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 past week's "Bulls & Bears":
• Gary B. Smith, RealMoney.com columnist
• Pat Dorsey, Morningstar.com director of stock research
• Tobin Smith, ChangeWave Investing editor
• Scott Bleier, HybridInvestors.com president
• Bob Olstein, the Olstein Funds president
• Dan Senor, FOX News contributor and former spokesman for the Coalition Provisional Authority in Iraq
Iraq moved closer to democracy this past weekend. And these small steps are beginning to add up to big progress in that nation.
Does Wall Street need democracy to succeed in Iraq?
Tobin Smith: YES! Democracy must succeed in Iraq; otherwise we have squandered billions of dollars. Remember you also have to add in the extreme run up in oil prices. Iraq is only pumping 2 million barrels a day of crude oil. It should be pumping 5 million. This doesn’t have to be perfect but Wall Street needs to see results to make sure we’re not just flushing this money down the toilet.
Dan Senor: The cumulative effect of all these big events (January election, Saddam trial, referendum) are the key to tell us if Iraq is working or not. Eight million Iraqis risked their lives in last January’s election for democracy. It was the first indication that they were truly involved in their own political process. This is where we need to keep our focus.
Bob Olstein: We need democracy to succeed in Iraq because it will set the mood for the public to consider buying stocks again. There is a lot of negative news out there now…especially surrounding Iraq. Some good news will create positive psychology and get the stock market going.
Gary B. Smith: This is very important for our country and for Iraq. But as for Wall Street, it’s in the rear view mirror. It’s not even on the radar screens of big money managers. Yes, there will probably be a bump in market if all goes well, but if things do not go well, will there be a sell off? I don’t think so
Pat Dorsey: I hate to do it, but I have to totally agree with Gary B. The market is much more concerned with inflation and interest rates. Democracy in Iraq is a non-event for the market because it doesn't get built in a day. And in any case, we'd be just as happy with a nominally democratic government run by someone on our “side”. Look at Egypt’s President Hosni Muarak who has run that country with an iron fist for decades, and no one says anything since he plays relatively nice. Whatever party is in charge—Republican or Democrat—prefers a government that's in our camp to one that's truly democratic.
Scott Bleier: The expectation of the American public is not clear. We don’t know what it will take for us to be victorious. Apparently it is going to take a constitution, government, and the joining of all the sectarian forces together. But this may or may not happen and the stock market will be on the defensive if things look bad.
Bird Flu and Stocks
A deadly incurable bird flu could claim millions of lives. And some say it might be reality this year. But is Wall Street worried? Ever since the alarm was sounded in big way two weeks ago, stocks have gotten hammered.
Pat Dorsey: Right now I don’t think Wall Street is too worried. However, if it causes a few deaths in United States, things could get awfully ugly awfully quick.
Scott Bleier: This is a big boost for drug and biotech companies as governments stock up on flu vaccines. It is rather difficult to get this flu. You can only get it from handling an infected bird or stomping around in bird feces. The fear is that it will mutate and get passed from person to person. But it is only a fear right now because this has not happened yet.
Bob Olstein: The market cares about interest rates and earnings. It’s 10 percent undervalued now but you have to be in the right stocks. If this flu mutates, it could be a problem, but right now Wall Street could care less about it.
Tobin Smith: It’s easy to be scared to death of the bird flu. If the worse case scenario happens, it could be catastrophic to the economies of United States and many other countries. But this is where a little wisdom helps. This is a recurring event. When it hit in 1918, there were no drugs for it. Now we have modern advancements to handle something like this. If someone called me and said they were going to sell their stocks due to it, I’d say they were a birdbrain!
Gary B. Smith: Since 2003 about 60 people have died from this flu. One hundred and nine have died from lightning. Are we deathly afraid of dying from lightning? No! It needs to be put in perspective.
The "Bulls & Bears" each picked flu-fighting companies that could save your life and make you money.
Tobin Smith: I like and own Gilead Sciences (GILD). It owns rights to Tamiflu, which is the drug that will be the main fighter of the bird flu. The stock is a good buy and could go to $60. (Gilead closed on Friday at $47.42)
Scott: Gilead is the third largest biotech in the world and has 8 viable and profitable products. I like it.
Pat Dorsey: My pick is Sanofi-Aventis (SNY). It is the leading manufacturer of vaccines and biotechs and has a bird flu treatment in Phase 1 testing. But what’s really exciting is that Sanofi-Aventis has technology in the works that will simplify and accelerate the vaccine process. (Sanofi-Aventis’ Friday’s Close: $41.66)
Gary B: The stock bounced up late last week, but overall I think its chart is pretty weak looking.
Scott Bleier: Monsanto (MON) is my choice. This is the original biotech genetic engineering company, sells $3 ¼ billion of genetically engineered seeds, and has a huge cash flow. And word from Korea is that Kim Chee can help to control this flu. This company can grow genetically engineered cabbage that could help stop it. (Monsanto’s Friday Close: $60.02)
Bob: This is a great company, but the stock is fully priced.
Bob Olstein: My pick Del Monte (DLM), which I own. The company earns $1/share in cash flow. I think the stock is undervalued and should head higher. (Del Monte closed on Friday at $10.78)
Pat: This stock is about as cheap as you’re going to get it and has a lot of turnaround potential. I’m not too sure the management in place has the ability to do it. But if Bob thinks they can do it, they probably will.
Gary B. Smith: I think Comcast (CMCSA) could be a benefactor of this situation because people will stay at home and watch TV and use the internet to stay informed. The stock has sunk like a stone, but is right at a long-term uptrend. (Comcast’s close on Friday: $27.30)
Tobin: Comcast is the ugliest stock in America! Stay away from it!
Gary B. Smith's prediction: Commercial property going higher; buy Vornado (VNO)
Tobin Smith's prediction: Calling a "Toby Bottom"! Dow 11K by end of year
Bob Olstein's prediction: Market up when short-term rates fall in December
Scott's prediction: Video iPod big flop; Apple (AAPL) falls 20 percent
Pat Dorsey's prediction: Get a leg up! Zimmer (ZMH) gains 20 percent in a year
Cavuto on Business
Neil Cavuto was out this week. Dagen McDowell hosted and was joined by, Ed Koch, former mayor of New York City; Jim Rogers, author of "Hot Commodities"; Ben Stein, author of "Yes, You Can Still Retire Comfortably"; Gregg Hymowitz, founder of Entrust Capital; Stuart Varney, FOX Business News correspondent; Dani Hughes, CEO of Divine Capital, and Adam Lashinsky, senior writer for Fortune Magazine.
Dagen McDowell: A devastating tragedy in Pakistan. Tens of thousands may be dead. But no one knows for sure if bin Laden is among them. Many believe the quake could have thrown his terror network into chaos. Mr. Mayor, do you think this could slow down Al Qaeda?
Mayor Koch: I don’t think it makes much of a difference. We are now involved in a war of civilizations. Just yesterday, 85 people were killed in Russia by a Muslim terrorist. Therefore, whether bin Laden is dead or injured will not impact in any way on the continuing war. And it’s a good thing we have a President who won’t lay down as so many others have.
Dagen McDowell: Do we need to kill bin Laden?
Mayor Koch: It’d be nice but it won’t make any difference because there are other people we’ll have to "take out" as they say.
Jim Rogers: The mayor is right. It’s not going to change much of anything. Maybe bin Laden is dead but the bigger consequence may be that it destabilizes Pakistan. And the Pakistani government is not a very popular government anymore.
Gregg Hymowitz: First of all, Al Qaeda is so decentralized as it is. If it was possible to get bin Laden I think it would be a big deal. Getting the ringleader, the financier, is just always going to be an important thing. But the issue I have with the Mayor is this idea that we’re taking the fight to the terrorists. I don’t know where you see that. If anything, since the invasion of Iraq the number of terrorist incidents has just exploded. We never had these kinds of terrorist acts or incidents before.
Stuart Varney: I don’t think we need to revisit the reasons why we went into Iraq. If this earthquake killed terrorists then that is a plus, and it did by their own admission. If it disrupts terrorist operations, and it did by their own admission, then that is a plus. If America looks good delivering aid then that is a positive. As an investor you’re always operating with a news backdrop behind you.
Dagen McDowell: Ben, are these plusses a plus for the stock market and the economy?
Ben Stein: This has nothing to do with the stock market or the economy. I feel a duty to the people watching at home. It would be nice if as Mayor Koch and Stuart said Al Qaeda people were killed. The stock market is correcting rapidly these days because of fears of inflation.
Stuart Varney: When I was talking about a change in the news backdrop to be a little more positive, let me finish my thought there. I think there’s a very good chance that the price of crude oil will be coming down, which is a plus in terms of that news background.
Dani Hughes: In a grand sense, yes that’s good for the market. But this earthquake has nothing to do with our economy at all. This is an area our government has been trying to get into for a long time. So I think this is an opportunity for the U.S. to go in there now and see what’s really going on.
Mayor Koch: Gregg said there’s been more terrorism, but not in this country. The last terrorist act, thank God, in this country, was on September 11, 2001.
Gregg Hymowitz: But we’re losing Americans throughout the world. It doesn’t matter where it takes place.
Mayor Koch: We are taking the war to the terrorists in their countries.
Gregg Hymowitz: Tell that to the parents of the soldiers who are dying.
Mayor Koch: It’s totally different when the homeland, the United States, is attacked. In fact, what threw the market into an enormous turmoil was that no one ever thought the United States proper would be the subject of an attack.
Stuart Varney: What Gregg is trying to do is rationalize an appeasement position. You don’t go for the terrorists on their home turf. No, you sit back and wait for them to hit us again.
Jim Rogers: Stuart, there weren’t any terrorists in Iraq before. Iraq was under a terrible dictator but there weren’t any terrorists. Now there are thousands of terrorists all over the world.
Mayor Koch: And it doesn’t make any difference whether they were there then or that they’re there now.
Gregg Hymowitz: We’re talking about the war and Iraq. The fact of the matter is we spent a fortune there. We’re running huge deficits in this country because of ridiculous tax cuts. So the economy is in a lot of problems.
Mayor Koch: We’re not fighting this war because it’s good for the economy. We’re fighting this war because it’s good for civilization. When Spain got out of the war, they thought by giving the terrorists what they wanted that there’d be no further terrorism. Now there are almost daily efforts to bomb in Spain by Morocco.
Head to Head
Dagen McDowell: Will a huge spike in winter heating bills send a chill through your wallet and put our economy on ice? Ben, is this going to be a budget buster for a lot of people and the economy?
Ben Stein: It may be a budget buster for many middle class and lower class families and it will affect consumer spending. I think it could potentially push the economy into a slump. The last time this happened the consequences for the economy were severe. I hope the Fed doesn’t accommodate it by printing money, because then we’d have a long-lasting inflation. If the Fed can keep their head about it we’ll have a spike in heating costs and a spike downward in consumption but we will not have long lasting inflation.
Dagen McDowell: Adam, are you worried about these heating costs going through the roof and sending us into a recession?
Adam Lashinsky: I’m not worried about this sending us into a recession, but Ben is right. This could affect a big portion of the economy. And it’s going to be one factor weighing on consumer spending. That’s why you see technology stocks not doing well.
Dani Hughes: I think the economy will continue to chug along. Who I think will get hurt though are the automotive companies. The travel industry is going to get hit on both sides.
Dagen McDowell: Jim, you’ve already seen the auto stocks tank and more bankruptcies in the airlines. Is that all already factored into the markets?
Jim Rogers: Of course that’s already factored in. That’s last year’s news. But people are going to start getting heating bills soon. I don’t think people realize how high they’re going to be.
Gregg Hymowitz: Ben has it right. The lower income people are going to get hit the hardest. And it will slow down consumer spending.
Dagen McDowell: Ben, let me ask you this though. Retail sales held up really well when we had record energy prices. Maybe we can get through this.
Ben Stein: Well, we didn’t have record home heating prices. We didn’t have home natural gas prices. Last time we had a spike of this size was in the early 70s and then again in the early 80’s. If history is any guide it will have a serious effect.
Adam Lashinsky: You know what Ben, this isn’t the only thing weighing on consumers. Whatever you think about interest rates, nobody believes that home prices are going to stay where they are. And the consumer is not going to be able to take money out of their homes the way they have been. And that’s going to hit consumer spending as well.
More for Your Money
Dagen McDowell: The stocks our gang says will rise as the temperature falls. Will they help you get more for your money? So Dani, what’s your pick to warm up with this winter?
Dani Hughes: I pick TODCO (THE). This is an oil, gas and drilling company. They have the biggest significant source in the Gulf of Mexico, which I think will be a big mover because the rig market is so tight. I think this stock probably has about 20 percent potential in the next 6-12 months.
Gregg Hymowitz: I think Dani is in this sweet spot here. With the hurricanes and the rig count that’s tight that Dani is alluding to, I think it’s still very attractive. So I’m going to take this opportunity to agree with Dani.
Ben Stein: I like Energy Transfer Partners (ETP). They are a natural gas and oil collection and distribution company. It has done incredibly well this year. It’s in the propane field, which is an ever-growing field. I own a little bit of it.
Dagen McDowell: So Dani, it’s not just up this year. It’s been up the last 5 years.
Dani Hughes: I do like this company a lot. It has a great yield. The only problem I have with this company is that it has been on a kind of tear. I would probably buy it within this level or a little bit cheaper.
Gregg Hymowitz: One of the companies I like is Holly Corp. (HOC). The stock is pretty cheap and I think refiners are where you want to be.
Adam Lashinsky: I think this one’s a fantasy. The refiners have had 3 years of good news in the past two months. You saw what was happening last week. I just wouldn’t be there right now. I’d buy iShares MSCI Japan, (EWJ). Japan is like this great company that’s been poorly managed and it’s finally in a turnaround that’s going to go for several years yet.
Dagen McDowell: But Jim, is this turnaround another head fake from Japan?
Jim Rogers: I have been suggesting that people buy Japan for the last several years on this show. And I own Japan. But you’ve got to tell people that Japan has doubled in the last two years. We’ve got to make sure people do their homework. This is not shooting fish in a barrel anymore. I’m not selling it, but it’s not as easy as it was two years ago.
FOX on the Spots
Ben: Stocks are cheap, but rate fears keep buyers away.
Jim: Economy will slide into recession in 2006.
Dani: Jim's wrong! Housing slump in '06, but no recession.
Gregg: Buy international stocks, especially Japanese!
Mayor Koch: Over 50 percent of African Americans vote for Bloomberg.
Forbes on FOX
In Focus: Would Keeping Troops in Iraq for Decades Help America?
Quentin Hardy, Silicon Valley bureau chief: We're in Iraq now, just like we were in Germany, Japan, Korea and Vietnam. In the first three we had successes by stitching ourselves into the landscape by providing a police presence and by being a participant in the local economy. In Vietnam we were behind armed camps. We were afraid to go out and we were dreaming of the day we would get out of there. Seems to me history shows us which way works and which way does not.
Dennis Kneale, managing editor: Japan attacked us and Germany attacked our allies, so they deserved to have us there for decades. Iraq never attacked. We should get out as soon as possible. We should get out in two years.
General Wesley Clark, former Democratic presidential candidate: We are not now in a position to stay in Iraq for decades. Especially now with people shooting at us. Our military leaders just came back and said that we were a part of the problem and they want to get us out. If it would work out in a way that the Iraqis wanted us there, that would be wonderful. That's the issue. Not what our troops do or whether our troops stay, but do the Iraqis want us there. We're sitting on top of a riff between Sunni and Shiite Islam. This is a civil war about to explode and we're on top of it.
Steve Forbes, editor-in-chief: We stayed the course in Japan, Germany and South Korea and it worked. In Vietnam we didn't. We had the wrong strategy there and we paid the price. In Iraq we are making progress. They are creating a more liberal society, they are training their military and police forces. We need to see this through.
Elizabeth MacDonald, senior editor: The Iraqis loathe Saddam but they also loathe our occupying forces. They feel like we are occupiers and it is inflaming tensions there. I don't think its necessary for us to be there for decades. I do think that there is a ripple effect going on in the Middle East and the most efficient route to power is through democratic elections.
David Asman: I couldn't find any examples of our occupied forces after World War II being killed as often as they are in Iraq.
General Wesley Clark: There was nothing in Japan that is like the conflict in Iraq now. MacArthur came in and dealt with the emperor. Our troops came in and we occupied. Japan was a defeated nation and Japan was culturally integral. This is a nation that is cut into three pieces. It was held together under Saddam Hussein.
Quentin Hardy: The actual enemy here is Islamic terrorism. They are saying, what are we going to do when the Americans leave? Should we accede to that? What is the actual play here?
General Wesley Clark: We shouldn't leave. We have to find the right way to handle the Iraqi situation. I keep saying that we have to get Iraq's neighbors involved in a constructive way. They are already involved under the table. We have to get it out on the table.
Steve Forbes: Let me respectfully disagree. There's no way you are going to get Iran to cooperate. There is no way under Bashar Al Assad that you are going to get Syria to cooperate. The way to get cooperation is by that domino effect. More democratic voices rising up in the Middle East. They are doing so because they see it unfolding positively in Iraq.
General Wesley Clark: We don't know if Iran will cooperate because we haven't tried. Iran has common interests. I don't think you can contemplate moving forward in the Middle East and staying in Iraq if you continue the policy of isolating Iran as they moved toward a nuclear weapon.
Steve Forbes: Iran is under a theocracy, it's under an Islamic dictatorship. They're not going to change.
General Wesley Clark: We've got to talk to Iran. The alternative is to use force. When you put a 150,000 troops in the region, it changes the diplomacy.
Dennis Kneale: 1,957 U.S. troops have died in Iraq. Some people say to pull out now would dishonor them. But how many thousands of troops are we going to lose to honor them?
Elizabeth MacDonald: We can't afford to stand down now. We have to stand down when we have a working military and a freely elected government in place.
Flipside: Housing Crash: Bigger Threat Than Flu, Terror and Nature!
Lea Goldman, staff writer: I think the housing market is what is keeping folks up at night. We've heard things like the bird flu before and they've gone nowhere. Folks have a real concern with the housing market. Once prices cool off they are going to find that their house is worth less than they paid for. They are not going to be able to meet their mortgage payments. We're looking at foreclosures and people tightening their belts. That's going to diminish consumer spending and all of that hurts the economy.
Quentin Hardy: When the Spanish flu hit it killed more people in the next eight months than WWI killed in the proceeding four months. When a big chunk of the country and the world die from bird flu, the housing market goes down too.
Elizabeth MacDonald: That's misleading. During the flu epidemic most people died from a secondary bacterial pneumonia. They didn't have the antibiotics to fight it back then. A housing crash, if it happened, would hurt the economy more. I don't think the crash is imminent. I think there will be a gradual slowdown. The problem with this housing boom is that it has been fueled by investors and speculators. If they see prices start to flatten they will start to unload.
Steve Forbes: In parts of the country home prices got too high but they've already started to recede. There's not going to be anything like the bubble we saw in tech a few years ago. What we have to worry about is the Federal Reserve printing too much money and raising interest rates. That would hurt the economy. But in this period of inflation, housing is going to do well.
Victoria Barret, staff writer: The bird flu is still a huge hypothetical. Real estate looks like it's in for a downfall. Americans borrowed $600 billion against their homes. That money was injected into the economy. Take that away and it could have a disastrous ripple effect.
Lea Goldman: We're investing billions in fighting terror, so from that standpoint we are doing what we can. As far as earthquakes and acts of God, there's nothing you can do.
Quentin Hardy: You're comparing a tooth ache with a car crash. A housing bubble induced recession is a downturn. People know how to handle that. A major terrorist event, the disappearance of a city, a huge hit from the bird flu, that's something people don't know how to handle. When that happens, the world turns upside down.
Elizabeth MacDonald: This economy has been very powerful and very strong. We've survived Katrina and we are surviving 9/11.
Steve Forbes: And we're surviving a downturn in housing prices. The consumer balance sheet is plus $25 trillion. We're still the biggest suppliers of credit in the global markets. Yes, the housing market will slow down, but it's not a depressant.
Victoria Barret: I don't think we've seen the slowdown yet.
Lea Goldman: People have been using their homes as ATMs. It's all artificial. Once it goes, we are going to see discretionary spending plummet and people are going to get laid off.
Informer: Is the Best Time to Buy After Disaster Strikes?
Mike Ozanian, senior editor: I think this is a good time to buy. I like Symantec (SYMC). They make the Norton anti-virus software. The stock is down about 12 percent this year. The company made a big acquisition in December and it is a global leader. It's at $22 and I think it's a $30 stock.
Victoria Barret: The acquisition is probably going to put a drain on revenues, growth and profits. I would avoid Symantec for a while. However, I did the see CEO of Symantec speak this week and he said that 60 percent of internet e-mail is spam. That is good for Symantec. That being said, I would still not touch this stock. I like Home Depot (HD) because the stock has come down a lot for no good reason. They're doing very smart things. They're targeting professional builders. They're going to benefit from new construction in the New Orleans area.
Lea Goldman: Home Depot is a great stock but I think it's going to go lower. Belts are getting tighter, oil and gas prices aren't going down any time soon and that's going to hit Home Depot's bottom line.
Victoria Barret: They have a history of incredible earnings growth and same store sales growth. I think they do the right thing.
Lea Goldman: I like Pfizer (PFE). I think the whole pharmaceutical sector has been over beaten. Research and development costs have gone out of control. Everyone is afraid of the litigation outlook. I think that's unfair. I think Pfizer has a great drug pipeline. This stock is a buy right now, it's a solid company.
Bob Lenzner, national editor: Everyone has been saying it's a buy, but the company hasn't been able to get out of its own way for years despite Wall Street recommendations. I like Amerada Hess (AHC). It's an oil company and it has it's own refining in the Caribbean. It's a major independent company and only selling at $118 a share. I think it can go to $180 or $200. It's going to bounce around with the price of oil but it's destine to go up.
David Asman: It already has gone up and it's leveled off now.
Bob Lenzner: It hasn't leveled off. Long term the price of oil is going up.
Inflation: Real Problem or Overblown Fear?
Dennis Kneale: Inflation is not a problem for three big reasons. Number one, oil. Yes, oil prices have gone up but oil is only 3.5 percent of the U.S. economy. Twenty years ago oil was 5 percent of the whole U.S. economy. Don't worry about it. Second, technology. Cost of disk storage space has fallen 35 percent a year. A DVD that use to cost $300, costs only $65 today. Third is the Wal-Mart effect. Wal-Mart keeps other retailers in line and keep prices down. I think the inflation numbers released by the government don't take this stuff into account.
Steve Forbes: Commodity prices are going up because the Federal Reserve is printing too much money. Gold just reached $450 an ounce. Whenever gold goes up, inflation follows.
Elizabeth MacDonald: I think inflation is a minor problem, it's not as big as the media is hyping it up to be. We lived 14 years with practically no inflation and a lot of prices are actually deflating from global competition. Energy prices will eventually go down too.
Mike Ozanian: Alan Greenspan brought a knife to a gunfight. Instead of raising interest rates incrementally he should have been soaking excess money out of the money supply by selling bonds. Corporate profits are incredibly strong yet the stock market has been going down. Why? Because it's worried about inflation.
Mike Maiello, staff writer: Our traders and the markets are worried about inflation. It's not only about the future. We're dealing with inflation right now. Not just on the oil side either. Medical prices are up 4 percent this year so far.
Dennis Kneale: Inflation is not hurting this market. Fear of inflation is hurting this market. The Federal Reserve has raised rates 10 times in a row to make sure that there is no inflation.
Steve Forbes: The Fed raised interest rates in the 1970s and it still printed too much money and we got more inflation. Interest rates went up to 20 percent and it still didn't kill inflation. Inflation is at a low point right now but it's getting worse. Inflation is like a tax, and that hurts economic growth.
Mike Ozanian: Inflation is going up faster than income. That's the real problem and that makes it harder for people to afford to buy things.
Mike Maiello: This isn't about fear. It's about what is actually happening. For the past 5 years people's wages have not kept up even with the lowest of inflation. Prices are going up too quickly.
Dennis Kneale: There is no inflation. Technology is 15 percent of the U.S. economy and technology costs are going down.
Our "Cashin' In" crew this week:
• Jonathan Hoenig of Capitalistpig Asset Management
• Jonas Max Ferris of MAXfunds.com
• Charles Payne of Wall Street Strategies
• John Rutledge of Rutledge Capital
• Tracy Byrnes of The New York Post
Stock Smarts: Flu for Stocks?
The White House is trying to prepare for a worst-case scenario for the avian bird flu - one that involves military quarantines and the possible deaths of millions. A lot of people are worried, and it’s been a terrible couple of weeks for stocks since this hit the headlines. Is it justified?
Jonas Max Ferris, MAXfunds.com: Yeah, the worry itself is a worry. What do governments do when they worry? They spend money. The worry about Iraq having nuclear weapons cost a couple of billion dollars. They already asked for $10 billion on this and there hasn’t even been a case of this dangerous strain of the flu, so how much are they going to spend if one breaks out: $50 billion? $100 billion on top of Katrina? I think the president is very concerned about not missing this threat like some people think he did with the hurricane or September 11. So maybe there’s no end in sight for how much could be spent.
Terry Keenan: John Rutledge, you spent a lot of time in China. Are we over blowing the fears here? Is it a ‘chicken little scenario,’ or is it really serious?
John Rutledge, Rutledge Capital: Well, I have to confess that I actually had an investment in a Taiwan duck farm during the original outbreak. I think what we have here is a White House panic attack and I can’t imagine ‘The Gipper’ having a press conference and lecturing on biology when his polls were dipping, but this is about the White House showing that they are in command and in control. The bird flu is no serious an issue than it was 30 days ago. It’s a political device.
Charles Payne, Wall Street Strategies: I’ve got to disagree with you, John. 30 days ago, it wasn’t in Turkey or Romania or parts of Europe. The worst thing we can do is to be cavalier about this thing. We knew we had enough evidence before September 11th 2001, that we could have stopped it. We could have limited the deaths of Katrina. So what, how much it costs? I think the most important issue right now, not for Wall Street, but for America is that our government is vigilant. And if we err on the side of being overcautious, that’s fine. But I think we’ve made some big mistakes in the last five years.
John Rutledge: You can be overcautious, without having press conferences and lecturing the American people on biology. These issues in Romania were there before.
Jonathan Hoenig, Capitalistpig Asset Management: It means spending billions and billions of dollars. Remember all that Cipro we bought? Jonas is right. When the government gets worried, they spend money and that hurts the economy. The only birds that I worry about are the ones that are going to be on my plate, sprinkled with a little bit of paprika and a side of mashed potatoes. The markets are worried about General Motors (GM) going bankrupt; they’re worried about interest rates. The bird flu is nowhere on their radar screen right now.
Tracy Byrnes, The New York Post: Yeah, but you’re playing with investor psychology. If people are afraid to go outside because they think they’re going to get attacked by a killer bird –
Terry Keenan: Well, nobody’s afraid of that.
Tracy Byrnes: Yet. But, if it gets to Europe, you’re going to see the travel and entertainment industries suffer. If it gets to India, our tech centers are going to go down. You’re never going to be able to get anyone from Dell (DELL) on the phone again. We are going to feel it, if it starts to spread. And I do think there is some concern there for people.
Terry Keenan: Jonas, it hasn’t really spread virally from person to person, and the things that we’ve seen in Turkey, Romania and Europe have just been infecting the bird population.
Jonas Max Ferris: Yeah. True. But it’s not all hype. Again, I don’t want to rationalize rampant government spending, but the 1918 flu pandemic, the fourth worst bear market of all-time, it took the DOW down 50 percent, was 1919-1921, after that flu, so it is a serious thing. I hate to say it, but what happens if terrorists get their hands on some of these birds, people have the flu and try to make more of these viruses?
Charles Payne: When it’s going to become really scary is when it goes from human to human. Right now, it’s gone from bird to human. When it first goes from a human to a human, that’s when it’s really going to spook Wall Street as well as Main Street.
John Rutledge: Guys, there are zero instances in the world of this virus transmitting from a human to a human. It would take very specific, complicated mutations to make that happen. This is something that is a very small event in Asia.
Jonas Max Ferris: There have been zero instances of terrorists getting their hands on nuclear weapons, but we spend billions of dollars worrying about that. Do you think it’s impossible to put these birds together with people who have the flu, and make this virus?
Tracy Byrnes: It clearly could happen, Terry, because all it needs to do is to hit a human that already has the flu, which creates a whole new virus.
Terry Keenan: But the virus has to be replicated in order for it to be passed on.
Tracy Byrnes: It could happen. It just takes one person.
Terry Keenan: It could, but it didn’t happen in 1997.
Jonathan Hoenig: We have to deal not with possibilities, but with probabilities. Could this mutate into some kind of massive outbreak? I guess it could, but again, from an investment perspective, you’d think that if this was a real issue, so many of the drug companies would be doing better, but Bristol Myers Squibb (BMY), Novartis (NVS), Pfizer (PFE), Johnson & Johnson (JNJ), these stocks are near their bottoms right now.
Charles Payne: The big drug companies aren’t doing well, but some of these companies that are focused here, like BioCryst Labs (BCRX), for instance, which is up 100 percent, are doing well. Jonathan and John, you guys are forward thinkers. Of course Wall Street is not concerned about this. There are about 100 other issues. But let’s not be too cavalier about this. We already saw what arrogance can do on September 11, 2001. We also saw it with Katrina. The most important thing is that our government is protecting us. I think that’s the real issue here. Do we trust that Bush is doing the right thing? I think criticizing any money that they may spend on this is the wrong way to take it.
Tracy Byrnes: At the same time, I don’t think you want to frighten people with this whole thing, either, because then that will really affect the economy. You have Christmas coming. You don’t want people scared to spend money and scared to travel.
Charles Payne: They’re not going to be afraid.
Terry Keenan: Don’t people have a lot more reason to be afraid to spend money? Gasoline prices, Consumer Price Index up 1.2 percent, a stock market that’s dead in the water.
Jonas Max Ferris: And they haven’t really cut back on the retail spending that much, but there are other reasons of course. This hasn’t gotten to a level where people aren’t doing stuff yet. But it could. SARS stopped travel. It could happen. And if the drug companies could make more money in this, maybe there would be a problem. They don’t like these kinds of drugs, because it’s not a lifestyle drug. You’re not going to spend $100/month for the rest of your life curing depression this way. It doesn’t have the profit that those drugs have.
Terry Keenan: Jonathan, one reason why they don’t like these flu vaccines is because you make one, it’s good for a year, and then the next strain of flu comes along.
Jonathan Hoenig: Terry, I always leave it up to the drug companies. Those people are miracle workers. If this is an outbreak, the market’s going to get hurt, but I do think that the free market will provide and the drug companies will step up here. But I’ve got to tell you that I’m not really worried about this. Listen, if there’s an outbreak, look at stocks like re-insurer PXRE Group, after Katrina. If this becomes an issue, the market’s going to get hurt. But again, you’ve got to deal with probabilities, not possibilities. Right now, I’m much more worried about General Motors going bankrupt than I am about a bird flu virus.
Terry Keenan: John Rutledge, what about this strain of avian flu? Is there anything that would make you start to be concerned about human-to-human transmission?
John Rutledge: This strain of flu cannot transmit from human to human, period. I’ve never heard so much press conference time on such flawed and thin science. We can get ready, we can spend money; I’m not worried about that. I just think that we should not be giving press conferences scaring people so soon after we’ve had the hurricanes. We need people to be calm here, not frightened of something that doesn’t exist.
Jonathan Hoenig: John, if some kid in Hoboken, NJ gets the sniffles and they say, ‘oh, this could be the avian flu,’ don’t you think we might see a bit of panic then?
John Rutledge: I do, and I think that panic will be that much worse because of the press conferences coming out of the White House. We need to be giving people information and preparing, not worrying about something that does not exist yet.
Charles Payne: You can’t have it both ways, John. It’s a catch-22. Shouldn’t the White House say, ‘listen. There’s a serious flu epidemic out there that could harm us.’
John Rutledge: What we’ve had out of the politicians isn’t information; it’s scare tactics.
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Best Bets: Healthy Fund$
Whether it's a killer bird flu, or just cold season, this may be the best time to get into health care funds.
Jonathan, Jonas, Charles and John are back with healthy funds that could mean big bucks for you!
• Jonas’ Healthy Pick: ICON Healthcare (ICHCX)
Minimum Investment: $1,000
Expense Ratio: 1.29 percent
TOP HOLDINGS: UnitedHealth (UNH), Aetna (AET), Centene (CNC)
Jonas Max Ferris: The run is not over in this group. In fact, healthcare is a good area to be in if the market turns south. The profits tend to be pretty good in a recession. I like ICON Healthcare. I’ve liked this fund for a bunch of years. It’s sort of has a Jonathan strategy. It’s a momentum strategy, but it’s a value momentum strategy. Looking for under owned stocks that are on the move. Sounds like Jonathan to me. It’s done very well against competing funds in this category. I like it. It’s a little expensive, but a great fund.
Terry Keenan: He’s channeling you, Jonathan. Do you like his fund?
Jonathan Hoenig, Capitalistpig Asset Management: I’m not buying it, Terry. I’m not playing this sector. Jonas is right. Most of these health care funds own Merck (MRK) and Pfizer (PFE) and Johnson & Johnson (JNJ). I respect the ICON fund. It owns some off-the-beaten-path names, but I can’t say it’s on my list and I can’t say the sector is really on my list right now.
• Jonathan’s Healthy Pick: Exeter Life Sciences (EXLSX)
Minimum Investment: $2,000
Expense Ratio: 1.18 percent
TOP HOLDINGS: WebMD (HLTH), Novartis (NVS), Eclipsys (ECLP)
Jonathan Hoenig: I’m picking Exeter Life Sciences. Again, I like the fact that this fund is a smaller fund. And it doesn’t own all the big, obvious names. They’re biggest holding is WebMD. We don’t hold it in my hedge fund, but I think that if you’re going to make money in this sector, you just can’t hold the big, well-known pharmaceutical companies.
Terry Keenan: It has about 10 percent of its holdings in WebMD. That doesn’t worry you?
Jonathan Hoenig: And it’s been a winning trade so far.
John Rutledge: I like this sector and I think that this is interesting with the ‘techy’ focus of it too. It’s hard to complain about the record, so I give it a thumbs up.
• Charles’ Healthy Pick: Fidelity Select Medical (FSHCX)
Minimum Investment: $2,500
Expense Ratio: 0.92 percent
TOP HOLDINGS: UnitedHealth (UNH), WellPoint (WLP), Aetna (AET)
Charles Payne: I like Fidelity Select Medical Delivery, which is interesting, because the layman doesn’t know which drug company is going to do what or what’s really going to make it through phase 3. We do know that we have an aging population that’s going to need medical products and medical delivery. This fund has some tremendous plays, including Weight Watchers (WTW). How neat is that? Obesity is going to be the number one health issue in this country over the next 20 years. It’s a great, intelligent fund.
Jonas Max Ferris: Maybe it’s a momentum play. I like Fidelity Select Pharmaceuticals (FPHAX), that’s where the beaten-down stocks are. The medical device stocks are very strong at this point and I don’t think they’re going to go much higher.
Jonathan Hoenig: It’s not for me. Obesity might be a big issue, but it’s not in my portfolio right now. Might be in my stomach, but not in my portfolio.
• John’s Healthy Pick: iShares S&P Global Health (IXJ)
Friday's close: $51.43
TOP HOLDINGS: Johnson & Johnson (JNJ), Pfizer (PFE), GlaxoSmithKline (GSK)
John Rutledge: I like the sector because the fastest growing number in the economy is the pill-to-burger ratio. There’s an exchange-traded fund, IXJ, that owns offshore as well as US companies. It’s got a lot of pharma in it. I think the sector is too cheap, so that’s where I’m going.
Charles Payne: Too much pharma — 75 percent pharma. These big drug companies that have thin pipelines, aging drugs that are going off patent. I wish they had more diversity; more biotechs and more novel approaches like Weight Watchers. I think it’s a real drag. The only good thing for it, as John mentioned, is that maybe it’s undervalued from a fundamental point of view or valuation point of view.
Terry Keenan: These pharmaceutical stocks are still under legal attack.
Jonas Max Ferris: There’s no such thing as too much pharma right now. I personally would have the US ETF which is the iShares Dow Jones US Healthcare Index (IYH). It’s cheaper. I don’t think the foreign stocks are going to be adding a whole lot of value from these prices.
Jonathan Hoenig: But Jonas, none of them have done really well. I mean Pfizer, Merck, Johnson & Johnson; these have really not been winning trades in the last couple of months.
Jonas Max Ferris: I can’t argue with that, but I think that’s why you want to be in them now.
Cashin’ In Challenge
Check out their stats at: www.foxnews.com/challenge
Question: "How will the latest steps in moving Iraq towards democracy play out on Wall Street?"
John Rutledge: The people in Iraq getting to vote is a wonderful thing. I think we should all applaud it. The fundamentals, though, suggest that Iraq is not now and is not going to be strong enough to defend its strategic position in the oil reserve. It’s because China and the US oil demand is rising so much and the markets are tight. We need almost three-quarters of a $1 trillion worth of capital spending in the Persian Gulf in the next ten years, just to keep pace with rising demand. So the area will stay troubled, but let’s celebrate the fact that these people got to go to the polls and vote.
Jonathan Hoenig: But John, this constitution is terrible. In this constitution, the government controls the oil, it controls the healthcare system, it controls education and, even worse, Islam is the official religion of Iraq, so that’s not, to me, the preconditions of a thriving democracy moving forward.
Terry Keenan: Jonas, could they have gotten it through any other way?
Jonas Max Ferris: A bad constitution is better than no constitution. The market, at this point, is pretty negative on Iraq, so I think any positive signs here would be considered a positive. In Saudi Arabia the government runs the oil industry. In Russia it’s half owned by the government, and they produce a ton of oil, so I don’t think that is the biggest problem here with the Iraq situation. I think it could be good.
Charles Payne: We weren’t a perfect country when our constitution was passed. It wasn’t good for everybody and all American citizens, so I think it will get better.
Terry Keenan: John, what about the Iraqi oil? That was supposed to pay for the war, for the rebuilding effort, it was supposed to be a peace dividend, it was supposed to bring oil prices down. Exactly the opposite has happened.
John Rutledge: Well no. The Iraqi oil cash flow is actually feeding the Iraqi rebuilding process. The mistake we made was cutting the local neighbors out of the rebuilding by floating the Iraqi currency. But the reason why the oil prices are up so much is because Chinese oil demand is driving the market. At current oil-for-dollar GDP, in 20 years China would use more oil than total world production today. That’s why they have energy conservation right in the front of their next five-year plan.
Question: "What do you think about Merck (MRK) at its current levels?"
Charles Payne: The Merck lawyers are making mistakes again, and that’s really surprising for a large company. I have mixed emotions on this. Personally, I do believe they were misleading about Vioxx to the public. I think that’s why they are having trouble in court, in addition to probably a flawed strategy. Here is the flipside to that, though. The stock is trading at a 12 P.E., it’s got tremendous credit. It’s got a pretty good pipeline. They’ve got three vaccines in late-stage development. So you have a conundrum here. If I’m an investor looking for a quick payoff, I don’t buy it. If I’m a long-term person looking for a payoff in 20 years, it’s probably a great investment here.
Jonathan Hoenig: Charles, the long-term starts in the short-term. Terry, do you remember that wrestler guy we used to have on the show? He liked Merck in the $40s. It’s in the high $20s now. This is a perfect example of how cheap stocks oftentimes get even cheaper and are dead money for years at a time.
Jonas Max Ferris: I might pick it up in the Challenge as a comeback stock, like I did last year. They’ve got thousands of lawsuits in New Jersey alone, but I’ll tell you that Merck pays out enough in dividends to settle most of these lawsuits.
Charles Payne: They also just set up a $670 million fund this week for the lawsuits.
Question: "I've owned IBM (IBM) for the past two years. I'm trying to decide whether or not to sell. Thoughts?"
Jonas Max Ferris: I’d hold it. I don’t think it will perform as well as the NASDAQ, with a little less risk. They’ve got a good emerging markets business, in Russia and China and a lot of countries. I think it will do well for the risk level of the stock. It isn’t ever going to be a top performer. If they get this big, like Microsoft (MSFT), they’re only going to do so-so. I think it’s a hold.
John Rutledge: It’s a hold because I like the growth I see in China for them.
Question: "I am holding drilling company Nabors Industries (NBR). Are the oil/drilling stocks still looking good?"
John Rutledge: I like the company and I like the sector. Two weeks ago, in China, I met with the CEO of a newly privatized oil company. They’re raising $100 billion to do new energy exploration. Drilling and exploration is going to be a very strong sector for a long time.
Charles Payne: I like this. I also like Schlumberger (SLB) in this area, Ensco (ESV), which is an international play. Our clients own those drillers, by the way. Coal is a way to play it. The rails are another way to play the whole energy game. There are a lot of ways to play it without being specifically in the big cap oil companies, which seem to fall through the most. Drilling is where it’s at. We know that Schlumberger is going to do well and the rest should do well as well.
Jonathan Hoenig: But Charles, isn’t the story out? I mean, from a trading perspective, you don’t need the bottom or the top 20 percent. You want the middle 40 percent. If I’m going to play commodities right now, I would focus on gold. We own streetTRACKS Gold Shares (GLD), we own ASA Ltd. (ASA), to me, that’s a more compelling new idea there.
Charles Payne: Every time oil has gone down, it’s been a tremendous buy for traders and long-term investors, Jonathan. It’s been a great play on weakness all year long.