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.
JOBS PICK UP AND STOCKS SOAR WHILE DC IS FROZEN IN GRIDLOCK
Gary B. Smith: The whole point of the stimulus was to bring down unemployment. If that is the way we're grading the stimulus, we have to give it an F. On the flip side studies have shown that government helps to a certain extent, until it gets to about 20 percent of GDP. Anything over that the government acts as a drag on the economy and on employment. That's what we're starting to see now. The government's share of GDP is well over 20 percent. It's about 24 percent or 25 percent. We all know it's going to increase even if it's just for interest payments alone. The effects of the stimulus that you're seeing are going to be felt negatively for years.
Tobin Smith: What happens in the business cycle is demand becomes lower-that's where a recession comes from and people stop buying stuff and that creates pent up demand. We're starting to get to that self-reinforcing point. That's exactly the time that you want to be stepping out. In essence, the idea of government providing some stimulus early in a recession is so they can step out and it will be a shorter one. I'm still confused on how the government decided they want to manage the business cycle and that recessions and all the good things that come from recessions are not allowed to do. We needed more time and now we're starting to see the benefits. Time and the business cycle works.
Jonas Max Ferris: The entire housing market is being supported by housing stimulus. Let's not forget that the government did a lot, in tax cuts even recently with the payroll tax cut, that you could argue are stimulating the economy. Let's not wish too much for gridlock. If you don't do anything then taxes start going up quickly. First the payroll and then the Bush tax cuts go away. You want to compromise with a little bit of doing stuff, but not too much. What we have seen with the jobs market this week and with the stock market the last few weeks is that we don't need a whole lot more government. You want the government to pick up the slack when the private sector is weak. The private sector is coming back now and the government can slowly get out of the way now that we're out of a recession.
Bob Froehlich: We've had no new stimulus and we certainly haven't had a new tax on the rich. So, I think conceptually, something is happening here. I think we're finally figuring out we need to have slowing stimulus, not growing stimulus. We need to cut taxes, not hike taxes. Most importantly, we have to start challenging all of these regulations, not coming up with new regulations. We need less government employees, not more government employees. If we do that we'll have more days like today where stocks take off and employment takes off.
Susan Ochs: If you look at the stimulus we put in place in 2009, if you look at the payroll tax cut-everyone kept saying those policies failed. In fact, they worked. We're seeing the benefits now. These programs don't take place overnight. You don't see the impact right away. We're seeing tremendous growth come out of what were really reasoned, effective policies. The Fed has pumped so much liquidity into this market it's on an IV drip. This is a very supported market right now.
FOOD PRICES SPIKING AS GOVERNMENT CALLS INFLATION "SUBDUED"
Gary B. Smith: You can argue that there are black helicopters circling DC and everything is fake, but I looked up the actual numbers. I read somewhere that hamburger prices were up 60 percent. That's ludicrous. I took the numbers right off the government data. Yes, ground chuck is up. It's up about 12 percent year to date. No one talks about chicken that's up 3 percent. It's not up 50 percent like people are talking about. If you look at just food inflation, it's up about 4.5 percent year-over-year. People look at the ground chuck, but then they forget that fruits and vegetables are only up 3 percent. Going out to eat is pretty much flat. Restaurants are still begging to have your business. That's all included on the government number.
Tobin Smith: We actually have, in many cases, food shortages. For instance, 40 percent of corn is going to make ethanol. We have beef prices at ultimate, high prices because we have the lowest amount of herds since 1948. One of the reasons is that we're exporting beef to Japan and China and other places. The other reason is they can't feed them because there's no water and the grain prices are so high. When we call it inflation I think what we're missing is we actually have shortages in many of our food stuff.
Jonas Max Ferris: Part of this is good news. Yes, these meats are going up in price. Some of that is because people were cutting back on meats during the recession. The prices were low. The government wants 2 percent inflation. They're hoping for it. The only danger is they think it's not going to appear for the next few years and the economy, as we saw this week, is improving a little bit ahead of the Fed zone estimate.
Bob Froehlich: The government can't afford to have inflation because if we really measured inflation properly and showed that we had it would have meant people on social security would have gotten a cost of living adjustment each year in the last three years. Guess what. They only got it one year. That's because we lie when we measure inflation. This is one of the only countries in the world that uses a flexible basket of goods and services. That means anything in the basket whose price goes up is taken out of the basket by the government and anything in the basket whose prices are going down-think residential real estate-are given a bigger weighting in the basket. Magically, we have "subdued" inflation. Meanwhile, food is up. Energy is up. Medical expenses are up. But we have no inflation. It's unbelievable.
Susan Ochs: They're acting like this is some grand conspiracy from Ben Bernanke that the government is massaging the numbers and pretending there's no inflation. This is the way the government has reported inflation numbers and the consumer price index for decades. You have to cross out food and energy because otherwise you have monetary policy that has too many dramatic swings. There are a lot of other sectors, like technology, that people do experience a lot that are coming down significantly.
PRESIDENT OBAMA PUSHING NEW PLAN TO HELP STRUGGLING HOMEOWNERS
Gary B. Smith: This is another cash for clunkers or robbing Peter to pay Paul. The people who can refinance will refinance and they will save money. But the banks have to pass a charge onto that money they save because they're getting hit with higher taxes in this case. So, they make less. They spend less. The people that own the bonds, who are tied to these banks, also make less. So, you're benefiting one group and hurting another. The people who are going to take advantage of this aren't even in the market to buy or sell. They are in the market to stay in their homes. So, none of the churn we wanted in the housing market to pick up new buying happens.
Tobin Smith: Factually, this is good for the economy because we're not talking about 500 on this one. We're talking about tens of thousands. When you refinance from a six percent mortgage to a 3.2 fifteen year, that $568 adds up times tens and hundreds of thousands of people. So, it's going to be stimulative and the banks are going to have us pay anyway for it. That's how they do it.
Jonas Max Ferris: I'm all for the government paying for their ideas, not just borrowing the money from China like they did with Cash for clunkers. In this case, can't we cut the bankers some slack? It's been five years. It's not the banks' fault that the house prices have come down. It's not necessarily the government's job to hand more money to the homeowner. What about the renters? They can't lower their rent in all this. It's not fair to go after the banks. If it needs to get done then tax everyone. You can just say because you're a banker and this guy's home fell he has to get a lower rate loan. It's ridiculous.
Bob Froehlich: I don't like this. This is one thing I've learned in my 35 year career. When housing is in trouble, the last thing you want to do is go after the banks. We need to encourage the banks to lend. Don't throw something on top of them. They're just going to pass it through and it's going to hurt. It's not going to help.
Susan Ochs: The banks only have themselves to blame. They've been dragging their feet on this thing for years. In terms of mortgage modifications, servicing and the robo signing on foreclosures they have made such a mess. They could have cleaned up themselves and they just sat there and waited it out thinking it was going to blow over. It hasn't.
Gary B. Smith: Morgan Stanley (MS) makes 30 percent profit by December
Tobin Smith: Pfizer (PFE) up 20 percent in one year
Jonas Max Ferris: Praxair (PX) 20 percent gain in one year
Bob Froehlich: Omnicon (OMC) 30 percent gain by February 2013