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Bulls & Bears
This week’s Bulls & Bears: Gary B. Smith, columnist for RealMoney.com; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, editor ChangeWave Investing; and Scott Bleier, president of HybridInvestors.com; Charles Payne, CEO of Wall Street Strategies; and Kendra Todd, “Apprentice 3” Winner and president of MyHouseRE.com
Trading Pit: Home$ or $tocks?
Homes or Stocks? There’s no question that housing’s been through the roof the last few years. But historically stocks still beat real estate pretty handily.
The bulls may be charging back to Wall Street. Stocks delivering big gains with the Dow up 370 points since July 6th. Could this be the end for the housing boom?
Gary B: If this rally continues, it could mark the beginning of the end of the housing boom. If we get the kind of gains we got in the late ‘90s, people are going to get greedy. The money made from all the buying and flipping of homes will be put it right back in the market. Before all this happens, the rally we’ve seen in the last few days has to continue. A chart of the Dow shows that we will. The Dow just broke through a long downtrend and it looks like the negative momentum seems to be out of the market. If it’s move up continues, money will flow back into stocks.
Tobin: When a person buys a house, it’s bought with a mortgage. For example, if 80 percent is borrowed and your house appreciates 20 percent, you made 100 percent on the money you have invested. Never compare real estate and the stock market. That being said, I do think that people investing in housing will fall flat and lose money. Eventually, the money will go back in stocks.
Kendra: I beg to differ. I don’t think the condo market in Miami is going to fall flat. Miami is an international market, driven by those from South America and Europe. Many investors from the Northeast and the Midwest also buy here. $50,000 will get you $50,000 with stocks, but with the 10 percent rule in real estate, that $50,000 can get you a half million-dollar home. I don’t see anything slowing down in the South Florida market. Existing home sales are up and had a record-breaking year last year. In the long run, real estate is more conservative and a much better play because it’s slow and steady. You can predict the market nine months out and strategize. It’s tangible and insurable. Plus, I like the fact that it’s tax-deferred.
Pat: I’m betting on stocks. If you get a half million-dollar condo for $50,000 down and then it goes down 10 percent, your equity is gone. There’s a lot more risk in buying a condo for investment than there is for buying stocks for investment. It’s different when you purchase a house to use as a home and plan to stay there for a long time. I wouldn’t touch any of the hot real estate markets.
Charles: Pat brought up something interesting: the liquidity factor. People are buying these homes because so much supply is coming on the market. The stock market is on a multi-year run up. If you thought the last few weeks were great, this market is going to really take off. There’s no doubt that will help to contribute to the plateau of the housing market.
Scott: Stocks are riskier, but will also give you a much bigger reward. There is the liquidity factor. You can sell a stock and get your money in three days. How long does it take you to liquidate your house and get your return? It’s a longer process. Yes, there is less volatility and fluctuation in the housing market, but stocks give you a much better reward.
Hurricane season could be bad this year, but which stocks will go up when hurricanes hit?
Tobin: I like Superior Energy (SPN), which sells and rents oil and gas well drilling equipment. The company also fixes broken wells, which is important after a hurricane comes through. I own and recommend it. (Superior Energy closed on Friday at $18.61.)
Scott: I used to like it at $12, but am now short this stock.
Charles: Home improvement store Lowe’s (LOW) will help people rebuild after a hurricane hits. It’s a great company and the underlying theme is you want a stock that is going to do well without hurricanes, but also with them. My clients own this stock. (Lowe’s closed on Friday at $63.65.)
Pat: Charles is right. This is a great company, but I don’t think there’s a ton of upside at the price it is at right now. If you want to bet on home improvement, Home Depot (HD) is better.
Gary B: I fully agree. I’m betting on the other home improvement retailer, Home Depot. The stock finally broke through a downtrend. It has a ton of upside and is going all the way to $70! (Home Depot closed on Friday at $41.61.)
Charles: Lowe’s is at a high for a reason. It’s outperforming Home Depot. If you want to know which stock to buy, take your wife to both stores and let her pick. I guarantee you; she’ll pick Lowe’s.
Scott: My pick is Hanson (HAN), a British company that makes concrete and asphalt that is used in building. It does half of its business in North America and the stock does pays a dividend. The one downside is that it has some asbestos liability that has kept the stock down. With the hurricane coming, the stock is set to go up 20 percent. (Hanson closed on Friday at $47.78.)
Gary B: Scott, it has another problem. It is not very liquid. You could be in it forever and not be able to get out.
Pat: I like MSC Industrial Direct (MSM). It sells maintenance and repair equipment to companies, which will also need to repair just as much as homeowners after a hurricane. It has a new business model that is outgrowing its competitors. I think the stock is going to $45. (MSC Industrial Direct closed on Friday at $34.90.)
Tobin: I loved it at $25, but now think the stock already had its run. You’re six months too late.
What’s the best mutual fund for you? We have the funds for all ages. Pat Dorsey from Morningstar names the best funds to own based on your age.
Pat: The best fund for twenty-year-olds is the PRIMECAP Odyssey Growth Fund (POGRX). In your twenties, you want to take a lot of risk. You have a lot of time, so you want to be aggressive. This is a very new fund that just opened last November. The management team has been running money a long time, though. The minimum investment in this fund is $2,000.
Charles: I don’t like this pick for twenty-year-olds. Pat, you say this age group should take more risk, but 60 percent of the fund is medical related. The risk is that it’s not balanced or allocated the right way.
Pat: Marsico Focus Fund (MFOCX) is the best pick for thirty-year-olds. This large growth fund is also very aggressive. Large growth funds, in general, haven’t done so well the past few years, so it has a run ahead of it. Marsico Focus does have a great track record and does about three times better than the average fund in this group. The minimum investment is $2,500.
Scott: It will beat the average fund in its group, but the group is no good. This cannot outperform when the market is good and will under perform when the market is bad.
Pat: My pick for forty-year-olds is Ariel Appreciation (CAAPX). It’s a mid-cap fund based in Chicago. It’s slow and steady and very tax friendly. The minimum investment is $1,000.
Tobin: I’m not a big fan of mutual funds, but this one does have a more growth bent to it.
Pat: Vanguard Tax-Managed Balanced fund (VTMFX) is the best one for fifty-year-olds. Someone in the fifties is in their peak earnings years, so taxes are a big concern. A managed fund will do well. Half the fund is in munis and half is in equities. Plus, it hasn’t paid a capital gain since 1994. The minimum investment in this fund is $10,000.
Gary B: The Vanguard Tax-Managed Balanced fund has done little this year and is still below resistance. Buy only if it breaks above $18.75.
Pat: The best fund for sixty-year-olds and older is the T. Rowe Price Retirement 2010 Fund (TRRAX). It’s a very unique fund that increases its asset allocations as it ages. It’s 65 percent in stocks and 35 percent in bonds. As a person gets older, more should be in income and take less risk. The fund changes with you, which reduces the need to do that rebalancing yourself. The minimum investment is $2,500.
Tobin: I don’t like it.
Gary B’s prediction: Dow 11K by Thanksgiving
Tobin’s prediction: Nasdaq’s even better! Nas 2300 by Turkey Day
Charles’ prediction: Christmas in July! CSX (CSX) up 20 percent by December 25th
Scott’s prediction: ATI Technologies (ATYT) up 40 percent in one year
Cavuto on Business
Neil Cavuto was joined by Jack Welch, former CEO of General Electric and author of "Winning"; Bob Beckel, Democratic strategist; Meredith Whitney, executive director at CIBC World Markets; Adam Lashinsky, senior writer at Fortune Magazine; Mike Norman, founder of the Economic Contrarian Update; Leigh Gallagher, senior editor at Smart Money, and Stuart Varney, FOX Business News contributor.
Neil Cavuto: Not caught up in all this Supreme Court judge-picking drama? Bet you would be if you knew those judges had the power to bulldoze your home! Thanks to a recent high court decision, start thinking the un-thinkable. A developer comes into your community, and wants you and your house out of your community. It could happen. It reminds us, Jack Welch, just how big a deal these big court appointments are, right?
Jack Welch: It certainly does but this particular decision doesn't cause me much loss of sleep. Common sense will prevail and communities have to take action. I remember when there was a big uproar about the area around Lincoln Center. And in the end, look what's happened. It's done a lot for New York. So I have to side with the part of the Supreme Court I don't normally side with on this one.
Stuart Varney: I'm appalled by this decision. This is not the America I've come to know and love. We have breached the principal of private ownership of private property. Let’s see how this could play out: The developer comes to the local politician and says: “I'll take this house and just build something much bigger and better, and I'll give you more tax revenue.” The politician says: “That's a good idea, and by the way how about a campaign contribution?” You can see this coming a mile off. It introduces corruption into our political system.
Mike Norman: The 5th amendment of the Constitution clearly restricts the use of eminent domain to take private property. Private ownership of property is one of the most essential principals in a liberal economy, and it has been destroyed by this decision. Now you own your property at the pleasure of the government. The government can now take your property and transfer it to another individual because that individual might be a real estate developer who might want a shopping mall.
Neil Cavuto: I don't want to sound callous, but I don't have a problem with that as much as I have a problem with them not paying the people who's houses your plowing down fair market value.
Meredith Whitney: Fair market value is subjective, right? You can have an investment and make no money on it because the state, the government or the locality deems it to be worth "x." This is an expansion of government powers by the very same judges who are horrified at the expansion of government powers interfering with a women's right to choose.
Bob Beckel: I've been in the neighborhood of New London Connecticut where some of these houses are getting torn down, and it is a dying city. Unlike other cities, cities in Connecticut cannot annex local municipalities around it to increase their tax base. These people have no farms; there are no cops; the schools are falling apart.
Adam Lashinsky: We all know that a Supreme Court case is not about one city in Connecticut. This is about public use. Justice O'Connor said it really well when in her dissent she wrote: "Nothing is to prevent the state from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory." It might be great to get that Ritz Carlton, but that is not fair for the owner of the Motel 6 who had a thriving business.
Inside Jack's Head
Neil Cavuto: Karl Rove: Guilty or not? If he were this much of a distraction in the corporate world, would a boss like Jack Welch cut him loose? Time to go inside Jack's head.
Jack Welch: You'd absolutely keep him on board. He's a great employee who's done his job. You keep him on board while you investigate. This is no different than a disgruntled whistleblower making a complaint about one of your employees. The only difference here is that it's political. If this is an integrity violation, unfortunately you have to cut him loose. But until you have the violation, if any, clearly in focus, you keep him on board.
Neil Cavuto: Let's say a grand jury rules otherwise, then he's toast right?
Jack Welch: You've got to get a demonstration that this guy violated the policy.
Neil Cavuto: But if the grand jury brings up charges to then go through the whole idea of a trial. Would you stick by him that long?
Jack Welch: If the grand jury brings up charges, you probably have to cut your losses. But you stay with a good employee as long you believe that he or she has not violated your policies.
Neil Cavuto: The criticism in politics is that this president and the president's father could be blamed for being too loyal. Could sticking by these people too long hurt the president?
Jack Welch: This president owes a lot of his presidency to Karl Rove. I would stay with the person who has done the job I've asked him to do. Let's see what the facts are when the facts come out.
More for Your Money
Neil Cavuto: The best stocks to buy for under $10. The names that could get you more for your money? Leigh, what’ve you got?
Leigh Gallagher: I like La Quinta (LQI). They own a franchise of several hotels around the country. They just went through an upgrade of their hotels just in time for the travel boom that we're seeing now. But more importantly, this is a stock that can be acquired. Its rival was acquired last year for $63,000 a room, which is a good valuation for this industry.
Mike Norman: Acquired for what reason? To pay a lot of debt service? This company is losing money and has a billion dollars in debt. If this travel boom slows down then this company is in trouble.
Adam Lashinsky: I like Tellabs (TLAB). It's a Midwestern telecommunications gear maker. They're going to be one of the suppliers for the telephone companies that are getting into the video and television business.
Leigh Gallagher: I agree that there's opportunity in telecom right now, but Tellabs has me concerned because its sales mix is starting to change to lower margin equipment like fiber systems. If that trend continues, that could put pressure on the stock.
Mike Norman: I like Terra Industries (TRA). They make fertilizer. If Jim Rogers were here he would tell you that corn is at a one-year high and soybeans are going up. You need fertilizer for all that stuff.
Adam Lashinsky: In this last year this stock has been sideways. I'm just not as high on fertilizer as you are.
FOX on the Spot
Adam Lashinsky: Oil falls to $45 by the end of the year.
Jack Welch: Bet on the Greenback! U.S. dollar rises against Euro.
Bob Beckel: Liberals' Exxon-Mobil boycott hurts Dems in '06.
Leigh Gallagher: Strong back-to-school sales lift Abercrombie (ANF).
Meredith Whitney: Rove goes; Bush's poll numbers improve.
Neil Cavuto: Democrats are smelling blood and using Karl Rove to ruin the Republican agenda. They might regret it. The backlash will likely be more on them than Republicans in the eyes of Americans who are sick of all this infighting.
Forbes on FOX
In Focus: Would Profiling Help Protect our Lives and Economy From Terrorists?
John Dobosz, senior editor: We need to develop a profile of terrorists and use it to prevent people from committing future terror attacks. In the movie "Jaws", a shark was attacking people and the authorities didn't go hunting down porpoises and mackerels, they searched for sharks.
Quentin Hardy, Silicon Valley bureau chief: In the photos that we showed of the London and 9/11 terrorists, I didn't see the faces of mass murder Tim McVeigh or Al Qaeda affiliate John Walker Lindh. Those are two white guys which prove that profiling is not that simple. Also. those photos of the terrorists look like half the engineers in silicon valley. Should we stop them too.
Steve Forbes, editor-in-chief: Not to use data points or certain characteristics to see if someone is suspicious is ridiculous. The Israelis have been using it successfully for decades.
Victoria Murphy, staff writer: I agree. Not profiling makes the security system slow, inefficient and careless. It's like telling someone who inspects baby strollers to only look at every 20th baby stroller even though the 15th may have a cracked wheel. It makes no sense.
Jim Michaels, editorial vice president: I have a strong suspicion that our airport security has a quota system, which says for every man named Mohammed with a beard that is checked 20 women with children must be checked. That's bad security and I think we have to realize that profiling is necessary.
Mike Ozanian, senior editor: If the U.S. has an official policy of profiling, it is going to be terrible and divisive because we will be pitting one group of people against another group. The best way to fight the war on terror is by what we are doing now, taking the battle overseas to the terrorists and killing them over there. The problem with profiling is where do you draw the line of who you check and who you don't check.
Steve Forbes: You have a certain amount of people who meet the certain amount of data that matches a terrorist profile. Those are the only people who need to be checked out. It's better to make an occasional mistake than have another 9/11 where 3000 people die.
Quentin Hardy: The real problem is the ideology of terrorists. We need to attack the ideology.
Flipside: Scrap NASA Now!
Lea Goldman, staff writer: NASA is a relic of the Cold War. It gave us prestige and a leg up against the Soviets, but since we landed a man on the moon NASA has not had a reasonable reason to be. And NASA believes one day we will live in space and that's ridiculous.
Jim Michaels: NASA is about advancing human knowledge and to use technology to go places the human mind could not go before. Any rich and powerful country who does not pursue this is making a terrible mistake.
Dennis Kneale, managing editor: I think we should keep NASA but scrap the space shuttle program. We've spent $20 billion in the last 10 years launching space shuttles. It costs us about $500 million every time we launch another one. It's too dangerous and what are we really getting out of it.
Steve Forbes: We may want to get rid of NASA altogether. If it was in charge of promoting automobiles, we'd still be riding horses. It stands in the way of developing space. The international space station is now 10 times over budget and 15 years behind schedule.
Elizabeth MacDonald, senior editor: I thought NASA was about space exploration and not about sending shuttles up where dozens of astronauts are being killed. This is not about inventions that can help line somebody's pocket.
Quentin Hardy: NASA has done more than land men on the moon and launch space shuttles. It also gave us the Voyager spacecraft, the Mars land rover and the Hubble telescope. NASA research and missions have given us more than 30,000 technologies and products in medicine, imaging, satellite communication and new materials used in firefighting. No private sector organization will have NASA's concentration of engineers.
Dennis Kneale: NASA is not suppose to invent products that companies make money off of. It's suppose to explore space.
Steve Forbes: NASA should be a contractor and not in charge of space exploration. Just like the U.S. Post Office contracted out companies to develop aircraft for mail delivery.
Lea Goldman: I'll take it one step further, NASA should be a research agency, like NIH and DARPA, that works in conjunction with private enterprises.
Informer: Housing Boom and Bubble Buys
David Asman: One of the most asked questions out there is it a housing boom or a housing bubble is about to pop? The informers are here to tell you if it’s a boom or a bubble and the stocks that go up either way.
Mike Ozanian: It’s a boom. There are still tight supplies of inventory for homes out there and mortgage rates look very low.
David Asman: So if it’s a boom, what stock?
Mike Ozanian: Hovnanian Enterprises (HOV). They make townhouses. A lot of them go to middle and lower-income people. I think they’re going to be the big beneficiaries of this Bush recovery. I would buy Hovnanian.
Lea Goldman: The stock has been on a tear, but that’s my problem with it. Don’t you think that you’re telling people to buy at the top? How much more juice does this thing have?
Mike Ozanian: It’s a $70 stock. I think right now it’s worth at least $80 a share. Earnings are very, very strong. It yields eight and a half cents on every dollar of revenue.
Lea Goldman: I thinks it's a bubble and so I recommend General Cable (BGC) because I’m into infrastructure plays, which build fiber optics and cable for chemical and electricity plants.
Mike Ozanian: This one really mind boggles me. Why would I buy a stock that only earns two and a half cents on every dollar of revenue.
Lea Goldman: It’s a capital intensive business. But the beauty of it is that it’s contingent on global demand, which is not going anywhere.
Dennis Kneale: This is a boom. And don’t worry about it. Forget this bust talk. I like William Lyon Homes (WLS). It is the cheapest stock, pound-for-pound, among all of the housing stocks. And they’re in markets where investors are worried that those markets might be a bubble so they’ve got the stock really cheap. It trades at about half of its total sales and value.
Elizabeth MacDonald: I wonder about this stock because it has a big market share in California and I think that’s overheated. I wonder how much more run this stock has.
Dennis Kneale: I really think that this is a well managed company. It’s also in Nevada and Arizona, and it’s going to do just fine, because it’s so cheap now.
Elizabeth MacDonald: It’s a nationwide boom with bubble-headed behavior in certain markets. I like MDC Holdings (MDC). They’re out of Colorado. This is a really strong stock. They’ve got an uncanny knack for finding the hotspots before they come out.
Lea Goldman: I don’t like the stock. I’m just against the entire industry. Where I come from they say every big house party ends with a hangover, and I think that’s the end result of all these stocks.
Elizabeth MacDonald: Well, I don’t know, General Cable sounds like a company that Homer Simpson would have worked at. The chief executive of that company said that there is weak demand for fiber optics, and they’ve had poor earnings results in the last two years.
Lea Goldman: It’s not just fiber optics, it’s electricity.
Makers & Breakers
• Lowe’s (LOW)
Scott Kays, president of Kays Financial Advisory Corporation: MAKER
They are the second largest home improvement retailer in the country. They’re growing rapidly, about 18 percent a year. And they’ve got one of the deepest management teams in the business. These guys are brilliant.
David Asman: And you think it can make quite a jump, from about $63 now to $84.
Jim Michaels: BREAKER
Good company, but out of what they price I don’t see a lot of upside in it. I wouldn't buy it at this price.
Elizabeth MacDonald: BREAKER
I think the housing market is going to cool down. I think it’s trading at its highs. Also, every time I go to that store and I buy something, it doesn't have all the parts or the wrong parts.
David Asman: Well, I got to’ tell you. I went there last Saturday to buy some screws, I ended up spending about 60 bucks on stuff.
Scott Kays: Well they are at an all-time high right now, but on a PE basis, they are near the lowest they’ve been over the last ten years.
• Washington Mutual (WM)
Scott Kays: MAKER
It's the nation’s largest thrift, but I love this company. They don’t act like a bank. They think, they look and they act like a retail store. They pay a dividend yield of 4.5 percent, the retail division is growing rapidly, and the stock too is very cheap right now.
David Asman: And you think it could go up to $55 from the low 40’s.
Elizabeth MacDonald: BREAKER
I think their accounting is very aggressive. When you talk to accounting experts they don’t like their financial statements, they're taking way too many impairment charges for their mortgage securitizations. They’re overstating their mortgage securitizations.
Jim Michaels: MAKER
I’m a sucker for a dividend like that and I like the retail banking business they are in. I’d take a chance on this one.
David Asman: These accounting problems don’t bother you at all?
Jim Michaels: Yes, they’re there, but they’re in the price of the stock.
Stock Smarts: Fight or Fold?
The president's closest adviser is under fire.
The Karl Rove/CIA leak controversy comes at a time the president continues to press for social security reform, make the tax cuts permanent, get an energy bill and appoint a new Supreme Court justice.
Does Wall Street want Rove to fight or fold?
Jonas Max Ferris, MAXfunds.com: Kenny Rogers said it best: “You’ve got to know when to fold ‘em.” Nobody on Wall Street cares whether he did this or if it was necessarily legal or not. They just want it to end so that Bush can get back to his war on terror, Social Security reform and other major issues that are moving to the sideline as this becomes a quasi-sensational story.
Jonathan Hoenig, Capitalistpig Asset Management: Jonas, do you know anyone on Wall Street who is paying any attention to this? I don’t know anyone on the street who is talking about this. This is happening on the Beltway. Should Rove resign? Should Kofi Annan resign? There’s a lot more dirt on him than there is on Karl Rove. He’s an easy target; it’s a slow summer season. And democrats are throwing stones.
Wayne Rogers, Wayne Rogers & Company: You’re already talking about it for 15 seconds by my watch, so somebody must be talking about it.
Dan Colarusso, New York Post: I think it’s a sideshow at this point. What Wall Street likes about the Bush administration is that it plows ahead. Right, wrong or indifferent, it pushes ahead; they know where it’s going. I think, stay or go, but just decide. Get it out of the way and just get onboard.
Terry Keenan: But John, first it was John Bolton, and now Karl Rove. It is stalling the president’s agenda, isn’t it?
John Rutledge, Rutledge Capital: It is, but you know Wall Street doesn’t get to choose what happens to Karl Rove. President Bush does. He’s not a kinder, gentler sort of president. Mean and loyal is the essence of this White House. Rove and Bush are not going to fold. They’re going to stick right with it. That will freeze up some of their programs.
Dan Colarusso: It may wake up the Democrats. The problems is that they’ve got Chris Cox coming from the SEC, they have a Supreme Court nomination, that has to go smoothly because that is what Wall Street cares about, outside of this Karl Rove stuff.
Wayne Rogers: You’re absolutely right and Jonathan’s right. Nobody cares on Wall Street. There are more important things to do, and this is a distraction. Get rid of it. Who cares whether he is or isn’t.
Jonas Max Ferris: But that distraction is important. It’s a distraction from the agenda. Are you saying that Social Security reform and the war on terror are not important things for Wall Street on any level? And therefore, they’re totally distracted and that’s OK? I don’t buy that.
Wayne Rogers: No. We’re saying the opposite. We’re saying that the fact that you are distracted from those kinds of things is bad and it should just go away. By the way, he probably didn’t break the law in the first place, so it doesn’t matter. They’re having an investigation, so you’ve got to let the special investigator finish his work and just take it off the front page.
John Rutledge: By the way, some of the things they’re being distracted from are things like protectionism, like this week’s embargo on Chinese goods. It’s not all bad. What the market cares about is whether the businesses are making money and the economy is stronger than dirt right now.
Terry Keenan: Jonathan, the markets rallied in the face of all this Karl Rove talk anyway.
Jonathan Hoenig: I know. The S&P kissed a four-year high this week. If this becomes the Iran-Contra affair, if this becomes Watergate, if this becomes “Monicagate” – Clinton didn’t resign, and that was a much bigger distraction so far than “Karl Rove-gate.”
Dan Colarusso: Clinton didn’t throw people overboard, though. He didn’t throw cabinet members overboard, though.
Terry Keenan: But it didn’t hurt the market.
Dan Colarusso: No.
Jonas Max Ferris: Well, first of all, Clinton did get rid of his advisors when there was trouble, there wasn’t breaking the law either. So did Reagan, to some extent. I will say, why not nip it in the bud? Why let it get bad and become a bigger distraction. What is the upside to keeping him around?
Terry Keenan: Because he is ‘the architect.’ Bush is loyal to a fault.
Jonas Max Ferris: But they can still use him after they ‘officially get rid of him.’ Michael Milken was still working after he was ‘officially banned from Wall Street.’ What does that matter?
Wayne Rogers: If he resigns, that’s OK. If he doesn’t resign, that’s OK. It’s irrelevant to the stock market. That’s what we’re trying to say.
Terry Keenan: You agree, John?
John Rutledge: Absolutely. The stock market cares about whether they make any money, and right now small companies in America are growing like crazy, and the stock market is recognizing that in it’s prices. Whether Rove stays or goes is not going to make the market go up or down.
Terry Keenan: But if the president is stuck here and he can’t push his agenda forward, tort reform and other things that Wall Street really wants, that would be a problem.
Dan Colarusso: The flipside is, ‘how well could he push his agenda without Karl Rove?’ Who do you put in there? Who’s going to pinch-hit for Karl Rove in the second half of this final term, if the president decides to dump him? Again, that’s neither here nor there. I think the Bush team needs to make a decision quickly and get this out of the way.
Terry Keenan: Do you think that’s going to happen, Jonathan?
Jonathan Hoenig: Well, I think the Democrats are always going to have an enemy. Karl Rove is a very easy enemy. The guy is kind of chunky and he beats the democrats’ at every opportunity. He’s an easy target. He’s like a chunky Mr. Burns. People love to hate him. He’s an easy target, and the Dems look for a target because they’ve got nothing else to talk about.
John Rutledge: You know, the most important reform going on in Washington this summer has nothing to do with Karl Rove. Congress is getting set to pass a new deregulatory technology and telecom bill that’s going to make tremendous capital spending. Technology is way more important to our future than what’s happening with Social Security reform or these other sideshows going on.
Terry Keenan: Jonathan makes a good point. Karl Rove has lurked behind the scenes extremely effectively. He doesn’t do many interviews, people believe he could be an “Oz”-type character behind the curtain.
Wayne Rogers: I’ve got a solution. He doesn’t have to resign. They don’t have to fire him. According to Jonathan’s theory, all he has to do is lose a lot of weight, so he’s no longer chunky, and won’t be a target. How’s that?
Jonathan Hoenig: Terry’s point is that he doesn’t really play well in the media, and he certainly doesn’t play well in the left-leaning media, which loves to paint him as this evil genius.
John Rutledge: Let me tell you, I’ve met this fellow. You do not want to wake up in the morning on Karl Rove’s to-do list, or the president’s either. These guys are going to fight their way through this. The market’s going to rise anyway.
Terry Keenan: He is not a stupid man. You don’t think that he did anything illegal.
John Rutledge: No one has ever accused him of being a stupid man. A mean man, perhaps, but not a stupid man.
Terry Keenan: So then, what was he thinking when he was talking? I assume he was extremely careful.
John Rutledge: It’s easy to think backwards, not so easy to think forwards. These guys are under the microscope every minute. This is a sideshow. This is not the story. The story is money. And the street is making money hand-over-fist.
Terry Keenan: And a bit of a summer rally starting here, Jonathan. What do you think?
Jonathan Hoenig: I’m not short the market, Terry. I’ve bet big on utilities, Terry. And so far that’s been a real profit center for me. I think John’s point is right on. The Russell 2000 is at an all-time high. The S&P is at a four-year high. This is not a time for me to be short the market.
Terry Keenan: Wayne, you’ve been a little cautious in this market, although you’ve had some great stock picks. What do you think right now?
Wayne Rogers: I like the market. I’m almost fully invested. I’m with Jonathan on this. He’s played it very well. My hat’s off to him.
Question: "I never got to see your show this past Saturday because a FOX News Alert about missing children in Idaho pre-empted your show but I just read the transcripts from Saturday's 'Cashin' In.' Your discussion about how those kind of stories are getting a bigger play than more serious news items was ironic to say the least. I wish I could have seen the discussion instead of listening to your FOX News Alert anchor trying to talk for 45 minutes when there was less than 60 seconds worth of information known at the time about it."
Jonathan Hoenig, Capitalistpig Asset Management: For those of us who are watching the market, that’s what we’re watching. No ‘FOX News Alert’ can keep us away from that. We don’t make the decisions about when the show gets preempted. Terry, do you think there will ever be a network that’s, I don’t know, solely devoted to business news? Is that in our viewers’ future? I guess we’ll all find out together.
Wayne Rogers, Wayne Rogers & Company: Let’s face it; it’s all about ratings. Here we are sitting in a studio. A naked girl walks by out there; someone’s going to comment on that. So we will be off the air for those ten seconds. It’s about ratings, and if we don’t get the ratings and you can do 45 minutes of somebody being missing (I don’t know how you can do that,) but if that gets ratings, that’s what they’ll do. It’s as simple as that.
John Rutledge, Rutledge Capital: Sure Wayne, I think that’s what the little box in the bottom corner of the screen is for, it to put the reality show in while you’re doing your regular programming. I think America’s love affair with these reality shows is a sign of the post-September 11th fear. When the reality shows go away, the valuations will come back big in the stock market.
Terry Keenan: So you think it’s a distraction.
John Rutledge: I think it’s a distraction, but like Wayne said, it’s a reflection of what people want to consume out there, and what they want is shows about fear, chaos, order and all that. That’s not normal. When that goes away, people will unclench, relax a little bit, and we’ll see a little better valuations.
Wayne Rogers: One caveat about that: sex, drugs and rock & roll have always sold. So I think when they cut to that, they’re going to get a rating.
Question: "What does Wayne think about iShares FTSE/Xinghua China 25 Index Fund (FXI)?"
Wayne Rogers: I love China, from an economic point of view. In 20-25 years, China will be the largest capitalist country in the world. There’s no doubt about it. It’s sad to say that we will probably be the second. However, I would not necessarily buy everything in China. Yes: I’ve done well this year with PetroChina (PTR). I still hold it. It’s a wonderful stock. There are some Chinese stocks that are just going to do great, but just like the USA, some of them are not going to do so good. So if you want to buy and index in China, OK. But I’m not for it.
Terry Keenan: John, you’ve studied China very carefully. What do you think?
John Rutledge: I don’t like the indexes in China, because China’s governance in accounting is just not up to our standards, and you’re very likely to lose your money. China is among the bottom two performing indexes across the world, so far this year. The top nine are all Arab countries with oil prices. These are all Hong Kong stocks, but they’re Chinese businesses. If you want to invest in China, go to Korea and go to Australia and New Zealand.
Terry Keenan: Because they are big exporters to China.
John Rutledge: You could buy exchange-traded funds for South Asia – iShares MSCI Pacific ex-Japan (EPP), you can buy the Koreans — iShares MSCI South Korea Index (EWY), and you will have China as a result, without taking Chinese risk.
Wayne Rogers: If you were going to buy an index, I would do that too. But there are individual companies in China, obviously like PTR, that have done enormously well this year. So pick those.
Jonathan Hoenig: And that’s a big part of this index. I own Koran stocks. We own Korean Electric Power (KEP), it’s been strong. FXI has PTR, which you love, it’s got China Mobile (CHL) & China Telecom (CHA), to me those are kind of in the zone right now. China is acting more like a capitalist company in many ways than America is. I wouldn’t short it.
Question: "I shop at American Eagle Outfitters (AEOS) all the time. The stock has doubled in the last year. Too late to buy it?"
John Rutledge: Stay away from this. The trick here is that you have to recognize last week that the commerce department put an embargo in on cotton goods coming in from China, many of which are on their way to American Eagle. So the analysts are about ready to downgrade these retailers because it will cut into their profit margins.
Wayne Rogers: I think John is absolutely right. American Eagle has been a terrific stock, but now is not the time to accumulate it. You should have accumulated it a year ago. Now’s the time to probably back out.
Jonathan Hoenig: Why? Just because they’ve gone up a lot?
Wayne Rogers: I would take something off the table, because I think there are other things that are better.
Jonathan Hoenig: All right. Target (TGT), JC Penney (JCP), some of these small ones like Nordstrom’s (JWN), I wish we were playing these, but we’re not and they are strong stocks.
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eBay (EBAY) — Reports earnings: 7/20
Friday's Close: $35.08
Wayne Rogers, Wayne Rogers & Company: I still like eBay. I think eBay’s plan is a great model. I think eBay’s going to be a round for a long time. It’s going to have its ups, it’s going to have its downs, but eBay is going to be around a long time.
Jonathan Hoenig, Capitalistpig Asset Management: Does that make it a good stock, though? Xerox (XRX) has been around for a long time, and it wasn’t always a great stock.
Wayne Rogers: Jonathan, don’t Xerox me. It’s going to be around a long time, and it’s going to be a good stock for a long time.
Jonathan Hoenig: I love eBay, I’m on eBay. Brookstone (BKST), Nordstrom (JWN), Barnes & Noble (BKS), these are stronger stocks.
Terry Keenan: Do you own any of them?
Jonathan Hoenig: No. I’m saying, if you want a retailer, this is not the one to own right now.
Terry Keenan: But you shop on eBay, but not at Nordstrom I bet.
Jonathan Hoenig: More on eBay, yes.
Wayne Rogers: Let me put it this way: I bought eBay a long time ago. I’m still in there and I’m going to stay there.
TASER (TASR) — Reports earnings: 7/20
Friday's Close: $10.00
Danielle Hughes, Divine Capital Markets: I think you kind of have to like TASER down here. It’s down about 70 percent from its all-time highs. It’s expected to earn 2 cents. They’ve been beat up really hard, and I kind of like those stories. When stocks have been really beat up and everybody hates it, it makes sense to me to really take a look at the stock. 7,000 law enforcement agencies are actually buying the product.
Jonas Max Ferris, MAXfunds.com: Dani, it’s down from some ridiculously inflated multiple of earnings. Their earnings are not the problem here. The problem is the liability. It’s just a matter of time before some lawyer wins some lawsuit because this semi-lethal stun gun kills people and they’re going to turn it into some big court case.
Terry Keenan: So you’d zap the shares here?
Jonas Max Ferris: I wouldn’t touch these shares because you never know when they’re going to lose their first major court case.
Eli Lilly (LLY) — Reports earnings: 7/21
Friday's Close: $56.66
Jonas Max Ferris: It’s excellent. They’ve got a great pipeline. There are great, billion dollar drugs coming down in depression. I will say it’s one of the few industries that has no problem if oil prices go high. You can’t say that about a lot of areas in the market right now.
Terry Keenan: Jonas has been a bull on these drug stocks. Dani, what do you think?
Danielle Hughes: Their earnings have been down year-over-year for the past five years. They’ve got $20 billion in sales from last year that are coming out of the pipeline over the next three years. They’re losing patents on that. I don’t like big-name pharmaceuticals at all.
Stock of the Week
Danielle Hughes says that software company Symantec (SYMC) is a great bet for Monday morning. (She owns the stock.)
Danielle Hughes, Divine Capital Markets: It’s down significantly since January, and that was because of the Veritas merger with Symantec. Well, they’ve finally completed that. This is the world-leader in software for security and also for Veritas’ business. So, we’re really looking at an upside in the stock price. That’s where the big story is. They just broke out this week, so that’s why we’re looking to seek further gains.
Terry Keenan: Jonas, every time you look, there’s anew virus out there. Do you like this stock?
Jonas Max Ferris, MAXfunds.com: There’s a bull market in computer viruses. Here’s what the deal is: the only reason why Microsoft (MSFT) hasn’t wiped out this business is because if they did, by giving away free virus things, the regulators would be all over them. Google (GOOG) can wipe them out. They won’t have regulatory issues. If you look at how Google has executed things like their desktop search, it’s just a matter of time before they get into these kinds of virus and security issues, and really rub out the companies that are trying to live off these recurring monthly revenue from virus stuff.
Wayne Rogers, Wayne Rogers & Company: Jonas, when they get rid of this one, they’ll have to get rid of five companies. It’s not going to happen. I think Dani’s right. While it’s had a massive decline since January, it’s getting ready to be in a turnaround situation, and I think it’s going to do well.
Jonas Max Ferris: They know their main business is dead, that’s why they’re merging. That’s what AOL did. They saw that thing was a sinking ship, and they locked into a real business. That’s what Symantec tried to do with this half-baked merger. Meanwhile their old business is going to die.
Wayne Rogers: What we’re trying to do here is make money in the stock market.