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
Brenda was joined by: Gary B. Smith, columnist for RealMoney.com; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, editor ChangeWave Investing; Scott Bleier, president of HybridInvestors.com; and Joe Battipaglia, chief investment officer of Ryan Beck Co.
Trading Pit: Bulls Back in Charge?
What a difference a month makes!
Remember four weeks ago? The Dow was a hair above 10,000 and tech was a wreck in the Nasdaq.
But since then, the Dow has gained 5-percent—much of it last week alone. And as for the Nasdaq, it’s even hotter, up 7-percent in the past month.
Are the bulls back in charge?
Gary B. Smith: Absolutely. I think the market will have a good summer because most people still hate the market. But unemployment has dropped, inflation has been tamed, and the economy is chugging along. Stocks can go even higher because enough people right now hate the market.
Pat Dorsey: I don’t know if the bears have actually in charge recently. The S&P 500 was down only about 5 percent before this rally. I still think, at best, we’re going to finish flat this year. Rates are rising and earnings growth is slowing. But this is actually good news. If stocks are flat this year and if earnings continue to grow slowly, stocks will be cheaper at the end of the road.
Joe Battipaglia: What I like most about the rally that we’re having right now is that fundamentals are driving back the fears we’ve had all year. The Federal Reserve is going easy on raising interest rates. Inflation is at zero. And if profits come in at 10 percent, we’re in good shape. Also, the economy isn’t flattening out, it’s accelerating again. There’s enough fuel to get this market heading higher.
Tobin Smith: Stocks are the place to be right now. There was too much fear in April, and it still hasn’t gone away. Earnings growth will be slightly higher for the next quarter. Bonds are too expensive and corporate bonds are tanking. This is the right time for stocks. The market took off without hedge fund money. Buy now because when they do, it’ll be too late.
Scott Bleier: There was tremendous fear in the market until the beginning of May. This fear forced institutional investors to sell stocks outright. Although the indices didn’t do too badly, the average stock did. You should do the exact opposite of the old saying, “Sell in May and go away.” Buy stocks this May because we are going to have a terrific summer.
Gary B. and Joe each picked stocks with big risk, but the potential for big reward.
Gary B.: I like Toll Brothers (TOL), the quintessential homebuilder. The stock had been moving sideways the past three months, but finally last week it broke above resistance in the low $80s. Housing is back and strong. Now is the time to own it. I think Toll Brothers will keep heading higher, break through $90, and make a new all-time high. (Toll Brothers closed on Friday at $84.48.)
Joe: The investors that have ridden this stock from $20 to $90 are taking profits. It may have some spikes, but the glory days of housing from the last couple of years is gone. I’d be inclined to sell the stock, rather than buy.
Joe: My risky pick is Career Education (CECO), which offers private and post-secondary education. The stock is way down due to enrollment concerns and investigations. It’s cheap compared to its peers and it has a lot of momentum. I own it. (Career Education closed on Friday at $34.70)
Gary B.: The chart for Career Education isn’t so strong and could easily drop down. It’s too risky.
Gary B.: I’m hoping to hit a home run with Motorola (MOT). It hasn’t looked good for years and years, but since 2003, the stock has been moving higher and higher. It finally broke a lengthy sell-off and should be heading back to the $20s. (Motorola closed on Friday at $17.25.)
Joe: I agree. This is a great pick.
What are the best three mutual funds to own now? Pat, our guy from Morningstar, arguably the best company at rating mutual funds, has the answers.
Pat: My first pick is the T. Rowe Price Equity-Income Fund (PRFDX). It’s very stable and a good fund for someone who doesn’t like risk. It has low expenses and has had the same manager for about 20 years. The average stock stays in the portfolio for about six years, which makes it tax efficient. Plus, it beats the market by about 2-3 percent. The minimum investment is $2500.
Scott: The growth in this fund is purely mediocre.
Pat: Next, is the Dodge & Cox International Stock Fund (DODFX), which is the best international stock fund running right now. International stock funds tend to be rather expensive, but Dodge & Cox is less expensive than others. It has long tenured management and is really good if you want international exposure in your portfolio. The minimum investment is $2500.
Tobin: The stocks in this fund are in the lower growth parts of the world. There’s very little in Asia, Indonesia, and India. These are the countries where there is a lot of growth and where investments should be made.
Pat: I also like the Fairholme Fund (FAIRX). It’s more concentrated than the others with 17-20 percent of their assets in a single security. This fund is volatile and management has a lot of its own money in it. It’s riskier than the other two, but more likely to outperform over the long run. The minimum investment is $2500.
Scott: I actually like this one even though I don’t really like funds that much. Management takes risk and there’s room for growth.
Tobin: I really like this one too.
Joe's prediction: Brokers like Merrill (MER) gain big in 2nd half of year
Scott's prediction: SEMIs make big comeback! Fairchild (FCS) leads the way
Gary B.'s prediction: Disney (DIS) up 55 percent! Makes new high by summer 2006
Tobin's prediction: Tenaris (TS) strong as steel; gains 40 percent by end of year
Pat's prediction: Bank on it! Make 50 percent in 2 yrs with National City (NCC)
Cavuto on Business
Neil Cavuto was joined by Gregg Hymowitz, founder of Entrust Capital; Jim Rogers, president of JimRogers.com; Charles Payne, CEO of Wall Street Strategies; Meredith Whitney, executive director of CIBC World Markets; Herman Cain, author of, "They Think You're Stupid: Why Democrats Lost Your Vote and What Republicans Must Do To Keep It."
Neil Cavuto: “Star Wars,” the movie, a huge hit at the box office. Now a real life Star Wars battle is heating up in America. Could it be a big hit on Wall Street? As North Korea's nuclear ambitions grow bolder, reports say the U.S. Air Force is aiming higher, a lot higher -- like space. The goal? To develop a heavens-based weapons program that'll keep us safe, and our enemies at bay. What's the economic and market impact for "this" Star Wars sequel? Charles, is that a good or bad idea?
Charles Payne: It'll be fantastic for the stock market, for the economy and for American pride and security. Social Security reform is noble, but the American people re-elected Bush for this purpose -- to protect our homes and our streets and keep us safe from our enemies.
Jim Rogers: My gosh, what are you talking about? Why do we need to spend hundred of billions of dollars?
Gregg Hymowitz: Trillions of dollars.
Charles Payne: Well, let's count. Pakistan has a nuclear weapon; Iran's going to have a nuclear weapon; North Korea now has a nuclear weapon. All they need now is a projectile to get them here. I don't understand how after 9/11, Jim, you don't you want to be pro-active instead of waiting for us to get our two front teeth knocked out.
Jim Rogers: 9/11 was a bunch of guys with suitcases. What is a billion dollars or a trillion dollars in the sky going to do to stop that?
Charles Payne: If indeed someone wants to launch a nuke us, would it be worth any price to protect us to be able to knock it out of the sky?
Jim Rogers: Who's going to launch a nuke at us?
Gregg Hymowitz: First of all, it's never been proven to work. They've been doing these strategic defense initiatives since the Reagan years. It would cost a trillion dollars.
Charles Payne: Citibank hasn't worked yet either.
Gregg Hymowitz: Excuse me. It would be politically destabilizing and economically disastrous. And by the way, it's not cost efficient. The army estimates that it would cost $100 million per target to use a laser when you could do the same with a Tomahawk for $600,000.
Herman Cain: Gregg, we are not talking about dollars here first. We are talking about national defense here first. Like Charles said, we have remained a strong nation because we've always been out front with building our defense systems. I think it's a great idea. I agree with Charles.
Gregg Hymowitz: Herman, they've been looking at this for 25 years. It would be okay if it worked, but it doesn't work.
Neil Cavuto: Do you think Gregg that that this is what got the Russians to the negotiating table with Reagan?
Gregg Hymowitz: Absolutely not. It was their disaster of an economy.
Jim Rogers: He's exactly right for once in his life. Why don't we spend that money here? Why don't we spend that money making the world a better place? We wouldn't have so many enemies.
Meredith Whitney: On principle I would say, the greatest defense is a great offense. On theory it sounds good. But at the same time, we're going to spend all this money and not effectively reduce costs in other areas.
Neil Cavuto: How do you know we're not?
Meredith Whitney: Because we've now decided to keep the C-130. We're not going to close as many military bases as was originally planned. We need to stick to a strategy we can afford and not be spread out all over the place.
Herman Cain: I don't believe you have to do it all at once. We need to have a multiple offense and this would be another extension of our defense capabilities. Gregg's throwing out these numbers, and Jim's talking about how much we spend and how long we've been looking at it. Well, maybe we should stop looking at it and finally do something about it.
Jim Rogers: Where are we going to get the money to do this?
Gregg Hymowitz: Herman doesn't care because he feels no matter how much we need to spend, we're going to spend it. And this is exactly what's wrong with Republicans.
Herman Cain: Gregg, I can speak for myself and you're absolutely wrong. I do care.
Gregg Hymowitz: Who's going to pay for it?
Herman Cain: We will pay for it. It takes putting things in priority. Don't say that I don't care. I do care.
Jim Rogers: What are you going to cut out Herman?
Herman Cain: I'm going to cut out the pork and modify some of these dysfunctional social programs.
Jim Rogers: You know what you're going to do? You're going to raise my taxes too.
Neil Cavuto: Can I ask you Charles, the idea behind this, and I think there was a Machiavellian move in the Reagan administration with Star Wars. I don't think they had an intention to build this elaborate system, but I do think it scared the hell out of the Russians. Do you think that that is the intention of this administration maybe vis a vis North Korea?
Charles Payne: It plays a role. There's no doubt about it. But we know historically that every dynasty fell apart because they lost either a military or technological edge. We have to keep up. We have to be one step ahead of them.
Jim Rogers: They got over extended militarily.
Charles Payne: Only Russia did. But you look at history.
Jim Rogers: Spain, England, everybody.
Neil Cavuto: Jim, are you not worried about North Korea?
Jim Rogers: Wait a minute. It would be a lot cheaper to have 5 aircraft carriers surrounding North Korea and shoot down every plane that came out of there.
Neil Cavuto: But would you argue that there are other countries with nuclear capabilities that don't like us?
Jim Rogers: Who's going to blow us up?
Neil Cavuto: Would you argue that there are crazy governments that would do just that?
Jim Rogers: There are crazy governments, but they don't have a missile that can land in New York.
Meredith Whitney: There's Pakistan, North Korea. The list goes on and on.
Jim Rogers: Where are these missiles?
Meredith Whitney: They're building them.
Jim Rogers: They're not...Oh my God.
Herman Cain: That's naive to ask the question, "Who's going to blow us up?" That's when we become defenseless.
Jim Rogers: That's not what I said, Herman. I said no one has a missile that can land in the United States.
Neil Cavuto: North Korea has ones that could potentially land in Los Angeles or San Francisco.
Jim Rogers: They have one maybe two. If we put aircraft carriers around, it would be a lot cheaper and more efficient.
Herman Cain: I believe in maintaining our leadership and edge with respect to national defense. We ought to not only look at it, but very selectively take a look at doing something like that.
Neil Cavuto: You know Gregg that others might do this before us. Wouldn't you want to be there before that?
Gregg Hymowitz: No one can afford it. No one's going to spend a trillion dollars.
Neil Cavuto: China can't afford it? China has a space program going on right now.
Gregg Hymowitz: I think if we've learned nothing, it's not the fear of a nuclear weapon coming over. It's the suitcase nuclear bomb. It's the pipe bomb. It's the plane coming in acting as a missile.
Charles Payne: That's a concern too, but at the end of the day when you say they only have one nuke, one nuke is the equivalent of twelve 9/11's.
Gregg Hymowitz: Jim's right. No one has the nuclear capability today to come close to the United States.
Neil Cavuto: North Korea is said to already have the ability to launch something out of L.A. or San Francisco. That's a lie?
Gregg Hymowitz: That's not correct.
Jim Rogers: Even if they have it, there are other ways to stop it instead of spending a trillion dollars.
Neil Cavuto: Do you think that you'll regret if God forbid something like that happened that we denied technology that could've avoided it.
Jim Rogers: Even if we could do this it's going to take us 20 years to get it up in the air.
Gregg Hymowitz: And to Jim's point, you can do it cheaper with conventional defenses.
Neil Cavuto: You know what's weird is that you and Jim are on the same page. That is the nuclear development.
More for Your Money
Neil Cavuto: Major media outlets making major mistakes reporting the news. Could buying these scandal-ridden stocks help you get more for your money?
A violent reaction in Afghanistan to what turned out to be a bum story in Newsweek -- that U.S. interrogators had flushed a Koran down the toilet. Though Newsweek retracted the story, the damage was done, and people died. Still investors haven't exactly punished the parent company's stock. The Washington Post is about where it was before all of this erupted. So Herman, what do you make of it?
Herman Cain: Some people are putting portfolio over principle. There are thousands of stocks out there that you can buy if you want to increase your portfolio. As for me I don't look at a media mistake as an opportunity to buy a deal.
Charles Payne: In the case of Washington Post (WPO), I think it's a buying opportunity. The margins are expanding. Just on a business level, they've got a million visitors to their website. They're doing all the right things to counter the dwindling circulation that's hurting all the media publications.
Gregg Hymowitz: I finally agree with Herman.
Herman Cain: Oh wow. Write that down!
Gregg Hymowitz: You're right. It was a mistake. Newsweek checked their sources. They had two sources confirming the story. Ultimately some of the sources recanted the story. So Newsweek recanted. They did the right thing.
Neil Cavuto: You don't think they recanted with a little bit of kicking and screaming?
Gregg Hymowitz: No, what you insinuated in the beginning is that there is this liberal bias in the media and therefore we should punish these stocks.
Neil Cavuto: I most certainly did not. I mentioned the ones that made a mistake.
Jim Rogers: I don't think it was a mistake. The White House made them do it. That's right because the European press and the Foreign Press...
Gregg Hymowitz: You don't think it was a mistake so you're saying what? They did it on purpose?
Jim Rogers: No, there has been abuse of the Koran.
Gregg Hymowitz: Correct! But we're talking about Newsweek's mistake here.
Neil Cavuto: I don't want to rehash the incident here, just that it would make you think differently about the stock.
Gregg Hymowitz: It would not make me think differently about the stock.
Neil Cavuto: Okay, flashback to last fall and Dan Rather's CBS report on President Bush's National Guard service. It was based on phony documents. Shares of CBS parent Viacom (VIA) not doing much of anything since then. Do you own that stock Gregg?
Gregg Hymowitz: We do own the stock. We like the company. We like the management team. Regardless of the CBS story, that's not why you own the stock. It trades at roughly 22 times earnings. It's an attractive company.
Jim Rogers: Hold on, hold on.
Gregg Hymowitz: Don't tell me it's an accounting fraud, because every stock I own according to you is an accounting fraud.
Jim Rogers: It may be, but that’s not my point here. Most of these media companies are technologically obsolete. All of these people are now losing their audience. The world is changing and they're not with it.
Gregg Hymowitz: I agree with that point. Technology is definitely playing a role, but you have to have media companies that adapt technologically.
Herman Cain: In addition to it being a stock deal, let's hope it's a wake up call to start much more responsible journalism.
Jim Rogers: Wait a minute Herman. What about Fox? We have a responsibility too.
Neil Cavuto: What about Fox?
Herman Cain: They haven't had a Rather-Gate or a Newsweek-Gate.
Neil Cavuto: And finally, a popular writer with the New York Times (NYT) is exposed as a fraud back in 2003. When Jayson Blair wasn't plagiarizing, he was just making stuff up! And ever since the company's stock has been going down. Charles, will it ever make a comeback?
Charles Payne: I don't think so. Right now they're losing readership in New York. They're big plan is to go after USA Today and become the liberal paper of the nation. I don't think it's working. Their profit margins are shrinking. I think it's a sell.
Jim Rogers: I agree with Charles.
Gregg Hymowitz: We don't own the stock. There I think it's more managerial issues. There really weren't proper controls in place.
Neil Cavuto: It should be the same issues applied to any business, right?
Gregg Hymowitz: Absolutely.
Jim Rogers: Well, some companies aren't run well.
Gregg Hymowitz: Well, some companies are run very well. Viacom, over many, many years has been run very well.
Charles Payne: There's a sense of desperation in the industry, put it that way.
Neil Cavuto: Some in the industry.
Charles Payne: In some.
Head to Head
Herman Cain says Democrats think you're stupid and they'll say anything to keep you out of the stock market and away from the American dream. But these guys might disagree: Jim Rogers, Meredith Whitney and Gregg Hymowitz are back. All right Herman, what's your beef?
Herman Cain: My beef is, instead of allowing people to discover economic freedom and instead of wanting people to own more of their equity, the Democrats have done everything they can to discourage that, and Social Security is the best example of that. The president put on the table a plan for optional personal retirement accounts, with evidence that is 25 years old that says it works, but yet they don't want to consider that because they want to keep people depending upon dysfunctional social government programs
Gregg Hymowitz: Herman, let me ask you: would you agree that the stock market is a good barometer for how the economy does?
Herman Cain: Yes, I would say the stock market is a very good barometer.
Gregg Hymowitz: So would I. Now, do you know the top three losing presidents of all time as it relates to the stock market? All three were Republicans: George Bush, Richard Nixon and Herbert Hoover. Do you think the policies of Republicans have any connections to this? Or do you think it's all the Democrats?
Neil Cavuto: How does that relate to people taking their hard earned money and investing it?
Gregg Hymowitz: It's directly related. The fact that the top three times the stock market goes down is with Republican presidents is a reflection of the policies or Republican administrations.
Herman Cain: This is the typical Democratic head fake. In other words, we are talking about people owning more of the money that they earn and he's going off on some other nebulous thing about what happened with some other president.
Jim Rogers: I happen to agree with you that he's not paying attention to the question. You happen to be right. It is good for all of us to own our money.
Meredith Whitney: The American dream and the greatest single wealth creator over the past 10 years has been home ownership. Home ownership was expanded under Clinton and it continues to be expanded under Bush. It's a bipartisan issue that is far more important than stocks.
Gregg Hymowitz: Herman talks about how the Democrats are bad for ownership and keeping Americans from attaining the dream. My point is simply that under Democratic policy, the economy has done better.
Neil Cavuto: I think what he’s saying in this specific instance is why shouldn't Democrats be open to letting people invest in Social Security. Ignore past presidents and parties. You're a good investor and a Democrat. What is wrong with giving Democrats, Republicans, purple people, yellow people the same opportunities?
Gregg Hymowitz: I've always said on this show Social Security needs to be reformed. It's just a matter of how best to do it. I don't think the answer is allowing people to save $1000 and invest it in the stock market. We can immediately change the asset allocation by just having the government invest the money differently.
Jim Rogers: Gregg, who are you or George Bush or Bill Clinton to tell me what do with my money?
Gregg Hymowitz: It's not your money.
FOX on the Spots
Meredith Whitney: Greenspan plays Darth Vader to the housing market.
Herman Cain: Democratic leadership has crossed to "the dark side."
Jim Rogers: U.S. Air/America West part of big airline comeback.
Charles Payne: Oil prices spike again; buy Weatherford Int'l (WFT).
Gregg Hymowitz: No hedge fund disasters, and Bo Bice is the new "Idol."
Neil Cavuto: My "FOX on the Spot" is the filibuster. Sadly, I think the Senate will work out a compromise, which is a pity because it's an arcane bureaucratic tool that encourages debating over just doing. Nowhere else in America can you filibuster getting things done. Only in Washington, can they make this silliness sacrosanct. A pox on both parties' houses!
Forbes on FOX
In Focus: The Liberal Media: Enemy of America and Your Money?
Jim Michaels, Editorial Vice President: If you need further proof that the liberal media is out to get America look at Friday's New York Times. They had a story carried for two pages inside, the biggest spread I've seen them give anything in months. What's it about? It's about alleged abuses by American soldiers of Afghan detainees that took place two years ago. And you read that and you think all American soldiers are brutes. That's more space than this paper has given to Saddam's atrocities. That hurts American morale and hurts the stock market!
Bill Baldwin, Editor: Let's look at the economy. I don't think the liberal media or the conservative media are doing enough to lower investor confidence. There's one big thing that they're not talking enough about. And that's how the Bush administration and Congress are sending us on a course towards bankruptcy with Social Security and Medicare deficits.
Bob Lenzner, National Editor: I think the credibility of the media has been very seriously damaged by the Newsweek story accusing U.S. military personnel at Guantanamo Bay of desecrating a Koran, because the credibility of the major media in America is just like the credibility of America to the world. This story of Newsweek was apparently not true. People will not be able to trust what is in our major publications.
Quentin Hardy, Silicon Valley Bureau Chief: I miss the Republican party being the party of individualism and personal responsibility and not the party of whiny victims. First it was judges. Bush has the same rejection rate as Clinton and Republicans are calling it some liberal plot. Newsweek's Michael Isikoff has the same so-called reckless reporting with the detainee behavior as he did on Clinton with Lewinsky and as he did with Michael Moore and Fahrenheit 9/11. He's making the same kind of allegations with no base. This time it's a liberal plot. I've got news for the Republicans: you've been in charge for the past 25 years, so stop acting like the world is picking on you.
Jim Michaels: The same reporter did do the Lewinsky story, but you know what? Newsweek held that story. They didn't want to run it. They only ran it when they were forced to by the internet. They jumped at this story and ran with it without questioning it.
Dennis Kneale, Managing Editor: This is not a liberal conspiracy. This is a journalistic screw up. Journalists don't print the truth. We print what people tell us. In this case the people were wrong. The Pentagon was shown the item ahead of time and they didn't object. It was out on the newsstands 11 days before there was any reaction. And how dare the Bush administration say the riots were the fault of Newsweek. The riots are the fault of a bunch of demigods.
Victoria Murphy, Staff Writer: As journalists, we are as good as our sources. In this case, yes. Their sourcing was a bit iffy and they could have done better fact checking. The reality is, the fact that we're debating this shows that we are in a flourishing democracy. There is a liberal press but there is also a conservative press. That's a wonderful thing. And Jim, in a nod to you, the New York Times is now going to charge for their top columnists. They're now going to charge people to get this kind of opinion.
Jim Michaels: The truth is, most of our media follows the lead of the TV networks, the New York Times and the Washington Post. And they are edited by liberals, they have a liberal attitude. And if there is something that will make George Bush look bad, they will lower their normal standards of accuracy. But if it's something that makes Bush look good, they are going to be reluctant to run it.
Dennis Kneale: There's no bias! We cover every administration for what goes wrong and what's bad.
Bob Lenzner: I think a perfect example is the Dan Rather mistake on "60 Minutes," which I think to some extent was politically motivated. That's not the norm. The mistake was an exception.
David Asman, Host: Even if you accept the notion that the media is bias to the liberals, don't you think the internet is doing a lot to balance the scale?
Jim Michaels: That's the saving grace. The elite liberal media had a monopoly before. They could say anything they wanted. Now you have the internet, you've got the bloggers, you've got the Swift Boat Veterans and it's improving the situation.
Flipside: Stop North Korea's Nukes by Attacking China's Economy
Neil Weinberg, Senior Editor: Our top priority in Asia is to stop North Korea from getting or using nuclear weapons. And the Bush administration is right, we can't do that alone. Unless we are ready to attack North Korea, which might already have nuclear weapons, there's not much we can do but put pressure on China. China doesn't really care about stopping North Korea at this point. So what we've got to do is use any leverage we have over China to get them to go along with us. We should impose some non-tariff barriers on the goods they export to us or things of that nature.
Quentin Hardy: The fact of the matter is, they are not going to do this with China. It would be a terrible idea. The worry with North Korea is not so much that they'll use nuclear bombs themselves, but that they'll sell bombs to terrorists. They've sold missile technology and nuclear know-how technology. They might sell an actual weapon.
David Asman: Would we be shooting ourselves in the foot by punishing China economically for not helping us with North Korea?
Elizabeth MacDonald, Senior Editor: I don't think so. When we think about China and North Korea we tend not to think of them as being of the same peninsula. Those two are intrinsically link. And the problem started with the Korean War. To hurt China you put their most favorite trading status in jeopardy. You put pressure on them economically and maybe we'll see a turn around with North Korea.
Dennis Kneale: In six decades of dealing with China haven't we learned that every time we try and order them to do something they say no? We have to cooperate. China is one of our biggest bankers. They own over $200 billion in US bonds, second only to Japan. China sells us $200 billion in goods so that you can get $65 DVD players at Wal-Mart. You cannot punish China. If you do, you will punish the US economy.
Jim Michaels: We have a very fruitful economic partnership with China. They are helping our companies become more efficient by manufacturing there. They're helping to bring down inflation in this country by reducing prices. We certainly don't want a trade war with them. What we need to make them understand is that they don't want a lot of crazy little countries throwing nuclear bombs around.
Elizabeth MacDonald: China for years hasn't cared about the situation. Every time there is a humanitarian crisis in North Korea, refugees flee to China. China turns them back only to die by the thousands.
Neil Weinberg: The danger is that North Korea starts getting this nuclear material and selling it. Our priority is to stop that and China isn't helping. The only leverage on China we have is by using economic sanctions.
Quentin Hardy: Why not a joint blockade with China on North Korea? Why can't we work together? Why can't we surround their country and not have any boats come in without inspection?
The Informer: Mutual Fund for Life
David Asman: What's the best mutual fund to own for life?
Neil Weinberg: Funds are a great way to invest but you have to invest in the right ones. I like Vanguard Total Stock Market (VTSMX). It owns the entire US market unlike an S&P fund, which only tracks the large cap companies.
Jim Michaels: I think Vanguard is a good way if you want to just put your money away, forget about it and be satisfied with a performance equal to the market. But there are other investments with greater upside potential.
Lea Goldman: I like the Fidelity Large Cap Stock Fund (FLCSX) and it basically invests in all the big blue chips. You've got GE, Disney, all the big guys. I think it's a very reliable, steady fund.
Mike Ozanian, Senior Editor: If you like mediocrity and you like to pay capital gains taxes then that's a great fund.
Jim Michaels: I've got a close ended investment company. They're like mutual funds except you buy and sell the shares through your broker. You pay a tiny commission to do so. One that I like is General American Investors (GAM). It has a good long-term record and best of all, its shares sell at a discount to its net value.
Neil Weinberg: General American Investors has done pretty well the past five years compared to the market, but the problem is it's expensive. You're going to pay 1.15 percent to own things like Home Depot and Microsoft. This is an expensive fund to own on an ongoing basis. It's a lot to own things you can own a lot cheaper elsewhere.
Mike Ozanian: I don't think mutual funds make that much sense any more. The tax liabilities are against you. Go with Berkshire Hathaway (BRK.B), you get Warren Buffet to manage your money.
David Asman: It's a collection of companies that Warren Buffet has put together.
Mike Ozanian: He's made the track records of mutual funds look silly.
Lea Goldman: I don't like Berkshire Hathaway and Buffet doesn't like Berkshire Hathaway. By his own admission he said that the next few years are going to be tough. I think the company is way over capitalized, everyone is due for a dividend.
David Asman: I bought this 6 months ago and I'm down a little.
Mike Ozanian: Investors don't play six month trends. We're talking about someone who is willing to invest for a few years and then you're going to do a lot better than you would in a mutual fund. Warren Buffet is brilliant.
Makers & Breakers
D.R. Horton (DHI)
John Buckingham, president of Al Frank Asset Management: MAKER
This is the largest builder in America in terms of units. Basically 27 straight years of record sales and earnings and a price per earnings ratio on a forward basis of about 7. And I think earnings are going to continue to grow.
David Asman: You've got a target price of $41 (Friday's close: $32.40)
Elizabeth MacDonald, MAKER
I'm a maker on this stock. The sales have tripled since 1997. What's great about this company is they let buyers customize their homes that they sell.
Bill Baldwin, MAKER
Another maker here. While I think there is going to be a housing crash in October of 2006, I think that D.R. Horton is going to come through with flying colors due to how they run their business.
David Asman: D.R. Horton has gone way up in the past 6 months. Doesn't that worry you?
John Buckingham: The valuation here, we're talking about a P/E of 8. Five years ago it had a P/E of 8. The stock is up 500 percent because earnings are up 500 percent.
OMI Corp (OMM)
John Buckingham, MAKER
I like this oil tanker operator. They have fantastic earnings, a strong demand over the next couple of years. They have the youngest fleet in the industry and you've got a P/E ratio of about 6 and almost a 2 percent dividend.
David Asman: You think it can go to $25 in 12 months. (Friday's close: $18.57)
Bill Baldwin, BREAKER
When the demand for tankers sinks, it really sinks. There's nothing you can do with an oil tanker when there's no demand except watch it bob in the ocean.
Elizabeth MacDonald, MAKER
I don't see a slacking off in the demand for oil tankers. If anything the demand will rise because they need to do more exploration to get oil out there. Earnings are coming in strong. It's a good pick.
John Buckingham: I put my money where my mouth is. I own both of these stocks.
Stock Smarts: Mortgage Madness!
Will more people buying homes actually spell disaster for the housing market? Risky interest-only mortgages are giving more Americans the chance to buy into the American dream and own a home. You get a lower monthly payment to start, but you could see that payment explode over time.
So are these mortgages going to spell disaster for the sizzling housing market?
Jonas Max Ferris, MAXfunds.com: I think they could. This could be a bigger danger than rising rates. All these new loans let people buy more home than they can afford. That’s great if homes keep going up in price or their incomes keep going up, but if anything goes wrong, these are the people that will be forced to sell into a down market and drive prices down. That’s what creates a crash.
Terry Keenan: Tom, 90 percent of the people in the New York City suburbs can't afford the house they are in. Are you worried about this?
Tom Adkins, Re/Max Property Center: No. In fact, I have been waiting for it for years. Here is the problem. Someone comes to me and they have an income of $75,000 a year, and they know in the future they will make $85,000-95,000. The house they really want costs $500,000, but right now they can only afford $375,000. Instead of buying a $375,000 house, then selling it and buying a bigger one and spending commissions and closing costs, and buying the $500,000 house when it sells for $700,000, they can get it today for $500,000 and save $200,000 and the worst-case scenario is the payment goes up a couple hundred books a month.
Terry Keenan: Wayne would you play with these kinds of matches at home?
Wayne Rogers, Wayne Rogers & Company: I'm with Jonas on this one. I have lived through three or four real estate booms and drops in my lifetime. The other day a friend told me somebody bought a condominium, he flipped it to somebody else who flipped it to somebody else. Each one was a $20,000 bump. Finally the last guy, who was supposed to close, couldn't close. That meant the third guy couldn't close, the second guy couldn't close, the first guy couldn’t close, it all went back to the developer, and that kind of thing is going on in a lot of second home markets all over the United States. You have got to be careful.
Dagen McDowell, FOX Business News: Everyone wants to talk about bubbles, California, New York, Florida. But there are a lot of places in this country that are still reasonably priced when it comes to homes; Memphis, Tennessee; Columbus, Ohio, Albuquerque, New Mexico. It is not across the country.
Jonathan Hoenig, Capitalistpig Asset Management: You don't live in Cedar Rapids. You live in Manhattan.
Dagen McDowell: And I rent!
Jonathan Hoenig: I don't think strong prices alone mean there's a bubble. Think back to the tech stock boom. Stocks went up in 1996, ’97, ’98, and ’99. I think the trend in stronger housing prices is intact, but to get back to the idea of these interest only mortgages being a harbinger of danger; people who are buying homes that they can't afford are going to get burned. That’s where Wayne’s right. People are hanging themselves. People who are not living beneath their means and owning too much or being too leveraged are in trouble.
Tom Adkins: But they can afford these loans. The question you have to ask yourself is, I have this principal. Is it worth paying the principal off, or can I put the money to work somewhere better like in the stock market or a 401k or a bigger, better, nicer house. The interest-only isn’t the scary part. The adjustable part is what everyone should be worried about.
Terry Keenan: But homes used to be a vehicle for savings. It was what you would pass down to your children: sell the house and give to them, or for your retirement. But if you are not building equity…
Tom Adkins: You will build equity. If you buy a $500,000 house and six years later it is worth $1.2 million, you have equity.
Jonas Max Ferris: It’s the whole ‘I want it now’ attitude. Why does your client know they are going to make more money in the future? Why not just buy the house they can afford now, and if they make more money in the future, hopefully, then they can buy the expensive house. Why buy it now on risk?
Tom Adkins: Because if you buy the second house first, you save hundreds of thousands of dollars and you get the loan paid off earlier.
Jonathan Hoenig: But people, in my experience, never lose money in the market because of a bad investment decision. They lose it because of bad technique, and whether it is stocks, bonds, futures, options, I have to tell you the people I have seen that have really hurt themselves are the ones who do exactly what you are describing; basically buy more than they can afford and take a bigger risk when they can take a more prudent or more reasonable one.
Wayne Rogers: By the way this is not happening just in residential areas. You have it in industrial and commercial markets.
Jonathan Hoenig: Wayne, a lot of these REITs have been soaring too, like Equity Office Properties Trust (EOP) and Simon Property Group (SPG).
Wayne Rogers: I understand that, but sooner or later, nothing goes up forever.
Tom Adkins: Wayne, do you believe in capitalism?
Wayne Rogers: What are you selling, Tom? Used cars? Are you a used car salesman or are you a home salesman?
Tom Adkins: Do you believe in capitalism? If you believe in capitalism, two things are going to happen. The economy is going to expand forever, and real estate prices will expand forever.
Terry Keenan: Japan is a capitalist country.
Tom Adkins: Japan is not a capitalist country; it is a feudalist country. They are capitalist/feudalist. That is why the Japanese economy stinks.
Terry Keenan: The housing bubble is deflating in the United Kingdom. Interest rates are going up and the economy is slowing down.
Jonas Max Ferris: You can buy an apartment in Tokyo for 50 percent of what it was 15 years ago. And that’s the second biggest economy. It’s a capitalist country.
Tom Adkins: It’s not capitalist.
Dagen McDowell: But in the history of the United States nobody is going to argue that there are bubbles in California, but let's say the air starts coming out of those bubbles. That may hurt the regional economies but not the national economy.
Jonas Max Ferris: That is the biggest lie of the whole bubble: It’s just California, Florida, or New York. Those states are over half the value of the homes in America. You can’t just dismiss that.
Terry Keenan: Wayne, the strength of the economy has been predicated a lot on people buying new homes and then furnishing those homes, and all the other things that come with it.
Wayne Rogers: It’s not just new home sales. It’s secondary and tertiary homes. People are going out beyond the first house and saying “I want a second home, I want a third home,” and that’s the problem, because they can’t support that. They’re looking at the monthly interest payment and not at the ultimate value. And they think, “I can handle this.” In 1974, interest rates went to 16 percent and people said they’d never go there again. In 1981-82, they went to 22 percent, so it can happen.
Dagen McDowell: Come on, Wayne. We got a couple of readings on inflation in this past week. Inflation is in check. Why are interest rates going to go back into the double-digits?
Jonathan Hoenig: You’re right. They’re actually going down.
Wayne Rogers: That’s this week, this month. That doesn’t mean that it’s not going to happen in one or two years from now.
Terry Keenan: Jonathan, you’re a reader of the markets. Rates are going down. Does that mean that the housing price appreciation could just continue here?
Jonathan Hoenig: I think it’s intact. Frankly, I hate to agree with Tom, but the housing market is intact. I watch the market more than I watch the real estate market, but stocks like Equity Office Properties Trust, Developers Diversified Realty (DDR) and Simon Property Group are the big components of these big real estate indices. I was all over REITs 1 ½ - 2 years ago. We’ve moved on, but the bull market continues.
Terry Keenan: Wayne, the last time we talked about real estate, you said you had been lightening up on some of your vast real estate holdings, are you still a seller here?
Wayne Rogers: Yes, I am a seller into this market, that’s right. This may not be the top, but it’s closer to the top than it is the bottom. And I am a seller here. I would not hold unless I have an income-producing property, with a solid AAA or AA-rated tenant on the other end of that lease. I’m a seller.
Question: “I’ve got two kids and I’m starting to save $1,000 a year for each of them for college. What are your thoughts on 529 plans?”
Dagen McDowell, FOX Business News: They’re great. We could spend four shows talking about these, because they’re so complicated. Here’s the short story. These state-sponsored plans offer federal, tax-free savings, for any university or college. They also offer state tax breaks as well. Most of them invest in mutual funds, but you don’t have to go with the 529 in your own state. You can shop around in pretty much any state. If you live in Pennsylvania, look in Utah. The point is, look for plans that are like Vanguard or T. Rowe Price. Cheap, cheap, cheap. That’s what you have to remember. Also, check out www.bankrate.com. They’ve got a ton of information.
Jonathan Hoenig, Capitalistpig Asset Management: Saving is a good idea, Terry. Whether it’s a 401k or a 529 or under the mattress, it doesn’t really matter. Most people spend more than they make, so savings in any form is a good idea.
Question: “I own shares of Wal-Mart (WMT) around $57, and I'm losing money in the trade. Should I sell all my shares, or cut some losses and wait it out?"
Wayne Rogers, Wayne Rogers & Company: Everybody thinks I trash Wal-Mart. I trash Wal-Mart for moral reasons, not for economic reasons. It’s a great economic model. They’ve done a terrific job. The stock, however, has not done so terrific. If you already have a position in this, if it’s a losing position, and if you’ve got something to write it off against, I would cut my losses and go home with Wal-Mart. Wal-Mart has to build a base. They have a huge company. It’s very hard to turn this thing around in a meaningful way. Their company is so big; I don’t know what dramatic increases they can do. Even though they may increase earnings each time, it’s not going to be dramatic. And that’s the tough one.
Dagen McDowell: Wayne, you hit it on the head, though. Because the business is solid, it’s growing like gangbusters, internationally. That’s the reason you want to hang onto it here.
Jonathan Hoenig: It’s so weak, though, Dagen. Look at the chart. It’s a very simple chart. Federated Department Stores (FD), May Department Stores (MAY), JC Penney (JCP) and Target (TGT) are much stronger stocks. We don’t own any of these, but Wayne is right. It’s time to cut and run on Wal-Mart.
Question: "I've owned shares of Applied Materials (AMAT) for the past six months. It hasn't done much. Thoughts on the stock?"
Jonathan Hoenig: I wish he had written to us six months ago, Terry. The stock’s down about 34 percent from there, and that’s the problem with a big loss like that. Now you need something like a 50 percent return just to break even. Tech is still really super-weak.
Terry Keenan: Even with the recent rally in the NASDAQ?
Jonathan Hoenig: Yeah. The stock is around $15, I think at $14 you have to be out of this stock.
Wayne Rogers: Jonathan is absolutely right. He’s hit the nail on the head. I couldn’t agree more. He’s right on.
Dagen McDowell: I totally disagree with both of you. If you don’t own, it’s time to nibble. There’s so much pessimism about this stock. It’s got a lot going for it.
Jonathan Hoenig: What’s going for it? Am I holding the chart upside down?
Dagen McDowell: There are some fundamental things out there. Consumer electronics are still in huge demand. It should turn the business and the stock around.
Question: "What does the crew think about Hewlett-Packard (HPQ)?"
Dagen McDowell: This is one to stay clear of, because the company does not have a clear plan for how it’s going to get back on its feet. All of its business segments are on the run and on the defensive and it’s not the time to get into this one. They’ve got a new CEO, but he’s got to have a plan and he doesn’t have one.
Wayne Rogers: I disagree. I think Hewlett-Packard is a terrific model. It’s a worldwide influence. I don’t know whether or not this is the right price to get in on it, but it’s a terrific company. It’s very well run, in spite of Carly Fiorina. Whether or not they liked her or disliked her is immaterial. The company itself is a terrific company and it has a great future.
Dagen McDowell: A lot of question marks…
Question: "What do you think about AMERCO (UHAL), the company that runs the U-Haul business?"
Wayne Rogers: It’s been very strong in the last couple of weeks. You should have moved in two weeks ago, because you’d have had a good profit right now. You’d be up at least 10 percent. The U-Haul business has been terrific. Their earnings are up. They also have an insurance business. They’ve had a little problem in some of their insurance interests, but I think they’re straightening that out and I think over the long haul, it’s a good company.
Terry Keenan: Jonathan, it’s one of those businesses you can’t outsource, what do you think of the chart?
Jonathan Hoenig: I don’t know. Wayne’s right. The stocks gone from like $2 to $50, since 2003. I would probably rather own Railamerica (RRA), which we’re looking at but we don’t own.
"Cashin' In" Challenge
Check out the $10,000 Cashin’ In Challenge at: www.foxnews.com/challenge
Best Bets: "Star Wars" Stocks
Jonathan, Wayne and Jonas are back with their thoughts on some stocks riding the "Star Wars" wave.
Friday’s close: $57.12
Wayne Rogers, Wayne Rogers & Company: I like it. They’re up 15 percent. I think it’s a terrific thing, and it’s not just what’s in the bottle, it’s what’s in their packages of, for example, Fritos corn chips. They’re very good. And you’ll notice in the corner of the bag, it says 99 cents. I don’t know whether that’s price fixing or not, but they already dictate what the retailer can make from each bag. It’s a terrific company and they’re doing a great job.
Jonathan Hoenig, Capitalistpig Asset Management: I’m still trying to do the Atkins diet so I can’t say I’m into Fritos, but Wayne’s right. There was a dividend increase for Pepsi, kicking the pants out of Coke, so it’s a strong stock. This is a buy.
Jonas Max Ferris, MAXfunds.com: I’m a Coke (KO) man. Maybe it’s because I lived in Georgia, that stock’s up a lot. I wish I owned more of it in the "Cashin’ In" Challenge. They’re going after the ‘boomer’ population. This whole Yoda, young, Mountain Dew thing; I think it’s over. You want to go after older beverage drinkers with Coke, not Pepsi.
Friday’s close: $20.79
Jonathan Hoenig: I’ve had some of those Hasbro toys in my closet since the ‘80s and Hasbro the company is working in the 2000’s. There are great brands with this one, like Nerf, Milton Bradley and G.I. Joe. I don’t know if Wayne agrees, but this stock is working right now. I wouldn’t fight it.
Jonas Max Ferris: This stock stinks, and I’ll tell you why. This is a risky business model, because in the future everyone is going to be playing video games. That’s going down to younger kids. This whole ‘board game’ thing is played.
Friday’s close: $45.19
Jonas Max Ferris: It’s just too expensive for what it is. It’s just a value stock, and you’re paying too much for it now.
Jonathan Hoenig: You think we’re paying a lot for gas now? People will pay anything for their corn flakes. This group is working. Dreyer’s Grand Ice Cream Holdings (DRYR), Hershey (HSY), Campbell’s Soup (CPB); these defensive consumer staples that we use everyday are great charts and great stocks.
Terry Keenan: Do you own Kellogg?
Jonathan Hoenig: We don’t own any of those, but this is a super group right now.
Wayne Rogers: I agree. I like Kellogg. I love the cereal. The company is very well run. Earnings are up. It’s a terrific area.
Stock of the Week
Last week’s pick from Jonas Max Ferris was Barnes & Noble (BKS). For the week of May 16 –20, BKS went up 8.1 percent.
Tom Adkins is back and he says that the steel company Nucor (NUE) is a strong buy, come Monday morning. Jonas and Jonathan are here and they’re going to try and put a dent in his case.
Tom Adkins, Re/Max Property Center: I think we’re looking at a moderate building boom happening over the next two years.
Jonas Max Ferris, MAXfunds.com: Moderate?
Tom Adkins: Moderate. Look, moderate is better than it was two years ago. You’re looking at company whose gross sales are up 81 percent over last year, and this year may be better than last year. Keep in mind, this company is a very specialized mini-mill operation, and the biggest mini-mill operation in America. And they specialize in building materials.
Terry Keenan: So you think there’s going to be a bigger building boom over the next two years in the United States than there is now?
Tom Adkins: Well, definitely on the commercial side. Residential too, but commercial especially.
Jonas Max Ferris: I don’t have a steel house, but I will say this; the biggest problem here is this big commodity bull market ended about two months ago and it is basically over. I wouldn’t touch any of the commodity-related stocks. They are peaked. They are done.
Jonathan Hoenig, Capitalistpig Asset Management: Jonas, you’re right. You know you’re about two years early. Even my beloved gold is super-weak these days. I used to be all over these steel stocks, but whether it’s United States Steel Corp. (X) Worthington Industries (WOR), Ipsco (IPS) right now --
Terry Keenan: So it’s over? It’s not a correction, in your opinion?
Jonathan Hoenig: Yeah. I just don’t see commodity-related stocks, especially with the dollar so super-strong right now. I don’t know Tom. None of these stocks just seem to me to be working right now. What’s going to change next week for Nucor?
Tom Adkins: I think the biggest thing is that one of the competitors just shut down one of the major blast furnaces last week. It’s going to create a little more demand for the stuff. And, I think that Nucor is the one company that’s poised to do very well if it gets even slightly soft in this segment.
Jonas Max Ferris: Not without Bush making another one of those tariff things.