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, Exemplar Capital managing partner
• Tobin Smith, ChangeWave Research editor
• Scott Bleier, HybridInvestors.com president
• Pat Dorsey, Morningstar.com director of stock research
• Charles Payne, Wall Street Strategies CEO
• Bob Froehlich, Scudder Investments chairman of investor strategy
Iran and the world are in a nuclear showdown, and the stock market is caught in the middle. Does Wall Street want the crisis and threat to be resolved with military action?
Gary B. Smith: If I were all of Wall Street, the answer would be yes! I want to get this resolved with military action. Unfortunately, as much as I might want this to happen, if it does, the market would take it very, very badly, especially in the short term. However, over the long term, we would probably bounce back as we have done in the past. Wall Street would look to the future, see that it looks fantastic, and then start heading back up.
Bob Froehlich: It’s a big, big issue. It’s the geo-political focus and is driving the market. However, I don’t think an attack would be good for stocks. Anything we would do militarily creates a new level of uncertainty, which is the one thing that the market hates. We can’t look at Iran in isolation. We have to look and see how it will impact our relations with other countries, such as China and Russia. It has a ripple effect and is not so simple to just say, “Let’s go attack Iran.”
Scott Bleier: I disagree. I think we need to attack and take out their nuclear facilities. Iran is the hotbed and root of Islamic extremism. The market would love if we took decisive action to put them in their place. The situation will continue, and it will be tough because Russia is against us and China might also be against us. However, I think military action would be welcomed.
Charles Payne: The bottom line is the market would like to see diplomacy. Plus, it’s a good chance for us to buddy up with our former friends in Europe. Ultimately, there will be strategic strikes and I’m not so sure it’s going to be the United States. I really believe Israel has to do it. It’s a good time to patch things up with France and Germany. It’s getting ugly and is spooking the market, but we can make the best of it. The message needs to be put forth that Iran will not be allowed to have nuclear weapons. President Bush made it clear last week. Once Wall Street accepts that, this issue will move sort of to the back burner.
Pat Dorsey: The Iranian nuclear operation is very dispersed throughout the country. Many of the sites are buried. If something were to happen militarily, you’re talking about a multi-day operation, with hundreds of troops. It’s a big deal. While security-wise it may be the smart move, the repercussions for the market would be pretty ugly. Nuclear weapons are serious stuff. People sort of pooh-pooh the nuclear threat, but it’s a much bigger worry to me than a bunch of guys crashing an airplane somewhere. It’s just a bigger deal.
Tobin Smith: At the end of the day, if we get France and Germany together, they’re not going to do anything. Israeli planes can’t make the bombing flights without re-fueling. If Israel is going to do it, they’re going to do it with us. It can’t be done any other way. If we are going to do it, let’s get it done and not mess around. The more the uncertainty, the harder it is on the market.
Oil prices can be a big boost or a big burden on a stock. Are prices going higher or lower and what stock benefits?
Charles Payne: Oil prices are going higher. I really like Massey Energy (MEE), which operates coalmines in Kentucky, Virginia, and West Virginia. Coal’s had a bad run, but it’s time that it turns around. It is a lot cleaner and there’s more of global demand for it. Fundamentally, it’s the cheapest way to play this oil boom. I own this stock. (Massey Energy closed on Friday at $39.29.)
Bob Froehlich: I like the commodity play with coal, but not with Massey Energy. I see downside in the short term. Charles, I think you’re early on this one.
Bob Froehlich: Oil’s heading up. High-end retailers are as close to being immune from high-energy prices as a company can be. My pick is Tiffany (TIF). I own and love this stock and think it is heading up. (Tiffany closed on Friday at $36.37.)
Charles Payne: I don’t like the stock.
Tobin Smith: I’m betting that oil’s going up and Transocean (RIG) is really going to benefit. Transocean is the largest offshore driller that specializes in deepwater drilling. I see a three-year bull run on this stock and think it is heading to $120. I own this stock. (Transocean closed on Friday at $80.62.)
Scott Bleier: I don’t like it. The stock has already doubled in the last year and earnings estimates are going down not up.
Scott Bleier: Oil prices are going down. My play is Macquarie Infrastructure Company Trust (MIC), which invests, owns and operates infrastructure businesses such as parking, roads, and water. It provides operations like refueling, deicing, and parking aircraft to twenty airports. I think the stock is worth $40. I own and recommend it. (Macquarie closed on Friday at $33.18.)
Tobin Smith: I don’t like it. I would rather buy Advantage Energy Income Fund (AAV), which I own.
The Super Bowl is huge, but it has nothing on the Stock Super Bowl!
Last year, Pat picked the New England Patriots and Iron Mountain (IRM). The Patriots won the Super Bowl and Iron Mountain gained almost 60 percent.
Gary B. Smith went with the Philadelphia Eagles last year and CIGNA (CI), which also did well and gained about 50 percent.
Who’s going to be the winner this year?
Pat Dorsey: I like the Seattle Seahawks and Microsoft (MSFT), which is based in a Seattle suburb. The company is in the middle of one of its strongest product cycles in history. The Xbox 360 is doing well and later this year we will see new versions of Office and Windows. I like that it generates a lot of cash. I love it, own it, and think the stock’s heading to $35. (Microsoft closed on Friday at $27.54.)
Gary B. Smith: The stock has potential, but it isn’t a good bet just yet. I’d wait until it crosses resistance just above $28.
Gary B. Smith: I’m going with the Pittsburgh Steelers and aluminum company Alcoa (AA). The stock has been beaten down for last two years, but has made a comeback. I think it will be running up to the $40s. (Alcoa closed on Friday at $30.58.)
Pat Dorsey: I don’t like Alcoa. Management isn’t that great and it misses earnings a couple of times a year. I’d rather buy Mittal Steel (MT), which is a much better company. I own Mittal Steel.
Charles Payne's prediction: New Fed Head stops hiking; Dow 12K by summer!
Tobin Smith's prediction: Bite into Apple (AAPL); going up 75 percent by July!
(Tobin owns Apple.)
Gary B. Smith's prediction: Blackberry dodges bullet; buy Research In Motion (RIMM)
Scott Bleier's prediction: Google (GOOG) down 30 percent; Yahoo! (YHOO) up 30 percent
Pat Dorsey's prediction: EMC (EMC) is A-Ok! Stock gains 45 percent
Bob Froehlich's prediction: Black and Gold rules! Oil and Gold up 20 percent by 2007
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, "Hot Commodities" author; Gregg Hymowitz, founder of Entrust Capital; Tracy Byrnes, New York Post business writer; Chris Lahiji, president of DailyTrends.com; Michael Parness, CEO of Trendfund.com; Herman Cain, radio talk show host.
Neil Cavuto: Does Wal-Mart have the answer to America's healthcare crisis? Memo to health insurers: the competition just got a lot tougher! Wal-Mart's now selling health insurance to small businesses through its Sam's Club stores. Can Wal-Mart do for healthcare what it did for TV toasters and groceries. Bring costs way down?
Herman Cain: Yes. It's not the fact that Wal-Mart is selling insurance that's going to help drive down the cost of healthcare, it's the type of health insurance its selling – a defined contribution program with plans like health savings accounts where employees choose their own health plans using the money their employer has already allocated for them. It's more portable and flexible, and it encourages people to take responsibility for their healthcare choices. This type of insurance will allow market forces to bring down the cost of healthcare. Until healthcare is consumer driven the costs are not going to come down. The biggest reason these types of plans have not taken off yet is because people don't understand them, and with Wal-Mart doing what it's doing more people will understand them.
Tracy Byrnes: People need to take more responsibility for their own healthcare choices. When we want cosmetic surgery, we shop around because we have to pay out of our own pockets, but most people don't do that when they have the sniffles and are using insurance that is paid for by someone else. And seventy percent of the claims out there are chronic diseases due to reckless lifestyles. People find the money to buy cigarettes and alcohol. What they need is to take better care of themselves.
Gregg Hymowitz: I think it's ironic to hear about Wal-Mart selling health insurance when so many of their employees don't get health insurance. The fact that they leverage off the government programs to get health insurance for many of their low-paid employees is ironic.
Jim Rogers: Somebody has got to do something to get people to take more responsibility for their own healthcare or this country is going to go broke. The problem is this country is spending huge amounts of money on healthcare and we are not getting good results. We spend 15 percent of our gross national product on healthcare in this country, and our life expectancy is something like 22nd in the world. Many countries spend much less and get much better results, and you know why? Because people have to take responsibility for their actions and their money and the idea of health savings accounts is spectacular.
Chris Lahiji: I think Gregg is right. The state of California paid tens of millions of dollars for the employees that weren't insured by Wal-Mart. Also, there are only five health insurers in the entire country now because of all the mergers, and premiums have risen. There's no way that people who are making 20-30 thousand dollars a year at Wal-Mart or anyplace else are going to be able to afford for health insurance.
Michael Parness: I fall way to the left here because I think we are spending half a trillion dollars on a war we shouldn't be in and yet we have people without health insurance. I feel the government should subsidize those people who can't afford health insurance and I don't mind giving a little more money for that.
Head to Head
Neil Cavuto: The controversy over wiretapping without warrants: Does Wall Street have a rooting interest? Terror attacks shatter lives and sink our economy and stock market. The President says his wiretapping policy will help prevent another 9/11. So is this a policy Wall Street endorses?
Tracy Byrnes: Wall Street should endorse it. We all know what happened after the last terror attack. We watched the stock market and the economy crumble. Why not let the government do its job and let Wall Street go back to making money.
Gregg Hymowitz: Stocks go up in free and open societies. Here we have an administration that has violated the law. A law that allowed for secret wiretaps, but with retroactive warrants. The president could wiretap anyone he wants as long as he gets a warrant after the fact. And I think the president should be impeached.
Neil Cavuto: Do you think the fact that we have not had a terror attack on our soil in nearly five years owes in part to the fact that he is doing this?
Gregg Hymowitz: Absolutely not.
Jim Rogers: Wiretapping is not doing any good for the country as far as I can see. This is America we're not supposed to do things like that.
Neil Cavuto: These are calls that are coming in from abroad from suspected terrorists.
Jim Rogers: Okay, fine; get a warrant. I don't want to be blown up either.
Neil Cavuto: But when the call is being made, you don't have time to run out and get a warrant.
Herman Cain: Gregg and others are making these accusations about the president breaking the law like it is clear cut. He informed certain members of Congress. Those people worried about the president breaking the law with wiretapping and worried about renewing the Patriot Act are seeing ghosts. These things are protecting this country. We have lost more liberty because of the tax code and the IRS than any one provision in the Patriot Act or than anything the president has done.
Michael Parness: Maybe the ghosts are all these supposed terrorists cells that are supposed to be everywhere.
Neil Cavuto: Michael, if you could have tapped the phone conversations of al Qaeda planners ahead of 9/11 would that have been justified? You seem to be more concerned about being inconvenienced and having your line tapped than you are about having your sorry butt saved.
Michael Parness: Where do you draw the line?
Neil Cavuto: I draw the line at living.
More for Your Money
Neil Cavuto: Seven billion dollars! That's how much Americans are expected to bet on the Super Bowl this Sunday. But our gang says forget that bet and buy these stocks instead. You could get a whole lot more for your money.
Tracy Byrnes: Apple Computer (AAPL). We've just touched the beginning of the iPod. We haven't tapped into the video part of iPods yet, and iTunes is going to explode. There's a lot more room to grow here. Apple closed Friday at $71.85
Chris Lahiji: I think you are a little too late for that. They've already sold 14 million iPods. I don't think there's going to be much upside.
Michael Parness: Ivanhoe (IVAN). This small cap company has a technology that supposedly can turn heavy oil and bitumen into light sweet crude. Ivanhoe closed Friday at $2.45. Michael owns shares in Ivanhoe.
Jim Rogers: I'd be very, very careful. ‘Supposedly' is a very good word here.
Chris Lahiji: 99 Cents Only Stores (NDN). They have 230 stores operating in about four states. They have been restructuring for the last year, but are still profitable. 99 Cents Only Stores closed Friday at $10.17.
Gregg Hymowitz: Restructuring at 50 times earnings. I'd stay away.
Jim Rogers: I've talked about airlines before. Japan Airlines would be one you should buy. They've been having problems, but they are turning the company around, and Japan is booming. Japan Airlines trades on the Tokyo Stock Exchange. Jim owns shares.
Michael Parness: There are thousands of stocks in the U.S. stock market, why go to Japan?
Gregg Hymowitz: YRC Worldwide (YRCW). It's one of the leading trucking companies in the country with 20-25 percent of the market share and is trading at seven-and-a-half times earnings and making entry into China. YRC Worldwide closed Friday at $48.01. Gregg owns shares of YRC Worldwide.
FOX on the Spots
Tracy: New Fed Chief slows rate hikes; extends housing boom!
Herman: Wal-Mart healthcare law kills Maryland's job market
Michael: Overstock.com to $0, Google under $250 this year! (Michael is shorting Overstock.com)
Gregg: Tax cuts will destroy healthcare for needy.
Jim: Global inflation is rising; EU lifts rates, hurts stocks!
Neil Cavuto: My FOX on Spot: Good news. Sometimes it's just that. Rather than rejoicing in the fact 95.3 percent of Americans are working, we focus on what it means for the Fed – likely hiking rates. I think we've become a nation of sullen, ungrateful, whiners, led by a media that loves to trumpet the negative. I say, better half full glass than just half-ass.
Forbes on FOX
Flipside: Cut Gas Prices by Cutting Big Oil Taxes!
Mike Ozanian, senior editor: Oil companies are under siege! They pay a much higher tax rate than most companies. Their profit margins are narrower than most companies. We have to level the playing field and lower the tax rate for oil companies so they’ll have higher profits. Higher profits will give them more incentive to get the oil out of the ground and get it to the customers. That will create more supply, lower gas prices and a stronger economy.
Lea Goldman, staff writer: I’m totally baffled that Mike says we need to give the oil companies more incentive. The market has given them plenty of incentives and that has shown in those record profits. If we really want to help the economy long-term, give the subsidies and tax breaks to alternative energy companies.
John Rutledge, Forbes contributor: If you want to knock the price of oil down and you want to do it quickly, you increase supply. Increasing supply takes more capital and the best way to create more capital is to lower taxes. We’re not competing for jobs with the rest of the world, we’re competing for capital. Double taxing the oil companies takes 2/3 of the profits away from the capital providers. In China they’re using tax concessions to draw oil companies in. We’re using taxes and regulation to drive them out. When the capital moves, the jobs move with it and so does the oil.
Quentin Hardy, Silicon Valley bureau chief: Exxon Mobil this week reported record profits, that’s not surprising. But look at their behavior. They’re returning money to shareholders. They’re buying back stock. They are not spending the money they already have on exploration. If you give them more money in the form of tax breaks, what makes you think that they’ll explore for more oil?
Elizabeth MacDonald, senior editor: If we’re going to get oil to $10 a barrel we have to increase supply. We had that it 1986 because we had reform movements to keep us from being addicted to the Middle Eastern dictators.
Mike Maiello, staff writer: The oil companies are one of the most heavily subsidized industries in the country. They get a lot for their tax dollars.
Mike Ozanian: Why should oil companies invest in getting oil out of the ground when they know they’ll pay a higher tax rate?
Lea Goldman: You’re saying oil companies need more incentive to take the oil out of the ground. If you look at the last earning reports of oil companies like Exxon or Shell you’ll see that they don’t need any. They’ve got plenty.
Elizabeth MacDonald: Big oil has paid $2.2 trillion in taxes over a 25-year period. That far surpasses the tax breaks they’ve gotten.
Quentin Hardy: Oil companies don’t want oil at $10 a barrel. They won’t make any money. They like $65/barrel oil. Why should they go out and find more oil?
John Rutledge: Oil companies don’t sit in a room and make that decision jointly. Oil company board of directors look at projections on after-tax returns on capital and deployed capital. There’s not a conspiracy.
Mike Ozanian: If you want the price of something to drop you have to increase the supply of it.
Mike Maiello: There is a collusion between the energy industry and Dick Cheney’s office. That’s how you got the 2005 Energy bill, which was basically a giant give away to this industry.
Elizabeth MacDonald: The real issue here is the oil producing countries.
John Rutledge: In 20 years China will use more oil than total world oil production today. There’s not enough to go around. We better find some more oil and we better conserve!
In Focus: New Proof the Housing Boom Will Keep Booming?
Elizabeth MacDonald: We got a great unemployment report and to many that would mean better wages and a continuation of the housing boom. That’s wrong. The real issue is that the bond market is worried about inflation. So a better job picture means higher wages, higher inflation thus higher interest rates. The real story here is about interest rates, not just about jobs.
Victoria Barret, associate editor: The job numbers show that it’s more of a symptom than a cause. A quarter of the job growth was in construction. That’s because last year we saw a boom in single-family home building. The largest ever. Don’t confuse the two. The real issue here is inflation and interest rates, which probably are fine for the next few years.
Rich Karlgaard, publisher: The Fed can’t do anything about the housing market because they control the short-term rates. The Chinese, who pour money into our 10-year treasuries, control the mortgage rates. I think it’s a good deal. We get lower mortgage rates and they get pictures of dead white men on green paper (American money). I think mortgage rates will stay low. I think housing will maybe be flat in the costal areas but will go up in the single-digits rates in the heartland.
Quentin Hardy: Let me simplify this. Premiere homebuilder Toll Brothers' (TOL) stock has fallen 25 percent in the last 3 weeks. It’s now 50 percent off its July high. This is nature’s way of telling us that the outlook for this company is not so good. What do you think this means for the housing market?
John Rutledge: When jobs and wages go up, rents go up. Housing prices are future rents. Interest rates matter too because of that. I also think that interest rates aren’t going up too much. Long-term inflation is controlled by Chinese costs and prices. That means that we’re not going to see a big bump in the rate. Home prices next year will go down 3-5 percent. Probably flat after that. You’re much better owning stocks than houses.
Elizabeth MacDonald: The people who should be worried are the people in the costal areas. There was major bubble-headed behavior in those areas. I do think that the housing boom will grow in the single digits, but I don’t think that the Fed will lower rates by the end of the year.
Victoria Barret: I’m in the costal region of San Francisco and mortgage delinquencies in the Silicon Valley were up 11 percent in the past year. That might be a sign of a more worrisome long-term trend for the market here.
John Rutledge: I don’t want to be a buyer in places where there’s been a huge run-up. I want to be a seller. The way these markets really go bad is when the government puts their finger in the mortgage market and stops it from working. There have been speeches the last couple of weeks from Fed governors doing just that. They can screw up the mortgage market by stopping the flow of credit.
Rich Karlgaard: It’s a wonderful time to arbitrage the tremendous price difference between houses on the coast and in the heartland. But you have to want to live in the heartland to do it. It’s foolish to sell. You can never time markets perfectly and you always need a place to live.
Quentin Hardy: Wages haven’t really risen in five years. Savings are zero. Where’s the money to buy houses going to come from?
Elizabeth MacDonald: I think the consensus is there will be a softening in the housing market but it will still plow ahead.
Informer: $tate of the Union Stock Winner$
Rich Karlgaard: Count the number of times the President used the word ethanol in his State of the Union speech. That’s why I like Archer Daniels Midland (ADM). He’s talking about plant-based fuel as an alternative to Middle Eastern oil. Archer Daniels Midland is the plant giant. And they’re the most politically connected company of its kind in Washington. So they’re going to get a chunk of the research dollars.
Mike Ozanian: I’m skeptical on this stock because I think ethanol and corn prices are going down and I think that could hurt profit margins.
Rich Karlgaard: They know how to grease the wheels. They’ve got fingers in the farm bill and they know how to work the machinery.
Mike Ozanian: I’m playing off Bush’s tax cuts. I think they’ll be made permanent and I think that will help Tiffany (TIF). It sells to higher-middle income people and I think the tax cuts will help boost the company.
Victoria Barret: I like Tiffany but not for Mike’s reason. I think the reason to buy Tiffany is because of what’s going on in China. The newly wealthy Chinese worship the little blue box more than any American high school kid. This is a big trend and the luxury brands in general will benefit.
David Asman, host: What about the price of gold? That’s shows no sign of going down. Isn’t that going to catch up with jewelry soon?
Mike Ozanian: You’re right, but I think the price of gold is already baked into Tiffany’s stock price.
Victoria Barret: President Bush mentioned flexible health savings accounts and UnitedHealth Group (UNH) has been the pioneer in this space. They’ve had great growth of revenues and earnings.
Lea Goldman: My long-term concern is that this company has benefited from Medicare subsidies and at some point Congress is going to say enough is enough. They are going to cut subsidies and UNH is going to suffer.
Victoria Barret: I think the growth in the health savings accounts market in the private sector will make up for the losses from the government.
Lea Goldman: You can’t walk away from Bush’s speech without realizing that we’re not leaving Iraq any time soon. I’m bullish on defense and I like American Science & Engineering (ASEI). It’s a small company that focuses on x-rays and bomb detectors and things like that.
Rich Karlgaard: This is a great stock if you had a time machine and could go back two years and buy it when it was $12. Now it’s $66. It’s already run-up.
Lea Goldman: It’s not played out. We’re going to see defense spending go through the roof.
Makers & Breakers
• Verizon Communications (VZ)
Andrew Snyder, Breakawayinvestor.com/fox: MAKER
Verizon is the future of TV. It’s the first company to lay a 100 percent fiber optic network and it’s going to make investors a lot of money.
David Asman: You think it can go up to $47 in one year (Friday’s close: $31.61)
Victoria Barret: BREAKER
When you look at where the majority of Verizon sales are coming from today it’s phones, landlines and mobile phones. These businesses are not going to do very much. My larger concern with this company is that the business model is aging.
Mike Ozanian: MAKER
I love this stock. It has a very rich 5 percent dividend yield. There may be a franchising of telephone services, which could be a big boost to profits in the next few years.
• Alcatel (ALA)
Andrew Snyder: MAKER
Alcatel is going to be huge. They’re based in France, the hotbed of broadband expansion. It’s the perfect triple play for Internet technology.
David Asman: You think it can go up to $20 in one year (Friday’s close: $13.89)
Mike Ozanian: BREAKER
This one is a little too risky. It’s loosing a little too much money for me. I’m a little nervous about it.
Victoria Barret: BREAKER
The larger problem here is also the aging business model.
Andrew Snyder: This company just declared its first dividend in four years. Management knows that there are more profits where this came from.
Our "Cashin' In" crew this week:
• Wayne Rogers, Wayne Rogers & Company
• Jonathan Hoenig, Capitialistpig Asset Management
• Jonas Max Ferris, MAXfunds.com
• Dagen McDowell, FOX Business News
• Patricia Powell, Powell Financial Group
• Dave Ramsey, "The Dave Ramsey Show"
Stock Smarts: $aving America!
Americans are living beyond their means. We're now spending more than we make for the first time since the Great Depression. But is that good news for stocks and the economy? A report this week says that we Americans are spending more than we're making. But Jonas, you say this is good news in a way?
Jonas Max Ferris, MAXfunds.com: Terry, money ruins investor returns. What you want is to have a stake in a business that everyone else buys from. You don't want everybody investing. Imagine a world where we had a 50 percent savings rate and everybody bought stock, but nobody bought the stuff that the companies were making.
Terry Keenan: Well we've had a world like that in Japan for 15 years.
Jonas Max Ferris: That's exactly right. Japan has some of the worst stock market returns of the last couple of decades and the highest savings rate of any major industrialized nation. It doesn't always work. You actually want a consumer nation, and you want to be tapped in, as an investor, into the stock market. That's where you'll get good returns.
Dave Ramsey, "The Dave Ramsey Show": Well, I love you Jonas, but you're just wrong, man.
Jonas Max Ferris: Prove me wrong.
Dave Ramsey: Well, the bottom line is that it does work if you're worrying about the first and second quarters of this year. But I'd actually like to try and retire on these mutual funds. When you kill the goose that lays the golden egg; when the consumer is broke – I live out here in the real world. Broke people can't spend money.
Jonas Max Ferris: All the people piling into the stock market in 2000 is what killed the stock market. There was too much money in it.
Jonathan Hoenig, Capitalistpig Asset Management: It's not ‘either, or' guys. It's both. I always say that the best investment advice I ever got was from my 101-year-old grandmother who said you have to put some money away. I think Dave is onto something here. It really freaks me out. The American consumer is broke. They've leveraged themselves to the hilt and you get these situations like Katrina. How many people can't go two weeks without a paycheck?
Terry Keenan: Or without a debit card from the government.
Jonathan Hoenig: Of course, and that's the fear; you get poor people and you get the government saying that we have to do something to help them and you get the New Deal. The fact that most Americans are so broke and leveraged to the hilt, I think is an ominous sign for the economy. I really do.
Dave Ramsey: When you spend everything you make, you end up standing on top of your house. You've got to think better than that.
Terry Keenan: And they're standing on top of houses that they have no equity in anymore, because they've taken all the money out of their homes also, Dagen.
Dagen McDowell, FOX Business News: Right. That's the big worry. We've got to, as a nation, start socking some money away. We can do this the easy way or the hard way. Either we start putting a little bit of money aside as a nation, or they're going to cut the credit cards off. The rest of the world is not going to give us a brand new credit card to run up and max out, and it's going to be ‘Ka-Boom' for the economy, the market; the whole shebang.
Terry Keenan: Patricia, are we worrying too much here, because this has been a long-term trend. This has been going on for 30 years.
Patricia Powell, Powell Financial Group: We've been talking about the consumer being tapped out for decades, now. I think it has finally come home. Start to string together all the stories that you've been hearing. 43 percent of the new homebuyers last year bought with zero down. Look at the change in the credit cards; now you're going to have to pay more on your credit card debt. The consumer is hanging on by his fingernails here. I think the ship has sailed. It was good last year. It's not good for 2006.
Terry Keenan: Wayne, are you worried about the consumer sputtering out here in 2006?
Wayne Rogers, Wayne Rogers & Company: I'm not worried about the consumer; I'm worried about the rest of the world. Yes, I'm very concerned. I agree with Jonathan and Dagen. If we're not careful, in two generations we're going to be a third world country. China will be the leading capitalist country because they save. India will be right behind them because they save. If we don't save, there's not going to be any investment. Jonas, with all due respect, I know I'm invoking a word from the past, but what are you studying, Voodoo economics?
Jonas Max Ferris: This country's been built on consumers spending too much. You guys are talking about debt, first of all. It's not great to go into debt, if you're an investor and everyone else is spending all their income and having no savings rate, you're going to do well. By the way, these figures are totally bogus because people are rebuilding and renovating their houses. That's an investment that counts as ‘spending' and not as an investment. It's not like buying a TV. It's an improvement.
Dave Ramsey: Credit card delinquencies are at an all-time high, foreclosures are at an all-time high and bankruptcies are at an all-time high. ‘Joe and Suzy' are broke. The numbers are not bogus.
Patricia Powell: It's not just ‘Joe and Suzy.' The rich people have not been able to make up, in savings, for the poor people. So, on average last year, as a country, we spent more than we made. It's a very big deal.
Jonas Max Ferris: I would disagree with that. Aren't the rich richer than ever? The wealth is accumulated faster in this country than in any other country.
Patricia Powell: They couldn't make up for the rest of us, so we had a nationwide negative savings rate. I think that is a very big deal. The wealth effect that someone was referring to before of ‘my house went up so I can spend a little bit of money.' I could be OK, but I could be wrong.
Dagen McDowell: And that's going to peter out too. That wealth effect could change as the housing market cools.
Terry Keenan: Jonathan, we've had a Federal Reserve that, despite all its accommodation in terms of lower interest rates and then raising them, is still spewing the money supply at a rapid clip and that's been keeping us all afloat.
Jonathan Hoenig: You studied the money supply. I'm from the real world where bad things happen. You get hurt, and when you don't have any cushion, you set yourself up for a major issue, because problems happen. The fact that people have no money put aside, zero, makes me nervous.
Terry Keenan: That's why you're 100 percent in cash in the Cashin' In Challenge, I guess.
Jonathan Hoenig: And I'm not doing too poorly being 100 percent in cash.
Dagen McDowell: One thing that might kick in savings in this country is the tens of millions of baby boomers starting to retire.
Jonas Max Ferris: I'm going to get used to a negative savings rate because when all of those baby boomers retire and spend down savings, we're going to have a negative rate almost every year for 30 years. That's just how it's going to be.
Patricia Powell: But they shouldn't have it before they retire. And for the point you were making about the Fed, you're talking now about adjustable-rate mortgages starting to adjust. All of those consumers are now faced with higher heating oil prices and higher mortgage payments. The consumer is really in trouble.
Jonas Max Ferris: In the Great Depression, one quarter of the country wasn't working, so they were spending their savings. Salaries went up last year.
Terry Keenan: OK Wayne, how are you going to play this trend?
Wayne Rogers: Well, I don't think it's a trend to play. I think it's even worse than that. We have a culture in this country of instant gratification. If you see something, you buy it. Our advertising is all in that direction. That has to change. There has to be a major change in our moral codes and how we look at material items.
Terry Keenan: Would it take a depression or a severe recession to change it?
Wayne Rogers: Yeah, probably, because we need a wake-up call. Everybody needs to get slapped in the face. Yeah, absolutely.
Jonathan Hoenig: Foreign markets have outperformed the U.S. for about 5 years. I think, unfortunately, we're getting used to a time when the U.S. is not the growth leader anymore.
Jonas Max Ferris: In wealth per capita, we are the leader. We have more wealth per person in America than all these countries with all the higher savings rates because our assets have returned more
Jonathan Hoenig: We've hogged it? That's your comment; that we've hogged the wealth?
Jonas Max Ferris: No. I'm saying that we've earned more money on our assets. We're rich.
Terry Keenan: How do you think this is going to play out, Dave? You're the one who says debt's a bad thing, but we've been living with it and it's been growing every year.
Dave Ramsey: Well, there's no question that we're on a trend, and Wayne's onto something there. I hope he's not onto something that we need a Great Depression for a wake-up call. You don't have to have a Great Depression to have a renaissance. It is time for a renaissance in the art of personal finance. People have got to grow up and start living on less than you make. We've got a whole bunch of adults running around in 54-year-old bodies acting like 4-year-olds running around the cereal aisle in the grocery store.
Terry Keenan: What's going to change that behavior? They've been rewarded for it.
Dave Ramsey: Well, they are being rewarded for it temporarily. But I'll tell you what. They call into my show everyday broke, it's affecting their marriages, their jobs are unstable, they hear lay-offs from Ford Motor (F) and General Motors (GM). Reality is starting to set home, and the real guy that's out here who is making a wage and having to live on this crap is waking up and going, ‘these credit cards are not blessing my life.'
Best Bets: Stocks to Beat any $avings Account!
Jonathan, Jonas and Patricia are back with the stocks they say could put your savings account to shame!
• Patricia's pick: Lehman Brothers (LEH)
Friday's close: $138.72
52-wk High: $141.43
52-wk Low: $85.92
Patricia Powell: If the average consumer is tapped out, you have to look at the wealthy and what they're doing and you have to look at business and the acquisitions and mergers activity. My stock pick is Lehman Brothers. It is not a household name, but it's in the right spot at the right time.
Terry Keenan: You like it, they've got a big money management arm and you own it?
Patricia Powell: Yes.
Jonas Max Ferris: Sure, some of their clients are loaded, but their core business is largely mortgage securitization, which is the average Joe getting over leveraged in houses. I would think that's a dangerous business model, going forward, if you think the whole thing is going to collapse in on itself.
Patricia Powell: There is nothing really perfect about any stock, but I think defaults end up last on mortgages. You're going to default on your credit cards first; you're going to default on your car loan. You're not going to default on your house. It's last in line.
• Jonathan's pick: BlackRock Global Floating Rate Income Trust (BGT)
Friday's close: $18.07
52-wk High: $19.27
52-wk Low: $16.68
Jonathan Hoenig: Terry, I know you're going to laugh because I've been in and out of these, but I'm making money in the floating rate funds; the load participation funds. My pick is BlackRock Global Floating Rate Income Trust. It's the right stock at the right time. Discount to the NAV and a big yield.
Jonas Max Ferris: Again, it's not a stock, but the reason why BlackRock, the company is so expensive is because these funds are so expensive, because they're raking in all kinds of management fees. I don't understand why you picked this, because other emerging-market-bond-type funds are up over the last two years. This thing, since it went public, has made nobody any money.
Jonathan Hoenig: It's a floating-rate fund. Short-term rates are on the rise. I think that's why this is the right place to be right now.
Jonas Max Ferris: They're borrowing money short and buying longer bonds. That's not the place to be when short-term rates are going up.
Jonathan Hoenig: Check your prospectus. You don't know anything about this fund.
Jonas Max Ferris: I know more than you do.
Jonathan Hoenig: I own it, so we'll see.
• Jonas' pick: Ameriprise Financial (AMP)
Friday's close: $42.60
52-wk High: $45.10
52-wk Low: $32.00
Jonas Max Ferris: Ameriprise is one of the biggest financial advisors. It's a safer business model.
Jonathan Hoenig: It's a terrible brand. It sounds like a chain of carwashes. Ameriprise?
Terry Keenan: Jonathan, you've recommended stocks you can't even pronounce.
Jonathan Hoenig: Rising tide lifts up boats. Everything in this sector is hot, but this is the weakest of the bunch for me.
Terry Keenan: Patricia likes it. She owns it.
Patricia Powell: I own it. I think it's going to run into a little trouble over the next 6 months because I think their target is the average guy, and so it's got to be a long-term pick.
Question: "Why didn't the Democrats boycott Bernanke's appointment? He's so much more influential than Samuel Alito."— K. Robertson, Sierra Vista, AZ
Dave Ramsey: It doesn't really surprise me. Partisan politics is all about showboating. It's not really sexy for Ted Kennedy to have a complete meltdown on the Senate floor over the Fed chairman. ‘Joe and Suzy' really just aren't that interested in a guy whose last name they can't even pronounce yet, and that's who these politicians are showboating to. So, really it doesn't shock me in that way. And Alito is probably a more important thing because you've got to think about stuff like the stupidity of the eminent domain Supreme Court ruling, and things like that that do affect ‘Joe and Suzy.'
Dagen McDowell: But come on, Dave. Interest rates are sexy. That hits everybody in the wallet. What the Fed does dictates what you pay on your credit cards.
Dave Ramsey: The consumers figured out that the Fed doesn't really have anything to do with their credit card interest rate, because they watch the Fed rate go almost to zero and their credit card interest rates went up.
Terry Keenan: Did Bernanke get the attention that he should have gotten, and did this appointment get the attention that it should have gotten?
Wayne Rogers: Dave is right. The only attention he gets is that nobody can pronounce his last name. If you ask ‘Joe Blow' in the street, he has no idea who he is. The Senate had to have something that they could jump up and down and scream about. It's not about a Fed chief.
Jonathan Hoeing: They should be keeping an eye on him, though, Wayne.
Wayne Rogers: The Democrats are going to agree about whoever the Fed chief is anyway. This is not a political thing. It's hard to make political stink about somebody who is going to be in charge of that.
Jonathan Hoenig: They don't know much about economics; I'll give you that. But historically, a new Fed chief means volatility, Terry. Remember that Greenspan took office, and then two months later, the 1987 crash.
Question: "I own Oracle (ORCL) because I have faith in Larry Ellison. Will the stock ever break
out?" – Tom Henry
Dagen McDowell: Certainly, the captain of the ship is important to the company. Oracle has been on a buying binge and it hopes to corner the market in software for businesses. The stock has languished for the past few years, but if the company can get it together, this stock is going higher. You might want to look at it now.
Jonathan Hoenig: He's got that big, Japanese-style house to pay for, Terry. This guy bought before the breakout. Why not wait for the breakout. Take a look at the chart. I'd be interested in Oracle, maybe at $14. I just think it's one of those over owned stocks like Intel (INTC). It's not on my list and I would have waited for a little more strength before putting money to work.
Question: "What does the crew think of Advantage Energy (AAV)? It pays more than a 12 percent dividend." – Yash, Reston, VA
Wayne Rogers: All of these funds pay a pretty hefty dividend, and that's the nice thing about it, and we have been in a terrific energy period. And so, all of the energy stocks have done well and these funds have all done well. I would stay in them and I would wait and let the market take me out. I would put in a stop loss and say, ‘hey, I'm way ahead of the game at 12 percent. Where am I going to invest that if I sell it? I can't make the difference. So, let the market take me out.'
Wayne v$ Dagen!
Who's a better investor: Wayne, the stock guy? Or Dagen, the mutual fund gal? Nick from Pueblo is 24 and just starting to invest. He'd like to know what long term investments might be a good idea.
• Dagen's pick: Vanguard Star Fund (VGSTX)
Min. Investment: $1,000
Dagen McDowell: I like what I've invested in for the last 3 years. Think mutual funds, but think just one mutual fund; the Vanguard Star Fund. It owns 11 different, actively-managed Vanguard funds. You get large-cap stocks, small-caps, international bonds and cash. It's a cheap and easy long-term bet, and you can get into it for just $1,000.
Terry Keenan: Do you own it?
Dagen McDowell: No, I don't.
Terry Keenan: But it's a good, diversified way for someone just starting out?
Dagen McDowell: Absolutely.
• Wayne's pick: iShares Russell 2000 (IWM)
Friday's close: $71.78
Wayne Rogers: I like the Russell 2000, but with all due respect, he's 24 years old. I don't know how much money he's investing. I don't know what percentage of his liquidity that is and I don't know what percentage of his net worth that is. It's hard to just go out and throw darts and say, ‘just buy this stock.' I would say if you're going to do this, the Russell 2000 is probably as good as bet as you can get. You're covering a lot of stocks in the same way that Dagen is talking about.
Dagen McDowell: Wayne, you're a convert! Where are the individual stocks? You've always talked about this as a stock-pickers market. You've picked an index. I love you.
Wayne Rogers: I picked it for him. Not for me.
Dagen McDowell: But you still picked it!
Wayne Rogers: I'm leading so far this year by picking individual stocks, not by picking a fund. This guy is 24 years old. We don't know how much money he's got and we don't know what he's going to invest in. I'm trying to make it safe for him.
Terry Keenan: So you're coming up with the Russell 2000 for him to invest in.
Dagen McDowell: You still could have spread out your bets even more. Rather than just betting on small-cap you could have spread them out to large caps and bonds, which you get with that Vanguard fund.
Wayne Rogers: But the small-caps have done better historically, and he'll do better there.
Terry Keenan: It was kind of a rocky market this week, Wayne. Anything look interesting to you right here?
Wayne Rogers: Well, I was up 6 points on Thursday in the Osh Kosh Truck Company (OSK), and that was when the market went south for 100 points. I can't do any better than that.