DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
Bulls & Bears
This week, Brenda was joined by Gary B. Smith, RealMoney.com columnist; Pat Dorsey, Morningstar.com director of stock research; Tobin Smith, editor of ChangeWave Investing; Scott Bleier, president of HybridInvestors.com; Bob Froehlich, chairman of investor strategy for Scudder Investments, and John Rutledge, president of Rutledge Capital.
Trading Pit: $3 Gas & Stocks
Gas prices have skyrocketed since Hurricane Katrina hit and show little or no signs of falling anytime soon. Can stocks go higher if gas stays so high?
Bob Froehlich: There’s nothing magical about $3/gallon for gas. People were saying the same thing when gas was at $1 and $2/gallon. This is only one element of our economy. I think what’s more important are interest rates, which are still very supportive of the stock market; profits, which will grow double digits in the 3rd and 4th quarters; and employment rates. High gas prices effect investors’ emotions, but it won’t stop the stock market.
John Rutledge: This is no big deal. It’s painful, but mortgage rates are much more important for people and the economy. Interest rates are lower because the long-term inflation outlook is very good. Lower rates and growing profits are good news for stocks.
Tobin Smith: There were so many things coming at us at once. It got very confusing. When some people are confused, they sell. But when you look at the data, gasoline prices have to get to $5/gallon before it can have the effect it did in the 1980s. That was a real recession. But what could be a big problem is that people are maxing out their credit cards to pay for gas and this is increasing default rates.
Gary B. Smith: There’s no real relationship between consumer sentiment and what people spend. We’re at the stage where people complain about high prices, but they haven’t really done anything about it. And if they do start to do something, there are so many options: telecommuting, car-pooling, or public transportation.
Scott Bleier: If gas prices stay at this level it will have a negative effect on the stock market. Everything gets more expensive because gas prices are going up. The cost gets passed on to anything like food, clothing, etc. that need to be transported. It will put a cap on the stock market. Consumer confidence and spending has been going down and it will hurt the stock market in the 4th quarter. This could even send us into a recession next year.
Pat Dorsey: This has not had a huge effect yet, but we are starting to see high gas prices effect places where Americans with middle to lower incomes shop. Wal-Mart (WMT) and dollar stores are seeing their sales hurt because people are spending less. And a lot of the people who shop at these stores make up a decent amount of the country’s spending. Be careful of any company that lends money to lower income consumers, because these stocks will get killed.
So if gas prices stay high, which stocks will head higher? The Bulls & Bears each give their picks.
Gary B. Smith: I like the “Big Kahuna” in the oil game: Exxon Mobil (XOM). As oil prices go down, Exxon goes up and as oil prices go up, Exxon also goes up. This is a good one for anyone’s long-term portfolio. (Exxon Mobil closed on Friday at $63.54.)
Tobin Smith: It’s hard to argue with Gary, but there are so many better stocks out there.
John Rutledge: My pick is iShares MSCI Pacific (EPP). It’s the safe way of playing China growth. This fund invests in Australia and New Zealand, which is where China gets its coal. It also invests in Hong Kong and Singapore, which is where China gets direct investment money. I like it so much I own it. (iShares MSCI Pacific closed on Friday at $103.15.)
Bob Froehlich: I don’t like it because it doesn’t have the exposure to Japan. It would be up a whole lot more if it included Japan.
Bob Froehlich: I’m betting on retailer Family Dollar Stores (FDO). Those who shop at Family Dollar also shop at Kohl’s (KSS) and Target (TGT). However, business has slowed down at Kohl’s and Target and people are doing more shopping at Family Dollar. I do own the stock. (Family Dollar Stores closed on Friday at $19.87.)
John: I’ve lost so much in retail over the years that I don’t invest in retail anymore. If I did invest in retail, however, I wouldn’t like it because the sector is a recession play. I think the economy is a lot stronger than people think.
Scott Bleier: Smith International (SII) is ready to go higher. This is an oil service stock that makes drill bits and other equipment for oil rigs. Many oil service stocks have done well, but Smith has lagged a bit, and now should gains. (Smith International closed on Friday at $33.31.)
Pat Dorsey: This is a high quality firm in a pretty tough industry, but it is way too pricey.
Tobin Smith: I really like oil refiner, Frontier Oil (FTO). Investors aren’t making money buying light sweet crude; they are making the money buying sour crude oil. This stock is worth $60. (Frontier Oil closed on Friday at $44.35.)
Scott Bleier: Post-Katrina refinery stocks shot up. Over the next six months, earnings are going to peak. Unless Frontier gets taken over, the stock has reached its peak.
Pat Dorsey: I’m going with insurance company Infinity Property & Casualty (IPCC). With gas prices so high, there will be less driving. This benefits auto insurance companies because with less driving, there will be fewer accidents. Infinity insures high-risk drivers. Look for this stock to go up to $45. (Infinity closed on Friday at $35.09.)
Gary B. Smith: This stock has been drifting sideways and needs to show a little more strength.
Is President Bush Rallying?
The White House was caught in a storm of its own post-hurricane. The president's approval rating is now starting to climb. Wall Street hopes he can shake criticism about his response and start to rally, so it can rally as well. Is President Bush recovering from the storm?
Gary B. Smith: Yes, the president is recovering from the storm. People have a short-term memories and a month from now they will forget. The president has moved on and he’s on the comeback trail.
John Rutledge: Hurricanes Katrina and Rita aren’t the problems — it’s Karl Rove, Tom Delay, Bill Frist, and William Bennett. The president’s agenda has been stuck due to these setbacks. The issue really is tax rates: top tax rate, which is small business, capital gains, dividend, and the estate tax.
Tobin Smith: The issue of extending the tax break has to get back on the table. If we’re going to lose this, the market is not going to like it.
Scott Bleier: People’s perceptions of politicians are at a multi-year low. I respect the president for taking responsibility for the response to Katrina. But he’s got to get the message and agenda back on track or the economy is going to suffer.
Pat Dorsey: The president’s standing in the polls doesn’t matter as much to the economy as what Congress is doing, which is spending. They have control over the purse strings and that is a much bigger issue.
Bob Froehlich: The economy is what drives presidential ratings. The elements that drive the economy are interest rates, consumer prices, and unemployment. These are the items that are driving the market.
Predictions
Bob Froehlich: Oil's big bubble bursts! Falls to $45 by Thanksgiving
John Rutledge: Energy crisis coming; nothing to do with hurricanes
Scott Bleier: High gas prices means better gas mileage
Tobin Smith: Congress gives back pork for good of country
Pat Dorsey: Congress gives back nothing & increases spending!
Gary B. Smith: DeLay troubles mark low for Bush; up from here!
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cavuto on Business
Neil Cavuto was off this week. Dagen McDowell hosted and was joined by Ben Stein, author of "Yes, You Can Still Retire Comfortably!"; Jim Rogers, author of "Hot Commodities"; Gregg Hymowitz, founder of Entrust Capital; Michael Parness, founder of TrendFund.com, and Stuart Varney, FOX Business News contributor.
Bottom Line
Dagen McDowell: A terrorist attack on New York City, a devastating hurricane in New Orleans, and a massive earthquake in California — nearly five years ago the federal government identified all three of these as possible catastrophic events America would likely have to deal with. Our economy has survived the first two. Could the third be the most devastating?
Jim Rogers: If we have a big earthquake in California, the effect will be much worse than any of the events we’ve dealt with so far. California has over 32 million people, and we have already proved to the world [through Katrina] we can’t handle a disaster even when it involves far fewer people. It would be much worse than the hurricanes.
Ben Stein: We had quite a big earthquake in California about 11 years ago, and it was just a blip on the national radar screen. This is a $13 trillion economy, and it can absorb very large disasters.
Gregg Hymowitz: It depends how large an earthquake we are talking about. If it’s a crippling earthquake, given the size of California’s economy, it’s going to be a heck of a lot worse than the hurricanes for sure. We bounced back fairly quickly from the 9/11 terrorist attacks, but if an earthquake shuts down a lot of the economic centers in California, yes it could be crippling.
Stuart Varney: What worries me about a catastrophic earthquake in California is not the event itself, which we cannot prevent, but the government’s financial response to it. We have the habit of throwing money, willy-nilly, at every major catastrophe. We chucked $20 billion dollars at the families of the victims of 9-11. Why? And why are we going to spend all of this money trying to make Louisiana better than it was before because we’ve had a hurricane there?
Michael Parness: I agree with everyone on some level. Unless California ended up in the ocean with Arnold Schwarzenegger waving: “Hasta la vista, baby!” to the rest of the country, it would be somewhat of a blip.
More for Your Money
Investing in the companies that will make money rebuilding the Gulf Coast.
Michael Parness: I like McDermott International (MDR), which specializes in building and rebuilding oil rigs way out in the ocean, and obviously that’s something we need now and we are going to need in the future because I have to assume we are going to have more hurricanes.
Dagen McDowell: Gregg this stock has tripled in the last year; isn’t it a little pricey here?
Gregg Hymowitz: It’s a little pricey, but I agree with Michael that MDR is definitely in the sweet spot. The company is very much involved in the repair efforts in the Gulf Coast. It’s just reached an asbestos settlement. Other than the price issue, this company looks to be in the perfect place and ready to take advantage of the opportunities there.
Ben Stein: Halliburton (HAL) specializes in building things in difficult circumstances such as in Iraq or in the aftermath if hurricanes or tidal waves. It has had a lot of bad publicity with an overhanging problem with asbestos litigation, but it’s a company that manages to make money.
Dagen McDowell: It’s been on fire for the last four years.
Michael Parness: Everything in the oil services sector has been on fire. I can’t say I dislike this stock because I like the sector a lot — I think oil is going a lot higher — but I think some of the smaller stocks like MDR are better value plays than Halliburton right now.
Gregg Hymowitz: The cement market is already very, very tight, and a company we own a lot of is Cemex (CX). Given what has been going on in Louisiana and the potential for other disasters — as we talked about earlier in the show — we think the cement market will get even tighter, and at seven-and-a-half times next year’s free cash flow, we think this is a very attractive opportunity.
Jim Rogers: I can’t understand this. All of these guys are picking stocks that are at all time highs. Gregg’s stock has doubled in the last year. Why don’t you guys buy things that are cheap?
Gregg Hymowitz: I don’t care what the stock has done in the last year. All I care about is what the current valuation is, and at seven-and-a-half times next year’s free cash flow, I am taking your advice – it’s cheap!
Jim Rogers: These disasters are going to cause distortions in the U.S. economy, and I would expect we are going to have a recession next year. The people who are going to benefit are the Canadians. They have a lot of natural resources; the government is buying up all the lumber and glass that it can. You should buy Canada – stocks, the currency, everything.
Dagen McDowell: Ben has loved Canada for a while now.
Ben Stein: I love the iShares MSCI Canada Index (EWC). I have a fair amount, and it’s done very well. I think it’s got nowhere to go but up — on the minerals, on all the other commodities, and on the Canadian dollar rising.
Head to Head
Dagen McDowell: Is Louisiana too corrupt to receive the $250 billion in federal aid money it is asking for in the wake of Katrina?
Jim Rogers: Well, of course Dagen. I mean, can you imaging throwing money out the window with no controls, and those guys down there catching it? They are going to give it to their friends; they’ve been doing it for years. But it’s not just Louisiana, I mean everywhere – whether it’s the Red Cross, whoever – when you throw gigantic amounts of money at something with no controls most if it winds up in the wrong place. This is $250 billion for a maximum of 2 million people. This is crazy. This disaster would not have happened if those levees had not broken, and they broke because the politicians in Louisiana have not taken care of them. They spent the money on themselves.
Stuart Varney: It sounds terrible for a guy with a foreign accent to badmouth an entire American state, but I’m going to do it. I’ve been here 30 years and Louisiana has a long history of corruption, and the idea of handing $250 billion to a state like Louisiana to do with as it will is absolutely outrageous. It’s a hijacking of the Federal Treasury.
Gregg Hymowitz: Anytime you hand that kind of money to any organization or entity to fix a major problem you have to be very careful. We have to have procedures in place to make sure the money is monitored — that it is spent wisely and efficiently.
Ben Stein: I don’t think Louisiana is more corrupt than other states. Corruption is a basic part of human nature. And I don’t think the money is going to be given to them without any controls. I assume there will be strict federal controls on the money, and there will be auditors. Of course a lot of will be wasted – that’s the nature of human life and of government life.
FOX on the Spot
Jim Rogers: Terrorists will now target levees, dams and nuclear power plants.
Stuart Varney: President Bush's poll numbers will rise as gas prices fall.
Michael Parness: Next time, hopefully, our leaders will lead, and instead of reacting by throwing $250 billion at a disaster, they will be proactive and spend money to prevent future disasters.
Gregg Hymowitz: Betting on the weather will explode on Wall Street!
Ben Stein: The media used the hurricane and the misery of the victims to slime President Bush who did nothing wrong whatsoever, and it’s going to backfire as people realize that mainstream media are partisan and this is going to help President Bush.
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Forbes on FOX
Should "Act of God" Hurricane Lawsuits Be Banned?
Jim Michaels, editorial vice president: Trial lawyers are vultures. They like to move in when there is a disaster, when there is sick and dying people and hold the public up. What happened here is nobody's negligence. Let us decree that there can be no class action lawsuits here. If there is criminal negligence, then that can be handled under normal criminal law. These lawsuits are going to cost the public billions of dollars.
Dennis Kneale, managing editor: If you ban all lawsuits you give business and government officials the right to operate with total fearlessness. You have to trust the American justice system. Yow have to trust that juries will be smart enough to throw out stupid lawsuits.
Steve Forbes, editor-in-chief: That's why we have tort reform, because the courts aren't functioning. That's why trial lawyers are feasting and ruining industries and creating joblessness. In the gulf $200 billion is already going in. You don't need the trial lawyers as middlemen.
Elizabeth MacDonald, senior editor: It's silly to sue the insurers because they didn't collect the premiums for this coverage. However, I do think we should sue for future coverage because the government should get out of the business of federal flood insurance once and for all. It gives incentive for people to live in flood zones. It puts people in harms way. It's an imposition on taxpayers.
Quentin Hardy, Silicon Valley bureau chief: The idea that all trial lawyers are bad and all insurance and construction companies are good is preposterous. The idea that you are going to give these big companies a free ride is just wrong.
David Asman, host: There's talk about lawsuits against FEMA. What about that?
Jim Michaels: FEMA may not have reacted as quickly as they should, but class action lawsuits don't help anybody but the trial lawyers.
Dennis Kneale: Class action lawsuits help the class that got hurt. In the asbestos litigation, as wild as it was, there were legitimately hurt people who did get covered thanks to lawsuits.
Jim Michaels: The trial lawyers get $20 million in a case and the individual victims get $1,000 each. Trial lawyers get 50 percent of the proceeds.
Steve Forbes: 500,000 people had to flee New Orleans. With $200 billion going in that equals $400,000 a person. You don't need trial lawyers to do that.
Quentin Hardy: Changing corporate behavior takes extreme measures.
Elizabeth MacDonald: We're talking about "act of God" lawsuits against insurance companies. They didn't collect the premiums for it. They don't have a leg to stand on. The real issue here is getting these people out of the flood zones. You do not give these guys federal insurance to build in these flood plains. It puts poor people in harms way.
Jim Michaels: Congress should pass a law that says that this was an "act of God" and personal negligence plays no part in it. As far as changing corporate behavior is concerned, you are assuming that all corporations are greedy, irresponsible people and that's just not true.
Dennis Kneale: A government can't come in and say we assume that no one did anything wrong. That's what juries are for and that's what juries will decide.
Steve Forbes: Trial lawyers own many of those courts because they contribute to many of those judges’ campaigns.
Elizabeth MacDonald: The insurance policies were written and had exclusions for flooding. People didn't read their insurance policies.
Quentin Hardy: There are many lawsuits that are going to happen; it's not just about flooding. The bad companies need to be found out and if it takes trial lawyers, bless the trial lawyers.
Global Warming: Is it a Big Lie?
Steve Forbes: Global warming is global bologna. Hurricanes were most devastating back in the 1940s. New Orleans had a devastating hurricane back in 1722, before we even had the steam engine and industrialization. This is a bunch of political hot air.
Lea Goldman, staff writer: I think this is bigger than whether global warming caused these hurricanes. It's about how the administration is handling the discussion. They systematically stifle the real evidence that has been brought to the table by the EPA and different governing bodies. 37 different countries, including Germany and Japan signed onto the Kyoto Accord. Somehow we know more than them?
Mike Ozanian, senior editor: What Lea is suggesting is that we turn our economy over to the government and the environmentalists so that the United States can have the 11 percent unemployment rate and the stagnate economies that Europe has. Bush has said let the marketplace help come up with the solutions. That's the right way to go.
Quentin Hardy: Anyone who says global warming doesn't exist doesn't want to listen to scientists. There is a lot of that going on in this country. Look, the polar ice caps have shrunk 20 percent since the 1970s. Bush himself admits global warming exists. It's a real thing and we better deal with it.
Jim Michaels: There were cycles of global warming and cooling long before the dinosaurs. We seem to be in a period of global warming now. There's no evidence at all that it's had anything to do with these hurricanes, there's no evidence at all that industrial activity causes global warming. Yes we should be planning for this activity to be continuing but that doesn't mean that you accept the madness of the Kyoto Treaty and turn our economy over to a bunch of environmental crazies.
Elizabeth MacDonald: Both sides of the aisle agree that the earth's temperature has risen by 1 degree over the last century. Why not discuss it? Maybe we could save the economy from future taxpayer bailouts.
Steve Forbes: Al Gore is saying that global warming causes hurricanes. The truth is, warming reduces the overall severity of storms.
Quentin Hardy: This doesn't have to be thought of as a negative. You can advocate things that consume carbon dioxide. The United States is a consumer of carbon dioxide, the gas that causes global warming, because we've planting more trees over the past 80 years. We have to encourage this kind of behavior in other countries.
Lea Goldman: There is still time to step up and make this country a model for alternative energy.
Elizabeth MacDonald: Other countries that are consuming a lot of oil and gas should not be excluded from this discussion, including India and China. Every economy should be brought into this.
Flipside: High Gas Prices Are Good for America!
Neil Weinberg, senior editor: Hooray for high gas prices! Finally market forces will do what we don't have the political will to do, which is reduce our use of oil. It's not just a money thing. We're also becoming increasingly dependent on all these horrible parts of the world that we can't count on and shouldn't trust for oil.
Elizabeth MacDonald: Try telling the people fleeing the hurricanes that gas gauging is good. Try telling that to the middle class and poor people who have to drive to work.
Dennis Kneale: The market always wins and the market is always right. The fact is, in August the average cost of gas was $2.50, up 30 percent from a year ago. But guess what, in the summer GM sold 300,000 SUVs, a 14 percent sales growth from the previous year. That's because gas isn't pricey enough yet. People aren't feeling it hard enough to change their behavior.
Jim Michaels: One thing high gas prices have done is make some of these hedge funds rich. They're partly responsible for driving up the price of oil. Hell no, it's not good for the American economy. I just paid my first fuel oil bill and I'm paying double what I paid 2 years ago. This is taking money away from the consumers and putting it in the hands of a lot of speculators and autocratic governments. This is not good for the economy.
Steve Forbes: This is not good for the economy and the very same people who don't drive and don't mind high gas prices are the same ones who are going to be yelping in the winter time about high fuel prices. If we were serious about energy we'd produce more of it. There's tons of oil and natural gas out on the outer continental shelf. Nuclear power plants, more refineries, ANWR, there's a lot we can do to keep up supply and keep this economy going.
Elizabeth MacDonald: I don't know about ANWR, but we should have fuel efficiency standards on those gas guzzling SUVs. This problem is stalling the economy and it's hurting the airlines and it could cause inflation as the cost of transport goods rise.
Neil Weinberg: High has prices change behavior and that is good for us. We could explore for more oil, like Steve was saying, but why not reduce our use of it at the same time.
Dennis Kneale: A little carpooling never hurt anybody. You'll make the adjustment when you feel it in your wallet.
Jim Michaels: In ANWR, there is enough oil to keep this country going for 15 years without importing. There's a lot we can do.
GOP Agenda: Dead or Alive?
Dennis Kneale: I think that the Republican agenda is now derailed. The Bush presidency has always been a crisis-based presidency. He doesn't swing into action until something goes really wrong. It's been one crisis too many and the agenda is dead.
Steve Forbes: It's a matter of leadership and getting an agenda out there, like a specific Social Security reform that points out that the tax code is a real source of corruption in Washington. He can get the initiative back again and once he does, the whole thing changes.
Lea Goldman: There's just no way that the president can appeal for permanent tax cuts when the budget is stretched so thin. People are relying on the government aid to rebuild their lives. There's no way you can have it both ways, tax breaks for multimillionaires and then "nickel and diming" those people who just lost their homes.
Jim Michaels: Raising the tax rates is not the way to increase government revenue. The way you do that is by getting the economy growing. The government is a partner in every company and every individual. Get people's revenues up and you'll see tax revenues go up.
Dennis Kneale: Given that I think that the government's agenda has been derailed you have to go with a stock that has nothing to do with it. I like Novartis (NVS), the drug maker. Republicans passed Medicare coverage so millions of Americans are going to be getting free drugs in the next 10 years and Novartis is going to benefit.
Lea Goldman: I like Sauer-Danfoss (SHS). It's an infrastructure company that makes pumps and valves and things that a state that's rebuilding would need.
Steve Forbes: The president's agenda is not derailed. Get a portfolio of financial service companies. There's $12 trillion in cash in the world, $2 trillion in this country. Someone has got to baby-sit that. They're going to do very well regardless of where interest rates go.
Jim Michaels: JP Morgan Chase (JMP) pays a handsome dividend. I'm praying that Congress extends the dividend tax credit.
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cashin' In
Will the Housing Boom Survive the Hurricanes?
The economic impact of Katrina and Rita are being felt nationwide. Will it extend to the housing market?
Jonas Max Ferris, MAXfunds.com: I think September 2005 is going to go down as the absolute peak of the housing bubble that started after the stock market crash. The reason is not economic. Rates are going up, there’s a lot of government spending. It’s more psychological. It’s that housing has seemed like a great investment because of the stock market crash. It’s a hard asset. It’s real. It’s not like some dot-com stock. This hurricane makes houses look like a little less of a secure investment.
Terry Keenan: Because they can be blown away at any time.
Jonas Max Ferris: They’re underwater. This isn’t any safer than owning IBM stock. So this is going to make people re-assess their value of this as an investment.
Wayne Rogers, Wayne Rogers & Company: I want to find out what Jonas is smoking. It has nothing to do with Katrina. We are not in a housing bubble yet, but we’re certainly approaching it. There’s no doubt about that. In the city of New York, for example, prices are still way up there. There was someone who is still selling out 130 condominiums in a half hour, so it’s still going on. In certain pockets, though, it’s begun to slow down; the absorption rate has slowed down.
Jonathan Hoenig, Capitalistpig Asset Management: Wayne, you’re the big real estate guy, haven’t you been lightening up a bit?
Wayne Rogers: Yes. I said it’s approaching. I’m not trying to sell out at the top. I think we’re approaching that bubble, so I’m lightening up. You’re absolutely right. Yes.
Jonathan Hoenig: I think that there is reason to. I mean, all the stocks I look at as early indicators of the housing market, like Freddie Mac (FRE) and Fannie Mae (FNM) — Fannie Mae got it’s “butt whupped” last week. And all the mortgage-related products look terrible. We don't own any of these. We wouldn't touch them with a 10-foot pole. I'm very leery of those who are stretched too thin in real estate right now.
Wayne Rogers: If you really believe that, would you short them now?
Jonathan Hoenig: I would sooner be a short on Fannie and Freddie than be a long, no question.
Charles Payne, Wall Street Strategies: The bottom line is I think Jonas has a great point. If you look at the government statistics that came out, there is a tremendous amount of supply — not only in existing homes, but also in new homes. Supply shot through the roof, and that's a scary part. What I do believe will happen is that it can be orderly and that prices are going to plateau, maybe pull back a little bit. We are already in the bubble Wayne, but I think air will seep out of it. I don't think it will pop. But there is anxiety — anxiety was heightened by Katrina. You see it in the supply numbers.
Tracy Byrnes, The New York Post: But I think the demand is still there because of the creative mortgage markets that are available to people. They can push themselves into these “McMansions” that they never could have thought about owning before.
Charles Payne: The government data doesn't say that. Listen, you listen to the conference calls from these homebuilders and they’re saying ‘give us a break on these estimates. We’re not going to have the same average selling price and we can’t keep up the pace.’ They're trying to soften the blow.
Terry Keenan: And a lot of those homebuilding stocks are down 20 percent, 30 percent, Jonas, and the Fed is starting to tell the banks to cut it out with these creative lending products.
Jonas Max Ferris: And (the Fed) warned us that so much of the economic stimulus was from housing refinancing. A lot of the demand has people buying homes in vacation areas, speculation of where they're going to retire, second homes. That's the area in the hurricane path. That’s not going to seem like a brilliant move, to take a negative amortization to buy a second home in a hurricane area when insurance is going up and when they can get underwater.
Tracy Byrnes: You're going to have all this rebuilding coming up. People are going to forget and they are going to want that beautiful condo on the water down in New Orleans.
Jonathan Hoenig: But Tracy, can they afford it? We were learning this week that credit card delinquencies are at a new high.
Tracy Byrnes: No, we can’t afford it. We spend way more than we make.
Jonathan Hoenig: That's the problem; those who have used all the creative products you’ve talked about. Like Jonas said, the interest-only, no-money down, late-night infomercial deals — if you’re stretched that thin, you're in trouble.
Terry Keenan: Wayne, how do you play this here? You’ve taken some money off the table in real estate.
Wayne Rogers: Yes, I have. As a matter of fact I sold a property last week. I think Jonas is right. I think Jonathan is right, too. But it's local. Real estate is a local phenomenon. In certain parts of Florida, yes the absorption rate has gone on. In other words, things that were on the market for 30 days are now on the market for 45-60 days, that's the beginning of the bubble when the prices come down.
Terry Keenan: But, do you buy into this scenario that the bubble bursts and the whole economy goes down?
Wayne Rogers: No, I do not.
Charles Payne: Also, I think it’s become a cliché that real estate is local, because all home prices in this country went up with the same tide. I think the same tide will bring them all down too, to a certain degree. But, I don’t think we’re going to crash.
Wayne Rogers: Are you kidding me? Wait a minute. Some houses have gone up three and four times. Some have gone up five or six. Big difference.
Charles Payne: But they've all gone up. That’s the point. Even the house of mine in North Dakota has gone through the roof in the last four years. All over the country wherever you want to look, they went up. No disrespect to North Dakota.
Terry Keenan: Do you agree? Is it local or not?
Jonas Max Ferris: I think it is not. It's like the stock market. Some stocks get expensive, but the whole thing can be in a bubble. It was only tech stocks that were expensive in 2000 and yet the whole market was in a bubble. You can’t deny that now. Yes, California, Florida, New York are a lot of the market cap of the whole valve homes. It’s probably half. If it falls 30 percent, 40 percent, then you can say we had a real estate bubble and that it crashed in September 2005.
Wayne Rogers: But what you said is true about the vacation home market. I would agree with you.
Terry Keenan: You know, Jonathan, you have your bachelor pad. But you made a lot of money in real estate through your REITs. Are you done with those, also?
Jonathan Hoenig: I’m certainly lightening up. We owned the Cohen & Steers Worldwide Realty Income Fund and the ING Clarion Global Real Estate Income Fund (IGR). Those are the international closed-end funds. I sold those. The only real estate we have exposure to now, Terry, in my hedge fund is in Brazil and Argentina, those ADRs. I would rather own a condo or a bachelor pad in Buenos Aries, than New York right now.
Terry Keenan: Tracy, you know Jonathan does have a point. A lot of the early indicators of consumer spending and of housing have really started to crumble lately.
Tracy Byrnes: They have, but I also think that once the area starts to rebuild, you are going to see consumer confidence go back up. People are going to need employees down in New Orleans again. There are going to be jobs, and people are going to need money. Insurance is going to start to make payments. There is going to be rebuilding. It will help.
Wayne Rogers: Yes, because that's local. That's in New Orleans. That's in Southern Mississippi. It will affect the people who supplied them. The cement makers, those kinds of people. That’s true.
Charles Payne: To Tracy's point, though, we saw a consumer confidence number out this week that was the lowest in 25 years. That's a national number. I do believe we went so far down in our anticipation and our angst that we can go up from here on a nationwide basis. Do you know what’s going to be ironic? Homebuilding stocks may actually be buys down here.
Terry Keenan: Are you bullish right now?
Jonas Max Ferris: On real estate, no. On stocks, compared to real estate, I have to say yes.
Terry Keenan: Wayne?
Wayne Rogers: No.
Terry Keenan: Tracy?
Tracy Byrnes: No.
Terry Keenan: Jonathan?
Jonathan Hoenig: What about gold?
Jonas Max Ferris: Aren't people going to go because they’re scared that homes aren't as safe as gold, perhaps?
Jonathan Hoenig: Jonas, you have been calling the top of the real estate market for four years now. Maybe you’re going to be right and that it was September. I think, you know, as Wayne always says, it's a stock picker's market. You have to be selective right now. Real estate is not the place to be.
Money Mail
Question: "Should the government raise taxes to help pay for all the hurricane clean-up?"
Jonas Max Ferris, MAXfunds.com: We should. It's totally irresponsible to just say, "let’s spend $200 billion, and the future generation will have to pay for it with bond borrowing." The fact of the matter is that we need to cut a little demand and we need to pay for this. I suggest a $1 gas tax, federally, for 100 days to offset this cost.
If you raise gas taxes, Jonas, all you're going to do is hurt the people on the edge.
Jonas Max Ferris: In fact, it would raise $35 billion because all it would do is set the price higher, which it needs to be because George Bush already asked us to lower demand.
Jonathan Hoenig: We're going to spend it on a cruise ship somewhere in the Gulf that’s sitting half empty. We’re going to spend it on $2,000 debit cards.
Wayne Rogers, Wayne Rogers & Company: No, I have a different problem with it. I disagree that it's a $250 billion problem. It should be done privately. And the government should be out of that business. They're going to misspend all of that money. 50 percent of it will go right down the drain. It’s another boondoggle.
Charles Payne, Wall Street Strategies: Listen, that's true. But on the same token we can't raise taxes. I think we should calling it spending. I think it's a huge investment. It will be a long-term investment that will pay back dividends. We want to spend the money right and want as many private contractors involved as possible. But to tax gasoline is absolutely nuts.
Jonas Max Ferris: God forbid we actually pay for this $200 billion. How will it pay for itself?
Charles Payne: It’s an investment. It will pay for itself if it’s done right.
Jonas Max Ferris: How is it going to pay for itself?
Wayne Rogers: Politically, if you don't empower those people down there to determine their own future, you're going to blow all of the money down the drain. You'll have another thing just like New Orleans before where it's corrupt and everything else.
Question: "I heard that in order to get flood insurance you need to live in a 'flood zone'. Is that true?"
Wayne Rogers: I've never heard of building in a flood zone in the first place. That's not true. It's very complicated because flood insurance can be divided into several categories. Not only that, but there is wind-caused water, there is water that comes from flood. You have to read your insurance policy very carefully. And what he's saying is not true. You don't have to be in a flood zone.
Jonathan Hoenig: Isn't all of New Orleans a flood zone?
Terry Keenan: It's below sea level.
Jonathan Hoenig: My knowledge of that topography means that you are all at risk.
Terry Keenan: Is it fair for the rest of us to have to pay for people that have beachfront property that they maybe shouldn’t have.
Jonathan Hoenig: Absolutely not. That’s why the flood insurance program should be privately run. The government shouldn't be involved at all.
Question: "I saw Jon on O'Reilly recently, but he wasn't allowed to talk! I want to know: how is the price of oil set?"
Jonathan Hoenig: Well, Bill has really shocked me. This guy has gone totally Lou Dobbs on us. This whole socialist rant that oil companies are screwing everybody — Bill is a good debater, but truly he needs a class in economics. Prices are set by the market — they're not set by OPEC or Hugo Chavez or Exxon Mobil (XOM) or hedge fund traders. Demand is up. These hippies have ensured that supply is down. Guess what? You are going to get higher prices.
Wayne Rogers: That’s not totally true. That’s mitigated by the fact that you have eight oil companies that were mildly competitive. Now you have four. You’ve let eight combine into four and you have a cartel now. You have Chinese companies and Indian companies who are also in the oil and gas business. Should the price of oil be determined by the marketplace? Of course it should be.
Terry Keenan: Is it?
Wayne Rogers: Well, we haven't built any refineries. Oil is one thing. If you haven't built a refinery in 30 years, you can't put 25 chickens down the neck of a milk bottle. You know, it just doesn't work.
Charles Payne: When you say ‘we,’ you really mean the oil companies, and they're not building them because it might hurt their profits.
Terry Keenan: They also can't get the zoning for it.
Charles Payne: There’s also the ‘not in my backyard’ syndrome. But also, taxes play a huge role. Clean air is another thing. To make those fuels more clean efficient costs a lot of money. There are a lot of things that go into the price of gasoline that people don't realize. We can't blame it all on oil companies.
Could Playing the 'Blame Game' Kill Relief Efforts?
Poison politics in Washington these days, finger pointing after Katrina, a potentially ugly battle on the new Supreme Court nominee. Is this helping anyone? Or will it all eventually cost more lives and money?
Ann Coulter, syndicated columnist and author of "How To Talk To A Liberal (If You Must)": No, I don't think it's going to help unless republicans are afraid and back down, but, I mean, this has been going on constantly. They tried, you know, that loon Cindy Sheehan for a while. That fizzled for obvious reasons. They tried blaming a category five hurricane on Bush. That fizzled. Now it's the Tom DeLay indictment. No. As long as republicans keep moving forward, I don't think just saying Tom DeLay's name in the same sentence as ‘corruption’ is going to do anything.
Terry Keenan: But the president’s poll numbers, if he were a stock, Jonathan would not be buying it. He buys strength. He’d be selling Bush here.
Ann Coulter: His numbers are going to be terrible as long as gas prices are up, but it’s not because of Cindy Sheehan or a hurricane.
Jonathan Hoenig, Capitalistpig Asset Management: Why do you think they’re up, Ann? Forget Bush. It seems like the oil companies have gotten the big blame about all this gouging. Even some on the right have been saying, service stations are gouging everybody. Do you buy that?
Ann Coulter: No, because I saw you on O'Reilly. So I know that's not true.
Wayne Rogers, Wayne Rogers & Company: Service stations, Jonathan, are not gouging. The gouging starts way before they get there. The oil companies learned a long time ago that they could set the price of oil at the wellhead. They didn’t even have to get into the business of refining it. So they sold off all their refineries, and their downstream stuff, and they’re making it at the wellheads. Don't accuse the guy that you setting the price on the street. It's the guy way back there.
Terry Keenan: But from a political angle, Ann, the high price of gasoline, the gouging and the accusations resonate. It shows up in the polls.
Ann Coulter: It is going to the pump and seeing high gas prices. But if anyone is trying a do anything about it is the republicans who wanted to drill in ANWR, and the teamsters, and everyone else who was blocked by the democrats until we got a republican senate.
Charles Payne, Wall Street Strategies: I agree with you on the oil part. I think this helps Bush and his agenda. But I don’t think you can sweep Tom DeLay, Bill Frist and these types of things under the rug. You can't sweep under the rug Bush's ratings. There is a problem there that the republicans better get a handle on. The great news for them is that it's not an election season. Main Street and Wall Street are not paying attention. When it came to Tom DeLay, on the cover of the newspaper we had John Gotti here in New York. That's what the public cares about. If they rest on their laurels and if they take this really sanguine, like it’s not a big deal, it’s going to hurt them. They’d better do something immediately. I don't know what the Bush agenda is anymore.
Ann Coulter: I don't know what the charges are. That's what the problem is with all of the hysteria we keep getting from the left. All these scandals from liberals, you don't know what the charges are.
Wayne Rogers: Frist, we know what the charges are. He probably sold on inside information.
Charles Payne: He's using a Martha Stewart excuse.
Wayne Rogers: Yes, yes, exactly. That has a bad odor about it and that's something that has to do with stocks. You said you didn't know anything about stocks. You don't have to know too much about stocks.
Ann Coulter: I don't know anything about stocks, but I do know anything about Frist’s sale. It takes time when you have a blind trust, which really isn’t that blind, but he started to sell in April when the stock was flying high.
Wayne Rogers: You don't believe that he didn't know?
Ann Coulter: He started to sell in April. That's a fact. And the stock was fine in April. Nobody knew anything.
Wayne Rogers: The stock is always fine before the bad news is released, for God’s sake.
Ann Coulter: Sometimes people sell stock and it goes up or down. You look when the person first started the movement. In this case, because there were a lot of people involved, he started to sell when the stock was high. Nobody knew what it was about. I still believe you have to prove something before accusing someone of it.
Charles Payne: You talked about the GOP staying the course. What is the course right now? You talked about them staying the course and being unified. What's the course? What's the agenda? Because I think the market has forgotten it.
Ann Coulter: Cutting taxes and cutting spending. That's all the base cares about. Unfortunately they have not been doing enough about it.
Get all the stories you need-to-know from the most powerful name in news delivered first thing every morning to your inbox