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; Charles Payne, Wall Street Strategies CEO; Peter Schiff, Euro Pacific Capital president, and Jonathan Tasini, Labor Research Association executive director.
Trading Pit: Stocks Caught in Crossfire?
Democrats have chosen Virginia's freshman Senator Jim Webb, D-Va., to answer the President's State of the Union Tuesday night. He is one of President Bush's most outspoken critics. Are Dems declaring war on the President, and what's that mean to stocks?
Charles: The Democrats have already declared war and there will be a lot of collateral damage. Wall Street will get hit, but the general public will get hit even more. We saw it this week with the attack on the oil companies. But it's not just going to be the oil companies. Drug companies and any company where the CEO is making too much money will also be under attack. This is an attack on capitalism. The stock market will pay a price, but consumers and the American public will pay the ultimate price.
Gary B: The stock market will be fine. This Tuesday in his State of the Union address, I'm sure President Bush will present his policies in a very strong way. I'm also sure that Jim Webb will also present a very strong case. The more the Democrats tip their hand, the better, because they will show either no policies or bad ones. This will open rigorous debate and will lead to gridlock. And that is good for the market.
Peter: I definitely think confrontation is probably better than cooperation when it comes to the President and Congress. The last thing we need is bipartisanship. The more legislation passed, the more harm done to the economy and stocks. Neither the State of the Union or the Dems' response will move the market. Stocks have been going up, but investors have been ignoring some powerful fundamentals that really should have the market moving down.
Tobin: Wall Street has discounted the Iraq War and thinks it is a lost cause. Jim Webb is way off in left field. The Democrats are showing that they are trying to polarize the Republican base by choosing him to offer their response to the State of the Union address. We are coming into earnings season, and that's what's important to Wall Street.
Scott: Since the start of the unpopular Iraq War, the market has gone up. During the elections and all of the Bush bashing, the market has gone up. Now that the Democrats are in office, the market will still go up. Jim Webb and the Dems will inflict class warfare on the American people in order to win the election in 2008.
Best Thing for Wal-Mart Workers: No Unions!
Is Wal-Mart doing its workers a huge favor by discouraging unions?
Gary B: Yes! Wal-Mart is not only helping its workers, but is helping people across America by offering cheap prices and saving the average family about $2,000 a year. Wal-Mart is also good to its employees. The company pays double the minimum wage, offers good benefits, and across the board, workers are happy there. When a new store opens, thousands of people come out for just 300 job openings.
Jonathan: The reality is that the average Wal-Mart worker makes about $13,000 a year, which is below the poverty line for a family of two. Even full-time workers make below the poverty line. A family of two needs at least $27,000 a year to survive. We wear different hats in society: one as a consumer, and the other as a worker. To Gary B's point of saving consumers money, Wal-Mart could raise wages by a dollar per hour and the cost to the consumer is two pennies. Jesse Jackson said that even slaves had jobs. The fact that people are forced to work at Wal-Mart is not a good reflection of our society. Wal-Mart may be the biggest private employer, but it is reflective of what is happening in our country. We have a growing divide between the rich and the poor, many people don't have pensions, and 48 million Americans don't have healthcare. This is a huge problem.
Charles: General Motors, the airline industry and several other industries are all examples of companies that have shown that having unions may improve the lives of some, but in the end, others will be hurt. Those that don't get work are hurt. You can pay workers more money, but there will be fewer workers. This means fewer people in the community get jobs.
Tobin: Wal-Mart is the largest private employer in the United States. No one put a gun to anyone's head and said, "You have to go work at Wal-Mart!" If someone decides to work at Wal-Mart, it's their decision. People have to live with the repercussions of their own decisions.
Scott: Unions would help Wal-Mart employees make more money, but the company would have to fire 20 percent of its employees. Worker flexibility, part-time workers, employee satisfaction, and consumer satisfaction would immediately be impacted for the worse. Customers would have to wait on lines longer and eventually would go to another store. So the bottom line is that unions would hurt Wal-Mart's bottom line.
Each of the guys picked the next stock he's going to buy. (If you want to watch what each had to say about his stock, click here.)
Charles: Hansen Natural (HANS)
Scott: Advanced Micro Devices (AMD)
Peter: Gold Fields (GFI)
Gary B: Comcast (CMCSA)
Tobin: Advantage Energy Income Fund (AAV)
Peter's prediction: Housing crash this fall! Takes down stocks and economy
Charles' prediction: Oil done going down! Back up to $60/barrel by March
Scott's prediction: SiRF Technology (SIRF) keeps kids safe from predators; gains 50 percent
Gary B's prediction: 2007 the year of biotech! Genentech (DNA ) gains 50 percent
Tobin's prediction: Calls to American Idol boost AT&T (T ) 20 percent
Cavuto on Business
On Saturday, January 20th, Neil Cavuto was joined by Ben Stein, "26 Steps to Succeed in Hollywood" author; Jim Rogers, "Hot Commodities" author; Gregg Hymowitz, Fox News Business Contributor; Tracy Byrnes, NY Post Business Writer; and Jack Welch, former GE Chairman and CEO and "Winning: The Answers" author.
Neil: Tax the rich and kill the job market? Key Democrats are talking about a tax hike on top-earners, which would include small businesses where more than half of all new jobs are generated. Jack, would that help or hurt?
Jack Welch: I don't think if they raise the tax on the top they will kill anything other than Bush's legacy as a tax-cutter. What I'm more worried about is the payroll tax. If they start fooling around with that… it's just scary.
Ben Stein: We should not be running a budget deficit at full employment and at a time when we have more billionaires than we can count. We should be running surpluses to try to build up some kind of hedge against the overwhelming tidal wave that's coming down the pike from entitlements. Yes, eventually payroll taxes are going to have to be raised. It won't be much of a problem for Mr. Welch and his lovely bride, but for the rest of us it will be a little bit of a problem.
Jim: Raising taxes is not good for anyone. We have to do something for saving and investing in this country. Listen to what Jack said… if you raise the payroll taxes, people are not going to hire people.
Ben: We've raised the payroll tax dramatically in other periods and there have been increases in employment in those periods. We are a very prosperous society. We're facing catastrophe with entitlements. We've got to start preparing.
Jim: Cut spending then!
Gregg: I agree with Ben and Jim, actually… and Jack for that matter. No one ever really wants to raise taxes, but Ben's correct: Given the state of the economy, we should not be running these massive deficits. No one wants to raise taxes, but you have to do one of two things… you either have to raise taxes on the wealthy who can afford it, or cut spending. You'd love to be able to cut spending, but, clearly, this administration has not been able to do it.
Neil: The latest I'm hearing is that the reform is out, the hike is in.
Tracy: Right, because at one point the AMT (alternative minimum tax) was part of the reform that is going to hit the middle class very, very hard. But, that's a very challenging tax to get rid of. The AMT will bring in a trillion dollars over the next ten years. I think the Democrats are missing the point: you raise the taxes anywhere, even if you raise the taxes on the rich, it will hurt small business… and that's where the jobs come from.
Neil: So you think the fallout will be negative?
Tracy: I think it will hurt people. A lot of people file their businesses on their individual tax returns. You raise the individual tax rates, they will get hammered.
Jack: I think we can live that. I don't want to do it. I'm against any tax increase, but I think you could live with that. What we can't live with is a promise to fix other programs in exchange for a payroll tax hike now. That's a disaster.
Gregg: I think it's a problem. We're painting this as the platform of the Democratic Party. If you look at the legislation the Democrats passed in the first 50 hours, it hasn't been about taxes, it's been about stem cell research, it's been about raising the minimum wage, it's about cutting the cost of student loans.
Neil: Get off the stump. Every prominent democrat from Joe Biden to Hillary Clinton to Nancy Pelosi… has said if taxes were to get hiked on anyone, it would be the rich. Taxes on the rich, are they going up?
Gregg: I think certain taxes will go up, but I also think taxes on the middle class will go down.
Jim: But Neil, the people who create the jobs are the investors, and the people who invest happen to be the people with money. If you want a job, someone with money has to invest and give you a job.
Ben: Those people already have more than enough money!
Jim: Listen to what Ben's saying. We have a catastrophe facing us and somebody's got to do something about it.
Gregg: Jack, does corporate America do better with lower interest rates and marginally higher taxes with a balanced budget? When interest rates come down… it promotes more jobs.
Jack: Let me give you one number. If you take the surplus in the states, which is about $200 billion, this year, and the deficit, which is about $245 billion, it's almost a wash between the states and the federal government. This big deficit is 2 percent of GDP. There isn't a country in Europe that's operating at 2 percent GDP. If we can get reasonable growth in the economy, we won't have a Social Security problem.
Neil: Would you means-test Social Security?
Jack: A means-test of Social Security? I wouldn't mind it at all.
Tracy: Neil, on behalf of the people who don't earn a $1 million, we would mind. This would make a big difference to us. And it's a big difference to people who are self-employed; that money comes out of their own pockets.
Ben: Where is the money going to come from?
Tracy: Stop spending!
Neil: Your wallet, Ben. Your wallet.
Head to Head
Neil: Oil prices are down, way down! Prices went from a high of nearly $80 a barrel…now closer to $50. When prices spiked, Congress investigated. So should lawmakers be calling hearings now?
Jim: I suspect the Democrats are going to take credit for the fact that oil prices are down. But not only that, the Democrats are now raising taxes on the oil companies… and that's not going to bring more oil to market. You take away tax incentives, nobody's going to look for oil.
Gregg: Why do oil companies need tax incentives to drill for oil?
Jim: Ok, where's the oil coming from? We don't have enough oil. You have to drill for more oil.
Neil: Do you find it odd that the investigations stopped. The oil companies were the bogeymen six months ago, but now not?
Jack: It's a very populist argument. It's very easy to beat up on an oil company because people go to the gas pumps every day and pay a number. So it's a wonderful cause for Gregg and his crowd to take swings at!
Gregg: Look, I think if you can use those tax subsidies to force research into alternative fuels and decrease our dependence on foreign oil, then why not work it? It's amazing that you guys don't think the government can run anything other than a war. You guys pick and choose what you think the government can and cannot do.
Jim: In other words Jack, instead of subsidizing the oil companies, they want to subsidize their friends.
Ben: The way the Democrats are beating up on the oil companies makes no sense. The oil companies sell a legal and vital product. They're selling it without price fixing, and they're selling it in a very efficient way. Why are they being punished? What have the oil companies done to get so much hatred from the Democratic Party?
Tracy: I think it's all for campaign purposes. Middle-America is upset. We tell our senators and congressmen that we pay too much to fill up our tanks, and they go to D.C. and vote against the oil companies, but six-billion dollars in tax cuts? It's nutty! Oil companies need this stuff to keep going.
Neil: I always wonder why people don't get angrier at the fact that gas taxes go up year after year, and that is mitigating the drop in oil prices that you would hopefully see.
Gregg: I just think it's funny that oil companies need $14-billion in tax subsidies. Did GE get $14-billion in tax subsidies?
Ben: Gregg, we're all getting tax subsidies.
Gregg: My point is, if you can take those tax benefits and use them to fund alternative fuel sources… why not do that?
Ben: Gregg, that's a great idea! Let's do that, and let's also stop beating up on the oil companies.
Jim: Gregg, house prices have been going through the roof in America. Are we going to start taxing the homebuilders to make sure we don't get more homes?
Gregg: We're not talking about taxing the homebuyers; we're not talking about taxing homes. We're talking about taking subsidies that possibly could be used for better purposes. No one's beating up on the oil companies!
Neil: It begins with oil companies. I think it's fair to guess that other companies are going to get targeted.
Gregg: Target of what? Tax increases? Investigations?
Inside Jack's Head
Neil: Is a victory for Wal-Mart also a victory for America and the markets? We go inside Jack's head. This week, a court shot down an attempt by Maryland to force Wal-Mart to pay more for its workers' health care benefits. You call that a victory for America.
Jack: It's very good news! Anything that raises prices for Wal-Mart is another tax on the middle class of America. Wal-Mart provides that inflation fight.
Neil: Why does Wal-Mart get the bad reputation?
Jack: There's an army of union organizers who want those employees. Politicians are catering to the union organizers. A recent poll shows that 75 percent of Americans think Wal-Mart is good for the country. That's a fascinating poll.
Neil: Do you think Wal-Mart might have a tin ear to some of the public complaints? Wal-Mart, fairly or not, has the impression of being unkind to its workers. I think you and I both know that's not right. But, what could or should the company do?
Jack: They're doing all kinds of things. The environmental movement they just put in for lights; they're doing all kinds of things with their trucks; their suppliers have disposable things that are good for the environment. This company has catered to these, if you will, extremists. I don't think they have a tin ear. They have tried. But, I'm telling you… when you deal with these folks, there's never enough. Wal-Mart's created great jobs for people who never would have had those jobs; people who never went to college have risen up in the management ranks.
Neil: So this is all about unions?
Jack: In my mind, it's all about unions.
FOX on the Spot
Jack: Libby prosecutor Fitzgerald will soon look like Mike Nifong.
Jim: Bush's Iraq policy dooms McCain and Giuliani's chances in '08
Ben: Strong economy, no inflation; give Bush credit!
Tracy: Foreclosures on the rise; go buy a beach house!
Gregg: Economy slowing; Fed starts cutting rates by summer
Neil: Read their lips; Dems will raise taxes!
Forbes on FOX
Flipside: Let Baghdad Fall: Be$t Thing for Safety and Stocks!
Victoria Barret, associate editor: Every month we are spending $8 billion, countless American and Iraqi lives and what do we have to show for it? More damage, destruction and violence. Why? Because this increasingly is not our war, but one between religious factions in Iraq. We should pull our troops out. We should sponsor elections there and let these people decide whether they want to coexist peacefully as one country or be divided.
Steve Forbes, editor-in-chief: If Baghdad falls, the markets fall. We tried this in the 1970s when we pulled out of Southeast Asia. We had a terrible decade economically. When America is not defending the world the bad forces take over and the markets pay a price for it.
Elizabeth MacDonald, senior editor: I support our troops and I support getting them home. To have a successful counter-insurgency you need to convince the silent passive majority. There are no more fence sitters in Iraq. Surveys show that Iraqis support killing coalition troops. We need to bring those troops home.
Mike Ozanian, senior editor: Surrendering to people who want to kill us is not the way to go. Look at how the market has responded since Bush has come out with his revised plan. Stocks are way up, oil is way down.
Michele Steele, Forbes.com reporter: There is no connection there. As far as the markets are concerned Baghdad has fallen. The question is now what?
Jim Michaels, editorial vice president: If we pulled out of Baghdad, it would be a disaster for the markets. If they can secure Baghdad they'd basically have control of the country. If we pull out we're handing Iraq over to Iran, our sworn enemy.
Blame GOP for Any and All Tax Hikes?
David Asman, host: The richest 20 percent of Americans pay over 85 percent of all income taxes. So if the Democrats push through a tax hike, will the GOP be to blame because it didn't use facts like this on to make their case?
Elizabeth MacDonald: Yes, Republicans should be to blame for the tax hike! I'm a flat-taxer. The Bush tax cuts pumped steroids into the economy. The rich do pay their fair share. Those under $40,00 don't pay any income tax. The GOP is to blame for not selling this message!
Steve Forbes: The GOP has not made the case for what the tax cuts have done in the 1960s, 1980s and now. And now the administration is giving an indication, especially the treasury secretary, that they are going to go along with the tax increase proposal from the Democrats. There's an Aesop Fable for George Bush, when a donkey tries to become an elephant, it rises in size. When an elephant tries to become a donkey it becomes a jackass.
Mike Ozanian: The Republicans aren't to blame here. The benefits of the tax cuts are so obvious. The average American is richer than they've ever been in this country. Incomes are rising faster than inflation.
Rich Karlgaard, publisher: I don't blame the Democrats because when you vote for a Democrat you're voting for tax hikes. Republicans have ridden tax cuts to victory since Ronald Reagan and now they're walking away when they're ahead of the game.
Dennis Kneale, managing editor: This sounds like a conspiracy planted by the Democrats. The Dems are going to raise taxes and we're going to blame the Republicans for not doing a good job arguing against it. When the Democrats raise taxes the Americans are going to blame the Democrats.
Quentin Hardy, Silicon Valley bureau chief: The richest 20 percent of Americans pay 85 percent of the taxes. The riches 20 percent also own 84 percent of the assets. And when it comes to financial assets, the bottom 80 percent, which include soldiers, teachers, firemen and police, own 9 percent of all assets! If you believe that the rich are being victimized here you are also probably among the 20 percent who thinks the Sun revolves around the Earth.
In Focus: The More Dems Fight, the Higher Stocks Will Go?
Jim Michaels: The Dems aren't a real party. You've got the "Deaniacs" on one side, the Edwards people who are talking about soak the rich, you've got the "Clintonites" who are in the middle of the road. The don't agree on anything substantive. Over the 100 hours, they're going to say they delivered. What did they deliver? Minimum wage, who's vote against that? Cheaper loans for students, who'd vote against that? Ethics reform, which had no teeth. This is no program.
Lea Goldman, associate editor: Jim's idea of a viable political party is made up of Stepford wives who agree in lockstep with the president. They all sat on their hands while this President plunged us into a war we can't win. I think it's a sign of a very healthy party that it's comprised of a diverse constituency, so much so, that they don't agree across the board.
Rich Karlgaard: Nancy Pelosi has over performed. She's gotten through this pay-as-you-go which could be disastrous. My hope is in the Senate. I hope the Republican leaders can round up a couple of blue dog Democrats to veto any nonsense coming out of the house.
Quentin Hardy: The Republican party has the Christian right, conservative homosexuals and people who want to drill off shore. It's called democracy. Have you noticed the markets have been hitting one high after another since this party has been elected?
Steve Forbes: If the Democrats have their way, will get a lot of bad stuff through. They've already started. We need to hope that they overplay their hand. And the Republicans who wish to capitulate, including those in the White House, won't be able to do it.
Informer: Bet the House?
Dennis Kneale: Home Depot (HD)
Lea Goldman: Homex Development (HXM)
Victoria Barret: Beazer Homes (BZH)
Michele Steele: SPDR Homebuilders (XHB)
Our Cashin' In Crew this week: Wayne Rogers, Wayne Rogers & Co.; Jonathan Hoenig, Capitalistpig Asset Management; Jonas Max Ferris, MAXfunds.com; Dagen McDowell, FOX Business News; John Layfield, Northeast Securities; Gary Kaltbaum, Kaltbaum & Associates, and Tim Graham, Media Research Center.
Stock Smarts: Liberal Media – Enemy to America and the Market?
Has the liberal media gone over the line in covering the Iraq war, in turn strengthening the terrorists and putting America and the stock market at risk?
John Layfield was recently in Iraq visiting the troops, and he says the morale of the soldiers is very strong right now. They have taken an "us vs. them" mentality, and a lot of that has to do with the way the war is being covered in America. He notes the New York Times and its seven front-page stories recently written about the hanging of Saddam Hussein and the more than 50 front-page stories written about Abu Gharib, but not one front-page story about the recent Congressional Medal of Honor winners. And that's indicative of what is going on in the mainstream media. It emboldens the terrorists.
Dagen McDowell says that so far the stock market has held up in the face of violence in Iraq, but what concerns her about the excessive negative coverage of the war is what it can do to the confidence of American investors, which is an intangible element to the market's performance. You keep up the negative coverage, and it could be bad. And there is good news coming out of Iraq with that country starting to turn things around economically, but you rarely read about it.
Wayne Rogers says that the fighting in Iraq, the actually war, does not really have anything to do what goes on with the economy and the stock market. What does make a difference is the amount of money we've spent on fighting the war. It was originally budgeted at $40 billion; we've now spent over $400 billion. If that money were put back into America instead of the war, we would be doing a lot better.
Jonathan Hoenig thinks that the media doesn't have much to do with the market's performance, not does it have much to do with the success of the war in Iraq. The President is in charge of running the war, not the national media. And to shift the focus on the media's coverage of the war is a bit of a cop-out.
Tim Graham says the media absolutely plays a role in determining events: just take a look at the midterm elections and the Democrats' victory. The mainstream media's coverage of the war, its negative coverage of the war, totally influenced the outcome of the election. The mainstream media has not only been against the war during the fighting, but it was against the war before it happened.
Gary Kaltbaum says the media is not going to hurt the stock market; it is not going to hurt the economy. But it can hurt the intangible of confidence. The New York Times has an agenda; it hates George W. Bush and it always paints whatever he does in a negative light.
Memo to the Dems: Don't Mess With the Economy
The President gives his State of the Union speech on Tuesday night (1-23-07), his first in front of a Democratically controlled Congress. Is Wall Street sending a message to the Dems: don't' mess with the economy?
Gary Kaltbaum says he wants the Dems to just leave well enough alone, hoping they realize that things are going well with the economy. Wall Street is still cooking and the economy is still strong.
Wayne Rogers says that the Democrats aren't going to do anything to tear up the economy, and he doesn't understand all the hatred out there directed towards their possible handling of the economy. What they could do in terms of helping the economy would be to cut spending.
Jonathan Hoenig thinks the Democrats economic policy amounts to massive government expansion and that on the whole they are distrustful of free markets.
Jonas Max Ferris says that it's the Republicans who are messing with the economy, not the Democrats. Just take a look at California and Massachusetts: two states run by Republican governors, both of whom want "national health care" plans applied to their states.
Dagen McDowell says that Democrats are already messing with things that will impact the economy, by cutting off billions of dollars in tax breaks and subsidies to the oil companies, which will hurt any plans these companies have for drilling. And that will bring the price of oil back higher.
John Layfield says that it is criminal what the Democrats are doing to the oil companies and that it will end up having a huge impact on small American businesses.
Best Stocks Under $10/Share
Jonathan's pick National Bank of Greece (NBG)
Friday's close: $9.70
52-week high: $10.53
52-week low: $6.81
Year-to-date: UP 4.3 percent
Gary's pick: Blockbuster (BBI)
Friday's close: $6.60
52-week high: $6.67
52-week low: $3.20
Year-to-date: UP 24.8 percent
Jonas' pick: W Holding Company (WHI)
Friday's close: $5.81
52-week high: $9.12
52-week low: $5.00
Year-to-date: DOWN 2.5 percent
Wayne's pick: Van Kampen Senior Income Trust Fund (VVR)
Friday's close: $8.59
52-week high: $8.85
52-week low: $7.83
Year-to-date: DOWN 1.7 percent
Question: "What is all the cold weather that killed the crops in California going to mean for Wall Street and stocks?"
Dagen McDowell thinks that the will be little or no impact for American businesses or stocks because of the weather. California farmers will obviously be hurt, and consumers will see the price of oranges go up. But oranges aren't like oil, which is a necessity to our economy.
Wayne Rogers says that while this is a terrible thing for the state of California, it won't have any effect on the stock market. And if someone really wants an orange, they will pay up for it.
Jonathan Hoenig notes that the agricultural market has been going through a boom lately, sighting DBA, which is an exchange traded fund that charts the agriculture industry.
Jonas Max Ferris thinks that this weather totally has an impact of the economy and markets. The warn weather is what broke the backs of speculators in the oil market.