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.
Reminder: We'll be back at our regular day and time next week. The Cost of Freedom will start Saturday at 10 a.m. ET with "Bulls & Bears."
Bulls & Bears
Trading Pit: Buyer’s Market?
Recent polls suggest investor confidence has been heading lower. No surprise really, because… so has the stock market. The Dow, Nasdaq, S&P are all down for the year. In fact, all three are trading at the same level they began 2004.
But is this a sign to buy? Is this the classic buyer's market?
Charles Payne: We are absolutely in a buyer’s market. You want to start building positions in stocks right now. But be careful. Don’t go out and spend all your cash Monday morning. A lot of people have the wrong expectations. They jumped in market in 1995 and think that you buy a stock today and double your money next week. This mindset is still very prevalent among individual investors and even with some institutions.
Danielle Hughes: I am buying, but I think we’re in a bear market. The Fed has been tightening, there’s inflation worries, and higher oil prices. But you can make money in a bear market. I think people should invest in companies that pay dividends, in other words, companies that pay you to be a shareholder.
Josh Wolfe: I don't care what economists say, people aren't rational. If there's any doubt to this, let me remind you that people once spent tens of millions of dollars on "Pet Rocks". A rock in a box. C'mon! The bottom line: people are emotional. Emotions lead to irrationality. Irrationality leads to market inefficiencies. And that means profits for shrewd investors. Greed and fear drives the market. The problem is we've met the enemy and the enemy is us. We wind up selling when we should be buying and buying when we should be selling. Stocks are on sale and it's a buying opportunity.
Tobin Smith: Last week was pretty strange. The dollar was going up, energy prices were falling off, and the Nasdaq, typically the bellwether for the future, was strongest index. I think if we see a 3-4 percent spike in the Nasdaq, it would be the best time to sell some of the old tech like Sun Microsystems (SUNW), Microsoft (MSFT), and Oracle (ORCL). However, I do like some small tech, energy, and infrastructure stocks.
Pat Dorsey: I don’t think investors are as pessimistic as most people think. Granted, not everyone’s as bullish as they were 5 years ago, but doesn’t mean everyone’s negative on the market. The best bargains are right under people’s noses. Home Depot (HD), Coke (KO), and AIG (AIG) are some of the big caps that were super expensive 5 years ago and have been left for dead. That’s where the opportunity is now. Also, moderate your expectations. Don’t expect the stock market to be a savings account that will return 10-12 percent every year. This is not going to happen. Stocks are trading at much higher valuations today. Expect about 4-5 percent from the market.
Want the best stocks to own based on the year you were born? The "Bulls & Bears" have "Stocks for the Ages:"
Dani: My best stock for twenty-year-olds is Sirius Satellite Radio (SIRI). It’s at a low price and the company quadrupled its revenue this year. Sirius has risk, but for someone so young with a long time horizon, that risk can be taken. I own Sirius. (Sirius Satellite Radio closed on Friday at $5.35.)
Josh: Sirius is doing a great job bringing in new talents like Martha Stewart, Jimmy Buffett, and Howard Stern. This is great for subscribers, but awful for shareholders because of the huge cost of their contracts.
Tobin: Thirty-year-olds should be buying EnCana (ECA), a very large independent oil and gas producer based in Canada. As thirty-year-olds age oil and energy is going to be less and less available. EnCana is adding long-term reserves and increasing production. I own the stock. (EnCana closed on Friday at $64.91.)
Pat: This is a very high quality company. I like that it is focusing on natural gas, because natural gas is not available throughout the world. But, I would wait to buy it at a lower price.
Josh: I really like FEI Corporation (FEIC) for forty-year-olds. It has an upside potential of betting on nanotechnology, but the of downside protection and exposure to the semiconductor industry. FEI has been providing infrastructure from early on, and usually, these are the companies that are the winners. (FEI closed on Friday at $19.10.)
Charles: FEI is too dangerous for that age group. I think it’s better for the twenty-year-olds.
Charles: My pick for fifty-year-olds is Johnson & Johnson (JNJ). It’s a household name and has tremendous management and execution. Plus, it pays a dividend. (Johnson & Johnson closed on Friday at $67.10.)
Tobin: This is a great pick and one to definitely own. Wait for 5 percent pullback and own it for the rest of your life.
Pat: For the sixty-year-olds, I like Diageo (DEO). It’s the world’s largest producer of alcoholic drinks with names including Johnnie Walker and Guiness. It replicated the Budweiser model of the U.S. global distribution. It pays dividend and there’s not much downside. (Diageo closed on Friday at $59.92.)
Dani: I love the company, but I don’t know about the stock. The stock has risen due to speculation of takeover rumors.
What’s bigger than the new "Star Wars" movie? $tock Wars: Episode III! Is the “force” with these stocks?
Tobin: The Jedi Master of stocks is Sasol (SSL). Sasol finds old gas and turns it into diesel fuel cheaper than anyone else. This company and its earnings keep growing. I own and recommend this stock. (Sasol closed on Friday at $23.88.)
Dani: This stock is at its all-time high. Its net income has been flat for the past three years. The biggest benefit that will move this stock forward is oil prices.
Pat: Sasol is a good company. Natural gas is hard to ship and transport across oceans. This company has an amazing technology that allows natural gas to be shipped more easily when compared to diesel fuel. However, I would wait to buy it in the mid-teens. The “dark side” of the force is with Sasol.
Dani: Microsoft (MSFT) is the empire of all empires. The pipeline of new products is tremendous, including the new Xbox 360. It has fantastic revenue growth and operating revenues compared to everyone else in its industry. The stock has been beaten up, so now’s the time to buy. I own this stock. (Microsoft closed on Friday at $25.30.)
Tobin: Microsoft has had very little growth, that’s why it’s paying a dividend. Xbox loses a lot of money each year and Longhorn, its new operating system, isn’t coming out for a very long time.
Pat: This stock is a winner. It’s a wonderful company and I think the earnings growth will come when Longhorn debuts next year. Xbox will make money down the road. Bill Gates thinks long term, so the force is with Microsoft.
Dani’s prediction: Bull market is over! Dow down 1000 points by 2006
Tobin’s prediction: Abercrombie & Fitch (ANF) is fabulous! Up 25 percent by year-end
Charles’ prediction: Legislation in the works that’ll benefit generic drugs
(Charles recommended Barr Pharmaceuticals (BRL) and Ivax (IVX).)
Pat’s prediction: Lloyd’s (LYG) gains 30 percent in 2 years & pays a 7.5 percent yield
(Pat owns this stock.)
Josh’s prediction: Nano-Tex & Molecular Imprints public by Christmas; buy when IPO pop cools down
Cavuto on Business
Neil Cavuto was joined by Joe Battipaglia, chief investment officer at Ryan Beck & Co.; Mike Norman, founder of Economic Contrarian Update; Leigh Gallagher, senior editor at Smart Money Magazine; Adam Lashinsky, senior writer at Fortune Magazine; Tom Adkins, agent at Re/Max Property Centers; Robert Kennedy Jr., author of "Crimes Against Nature."
The Bottom Line
Neil Cavuto: Will the greed of real estate brokers be the death knell for the housing boom? The Justice Department taking a close look at real estate brokers. It says they are trying to box out online competitors who are willing to sell your house for a lower commission by preventing those homes from being widely listed. Could this kind of greed put the housing boom at risk? Home prices are through the roof. But traditional brokers still charge a standard 6 percent commission. Online brokers charge a lot less. Some as low as 2 percent. Mike, what do think?
Mike Norman: Neil, for as long as anyone can remember those commissions have been at 6 percent. The National Association of Realtors will say that's just a number it arrived at through years and years of having done millions of housing transactions, but the fact of the matter is, there's some sort of passive conclusion going on here because we have not seen a reduction in commission. And in fact, that's really frowned upon. The FTC and the Justice Department are acting now because the NAR was trying to put through a rule change, which would've eliminated the ability of brokers to view certain listings online, and that is a form of shutting out price competition. What the housing market needs right now is more competition, and the National Association of Realtors is trying to fight against that, though the group has now bowed a bit to the pressure being put on it by regulators and said it will modify its planned rule change.
Neil Cavuto: So, Tom what he's saying is that all you realtors are thieves.
Tom Adkins: Commissions have dropped from 6 percent to 5 percent over the last 10 years. And real estate prices have almost tripled in the past 10 years. The terrible thing agents are doing to sellers is helping to put much more money in their pockets — for that we should all be fired?
Neil Cavuto: But home prices have tripled and quadrupled and you're still getting the same percentage on the sales.
Tom Adkins: No, we're getting a percentage less.
Neil Cavuto: Oh, come on.
Tom Adkins: Which by the way equals 17 percent less money.
Neil Cavuto: 17 percent less money on something that's quadrupled in value?
Leigh Gallagher: This is just one more example of how the Internet has made sweeping changes in taking out the middle men, and it’s about time it’s happened here. Take a look at car buying. Look at the tourism business. Real estate agents have enjoyed the party for the past 5 years.
Tom Adkins: People don’t go marching through your house when they're selling records. People go walking through your house on a daily basis when you're selling your house.
Leigh Gallagher: So what?
Tom Adkins: So what? Oh my god, the safety issue is huge. Who screens those people walking through your house? Who takes those calls? That's the reason you have a real estate agent.
Joe Battipaglia: I could have a security guard for less money. Let's look at it from Wall Street's perspective. Commissions were fixed and broken thirty years ago. Now we price compete at 1 percent. And you're telling me that 5 percent would make a big improvement? Transaction costs globally, and particularly in this country, are going down and down again.
Stuart Varney: Any industry always tries to protect a fat fee structure. But in the age of the Internet, you cannot do it. There are vast reductions in the cost to the consumer because of technology. You guys are going to have to struggle with this new technology just like all the other industries did. And you've got to give in.
Mike Norman: There's been an enormous increase in real estate agents. And that would suggest more competition at lower costs. But in fact that has not happened. If there's any proof that there is a collusion there, it's the expansion and the number of people working as real estate agents. But it has not led to any discounting in price.
Tom Adkins: Yes it has. There's a drop from 6 percent to 5 percent. We gave up one sixth of our income.
Neil Cavuto: Again and again, you're doing this though. You're saying you slide your rates back 1 percent when you just said home prices have tripled and quadrupled. 5 percent on a piece of property that's up to $800,000 from $200,000 is still better than the 6 percent you earned on $200,000.
Tom Adkins: But everyone's gotten a raise over the last 10 years.
Neil Cavuto: That's not a raise. That's a killing.
Tom Adkins: Well everyone's gotten killer raises. I've been in real estate for 21 years. I'm licensed in Pennsylvania and New Jersey. I've seen commissions as low as 3 percent and as high as 7 or 8 percent depending on what the market is.
Neil Cavuto: So why are these changes getting such attention?
Tom Adkins: The discount brokers are giving less service, less safety and less confidence. The trade-off is: are you willing to sacrifice service and safety with the most important, expensive investment you've got to your name?
Leigh Gallagher: We're not saying brokers are going to go away. They can pay more to have you.
Tom Adkins: So bring the agents in and say, "What's your commission, sir?," "What's your commission, ma'am?"
Neil Cavuto: And let the customer roll the dice.
Joe Battipaglia: Would you support an a la carte menu of services, breaking down the value of the services you provide and let the consumer pick and choose?
Tom Adkins: You actually have it already. Ask a broker to come and say what will you do for me?
Joe Battipaglia: Oh no, no. I'm talking about everything from the walk throughs, to the inspections — whatever it is that you do as an a la carte menu. So if I want to pick and choose and have people through my house between 3-6pm I can do that. And save on my cost to you.
Tom Adkins: Not exactly and here's the reason why. You as a consumer may not realize how important it is to pass up on a safety issue.
Joe Battipaglia: But if you explain that to me and I still don't want you to do it, would you support it?
Tom Adkins: No, because if your seller says: “I don't want that service,” and someone comes in the next day and murders his mother, guess what? You're getting sued anyway.
Neil Cavuto: Stuart, you're good at reading the overall industry right now. A lot of people say when bubbles burst, it happens with stuff like this. Is this the stuff that could do it?
Stuart Varney: First of all it's not a housing bubble, it's a prolonged housing boom. I think it's coming to an end. A sure sign that it's almost at an end are these hucksters out there telling me I can make a fortune with no money down in real estate. That's a sure signal that it's hit a plateau.
Neil Cavuto: When you say plateau, where does it go?
Stuart Varney: Depends which market you're talking about. There are some markets that resemble bubbles. Naples, Florida, and parts of New York resemble a bubble.
Neil Cavuto: So when they're pricked, what happens?
Stuart Varney: Down 5, 6, 7 maybe 10 percent — which is significant. I am currently a real estate single-family home seller. I'm out there selling what I've got.
Neil Cavuto: Are you buying anything else?
Stuart Varney: I'm buying land. There's a much greater risk of a 10 percent loss in single-family homes than there is in a 10 percent gain.
Neil Cavuto: So you'd better hope the fool who buys your place hasn't heard you on this show.
Stuart Varney: Yes, as a matter of fact.
More for Your Money
Neil Cavuto: Tech stocks have taken a beating so far this year. So could that sector have the best bargains right now to help you get more for your money? Adam, what's your tech bargain?
Adam Lashinsky: It's Novellus Systems, Neil (NVLS). I believe that semi-conductors will come out of their down cycle, and go into an up cycle. So I did a screen of technology stocks. I wanted things that were down; things that were cheap on a price to sales basis, and things that were growing. I came up with Novellus. This stock hasn't had the greatest news lately, but analysts are projecting a 40 percent earnings increase next year. Already you can see investors are starting to see good things, as we saw the stock started moving up at the end of the week.
Mike Norman: I'm not convinced because we just saw a few days ago very weak orders for chip equipment makers. It doesn't look good in the forward outlook because we're seeing reduced business spending and investment. The tax-cut benefits are fading off this year. I just don't see where the big investment up tick is going to come from.
Neil Cavuto: Leigh, what do you have?
Leigh Gallagher: One of the stocks I really like right now is Cisco Systems (CSCO). Possibly, the quintessential '90s tech stock. It crashed and burned and recently it has sort of danced around a bit. But it saw some great news this week. Earnings that actually went unnoticed.
Neil Cavuto: Maybe they went unnoticed for a reason though because these are like one-quarter wonders.
Leigh Gallagher: No, this company is gaining market share in all of its categories. It's got big potential in voice over the Internet phone service.
Adam Lashinsky: Cisco is so big that it just has problems growing. So with every quarter with Cisco — even a good quarter like the current one — something's wrong. Last quarter the core routers weren't growing so well, but their newer products were growing well. This quarter the core businesses were growing well, and their newer products weren't growing so fast.
Neil Cavuto: Joseph?
Joe Battipaglia: Capital spending is coming along nicely and evenly across the quarters. MicroStrategy (MSTR) is at about half the price it was. It trades at 12 times earnings, eight times cash flow. I think it's the time to go in. The one caveat is that management there does not present well when talking about the company.
Neil Cavuto: Well, what does that tell you?
Joe Battipaglia: Well, it means they're trying to stick to Sarbanes-Oxley, but probably a little too closely. The fundamentals are right, and therefore the stock is attractive.
Mike Norman: Joe, I just need to correct you on one thing. Capital spending has come across nicely but the key word is "has." It's in the past. If you look at first quarter GDP there was a significant downturn in spending on equipment and software. The other thing I don't like about this stock is, it looks like an interesting company, but there's a lot of insider selling. Why is that?
Joe Battipaglia: Well, they do have a big stake in the company so they take some of that and diversify.
Neil Cavuto: Do you own this puppy by the way?
Joe Battipaglia: We own this.
Neil Cavuto: Ok, Mike what are you buying?
Mike Norman: I'm buying Microsoft (MSFT) and I own it. This to me looks like the IBM of 1991, 1992. The stock has lost so much value. It still generates enormous amounts of revenue. They'll be coming out with Windows Longhorn next year. They're taking on Google, which I think is ridiculously over priced. I think Microsoft is going to come up with a competitive search engine to Google.
Neil Cavuto: Don't they have a search engine? Isn't MSN like a search engine?
Mike Norman: They're supposedly working on a better search engine that will be more competitive to Google.
Leigh Gallagher: Microsoft is a great company but it is so big that it's like a tortoise. The XBox came out this week.
Neil Cavuto: There's nothing wrong with big.
Leigh Gallagher: No, no but where's the growth. It could be a smash hit and you'll just never see it.
Joe Battipaglia: Both Cisco and Microsoft have lagged for quite a while. And the earnings have been coming in and filling the void. So the multiples now make them attractive.
Neil Cavuto: Isn't Microsoft still expensive on a multiple level?
Joe Battipaglia: It's getting cheaper because the stock has languished.
Head to Head
Neil Cavuto: Is your SUV not only bad for the environment, but also our economy and stock market?
Robert F. Kennedy Jr. joins me now. Robert, back in December here at FOX you said America's carmakers were making a huge mistake by pushing sales of SUVs instead of more fuel-efficient cars and hybrids. Since then sales of SUVs are down, demand for hybrid cars has doubled, and both Ford and GM are paying a price with falling stocks and lowered debt ratings. Can they catch up?
Robert Kennedy Jr.: Detroit is digging its own grave the same way that they did back in the '70s when they let the more efficient Japanese cars come and take the market away from them during the first fuel crisis. Now our gasoline prices are expanding again. 41 percent of Americans say that when making their next car purchase, fuel efficiency is going to be one of their primary selling points. And the Japanese really own this market. 96 percent of hybrid sales go to Japanese manufacturers. And hybrid sales have gone up 1000 percent in the last three years. Toyota is doubling sales of its Prius every three months. It's still a very small part of the market, but at that expansion rate, it very soon is going to be a huge part of the market.
Neil Cavuto: But why would it be damaging to the economy if the American manufacturers were simply caught off guard. If it is a re-enactment of the '70s, they'll be late, but they'll get to the party, or if they can't make it they'll merge with stronger players that can make it — DaimlerChrysler comes to mind.
Robert Kennedy Jr.: It's two things. Number one, if we lose our manufacturing base what does that do to our balance of payments? If all the money we're spending on American products is now going to foreign manufacturers, that's not good for America.
Neil Cavuto: A lot of these foreign manufacturers, including Toyota and Lexus, have plants in the United States. So it's not as if it's exclusively going abroad.
Robert Kennedy Jr.: That's true, but now more and more the parts are manufactured abroad. Those plants are almost assembly plants. The parts are going to other countries. The companies are no longer controlled by Americans. The other problem is that the less fuel-efficient cars are of course bad for our economy because they increase our dependence on foreign oil. We're now spending $300 billion in Iraq. We spend $20 billion a year that we send to Saudi Arabia.
Neil Cavuto: Let's not go off topic. My biggest concern is, I think you're right, conservation certainly will have a part in erasing our energy dependency, but so will looking for oil in this side of the globe, right? But you're against that. Why?
Robert Kennedy Jr.: No, I'm not against looking for oil in this part of the globe. But I am against drilling in the Arctic. By the best projections, the Arctic has .02 percent of global reserves of oil. Even the Cato Institute, the conservative right-wing think tank, says that the claim that the Artic oil will in any way reduce U.S. dependence on foreign oil is nonsense.
Neil Cavuto: So the $8 million barrel per day figure I hear out of folks is just a lie?
Robert Kennedy Jr.: We can double the amount of oil that's in the Arctic simply by raising fuel economy standards by one mile per gallon. And that's available immediately. But even if we could get those figures from the Arctic, it's ten years away.
FOX on the Spot
Tom Adkins: Dow 12,000 by year end, but real estate does better!
Adam Lashinsky: Summer rally! Profits picking up; stocks follow.
Leigh Gallagher: "Star Wars" ends box office blues; buy Regal (RGC).
Mike Norman: Buy with blood in the water; GM going up 25 percent.
Joe Battipaglia: We'll shop till we drop; buy Aeropostale (ARO).
Neil Cavuto: The filibuster is dead, and it should be. Nowhere in any other business or part of life can the minority dictate to the majority. Republicans will kill it, yet even regret it if they're ever in minority. But kudos to getting rid of this stupid privilege!
Forbes on FOX
In Focus: Is Global Warming a Big Scam Costing America Billions?
Steve Forbes, editor-in-chief: It's fake. Temperatures have hardly changed in the last hundred years. We had a mini ice age between 1300 and 1700. We've been recovering from that. So this is something that is just out there, and if you're in the scientific community and try and fight it they try and crush you.
Quentin Hardy, Silicon Valley bureau chief: The earth's temperature is increasing 40 to 80 times the rate seen since the last ice age 20,000 years ago. That's information from NASA. This is a very real event.
Jim Michaels, editorial vice president: If you believe that, then you believe in the flatulent dinosaur theory, gas from dinosaurs warming the earth. We had warming and cooling periods in the whole history of the earth before there were human beings around.
Victoria Murphy, staff writer: I think global warming is very real. It's hard because you can't see or smell carbon dioxide. It's not like air pollution, which is local. Carbon dioxide levels in the atmosphere have gone up 30 percent since the industrial revolution. A panel commissioned by President Bush looked at what all of these smart scientists have said and found yes, if we look at the data and stretch it out over time, temperatures are rising, and billions of dollars are at stake. We're talking agriculture, skiing. . .
Mike Ozanian, senior editor: The science is very murky. Shareholders should decide. I know GE is spending a lot of money on this. Personally, if I were a GE shareholder, I'd want them to use that money to increase the dividend. The fact of the matter is, the world is going to end one day no matter how much companies spend on global warming. I don't know how the science is going to play out, but nothing is going to change that.
Lea Goldman, staff writer: First of all, the amount that GE is going to spend on this is $1.5 billion. It's less than 1 percent of GE’s revenues, and it's a fraction of what these companies spend lobbying Washington against regulation, which is what this is really about. The science is established, and it is overwhelming.
Jim Michaels: GE is pursuing its own interests. They make gas turbines that burn natural gas. It's very expensive fuel and puts up the price of electricity. But they want to sell these turbines so all of a sudden they are embracing global warming. It's pure self-interest. It has nothing to do with idealism.
Quentin Hardy: Jim you're saying that business is pursuing something for its self-interest and somehow that might be against also helping things out.
Jim Michaels: That's what they're supposed to do; they're supposed to pursue their self-interests. Global warming helps to sell turbines.
Steve Forbes: We now know that 900 years ago temperatures were warmer than they are today. Around 1300 they started to cool and then around 1700 they started to warm up again. Weather changes whether we're here or not, and to spend billions of dollars and wreck economies in the name of this superstition is ridiculous. If these people really do believe that it's going to happen, do a computer model. Let's see if 10 or 20 years of that model is correct in predicting future weather patterns instead of leaping off a cliff like this.
Quentin Hardy: The evidence is here now. In the Andes they find fossil plants that haven't been around for 20,000 years. Why? Because the glaciers are retreating so far that these things are finally exposed.
Lea Goldman: The point here is, whether or not it costs companies and stocks. And it's not! The amount that these companies are putting forth toward ecologically sound technologies is good for the economy.
Victoria Murphy: I agree entirely. And the incentives for renewable sources of energy like wind and solar power are a sliver of the tax credits that go to oil, that go to nuclear power, that go to coal.
David Asman, host: So I guess the point is that it couldn't hurt. It's just a little bit of money, why not spend it on that?
Jim Michaels: It's not a little bit of money. You're asking us to bend our economy totally out of shape. If you really believe in curbing pollution, get out and start demonstrating in favor of nuclear power. Nuclear power burns clean, it's cheap. Environmentalists won't do it because it's too pro business.
Mike Ozanian: Victoria hinted at what this is really all about. This is about getting tax breaks, tax subsidies and all these other benefits. This has nothing to do with what global warming is all about.
Quentin Hardy: I just don't see how you can stand against all this science that says that this is happening. Business has realized mistakes in the past and cleaned up after them.
Flipside: Having an Emergency Oil Reserve Is Bad for America!
Peter Newcomb, senior editor: Every month the U.S. government buys a couple million barrels of oil and stock piles it in our strategic oil reserve. Apparently it's to be used on a rainy day later. It's a bone-headed policy that has created an artificial sense of demand and is a big reason that oil is trading around $50 a barrel.
David Asman: So we should sell this stuff and just flood the market?
Jim Michaels: I think that would be irresponsible. You'd get a quick fix; you'd drive down the price of gasoline this summer; you'd punish the speculators. That's all good, but we forget that our whole economy runs on oil. Ten million barrels a day imported. If that were disrupted, if we lost even 10 percent of those imports, our economy would be devastated.
Quentin Hardy: The petroleum reserve is up to 700 million barrels, near capacity and guess what? That amounts to 35 days of use in this country.
Jim Michaels: If the sea lanes were disrupted by terrorists. If the flow of oil were reduced by 10 percent-20 percent -- there would be hell to pay in our economy. Those 700 million barrels are serving notice to our enemies that they can't paralyze us.
Victoria Murphy: I agree with Jim. Getting rid of the reserve wouldn't do a whole lot to prices. The strategic oil reserve purchases about 100,000 gallons a day. We're consuming just in America, 20 million barrels. So we're talking about 1/200.
Steve Forbes: I think the petroleum reserve is raising prices because the speculators note that at the end of the day, the government will always be in the market for buying this stuff. We have more than enough on hand to deal with any kind of emergency. So all we're doing is propping up prices. If the White House would just stop buying it, we'd reduce the price of oil by $5-$10 a barrel.
David Asman: What about just the cost to the government? We bought this oil for about $18 billion, about $27 a barrel. If we sold it now we'd make a heck of a profit, like $35 billion.
Victoria Murphy: You're taking a short-term gain and creating a really long-term risk. This reserve is largely symbolic. If our oil is cut off, it will last us at the most two months. It's a symbolic thing that says: “If oil gets cut off tomorrow our economy can still flourish.”
Steve Forbes: We're aiding our enemies by raising the price of oil and therefore having more money pumped into the Middle East. Oil prices like most things are set at margin. Everyone knows that the government is always a buyer in that market. It helps prop up the price.
David Asman: What happens if we do have a crisis and we are cut off?
Quentin Hardy: If we are cut off for a couple of months, drawing down a reserve which would take two weeks to get started and give you only 35 days of running room would do you very little. And those oil producers around the world will sell to you.
Jim Michaels: What would happen if you live in the Northeast, like I do, and we lose a couple million barrels of imports a day. I don't want to freeze. I don't want to be unable to get to work.
Steve Forbes: In a crisis the reserve is not going to be helpful. If we have a crisis on the sea lanes we can deal with it very quickly. This is more of a symbol rather than a reality.
Peter Newcomb: Steve is right. There are other nations that will happily sell us their oil. We can get it from China, Russia, Saudi Arabia.
The Informer: Blockbuster Stocks
Victoria Murphy: I like Pixar (PIXR), which is Steve Job's creative genius. Don't bet on Apple or the iPod, that's yesterday's story. Look at Pixar. They are 6 for 6 on hits. Think of "Monsters Inc", "The Incredibles", "Finding Nemo". They're really smart, and they're coming out with a movie called "Cars" that I think will be a great hit. They haven't had a bad one.
Heidi Brown, senior reporter: What's in the pipeline? That's my question. "Cars" is going to be great, but then what? Pixar is a one-trick pony.
Victoria Murphy: They'll create another hit. I think they are creating a brand of animated movies that appeal to children and adults. That's very hard to do. And their DVD sales are great, and that's how these companies make a lot of their money.
Heidi Brown: I have a company that actually has a pipeline. It's called DreamWorks (DWA) and it's got three other movies after the blockbuster that's about to come out it two weeks, PG-rated "Madagascar". This is a really good opportunity for investors right now.
Lea Goldman: I'm not in favor of Pixar or DreamWorks for the same reason. I think the market is getting glutted with animated companies including Disney, Sony and FOX. How many animated movies can one person see? But, I'm recommending Disney (DIS) and it is also releasing Pixar's "Cars" this summer. But it's also responsible for "Desperate Housewives", which is the show of the century. They've got a new chief and he has big plans.
David Asman: I bought Disney for my son years ago when he was a kid and it hasn't moved.
Lea Goldman: The parks are overhauling their rides, which haven't seen refurbishment for years. It's a good time to buy.
Mike Ozanian: I like General Electric (GE) whose movie unit, NBC Universal, is going to produce "Cinderella Man". It's going to come out this June, I've seen the trailer, I think it's going to win an Academy Award. The total profits from the movie will hardly put a dent in GE, but just because I think it's going to be such a good movie, you should buy it.
Victoria Murphy: With GE you're betting on the market. A movie isn't going to make a difference. Steve Ballmer told business students this week that he can't make sense of GE's financials. Now I own GE stock, and that certainly made me think twice.
Makers & Breakers
• CKE Restaurants (CKR)
David Nelson, president of DC Nelson Asset Management: MAKER
They own Hardee's and Carl's Jrs. It's important to understand that we're talking about a company that has literally come back from the dead. This company was near bankruptcy just a few years ago, hovering around $3 per share. Management has done a wonderful job turning this company around. They are paying down debt. Best off all, they've instituted a dividend.
David Asman: You say it's going to go up 50 percent to $22 (Friday's close: $14.93)
Mike Ozanian: MAKER
I'm a maker. 50 percent might be a little too ambitious, but I think it's a great stock.
Jim Michaels: BREAKER
This stock has come back from the dead. It's quadrupled. It's discounted that. Now it's got to prove its margins, and that's not in yet.
• Lions Gate Entertainment (LGF)
David Nelson: MAKER
Lions Gate Entertainment is one of these small movie production companies that fly underneath the radar. No one really knows them except for the financial managers out there. You've got a catalyst right now. First you've got big studios. They have big budgets and big stars. This stock is going up.
David Asman: You think it can go to $15 in 12 months. (Friday's close: $9.33)
Jim Michaels: BREAKER
I'm against it. It's tainted money. They did "Fahrenheit 9/11"
Mike Ozanian: BREAKER
I'm a breaker too. They're losing money and drowning in debt.
David Nelson: That's ridiculous. They're generating a ton of cash. They've got a 6,000 film library.
Stock Smarts: New Tax = Bull Market?
New taxes on Americans that could actually jumpstart the economy and the stock market? Some say dumping the federal income tax and replacing it with a national sales tax could be the best thing for the economy and the stock market.
So is taxing what we buy instead of what we earn the way to go?
Jonathan Hoenig, Capitalistpig Asset Management: Yes. Let’s not forget that an income tax is one of the big planks proposed by Marx in the Communist Manifesto. Forget the fact that it's communist; it is incredibly inefficient. We spend $500 billion a year just in tax compliance in this country. We spend seven billion hours, about two full days per person, just figuring out what we owe. There are 1.2 million tax professionals in this country, six times the amount of troops in Iraq. And the tax code is 56,000 pages right now. Who can understand this? Flat tax, national sales tax, we can understand.
Terry Keenan: Wayne, last time I looked, it’s the consumer that is keeping this economy afloat. Put a tax on them and what happens?
Wayne Rogers, Wayne Rogers & Company: The part I love is that Jonathan thinks we're all subversive because we’re paying tax. How else are you going to support the federal government? You may disagree with a lot of it, but you have to support some of it. If you don’t want to support the military...
Jonathan Hoenig: You do want to support the military, but you want to tax what you consume and not what you save and earn and invest.
Wayne Rogers: The argument against that is that states are already doing that. You can't make enough money this way by doing a sales tax. You will put the retailers out of business.
Pamela Day, Crimson Advisors: I agree with Jonathan that it is hard to find someone in the United States who doesn't believe the tax code needs a massive overhaul. However, being a junior economist at best, and I don't know if anyone else has an economic background, let's get back to economics 101. If you slow down the speed with which money flows through the economy, you slow down the economy itself. The economy, the last doldrums of our economy, we got pulled out by the consumer spending in the United States. It is hard to imagine that a 30 percent tax on top of any sort of consumption wouldn't change consumer behavior. Of course it would. What you have to ask yourself is, ‘is this going to increase productivity of the United States worker?’ Probably not. And is this going to increase foreign investment in the United States? I think absolutely not.
Jonas Max Ferris, MAXfunds.com: It is like a hybrid car. You need a little of both. I am for both taxes because Hoenig is a little right, but Wayne is right, too. Spending supports this economy and that is why our stock market has been better than any other stock market in the last 50 years. We don't save a lot. If you encourage too much savings, you just juice up the valuation of stocks. Companies earn money from people spending, so you want a little sales tax to get rid of income tax.
Terry Keenan: Dagen, that is like being a little pregnant.
Dagen McDowell, FOX Business News: It is kind of either or. If you try and do a little bit of both, and frankly, in practice if you try and implement the national sales tax, Jonathan, it will be a disaster and cost a bundle. For one, you’ve got lower and middle income Americans who spend a greater percentage of their income on necessities. It’s going to whack them. And what about retired people who have already paid income tax?
Terry Keenan: Chris, it is hugely repressive.
Chris Russo, GunnAllen Financial: This is obviously a ridiculous idea. It is taking the tax burden and moving from the upper class to the lower and middle class. I pay $100,000 a year, roughly, to federal and state. If we would have changed the law, I would be paying $30,000 a year, so for me it’s phenomenal. But you will chew away the country to upper and lower class and I don't think it's the right way to go.
Terry Keenan: Wayne, what about the stock market? It's been rocky. Would it make a difference if we had consumption tax versus income tax?
Wayne Rogers: Yes. It is a major adjustment in the economy. It is not just a shifting of the burden, but it will require a lot more money. Right now, for example, the federal and the state government can tax a number of things like gasoline. We’ve seen what happened to the price of gasoline. The great majority of that price is not the fact that it's at a high price, but the tax that is the big factor. You pay a different price in different states. The same thing would happen with the sales tax. And you have to make up an enormous amount of money. Maybe a little bit of each might work, I don't know about that. But in the long-term we’re going to have to figure that out.
Pamela Day: Trading on the market — if anyone believes it would actually juice an equity market, I think it would be very shortsighted, and it would be because traders don't understand economics. If you look a little bit deeper, it really isn’t going to change GDP. It would actually slow it down.
Dagen McDowell: And it would also crater the housing market if you got rid of the mortgage interest deduction.
Pamela Day: Absolutely. Think about travel and tourism and outsiders buying in the United States. Would someone from Europe come and buy something here?
Terry Keenan: Defend your position, Jonathan.
Jonathan Hoenig: That’s a perfect example. Outsiders buying from the United States, they’re going to pay an income tax. Visitors coming to the United States will pay the sales tax.
Terry Keenan: That is really going to help. It’s going to be, what? $20, $30 billion a year.
Chris Russo: The biggest market that would occur would be the black market. Shoplifting would increase tremendously. People don't realize small things like this. People will be stealing more. There will be a lot of knock-offs.
Terry Keenan: But Jonathan does make a good point. It is easy to evade lots of income taxes.
Jonathan Hoenig: And the rich are the one who is do it.
Wayne Rogers: Nothing like evading in the underground market and the cash market. Jonathan, I think you have let politics get in front of your economics here.
Dagen McDowell: Politically you can never get this thing through, frankly, because of what it would do to retired folks. AARP, incredible lobby, it would never happen. What are you going to do? You already taxed their income and then you’re going to tax what they spend in retirement when they’re not working. It doesn't make sense.
Pamela Day: Dagen is right. It would never get passed. I have tried to research to find any economist or politicians who are behind this –
Jonathan Hoenig: Alan Greenspan! Alan Greenspan!
Pamela Day: Come on, Jonathan. Alan Greenspan gave it a kind nod and a wink. He is not behind this.
Wayne Rogers: Hold on, Jonathan. There is some question as to whether Alan Greenspan is an economist. You have to establish that first.
Terry Keenan: Jonathan, I am kind of surprised you want the same tax system that Europe has in terms of very heavy sales tax. I know they have other income taxes as well.
Jonathan Hoenig: They do, Terry. But was it the 16th amendment that established the income tax? It is un-American at its face. And Pam, it is terrible economics and penalizes earnings and the most productive members of society. You institute a consumption tax like a national sales tax and it is an incentive towards more productivity.
Dagen McDowell: Maybe it is great in theory, but the government will muck it up. They would never be able to do a big, flat, national sales tax. There would be all these items — it applies to this and doesn't apply to this.
Jonathan Hoenig: The only exemption you need is on the poverty level. Maybe the first $20,000 of spending a year is tax-free. So the poor and the elderly, the folks who don’t have so much money, get a break. It’s the smartest way to move forward.
Jonas Max Ferris: America exists because of taxes. Every war was spent with tax revenues. Don't say it's not American to have taxes and that it’s some crazy communist thing.
Terry Keenan: There was no income tax until 1914.
Jonas Max Ferris: But I will say you can get rid of the taxes for poor people and just have sales taxes. Just have it for higher income people.
Question: “I recently joined the Army, and I have a bonus of $8,000 that I want to invest. What’s a good strategy for me to start out with?”
Wayne Rogers, Wayne Rogers & Company: Don't go across the river to Phoenix City. You will lose the money. I think if you have $8,000, I would put it in the bank right now. I know that sounds very conservative. When I say put it in the bank, I mean in E bills or some place very safe.
Terry Keenan: We didn't get a chance to talk about the market earlier, but this is a reflection of your nervousness, right?
Wayne Rogers: Correct. Look, it is an irrational market, so when people report record earnings and the stock goes down 20 percent, there is something wrong. I would say to him put it in the bank right now.
Terry Keenan: Take a vacation from investing. Dagen?
Dagen McDowell, FOX Business News: He has a long time to invest, Wayne. He can put it in the stock market. Here is one option. The T. Rowe Price Retirement 2040 Fund (TRRDX). You get stocks and bonds. It own 10 T. Rowe Price funds and it ages with you. It will take on less risk as you get older.
Jonathan Hoenig, Capitalistpig Asset Management: What is the minimum on that fund?
Dagen McDowell: $2,500. I do not own it, by the way.
Jonathan Hoenig: Maybe he can start with some investment. If this is his only $8,000, most people think they should start off by paying off credit card debt and finding a place to live, but maybe you can start with some initial investment in a broad, diversified mutual fund and slowly add money over time. I think Wayne is right. I don't think a big lump jump into the stock market right now is a brilliant idea.
Terry Keenan: What is ailing the stock market?
Jonathan Hoenig: Lower prices. Lack of leadership.
Wayne Rogers: I know the answer to that. There are more sellers than buyer.
Question: “What does the crew think about Sears Holdings (SHLD)?”
Dagen McDowell: If you are shopping for a washing machine, go to Sears. If you are shopping for a stock, look elsewhere. The whole goal of this marriage is to cut costs and boost sales. Boosting sales is the tough part. Sears will be selling some of its products like Kenmore washers; and maybe Kmart will be selling Martha Stewart sheets at Sears. But it is not clear that this strategy is going to let these two chains compete with Wal-Mart (WMT) and Target (TGT).
Wayne Rogers, Wayne Rogers & Company: Eddie Lambert (Chairman, Sears Holdings) is doing a terrific job there and I don't know whom he brought in as his operating people, but they reported better earnings recently. They’ve just done a terrific job.
Jonathan Hoenig: Have you been in the stores? They are disgusting. I wouldn't buy a rattrap at Sears right now.
Wayne Rogers: They are not catering to you. They are catering to more of the general public.
Jonathan Hoenig: The stock isn't appealing. It is up 30 percent in the last couple of months and I would rather buy 7-Eleven (SE). We don't own it, but it’s a more timely idea to me right now.
Wayne Rogers: But you wish you owned it.
Jonathan Hoenig: Should have, would have, could have, right? That’s the name of my game.
Question: “I’m looking at buying Nasdaq (NDAQ). Is this a good price for the stock?”
Jonathan Hoenig: This exchange consolidation is really hot, but I don't know, there is a gap on my stock chart for Nasdaq that I tend to think is filled. I would rather own the International Securities Exchange (ISE), the major options exchange. We don't own it, but to me that would be a more lucrative bet than NDAQ right now.
Wayne Rogers: As you know, I got stopped out of the Chicago Mercantile Exchange (CME). I believed in a lot of those stocks early on. I’m not so sure right now. I agree with Jonathan right now. I wouldn't necessarily touch them.
Dagen McDowell: Betting on the Nasdaq is like doubling down. You’re already in the stock market. Now you’re betting on a business that’s based on the market.
Question: “With the volatility of oil prices, is it worth it to hold my position in Exxon Mobil (XOM)? Should I add to my position?”
Wayne Rogers: I have owned it for 20 years, I guess, and I’ve seen it go up and down, and always held onto it over that time and I don't know what my rate of return has been, but it's been pretty good. I don't know that I would add to it at this price. Oils are out of fashion with a lot of institutions. Over a lifetime, it’s the heck of a company.
Dagen McDowell: Absolutely. It's the Microsoft (MSFT) of the energy business.
Jonathan Hoenig: But what would he add to it? Terry if he has a losing trade, I think the answer is absolutely not.
Terry Keenan: You mean our viewer.
Jonathan Hoenig: Listen, Wayne has mega bucks, we all know that. I would not add to a loser. I think that is your first big mistake. I don't see a lot of them doing well and if he is long for higher prices, he should be setting stops, not adding to his position.
Cashin' In Challenge
Check out the $10,000 Cashin’ In Challenge at: www.foxnews.com/challenge
Best Bets: 'Apprentice' $howdown!
Forget about Donald Trump. He is nothing compared to the chairman of our "Cashin' In" boardroom. Pamela and Chris are no strangers to the boardroom. Both competed on "The Apprentice" last year. They are going to try to sell us now on their top stocks. But our very own Wayne Rogers is even more formidable than the Donald.
Chris' Pick: Teva Pharmaceutical (TEVA)
Friday’s Close: $32.58
Chris Russo, GunnAllen Financial: This is one of the largest generic drug makers out there right now. I think with all the patents expiring, you’ve got around $14 billion coming due by 2006. This is a true growth company, with only 600 million shares outstanding. This is one to own and hold.
Terry Keenan: Do you own the stock?
Chris Russo: I own the stock. I think the stock will go tremendously higher. I think it's a great growth company.
Terry Keenan: Pamela, what do you think about Chris’ pick?
Pamela Day, Crimson Advisors: I don't think it's an unwise pick, but first of all, it’s trading near an all-time high and it’s not cheap. You have to push through that and believe the growth story. Here is something to think about; this company survives and thrives on litigating intellectual property in the pharmaceutical industry. So they are constantly pushing the envelope on IP related stuff. Sometimes they win, sometimes they lose. I’m bearish on the risk.
Wayne Rogers: I like it. Yes, I do like it. I have owned the stock in the past. I do not own it now, but I like it.
Pamela's pick: Nissin Co. (NIS)
Friday’s Close: $4.11
Pamela Day: My pick is Nissin Co. (NIS) which is not the motor company, nor the food company. This is a company that's trading its ADR’s (American Depository Receipt) on the U.S. exchange. It is a Japanese company that makes small business loans in Japan and throughout Asia. It is now breaking into the Chinese market. It’s thrown off dividends and huge amounts of cash.
Chris Russo: This might be a good company if you are the type of investor that wants to buy 100 shares. The average volume on the stock is 4,000. If you are trying to sell the stock, the liquidity isn't there. You must really like the fundamentals and hope something happens long term.
Wayne Rogers: This is a high-risk stock. I would say no, good-bye.
Terry Keenan: It’s fired. Pamela do, you own it?
Pamela Day: I do not.
Stock of the Week
Last week’s pick from John Curran’s was Pfizer (PFE). For the week of May 9 –13, PFE went up 1.6 percent.
Our bookworm Jonas is back, and he can't put down Barnes & Noble (BKS). Jonathan and Chris will skim through the pages and read the cliff notes and tell us whether this one is a page-turner or a bore. Jonas, make your case for this one.
Jonas Max Ferris, MAXfunds.com: Barnes & Noble is reporting earnings next Tuesday. Everyone thinks the business stinks. I think it's a little better than we think. Boomers are going there as a place to hang out, a destination. The stock’s been doing very well this year. I say it continues to beat people’s expectations next week.
Chris Russo, GunnAllen Financial: I don't despise the company, but the stock is up 50 percent over the course of the last six months. In this environment, the stock is where you want to take profit as opposed to buy it.
Jonathan Hoenig, Capitalistpig Asset Management: I usually think Jonas comes up with the worst dreck for his stock picks, but I have to say Jonas, I think you actually have a winner here. The private equity guys are running crazy in specialty retail now. Toys R’ Us (TOY), Neiman Marcus Group (NMG.A). This stock has a bid. It is at 1998 highs. I wouldn't fight it right now.
Terry Keenan: Are you saying there might be a real estate play here or not?
Jonathan Hoenig: Everyone has heard about Wal-Mart's (WMT) trouble, but a lot of the specialty retailers like Barnes & Noble have been...
Jonas Max Ferris: Think of it as a high-end retailer, not a book retailer and you’ll be much more psyched about this stock.
Chris Russo: Jonathan and Jonas are on the same page — I might have to change my mind.
Terry Keenan: Typically, at least in my family, you need a book, you go on Amazon.com (AMZN). You don't go to Barnes & Noble.
Jonas Max Ferris: Because you’re all hard-working people, but when you retire, you will have all this time and you’ll want to hang out at the super centers with the Internet access —
Chris Russo: Are they buying the book or just hanging out and reading?
Jonas Max Ferris: They’ve got the coffee that they’re making money off of, and they’re buying books as gifts and stuff. I think book reading is going to go up as the boomers retire.
Terry Keenan: You are pro book reading and bifocals. Jonathan, any of the other specialty retailers stand out to you?
Jonathan Hoenig: To be honest, I can’t believe I’m agreeing with Jonas, but I think Barnes is probably the strongest of the bunch.
Jonas Max Ferris: A miracle.
Terry Keenan: It is. Chris, you just think you put your money elsewhere.
Chris Russo: It’s not a bad company. I just think it's a little high here and I think it’s time to cash in as opposed to buying.