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 | Cavuto on Business | Forbes on FOX | Cashin' In
Bulls & Bears
This past week’s Bulls & Bears: Gary B. Smith, Exemplar Capital managing partner; Tobin Smith, ChangeWave Research editor; Pat Dorsey, Morningstar.com director of stock research; Scott Bleier, HybridInvestors.com president; Charles Payne, Wall Street Strategies CEO; Greg Church, Church Capital Management founder
Trading Pit
Violent attacks in Israel and Lebanon sent stocks into freefall this past week. The Dow lost almost 400 points since the violence exploded. Are stocks caught in the crossfire?
CHARLES PAYNE: Stocks are absolutely caught in the crossfire. I would say 90% of the downfall this past week is from the violence in the Middle East. When people aren’t sure about the future, then they aren’t sure about the stock market. It’s what has been going on for a long time in this market. This week was really just a big capitulation of everyone throwing in the towel and running away.
GARY B. SMITH: Now, it seems as though we are always on terror watch. We’re concerned about it even though the terror isn’t here right now. There’s a possibility we could be dragged into the conflict with our ally in Israel. I agree with Charles, but I’d say 88% of the loss this week was due to the war. People are afraid and unsure about the future. So, many just don’t want to be in stocks right now. I don’t think this is just a dip in the Dow. You never know when a dip turns into a drought and eventually becomes a big sell-off and noticing that we’re down 10-15%. We’re not really seeing any sign of strength right now.
TOBIN SMITH: We need a cavalry and the cavalry being earnings. Second quarter earnings are reported next week and we need one good report. We’ve been spoiled over the last 14 quarters. The market needs the bombing to stop. Missiles coming in don’t make people feel safe. Things can turn around. If we get any good news, we could be up 200 points in a day. Right now, this is a stinky market.
GREG CHURCH: The market stopped worrying about Iran after about a day. It also stopped worrying about North Korea and the train bombings in India. I think if we got some peace settlings next week, this market can move. Plus, the earnings reports next week will hopefully be good for the market.
PAT DORSEY: Right now, it’s raining bargains. You just have to have the courage to pick them up. Is Wrigley (WWY) going to sell less gum because of these attacks? Is Electronic Arts (ERTS) going to sell fewer video games because of this? No. So many stocks are down, and it’s the perfect time to buy. So what if the market is down about this, that’s in the past. It’s important to think about everything going forward. It simply doesn’t affect most companies. If it doesn’t affect them, you get cheaper prices, so you buy them. There are more high quality companies selling at cheaper prices than in the past decade. Now is the time to be building a portfolio of high quality large caps and you’ll be very happy five years from now.
SCOTT BLEIER: The market can deal with one or two skirmishes around the globe. We’ve been living with this for the last few years, but now things are escalating and popping up in several places around the globe. It’s the straw that broke the camel’s back. Israel was at war with Lebanon for 18 years and the market had a huge bull market. Tempers flared and the market tanked. Things are going to cool as they always do and the market is going to rebound extraordinarily sharply.
More Tax Cuts?
President Bush got out and spread the word this week on how cutting back on taxes has helped to lower the deficit and put over $1 trillion in the hands of Americans. What would Wall Street do if we had even more tax cuts?
CHARLES: We would be doing back flips if there were more tax cuts. The bottom line is that tax cuts do work and Wall Street knows it and loves it. It is a tough learning curve, but if there were more and Congress and the American people would get behind it, the market would love it. We’re talking brand new highs, and the war in Lebanon and everything else would be an afterthought.
GREG: Tax cuts are implemented to help stimulate the economy. The economy is stimulated enough right now. We don’t want to get that deficit even higher at this point.
GARY B: I agree we would be doing back flips, but I also think that the Bush administration or the administration at the time also needs to reduce spending. I’m in favor of tax cuts. Get it down to 5%, but you can’t do that unless the government shrinks and President Bush has shown no compunction of vetoing spending. So, I just can’t sign up for more tax cuts until I see the other side of the balance sheet.
SCOTT: I think we can all agree that we are in favor of tax cuts. However, they won’t work now because we need them when the economy is at a low, not a high. Plus, the Federal Reserve is fighting the economy by raising rates and by withdrawing liquidity. If you cut taxes, the Fed will just fight it and negate the effects.
TOBIN: Flat taxes would really work. It is not so much the tax cutting, it would be simplifying. If people didn’t have to make a decision on how much they have to prepay, the market would really love that. It would tighten the market with a fixed limit on spending. That’s it - I’m running for President.
PAT: I like Greg Church. He is the first one to mention deficits other than me. Gary B. makes a good point about spending. You can’t cut taxes unless you are going to cut spending too. This is the first government that doesn’t want to pay for it. This is the government of big government that doesn’t want to pay for it. You talk about the tax cuts reducing the deficit. That’s a little suspicious because the economic expansion is just as much due to the lowest interest rates in the past 30 years as it is the tax cuts.
Stock X-Change
The new guy’s in the hot seat and we’re getting his best picks!
GREG: First up is Citigroup (C), the leading financial institution in the world. I love that it has international exposure and pays a 4% dividend yield. You have to buy it. I do own it. (Citigroup closed on Friday at $47.58.)
TOBIN: I don’t like it. Interest rates are starting to come down. I would wait another fifty basis points.
SCOTT: I like it. Believe it or not, this stock is holding up better than anything else on the market right now.
CHARLES: Greg and Pat seem to be separated at birth. I don’t like it. The margin is already going down and everyone is jumping on this bandwagon.
PAT: Greg is absolutely right! He had all the same stats I would have had. Citigroup has almost 15% equity and then it would boost money from fees, not from spreads.
GARY B: It’s a little oversold. I think it is going to go down further until it gets closer to its current downtrend line.
GREG: I also really like General Electric (GE), which I also own. It just reported. It’s at 14 times next year’s earnings. It pays a 3% dividend and is growing at 15%. This is another one you just have to own. (General Electric closed on Friday at $32.11.)
CHARLES: You do not want to own this one. This has been a pick for 5-6 years, but I don’t know why. Bring back Jack Welch and we’ll talk about it.
PAT: It has not gone anywhere for 5 years, that’s why it is so cheap. Buy it now.
TOBIN: Break it up. If the stock and the company are broken up, I will buy it in a heartbeat. Otherwise, forget about it.
SCOTT: Potent company, impotent stock.
GARY B: This is another one that is getting uglier. It just broke down from a long-term uptrend line. It could get a lot cheaper for Pat to buy.
GREG: Honeywell (HON) is my final pick. It is 12 times next year’s earnings, growing at 15%, and a great industrial play. (Honeywell closed on Friday at $37.01.)
TOBIN: I do not want it.
PAT: This it the only one of the three I do not like very much. It is still paying out a lot of cash in asbestos settlements and that has me nervous.
SCOTT: I like it a lot. It has pulled back to its breakout. Estimates are low, and I think it is worth a lot more.
CHARLES: You look so hip, but pick the most boring stocks out there. In this group, take a look at Johnson Control (JCI), which is a much better stock.
GARY B: Mr. Church is Mr. Dorsey’s brother. I don’t like Honeywell either. This is another one that has been beaten with an ugly stick. It is drifting down and I would avoid it right now.
Predictions
Gary B’s Prediction: Mideast war concerns help Dow rally 10 percent by October 1
Scott’s Prediction: Israel’s economy stays strong; First Israel (ISL) up 15 percent
Tobin’s Prediction: Good news for Merck (MRK) continues; up 20 percent by year-end
Greg’s Prediction: Play games and make money; buy Activision (ATVI) and EA (ERTS)
Charles’ Prediction: St. Jude Medical (STJ) makes healthy gain of 30 percent
Pat’s Prediction: Bowwow! Petsmart (PETM) gains 30 percent in next year
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cavuto on Business
Neil Cavuto was joined by Tracy Byrnes, New York Post business writer; Joe Battipaglia, CIO at Ryan Beck & Co; Mike Norman, BIZRADIO network host; John Layfield, syndicated radio talk show host; Chris Lahiji, founder of DailyTrends.com; Rebecca Gomez, FOX News business correspondent; Bob Beckel, Democratic strategist.
Bottom Line
Neil Cavuto: Oil spiked to a new high last week as Israeli warplanes pounded Lebanon at the start of an all out war. Will the crisis over there spark a new energy crisis here? Joe?
Joe Battipaglia: We’re in a crisis now because supplies are tight. Every time hostilities break out or the Iranians or North Koreans get off track, the price spikes. The real key is whether supply is disrupted, will oil be used as a weapon, and if this breaks into a regional conflict. That’s what we have to watch for.
Rebecca Gomez: I talked to a guy out in San Diego, he’s a contractor, and he said he was debating whether to take a job 30 miles away because it’s going to cost him. We’re going to see how much this is going to trickle down to the local gas stations.
Neil Cavuto: John, is this fear premium a bit excessive over oil and gas. Have we gotten way too high way too fast?
John Layfield: No, I don’t think so. We’ve got to contain this. This is like two kids from two gangs in a schoolyard. You’ve got to agree to let them fight. The Arab world really does not like Israel being there. And most of the Arab world has all the oil. If Syria steps in it’s ok, but if Iran and Saudi Arabia step in, they’re the ones who have the oil and that’s why this premium is built in.
Neil Cavuto: The last big oil crisis we had was in 1973 and again in 1979. Could we see something like that again?
Tracy Byrnes: I agree with John. If we keep this intact, we will be okay. Things are still good. Employment rates are still good. People are still going on vacation. I can’t imagine people canceling trips because of this pending.
Neil Cavuto: So you don’t see an energy crisis.
Tracy Byrnes: No. If we can contain it we will be okay.
Mike Norman: We have an energy crisis, but not for the reasons we think. We are in the grips of a speculative mania. A report that came out from the Senate subcommittee on investigations a few weeks ago concluded that speculation is driving prices. The last two years inventories have been rising and prices have been rising. In any commodities market, rising inventory equates to a falling price. The market has become distorted by speculators.
Neil Cavuto: How distorted is it to you if we’re at roughly $80 a barrel oil?
Mike Norman: It’s distorted to the point where deferred contracts of oil are selling at premiums.
Neil Cavuto: You’re going over my head. What’s a legitimate price for oil now?
Mike Norman: Anywhere, because the market is telling producers to hold off and stockpile their oil.
Neil Cavuto: Well Chris let me pose this to you. I heard from a very smart oil analyst who said oil should be $30 cheaper if not for these Middle East fears.
Chris Lahiji: I buy that because oil has gone up too much, too fast. The global supply is slightly higher than year ago periods. The reality is every single time a foreign idiot comes on television, every single time a butterfly flaps its wings, every single time we have a hurricane off the coast of Madagascar, the oil commodities guys find some damn excuse to raise the price higher. In reality, oil is not in that bad shape. When good news comes in like higher inventories crude oil prices go down twenty cents. When bad news comes in we hit a new high.
Joe Battipaglia: The problem here is it can be used as a tool. The Iranians have pointed out they can interrupt the supply of oil.
Mike Norman: But these are all ifs. Since 1990, we’ve seen a 23% increase in demand for crude oil globally yet the price has gone up eight-fold. There is no way to justify this from a supply/demand standpoint.
Neil Cavuto: So you say someone is rigging the books.
Mike Norman: Well it’s coming from pension funds now, mutual funds, hedge funds, speculation.
Rebecca Gomez: None of these have caused supply disruption except for Nigeria. None of this is affecting how much oil comes into the United States. It’s all the fear premium and it’s still happening.
John Layfield: You can argue it’s the risk premium. You can’t say it’s the speculators. We’ve got a war brewing between Israel and the Middle East.
Neil Cavuto: Chris, oil is at an all-time high. Gasoline is at an all-time high. The question I have is how long will this last?
Chris Lahiji: Unfortunately it’s going to last a long time. Rebecca is absolutely right.
Neil Cavuto: What’s a long time?
Chris Lahiji: At least two years. You don’t get what an effect this is having on the poor and the middle class. All the money that people are making now is only going towards food and energy. What we need to do is to find a way of becoming independent of foreign oil. And give people gas incentives for not having gas-guzzlers.
Mike Norman: Until you break the back of speculation it could just keep on going.
Joe Battipaglia: Terror activity is now part of the equation. And they can again attack supplies.
Head to Head
Neil Cavuto: Forget about making the President's tax cuts permanent, Democratic leaders want them dead, at least those they say benefit the rich. Is that a good idea? Time to go head to head. John?
John Layfield: It’s going to hurt the economy. The Democrats are just plain stupid. Ireland lowered their corporate tax rate to 12.5%. The employment went from double digits to low single digits. And now they’re the best economy in all of Europe. It is the dumbest possible thing these Democrats can do. It is going to suppress the economy. Without Katrina and without the war we have a budget surplus right now.
Bob Beckel: What Nancy Pelosi did say is that any tax rollbacks for wealthy people would go to paying off the deficit. The biggest part that contributes to the deficit is the war in Iraq. When you’re more than willing to get your flags out in support of this war, my question is why you’re not willing to get your checkbook out and pay for it.
Rebecca Gomez: Well, we are paying for it. Everyone is paying for it in some way or another.
Neil Cavuto: Your saying the rich are paying for it.
Rebecca Gomez: Well, the rich are taxed the most out of everyone.
Neil Cavuto: So tax them even more?
Rebecca Gomez: No, I wouldn’t say tax them even more. The problem with what Nancy Pelosi is saying is that if we do away with these tax cuts we’re also going to promise not to spend more.
Neil Cavuto: Chris Lahiji, you think the rich should pay?
Chris Lahiji: Absolutely. What John doesn’t realize is we still have a $300 billion budget deficit. The supposedly booming economy is only favoring one segment of the population – the rich. That’s why I propose the “Hymowitz” tax, which taxes the top 3% of the wealthiest Americans.
Neil Cavuto: The last time I looked we were growing at a nearly 5% clip and we’ve got full employment at north of 95%.
Joe Battipaglia: Republicans lost an opportunity to cease this debate. With the tax cuts the economy was stimulated. If they didn’t go on a spending spree in the broadest sense, you would see very narrow deficits. I would argue what you want to do for the poor and middle class is further cut their rates beyond what’s already been done.
Neil Cavuto: Well Bob Beckel, are you surprised that the revenues gained from those tax cuts were more than even the conservative Congressional Budget Office ever estimated?
Bob Beckel: There’s something to be said about the macro-economic notion that when you do cut back on taxes there is more revenue. On the other hand, if you increase taxes you’re not going to have a decrease in revenue. Clinton did that and we had the greatest surpluses in the history of this country. It’s the Republicans who are spending not the Democrats. We don’t control anything anymore.
Rebecca Gomez: The proof is in the pudding. We had the President come out and say the tax revenues have gone up. What they need to do is use more of that to pay down the deficit and stop spending.
More for Your Money
Neil Cavuto: It's a summer stock clearance sale. Time to get more for your money. John, what do you like?
John Layfield: I like GlobalSantaFe (GSF). Oilrigs are leaving the Gulf of Mexico for higher day rates. GlobalSantaFe just signed four rigs to a four-year contract, $160,000 a day. That’s double what they were getting a year ago. GSF is a great play. It is a drillers market right now. It closed at $54.53.
Chris Lahiji: I’m going give John the smack down like this. I think you should have some money in the oil drillers but I think Diamond Offshore (DO) is a cheaper company.
Neil Cavuto: So Chris, what are you doing?
Chris Lahiji: I love InfoSpace (INSP) right now. They are in the mobile side of the search and directory on the Internet. They’re very cheap right now. They provide ring tones, games and graphics. They have $400 million cash. It closed at $20.95.
Tracy Byrnes: I like it. It has cash, which is an oxymoron in the tech world. But I think its competitors Yahoo and Google have much better growth potential.
Neil Cavuto: What do you like?
Tracy Byrnes: I like Bristol-Myers (BMY). The healthcare sector has gotten beaten down. It just had the FDA approve an HIV drug. It’s a good defensive play with a good dividend yield. Bristol-Myers closed at $24.56.
Joe Battipaglia: Tracy’s on to something. But I would rather go with Pfizer (PFE), Cardinal Health (CAH) or even Johnson & Johnson (JNJ).
Neil Cavuto: What do you like Joe?
Joe Battipaglia: I like Microsoft (MSFT) because everyone doesn’t like Microsoft. They’ve gotten hit with a fine. They’ve delayed the introduction of their new product. We own Microsoft and what we like about it is a free cash flow yield over 6%. They dominate the space and I think they’ll make a big comeback. Microsoft closed at $22.29.
John Layfield: I don’t like Microsoft. I think it’s dead money. They have a great cash flow but the problem is their too tied to Windows and people are chipping away at that model.
FOX on the Spot
Joe: Stocks rally big this fall after Fed quits hiking!
Mike: Fed has gone too far; will have to cut rates in '07
John: Homebuilders hit bottom; buy TOL, SPF, HOV
Tracy: Tech comes back big: buy Qualcomm and Yahoo!
Chris: Time Warner (TWX) selling at a 25% discount!
Neil Cavuto: GM, kiss it goodbye. I suspect CEO Rick Wagoner's so called "alliance" talks with Renault and Nissan will end up being more like "submergence" talks. GM gone. Just like Chrysler. And the once big three soon down to a not so big one.
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Forbes on FOX
In Focus: Mideast Crisis & Stock Sell-Off: Russia & China's Fault?
Neil Weinberg, senior editor: During the Cold War, it wasn't Cuba and Vietnam initiating conflicts, it was Russia and China. And if you look at the crisis in the Middle East, you have Iran causing all kinds of problems by backing Hezbollah but China and Russia are the players behind the actors. They are giving Iran military technology. Also, Russia is giving it nuclear technology and China is giving it money by buying Iranian oil. And both Russia and China are preventing U.N. sanctions against Iran, which is enabling it to develop a nuclear program and continue to sponsor terrorist organizations like Hezbollah. Without their support, Iran would be isolated by the world and unable to cause the problems they're causing.
John Rutledge, contributor: This part of the world is a mess all on its own and would be a mess no matter who is there. Obviously, outsiders are making matters worse, but that region is volatile without outside help. China is a sideshow in all this. They have oil needs like the rest of us, so you can't blame them for buying oil. Russia on the other hand, is supplying Iran with engineers to help build nuclear warheads. We should tell Putin 'Russia can't join World Trade Organization' until they use their influence in a positive way.
Elizabeth MacDonald, senior editor: Russia is enabling Iran. They have aided Iran's nuclear reactor capability. And we need to remember that Iran appointed the head of Hezbollah. Also, Russia has met with Hamas and propped up horrible governments in the past like Nicaragua and Syria. When you give these Islamo-facists credibility by meeting with them and supporting them, you create instability in the region.
Mike Ozanian, senior editor: You don't go after the people who make the guns, you go after the people who use the guns. President Reagan shot a missile right through the window of Libya's Kadafi and we never heard from him again. We should do the same thing with every terrorist. Reagan also drove down commodity prices which starved Russia and Middle East countries from the money they receive by selling oil and other natural resources. We need to do the same thing now.
Bill Baldwin, editor: Russia is a nation of gangsters and thieves, who could quickly steal some enriched uranium and sell it to Iran. That's a very dangerous scenario. We have to put some economic leverage on Russia to bring them in line. China isn't helping matters but it will end up becoming our friend because it is a nation of burgeoning capitalists who want our markets and capital.
Quentin Hardy, Silicon Valley bureau chief: Russia and China are like big mob families— they're dangerous but you know how to deal with them. But Iran and North Korea are crazy guys with guns. By the way, if we mess up our relationship with China, they will stop buying our bonds and we'll all be financially doomed. Bottom line, we are not the world's dictator. We have to get along with these countries. And would we allow Russia to tell us how to get along with Mexico?
David Asman, host: If the Mideast crisis spins more out of control, what will it do to our stock market?
Mike Ozanian: The market would go down, except for gold and some oil stocks.
Elizabeth MacDonald: I totally agree with Mike.
Neil Weinberg: I agree too.
Quentin Hardy: Oil up, stocks down.
Bill Baldwin: I think the market is cheap right now. Buy it and don't worry about the Middle East.
John Rutledge: I think the market will keep going down because of Mideast fears, but I will be buying because these are temporary influences on stock prices. We have to remember that profits are high and interest rates are not going much higher. Stocks are cheap.
Flipside: Kill Minimum Wage to Raise All Paychecks!
Mike Ozanian: Like all forms of socialism, the minimum wage destroys jobs and destroys the economy. The last time we hiked minimum wage, it took 200,000 jobs out of the economy. By killing the minimum wage, you let the market determine what people will get paid and it prevents companies from having to raise prices to support minimum wage.
Lea Goldman, associate editor: There is always someone who is willing to work for less. If you eliminate the minimum wage, you would condemn working families into poverty. You would also increase our illegal immigration problem. Even the CEO of Wal-Mart said it is time to hike the minimum wage.
Rich Karlgaard, publisher: The Wal-Mart CEO is probably just looking for political cover. Companies will not hire more people at $7.15/hour, they will hire fewer workers. You would have more unemployment if you hike the minimum wage. If you want to improve the conditions of the working poor, you have to break the public school monopoly and teach kids something useful in the workplace.
Quentin Hardy: The current minimum wage has gone without an increase for the longest time in its history. And the minimum wage is at its lowest level since 1950 when measured in real dollars. Our economy has performed well during the times we have increased it.
John Rutledge: Raising the minimum wage is good politics and bad economics. One of the reasons our economy has been booming is because minimum wage hasn't been increased.
Mike Ozanian: I agree. This is why we have had the best economic expansion in our nation's history over the past 15 years.
Dennis Kneale, managing editor: This economic theory is fine until you discover the human costs. Why don't we take it a step further and create more jobs by killing the laws that prevent us from employing children. If you don't have minimum wage, there will be thousands of companies that would rip-off their employees.
Informer: Best Bet Right Now: Homes or Stocks?
Rich Karlgaard: I like stocks and think Microsoft (MSFT) is a good buy now. Everybody is down on Microsoft because it so late on Vista, its latest operating system. But the early reports on Vista are that it will be huge winner for the company when it finally comes out.
Victoria Barret, associate editor: I think Microsoft is a dinosaur right now. It's old, tired and can't its products out in time. I like home-related stocks such as Home Depot (HD). I think they'll do ok even if home prices fall, because people will put more money into their current home.
Lea Goldman: This is a kamikaze stock. Home prices are on the way down. I like stocks and think Portfolio Recovery Associates (PRAA) is a good play on debt. The company buys chunks of other companies' debt for pennies on the dollar and make money on the margin when debt recovers.
Elizabeth MacDonald: It's a great stock, but I'd be cautious because there has been a lot of insider selling lately and free cash flow isn't looking great right now. I'd bet on homes. I don't think the housing market is going to take a steep nosedive. I like Plum Creek Timber (PCL). It owns a lot of acreage of timber. After Katrina and Rita hit last year there was huge demand for timber and we're heading into another hurricane season, so it's a good time to buy it.
Rich Karlgaard: The company's growth and earnings are very flat. I don't see what will get this stock going.
Dennis Kneale: I like stocks and tech stocks in particular. I think the NASDAQ 100 (QQQQ) is very cheap and when the next tech revolution comes, and it is coming, the NASDAQ will benefit. It's currently trading at 15% discount when you look at where it has traded over the last 200 days.
David Asman: I own this, but have to admit I'm worried if it will ever rebound. It's currently down 60% from its all-time high set back on March 10, 2000.
Makers & Breakers
• China Life Insurance (LFC)
Todd Schoenberger, editor of Diligent Investor: Maker
The company has more than 660,000 sales agents in China working at more than 4500 offices. It has a 60% market share and is planning to grow 15% a year over the next five years. It has over 60 million annuity and life insurance policies in force. I think the stock could hit $81 within a year. (Friday's close: $62.11)
Victoria Barret: Breaker
I think the 15% growth forecast is already built into the stock price. And there is some question into how much the Chinese government is regulating the industry. If it regulates it more, that could eat into profits.
Bill Baldwin: Maker
I think the Chinese population will live longer and will create a windfall of profits for this company.
• MasterCard (MA)
Todd Schoenberger: Maker
It receives $0.14 for every $100 dollar that consumers use with a MasterCard brand. Last year alone, more than $1.7 trillion was spent using MasterCard.
Bill Baldwin: Breaker
I think people who use credit cards are living in a fool's paradise that will come to an end one day.
Victoria Barret: Breaker
The company has been losing market share in the recent years and that is a negative trend.
Todd Schoenberger: This company is growing at a 12% rate per year and the stock is cheap.
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cashin' In
Our “Cashin’ In” crew this week: Wayne Rogers, Wayne Rogers and Company; Jonathan Hoenig, Capitalistpig Asset Management; Jonas Max Ferris, MAXfunds.com; Stuart Varney, FOX Business News; Leigh Gallagher, SmartMoney.com; Gary Kaltbaum, Kaltbaum & Associates
Stock Smarts: Was Reagan Right?
Fighting breaks out in the Middle East as Israel takes on Hezbollah, a terrorist group reportedly backed by nuclear-hungry Iran. Back in the 1980s it was Ronald Reagan’s plan to defend America by shooting enemy missiles out the sky. With rogue nations like Iran eyeing the bomb, did Reagan have the right idea all along?
Stuart Varney, FOX Business News: He [Reagan] was right on so many things, including this one. Yes, he was right to try to build a defensive shield against incoming missiles. Now in his day, he would talk about the enemy being Russia with Russian missiles coming in. Now it is these crazy states like North Korea and increasingly Iran and now Hezbollah that are the threats. We need a defensive shield more than ever.
Terry Keenan: And Jonathan, the Israelis are being hit not just by the "Kazam" missiles but more sophisticated ones that have a much further range. Was Reagan right?
Jonathan Hoenig, Capitalistpig Asset Management: Absolutely and I think the U.S. should provide Israel with all the defense it needs to neutralize these threats. Reagan was right about missile defense but he was also right about defense. Whenever I hear people say, "Screw the muscles missiles. Spend more money on health care and education," that’s not the role of government. The role of government is to protect us. We should always have the most "badass" weaponry available: missile defense, tanks, the works. That is where our tax dollars should go.
Terry Keenan: The Israelis used our Patriot Missiles to shoot down Scuds in the first Gulf War; does this still make sense?
Wayne Rogers, Wayne Rogers & Company: You have to ask yourself three questions about missile defense: is it reliable, is it cost effective and does it work? We are not sure that ours works yet and we should work more on it. I agree with Jonathan, I agree with Stuart. Yes, it was the right idea. Is it cost effective and can we make it work? That's the key and we have to work on that.
Terry Keenan: Jonas what to you think? What if we started investing in this back in 1986 when Reagan first proposed Star Wars?
Jonas Max Ferris, MAXfunds.com: We did invest over $50 billion in it when Reagan proposed it.
Terry Keenan: But that's a drop in the bucket in our defense budget.
Jonas Max Ferris: That's true. And I do think that missile defense is the best against rogue nations because they have a handful of very old-fashioned missiles. When you talk about what Reagan wanted to do with the missile defense system, which is have lasers shoot down an attack of thousands of warheads from the Soviets, that's absurd; that's a waste of money. I will say Israel has a missile defense that we paid for half the bill on. So it’s not like this doesn't exist. Moscow has missile defense in their city. We had one in the United States in the 1970's, but we shut it down. We spent a lot of money, but we have nothing to show for it except for a half-baked system over the Pacific.
Leigh Gallagher, SmartMoney.com: Well, I agree with what Wayne said. Missile defense is great but only if it works. We are talking about shooting a bullet with a bullet, and even with our vast resources we have yet to prove that we can actually intercept a missile from an unidentified location. It's a great idea but for it to be a possibility, it has to work 100% of the time. It’s not even worth it if it is going to miss.
Stuart Varney: Wait a second. We do have a missile defense shield in place. It’s called the Aegis-class destroyer. It is a ship-based system that intercepts incoming missiles. We would have shot down that North Korean missile had it not faulted after 30 seconds. But we were prepared to do it.
Leigh Gallagher: But that's another thing. The threat is also not what we perceive it to be.
Stuart Varney: It is in place, it's ready to go and it occasionally works. And that's a pretty good start.
Gary Kaltbaum, Kaltbaum & Associates: Reagan had it absolutely right. He knew that the basic duty that a president and people shared was to protect. How do you protect? By simply finding defenses for the weaponry that is out there. The problem is that now you have a guy like Kim Jong Il. He wakes up mad in the morning because there are not enough marshmallows in his Lucky Charms and he decides to lob one. We need to get tough. Jonathan said it best. For the lack of a better word, we need to get ‘bad-ass’ with what we do with our defenses.
Jonathan Hoenig: And maybe we should go on the offense with Iran and North Korea.
Stuart Varney: Missiles are clearly the weapons of choice of rogue states, along with terrorism on the side. I cannot see how anybody could say ‘no, we don't want a missile shield; we can't afford it or it won’t work’. I can't see the argument.
Terry Keenan: You know what the liberals say. They say this is ‘Star Wars’, this is like video games that your kids play. Wayne, that argument still carries a lot of weight out there.
Wayne Rogers: Well, I kind of agree with Stuart. I don't know how you can argue against it, if you’ve got crazy people like in North Korea. This guy is a total, absolute, certifiable nut. And he is going to do whatever he wants to do and he is irrational and he is going to try to shoot at us. We have to have something to protect us. Now, is it a reliable system and will it work? Occasional, my friend Stuart, is not good enough.
Stuart Varney: We’ve got to develop it, it is a start and it is mounted on Aegis-class destroyers. We’ve got it. We have to build on it.
Terry Keenan: And Jonas, isn't it a little like birth control? You use it, you don't always know if it is going to work, but you don’t ‘not’ use it.
Jonas Max Ferris: There are a lot of things we use that we don't know if they are going to work. But I will argue against it for a second. We had an anti-ballistic missile treaty for 30 years. There is a reason not to build it, which is that the Russians would get nervous if we had it and they might preemptively strike. We had a whole mutually destructive system for most of the Cold War. The head of Russia just recently came out and said he can make missiles that will dodge our anti-missile system. So we have escalated that whole thing with Russia. George Bush just stepped out of the anti-ballistic missile treaty after 9/11.
Leigh Gallagher: Weapons delivery is the name of the game. Let's say North Korea can reach past Alaska, it is not enough to just reach Washington DC.
Jonathan Hoenig: Do you want to wait until they can?
Leigh Gallagher: No, I don't want to wait. We should make this part of our defense, but it shouldn't be only the thing. People on the ground with terrorism with old-fashioned weapons like plane tickets. We need to worry about them too.
Gary Kaltbaum: We cannot sit around and wait for others; we have to be preemptive, on the offensive. And I want to talk about cost. I keep hearing that the big problem is cost, that it would be too much. What about the cost if something does happen? What about the fact that something does hit? Then we will be talking about the costs of rebuilding, which would just be astronomical.
Terry Keenan: Wayne it seems like we are in these unique situation where we have Iran and North Korea that might have nukes, but not a very good delivery system. So it seems like the perfect environment for a shield.
Wayne Rogers: Well, I would agree with that absolutely. You can't disagree with that. I'm not sure that your metaphor about birth control applies, but I don’t think that there is any conceivable way you can make this perfect. It can't be perfect. And you are wrong to say that cost is not a problem because cost can be a problem. If you bankrupt the entire country to do this and if you go back to the Peloponnesian War and see what happened in Greek history and if you were any students of what happens in war, you won't make those kinds of mistakes.
Cashin' In: Cla$$ Warfare?
Tax cuts work: That was the message from President Bush on Tuesday, telling America his money plan has helped to add jobs and boost the economy. But Democratic leaders were blasting the president, saying the middle class is getting squeezed.
Is this kind of class warfare ultimately be a good thing if November for the GOP?
Gary Kaltbaum, Kaltbaum and Associates: Most definitely. Class warfare talk has rarely ever worked. I think Harry Reid is reading the Cuban Herald when talking about the statistics on this economy. I deal in facts and statistics when I talk on radio and you cannot spin 4.6% unemployment, you cannot spin hundreds of thousands of jobs created every month. You cannot spin the greatest net worth for this country in history but yet the democrats’ job right now is to put everything down. Why? You’ve got a mid-term election this year. I don’t think it is going to work.
Terry Keenan: Jonas, tax revenues are on fire in the wake of these tax cuts, both individual and corporate taxes. How do you argue with that?
Jonas Max Ferris, MAXfunds.com: You can't and you can’t argue with a strong economy but you can argue with income inequality. The fact is that the democrats go with this because the class warfare works. It’s like the republicans have their flag burning amendments and their anti-gay marriage thing.
Jonathan Hoenig, Capitalistpig Asset Management: But Jonas, it didn't work in the last election. Wasn't that John Edwards’ whole "two Americas" thing?
Jonas Max Ferris: The fact of the matter is the amount of wealthy people is growing. It’s been growing through the Clinton years too, by the way. The percentage of people in poverty in America has been growing for about four years now in a row and I’m not saying the government should do something about it I’m saying it is something the democrats can get traction with against the republicans.
Terry Keenan: Wayne, they haven't been able to get traction in the recent elections. And the gap has been widening, even during the Clinton years as Jonas pointed out. But there are some new factors with gas prices up and home prices coming down, do you think this class warfare will resonate this time around?
Wayne Rogers, Wayne Rogers & Company: I disagree; I don't think it will. I don't see that happening at all. We have a very strong, big middle class in the country and you have to define what is poor, what is rich? What is middle class? The tax cuts have produced an enormous amount of new wealth in this country — by the way, not always at the top. The economy has grown over 4% in the last three years, each year. And it grew only in the previous nine months before that, only at 1.1% and that is since the tax cuts. So more people are rising up into the middle class than they are sinking below it. So I agree with Gary. He is reading the Cuban papers.
Stuart Varney, FOX Business News: Well, you may have noticed that I have a British accent. We invented class warfare and I know it when I see. And actually I’m a refugee from class warfare. I came to America to escape it.
Terry Keenan: How to you feel when you hear these arguments?
Stuart Varney: I think it is profoundly un-American and flat out wrong. I do think there is a segment of America that is being squeezed. It is the lower educated sector, not by tax cuts, but by globalization and illegal immigration.
Leigh Gallagher, SmartMoney.com: Stuart, the top tax bracket is half what it was in the 1970’s. Never before have the wealthy had it so good in this country.
Stuart Varney: One percent pays 33 percent. Good Lord. That’s soaking the rich, isn’t it?
Gary Kaltbaum: Leigh, the top 50 percent of the wage earners pay 96 percent of taxes. There is not much more that they can pay.
Leigh Gallagher: For half the Americans, tax cut gave them $100. You can look at the statistics and spin them any way you want. What we’re really talking about here is that there is really only so much more that the administration can pound the "we were right about the tax cuts" drum. The voters are not really buying it anymore. We’re talking about deficit reduction, and you have to remember that this is $40 billion in a $300 billion deficit.
Wayne Rogers: I can tell you how they can make it better. They could make it permanent. They could make the tax cuts permanent. The tax cuts have done an enormous amount of raising a lot of people up into the middle class. And they can make that permanent.
Terry Keenan: And most people in the middle class, don't they hate to hear talk of higher taxes even on people wealthier than them, because they expect to be wealthy one day themselves?
Jonathan Hoenig: Of course, Terry, and that is what America has always been about. America doesn’t have a class system. Henry Ford started Ford Motor Company with a couple hundred dollars. There are a million stories like that in America. Playing this class warfare card didn’t work for them in ’04 and it’s not going to work for them in ’08.
Best Bets: Bull Run!
The stocks ready to charge like a bull are our Best Bets!
Jonas’ Bull-Run Pick: Legg Mason (LM)
Friday’s close: $94.44
52-wk High: $140.00
52-wk Low: $92.07
YTD Return: -20.8%
Jonas Max Ferris, MAXfunds.com: If you want to run with the bulls, you want to invest in a company that is a broker or an asset manager; someone who is in the business of Wall Street. Legg Mason is one of the largest asset managers. They have great performing mutual funds. They make a ton of money. The stock is town about $50 since the market cracked a few weeks ago. If you want to take a risk, run with the bulls, this is the way to go.
Terry Keenan: New management coming into the company soon. Wayne, do you like this company?
Wayne Rogers, Wayne Rogers & Company: No, and I will tell you why. I don't want to take a risk. Until the company begins to build a base in the stock, I don't see it. I think it’s continuing south and I don’t see it.
Wayne’s Bull-Run Pick: Archer Daniels Midland (ADM)
Friday’s close: $41.98
52-wk High: $46.71
52-wk Low: $19.75
YTD Return: +71.2%
Wayne Rogers: I like Archer Daniels Midland. It’s strong in the alternative fuel business, meaning ethanol. They are one of the largest grain exporters in the world, and it is a very strong stock and I think it is going to continue that way.
Terry Keenan: You own it, Wayne?
Wayne Rogers: Yes, I do.
Gary Kaltbaum, Kaltbaum & Associates: I love the company right now. With this stock, what you have to recognize about the market is that all leading stocks are being taken down and I think you are going to have probably a 10% drop from here to support levels which would be around 36 or 37. That's when I would go pick it up.
Gary’s Bull-Run Pick: CVS Corporation (CVS)
Friday’s close: $31.68
52-wk High: $32.67
52-wk Low: $23.89
YTD Return: +20.2%
Gary Kaltbaum: The lesson of this market is that you have to be as defensive as possible. When going through bear phases almost everything gets taken down except for defensive issues; drug stores fit the bill. CVS is not the most exciting thing in the market but they have consistently good earnings growth and the stock is holding up very well.
Jonas Max Ferris: You run with the kittens with this pick here. I don't understand why a drugstore should have a higher valuation than had a drug maker like a Pfizer (PFE) or a Merck (MRK). That’s where the real money is. Not in retail, which is a commodity business that Wal-Mart (WMT) will eventually wipe out.
Gary Kaltbaum: But I’m talking about the market here right now. Defense is the way to go. But you have to realize in a bear phase for markets, you have to go after the companies that don’t trade all over the map.
Terry Keenan: Wayne, break the tie on CVS.
Wayne Rogers: I like it. I think it is the best of all of those drug companies. That is, I’m talking about retail drug companies. I think it’s the best one. The chart looks very good right now and I agree with Gary.
Money Mail
Question: "Is it a good plan to invest in a company like Halliburton (HAL) that is helping to rebuild Iraq?"
Wayne Rogers, Wayne Rogers & Company: I like Halliburton. I've liked it in the past. It is not just about Iraq. I think he's right. Halliburton is going to profit something out of Iraq. It is a good stuck. But it has been good for the last two years. I don't think he can go wrong.
Terry Keenan: Oil service as well as government contracts. Leigh, do you like this?
Leigh Gallagher, SmartMoney.com: I do. I agree Iraq has been a little overplayed and they are ‘rebidding’. And Halliburton is going to be up for that bid.
Terry Keenan: Jonathan, is there going to be any political pressure on Halliburton, particularly if the democrats get in office in the2006 mid year elections?
Jonathan Hoenig, Capitalistpig Asset Management: Probably. But a rising tide tends to lift all boats. My hedge fund is not in energy right now, but there are a lot of hot stocks.
Terry Keenan: You have been negative on energy but they've been pretty strong here.
Jonathan Hoenig: They have been strong. You shouldn't fight the tape, but we made money in other sectors so I’m doing just fine.
Question: "What does the crew think about Ctrip.com (CTRP)?"
Jonathan Hoenig: It is an anomaly these days, Terry, because basically anything Nasdaq has been death. Dell (DELL), eBay (EBAY), which isn’t Nasdaq, IBM (IBM) and the QQQQs. I’m torn because this stock has been hot, but the Nasdaq has been weak. I would probably step aside for now on Ctrip.
Leigh Gallagher: It is important that it is playing up two big trends right now; growth in travel and growth in China. So, to me, it seems like it has more to go
Terry Keenan: Wayne, you have the casino play because of China, so do you like this one?
Wayne Rogers: I'm a little cautious about this one. It has had a pretty good run and I would not step in at this price.
Terry Keenan: Any other Chinese stocks?
Wayne Rogers: Oh yes, I have a number of Chinese stocks. I like a number of them.
Get all the stories you need-to-know from the most powerful name in news delivered first thing every morning to your inbox