria Murphy: I don't think this solves the social security problem, because immigrants are mostly low-wage workers who will pay less than the would take out of our social services, including social security.
Dennis Kneale. managing editor: This solution doesn't add up. In 25 years, we'll have a shortfall of 250 million workers to pay for the 70 million retirees. We would need 10 times as many legal and illegal immigrant workers enter the U.S. every year as we do now. Our system simply could not take that influx. Social security paid out $460 billion last year, so an extra $12 billion won't help.
Mike Maiello: The original Social Security was started with immigrant labor. It was the labor of those immigrants that funded
Steve Forbes: Let's get the history straight. The first Social Security payment went out in 1940, the immigration border in the U.S.. was virtually closed in 1924 and was not opened back up until 1964.
Informer: New Tech All Stars
Victoria Murphy: I like WebEx. They have 67 percent of video conferencing market and an 85 percent customer renewal rate. They're beating Microsoft, which recently bought a web conferencing company. Business people say let's set up a WebEx (WEBX) instead of a video conference.
Dennis Kneale: I don't like it. Microsoft will get their act together eventually, and when they do WebEx will be toast. I like UTStar (UTSI). It's grown 10-fold in four years. They have a strong presence in the growing China market. Stock is down due to worries of an accounting scandal, so the stock is cheap.
Lea Goldman: They have a nasty habit of missing profit targets. And last quarter they blamed it on China, which generates 90 percent of their sales. I like L-3 Communications (LLL). They provide security products and service to military and have a lot of future growth potential with other countries updating their security systems.
Victoria Murphy: L-3 is not profitable and a has lot of debt. It's too expensive for me.
Mike Ozanian: I like Gilead Sciences (GILD). They develop drugs that fight HIV and Hepatitis. Gordon Moore, a co-founder of Intel, is on the board of directors. If he's in then I'm in.
Victoria Murphy: I like the company, but the stock has had a huge run up so I don't think it's a fast growing stock.
Makers & Breakers
• Spanish Broadcasting (SBSA)
Ben Segal, Winchester Capital Management: MAKER
SBSA is an Hispanic radio station operator. Latin market is a growing business. One out of six Americans will be of Hispanic descent. Revenue and earnings are growing significantly and stock is cheap. My 12-month price target is $20.
Bill Baldwin: MAKER
This company has the equivalent of a Spanish speaking Howard Stern, but he's even raunchier. Huge growth potential with this company.
Elizabeth MacDonald: BREAKER
This company is running at a loss. We just saw Viacom take a big write off due to its radio unit and Clear Channel is posting losses lately.
• Time Warner (TWX)
Ben Segal: MAKER
Time Warner has hit bottom. Stock is cheap and it's starting to accelerate. They have a lot of growth potential. My 12-month price target is $25.
Elizabeth MacDonald: MAKER
Richard Parsons, CEO of Time Warner, is doing a great job turning this company around.
Bill Baldwin: BREAKER
Their cable unit will hurt them. The cable industry has been telling everyone for years that prosperity is around the corner, but it isn't going to happen.
Stock Smarts: A Bad Cure?
Could a popular idea for saving Social Security actually destroy our economy and stock market?
The income cap for paying into Social Security is now $90,000. Getting rid of that limit would likely fix the Social Security problem. But it would also be a major tax hike on high wage earners and their employers who will have to match those contributions.
So what would this do to the economy?
Jonathan Hoenig, portfolio manager at Capitalist Pig Asset Management: It would kill it. I don't understand the sense. You’re going to take money out of the economy and shuffle it into this bureaucratic Ponzi scheme that is Social Security. You are going to weaken the economy. And you are going to prolong the inevitable collapse of this morally flawed system. We should be talking about how to end Social Security. Not save it.
Wayne Rogers, founder of Wayne Rogers & Company: Jonathan is right about it being a Ponzi scheme. That is true. But on the other hand, raising it a little bit can cure a lot of things. You can either raise the tax itself, or you can raise the cap. Or you can raise some combination thereof. Or you could raise the age limit. All three of those are a combination thereof.
Gary Kaltbaum, president of Kaltbaum & Associates: In 1975 the cap was $14,000. You keep letting them raise the cap and they will keep raising the cap.
Jonas Max Ferris, founder of MAXfunds.com: It cost about $8,000 in the same year. So that's a bogus thing to say. And it's lower now as a percentage of where the national wealth is. Getting back to the chain letter Ponzi scheme, it is the biggest chain letter in the entire universe. But you can't let it suddenly stop in 30 or 40 years. What happens is people like Jonathan and me get like a 30 percent cut to benefits. That would cause a real recession if not a full on depression. You have to do it slowly. You either have to cut benefits over time for everybody, or you have to raise taxes. One or the other has to happen. It’s a basic math formula.
Meredith Whitney, executive director at CIBC World Markets: I think Jonas is dead on. For a Ponzi scheme, this system has eradicated poverty for the elderly. It’s hardly a Ponzi scheme. The crisis here is if people continue to believe it is a Ponzi scheme and write off the system entirely.
Jonathan Hoenig: ‘Eradicated poverty for the elderly?’ Is that what you said?
Meredith Whitney: Yes, I did.
Jonathan Hoenig: In this country?
Meredith Whitney: In this country. Yes it did.
Jonas Max Ferris: Jonathan, you’re young. You don't know what this country was like 100 years ago.
Dagen McDowell, FOX Business News: We're the wealthiest country in the globe. There is no reason why we shouldn't take care of our elderly. To raise the cap on income is not a bad idea because if we don't do anything, what are we going to do? Borrow trillions of dollars, interest rates go through the roof, the economy tanks. Not the best idea.
Meredith Whitney: Not to mention you could have an entire backlash against the system. If people truly believe it is default or a Ponzi scheme you create an even bigger problem.
Terry Keenan: If this happens, tax rates will be as high as they were under Jimmy Carter. You might as well write off all the Reagan tax reform.
Gary Kaltbaum: 80 percent of households pay more in Social Security taxes than income taxes. You keep raising them, let's just change the name to ‘Socialist Security’ and everything will be fine and good. It's crazy. Enough is enough. Whenever there is a problem, it's always ‘let's go raise taxes.’ That's not the answer. Privatization could be an answer. You can slow something on the wage growth, a change in how it grows every year. But enough of this raising taxes for every problem government gets us into.
Meredith Whitney: Bush has not committed to raising taxes. He just said that might be on the table.
Terry Keenan: Wayne, does the privatizing portion of the Bush plan change any of this? And maybe make the tax increases less onerous?
Wayne Rogers: There are three ways to do this. You can either raise the tax rate. Or you can raise the cap from $90,000 to $200,000. Or you can raise the age limit in which Social Security starts. Now, some combination of those three will help to cure it. Privatization is a separate subject. And you can have privatization. And I'm for privatization. I'm not against it. But one of those three or a combination thereof has to be done. And all the rest that you are talking about is just rhetoric.
Dagen McDowell: Wayne, you are right. If you do a combination of those three ideas, which is something that’s on the table, you are not going to hurt the economy.
Meredith Whitney: One of the reasons why we are in this situation is because people are living longer. In 1940 there were 40 workers to every retiree. Today there are three.
Jonathan Hoenig: But Meredith, then why do you want to prolong the inevitable collapse? Why are you so committed to it?
Meredith Whitney: Because that's my issue now? We are trying to find a way to make sure that we don't have a huge gap in Social Security funding by 2040. And just as Wayne suggested, this is one slice of the pie.
Jonathan Hoenig: I have a better one.
Terry Keenan: Tell us your way, Jonathan.
Jonathan Hoenig: Let’s figure out what the total liabilities of the system are, issue that amount of bonds and close the system immediately.
Terry Keenan: And that's borrowing.
Dagen McDowell: Watch the economy go down the toilet.
Jonathan Hoenig: It will expand the debt but it will put the liabilities out there in plain air and shut them for all future generations.
Jonas Max Ferris: You have no idea what the total liabilities are in net present value - it’s probably in the tens of trillions of dollars. I don't think the government could sell that many bonds to make this sudden payment to everybody. Wayne is right. You have to raise taxes or cut benefits. And I'm saying a fair way to cut benefits is better than ignoring the problem like all the politicians have done for 30 or 40 years until I get the hose.
Gary Kaltbaum: What happens in 10 years and 20 years and in 30 years? Raising taxes has been done 38 times already, at what point does the government cry ‘uncle’ on a system that the demographics are going against it? It doesn't make any sense.
Dagen McDowell: Again that goes to the issue. You deal with the demographics too. You raise the retirement age like Wayne said.
Terry Keenan: Wayne, you make a good point. But raising the retirement age seems to be totally off the table. It's the simplest way, the way everyone understands it. But it's off the table.
Wayne Rogers: Off the table by whom?
Terry Keenan: With the politicians.
Wayne Rogers: Excuse me. I don't care about politicians. This is idiocy. I don't care about what Gary is saying. He is harping on one thing: taxes. And that's not right. And Jonathan, a libertarian, who is now talking about taxing us to make the interest payments on some huge debt? You should be ashamed of yourself.
Gary Kaltbaum: I still love you, Wayne. I promise.
Meredith Whitney: One thing we haven't addressed is changing immigration laws so more money goes into the Social Security system.
Jonas Max Ferris: That would actually work because that's increasing the size of the chain letter. You have more people paying the penalty.
Terry Keenan: And that might be another thing we need to address.
Gary Kaltbaum: And let's get to the most important point. If we can just teach everybody to start saving better, and put their own money away when they start working early, and putting it into a good stock fund, 40 years down the road they will be very rich.
Jonathan Hoenig: Exactly right.
Gary Kaltbaum: The problem is nobody follows the lead. I believe in empowering people, not the government and that's the best way to get this done.
Jonathan Hoenig: You are right and it's their money. People don't need the government's help in feeding themselves or getting a place to live. People have earned this money. Let them invest it for their own retirements. And let's close this bankrupt Ponzi scheme for good.
Best Bets: Stocks for a Hero
We got an e-mail from one of our soldiers stationed in Iraq:
"I want to start investing, but don’t know much about the stock market. Could you give me some advice on what to invest in?"
SPC Lewis Roberts, US Army, Iraq
Our crew came up with some picks.
Wayne Says: iShares S&P SmallCap 600 Index (IJR)
Friday’s close: $164.54
Wayne Rogers: When I was in the service, I did something that I thought was right for me and probably right for everyone. I took $100 out of every monthly paycheck and invested in the stock market. And this is like Jonathan's approach to Social Security. I believe in that. The iShares S&P SmallCap 600 Index, that's the fund that I would start off in. And I might expand that to other funds. But that's the one I would start off in.
Terry Keenan: Gary, small cap has done well in the past couple of years, but tough sledding this year. What do you think of this one?
Gary Kaltbaum: That's my only issue right now. They have had a good run for a few years. Not just in the last year. And I think it’s getting to be late stage in the small caps. I would rather be more toward the larger caps right now. But if the market continues in decent shape, it should do OK, I just prefer other areas right now.
Gary Says: Legg Mason Value Trust (LMVTX)
Friday’s close: $62.87
Gary Kaltbaum: I'm going with the Legg Mason Value Trust. It’s beaten the S&P 500 in the last 14 years. And simply put, that's good enough for me. Anybody who can do that, for me that’s a miracle.
Jonathan Hoenig: Talk about late in the game. Bill Miller has a thing for busted up Internet stocks. Like IAC/InterActiveCorp (IACI) and Amazon.com (AMZN).
Gary Kaltbaum: You know what? You're right. That has happened with Amazon and eBay (EBAY). But the guy has been able to structure portfolio over time. Get out of the worst and get into the best. And over a 14-year period you can't argue that point.
Jonathan Says: Permanent Portfolio (PRPFX)
Friday’s close: $27.04
Jonathan Hoenig: This one has made money for 10 years in a row. I think this is a great all-weather savings fund. They own 20 percent of their portfolio in gold, 5 percent in silver, they own Swiss Francs, cash, natural resource stocks. I think this is a good all-weather savings fund.
Jonas Max Ferris: I seem to recall he wanted to get into stock investing. You just said it. Gold bullion is in the fund. This was started in 1981 when everybody was worried about inflation and gold.
Jonathan Hoenig: It has made money for 10 years in a row. How many funds can make that claim?
Jonas Max Ferris: Cash has made money for 10 years in a row and it's basically cash.
Jonathan Hoenig: They own 35 percent of the portfolio in cash.
Jonas Max Ferris: What a stupid thing to do to have cash with a fund with a 1.5 percent expense ratio, I can't think of a dumber fund. It was created in 1981when there was inflation and gold hysteria.
Jonathan Hoenig: We will talk about gold, but you've been “dissing” gold since it was at $300 an ounce.
Jonas Max Ferris: And gold stocks were the worst performing asset class last year and gold bullion has been pretty lousy the last five months.
Jonathan Hoenig: That's not all they own.
Jonas Says: Vanguard STAR (VGSTX)
Friday’s close: $18.88
Jonas Max Ferris: This is a real fund, with low expenses, that someone new to the market can get into a total portfolio. Real investments, like stocks and bonds, it’s the Vanguard STAR Fund, $1,000 minimum, low fee, owns a bunch of Vanguard funds. It’s a great way to start and an easy way to keep investing small amounts.
Terry Keenan: So a fund of funds. It will track the stock market more or less.
Jonas Max Ferris: Stock and bond markets, total portfolio.
Wayne Rogers: I think it's OK.
Stock of the Week
Last week’s pick from Jonas Max Ferris was Angiotech Pharmaceuticals (ANPI). For the week of February 22-25, ANPI went down 3.2 percent.
Chris Russo, senior vice president at GunnAllen Financial and cast member of “The Apprentice” (second season) says Glamis Gold (GLG) looks great for Monday. Jonathan and Jonas will tell us whether they would hire or fire this stock pick.
Chris Russo: I love gold as long as the dollar continues to be in a bear market, I believe that gold will continue its bull run. This company is a company I like. It’s trading in the mid $17's right now. Big volume coming in the last couple of weeks. I think it’s ready to break out.
Jonas Max Ferris: The stock will not be huge. This is one of the worst stocks in the worst industry, which is gold mining. They couldn't buy Goldcorp (GG). They have this ridiculous valuation. There’s no real business there.
Jonathan Hoenig: You said all of this three years ago when gold was at $275 an ounce.
Jonas Max Ferris: No, no, take it up a little bit. It was a little higher than that.
Jonathan Hoenig: You’ve been using the same bevy of arguments.
Chris Russo: Gold has been running for four years.
Jonas Max Ferris: That does not make it an investment because it was running for four years in the late 70's and people are still down 50 percent from back then and all these stocks are still lower than they were 20 years ago. Why is this an investment? Gold has no income. It is not real. It is in the ground. People think it's money. It is not money. It is ridiculous.
Chris Russo: First of all, we're in an up trend. Over the last four years we have had five corrections in gold. The gold correction just happened right now. Money, volume is coming back in and Jonas, this is the Stock of the Week. Not Stock of the Year.
Terry Keenan: And why Glamis?
Chris Russo: From a technical standpoint, a couple of weeks ago a lot of volume came in. They canceled the merge with Goldcorp. A lot of volume coming in. Four times its average. Basing here, looking for strength. This thing pops to new highs.
Jonas Max Ferris: It's a negative that they couldn't buy Goldcorp, because Goldcorp thought ‘this is such a stupid business we don't want to let them own us.’
Terry Keenan: Jonathan, you love gold. Is this the way you would play it through Glamis?
Jonathan Hoenig: I'm not all over the gold stocks like I was.
Jonas Max Ferris: Because? They stink right now. They’ve stunk since last year.
Jonathan Hoenig: Jonas, the big news this past week was that Korea will sell dollars. To own something right now that will benefit from a weak dollar like Chris is pointing out, if it's not gold stocks or international bond fund, it’s a smart place to diversify.
Cashin' In Challenge
Check out the $10,000 Cashin’ In Challenge at: www.foxnews.com/challenge
Question: “I bought 100 shares of Duke Energy (DUK) at $23.75 and want to know if it is a good long-term play, or something I should sell at a certain point?”
Jonathan Hoenig: I don’t think about the long haul. The long haul starts in the short haul. I like Duke. This guy has made money. I'm up money in the Challenge. And I think the hardest trade is holding on to a winner. And despite the fact that interest rates have crept up, I'm bullish on all the utilities now. We own Green Mountain Power (GMP) and Consolidated Edison (ED) and Empire District Electric (EDE), and the Brazilian ones, Companhia de Saneamento Basico de Sao Paulo (SBS), and American States Water Company (AWR), and a ton of utilities. I like the sector and I think this is a big-time buy.
Dagen McDowell: The only problem is that if those rates keep creeping up, investors will dump Duke Energy like a bad date.
Jonathan Hoenig: Maybe not. Rates have been creeping up. And utilities have persisted. It's a strong asset class.
Dagen McDowell: Not for long.
Wayne Rogers: I don't think so. I own a little Duke Energy. The fundamentals are not that good. I think it's a very good technical play right now. But on the long haul, I'm a little like Jonathan. I don't see a long haul here.
Question: “I bought Red Hat (RHAT) at $8 then sold it at $24. After the stock fell, I bought in again at $13. What does the crew think?”
Wayne Rogers: I'm a little scared of it right now. I got stopped out of the stock. And as usual, I have put in stop loss orders. I got stopped out the stock somewhere north of this. And trading between $10-11, I think the stock needs a base again before I would jump back in. I don't see a base happening yet. It's beginning to form a base, possibly, but I don't see that yet and until that happens I would not jump back in.
Terry Keenan: That's when you look at the charts, to see it bottoming out?
Wayne Rogers: Correct.
Jonathan Hoenig: Not on my screen at all. I've never had luck with this ‘buy it, sell it, and get back in at a lower price’ type of a technique. You make your money and move on to something else. There are thousands of stocks out there and Red Hat is not on my list. And she is down money on the trade. Which is the best reason to get out.
Question: “I’m looking for a fund to add to my diverse holdings: real estate, small caps and European stock funds. I have $20,000 to invest.”
Dagen McDowell: If Walker has more than a dozen funds, you don’t need to buy more. You have plenty. You don't need to buy another one. But if you don't have a bond fund, which it looks like you’re lacking, check out the Harbor Bond Fund (HABDX) run by Bill Gross. He's a winner.
Wayne Rogers: I think the same thing. I would put the money back into some of the same funds you already have. If you are doing well and like those funds, to track more than 10 or 15 things, it's difficult.
Jonathan Hoenig: I think it’s probably better to have $20,000 in cash than in funds right now.