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Bulls & Bears
This past week's Bulls & Bears: Gary B. Smith, Exemplar Capital managing partner; Pat Dorsey, Morningstar.com director of stock research; Tobin Smith, ChangeWave Research editor; Scott Bleier, HybridInvestors.com president; Mike Norman, BIZRADIO show host, and Tracy Byrnes, New York Post business writer.
Trading Pit: New Al Qaeda Plot To Destroy U.S. Stock Market and Economy
Reports that Al Qaeda has plans to launch a cyber attack on banking and financial Web sites in order to cripple America's stock market and economy. Is this a real worry for Wall Street?
MIKE: Wall Street worries about a lot of things, but I don't think Al Qaeda will be able to pull off a huge cyber attack. If they do try, it will trigger a new wave of huge investing in security and protection, just like we saw during Y2K. The market will be taking off because firms will take this threat seriously and will put up the investment in order to protect themselves. These firms will bend over backwards to protect consumers.
TOBIN: I want to wake up and look like Brad Pitt tomorrow, but that's not going to happen. After 9/11, our banking and financial systems have triple the protection than we once had. The new Microsoft Vista system is coming out. I'd be more worried about Al Qaeda putting viruses in it. In terms of our online banking and trading, it's not going to happen.
GARY B: Yes, a cyber attack could absolutely happen. If you had said before 9/11 that people were going to hijack three American airplanes and fly two of them into the World Trade Center, you would have said, "No way!" You would have thought we could have prevented that. This attack is not likely to happen, but Wall Street should be worried. Wall Street will start taking the same kind of action they took with Y2K to prevent this type of thing. It's true that Al Qaeda would want to get to our true infrastructure like this. It is fearsome and I think it is possible.
TRACY: The financial institutions are the most secure institutions in the world, especially since 9/11. There are hackers out there who have been trying to get in for years. Al Qaeda is just going to be one of them. The problem is that we are feeding into it. They put this note out there that they are thinking of launching an attack and now all of a sudden everyone is talking and panicking. We're on guard now. I can't imagine they will be able to get through.
SCOTT: I'd rather them try a cyber attack than a physical attack. These terrorists will not be able to get in. Wall Street has spent billions of dollars to secure everything. The banking systems are redundant. Most big companies back up and cash their online activities all day long in secure locations. Even if they did launch an attack, it wouldn't disrupt our economy or our stock market.
PAT: This is number 495 on Wall Street's list of worries. It is so ridiculously low. We've had virus attacks before, so the computer systems are protected against this type of thing. This is a threat we are prepared for.
Al Qaeda Cyber Threat: Bad for Christmas Shopping?
It's almost Christmas and perhaps that's why Al Qaeda timed this cyber threat to hit in the wallet. If consumers think their money is in the cross hairs, could that hurt sales this year?
TRACY: If you go to use your debit card and you see a zero balance or if you try to use your charge card and it is maxed out for some unknown reason, yes it will hurt sales. These terrorists don't have to do it to a lot of people. Once the news gets out that Al Qaeda did it, people will pull their money out and there goes the shopping season. It truly could make a difference.
SCOTT: No way! You cannot get people to stop shopping. This is a record Christmas for online shopping and a record Christmas for bricks and mortar shopping.
PAT: From the consumer's perspective, they'll ask themselves, "Do I brave the malls on Saturday or do I go online to get everything done?" Online shopping will be huge this year. I'm not worried about this threat at all.
TOBIN: I would be more scared of Al Qaeda organizing their people to look over the shoulders of shoppers to steal numbers. That's the type of thing that scares me about Al Qaeda. Many other groups with tremendous amounts of resources have not been able to destroy our online and financial systems, so I don't think Al Qaeda will be able to do it. This threat will not stop people from shopping.
MIKE: It has to be systemic and it's not going to be. Retailers, credit card companies, financial institutions, are all going to make sure that their customers feel safe in using the cards and accounts online.
GARY B: I am going to do my own shopping online. Lesser industries have been brought down by rumors if the threat seems to be real. All it takes is a couple of people getting in front of the press. Then, consumers will stop shopping online if they feel Al Qaeda is a threat.
The list you can't miss: Pat's top three mutual funds!
Pat: My first pick is Weitz Hickory (WEHIX). Wally Weitz is the other investment guy in Omaha. He's not was well known as Warren Buffett, but an excellent investor. This fund has a great ten-year track record with low turnover. It has a lot of money invested and he's willing to take big bets. The minimum investment is $5,000.
Gary B: The chart shows that it is strong and not broken...yet. I would put a stop in if it falls below it's current uptrend line.
Scott: I like it and I don't usually like mutual funds, but this guy is good. It's a small fund and there's a good selection of stocks.
Tobin: I'm not a mutual fund fan either, but I like the unique stocks in this one.
Pat: Next up, Oakmark (OAKMX). I like to look for managers that have a good long-term track record who've had a tough few years. Bill Nygren, who runs this fund, has had a tough few years. He's a very smart guy and this one has a low expense ratio. I would just wait a few more weeks to buy it, when it will be a bit more tax efficient. The minimum investment in Oakmark is $1,000.
Tobin: There's a reason why it has had a bad few years. There are some lousy stocks in it. If you want to own these big stocks, buy them yourself.
Tracy: This guy is a great manager. He's a value guy and he can get people in on it.
Gary B: Oakmark was heading up, but recently but broke down. Get out now.
Pat: Finally, Dodge & Cox International (DODFX). This one is great and very shareholder oriented. This company has only launched four funds in seventy years, so it is very cautious. This fund has seen 20 percent returns over the past five years. I wouldn't expect that going forward, but think of it as your one stop international play. You couldn't do better than this one. Plus, it has rock bottom expenses. Dodge & Cox's minimum investment is $2,500.
Tracy: It's high. Investors have to know that buying it now would be at a very high point. It's not going to stay.
Scott: Very cheap. Plus, it has great international stocks in it.
Tobin: As the dollar goes down, these stocks will go up. You're hitting it out of the park here.
Scott's prediction: Call me Grinch! Dow down 5 percent and Nasdaq loses 8 percent in December
Mike's prediction: Wal-Mart (WMT) is on sale! Gains 30 percent in next 6 months
Gary B's prediction: Google (GOOG) falls 20 percent; buy when it hits $400
Tobin's prediction: Bottoms up! Britney and Paris help boost Diageo (DEO) 25 percent
Pat's prediction: Fuel Tech (FTEK) powers up 50 percent in next 2 years
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, "Hot Commodities" author; Ben Stein, "26 Steps to Succeed In Hollywood" author; Charles Payne, Wall Street Strategies CEO; Joe Battipaglia, Ryan Beck & Co. CIO; Rebecca Gomez, FOX News Business correspondent; Tom Adkins, CommonConservative.com founder.
Neil Cavuto: A major tax hike to save Social Security – one that could cost some taxpayers as much as $7,000 more a year! At least one report says the Bush administration is considering it. Joe, the White House denies it favors this particular plan, but is this where all this is going?
Joe Battipaglia: The body language says something very different Neil. This politically wounded President looks like he'll do anything to save Social Security and use an old remedy that doesn't work, raise the taxes and cut the benefits. This is not the right approach.
Jim Rogers: Raising taxes would be madness. This would make us even less competitive than we are with the world now. We've got to privatize Social Security.
Neil Cavuto: The president tried to address that at the start of the second term, and it went nowhere. I can't imagine him seriously considering doing something like this. Can you Ben?
Ben Stein: I think he has to do it. I'm sorry to say that the government needs the money. He's probably going to raise the taxes on moderately high-income people.
Neil Cavuto: But Jim raises a good point here that raising taxes and not addressing the fundamental problems of the program don't really solve the problems.
Rebecca Gomez: Right and it's going to reverse President Bush's tax cuts. Small businesses on both ends will get hurt. And consumer spending will be affected. You're going to take more money away from consumers and that's what's helped the economy keep afloat over the past several years. Aside from that, this was the President's main campaign promise. And for him to go against that is not good for his party.
Ben Stein: Well, he wouldn't do it unless he desperately needed it. They desperately need the money. There's a fact of arithmetic here.
Neil Cavuto: The arithmetic does favor what you're saying Ben. But why can't you also offer people the opportunity of private accounts?
Tom Adkins: I think you should go with private accounts entirely. The President and Congress were together for how long? And they couldn't fix Social Security. They could've. You're faced with either cutting benefits or raising taxes. But if you want to bring in more tax revenue there's only one thing that works and that's cutting the tax rate.
Charles Payne: The real message here is we have lost faith in our country. Why not let people invest this money into the places they go. I know a guy who goes to Kentucky Fried Chicken three times a week. He should be allowed to use that money to buy (YUM).
Neil Cavuto: Have you been following me?
Charles Payne: But the reality is when we talk like this it means we've lost total faith in our country. The rest of the world is looking down on us. Raising taxes doesn't fix Social Security.
Jim Roger: And Ben, the idea that they have to raise taxes is madness. They don't invest it very well. There are other ways.
Rebecca Gomez: If people felt they had more control over their finances, if they felt they were investing their money rather than the government investing it, then maybe they would have more confidence.
Ben Stein: The president proposed this. He had a major majority in Congress. He couldn't get it through. It's dead.
Joe Battipaglia: This is a pay-as-you-go system. We should consider alternative ways to set this money apart from the rest of the budget. Let it earn a competitive market return. Not the less than 2 percent return that it earns now.
Neil Cavuto: Jim, do you see Social Security becoming a means-tested program?
Jim Rogers: In other words they are going to break the contract they've had with people contributing money for thirty years?
Neil Cavuto: Yes.
Jim Rogers: Charles is right. No wonder no one has confidence in the government.
Tom Adkins: Twenty-two cents out of every dollar gets sent to a Social Security recipient. The rest of the money is spent on the administration of the program.
Neil Cavuto: Ben pointed out that we can't continue going that way. So you either raise taxes or…
Tom Adkins: No, no, no…you want more revenue you don't raise taxes. You cut taxes.
Ben Stein: That is such nonsense. How can you say that? The data is unequivocal. You don't get more revenue. You lose more revenue.
Tom Adkins: Let me straighten you out.
Ben Stein: You're going to straighten me out?
Tom Adkins: Tax revenues were up 75 percent over the past 3 years. That's never happened ever. It only happened because we cut taxes.
Jim Rogers: Maybe it's Machiavellian. I don't think he's this smart, but maybe he's saying that look this is the alternative. We'll have to raise taxes and cut benefits or we have to reform it.
Joe Battipaglia: Clearly this is a broken system. So why not bring it to the American people and let them decide whether they want to pay more taxes today for some future questionable benefit or do you give up more on the backend.
Neil Cavuto: All I know is that it's going to be a pain in the back end for everybody.
Head to Head
Neil Cavuto: America's economy... the envy of the free world... France and Italy's economies not so much! But when you see headlines about a "falling dollar", that means the Europeans are betting against America. Where do they come off? Time to go head to head. Ben?
Ben Stein: The falling dollar does not have anything to do with the strength of the economy. It has to do with our interest rates falling faster than that of the European interest rates. Also, it has to do with the fact that we have this huge trade deficit. It is not a vote of no confidence in the economy.
Neil Cavuto: But many will quibble with you.
Ben Stein: That said, this economy is a very strong economy. I often advocate higher taxes. Europe's are way too high. Europe made a dramatic recovery after World War II. But now they're choking themselves with their high taxes.
Jim Rogers: Ben, it's not just the interest rates. We do have a huge imbalance in the trade deficit. And we're borrowing gigantic amounts of money, which is the reason we have a stronger economy. Listen, you give me a trillion dollars and I'll show you a good time too.
Neil Cavuto: But we've always had that. Why is it a problem now?
Jim Rogers: Because it's getting bigger and bigger.
Neil Cavuto: But even if you look at budget deficits as a percentage of the overall economy, Europe is a lot worse than we are.
Ben Stein: No, they're running surpluses around us.
Tom Adkins: We keep using the wrong terms for currency. It's not strong and weak. It's reasonable and expensive. Your currency is a representation of your economy. The European economy stinks. European productivity is low; therefore, their currency is expensive.
Jim Rogers: What?
Neil Cavuto: I thought their economies were improving.
Jim Rogers: They are.
Tom Adkins: Their growth went from 1 percent to one half of 2 percent this year.
Charles Payne: German unemployment went under four million for the first time in four years. German business confidence is almost at an all-time high. They're going to keep increasing interest rates and wreck an economy that's already wrecked. What kills me is the pride they swell up with that the Euro is bigger than the dollar. It helps us tremendously. Almost every company on the S&P does business over there.
Neil Cavuto: So they get more dollars back, right?
Charles Payne: Yes.
Rebecca Gomez: They're going to bash us either way, some not all. But these same Europeans who are bashing us are dying to come over here now that their currency is going much farther here in the U.S. They're going to see the Rockefeller Tree. They're buying at all our of stores here.
Ben Stein: What does that have to do with anything?
Jim Rogers: I agree.
Rebecca Gomez: We're talking about Europeans bashing us.
Ben Stein: The Christmas tree at Rockefeller Center is not the subject of this segment.
Rebecca Gomez: Yes it is, because I brought it up.
Neil Cavuto: Ben, you're being a little condescending today. But Joe, let me ask you. If the European Central Bank keeps hiking rates, and if the Federal Reserve lowers rates this could get worse. How much worse could it get?
Joe Battipaglia: It couldn't get much worse for them because their economy is already slow. Nobody is parachuting into Europe to build a new plants because they're not globally competitive. The real action is in Asia or the U.S. And as the dollar gets cheaper, we get even stronger.
More for Your Money
Neil Cavuto: Who doesn't want a bargain this time of year? The best stocks that are under ten dollars a share! Time to get more for your money. Joe?
Joe Battipaglia: I own EarthLink (ELNK). I think it's a double from here. The company has stabilized its subscriber base, and it has growth in WiFi. EarthLink closed Friday at $6.45.
Jim Rogers: You said that in '99 and '00 as well. It might double eventually, but this has become a commodity industry. Nobody is going to make money in this business going forward.
Neil Cavuto: Charles?
Charles Payne: I like Sonus Networks (SONS). It's a voice over data protocol. It hasn't done much yet, but it has its act together. I think it'll go significantly higher. Sonus closed Friday at $6.41.
Joe Battipaglia: This company has seen a move up recently, but I think that's all you're going to see.
Neil Cavuto: Ben?
Ben Stein: The price of a stock is its price-to-earnings ratio, so the fact that it's under $10 doesn't mean it's cheap. I like a stock that is very risky. I like Delphi (DPHIQ.PK). It's in bankruptcy. I think it'll be reorganizing and will merge with other auto parts companies. In the long run, it'll do very well, not for the workers I'm sorry to say, but I emphasize that it's very risky. Delphi closed Friday at $2.49.
Jim Rogers: Ben, you're right about much of what you said. But why wouldn't you buy the bonds instead of the stock? If it is going to be reorganized, the bondholders will make the money.
Ben Stein: Because the stockholders will have much more leverage. The bondholders will get paid off in par. People as smart as David Tepper are buying into this stock. If he's buying, there's got to be something there.
Jim Rogers: I would invest in Austrian Airlines. Airlines are going to continue to get better.
Neil Cavuto: Why Austria?
Jim Rogers: Most people have forgotten about it. They had an offering that drove the stock down for a few days. Buy it when it's cheap.
Charles Payne: Most people have forgotten about it? Most people have never heard of it. The airlines have had a big run already. If you're going to do that, wait for one of the U.S. airlines to pull back and buy that on weakness.
FOX on the Spots
Ben: Trouble ahead if America doesn't close the wealth gap
Jim: U.S. will regret any "help" it gets from Iran or Syria
Joe: Stocks dip in '07 until Fed cuts rates in 1st quarter
Charles: Bet on the American Dream with Toll Brothers (TOL)
Rebecca: Al Qaeda wins if politics derails terror fight!
Neil Cavuto: Despite this latest Al Qaeda threat, holiday sales will be boffo!
Forbes on FOX
In Flipside: Al Qaeda's No. 1 Target: Our Money Not Our Lives
Elizabeth MacDonald, Senior Editor: It's always been Al Qaeda's goal to bleed us into bankruptcy. In 2004 they wanted to blow up the Prudential Headquarters, Citigroup and the NYSE. They also wanted to attack oil facilities to drive up the price. But I think it really takes a lot to rip apart the capital structure of this country and the worldwide economy. They may succeed temporarily and it would seriously hurt us but I think we can overcome it.
Jim Michaels, Editorial Vice President: I can't take the recent threat seriously. I can't believe we don't have safeguards in place. They can't hack into our military network. We should take seriously the fact that there are a lot of people out there that are at war with America and pulling out of Iraq won't help.
Quentin Hardy, Silicon Valley Bureau Chief: Al Qaeda doesn't have armies so they hack. And they go after big symbolic targets like finance. It is about the money.
Neil Weinberg, Senior Editor: On 9/11 they took down the world trade center. The NYSE was closed for a few days, but our financial system was sound. And our financial system is typically in private hands, not the government. So there is another shock absorber.
Lea Goldman, Associate Editor: This is an unprecedented enemy. There's no handbook on how to deal with these guys. Our money or our lives? For them it's interchangeable.
Informer: Al Qaeda Fighter$!
Victoria Barret, Associate Editor: I think if Al Qaeda went after our financial systems EMC Corp (EMC) would do very well. They are a data storage company. They did very well after 9/11. They would be able to clean up any mess and do data recovery work. They've since bought a company RSA Security that does a lot of identity software, which would also do well.
Lea Goldman: I think this is a very gutsy choice. I think it's too early to call it in EMC's favor. They have just restructured and have strong competitors.
Victoria Barret: They've done a lot of smart acquisitions and that is going to pay off over time.
Lea Goldman: I like L-3 Communications (LLL). This is a blue chip security company. It is one of the largest defense contractors in the world. They get it from both ends, from homeland security and defense spending. They do missile guidance and all that kind of good stuff.
Correction: Elizabeth MacDonald inadvertently commented about Level 3 Communications (LVLT), instead of L-3 Communications. Her comments: "Blue chip? They look like more of a red chip because they are swimming in red ink. They’ve had $2 billion in losses since 2003. That's why the stock has been trading around $5 for a long time now. I wouldn't touch this stock with a 10 foot barge poll" were meant for Level 3 Communications. L-3 has been consistently profitable and its 52-week range is from $66.50 - $88.50.
Elizabeth MacDonald: I like Microsoft (MSFT). When there is panic like this recent Al Qaeda threat, consumers panic about their own personal computers. Microsoft has come out with an anti-virus and a PC computer back-up program. Plus it has good cash flow.
Victoria Barret: I don't think consumers have a lot of trust in Microsoft when it comes to security. A lot of security firms are saying that its new operating system is insecure. I also think it's had a nice run-up lately.
Elizabeth MacDonald: I think the guys at Microsoft will fix their Vista problems and I do think that their anti-virus and back-up programs are pretty decent.
John Rutledge, Forbes Contributor: I like Citigroup (C). This is a great company that will become an even better story after a breakout of the sort.
Mike Ozanian, Senior Editor: I don't think this is the kind of environment that Citigroup will do well in. Had it not been that they put less money aside to cover bad loans and got their tax rates lowered their earnings would be declining.
John Rutledge: I think it's a great company. Their international exposure is good and they are buying a bank in China.
Mike Ozanian: I like Lockheed Martin (LMT). They make missiles and jet fighter planes. The stock is up 150 percent since 9/11 and they have more room to run.
John Rutledge: Mike, can you say Nancy Pelosi? Lockheed did great in the last 5 years because we had President Bush, but now we have the Democrats.
Mike Ozanian: Democrats want the Presidency and if they appear weak on the war on terror they won't get it.
In Focus: Appeasing Evil: No. 1 Danger to Your Life and Money?
Lea Goldman: You can talk to Iran until you are blue in the face and it won't change a thing. They are supporting insurgents in Iraq and killers of American soldiers. They want to wipe Israel off the map, which isn't good for American interests. Same thing with Syria: you can talk to them all you want but they are still going to support Hezbollah.
John Rutledge: If you want to beat someone in a business deal you have to get right in his or her face. You say this is what where going to do, where and why and then you do it!
Mike Ozanian: We need to take out Iran's facilities with nuclear tipped missiles today. The longer we wait and the more we talk with these guys the stronger they get. And then we're going to have to deal with it down the line.
Victoria Barret: Sometimes talking works, sometimes it doesn't. But you need to start with talking. We're talking about forceful diplomacy.
Jim Michaels: These guys have told us exactly what they want to do. Destroy Israel, take over Lebanon and jack up the price of oil. People aren't listening to them. It's just like Hitler. He wrote "Mein Kampf" telling exactly what he's going to do and he did it. People said when he'd come to power he'd moderate, and he didn't. No matter how much we talk to them, they're not going to give up their ambitions.
Quentin Hardy: What if we had stayed with the UN and let the weapons inspectors do their job. They would have found out that there are no WMDs, Saddam's regime would have collapsed under its own weight and Americans wouldn't be dying there.
Makers and Breakers
• Illumina (ILMN)
Jordan Kimmel, Magnet Investment Group: MAKER
This is a growth stock. Growth stocks are leading now. This is a healthcare growth stock. It has tremendous top line revenue growth, margin accelerations and cash flow in the biotech area. I think it can go to $54 in one year. (Friday's close: $38.22)
Neil Weinberg: BREAKER
This stock is up 144 percent so far this year. It's expensive.
Elizabeth MacDonald: BREAKER
This is overpriced and thinly traded.
Jordan Kimmel: You have to pay up for growth. This is one of the fastest growing companies and trades at a big discount to its growth rate.
• Technitrol (TNL)
Jordan Kimmel: MAKER
This helps make electronic pieces. Huge revenue growth and huge cash flow.
I think it can go to $40 in one year. (Friday's close: $26.65)
Elizabeth MacDonald: BREAKER
Revenue growth and cash flow is one thing, you want to look at free cash flow, which in this company is tepid and flat.
Neil Weinberg: MAKER
Most of their revenue is coming from overseas and the dollar is weakening.
Our "Cashin' In" crew this week: Wayne Rogers, Wayne Rogers & Company; Jonathan Hoenig, Capitalistpig Asset Management; Jonas Max Ferris, MAXfunds.com; Dagen McDowell, FOX Business News, and Jerry Bowyer, National Review Online.
Stock Smarts: Flattening Taxe$
Want to fix the tax mess here in America? President Bush says look at the little country of Estonia. That country is thriving after Communist rule and many say its flat tax system is a big reason why. Could the president even sell that here right now?
Jonathan Hoenig, Capitalistpig Asset Management: Well, I don't think he could sell it but if he could, Terry, this country would rule the world for the next 500 years. I mean, flat taxes are practical and they are also moral. The tax code used to be two pages long, it's now 17,000 pages long. It's seven times the size of the Bible. We waste $80 billion a year just figuring out how to comply. A flat fax would be a major benefit for this country.
Terry Keenan: Jerry, does the president have the political capital at all to push anything like this through?
Jerry Bowyer, National Review Online: No. I don't think he has the political capital to push a flat tax through. He spent that political capital on the idea of Social Security private accounts, which may have turned out to be a bit of an overreach. But that doesn't mean he couldn't accomplish something. Things would be better for him if he had a Republican Congress and he could set the initiative. He can't do that. But you don't need to go so far as completely redesigning the tax code to simple it. Jonathan's right. I used to be a tax accountant; the code is really thick.
Jonathan Hoenig: It encourages paper shoveling, not actual productivity.
Terry Keenan: It also encourages cheating in some ways.
Jerry Bowyer: It does. And it encourages a lot of waste. A lot of that code and a lot of those regulations are about technical enforcement matters that are about the timing. They're not about who pays taxes or how much they pay. They are about when you pay them. You could get rid of a lot of that complexity without really creating winners and losers.
Terry Keenan: But Wayne, the tax system has gotten more progressive under this president in the sense of lower rates for the low-income earners.
Wayne Rogers, Wayne Rogers & Company: Yeah, and Jonathan is right. I don't know much about taxes except that I don't like them and I assume nobody really does like them. Congress is also to blame here. The congress is idiotic when it comes to taxes. We've got somebody else who is going to be the head of one of those committees who is not the brightest light in the chapel.
Jonathan Hoenig: Do you support the progressive tax system? The whole idea that it shouldn't be flat, that the rich should pay more as a percentage of their income than the not-so-rich. Do you support that?
Wayne Rogers: Jonathan, I'm not into the theory here. You've got to support the military, you have to support the court system, and you have to support certain activities in the government. Now, you might go to a flat tax of some kind. It could be a value-added tax. That might be a way. Europe has value-added tax. That is a flat tax.
Terry Keenan: But is this all "pie-in-the-sky" Jonas?
Jonas Max Ferris, MAXfunds.com: It is "pie-in-the-sky" for Bush. I mean no government is going to get rid of the prospecting tax in the America. The public likes it, you're taxing the rich more, it's part of making the minimum wage stay the stay the same. As far as why these countries do it; they have trouble collecting taxes in Russia and those countries, so they have to have a very simple code or everybody cheats. It would probably benefit us, especially from the simplicity point of view.
Dagen McDowell, FOX Business News: I get giddy just thinking about the possibility of having a flat tax because it would just make doing your taxes so easy. But I can't imagine that the government would ever push one through because politicians need something to do, they need to justify their paychecks. And what do they do? They just buck up the tax system. They add exemptions; add breaks to appease their constituents. We had a simplification 20 years ago and we just threw it away.
Terry Keenan: Jerry, you advised Estonia in putting in its flat tax system. Any lessons you can take from there that could actually be applicable here?
Jerry Bowyer: They contacted me about privatization. I was a privatization czar for a big city here in the U.S. and they weren't sure they wanted the private market, but I was contacted by Estonia and it was amazing. This formerly communist country liked private markets. Here is what I think. Clearly it is working for Estonia. That little country is the little country that could. They are growing gangbusters. So is Latvia. These Baltic states are really doing well. They are attracting capital.
Terry Keenan: Does it cut back on the tax fraud that we see rampant in Russia?
Jerry Bowyer: It cuts back on tax fraud and encourages growth. Wayne is right; this is kind of a theoretical discussion.
Jonathan Hoenig: But it's also moral. It doesn't just work in practice; it works this theory, too. Democrats want a progressive tax like Karl Marx did.
Jerry Bowyer: We're not going to get it, so—
Dagen McDowell: Another thing. It would mean getting rid of the mortgage interest deduction. You can only imagine in the short-term how that would hurt the housing market.
Wayne Rogers: Everybody has said how complicated the tax system is. Congress can't do something that takes one sheet of paper, how are they possibly going to attack something that is this complicated. They can't do. You would have to start over from scratch and it's not going to happen.
Terry Keenan: Jonas, do you think that the president could at least float this idea as a counter to the democratic congress trying to raise taxes going forward?
Jonas Max Ferris: No, this is harder to flow than the Social Security reform and that was with Republicans on his side. It's not going happen. But the complexity here is the deduction side of the equation. Not the tax rate or how that goes up as you make more money. It's the thousands of things that are put in, the mortgage deduction, this and that. That's what makes it complicated.
Dagen McDowell: Maybe the next president can come in and propose a new tax system, tax reform and fixing the entitlement programs at the same time.
Jonathan Hoenig: Maybe you do it under the theory of equal treatment under the law. That somebody shouldn't be punished, or that somebody doesn't have fewer rights just because they make more money.
Wayne Rogers: The only way you are going to get this accomplished is that you are not going to have an elected official to do this. You have to have a dictator. That's the only way it will happen because nobody is going to have the political capital to run this through the congress and you have a whole group of people who are either dishonest, moronic and — I mean, they got elected for reasons that are beyond me.
Dagen McDowell: You need to move to Estonia, then.
Wayne Rogers: You can't cure a problem with people who don't know what the hell they are doing.
Cashin' In: Hou$ing My$tery!
Existing home prices continuing their decline, but new home prices were actually up in the latest report. What does it mean for the housing market?
Jerry Bowyer, National Review Online: There are a lot of statistics that swirl around this and it gets a little overcomplicated. This is not the "Da Vinci Code". Housing economics are pretty simple. You have a number of people who are in the country at any given time. You have whether those people are employed or not, whether they get a mortgage, whether their income is going up or down and whether their interest rates are low enough to be able to make a mortgage payment. And when you look at those fundamentals, we have a population that is growing. The scare story last month was ‘oh, no, we reached 300 million people, what are we going to do with them?' The story this month is, ‘oh no, we have too many houses.' Put the people in the houses and I think we've got this one solved.
Wayne Rogers, Wayne Rogers & Company: I couldn't disagree more. We have an oversupply. It is supply and demand; it's that simple. We have an oversupply of houses in almost every market, certainly in all of the markets that are expanding. And Jerry, you are wrong. The prices are coming down faster. We haven't gotten to the bottom yet. Interest rates will decline, will that help? Not unless there are buyers out there. You have got to go through this period of price adjustment and then foreclosure. Listen, at the same time, by the way, insurance is rising very rapidly and people can't make that monthly payment. They don't buy on a total value. They buy if they can make a monthly payment.
Dagen McDowell, FOX Business News: Absolutely right, home prices need to come down 5 percent, 10 percent, even more in some areas in the next year, to make homes affordable for people. If you can negotiate a price that is that much lower today: great. But if not, wait.
Terry Keenan: New home prices went up a little, but do you buy those numbers?
Jonas Max Ferris: They are throwing in new cars. That price is not that relevant. The used home prices are more relevant. Prices have come down a little. They are going to come down more. But it's not all just statistics. There is an element of speculation and nuttyness where you think it's going to go higher and you want to pay more. That has left the building, basically. Prices are going to go away until that whole speculative area is gone. I think you've got another 10 or 15 percent to go nationwide but it is a better time than last year. You have really low rates, lower than a year ago right now. So in that that sense, a good time to buy.
Terry Keenan: Jonathan you have been more optimistic than your buddy Wayne, are you still.
Jonathan Hoenig, Capitalistpig Asset Management: In terms of publicly traded securities, real estate is still hot.
Terry Keenan: But that's not residential, necessarily.
Jonathan Hoenig: Of course, it doesn't make a difference to your home. Markets move and a 5 percent decline in the value of your home really concerns you, maybe you are too leveraged. To me, you have to live somewhere. Owning a home is part of the American dream and you find a home you can afford and like my parents and grandparents, pay your 30-year mortgage and live in it for a while.
Wayne Rogers: But Jonathan, you are making the right statement: you said ‘find a home you can afford,' and that is the key. It is not the price of the home. It's whether you can afford to carry that mortgage, and those payments that have to do with insurance and taxes. That's what counts.
Dagen McDowell: Well, one frightening thing is if the rest of economy doesn't cool off more, maybe the Fed steps back in, hikes interest rates and housing has another leg down. The Fed has to stay on the sidelines for this to work itself out in the next year,
Jerry Bowyer: This country is growing by, on average, 1.5 million people per year and we are building 1 million homes per year at the current rate. So at some point in the near future, we catch up with that reality and we do a lot of home construction.
Best Bets: Fast Moneymakers!
The names our crew says will make your December one for the record books.
• Wayne's Pick: Las Vegas Sands (LVS)
Friday's close: $90.70
52-wk High: $96.90
52-wk Low: $38.07
Wayne Rogers, Wayne Rogers & Company: I like Las Vegas Sands. I have liked the gaming stocks all along. I held it at one point in the Cashin' In Challenge; I probably should have held it the whole time. I would have been better off. I still own it myself personally and I like it very much. Earnings are up, I think it's expanding and their investment in Macao is going to be terrific.
Terry Keenan: And Jonas, we saw this week that Kirk Kerkorian is selling his GM stock, upping his MGM stake. He likes these casinos as well.
Jonas Max Ferris, MAXfunds.com: Two casinos, $30 billion market cap. That's $15 billion per casino and seems a little rich. I know it's a great business, but $15 billion for a building? Not for me.
Jonathan Hoenig, Capitalistpig Asset Management: I know it's been strong but I don't know. There is something about the gaming stocks that kind of feels greasy to me. Not on my list. It's a sector I'm not really in right now.
Wayne Rogers: Whoa. You play in the stock market but you won't play in the gambling market? What are you talking about, Jonathan?
Jonathan Hoenig: I think my odds are better in the market than at your blackjack table, Rogers. I've got a better pick.
• Jonathan's Pick: MCG Capital Corp. (MCGC)
Friday's close: $19.57
52-wk High: $19.58
52-wk Low: $13.63
Jonathan Hoenig: It's one of these business development companies. I recommended Ares Capital a couple of weeks ago. I think this is a very strong sector of the market. We own it in my hedge fund. We own a lot of these business development companies and I think this is one of the few areas of strength that I'm finding that I'm really chasing after in equities right now.
Jonas Max Ferris: I mean, I like the idea of getting private equity to the individual investor but you don't want to be in the club that takes you as a member, and private equity is a thing that you can't get in with $1,000 and get a good investment going. And you're paying a 50 percent premium to net asset value. That's a Warren Buffet valuation there. I don't think these people are as good as Warren Buffet.
Terry Keenan: Wayne would you be gambling on Jonathan's stock here?
Wayne Rogers: Yeah, I like it. The question was what is going to happen in the next 30 days and I think that's a good play. A terrific stock to own, it's underaccumulation, had a breakout this last week, I think it's good.
• Jonas' Pick: Barclays (BCS)
Friday's close: $53.89
52-wk High: $55.21
52-wk Low: $40.72
Jonas Max Ferris: I'm going with the safest of the three picks. I'm a little worried about the market in December. I'm going with Barclays, a giant international bank. My big angle is they are king of ETFs right now with the iShares business. That's where all the new money is going.
Terry Keenan: But if worried about the market, why would you like it?
Jonas Max Ferris: Because all the money is going into these funds. In one month, I think the flow is in ETFs. You have $10 trillion in mutual funds. There's a high dividend, and that dividend is becoming more valuable every day the US dollar collapses a little more. This is a safe bet for December.
Wayne Rogers: Not for me. If I'm going to go into banks, I will look at another money center bank.
Question: "I read that we are banning sales of luxury items like iPods to North Korea. Will this tactic work?"
Jonathan Hoenig, Capitalistpig Asset Management: This is worthless. It makes us look so weak. If you want to get under his skin, why not address the problem and bomb this guy's nuclear sites. Make him incapable of having a nuclear weapon. That will annoy him a lot more than denying him his iPod and his Johnny Walker scotch. This is a waste of time. It's worthless.
Wayne Rogers, Wayne Rogers & Company: Well, I don't know why Jonathan wants to bomb everybody. Why don't you just go assassinate him?
Jonathan Hoenig: Not everybody, the people who are threats to this country and our allies, as Kim Jong Il is.
Wayne Rogers: You could send in a hit squad and that's the end of him. It's a weak thing. You are slapping a guy on wrist; it doesn't mean anything. If we don't have some way to boycott them and to really make him suffer, not the people, but make him suffer then we shouldn't be doing it.
Terry Keenan: And it's not going to hurt Apple (AAPL) stock if we did this.
Jerry Bowyer: No, it's not going to hurt American business if we do this. I don't know, I looked at the list of what we were going to embargo and there was liquor and cigarettes on there. I think we should give him as much liquor and cigarettes as he wants and we will get rid of problem a little sooner. But I don't know about the video games. They're getting pretty violent.
Dagen McDowell, FOX Business News: You want to give liquor to a guy with his finger on the button? That's crazy. So what if it's symbolic?
Jonathan Hoenig: Why not get rid of button.
Jerry Bowyer: In his case, he gets saner if he were drunk. And the cigarettes will end the problem in a couple of years. I wouldn't give him the video games - he is too violent enough already.
Terry Keenan: But Dagen, it's a pretty broad spectrum between nuking him on one hand, like Jonathan wants to do, and taking away his iPod, which is evidently what we want to do. Isn't there something in the middle?
Dagen McDowell: It does illustrate the type of sanctions that we need to come together as nations and impose on North Korea. Not just us, not Japan but also China and South Korea.
Jonathan Hoenig: It's not nuking him: it's de-nuking him.
Terry Keenan: Ok, you don't want to nuke him, just want to blow out the nukes. Sometimes you don't know with you, Jonathan.
Jonathan Hoenig: With me, of course.
Terry Keenan: But Wayne, to Jonathan's point, though, it does show that we don't really have much of a strategy. We are employing a time-out strategy that the parents use for their toddlers, to this threat in a country that is part of the Axis of Evil.
Wayne Rogers: The best part of Jonathan's statement is correct: it's idiotic. If you think you're going to slap him on the wrist about this, this is crazy. It makes no sense. Dagen is right. You get everybody together and boycott the son of a gun. Shut him down.
Jerry Bowyer: We traded with the Soviets and they fell. We didn't trade with Fidel and he's still there. Trade with this guy and open up the country.