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
· Jill Schlesinger, StrategicPoint Investment Advisors Executive Vice President
· John “Bradshaw” Layfield, WWE superstar & nationally syndicated radio show host
The gloves are off in Washington, fighting over everything from Supreme Court nominations to White House indictments to the wacky closed Senate session last week. But is all this fighting good or bad for the market?
GARY B: Yes, all the fighting in Washington is good news for stocks. It gives President Bush a chance to show leadership. When he sits back and lets the Democrats pound on him, the market seems to move sideways. When he comes out with a Supreme Court nomination like Samuel Alito and takes steps forward, it is a positive thing. And this positive energy then charges through the market.
SCOTT: The fighting in Washington is nothing more than a soap opera to the markets. In every second term, the president always has a tough time. However, each and every time the market has done very well. The market ignores the problems in Washington. Over the past couple of weeks, the market has had a spectacular rally, making up everything we lost in October. Business continues to be strong even though interest rates have gone up and oil prices have gone down.
JOHN: Yes, fighting in D.C. helps the market. The market doesn't care how Harriet Miers or Samuel Alito feels about Roe v. Wade. It cares that for nine straight quarters — soon to be ten — there’s been double-digit earnings growth. The market really wants politicians to stay out of the way. And if fighting accomplishes that, let ‘em fight. I think the stock market’s rally will continue. Oil prices should head down because driving season is at a low peak right now.
JILL: I think this is irrelevant. The market is focusing on the numbers and on the economy. The only piece of news to emerge in the last two weeks out of Washington that had any bearing on the market was the appointment of Ben Bernanke as the successor to Alan Greenspan. The bond market crushed bonds and stocks are rising as a result.
PAT: In general, the more fighting in D.C., the better for stocks. If politicians are fighting about politics, they're not spending or messing with economy. But right now the economy is in trouble and someone needs to take the lead and show some fiscal responsibility. The recent strong retail sales numbers shocked me. I’m still wondering where American consumers are getting the money to spend. With rates going up and people not getting out of their homes anymore, things will be a little dicey for the next couple of quarters.
Gas prices are lower now than when Hurricane Katrina hit two months ago. Will they continue to drop and what stocks climb as gas falls?
John: Gas prices are going to continue to move sideways. Oil is still about supply and demand. Supply is still finite and demand is still increasing. Republicans won't allow fuel efficiency standards. Democrats don't want new refineries. We are not doing near enough to address the issue. Oil and gas prices are just pausing, nothing more.
Gary B: Gas prices have come down because we’ve had a big bubble in the oil and gas market. We’ve come down 20%. Last week, I said the price at the pump was going to $2.25 and I still think that’s where we’re headed. This will be great for the consumer.
Jill: We’ll be paying about the same for gas. I don’t think there will be a big spike in gas prices unless there is some weird speculative spike in oil prices.
Scott: The long-term situation that John talked about is absolutely true. Over the near term, refineries have come back online in the Gulf of Mexico. Prices have also come down due to political pressure on oil companies because of their tremendous profits.
Scott: As gas prices drop, I think the transportation company Landstar System (LSTR) will do well. This whole sector has done well. Landstar is the one with the biggest earnings leverage and should go to $50. (Landstar System closed on Friday at $39.85.)
John: This isn’t a bad stock. It’s just not a good one.
John: I’m betting on Suncor Energy (SU), a Canadian oil and natural gas company. Oil is getting more and more costly to find and get out of the ground. Suncor says that it will double production capacity by 2010. All this when most oil/energy companies are having trouble just keeping and maintaining capacity. This is a great buy. (Suncor Energy closed on Friday at $56.68)
Gary B: As energy comes down, oil and gas will also come down, therefore Suncor suffers. The stock is just pausing before it goes lower.
Gary B: I like Choice Hotels International (CHH), which owns many well-known hotel brands like Comfort Inn and Econo Lodge. Since gas prices are going down, consumers are going to drive more. And they will drive to hotels that cater to the traveling consumer. Also, this stock’s chart is on the verge of a breakout. (Choice Hotels International closed on Friday at $33.84.)
Jill: I’m worried about consumer spending.
Jill: I think the best way to play the market is with the Energy Select Sector SPDR (XLE). It is an exchange-traded fund that owns a “basket” of S&P 500 oil and gas stocks. Buy it on dips. It’s a great way for individuals to get into the market and I own it. (Energy Select Sector SPDR closed on Friday at $49.51.)
Scott: It’s not a great way because one-third of the fund is made up of ExxonMobil (XOM) and Chevron (CVX). It doesn’t participate in the bang for your buck, especially in the service area.
What are the top three mutual funds in the market right now? Let's ask Pat, our mutual fund expert.
Pat: My first pick is Harbor International Growth Fund (HIIGX). It invests mostly in foreign large-cap growth stocks. New management took it over about a year and a half ago and it’s done very well since. The fund has more invested in emerging markets than most foreign funds, so it’s a little bit riskier. If you’ve got that risk tolerance, this is a good choice. 46% of Harbor’s assets are in European stocks and 35% in Asian stocks. The average annual return over the last three years is 15%. (The minimum investment in this fund is $2,500.)
Gary B: If you take a look at a chart of this fund, it has gone straight up lately and there’s a ton of resistance. I think it’s going to pause and would back off this one for now.
John: Harbor has too much turnover for me. Plus, I don’t think management has proven itself yet. I would stay away until management has a proven track record.
Pat: Next up, ICAP International Fund (ICEUX), which invests mostly in foreign large-cap value stocks. It is a great core foreign fund if you don’t have a lot of foreign exposure. The fund has very good stock pickers with a fantastic track record and has low expenses. ICAP’s average annual return over the last three years is 27% and 70% of its assets are in European stocks. (Minimum investment in this fund is $1,000.)
John: I do like this one.
Gary B: I don’t like it. The chart is similar to Harbor International.
Pat: Finally, T. Rowe Price Global Fund (PRGSX), which invests mostly in large-cap growth stocks. It’s an aggressive fund with about half of its assets in U.S. stocks. The fund’s manager started in April and is up 18% since then. The average annual return from the last three years is 19%. (The minimum investment is $2,500.) Brenda pointed out that this fund is making a big bet on technology. Plus, its manager hasn’t run a diversified fund before.
Gary B: When Pat talks about growth and aggressiveness, I get excited. This is the best one he’s picked.
John: There are terrific global companies in this fund. I also like it.
Gary B's Prediction, Chartman's Verdict: Merck (MRK) up 33% in 6 months!
Scott's Prediction: GM (GM) beaten down but not out! Gains 30% by summer
Pat's Prediction: Parts worth more than the car! AutoZone (AZO) up 20%
Jill's Prediction: Interest rate hikes force investors overseas. Jill specifically recommended
iShares MSCI Emerging Markets Fund (EEM), iShares FTSE/Xinhua China 25 Index Fund (FXI) and iShares MSCI EAFE Index Fund (EFA)
John's Prediction: Free Internet in San Fran! Buy American Tower (AMT) (John owns this stock)
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, “Hot Commodities” author; Herman Cain, “They Think You’re Stupid” author; Rebecca Gomez, FOX Business News Contributor; Cliff Schecter, Democratic Strategist; Gary Kaltbaum, president of Kaltbaum & Associates; Mike Norman, founder of Economic Contrarian Update; and Chris Lahiji, president of DailyTrends.com
Neil Cavuto: President Bush's tax reform panel proposing some radical changes. But one thing remains the same ... the rich get soaked. Is that good or bad for the economy?
Jim Rogers: Well, you know that nearly all taxes are bad. Giving a bunch of taxes to bobble heads in Washington is not as good as letting you spend it yourself. You should abolish the income tax because no one can understand it. We should replace it with a consumption tax. Whatever you do, you should not tax the people who save and invest.
Herman Cain: First of all, taxing the rich is a myth. Fifty percent of the people paid 97% of the taxes. That 50% starts at $29,000 in taxable income. It’s these class-warfare hustlers that always want to come up with, “let’s tax the rich more,” when they’re already paying 97%.
Rebecca Gomez: The other thing is, what’s rich now a days? You’re talking about people getting taxed on $50,000 a year. For a lot of people, that’s not a whole heck of a lot of money. The bottom line is the government needs to stop spending so much money. In this day and age that’s hard to do because we have a new cabinet level department, Department of Homeland Security, the Federal government now overseeing airport security. We have a war going on in Iraq. How do they stop spending? If they don’t stop, they’re going to have to start taxing someone.
Cliff Schecter: We live in an age of credit card Republicans these days. You’re looking right now at huge deficits. George Bush has led us to a point where we’re looking at $8.1 trillion dollar debt. That’s going to take us up to 30% from the $5.7 trillion when he came into office. We can’t keep borrowing all this money from the Chinese. We recently looked at ExxonMobil who made $7.86 billion dollars in profits. How many Dennis Kozlowski $6,000 shower curtains do they need to get?
Herman Cain: That is a different issue.
Cliff Schecter: People cannot afford healthcare. They can’t afford to buy the things to make this economy grow. Let’s have a little tax fairness.
Herman Cain: You have two issues here. One is too much spending. Congress is spending too much, I agree. But all of the other things that you bring up have nothing to do with the fact that the last set of tax cuts has gotten the economy where it is today.
Neil Cavuto: Gary, do you think we’re chasing the wrong ghost here? In other words, we keep feeding the beast by hiking taxes on the rich to feed the beast.
Gary Kaltbaum: Well, look the government is out of hand. Just look at the transportation bill and what’s happened there. You just have to look at the statistics. The so-called privileged few, the top 1%, pays 35% of all taxes. That’s 10 times the amount of the lower 50%. And the top 1% is made up of your risk takers — the business owners; these are the people who drive the economy.
Chris Lahiji: I think you and Jim are against this because you are the aristocracy of the land.
Neil Cavuto: I’m the aristocracy of the land?
Chris Lahiji: Herman is right. The first thing we need to do is cut spending in certain areas. The defense budget is going to cost $445 billion. That’s ridiculous. Also you have to keep in mind that the separation between the wealthy and the poor is widening by a huge onslaught. The top 1%’s income grew by 10%. So ultimately either the government has to cut spending or we have to start taxing the people who make the most money in this country.
Jim Rogers: Unless somebody invests, there are no jobs. In this country we save and invest less than 2% of our income. If you don’t invest we have no jobs, we just consume. If you don’t tax savings and investing, you tax consumption.
Neil Cavuto: Cliff, maybe you can help me out with this. You have this Democratic viewpoint that’s out there. I know you guys go back to the early Clinton years when they started hiking taxes on the upper most income and the economy took off. Is that the example you’d use to do it all over again? If you stick it to the rich, the same things going to happen again?
Cliff Schecter: Well, I don’t think of it as sticking it to the rich. What Clinton did was bring the top tax rate back to 39.6%. We heard the same sort of remarks that we’re hearing today on this show from Republicans: a job killer from Phil Gramm, Newt Gingrich saying that it was going to be the wreck of the economy. What we ended up seeing was an average of every year 4% GDP. We ended up seeing millions of new jobs created. So we have a road map after 12 years of Republicans who created a $4 trillion deficit and had us also borrowing money from abroad.
Rebecca Gomez: But you also have to keep in mind that the Clinton administration benefited from the Internet boom. A lot of this revenue was coming into this administration. So they didn’t have to borrow money or raise the debt. Now, it’s a whole different set of circumstances. You have to get the money from somewhere. Either the government is going to spend it, or as Jim said leave it with us.
Neil Cavuto: Chris, do you think the tax cuts that we got in the Bush years made what could have been a bad recession only a shallow recession? And then the recovery we’ve gotten since?
Chris Lahiji: It was a very good idea. But right now we’re at that point where something has got to give. The budget deficit is still $319 billion.
Neil Cavuto: I understand that. What would you do?
Chris Lahiji: The first thing I would do is make sure the budget cuts come out of the right places instead of all of the places that affect those who are already socio-economically deprived. Congress just wanted to make about $36 billion in budget cuts, and it’s affecting unwed mothers, people on welfare…
Jim Rogers: Where are those places you’re going to cut spending?
Herman Cain: The reason why the budget deficit is as low as it is right now is because of the economy being strong. It’s generating more revenue that’s going into the Federal Treasury.
Neil Cavuto: But Herman, you will admit that Chris’s argument is a sound one? The problem is this spending. There’s no doubt that these tax cuts have created more revenue, but these guys keep spending that money. And Republicans control this body and they keep screwing it up, right?
Herman Cain: I don’t disagree with you at all. But let’s go back to Jim Rogers’ point. The tax panel recommendations didn’t address the fundamental problem, and that is taxing income rather than switching to a system of consumption.
Head to Head
Neil Cavuto: Could a huge victory for drug giant Merck save your life and your bottom line? A jury in New Jersey rejecting claims of an Idaho man who blamed Vioxx for his heart attack. So now maybe ... just maybe ... the next drug company won't be as hesitant to introduce the next breakthrough drug? Herman Cain, I guess it’s still a little early to say that, right?
Herman Cain: Yes Neil, it’s still a little bit early. But this was a great win for consumers. And it’s going to get even better if the legislation that was passed in the House of Representatives passes in the Senate. And the best feature of that legislation is that the loser pays. If we have a loser pays law, that’ll discourage a lot of lawyers out there who look for what I call, the victim du jour, in order to try and make money.
Jim Rogers: Our legal system is a mess. This was a victory for consumers. But it’s only one small win. It doesn’t mean that the legal system will change. I wouldn’t buy drug stocks for it. I wouldn’t even buy Merck because of it.
Neil Cavuto: The argument here Mike Norman, was that Merck adequately warned those who were taking this drug that there could be side effects. Now of course with all the drug ads you hear on TV, all they talk about are the devastating side effects, which makes me wonder why people take the drug in the first place. But does this remove an impediment for Merck?
Mike Norman: In the short term, it was a relief. It was a positive development for Merck. But that’s one stage. Lawyers can go another stage where there might be weaker lawsuits and file them there. Herman mentioned something that’s very important. You can either put a cap on these lawsuits or restrict them severely. The other problem though is in Congress, what is growing now is this so-called fairer pricing. Lawmakers are looking to cap how much these drug companies can charge for these medications. Over the long term, that might actually reduce research and development and actually raise costs of drugs. So that offsets whatever kind of tort reform may be going on right now.
Rebecca Gomez: Merck is facing up to 7,000 lawsuits. Sure, they won this one. But they’re still facing all these others. They have a Texas jury that came back with a verdict against them, a $253 million lawsuit. That will be reduced under Texas law to $26 million.
Neil Cavuto: And they are appealing that?
Rebecca Gomez: Absolutely. You know, it’s the tragic irony of the pharmaceutical industry. They come out with these life saving drugs and make life much better for people who suffer from disease. But on the other hand, these drugs aren’t perfect.
Neil Cavuto: Do you think that’s the future Jim? That you say, look there’s a risk that this drug could kill you but it’s just a small risk.
Jim Rogers: You have to tell people that. Wouldn’t you want to know that? I have a little baby. I’d like to know if she’s going to have a shot that there’s a risk. And then I’ll make a decision.
Neil Cavuto: And you weigh the odds.
Rebecca Gomez: But in this trial they did show internal emails that did show that Merck knew ahead of time, before they were telling everyone in the public, that there were some problems.
Neil Cavuto: But that always comes up with every drug.
Mike Norman: Jim said it right. We’re the most litigious society on earth and unless we do something about that, what happens is, you get these giant corporations that are so successful and they become targets. I mean look at McDonalds with the lady who spilled coffee on her lap.
More for Your Money
Neil Cavuto: President Bush announcing a plan to spend $7.1 billion to prepare America for a possible bird flu pandemic. So which stocks will get a boost from those billions? Our gang's got the names that could help you get more for your money. Mike, to you first.
Mike Norman: Well, Neil you said it. It’s possible. We don’t know. It might not develop into a pandemic. But let’s bet on something for sure. They’re going to be checking the bird flock in this country like crazy. I like IDEXX Laboratories (IDXX). They sell the kits that check the flocks to see if they’ve got the virus.
Chris Lahiji: I think it’s a great company, but I wouldn’t buy it right now. It’s at 30 times this year’s earnings. Insiders own zero percent of the company. And the risks outweigh the reward.
Gary Kaltbaum: I’m going with Gilead Sciences (GILD). They have the patent to the weapon of choice for the flu, which is Tamiflu. The company is not defined by it. It’s a much bigger company with great earnings and revenue.
Jim Rogers: Yes, but Gary, the stock has gone up because of a possible bird flu. People have already bought their Tamiflu and second, suppose the bird flu doesn’t come. The stock is going to cave in.
Gary Kaltbaum: But as I said, they’re not just defined by this one product. They have many other products. And their earnings are up 50% over the last year.
Jim Rogers: The stock is defined by this. I didn’t say the company.
Neil Cavuto: Bottom line, we don’t know, do we? Chris, what are you doing?
Chris Lahiji: I like Henry Schein (HSIC). It’s an indirect play on the Avian Flu. They’re one of the largest distributors of dental and medical supplies in the U.S. They just signed a 3-year deal with Chiron to distribute 10-15 million vaccines in the U.S. I think that’s going to be beneficial to earnings.
Gary Kaltbaum: They sell every medical product under the sun. My only concern is that their earnings have been somewhat inconsistent over the last two years. And the stock’s been prone to blow up. I’d be kind of careful because of that.
Jim Rogers: All the stocks remotely associated with bird flu have gone through the roof. It may or may not happen, but it’s already in the stock. What I would suggest is, we know people aren’t going to eat chickens and birds; we know people aren’t going to eat meat or cows because of mad cow disease. So what people should do is buy hogs, buy pork bellies and buy grains.
FOX on the Spot
Mike Norman: Stocks rise as oil slides 25% over the next 6 months.
Herman Cain: Earth to Dems! Free markets work; gasoline continues to fall.
Rebecca Gomez: The Common flu will cause panic in the workplace!
Gary Kaltbaum: Alito passes despite Democrats' best efforts!
Jim Rogers: U.S. debt grows as economy slows.
Neil Cavuto: My FOX on the Spot is, who says higher rates are a bad thing? I'm predicting a boomlet in savings ... 3 to 4% money market rates. Just watch how many more Americans take advantage of that. The good side of this rate up tick you're "not" hearing.
Forbes on FOX
Flipside: Give Oil Company Profits to Hurricane Victims!
Mark Tatge, Chicago Bureau Chief: I think it's time that the oil companies share the wealth. I think that this is a good opportunity for both the oil companies and President Bush to improve their image. What Bush needs to do is talk tough and get the oil companies to ante up and give back some of those record profits that they've been gouging because of high gas prices.
Jim Michaels, Editorial Vice President: This has nothing to do with gouging. Profits go up because the market is sending a signal that it needs to adjust supply and demand. That is exactly what is happening. People are drilling more and they're finding more sources of alternative energy and they're starting to conserve. If you cut off those price signals, people won't change their habits.
Elizabeth MacDonald, Staff Writer: There is a lot of talk in Washington about a windfall profits tax. I don't think that is the way to go. Do we want Congress to get their hands on that? I think oil companies should put the money back into refineries. The problem is that the Gulf Coast got wiped out. We should plow the money back in there and create more jobs for those gulf Coast victims.
Victoria Barret, Staff Writer: I think this wouldn't be a good P.R. move because either people would say 'it's not enough money' or they would say 'it's only a P.R. move.' By the way, these oil companies are not the most profitable companies on the planet. There are 235 companies on the S&P 500 that have profit margins higher than ExxonMobil. These include McDonald's, Carnival Cruises, and the New York Times. Should these companies be shelling out profits?
Quentin Hardy, Silicon Valley Bureau Chief: This is based on a massive human tragedy. This hurricane came, so prices went up. By this logic, if we had an earthquake we should probably hit homebuilders. What they could do to show good faith is they could hire more locals. They're subcontracting people from out of state and illegal workers to rebuild.
Mark Tatge: Who's always asking for tax breaks or permission to drill in the wilderness? It's the big oil companies. They've been getting what they want from the Bush administration. Why can't they ante up and give something back?
Jim Michaels: This is a capitalist system. You depend on price signals to adjust reduction and usage. You should not suppress those signals. Those signals are already working. People are exploring more, they're buying more oil companies, they're conserving. Don't suppress those signals.
Elizabeth MacDonald: This is an industry that depends heavily on billions of dollars in tax breaks. The problem is you see companies like ExxonMobil with record profits doing things like buying back stock instead of plowing those profits back into expanding the refineries.
Mark Tatge: I think we should take away those tax breaks.
Jim Michaels: Do you know anyone in the world that doesn't look for tax breaks? Of course the oil companies look for tax breaks. That's not the point. The point is, they need to invest, they need to explore and they need profits to do that.
Victoria Barret: Oil is a high risk business because they don't know how much oil will cost a barrel in 10 years and they have to build out capacity now. Buying back shares just doesn't look good for ExxonMobil right now. That's not where they should be spending their money. They should be investing in the future.
Elizabeth MacDonald: The way to reward shareholders is by expanding your assets. This gets your stock price up. You do this by expanding your refinery capacity and by finding new fields to explore. That's what they need to do more of.
Mark Tatge: I think that there is a chance here for President Bush to score big by shaming the oil companies into giving something back to these people who have been devastated by this hurricane.
In Focus: If Bush Has "Bottomed," Is Now the Time to Buy Stocks?
Rich Karlgaard, Publisher: The mainstream media is talking about a Bush crack-up but in fact, the last two weeks have been terrific for the guy. Ben Bernanke is widely acclaimed as a great successor to Alan Greenspan, the Federal Reserve chairman. Replacing his Supreme Court nominee Harriet Miers with Sam Alito has energized the base. I think Bush has got his ducks in a row. He's got his base back. He's doing all the reforms he wants to get done in 2006. The market is worried that the tax cuts of 2003 are not going to be extended. Now that he has an energized base behind him, I think he's going to get that done. I see the Dow hitting 11,000 by the end of the year.
Quentin Hardy: The Alito nomination hearing will be put off until January. In the meantime we've got Iraq, home heating prices, Cheney and Rove. Fundamentally, this is going to grind Bush. He's only a mediocre President in a second-term, lame duck situation and the B-team is in charge at the White House. The A team has moved on.
Jim Michaels: The economy is moving along beautifully. Joblessness is close to zero for an effective basis. The job market grew last month, the economy is doing nicely, the stock market is starting to flex its muscles. The tax cuts have worked. Bush still has one problem. He hasn't been able to articulate his program. He's not been able to sell it.
Lea Goldman, Staff Writer: There's a world outside of the White House. This country still faces a serious energy crisis. We're starting to see the real and present signs of a deflated housing market. We're starting to see inflationary pressures. This doesn't look well going into the future. Then you have the upcoming Alito battle. It's no wonder the overseas markets are booming right now, because the U.S. is not a good place to be right now.
Jim Clash, Associate Editor: October is over, it's not a good month for the stock markets. October was a terrible month for Bush but things are looking up. Alito will be confirmed faster than a lot of people think. People have forgotten about Miers now. The stock market has rallied behind this. The stock market doesn't like uncertainty. We're seeing a lot more certainty now going forward. The Valerie Plame thing, it was only Scooter Libby and it wasn't for outing a CIA agent, it was for obstructing justice and lying. I think the market will be way up by the end of the year.
Mark Tatge: I think Bush has bottomed out and he's staying on the bottom. I would not buy stocks. I would buy inflation-adjusted bonds.
Rich Karlgaard: The economy in the third quarter grew at a 3.8% GDP. Who would have predicted that? Katrina and Wilma were supposed to have taken that into negative territory.
Lea Goldman: The jury is still out on how long that reconstruction is going to take and what the price tag will be.
Jim Clash: Earnings are coming out for the third quarter at 15% above last third quarter. The stock market is going to be up 10-15% by year end.
Jim Michaels: What convinces me that Bush hasn't done a good enough job is that the economy is doing terrific and yet I hear people say that things are awful. People are saying Iraq is a mess, it's not a mess. Our military has done a terrific job. We have every reason to be there. Bush has not sold his program.
Quentin Hardy: After 5 years in charge the market is right where it was when Bush took office.
Jim Clash: It could have been a lot worse.
Makers & Breakers
Patricia Powell, Powell Financial Group: MAKER
This is a midsize company. It has about $6 billion of market capital, very good earnings, fast growth rate. It bought State Street Research in January of this year. It's one of the largest money management firms publicly traded and no one's ever heard of it.
David Asman, Host: You've got a price target of $122 (Friday's close $96.52).
Elizabeth MacDonald: BREAKER
BlackRock is a little pricey for me. Plus it bought State Street, for the stock portfolio, and State Street hasn't been so good at managing stocks.
Jim Michaels: BREAKER
They're in bonds, that's their thing. And I'm not so sure that's the best place to be now.
Patricia Powell: I think you need to think about what next year is going to be like. I'm very optimistic for the market as we go into next year and BlackRock will get real leverage on that.
Patricia Powell: MAKER
This is a really boring company, no one pays attention to it. It's a credit reporting and database company. A little under $5 billion of market capital. It will bore its way into profits.
David Asman: Your price target is $45 (Friday's close $35.10).
Jim Michaels: BREAKER
You're projections are assuming a 25 times forward price to earnings ratio. I don't think it can pull it off.
Elizabeth MacDonald: MAKER
I like boring and geeky stocks. This is a smart stock because we are going to have a lot of credit problems with the mortgage boom.
Informer: $upreme $tock Picks
David Asman: Here's a peak into the personal finances of Supreme Court nominee, Samuel Alito. Some stocks he owns are Walt Disney (DIS), Intel (INTC), McDonalds's (MCD) and ExxonMobil (XOM). Should you own them too?
Jim Michaels: I think he has a great portfolio. It's a balanced, diversified, tax efficient portfolio. This shows me a good organized, conservative buy. I think Samuel Alito would make a great justice based on his portfolio. You can't look at the individual stocks. It's an intellectual's portfolio. It's structured for high diversification and tax efficiency. And the stocks are only 25% of it.
Victoria Barret: I think the portfolio is a little uninspired. He's picking what he considers top companies in what I think are boring industries, with one exception. Intel (INTC) is a great stock. It's been unfairly battered down this year. I think Intel has been really smart by getting their chips into a lot of devices.
Lea Goldman: Of all of them I dislike Intel the most because this is the most commodified of all the tech widgets, because of computer chips. It's going to come down to pricing at the end of the day and can Intel compete with all the other global producers? I wouldn't bet that it could. ExxonMobil (XOM) on the other hand is a great blue chip company.
David Asman: But some say oil and gas prices have topped so oil stocks may have topped as well.
Elizabeth MacDonald: I'm not hot on Exxon. But I do like Walt Disney (DIS). Disney has been beaten up. But it's coming out with The Chronicles of Narnia, which is going to be a blockbuster, which could be a new lucrative movie series.
Victoria Barret: We've been trying to call a rebound on Disney for about a decade. I don't think movie series is going to move the needle for Disney.
David Asman: What about McDonald's (MCD)?
Lea Goldman: It's getting healthier, it's cheaper and it's making more money. I think it's a good company.
Victoria Barret: It does have great profit margins and is trying to become a healthier company, which may be good from a P.R. point of view. But I don't think it's good for the sales point of view.
Jim Michaels: You can't look at the individual stocks. It's an intellectual's portfolio. It's structured for high diversification and tax efficiency. And the stocks are only 25% of it.
Our “Cashin’ In” crew this week:
Jonathan Hoenig, Capitialistpig Asset Management
Wayne Rogers, Wayne Rogers & Company
Dagen McDowell, FOX Business News
Jonas Max Ferris, MAXfunds.com
Charles Payne, Wall Street Strategies
Bob Beckel, Democratic Strategist
Stock Smarts: Communist Threat?
Is a wave of communism sweeping over America, threatening our freedom and our stock market?
It’s open season on capitalism, as liberals and even some conservatives are out for blood. They’re demanding that oil companies give back some of their record profits and that drug makers share their valuable flu vaccine patents.
Is this a new form of communism?
Charles Payne, Wall Street Strategies: What’s interesting is that no one is calling it communism, but a lot of people are saying that it is crazy. To punish a company in a capitalistic society for making too much money is scary because while ExxonMobil (XOM) made $9 billion, that was less than 10% of their revenue. You start to look at it and say, ‘Well, if it’s a harsh winter, shouldn’t we take money from Burlington Coat Factory?’ It’s silly, but it’s also spooky and scary because this is a populist movement. As you mentioned, next week, down there (in Washington), a lot of Republican senators are probably going to move into that gray area, where they’re sort of nodding with the Democrats on this. Everyone should be concerned.
Terry Keenan, Host: Bob, ‘excess profits’ is kind of an oxymoron, isn’t it?
Bob Beckel, Democratic Strategist: First of all, let me congratulate “Cashin’ In” for uncovering this communist conspiracy. And I want to point out how diabolical it was. I mean, the first thing they did was give oil companies these huge tax breaks and now they’re asking them to increase refining capacity.
Jonathan Hoenig, Capitalistpig Asset Management: Not your pal Sen. Chuck Schumer, D-N.Y., though. He’s all over this issue right now.
Bob Beckel: They give the prescription drug benefits to the drug companies, with no negotiation on price, and then they ask them to give up the flu vaccine to save millions of lives. It’s diabolical. It’s unbelievably diabolical.
Jonathan Hoenig: But Bob, the truth is that your good pal Chuck Schumer has made big political hay after saying, ‘ExxonMobil should have this excess profit tax.’ Give 50% of their profits to the victims of Hurricane Katrina, Bob? This is classic Marxist redistribution of wealth. Take it from the haves, give it to the have-nots. Why? For the ‘public good.’ Its communism, it’ socialism, it’s collectivism. Call it what you will, but it’s scaring the hell out of me.
Terry Keenan: Wayne, where does it stop? Microsoft (MSFT) has an 87% profit margin, versus around 20% for ExxonMobil.
Wayne Rogers, Wayne Rogers & Company: It’s not a philosophical argument, here. I don’t think it’s a practical one. You know, the government should not be in any of these businesses. Let the market determine what the prices of oil should be. The unfortunate part was, though, during the Clinton administration, if I may say so, Mr. Beckel, they allowed eight oil companies to become four; Exxon merged with Mobil, Chevron with Texaco, Conoco with Phillips, etc. They control the supply that has caused a lot of this. Secondly, would you tax away all of the profits if you bought a house for $200 and sold it for $600? Are you going to tax all those profits? What is an excess profit? You can’t do that. Let the market determine that.
Dagen McDowell, FOX Business News: But Wayne and Jonathan, this isn’t communism or Marxism. This is the American way of life. It’s as American as baseball for all of these dumb politicians to get up there and start grandstanding and posturing and threatening windfall profit taxes. We had the windfall profit tax on oil in the 1980s. It went away in 1988 because it wasn’t making enough money, so they’ll figure it out sooner or later, that this is just hair brained.
Terry Keenan: But Jonas, it could happen. It might just be grandstanding. But the oil stocks have been going down, despite these record profits, in fear of this.
Jonas Max Ferris, MAXfunds.com: It could happen. It would only hurt oil stocks. It wouldn’t hurt the market.
Terry Keenan: What do you mean? Half the profits of the market come from these oil companies.
Jonas Max Ferris: During the 80s we had a huge bull market with this exact same kind of windfall profit tax, because it’s not going to spread to other companies, getting to someone else’s point, because Dell (DELL) can make a lot of money and no one ever gets mad. It’s always just the oil companies and that’s too bad.
Charles Payne: The problem is, though, after all this is said and done, we relied on foreign oil more than we did before, we had less production. Realistically, if you tax ExxonMobil, you think the prices at the pump are going to go down or go up?
Jonas Max Ferris: They might go down because ...
Charles Payne: They might go down? If they took more taxes out of your check, wouldn’t you want to make more on the top line?
Bob Beckel: Excuse me, can I just speak up for dumb politicians here, for a second? I think you’re all right. I don’t think a lot of excess profit taxes, and I don’t think we ought to ask the pharmaceutical industry to give up a patent. I’ll tell you what though. Let’s go back then and not give them the big tax breaks that the oil companies got and make a negotiation. You want to talk about the market, Wayne? Let’s make the prescription drug companies negotiate for these big federal dollars they get out of this Medicare pharmaceutical deal that is a George Bush proposal.
Jonas Max Ferris: No one is going to stand up for a windfall profit tax. Isn’t our income tax a windfall profit tax? Don’t you get taxed at a higher rate when you make a lot of money one year? Is that so crazy to have as a system? We have it for income taxes. Why have it there then?
Bob Beckel: With this crowd, you can get shot if you go any further than this. Watch yourself, all right? All I’m saying is, let’s take back the tax breaks we gave them. We gave them billions of dollars. Let’s take it back. You want the government out of their business? Don’t give energy companies big tax breaks. Then we’ll have a fair playing field, if you want to play on it.
Jonathan Hoenig: Bob will be running the Hugo Chavez campaign next season.
Charles Payne: You know what though, Bob? What you don’t realize is that we’ve taxed these oil companies over $1 trillion. If you want to take back a couple of billion, that’s a drop in the bucket and, believe me, your friends still aren’t going to be happy with that.
Bob Beckel: If that’s a drop in the bucket, it’s a tough world for them.
Jonathan Hoenig: It is the philosophy, Bob. It is the idea that when an oil company earns $10 billion, it’s theirs. They earned it. They didn’t take it from individuals like the government does. If Chuck Schumer wants to cut profits or costs at the pump, let him cut the taxes. 60 cents of every gallon of gas in New York is taxes.
Bob Beckel: Will you remember, Jonathan, that this is a Republican House, a Republican Senate and a Republican White House. When the Democrats get in power, you’re going to jump out a window.
Jonathan Hoenig: And a Chuck Schumer business news press release.
Bob Beckel: Come on, man. This is going on during your watch. Not our watch.
Terry Keenan: You’re right. These hearings that are going to be held are going to be held in a Republican Senate and a Republican House. What are the Republicans thinking here?
Wayne Rogers: That’s not Bob’s good point. Bob’s good point is the fact that he was talking about the tax breaks that we gave the oil companies. This has to be reconciled with national policy, because it throws us into the arms of the Middle East. If you’re going to allow these major oil companies to conglomerate and become a cartel, to the extent that that becomes national policy as it deals with oil in the United States, then that has to be balanced. You’re going to have to give them some tax breaks, in order for them to compete with people overseas.
Jonathan Hoenig: But Wayne, you say it’s not philosophical, but isn’t it? To Terry’s point, the GOP is just as bad as the Dems on this one, Bob, to your point as well. No one stands up for free market capitalism. They take easy potshots at big oil or big drugs.
Dagen McDowell: Well the fact that they’re making all of these easy potshots right now, Jonathan, is probably a great sign for the markets because it’s probably a sign that oil has topped out because this always happens. Look at the windfall profit tax. It went into effect in 1980, right near the top of oil.
Bob Beckel: It’s an election year, OK? Don’t worry. You’ll sleep well tonight. It’s not going to happen. It’s politics, folks. That’s right. It’s election year. They’re going to talk about this. There’s no chance this is going to get through a Republican House and a Republican Senate. So Jonathan, I want you to take it easy and rest well.
Charles Payne: You have to be worried about it. You have to be concerned that they would even pander to this type of thinking, and that this type of thinking could become populist thinking, because the man or woman on the street do view oil companies as the enemy. They do view big pharma as the enemy. Of course, we’re living twice as long as we used to live, and we’re doing pretty well. Oil is part of our economy. There has to be a balance and, unfortunately, the GOP playing into this game doesn’t make it easier. It makes it worse and it makes it sort of scary.
Best Bets: Capitalist Kings!
From the land of the free and the home of the brave are our groups Best Bets. The boys are back with their all-American picks.
JONAS’ CAPITALIST BUY
Friday’s close: $29.22
52-wk High: $36.26
52-wk Low: $25.50
Jonas Max Ferris, MAXfunds.com: Until very recently, Merck was all-American stock. It’s in the DOW, it immigrated here from another country around a century ago. It is a huge success story. It saves millions of people’s lives with hundreds of drugs. OK, they’ve got a problem now. I’ll admit it. Things are looking good. The stock is under $30, and in my opinion, is the ultimate contrarian play. If they can get out of this without anything going, you can make a lot of money on a stock like Merck.
Wayne Rogers, Wayne Rogers & Company: I think Jonas is right. It’s the ultimate contrarian play because I don’t see it. They won one victory, they’ve got one loss, and they’ve got about 600 lawsuits in the pipeline. If they split them 50-50, the company will be broke. I don’t see it.
CHARLES’ CAPITALI$T BUY
Friday’s close: $87.80
52-wk High: $92.43
52-wk Low: $75.10
Charles Payne, Wall Street Strategies: Nike is the true American story. You’ve got a guy who’s running track, he starts to make shoes, sells them out of his trunk, and the next thing you know, he’s a multi-billionaire.
Terry Keenan: Now they make them all overseas, though.
Charles Payne: We export jobs. That’s all-American. Even if you talk about the so-called sweatshops we are providing jobs for our friends overseas. But realistically, you’re talking about a company with limited global competition. It’s very smart. They’ve proven themselves over and over again. It’s a nimble company that knows how to go into markets and take over. It’s a great company.
Jonas Max Ferris, MAXfunds.com: Limited global competition? Adidas is buying Reebok (RBK). That’s more than just limited global competition.
Charles Payne: That’s one company. So you’ve got 6 billion people needing sneakers, and you’ve got two companies selling it to them.
WAYNE’S CAPITALI$T BUY
Las Vegas Sands (LVS)
Friday’s close: $37.66
52-wk High: $53.98
52-wk Low: $29.08
Wayne Rogers: I like Las Vegas Sands (LVS) because they’re making most of their money out of Macao, believe it or not. An American company, a gaming company, but most of their money is not being made in Vegas, it’s being made in China.
Jonathan Hoenig, Capitalistpig Asset Management: This stock doesn’t seem like you. I can’t find a lot of casino-related stocks doing really well right now. Wynn Resorts (WYNN) is down, Boyd Gaming (BYD) is down. What are you looking at?
Wayne Rogers: Look at their earnings. Their earnings are up spectacularly, and all of this comes out of Macao. Macao’s going to get bigger and bigger. I think my friend Steve Wynn is going to do very well out there as well.
Jonathan Hoenig: How’s your friend Wynn’s stock doing, though? I mean, come on. These stocks are in the doghouse.
Wayne Rogers: These are at a bottom and are making a wonderful technical pattern. Look at it.
Terry Keenan: Do you own Sands and do you own Wynn stock?
Wayne Rogers: I do.
JONATHAN’S CAPITALI$T BUY
International Securities Exchange (ISE)
Friday’s close: $27.41
52-wk High: $31.69
52-wk Low: $19.71
Jonathan Hoenig: I’m taking a page from Wayne. Wayne recommended NASDAQ (NDAQ) last week. He was right. Exchanges are hot, so my hedge fund has a big position in ISE, the International Securities Exchange. It’s a huge international options exchange. They’ve really taken CBOT’s cake and are just dominating. With volatility on the rise and with more and more hedge funds out there using derivatives, I think ISE is a big winner, and we’re putting our money on the line, so I’m a bull.
Jonas Max Ferris: You are taking a page from Wayne because that’s a New York-based casino, for all practical purposes. Let’s not forget what happened in 1987. When there was a crash, that business dried up for 7 years. You’re looking at peak insanity now, with all the hedge funds, it could collapse.
Jonathan Hoenig: Look at Chicago Mercantile Exchange (CME), look at CBOT Holdings (BOT).
Question: “The world is better off with Saddam out. Do the Dems think otherwise, and isn’t the market happy that he is gone?”
Charles Payne, Wall Street Strategies: The market doesn’t react to news from the front anymore. But I’ve got to tell you that the stunt that the Democrats pulled earlier this week, with the whole secret closed-door session, if that would have happened during market hours, it would have crushed the market, and we might have had a down week for the week. I think what the market does care about is negative sentiment. It’s obvious that it’s in the air. Everybody’s negative. Everybody’s down. You have consumer sentiment numbers that are at their lowest point in years, so the market does pay attention to that. I think that’s something that is a little shameful for the democrats, to sort of make this a big issue, in hindsight of Libby being the only one indicted.
Dagen McDowell, FOX Business News: You are totally wrong. Investors really don’t care what’s going on in Washington, in terms of all that grandstanding. But they are watching the casualties in Iraq. You had a jump in the number of troop deaths during October. That’s what has got to change.
Charles Payne: I don’t think so. You can come into work, find out that six soldiers have died, and the market can be up that day. We get this bad news from the front, and it doesn’t seem to affect the market, day-to-day. But I think the negative atmosphere from Capitol Hill has held the market down this year.
Dagen McDowell: They’re watching Iraq. Not D.C.
Terry Keenan: What are you watching, Wayne?
Wayne Rogers, Wayne Rogers & Company: This is a whole discussion that could take 2 hours. If you’re going to discuss foreign policy, I don’t think it’s a subject for the market.
Jonathan Hoenig, Capitalistpig Asset Management: You should be watching the market, Wayne. I know you are. Terry, I think Bush needs to better communicate what’s going on here. He needs to get back to the idea of serving American interests, not spreading democracy in Iraq. The bad news from Iraq is up. The truth is the market is up too, so it’s hard to draw a direct correlation there.
Question: “I own Universal American (UHCO). It was killed last week, but it’s still a winning trade for me. Hold on or sell now?”
Terry Keenan: Wayne, you were stopped out of UHCO in the Challenge, do you still own it personally?
Wayne Rogers: I own half of it. I got stopped out on half of it, and I still own half of it. My price, and it was a little bit more than $9, I think the stock is trading close to $15 now. I did take some off the table, because I got stopped out around $17, but I would say to him to take half of it off the table.
Terry Keenan: I remember you recommended it around $9 or $10. Last week you also made another change in your Challenge portfolio. You bought stock in NASDAQ (NDAQ), right?
Wayne Rogers: Yes, I did. I like it. I think Jonathan on ISE was absolutely right. I think all the exchange stocks are terrific. They’re monopolies. I don’t know how you could go wrong.
Mutual Fund Face-Off: Bargain Funds
If you want to bargain funds you can’t afford to pass up, it’s time for our Face-Off!
DAGEN’S BARGAIN FUND
iShares S&P 500 Index (IVV)
Friday’s close: $122.08
TOP HOLDINGS: ExxonMobil (XOM), General Electric (GE), Microsoft (MSFT)
Dagen McDowell, FOX Business News: I like the iShares S&P 500 Index Fund (IVV). Don’t be thrown off by the share price, here. It’s virtually irrelevant. That doesn’t tell you what’s cheap. Expenses are cheap on this. You do have to pay a commission to buy it, but if you go to a discount broker, you can buy it for under $15 for a trade. It’s a great, cheap fund for the long run.
Jonas Max Ferris, MAXfunds.com: I’m not buying that. That $15 thing doesn’t sound like a lot. Why not buy the Vanguard Index Fund? There’s no commission to buy it. And if you’re putting a few thousand dollars in an index fund, that’s a lot of money to pay.
Dagen McDowell: You don’t have to worry about the tax problems of other people, with distributions coming out of the fund. And also, everybody has a brokerage account. This way you don’t have to go to Vanguard to open an account.
Jonas Max Ferris: If you’re not trading, I don’t know about these ETFs.
JONAS’ BARGAIN FUND
Vanguard US Value Fund (VUVLX)
Minimum Investment: $3,000
TOP HOLDINGS: ExxonMobil (XOM), Altria (MO), Home Depot (HD)
Jonas Max Ferris: Vanguard US Value Fund (VUVLX) is the double-whammy, cheap-o, because it’s one of the cheapest, actively managed funds in the world. And the managers, who are worth a lot more than .49% a year, I have to say, are buying stocks that are always rotating in and out of what’s in favor. Now it’s large-cap; Merck (MRK), Pfizer (PFE), Dell Inc. (DELL).
Dagen McDowell: You know what totally doesn’t make any sense? You go to Vanguard, they’re known for indexing, they have inexpensive index funds, and then you pick this actively managed fund. By the way, one of the managers is leaving in a month or two.
Jonas Max Ferris: There are a lot of people running this fund. It doesn’t matter that one guy is leaving. And what is wrong with finding a very cheap, actively managed fund. I don’t index with most of my money, but you want to pay a small amount of money for active management, and that’s why Vanguard is good. They get sub-advisors, dirt-cheap.
Dagen McDowell: You know that index funds will beat active managers in the long run.
Jonas Max Ferris: They’ll beat expensive active managers, I’ll give you that.
Dagen McDowell: No.