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.
TRIPLE THREAT TO THE ECONOMY AS HOLIDAY SHOPPERS HIT STORES
Gary Kaltbaum: Yeah, I'm going to be the Scrooge here. I think so. There's just a lot of things happening all at once that tell me there's a problem ahead. Number one, we're looking at the European interests rates skyrocketing there is absolutely no confidence there. The numbers out of Asia now particularly China have been heading south. And then you add in our fifteen trillion of debt which is...I believe crowds out the private sector, uh I think we got trouble lying ahead, and by the way just watch the stock market. I think it's speaking volumes right now about what's going on.
Gary B. Smith: Gary K makes a compelling argument for doom and gloom. In fact he's making the same argument that I think ninety-nine percent of the people out there are making and that's why I think it's a good time to be on the other side. It's kind of like the discussion we had about inflation a few months ago. Everyone said inflation, inflation, inflation and yet there was no sign of it and that's one of the positive signs. There's still no signs of inflation. Consumers spending is down but it's not down substantially. Retail sales for October were up, and the economy is expected not to shrink, but to grow by about three percent so, look I don't think everything is rosy out there and we're going to have another late ninety's rally, but I don't think it's as bad as Gary K says. Being that stocks, I mean some stocks out there are already down thirty, forty, sixty percent...I'd rather be on the long side of the market then the short side.
Tobin Smith: Look, there are many parts of our economy that are in fact in a depression...not just home-builders, not just home-construction, but things related to those industries so for thirty or forty million people in the United States...it's not a question of are we in a recession, but the question is are we ever going to get out of a depression. Well, that starts to eat into the entire economy we're going to have very whether it's positive growth or negative growth really is not going to matter. What's really going to matter is...is that...the catalyst to get us off the mat is just not there yet and if anybody's investing their money with the idea that the U.S economy is going to be ripping at three percent, by the way which I...that number is not going to be close, then they're making the wrong bet.
Jonas Max Ferris: Yeah, first of all the depression is I don't think is any industry really in a depression in the way...look, if you look at the depression story from the thirty's and compare it to today, the Home Depot is a little too crowded to say that it's a depression in housing today. It's in trouble okay...it's slow.
JUDGE TELLING CASH STRAPPED CITY THEY CANNOT DECLARE BANKRUPTCY
Gary B. Smith: We saw this happen in the cry about the whole financial industry. Companies were essentially not allowed to go bankrupt and the taxpayer had to pick up the bill for it. We saw this with General Motors, and yet for cities, it can work. Out in Viejo, California in 2008 they declared bankruptcy. They are now just about to come out of bankruptcy. They have about the leanest budget out there and it's working. All those bloated government contracts have been cut down to the bone. The city is thriving and doing well. So it can work. It can work for Harrisburg, but the government won't let it. It's just silly.
Tobin Smith: This is an activist judge coming and saying 'there's a bigger pocket here that we can go after,' which would be the federal taxpayer. So, let's not take the medicine. Let's not let the system work. Let's go to the taxpayers because the taxpayers can pay it, so why not?
Jonas Max Ferris: Bankruptcy, whether it's people or the town, is the government protecting you from creditors. In a free market, a creditor will come after you all day for the rest of your life, grab your stuff and auction it off. The bankruptcy concept is so they can't do that. This is a move to basically not protect the city from the creditors and that could be good. Could it lead to bailouts from the federal government? Sure. But could it also mean raise your taxes? Yes, you're not a person, you can make more money. They changed the bankruptcy for people a few years ago. It's harder to go bankrupt. It should be harder for cities and towns to go bankrupt as well. They can raise revenues. They can raise taxes so they don't just throw their hands up and say 'well we can't pay for it.'
Gary Kaltbaum: The state arbitrarily changed their own laws so Harrisburg couldn't file for bankruptcy. They are going to pick and choose. It's about the winners and losers once again. That's what's happening federally, all the way down. Next you're going to see a big one in Detroit. That will come next year. That will be a fun one to watch too-taxpayers on the hook, whether it's on the service side or whether they're paying more in taxes.
Christian Dorsey: This is certainly not the solution for Harrisburg. Harrisburg's issue is that they have a huge amount of debt that's three times more than they bring in property taxes. It's not like other communities that simply have a problem in balancing their budget. They have deep, deep issues. The reason they were not allowed to proceed with the bankruptcy is because the mayor disagrees with the city council and if the politicians are not on board, there is no way you can manage a bankruptcy effectively. Harrisburg has rejected the idea of going into state covered receivership, which is really what it ought to do. There are plenty of options that they have yet to pursue, such as selling or leasing assets, or raising taxes. Bankruptcy is not the answer because, frankly, taxpayers are going to pay with that in the form of higher municipal bond rates forever.
MORE COMPANIES USING WORK SHARING INSTEAD OF LAYING OFF WORKERS
Gary B. Smith: The government deciding a company will only work an employee 30 hours and the company deciding the employee will only work 30 hours is not the same thing. One company might decide to do it. Another company might not decide to do it. The free market solution is when each company decides without the government interference.
Tobin Smith: This is the best free market solution to high unemployment. Germany developed this-not the German government, the German companies. When recessions come they know there are two types of capital. There is financial capital and there's human capital. If you lower the investment in human capital by extended layoffs, the human capital loses skills and value. They've done job sharing very effectively. They now have the best economy in Europe because of it.
Jonas Max Ferris: What you do in a recession is cut staff because you have less demand for your product. It's creative and an interesting concept. It's basically saying we'll keep everyone on board, but they'll work less hours. Then the government is going to subsidize it. Why shouldn't the government just say you can only work an employee 30 hours during a recession? If they passed that law that wouldn't cost the government anything, we would have 2 percent unemployment today because companies would need the people to do the work for their limited demand. It's mismanagement of your labor force. Is it better than extending unemployment for years? Probably. But it's not as good as letting the company who is the bad employee and who is the good employee or who works the best and dropping people as they see fit.
Gary Kaltbaum: Companies should be able to do whatever the heck they want to do to make their companies better. Part of this work sharing is about morale. When you're firing too many people morale goes down. If you can keep more people on board, when things start to turn around you don't have to rehire again. That's a big cost. So, I like the idea, I just don't like governments dictating to companies.
Christian Dorsey: The German short work program is not fully a market-based solution. It's government subsidized. That's the reason it works and it only works to avert mass layoffs due to sales being down. It doesn't do anything to deal with our particular, acute situation, which is having more unemployed people than jobs available. So, work sharing is a part of the solution, but it by no means, changes the game and it, by no means, is solely a market-based idea. It only works in Germany, California, and Rhode Island where it's tried because government uses some unemployment dollars to subsidize the missed hours that people have.
PREDICTIONS
Gary B. Smith: Dow jumps 10 percent by January 1st
Tobin Smith: Macy's has 25 percent by April
Jonas Max Ferris: Walmart 20 percent profit in one year
Gary Kaltbaum: Philip Morris International has 20 percent profit in one year
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