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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 Research editor
• Scott Bleier, HybridInvestors.com president
• Dani Hughes, Divine Capital Markets president
Trading Pit: War on Chri$tmas$?
The War on Christmas: Could the left win its crusade against Christmas and does that threaten our stock market and entire economy?
Tobin Smith: The War on Christmas is real and taken to the extreme turning Christmas into a second-class holiday would kill much of the retail specialty stores. The next target would be Easter. This definitely does hurt the economy. Retailers have fallen under the pixie dust spell of consultants and this idea of being politically correct becomes this insidious little disease.
Dani Hughes: Businesses are just trying to be inclusive. Christmas and the fourth quarter are a big piece of our economy. This is when everyone counts on making big money. Wall Street cares very much about this War on Christmas. It now gets the numbers faster than it used to and it matters very much what's happening. Black Friday sales were very strong this year.
Scott Bleier: If the War on Christmas is won, the GDP of this country and the world will tank, the Chinese economic engine would be finished, and two-thirds of retailers will be out of business and people may actually save money. BUT, Christmas is not going anywhere and no one can take it away. Retailers want you to spend a lot of money and the fourth quarter holiday season is of vital national interest.
Gary B. Smith: If we include Christmas as the holiday of spending, then it would hurt the economy. The retailers just want to drive in as many customers as possible. Christmas won't be taken down. If Wall Street is not watching this, it is watching when the retail sales numbers come out.
Pat Dorsey: Americans will stop spending when this country is hit by an asteroid. There are a lot of things that could derail Christmas like higher heating bills and higher mortgage payments, but that's not going to happen. Wall Street doesn't care what it's called, as long as the sales come in.
Stock X-Change No. 1
Which companies love Christmas and you should love them too?
Tobin Smith: I love the Clydesdales and Anheuser-Busch (BUD). I will admit I haven't liked it in the past, but lately it's been making lots of money and is now at a good value. (Anheuser-Busch closed on Friday at $43.50.)
Dani Hughes: I do like the company, but I don't like the stock. It has been hurt by increased sales of wine and spirits.
Gary B. Smith: I'm going express with FedEx (FDX). The chart shows that the stock was trending down, but now has broke out. Look for it to head north to $125! (FedEx closed on Friday at $97.82.)
Pat: I don't like it. It's too expensive.
Dani Hughes: Brown is the way to go. United Parcel Service (UPS) is expecting to handle 14 million packages a day this holiday season. I do own this stock. (United Parcel Service closed on Friday at $77.45.)
Gary B. Smith: UPS isn't bad, but it is right at resistance right now. Wait to buy until it gets a little stronger.
Pat Dorsey: There's a lot of traveling around the holidays and Expedia (EXPE) is the way to go. It's the world's largest online travel agency. The stock is cheap and growing its international business at 20-30 percent a year. I own this stock and think it's going to $38-40. (Expedia closed on Friday at $24.90.)
Scott Bleier: Expedia does have a lot of cash and was just spun off from IAC/InterActive. I do think this is a good buy right now. However, if there is a terrorist attack, people won't be traveling and this stock will plummet.
Scott Bleier: I'm going shopping. Simon Property Group (SPG) owns shopping malls and outlet centers across the U.S. and in Europe, Puerto Rico, Canada and Japan. I also really like that this stock pays a dividend. (Simon Property Group closed on Friday at $78.33.)
Tobin Smith: I don't think now is the time to own shopping centers. The dividend this pays is low and the stock isn't growing fast enough. There are better retail stocks out there.
Stock X-Change No. 2
Get the stock gifts that keep on giving. We've got the big time dividend paying stocks that could also keep rising in value.
Pat Dorsey: I really like salt producer Compass Minerals (CMP). It makes the salt that goes on roads when the big snow hits. It has a low transportation cost and is worth $35. It pays a 4.5 percent dividend. (Compass Minerals closed on Friday at $24.68)
Scott Bleier: This stock is not worth $35. All the bidding for this year's salt is over. The stock could go up at the end of the year, but will be down at the beginning of the year.
Gary B. Smith: Altria Group (MO) is ready to make a new all-time high. It's a buy once it closes over $75. The dividend yield is 4.1 percent. (Altria Group closed on Friday at $73.32.)
Dani: I don't like it. There's been talk that this company could be split into 2-3 pieces. This could be held up longer than expected. Plus, a big director just sold a huge piece of his stock.
Scott Bleier: I'm banking on Barclays (BCS), the third largest bank in the United Kingdom. Banking and brokerage stocks have had huge rallies, but this one hasn't and it's due for one. There's very limited downside and it pays a 4.4 percent dividend. I do own this stock. (Barclays closed on Friday at $41.60.)
Tobin Smith: This company has huge mortgage problems.
Dani Hughes: I really like HSBC Holdings (HBC), which moves the global economy. It's a huge mover in emerging economies like China, India, and Mexico, where it's getting into consumer banks. The dividend yield is 4.3 percent and I own it. (HSBC Holdings closed on Friday at $81.26.)
Pat Dorsey: This is a solid bank and a high quality company, but it has not been growing very fast. I like Barclays much better because it has a similar dividend and lower valuation.
Tobin Smith: My pick is Diana Shipping (DSX). This Greek company's vessels transport iron ore, coal, grain and other dry cargo around the world. It pays a 7.5 percent dividend. (Diana Shipping closed on Friday at $14.40.)
Gary B. Smith: This has an ugly chart and the price is going to drop.
Tobin Smith's prediction: Iraq elections big success; Dow makes new all-time high
Pat Dorsey's prediction: Xbox marks the spot for Microsoft (MSFT)! Gains 25 percent
(Pat owns this stock.)
Dani Hughes' prediction: Interest rates rise but so do stocks; S&P 500 up 10 percent
Scott Bleier's prediction: Pain at the pump returns! Gas goes over $2.50/gallon
Gary B. Smith's prediction: ‘Tis the season for Four Seasons (FS); up 30 percent next year
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, "Hot Commodities" author; Herman Cain, "They Think You're Stupid" author; Gregg Hymowitz, founder of Entrust Capital; Meredith Whitney, executive director at CIBC World Markets; Charles Payne, CEO of Wall Street Strategies; Adam Lashinsky, senior writer at Fortune Magazine.
Neil Cavuto: November was a tough month for President Bush, but the latest poll shows he could be turning the corner — gaining 6 percentage points in the last three weeks for an approval rating of 42 percent. Meanwhile, no struggle at all on Wall Street in the last month with the Dow up 4.2 percent, the Nasdaq up 7.2 percent and the S&P up 4.8 percent. Is the market predicting a comeback for the President and his pro-business agenda?
Charles Payne: I think absolutely, Neil. A lot of the same factors that drive the stock market also drive presidential polls. We had tremendous employment in November; business spending is up; consumer spending is up; consumer confidence is up. The market knew this was happening. You saw it pick up in late October, and then it really gained steam in November. The market once again was a great harbinger of things to come.
Jim Rogers: There's no question that the market got beaten down very badly over the summer and into the Fall, so it's naturally having a big rally and the president's popularity will probably rally some too, but it's the market doing what the market's doing. It's not President Bush.
Neil Cavuto: Do you buy then that the market is a barometer though, for that kind of stuff?
Jim Rogers: Oh, yes of course. When people are happy, and they have a lot of money, they are much happier no matter who is in Washington — whether it's Clinton or Bush.
Gregg Hymowitz: The president's approval rating couldn't go any lower, which is why you saw this dead-cat bounce.
Neil Cavuto: It could have gone about 38 points lower.
Gregg Hymowitz: I agree with Jim. The market's doing what it's doing, and maybe the President is getting a little bounce from the market, but the market sure ain't getting a bounce from this president — continued indictments, continued conspiracies, the continued disaster in Iraq.
Herman Cain: There you go again Gregg. Look, this comeback started two years ago. The market is happy with the consistency of the growth in GDP, the consistency of new jobs. That's what the market is reflecting today. The turnaround in perception, which is a totally different matter, is because the president has taken the time to go out and tell people what his strategy is in Iraq.
Adam Lashinsky: The market isn't saying anything about the President's polling numbers the President's popularity will improve if the situation in Iraq improves, for example. But the market, for better or worse, just doesn't care about that. The market cares about GDP growth; it cares about earnings, and these things are going well. That's why the market is doing well. It's not looking at President Bush right now.
Jim Rogers: Adam the market does care about Washington when something really bad or something really good happens, but you are right for the most part it cares about the economy.
Meredith Whitney: I think you are all forgetting about one very important thing that happened this Fall which is Hurricane Katrina, which a lot of people thought would derail the entire economy — both consumer and corporate economy — and Bush's poll numbers were hit almost as hard by that as they were by the war in Iraq. The fact that things are actually better than expected post Katrina has helped Bush and has certainly helped the economy and directly helped the market, which was oversold because of those reasons.
Gregg Hymowitz: The market's improving because it's been a relatively flat environment for a while. There are some signs that oil prices have come down, and interest rates I think for the most part don't have a lot more to go, and the market tends to do a lot better when it believes interest rate increases are slowing. If you want my honest opinion, I think the market's predicting something, but it's predicting something you are not going to like and that's a Democratic sweep in '06 and '08.
Meredith Whitney: There's no way! The market's up clearly because corporations are spending and people think that the investment cycle is going to extend beyond what is already fourteen months for probably another fourteen months, and the market's cheap on that basis.
Neil Cavuto: But what if this is just an end-of-year Santa Claus rally.
Jim Rogers: That's what it is. It's a year-end rally. They changed the tax laws so that mutual funds have to do their tax selling in October. Markets get beaten down in October; now we have a year-end rally.
Charles Payne: The bottom line is that on a short-term basis, emotions help a lot in determining where the market is, and the fact of the matter is people do feel better. Meredith brought up a great point about Hurricane Katrina – we are coming out of the midst of a whole lot of negative things. And as far as Iraq is concerned, the two thousandth soldier dying made for big headlines and provided a soapbox for the liberals. No disrespect to anyone, but if North Korea is watching, or any other enemy of America is watching, and they know it takes two thousand soldiers to die for us to totally turn against any war, we are never going to win another war in history!
Head to Head
Neil Cavuto: Should your tax dollars pay for stomach-stapling surgery? They do now for many people. Medicare spent $100 million dollars for these operations last year, and now it is looking to expand coverage. Why diet and exercise if you can eat all you want and Uncle Sam will pick up the tab to make you thinner?
Jim Rogers: It's part of the whole problem in America. Nobody has to be responsible; everybody's a victim. I find it outrageous that your money and mine is being spent on people who don't take care of themselves. The rest of us who do take care of ourselves are paying for them. That's just not the way it should be. It's the same as people who live in flood zones and hurricane districts because they know the government will bail them out.
Gregg Hymowitz: I don't think anyone overeats and gets themselves into an obese situation hoping that one day the government is going to pay to get their stomach stapled. I agree with Jim that people should take care of themselves, but if we can save money by providing this procedure and avoiding worse health effects later on, that may make sense. Maybe the government should make investments in exercise programs and healthy eating, but for the really obese sometimes that just isn't good enough.
Herman Cain: Whatever happened to personal responsibility? I don't think the government ought to be spending money to get fat off of people's waistlines. The focus on fat ought to be getting the fat out of Medicare and Medicaid programs, not spending money helping people with their waistlines. I agree with Jim. That's ridiculous.
Meredith Whitney: I agree with Gregg. The real source of the problem is all the productivity gains that make food so much cheaper to produce. The same $5 that you would use today at McDonald's buys you twice the amount of food that it would have fifteen years ago. It's so much cheaper to produce the food that the portion sizes have expanded beyond any reasonable size, and that's the reason for obesity.
Charles Payne: Speaking as someone who is winning the war on anorexia, I have to tell you that the last thing I would ever want is get my stomach stapled even if you paid for it. So, in a way, I kind of agree with Gregg. I am a bootstrap person, a personal accountability person, but at the end of the day if we are going to be so rigid, we are going to lose a lot. This is a productivity issue that Meredith's alluded to that could hurt the nation's economy. If Medicare has to spend more money later on to continue to fight the heart disease and other health issues related to obesity it would be worse than paying to correct the problem now.
More for Your Money
Neil Cavuto: Should you buy stock in the companies making the hottest gifts this Christmas season?
Xbox 360 – Microsoft (MSFT)
Friday's close: $28.01
Herman Cain: I like Microsoft stock not just because of the Xbox, but the fact that it's hard to find it in stores is another reason. I like Microsoft because it is consistent. I like the price, and I believe the stock is ready for a breakout.
Jim Rogers: The Xbox, no matter how hot it is, can mean very little to Microsoft because Microsoft has a gigantic market capitalization. I sold short the Microsoft options, so I am on the other side of this trade. I think Microsoft is a company, which has come under lots of competitive pressure, lots of anti-trust pressure in Europe, and it's been mired forever and not getting better.
FLY Pentop Computer – LeapFrog (LF)
Friday's close: $12.74
Adam Lashinsky: I think it may be time to leap on this stock. It's a perennial disappointer, but if this company can do what Wall Street expects, which is double its earnings next year, that would put it at an extremely cheap 27 times earnings and maybe this time it won't disappoint and is a good buy.
Herman Cain: I don't have as much confidence as Adam. In my book, this LeapFrog can't jump, and I wouldn't touch it.
iPod nano — Apple (AAPL)
Friday's close: $72.63
Gregg Hymowitz: I think the stock is pretty attractive here. Apple is not only one of the biggest computer sellers now, but also is one of the biggest retailers of music. I think the whole digitalization of music is going to allow this company to continue to prosper for a long time.
Charles Payne: I love the company, but I think the stock already reflects a lot of the success, and I wouldn't pay over $70 for it.
PSP (PlayStation Portable) — Sony (SNE)
Friday's close: $37.61
Charles Payne: Not sure how well they are doing with the PSP — it's cute, but I don't know if they didn't market it right, but it's staring to get lost in the dust. Now the PlayStation 3 might take them over the top. They are already taking reservations for it at the local stores. I would buy this stock also on a pullback. The stock went up recently with the rest of the Japanese market, so there's not a lot of urgency to buy it right now.
Adam Lashinsky: If I could own the PlayStation company. I would, but I wouldn't want to make a bet on all of Sony, which faces tremendous headwinds across a lot of markets.
FOX on the Spots
Jim Rogers: President Bush will make quick exit from Iraq!
Herman Cain: President Bush will never cut and run from Iraq!
Adam Lashinsky: Oil dips below $40 a barrel in '06; stocks rise!
Meredith Whitney: Big corporate spending boosts stocks in '06
Gregg Hymowitz: Washington closed for business; stocks rally!
Neil Cavuto: Hot hi-tech Christmas good news for Nasdaq in '06!
Forbes on FOX
In Focus: Would Pulling Out of Iraq Pull Down Stocks?
Jim Michaels, editorial vice president: I think pulling out would be terrible for our economy, this country's standing in the world and for the stock market in the end. Despite the mistakes our politicians may have made, our military is doing a brilliant job. If we turn tail now and leave, it will convince the world that Uncle Sam is a paper tiger and that a bunch of homicidal maniacs can run this great country.
Victoria Barret, staff writer: I think it's time to pull out and I think the markets would like it. Iraq is hanging over the markets like a dark cloud of uncertainty. What are we getting for staying there? We have given the Iraqis a constitution and elections. If we stay longer it risks looking like imperialism and that's really going to tick off everyone in the Middle East.
Rich Karlgaard, publisher: Pulling out of Iraq would weaken the president's image and the market depends on President Bush being perceived as a strong leader. We saw what happened after Katrina. The Republicans began pealing off in the Senate. And 2006 is the last best chance for the President to get his tax cut extensions and other economic reforms. So we need a strong President to get those cuts extended to keep the market and economy strong.
Neil Weinberg, senior editor: Pulling out of Iraq would be good for the market in the short term because the government wouldn't be spending such a huge pile of money on the military. Also, interest rates would probably come down. In the long-term it all depends on what goes on in the Middle East.
Quentin Hardy, Silicon Valley bureau chief: Forget about the market short-term. This is about what terror costs free democracies and how America looks to the world and what terrorists see. They see opportunity if we pull out.
Lea Goldman, staff writer: If we pulled out of Iraq right now without accomplishing what we set out to do we would leave our energy interests there vulnerable. The energy markets would go crazy and the American consumers would feel it in the gut.
Jim Michaels: If we pull out of Iraq we'll have to spend so much more on our military because we'd have so many problems around the world because of our weakness. It would cost ten times what we are spending in Iraq.
Victoria Barret: I think Iraq is still hanging over the market and getting out would give some sense of certainty. All we're getting is bad news and investors don't like it.
Jim Michaels: We're only losing this war in the media. On the ground, we're winning.
Neil Weinberg: You could take different interpretations from what Bush said this week. He might have said we were staying, he might have said we're coming out. The fact of the matter is, we are gong to have to start drawing down our troops and that's going to give the market a sense of confidence.
Lea Goldman: I don't agree that our military has been brilliant in this campaign, like Jim suggests, but the alternative is not immediate withdrawal. There should be timetables.
Jim Michaels: A timetable just tells terrorists how long they've got.
Quentin Hardy: It doesn't make any sense to set a timetable and tell people when you are going to get out. The soldiers listen to their commander and chief, and he's had a weak couple of months. He's looking at the Republicans cutting and running. And he is sort of setting the stage for withdrawing and fighting an air war and not a ground war, so there are fewer casualties. This is not a recipe for success. He needs to be more resolute.
Jim Michaels: Terrorists are only winning in the media, they are not winning on the ground.
Rich Karlgaard: The economy is growing at an average of 4 percent growth rate since we got into this war, so this war is not hurting our economy. What matters is the future. And what matters is if we are going to have those tax cut incentives extended beyond 2008. We need a strong President who can rally congress.
Neil Weinberg: The economy is doing great and we need to give it a lot of respect for that. But we're fighting this war on borrowed time and borrowed money. We have to get out of there sometime and let’s hope we can do it with some kind of dignity.
Flipside: Let All Immigrants In!
Neil Weinberg: Our immigration policy is a complete farce. It’s the government trying to override the market and it’s failing dismally. We have 11 million illegal immigrants in this country. We have tons of absurd policies, like the children of illegal immigrants who are born here become citizens. What we need is a free market. All this immigration that has come into this country is one of the reasons inflation hasn’t been a problem. This country was built on immigrants.
Jim Michaels: Any sovereign country needs to control its borders and has to have a sensible immigration policy. We’ve got to stop throwing around slogans like “all of our ancestors were immigrants”. That may be true, but that doesn’t effect the current situation. Too many immigrants strain the education systems and the health systems.
Rich Karlgaard: I’m hugely pro-immigrant. The problem occurs when we don’t assimilate the immigrants that we have. We should have lots of immigrants here but we should insist that they have to speak English. We should make it hard to go on welfare. We can absorb immigrants.
Lea Goldman: I think you’re really going to feel the burn at the local and state levels. That’s something no one talks about. Most of these workers that come in are unskilled. Where do you think these workers go when they break their leg on the job? Where do you think they go when they want their kids to learn English? They’re a huge strain financially on the local economies.
Quentin Hardy: America is a beautiful country but it’s also a state of mind for people who love freedom and want to better themselves. These people walk across deserts to be here. The only time you’ll see these guys in the red carpet clubs is when they’re cleaning the toilets. Do I want these highly motivated guys in my capitalistic corner? You bet.
Victoria Barret: Right now I don’t agree with our immigration policy. But right now we mostly get immigrants who have worked very hard to get here. If we open up our boarders we could get a bunch of freeloaders who want to join our welfare system because they would be fleeing countries that are not very generous. We don’t want that. We want highly motivated workers and skilled labor.
Quentin Hardy: If they wanted a free ride like that, they’d be going to Canada or the U.K. or Germany.
Neil Weinberg: Of course we are going to have some sort of limitation when it comes to people suspected of terrorism. But Jim, you say we can have free markets for capital and a free market for goods, but why not a free market in people?
Jim Michaels: People are not goods and money. The idea of assimilating these people partly depends on it not being and overwhelming number.
Makers & Breakers
• American Science and Engineering (ASEI)
David Nelson, president of DC Asset Management: MAKER
This is a must own stock for anyone who feels our borders need to be secured. The company's Z Backscatter technology has the ability to identify immigrants hiding in those giant steel containers not to mention weapons and drugs.
David Asman, host: You say it can go to $85 in one year (Friday's close: $68.80).
Rich Karlgaard: BREAKER
It’s a promising company but the stock has doubled in the past 12 months. It looks pricey.
Jim Michaels: MAKER
Richly priced it is. But the future is so potentially open-ended.
• Univision (UVN)
David Nelson: MAKER
This is the leading Spanish language media company in the U.S. What you have to remember is that the Hispanic population is growing six times faster than the rest of the nation as a whole. And the audience is younger, which is an important demographic.
David Asman: You say it can go to $40 in one year (Friday's close: $30.42).
Jim Michaels: BREAKER
I wouldn’t buy this stock. The price is so high and it’s already factored in the whole country going Spanish.
Rich Karlgaard: BREAKER
It’s numbers show a big red flag. Its earnings per share on a quarterly basis jump all over the map. So it doesn’t seem to even have its books in order.
David Nelson: The company has been earning over 15 percent a year. It’s a controversial stock but I’m looking for it to get back to $40 where it was last year.
Informer: Year-End Rally Stocks!
Victoria Barret: I love diamonds and I love Blue Nile (NILE). They sell diamond engagement rings and jewelry on-line. They’re in a sweet spot. Jewelry and on-line sales are both suppose to do well this holiday season.
Lea Goldman: My issue with this company is that I think engagement rings are like cars. People like to touch them, feel them, test-drive them. I just can’t get behind a stock that requires guys to go on-line to get their engagement rings. I like Plum Creek Timber (PCL). I’m very concerned about interest rate hikes so I’m looking for stocks that are immune to hikes on some level. Not only is demand great for lumber after Katrina and the other hurricanes but they’re sitting on top of a massive reserve of real estate.
Jim Michaels: I don’t see a reason to buy this stock right now. You’d be buying it on yield and it’s not a tax sheltered yield. If interest rates go up this stock is vulnerable.
Lea Goldman: I think if interest rates go up this stock is hedged on both sides.
Jim Michaels: It’s not hedged on both sides because the dividend is the yield. I like Duke Energy (DUK), it’s not an oil company, it’s one of the country’s leading utility companies. It’s in both merchant energy and utilities. It’s had a hangover from over expansion in the late 1990s. It’s over that now. The earnings are rising. There is a 4.5 percent tax sheltered yield
David Asman: I’ve had this stock since April and I’ve lost $200 on it.
Jim Michaels: That makes it an even better buy.
Rich Karlgaard: Never bet against Michael Dell, that’s why I say buy Dell (DELL). Dell has been hammered over the past 12 months, but it’s a mistake to count them out. Now is a good time to get in. He’ll surprise us once again.
Victoria Barret: Dell is a great company but it’s gotten too big and it doesn’t know where to grow. That’s why they’re testing the waters in retail sales and getting into TVs. I think this stock is where it will be for a while.
Rich Karlgaard: You have a big Windows Vista upgrade coming up in 2006. That’s going to be a big buying cycle and Dell is still the leader of the pack in PC sales.
David Asman: Will we see a year-end rally?
Rich Kargaard: As far as the market is concerned, I said on this show a few weeks ago that I think we’ll see Dow 11,000, and I still think we will. But unless we get tax cut extensions, I think it’s going to peak at 11,000.
Jim Michaels: Without the extensions, a lot of the bets our off. Duke Energy might not be a good buy. But I don’t think Congress is going to cut our economy’s throat.
Lea Goldman: Keep in mind that Decembers are notoriously bullish months. Going into January we generally see this kind of bull.
Victoria Barret: I think we will see a year-end rally for the same reason's that Lea mentioned.
Our "Cashin' In" crew this week:
• Wayne Rogers, Wayne Rogers & Company
• Jonathan Hoenig, Capitalistpig Asset Management
• Dagen McDowell, FOX Business News
• Jonas Max Ferris, MAXfunds.com
• John "Bradshaw" Layfield, WWE Wrestler and host of "The John Layfield Show"
• Gary Kaltbaum, Gary Kaltbaum & Associates
Stock Smarts: The End of Benefits?
Hedge funds are big, bold and barely regulated. Now they're going after your retirement dollars as more and more companies try to get bigger rewards by taking on bigger risk. It's a dangerous move – but is it a signal of much deeper problems?
Wayne Rogers, Wayne Rogers & Company: It's a dangerous move. The reason that pension plans have failed is because they have been under funded by the corporations that establish them. It's not the fact that they are bad investments. Under the same token, while trying to reach for a higher and higher return, when you go up the risk curve, you're endangering those pension plans. I think you should be in much more solid investments.
Jonathan Hoenig, Capitalistpig Asset Management: Wayne, you're misinformed. Hedge funds aren't more inherently risky than the market is. How many investment managers out there say, ‘buy stocks and be in them for the long haul?' Hedge funds are not necessarily as risky as mutual funds are or as any other investments are.
Terry Keenan: Spoken like a hedge fund manager.
Jonathan Hoenig: Yes. Absolutely.
Wayne Rogers: Well, your hedge fund may be that way, but most of them aren't.
Jonathan Hoenig: That's not true. The whole point of hedge funds is absolute return; making money in any market environment. What's the use of making 15 percent when you can give back 18 percent the next year? Hedge funds focus on consistency and that's why they are attractive to pension funds. I think they should be attractive to ‘Ma and Pa Kettle' as well.
Terry Keenan: That was the idea, Gary. Hence the name ‘hedge.' But we have seen some of these big hedge funds blow up over the years.
Gary Kaltbaum, Kaltbaum & Associates: Yeah. It used to be that they hedged against the market in the short and long term. But now they're trying to goose things. Look, the problem is that the pensions are so under funded. If you think about it, the S&P 500 is where it was 7 years ago. I've looked at the numbers behind the under funding. It's obscene. It's because the government's backing them. They think they have nothing to lose at this point in time. I do agree with Jonathan, though, that hedge funds are not as bad as the media is playing them out to be. There have been some rogue ones that have given them a bad name, but on the whole, there are a lot of good ones out there.
Dagen McDowell, FOX Business News: But the trouble for pension funds investing in hedge funds is that pension funds have been looking for some kind of magic pill to make up for all this under funding. Instead, they're just going to have to swallow something like a bitter pill, because frankly a lot of hedge funds have had really so-so returns this year. You can actually see money coming out of hedge funds by pension funds next year.
Terry Keenan: But they've been doing better than the market.
John Layfield, "The John Layfield Show": They have been doing better than the market. The problem with that, though, is that it is not a pure, free market. If you and I lose money in a hedge fund, that's OK because it's our money. If the companies lose money because their pensions are under funded, the taxpayer ends up paying for it. By that means, I'd agree with the fact that pensions and Social Security should probably be privatized, but we need some type of regulation in these equities, because the taxpayer ends up sharing the brunt of this, if they fail.
Jonathan Hoenig: John, is that because of the Pension Benefit Guarantee Corporation?
John Layfield: Absolutely.
Jonathan Hoenig: And there's the problem, Terry. As long as Middle America is on the hook for everyone else's pension, there is, unfortunately, going to have to be regulation.
Dagen McDowell: Just a clarification. The Pension Benefit Guarantee Corporation is funded by premiums paid by the companies, not your taxpayer dollars.
John Layfield: If you have General Motors (GM) and it fell, which it really could do, the taxpayers are going to have to bail out the Pension Benefit Guarantee Corporation. It's taxpayers that are going to end up having to pay for this.
Terry Keenan: Jonas, if I'm a billionaire, and I invest in these hedge funds, why shouldn't my retirement go in there?
Jonas Max Ferris, MAXfunds.com: My number one problem with this is not the risk level of some of them blowing up and it's not the high fees. It is that they are performance-chasing, and because hedge funds have beaten a lot of asset classes over the last few years, now they're all hopping in, hoping that the future will be great, and all this new money is going to water down returns. That's what happened in venture capital when all the new money came into that in the late 1990's. Then they're going to under perform even more, and then these pensions are going to be in the hole and, like you said, taxpayers are going to inherit these under funded pensions because they're trying to gamble their way to prosperity and not save more.
Terry Keenan: Wayne, what's a worker to do if they're in their 40's or 50's, if their pension isn't safe?
Wayne Rogers: Let me come back t something that Jonathan and Gary talked about. The fact of the matter is that there are good hedge funds and there are bad hedge funds. There are good mutual funds and there are bad mutual funds. I'm not condemning them all across the board. I'm just saying that when you reach up the risk curve to try to do something, the reward may be greater, but the risk is much greater. A pension plan is not something that you should be taking outstanding risk in.
Gary Kaltbaum: I want to bring it back to the companies. The companies have dropped their responsibilities to the workers for many years, and it is because of the fact that they can get away with it. It's a welfare plan for companies when they screw the workers by not funding these pension plans.
Terry Keenan: And they basically lie by saying, ‘oh we're going to make 10 percent and we're only going to put a little money in.'
Gary Kaltbaum: They have these calculations every year that ‘we're going to make 10 percent every year,' when they haven't been. Thus the under funding, and they're just getting away with it. It's really obscene and something should be done about it.
John Layfield: Not to mention, when companies have money in hedge funds, they include that money in their operating income. So it's a way of cooking the books as well.
Gary Kaltbaum: Anything to goose earnings.
John Layfield: Absolutely. Fixed-income is terrible right now. They need to put some of their money in the equity markets, but I think we need government regulation, because the government is going to be the one to bail these people out when you have enough pension failures.
Terry Keenan: Yeah, but could we now be in the situation, Dagen, where we have the government bailing out companies and then bailing out hedge funds that go bust because they have all these pension assets.
Dagen McDowell: Well that's certainly the doomsday scenario, Terry. But frankly, back to the workers, it's all about the workers and the pensions. Anybody who has entered the workforce in the last 15-20 years knows that you aren't going to get a pension. You have to invest in your 401(k) plan. So it's the people who thought their companies were going to be there for them for healthcare and for their pension assets that are going to be the ones that are going to feel the pain.
Terry Keenan: John, what would you advise a worker to do who thought he could count on his pension?
John Layfield: Exactly what Dagen said. A 401(k). These pensions, just like Social Security, have too many retirees with too few people funding it. It's going to get worse and worse. It's an outdated, antiquated model. It's not going to work in the future.
Terry Keenan: Jonas, we've had a nice year-end rally. Are you bullish?
Jonas Max Ferris: I'm pretty bullish still. It's up a lot higher than it was, but I think having the government behind the pensions, insuring it, isn't really the problem, like saying that banks shouldn't have FDIC insurance. I think, because they are insured, they need to make sure that the banks are keeping up with their savings and not trying to make up for it with gambling or by saying they'll make it back later.
Dagen McDowell: There is movement afoot in Congress to make sure that pension funds are fully funded about 7 years out, and to make them pay more in premiums to the Pension Benefit Guarantee Corporation.
Jonathan Hoenig: Does anyone here think that hedge funds are actually good for the market or are we all in general agreement that they're the evil pariahs behind the scenes, pulling all the strings?
John Layfield: No, Jonathan, I believe hedge funds are great for the market. They add liquidity by putting money from pensions into it. The problem I have is when you back it by government-backed securities. That's the problem.
Jonathan Hoenig: But isn't that the problem, John? It's not the hedge funds, which get blamed for everything from a stock going down to oil prices going up. That's a load of you-know-what. Hedge funds not only supply liquidity to the market, but they're making people money, something that most mutual fund managers can't seem to say these days.
Wayne Rogers: Don't you listen, for God's sake? I'm saying that you don't condemn them across the board. I'm saying that there are some good hedge funds and that there are some bad hedge funds. I'm just saying that if you reach up the scale on risk — that is the problem.
Best Bets: $Anta'$ Helper$
The stocks that can help pay off that big Christmas shopping credit card bill!
Wayne's pick: Conseco (CNO)
Friday's close: $23.09
52-wk High: $23.09
52-wk Low: $18.5
Wayne Rogers: I like Conseco (CNO). It came out of bankruptcy about two years ago. I think it's in line to get upgraded. I own it and I think it's a terrific stock. I think it's probably got a 10-15 percent move here in the next month.
Terry Keenan: Jonas, this was a train wreck going into bankruptcy. Do you like it now that it's out?
Jonas Max Ferris: I admire his contrarian call, but this is one of the biggest bankruptcies. They got into it by paying too much for assets at the wrong time. I think we're not even going to see these other assets that they paid too much for until later.
Jonas' pick: American Express (AXP)
Friday's close: $51.61
52-wk High: $59.50
52-wk Low: $46.59
Jonas Max Ferris: American Express (AXP) is a good holiday pick. The financials are strong right now. This is a short-term pick. This is one of the higher-end credit card companies. A lot of people who are doing their online purchasing are using their American Express cards over other cards, which is really high network buyer online. They're picking up a lot of that. They have a huge rate that they charge merchants. It's doing great business.
Jonathan Hoenig: But Jonas, I know the financials are strong, but what if the bill comes in February and people can't pay and we see the credit delinquency rate rise? Could American Express lose some of the momentum here?
Jonas Max Ferris: That's why I'm picking one of the higher-end companies. I don't think that American Express would have the kind of problems that a Capital One (COF), and MBNA (KRB) or even a Citibank (C), would have, because their client base isn't just going to blatantly go bankrupt when rates go up.
John's pick: GOL Linhas (GOL)
Friday's close: $47.61
52-wk High: $47.61
52-wk Low: $23.29
John Layfield: I'm picking the exact opposite of American Airlines (AMR). It's GOL Airlines. It's one of the most profitable airlines in the world. The Brazilian people are being educated on flying. It's as cheap as bus travel right now. It's a fantastic airline.
Terry Keenan: There's a lot going on in Brazil. What do you think?
Gary Kaltbaum: I love the company and I love the stock, but it's gone from $35 to $47 in the last few weeks. I think this is going to pull back into probably around the $40 level. That's where I would rather pick it up, but I think you're on the right track.
Gary's pick: Cheesecake Factory (CAKE)
Friday's close: $37.05
52-wk High: $37.92
52-wk Low: $29.29
Gary Kaltbaum: I like the Cheesecake Factory (CAKE). The restaurant group is just breaking out right now, the earnings are powerful and have you ever tasted their White Chocolate Truffle Cheesecake? It's very good. Good stuff right now.
John Layfield: Fat people are back to eating cheesecake. The Atkins diet really hurt it for a while. I do think it's overextended right here. It's a great company with very little debt. It just opened up their hundredth store. A great company. I would buy it on a pullback.
Jonathan's pick: Scottish Re Group (SCT)
Friday's close: $25.32
52-wk High: $26.15
52-wk Low: $21.68
Jonathan Hoenig: I'm touting all things Scottish. My pick is SCT. We have about a 1 percent position in my hedge fund. I think it's a smart stock right now. It's a wonderful part of the world and a burgeoning financial center. A lot of the insurance stocks, Terry, despite Eliot Spitzer and all the hurricanes, are doing well right now. I love the group moving forward here.
Terry Keenan: Wayne, management's been selling a lot of stock in this company. Does that concern you?
Wayne Rogers: No it doesn't. I think Jonathan is right. I think he's in the right sector. They doubled their earnings quarter over quarter from a year ago. The earnings are up. I think he's got a winner here.
Cashin' In Challenge
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Question: "What do you think about all the business Wal-Mart (WMT) does with communist China? I sold my shares because of this fact."
John Layfield: You'd have to quit buying oil from Venezuela, you'd have to quit eating at McDonald's (MCD) and KFC and Pizza Hut (YUM), because they do business with communist China. It's no big deal. A Wal-Mart has done fantastic in China. If you want to throw over the Chinese government, introduce free markets and capitalism to them. McDonald's and KFC will do a lot more than diplomacy ever will. Look at Cuba. We can isolate people, but it doesn't do any good.
Terry Keenan: And now their getting Starbuck's (SBUX), so it's all over for them.
Dagen McDowell: John is absolutely right. Virtually every major US company has direct or indirect exposure to China in some way. You just have to start putting your money in a piggy bank if you're going to avoid companies that do business with that country. Frankly, even that piggy bank's going to be made in China.
Terry Keenan: Wayne, you've been a big critic of Wal-Mart, but this is the basis of their strategy. They buy it over there and they sell it over here.
Wayne Rogers: Yeah, but I've got to tell you something. The misnomer is that China is communist. It isn't. It's a capitalist country. It's going to be one of the biggest capitalist countries in the next 20 years that we'll ever see. Secondly, it doesn't matter. There's globalization going on everywhere. It's going to come whether we like it or not. People are going to be in business with China, India and all other countries.
Jonathan Hoenig: But Wayne, you're always saying that Wal-Mart screws small towns and screws its workers. Shouldn't they buy American? Should Wal-Mart source its inventory from American companies?
Wayne Rogers: Jonathan, my political argument does not get in the way of the economic one. It has nothing to do with where they buy their goods. It has to do with what they do in a small town.
Jonathan Hoenig: I know. God forbid they actually want to turn a profit.
Terry Keenan: But they wouldn't turn a profit if they bought American. That's the dirty little secret. They're buying cheap from China.
Jonathan Hoenig: It's not a secret at all, Terry. Trade is the best form of diplomacy between countries. It's much more effective than anything a bureaucrat could do. I'm for trade.
Terry Keenan: Are you for the stock?
Jonathan Hoenig: I think you have to wait for the breakout or the breakdown. I just don't see a reason to be in Wal-Mart stock right now, but I support what they do.
Terry Keenan: Wayne, do you like this stock?
Wayne Rogers: I'm like Jonathan. No, I think Jonathan is right. He's got the right reason. He's just drawing the wrong conclusion, that's all.
Question: "I owned Google (GOOG) and was stopped out at $281. I was going to buy back, but I hesitated. Too late to buy again?"
Wayne Rogers: I've got to tell you, I'm not someone who understands Google. It's an atmospheric stock. Yes, they've mastered what they're doing, but I don't understand the stock. However, to come back in general, to talk about whether you buy back in or not —. We talked about GOL; that's gotten way ahead of itself. Would I enter that stock? I think it's a wonderful company, but I wouldn't enter it at this price. Therefore, I would wait for that stock to pull back.
John Layfield: Wayne's a bright guy and he doesn't understand Google. Most people don't. People don't understand the earnings or the going-forward estimates. It's almost impossible. I would not chase this stock. It may go to $1000; I would not put my money in this stock right now because the Peter Lynch mantra of "know what you own" doesn't apply. There's no way to know what you own with Google.
Dagen McDowell: It's too late, Terry. Frankly, this is the reason why I don't like stop/loss orders. It's because you get stopped out and the stock soars and you miss out on a lot of upside.
Jonathan Hoenig: You know, there are 10,000 stocks out there. You dance with one woman for a while and you probably move on to another area. There are gaps on the chart on Google. I wouldn't chase it here. I think there are higher probability trades.
Question: "When buying a stock or a fund, how do you determine a target price?"
Wayne Rogers: I think that there are two ways. The fundamental way is to look at the peer group and say, ‘is the price earnings multiple equal to the peer group?' If it's below it, that gives you a signal. If it's above it, that gives you a sell signal. The second way to verify that is to look at it on the chart and see where accumulation and distribution are on the chart. You can see that on the ratio of price to volume. Those are the two things that would guide you.
Terry Keenan: Jonathan, you obviously look at the charts. Is that the only thing you look at?
Jonathan Hoenig: I don't set price targets. Everyone who doubled their money on Microsoft (MSFT) and got out because they doubled their money, left thousands of percents on the table. I set stop/loss limits. You worry about the losers. The winners take care of themselves. Price targets, while everyone still sets them, I think they are a stupid idea.
John Layfield: It's like Wal-Mart, which I own, which is trading at way below its historical multiple. Earnings have doubled, the price has not. That signifies a buy to me. If you look at historic multiples, I think you can tell when a stock gets ahead of itself. You can also tell, by looking at that, when the stock is a buy.
Dagen McDowell: And, of course, the share price of a mutual fund tells you absolutely nothing about the fund, whether it's reasonably priced… You decide how much money you're going to put in the fund and then you do it. You don't look at the share price. It doesn't mean anything.
Terry Keenan: And the chart doesn't mean anything either?
Dagen McDowell: The chart means absolutely nothing either. Look at the sector, what it invests in, and what it's done may be able to tell you if it's overvalued or undervalued as a sector, but that's it.
Wayne Rogers: I disagree, to a certain extent. I think you do pick a downside and you try to say, "That's where I'm going to cut my loss or that's where I'm going to sell the stock."