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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; Charles Payne, Wall Street Strategies CEO; Laura Schwartz, White House Strategies principal, and Peter Schiff, Euro Pacific Capital president.
Trading Pit: The "Real" War Against America's Middle Class
If you listen to some reports, the middle class has never had it tougher. But holiday sales — ringing up a very merry season. Home ownership — at record numbers. And the stock market—much of it owned by individuals — trading at an all-time high. So if all that is true, who's "really" waging war on the middle class?
TOBIN: The liberal media and John Kerry, D-Mass., are waging the war. When you hear "the middle class" has never had it so bad, DON'T believe it. Middle class families live with luxuries that used to be only for the rich; things like lawn services, housekeeping services, and plastic surgery. These claims are trumped up and are being used to create class warfare.
LAURA: The benefits of the growing economy have yet to trickle down to the middle class. The American public sent that message to Washington a month ago! Median household income for the middle class has declined under President Bush by $1300 a year, while other costs like healthcare, education, and energy have gone up almost $5000. This is one of the reasons why minimum wage hike has been endorsed by Democrats, a lot of Republicans, and religious groups that are concerned about poverty. There is a widening gap between the have and have-nots.
GARY B: Adjusted for inflation, total median household wealth is at an all-time high.
Laura mention income is dropping, but if you include total compensation — healthcare, Social Security, paid days off, etc. — it's also at an all-time high. Home ownership is at an all-time high. Unemployment is at an all-time low. I can't see how is the middle class is NOT benefiting.
PAT: I've never seen why this is a partisan debate. These trends are long-term in nature.
They don't happen exclusively in Democratic or Republican administrations. Income inequality in this country has been widening since the 1970s. The issue needs to be addressed, but placing blame on one side or the other doesn't really get us any further.
CHARLES: Moving up is the American dream. I think it's despicable when liberals and Democrats make people, who are doing very well, feel like they're doing poorly. We have a society where some people are making others feel bad because they are doing great. Let's enjoy the fact that we live in a country where people are allowed to ascend and be great. The middle class is not doing poorly. We're hearing about all these record Wall Street bonuses. Some of these people getting them came from nothing. This is the reason why so many people are coming to this country.
SCOTT: The good news is that the middle class has never been bigger. But the bad news is that the middle class is getting hit harder than ever by the government. It's not the Republicans or the Democrats. Federal, state, and local taxes take up 50 percent of the middle class paychecks. And when you add in property and sales taxes, and it totals to 60 percent! That means the middle class is working for 40 percent of their money. The government is waging war on the middle class. That's the bottom line.
Housing Market Killer?
There has been a lot of optimism about home prices in 2007, but what if interest rates go higher? Would it be a housing market killer?
Peter Schiff: Anyone that calls a bottom in the housing market, including Alan Greenspan, is just wishful thinking. Interest rates are just one problem for housing and they are going a lot higher. Interest rates, like all prices, are determined by supply and demand. In America, there's lots of demand. Everyone is borrowing money and no one is saving money. Our domestic pool of savings is shallow and we've borrowed a lot of money from abroad.
Charles: Interest rates are going down. The economy is stronger than everyone thought it was going to be. The U.S. economy is not going to go off a cliff. The Federal Reserve may be able to slow the housing market down, but I think home prices are going to be up big time next year.
Gary B: I don't think there is a link between interest rates and housing. Median home prices keep going up. The only thing that derails the housing market is high unemployment and we don't have that right now. To Peter's point, I have heard that people aren't saving, but as we discussed in the first segment, household net worth is at an all-time high when adjusted for inflation.
Tobin: At anytime you can say that Americans don't save enough money. We are a country that imports excess capital because other countries are bad users of capital. We are the best users of capital.
Scott: Of course if rates go up, housing could slow down, but rising rates won't kill home prices. Housing is bottoming. Historically, interest rates are remarkably low and remarkably stable. They will continue to be low for the next several years.
Pat: Rates are low, at an absolute level. It's that absolute level of rates that determines affordability. The larger issue is the overhang of inventory. Too many houses were built because builders assumed demand would go up at too high of a rate.
Americans loooove fatty foods! Which companies are going to help "Fat America" get healthy again?
Tobin: Under Armour (UARM) is the hottest and sexiest clothing for working out. It's going to take over Nike in several key areas. (Under Armour closed on Friday at $50.62. On Monday, Under Armour transferred from the Nasdaq to the NYSE. Its stock ticker is now: UA.)
Charles: The problem is you already have to be in shape to wear it.
Pat: I love Medtronic (MDT), which makes high tech pacemakers and other medical devices. As folks live longer and longer, there's an increased chance of having heart trouble, which increased the demand for Medtronic's devices. It's a wonderful, well-managed company and a fabulous core healthcare holding. (Medtronic closed on Friday at $54.30.)
Scott: Medtronic is an important company, but it is already priced for a takeover. Another company needs to buy it, or else it's too expensive.
Gary B: Go with Nike (NKE). My chart shows that the stock had a huge breakout, moved sideways for a while, and then broke up again. From here, I think it will dip down to the mid $80s and then shoot back up to $100. (Nike closed on Friday at $96.05.)
Tobin: Nike's fairly valued and I don't think its products are hotter than Under Armour.
Charles: America's in debt, but we also like to medicate. That's why my pick is Sanofi-Aventis (SNY). This company has a lot of drugs for obesity and diabetes. (Sanofi-Aventis closed on Friday at $45.88.)
Pat: There's quite a bit of risk because a lot of the company's sales are from their top 3 drugs. That kind of concentration will go off patent soon and I need a much bigger margin of safety.
Scott: I like generic drug maker, Teva Pharmaceutical (TEVA). I don't know what company will make the best cholesterol-reducing drug, but I do know that eventually the drug will go generic. This company will then make it and sell a ton of it. (Teva Pharmaceutical closed on Friday at $32.14.)
Gary B: Scott drew this chart for me…and it has a big downward line. It's ugly!
Tobin's prediction: Give the gift of Garmin (GRMN); "safe" bet to gain 50 percent
Scott's prediction: Bye Castro, Hello Construction! Buy Florida Rock (FRK)
Gary B's prediction: Buy Energy Select SPDR (XLE) and profit from higher gas prices
Pat's prediction: Call on Sprint Nextel (S) to make 50 percent in next 2 years
Charles' prediction: Big bonuses bullish for Bear Stearns (BSC); up 20 percent
Cavuto on Business
Neil Cavuto was joined by Jack Welch, "Winning: The Answers" author; Ed Koch, Former New York City mayor; Jim Rogers, "Hot Commodities" author; Gregg Hymowitz, FOX News Business contributor; Rebecca Gomez, FOX News Business correspondent.
Neil Cavuto: Appeasing radical Islam — the road to peace or economic disaster? In a week when Iran's President holds a conference to promote the denial of the Holocaust, the U.N.'s Kofi Annan bashes America in a speech, never mentioning Iran, and the Pope criticizes the War on Terror, but not Iran or al Qaeda, many on Wall Street are worried the world is appeasing radical Islam. Is it?
Mayor Koch: There is a spirit of appeasement when you have countries like France and Germany, and Spain withdrawing as it did. And the difficulties we have with our own allies and NATO to get them to help us, you can say appeasement is in the air. It's just crazy that we don't challenge our allies by saying that if you don't come in and help us we're getting out. I am convinced that they would come in under those circumstances. Saudi Arabia was quoted in the press just the other day as saying please don't leave because if you do, we'll have to go in to support our Sunni brothers and sisters.
Jim Rogers: I wouldn't call it appeasement if you're talking about the Russians and the Chinese saying we're not going to have sanctions against the Iranians. They don't see the good of sanctions against Iran.
Neil Cavuto: Well the examples I used were when we're criticized more than the countries that seem more worthy of it.
Jim Rogers: That might be anti-Americanism, but it's not appeasement. We do have some enemies in the world, and I think we all know that.
Gregg Hymowitz: I agree. I don't see how all of a sudden if people criticize America that that's appeasement. As far as Wall Street worrying about it, I'm not sure where you get that. I don't think Wall Street is worried at all. And at the end of the day, if you're an investor in the equity markets what would you rather have, conflicts and war all the time, or peace and stability? I think having some diplomacy with these countries ultimately would be a positive for the equity markets.
Rebecca Gomez: And also it's not a stretch to say one-day Iran could become our ally. Look at what former President Reagan did when he talked with the USSR. A lot of people criticized that decision and it turned out to be a brilliant move.
Jack Welch: Markets don't care about these conversations. Ever since November 1st, the market's up roughly 5 percent. Bush lost the election. The Baker commission was more about appeasement. Oil impacts the markets the most. If in fact we had disruptions — big jumps in oil prices — then you'd have the markets reacting.
Mayor Koch: I'm not a specialist on the markets, and I don't care about the markets. What I do care about is defending Western civilization. And I believe the radical Islamists want to kill us. They don't conceal it.
Gregg Hymowitz: Have we done a good job of defending Western civilization in Iraq?
Mayor Koch: No, we've done a terrible job. But they want to kill us. The guy who was in charge of al Qaeda in Iraq said was our religion requires that we murder the infidel. It requires that we slaughter the infidel unless he converts or pays tribute.
Neil Cavuto: Jim, Jack Welch says Wall Street is ignoring all this. Is it to its peril?
Jim Rogers: Wall Street would rather have peace, I assure you. If we could get the troops out of Iraq and we didn't lose the oil, I assure you we'd see the markets go through the roof.
Rebecca Gomez: The markets do care about this issue. Maybe not short-term, but for the long-term this is a new avenue of trade for us. And who's to say that one day Iran won't become one of our largest trading partners.
Head to Head
Neil Cavuto: Wal-Mart bashing was practically a campaign strategy for some Democrats. Now that they're in control, will the new Congress declare war on Wal-Mart? Time to go head to head. Jim?
Jim Rogers: You know they're going to come down hard on Wal-Mart. Right now they're talking about making the Chinese raise the value of their currency. They're going to do things with labor legislation. It's not good for America, and it's certainly not good for Wal-Mart.
Jack Welch: We had Maryland trying to this with healthcare and the Chicago council blocking a building. Both of those were overturned. In the end, despite the rhetoric, they will not pass the legislation to raise prices on their constituents.
Neil Cavuto: Mayor, someone you had lunch with this week, Hillary Clinton, gave back a $5000 donation from Wal-Mart during the last campaign. She once sat on the board and now repudiates the company.
Mayor Koch: It's foolish.
Neil Cavuto: What's foolish, her doing that?
Mayor Koch: Yes. And I'm a great supporter of Hillary. I don't shop at Wal-Mart because I use other resources. They're not around where I live. I am not opposed to large businesses like Wal-Mart. If you want to, then raise minimum wage and provide medical care, but don't single out Wal-Mart. Do it across the board.
Gregg Hymowitz: The Democrats are not going to single out Wal-Mart.
Neil Cavuto: They already have. Barack Obama and John Edwards did a joint bashing together.
Gregg Hymowitz: Everything everyone's talking about will be done across the board.
Rebecca Gomez: The Democrats have said that they will focus on raising the minimum wage.
Jack Welch: That won't bother Wal-Mart.
Rebecca Gomez: At some point though it is good for all of America. You have these lower income people who are making more money and who will shop more.
Gregg Hymowitz: Jack's right. Wal-Mart classifies most of its workers as part-time, so they avoid a lot of these issues.
Jack Welch: And their wages are a lot more than minimum wage.
Mayor Koch: You have to encourage unionism and that's one of the failures in our country.
Jack Welch: Why would you encourage it?
Mayor Koch: Because it is the union that makes you strong.
Jim Rogers: But if the workers of Wal-Mart wanted a union, they'd start a union.
Gregg Hymowitz: They can't.
Rebecca Gomez: They've tried many times.
Gregg Hymowitz: The laws in this country prevent you from starting a union. If you look at the National Labor Relations board, it is almost impossible for employees today to voluntarily come together and start a union.
Neil Cavuto: Maybe it's because the unions haven't served their workers' interests as much as they've served their honcho's interests.
Gregg Hymowitz: That's garbage.
Mayor Koch: Unions have made the difference in this country for large amounts of people.
Neil Cavuto: Here's why I know it's going to be an issue. A group of pastors this week gathered to say Jesus wouldn't shop at Wal-Mart. When they're invoking the name of Jesus to make a political pitch, I think it's going to be open season.
Mayor Koch: Would he (Jesus) join a union?
Neil Cavuto: I think he'd shop there if his followers could save $2,000 a year.
Inside Jack's Head
Neil Cavuto: When the most successful CEO on the planet says: "America, we've got a problem in the business world!" Maybe we should listen. Time to go inside Jack's head. Jack, you're all over this in your Business Week column this week. What's going on?
Jack Welch: Too many corporate boards are running scared. In the last three months I've had meetings with well over 300 CEOs. And every one of them privately will whisper, "This damn board of mine is just hunkered down and doesn't want to talk about growth. All they care about is: "Have you done anything lately that might embarrass me?" And so boards are really running scared and they're in a very defensive mode.
Neil Cavuto: Why is that?
Jack Welch: You had the scandals of 2000 and 2001. You had the disclosure issues. They shouldn't be running scared. We've got great internal auditors today that are all over things. And Neil, those public accountants that didn't create the problem, but sure didn't find it, are now the beneficiaries of it all, so they're all over it. They're billing hours like they've never billed hours before. And so the numbers are better than they've ever been. Yet they spend hours pouring over them. And the idea that a board coming in 10,12 times a year can sit down, go over the numbers, and find something is just silly.
Neil Cavuto: This is still an environment where we could still have a huge scandal brewing with backdating options and the like. So maybe they have a reason to be a little anxious.
Jack Welch: Backdated options are from before.
Neil Cavuto: Absolutely. So far.
Jack Welch: So far. There's nobody backdating options in the last three years that I've seen. Boards have to be in business as partners of the CEO. I mean we've got legislation proposed now with the FCC with activists groups going after them, that have easier ways to put more board members, to be elected. Imagine if the Wal-Mart crowd that's beating them up actually got on the board. What kind of constructive relationship would you have between the board and management? You can't have it.
Neil Cavuto: They are looking at ways maybe to examine how directors are chosen so they're not rubber stamps to the CEO's. You think that's gone too far?
Jack Welch: Absolutely. You end up with a board that looks like a European board where labor and management are fighting over everything. And all you do is get slow growth. You need a board that trusts the CEO — trusts the management.
FOX on the Spots
Jack: 2007 economy will be stronger than Wall Street's expecting!
Gregg: Economy weakens in '07; tough year ahead for markets
Mayor: Barack Obama will be Hillary's running mate in '08
Jim: Qantas buyout is just the first of many mergers to come — keep buying airlines!
Rebecca: Last-minute holiday shoppers will splurge on luxuries!
Neil Cavuto: Christmas sales would be double, maybe even triple what they are if there were more cashiers. But there aren't. That's the problem I see, not a lack of shopping will.
Forbes on FOX
This week host David Asman was joined by: Steve Forbes, editor-in chief; Dennis Kneale, managing editor; Quentin Hardy, Silicon Valley bureau chief; Mike Ozanian, senior editor; Elizabeth MacDonald, senior editor; Lea Goldman, associate editor; Victoria Barret, associate editor; Michele Steele, Forbes.com reporter; John Rutledge, Forbes contributor, and Ken Fisher, Forbes contributor.
Flipside: Economic Disaster If America Kicks Its Oil Addiction!
Mike Ozanian, Senior Editor: Kicking our oil addiction would be terrible for our economy. Oil is a big reason why our economy is the strongest in the world. It's a big reason why we have the richest stock market it the world. Oil is abundant, efficient, and cheap. We should be using more of it!
Quentin Hardy, Silicon Valley Bureau Chief: Oil is the reason why we're killing people in the Middle East. Oil is a major contributor to the pollution of the atmosphere and is messing with the weather and the temperature. Oil is on the way out and the country that gets there first will be a leader in the future.
Steve Forbes, Editor-in-Chief: There is plenty of oil around. We have tens of billions of barrels in the Continental Shelf. We should remove restrictions on that and we'll sharply reduce our dependence on oil and have a prosperous economy at the same time. We need to get rid of government's addiction to interfering in the market.
John Rutledge, Forbes Contributor: The economy will run a lot better if we use less oil. We need more oil and nukes. But what we really need is more information technology (IT). More IT raises productivity. It's doesn't use oil, doesn't pollute, and is the way to grow the economy.
Elizabeth MacDonald, Senior Editor: I don't think we can cut our dependence on oil. I think it would be bad for the economy. Oil based chemicals are used in all sorts of products like: aspirin, toothpaste, deodorant and even dentures. Also, plastics made from oil are used in telephones, TVs, and DVD players. I think it would be almost impossible to get rid of oil.
Michele Steele, Forbes.com Reporter: It would be difficult, but our economy could survive if we kicked our addiction to oil. We had the oil crisis of 1973 and rationing during WWII and we survived.
Informer: Why the Dow Should Be a Lot Higher This Year!
Elizabeth MacDonald: I think the market should be 20 percent-30 percent higher.
We're only on the cusp of globalization. The markets are about liquidity and there is a record amount of cash sitting in CDs and money market accounts.
Mike Ozanian: I think Elizabeth is wrong. I think the Dow could be at 10,000 a year from now because of inflation. The Fed needs to stop printing too much money.
Ken Fisher, Forbes Contributor: The global market is about 55 percent from where it should be on a valuation basis, meaning the market should be 80 percent higher than it is currently. Worldwide, valuations of the market are cheaper when compared to global costs of money, than they've been in a quarter of a century.
Lea Goldman, Associate Editor: Going forward we are going to see an erosion of profit margins in corporate America. We have rising wages and rising commodity prices. That's a recipe for kryptonite. And it's going to take a bite out of the market.
Steve Forbes: Right now corporate profits are very strong. They've beat expectations for 3 ½ years. The Fed is printing too much money though. If they got their act together, you'd see thousands of points added to the Dow.
In Focus: TV Ad: 'Would Jesus Shop At Wal-Mart?'
Dennis Kneale, Managing Editor: A poor family that shops at Wal-Mart saves $500 a year on groceries. Wouldn't Jesus like that? Wal-Mart employees who don't get enough pay will go somewhere else.
Michele Steele: Jesus would absolutely NOT shop at Wal-Mart. Where do you think these cost savings are coming from? It's coming from underpaying employees.
John Rutledge: Jesus believed in the separation of Church and state. If he were here today, he would be a greeter at Wal-Mart. Low prices help parents buy presents for their children.
Quentin Hardy: I'm a churchgoer, but Jesus was a homeless, unemployed person. He couldn't get hired by Wal-Mart. Christians have stood for abolition of slavery, stood against communism in Poland and apartheid in South Africa.
Victoria Barret, Associate Editor: I think Jesus would look at Wal-Mart as a job creator. This message is coming from lobbyists in Washington who want to unionize Wal-Mart. If our troubled automakers are any clue, it means bad news down the line with job losses and no jobs created. And that's bad for the economy and for workers.
Steve Forbes: Economist Milton Friedman wrote a book titled, Free to Choose. At Wal-Mart you have high quality and low prices. You voluntarily shop there. You voluntarily work there. Good deal all around. That's the moral basis of capitalism-providing for the needs and wants of other people. Capitalism is pro-Christian.
Makers & Breakers
• Biovail (BVF)
Don Schreiber, President & CEO, Wealth Builders: MAKER
This is a cheap stock at 8.3 times earnings. I think that Biovail has a lot of upside momentum. They are going to triple the dividend and declare a special dividend. The stock was hurt badly this year and is still 20 percent off its high. I think it can go to $26 in one year. (Friday's close: $20.45)
Victoria Barret: BREAKER
I think this stock deserves to be cheap because Biovail is very dependant on the drug Wellbutrin, which is going to go generic next year. That's going to hurt their revenue profits.
Dennis Kneale: BREAKER
Their CFO just left. That makes me nervous. And when the stock plummeted, they turned around and sued hedge funds and research guys instead of looking at their business.
Don Schreiber: I don't think they have any lawsuits that are a risk for the company. I see the company, which has moved up 35 percent from its lows, continuing the trend.
• Unitrin (UTR)
Don Schreiber: MAKER
This is a strong insurance brand. In a potentially slowing economy, I like the fact that they have property and casualty, basically in the auto area. Unitrin has had great earnings growth-38 percent over the last 12 months. I think it can go to $63 in one year. (Friday's close: $50.91)
Dennis Kneale: BREAKER
A big chunk of their business is in autos and homes. I don't think either of those markets are doing that well.
Victoria Barret: MAKER
I think that this company is expanding into the right areas and management is doing a good job.
Our "Cashin' In" crew this week: Wayne Rogers, Wayne Rogers & Company; Dagen McDowell, FOX Business News; Jonathan Hoenig, Capitalistpig Asset Management;
Jonas Max Ferris, MAXfunds.com; John Layfield, Northeast Securities; Tracy Byrnes, The New York Post, and Price Headley, BigTrends.com.
Stock Smarts: Is Wall Street Afraid of the Dems Controlling the War on Terror?
Donald Rumsfeld is out, the Democrats are in and one top leader is threatening to dismantle many of the tools that the White House says has prevented more 9/11.
Pat Leahy, the Vermont Democrat set to take over the Senate Judiciary Committee says he is ready to fight President Bush over the way we fight the war on terror, including wiretapping and the gathering of sensitive financial information about terrorists. This comes just as Donald Rumsfeld, a big backer of many of these methods, makes his exit.
Is Wall Street worried about this change at the top?
Tracy Byrnes, The New York Post: It should be. I mean this is crazy. The Democrats do not have a good track record when it comes to our defense policies. They voted against the Patriot Act, against racial profiling, against profiling terrorists in general. How could we possibly become comfortable with doing away with all this stuff?
Terry Keenan: Some Democrats did vote for a lot of those measures.
Dagen McDowell, FOX Business News: But Tracy, look at what the market has done since the Democrats took the mid-term elections, since Donald Rumsfeld resigned; the market is still up a couple of percent. It's nothing to sneeze at. It doesn't say, ‘frightened.'
Tracy Byrnes: They haven't had the opportunity to back out.
Dagen McDowell: But they have been talked about it, clearly.
John Layfield, Northeast Securities: The market is not worried about this. The thing is that this is nothing new. The Iraqi Study Group has spent seven figures coming up with this big plan for Iraq; something General Casey did a year ago without spending seven figures. And the Democrats have tried forever to get rid of what they call ‘invasive techniques' that have saved lives. Financially this is stupid. The financial thing is the only thing that got an "A" rating from the 9/11 commission and Leahy wants to change that. It's ridiculous, but Wall Street is not worried about it.
Terry Keenan: They're cracking down on that and those big transfers of money have been hugely successful. Jonathan is Wall Street worried?
Jonathan Hoenig: Something is up, because the market is up but world markets are lapping us.
Terry Keenan: I thought the market knew all, Jonathan?
Jonathan Hoenig: How well is it doing: we are getting lapped by all these international markets. The U.S. dollar is weak. And, I'm sorry, but the U.S., at least from the financial world's perspective, isn't really the hottest market in the world anymore. Personally, I don't think Rummy was that strong. When was the ‘shock and awe' we were promised? I must have fallen asleep that day.
Terry Keenan: In March of 2003. I guess.
Jonathan Hoenig: And that was it.
Terry Keenan: Wayne, is Wall Street worried?
Wayne Rogers, Wayne Rogers & Company: No, Wall Street is not worried. I don't think this is a big change. Leahy has said this before; people have said this before. If it's an invasion of your privacy rights by tapping telephones and it's against the law, they shouldn't do it regardless of who it is. He is as much of a patriot as anybody else is, I don't think the Democrats are interested in destroying a network.
Terry Keenan: So you would be happy with a little bit of a pullback on some of these things.
Wayne Rogers: I just don't think it's a big deal. I think you are making a much bigger deal out of it than it is.
Price Headley, BigTrends.com: Wayne, I think you're right. I think that basically the mechanisms are in place to fight terror across the borders and airports, bridges and tunnels. Those mechanisms are in place and even if you did get some kind of terror strike, as long as it is not something massive, Wall Street has been conditioned to buy those as gifts. Even after 9/11 if you can stick that out, the first week of selling, you made a lot of money over the next 3-4 months by being bullish.
Tracy Byrnes: But the Democrats are trying to fight this like they would fight crime and you can't fight it that way. We don't want them on our territory. We have to take this out of the country, we have to fight it somewhere else so it doesn't affect our markets. We can go back to the Carter days and how they messed things up all along. Clinton could have taken care of bin Laden back when he was president. I'm not comfortable with that.
John Layfield: The point is, to Price and Wayne, I don't know how you can argue with success. It's like a team goes undefeated and you say we're going to change the coach. That is insane. We have had over a thousand arrests of terrorists due to the wiretapping.
Jonathan Hoenig: I know you support the troops, we all support the troops, but has the war, under Rummy, been a success? You say you can't argue with success.
John Layfield: I just got back from Iraq; the war has not been a failure. It has not been a success; it is binary at this point. We have to raise troop levels to increase security in that country or we're going to say ‘mea culpa' and get out. If we say ‘mea culpa' we're going to have to go back in. The market would react to that.
Terry Keenan: Dagen, do you agree? Because we are going to be getting a proposal from the president, how do you think the market is going to react if we up our troop levels?
Dagen McDowell: Well, I think that you look at Rumsfeld leaving and Americans have lost confidence in Rumsfeld and so much of the market is about confidence, so much of the economy is about confidence. The fact that he left is not necessarily a bad thing looking ahead.
Terry Keenan: The market is up a few hundred points at least since then.
Dagen McDowell: I think you are going to hear from the troops and if the commanders back up troop levels, which you have heard, then that's a good thing.
Terry Keenan: Wayne, we have a record DOW right now, looks like the market isn't so concerned. Do you see more records going forward?
Wayne Rogers: Yes, I do and I don't think there is a big concern. What was wrong was policy. It didn't have anything to do with the man carrying it out, he was an instrument of that policy, and he was there. He was not the Secretary of Agriculture; he was the Secretary of Defense. He was there to carry out a policy that was ill begotten in the first place. The next people who come in, this guy Gates is not going to do anything different. Nobody is going to do anything different. They are just going to sit there and talk, make the same kind of recommendations and I can criticize it just as easily as anybody else. But they are not going to change it.
John Layfield: Leahy is just whacked. This guy is crazy. You want to increase the legal system in Iraq; you want to increase the Iraqi police, the Iraqi army. The Iraqi army takes a week off a month. They have no AWOL procedures. They are 50 percent battle ready. We cannot increase any of that until we increase security in the country. Raise troop levels, which the market would applaud.
Jonathan Hoenig: There are actually other options. If Rummy doesn't have the ‘cajones' to say that you really have to crush militant Islam...
Terry Keenan: How do you do it with 130,000 troops?
Jonathan Hoenig: You could do it with two guys in a plane. You can have a trillion troops there, but if you won't shoot at a mosque because you don't want to offend the Muslim extremists, you're going to lose the war.
John Layfield: How are you going to do that? Bomb the whole country? That's good; bomb the entire country.
Jonathan Hoenig: Just the nuclear sites in Iran.
Terry Keenan: The same argument is happening in thousands of living rooms around the country, but to the market's point, there is a lot of concern about Iraq, and yet we keep hitting new records. Why is Wall Street not focusing on this while the rest of the country is?
Price Headley: There is a classic theory that you buy the mid-term elections and sell the presidential election. The DOW is going to be up 20 percent next year. I think you're almost going to see 15,000. Basically look for any pullbacks on terror fears to be buying opportunities.
Dagen McDowell: It goes back further than that, though. The markets had several years to factor in the situation in Iraq. Today, you go back and read stuff that was written three years ago, the situation was deteriorating then. The market was worrying about it then and not now.
Price Headley: But it has still been bullish.
Terry Keenan: The oil market has reflected the situation. We have sky-high oil prices.
Tracy Byrnes: Right, clearly but I think we are in a typical business cycle here, so Wall Street could be worried but things are going to move along, as they should, academically. So I do think, in the back of everyone's mind, Democrats could do detriment to us.
Cashin' In: Is Greed Good?
"Greed is good," was the Gordon Gekko's mantra from the 1987 movie "Wall Street", but he would be just a piker in 2006 today, as several already high-paid C.E.O.'s have manipulated their stock options to make even more money. In some cases they've even rigged the whole thing to avoid paying income taxes. So when rich guys cheat to get even richer, do you still say that greed is good?
Jonathan Hoenig, Capitalistpig Asset Management: I don't think it's greed, I think it's thievery. A greedy person is a person who loves money and knows that it's in their best interest to be honest in their dealings. That's the only rational way you build wealth over time. Only an idiot would think that by defrauding or stealing, you could build wealth. So I wouldn't call them greedy, I'd call them idiots, stupid.
Terry Keenan: So you guys have found common ground here, Wayne.
Wayne Rogers, Wayne Rogers & Company: I couldn't agree more with Jonathan, he is right. They stole from the shareholders and the people who are to blame are not just the C.E.O.'s, it's the boards, the competition committee from these boards and these are people elected to represent the shareholders and instead they turn around and steal from the corporation. They steal from the public. And it's bad for everybody. These are people who should be standing up for capitalism as opposed to ruining it.
Terry Keenan: You are so right, Wayne, and Dagen, what astounds me is we have heard nothing about what went on in these board meetings, how did these options that defrauded shareholders, get through the board?
Dagen McDowell, FOX Business News: That's true, Terry but it's important to remember that all the shenanigans that we are talked about, most of this stuff went on during the dot-com bubble, during the heady days of the Internet boom. It did move on into 2000, but a lot of the laws that have been put in place the last few years and the certainly the attitude in this country is bringing the cockroaches out of the walls.
Wayne Rogers: That does not make it right.
Dagen McDowell: I agree with you. Thievery is thievery, stealing is stealing. Bad behavior is bad behavior. But I'm saying that it was years ago and people are admitting to it and moving on.
Jonas Max Ferris, MAXfunds.com: They stopped doing it because they started busting people. It is the only reason they stopped. They were getting away with it for so long. Everyone is redefining greed in their own little way. Greed is what these executives are doing by backdating options, trying to get what you don't deserve. It's one thing to earn $30 million, that's great for the economy. But to get another $5 million by illegally backing an option, that's not what you earned. That's cheating. That's what greed is and greed is bad for the economy and the stock market.
Tracy Byrnes, The New York Post: But to Dagen's point, the way it started in the dot-com days, it was legal. There was no money to speak of, so it was an incentive to get the companies going. The greed kicked in when it was no longer legal. When they were no longer alerting the shareholders that they were backdating and weren't telling anyone.
Jonas Max Ferris: It was never legal to pretend you owned a stock for a year that you didn't to lower your tax bill.
Tracy Byrnes: You could make the grant date anything you wanted at the time as long as you disclosed it to the shareholders. It needed to be disclosed. And when they stopped disclosing is when it became thievery.
John Layfield, Northeast Securities: They're not going to disclose when they're doing something illegal. It was a ‘good old boys' club. The problem was that these ‘good old boys' thought they could do whatever they want because they were above the law. They were CEOs of multi-million dollar companies; they thought they could get away with it. The problem we have now is these guys need to go to jail; they had a fiduciary responsibility to shareholders. They weren't good stewards of that. The problem now is that Sarbanes-Oxley has become so cost-prohibitive, the pendulum has swung too far the other way, that now regulations are impeding business.
Terry Keenan: Jonathan, are you concerned that there might be a backlash, that a few bad eggs are going to trigger a bigger backlash if the general media starts focusing on all of this?
Jonathan Hoenig: Well, Terry when you have O'Reilly and Gibson smacking down honest businessman on this network, anything goes. Businessmen are enemy number one right now. It's not greed. Again, it's dishonest theft. I mean, I manage money, people always ask, 'How do I know you are not going to go to Europe with my money?' Because I'm going to make more money standing in America and serving you.
Wayne Rogers: Well, part of this is the abuse of it. And that's the terrible part about it. You are right; it was dishonest from the start. Forget what the law says. If you are not going to be an honest person and represent the shareholders in a fair and honest way, the law isn't going to change that. A crook is a crook and he goes to jail. That's what they should do to him.
Best Bets: "Greedy Plays"
Getting greedy in a totally legal way with high-risk, high-reward picks:
• Wayne's "Greedy" Play: China Unicom (CHU)
Friday's close: $12.71
Wayne Rogers, Wayne Rogers & Company: Well, I like CHU, I love the Chinese stocks, as you know, I own it. I think all of the Chinese stocks have been very strong for the last couple of years, I think they will continue to stay that way and I think this is a winner.
Terry Keenan: You have liked that one for a long time. A lot of that group in China has done well, Jonas, do you like this one.
Jonas Max Ferris, MAXfunds.com: It's like "Chinese Uni-Communist." Call me old-fashioned but if 70 percent of a company is owned by the Chinese government, I expect a cheap, cheap price to take on that risk and you are not getting that now.
• Jonas' "Greedy" Play: CNET Networks (CNET)
Friday's close: $9.52
Jonas Max Ferris: This company got greedy, the executive got greedy with the stock options. The president had to step down amidst all this, a lot of it is alleged. The stock is cheap, everyone is really scared of this, but we are in bubble 2.0 right now, and this company owns properties that are worth several hundred million dollars. If they can just get through this, and the bubble 2.0 stays in effect, this could be worth a lot of money.
Terry Keenan: You're worried about the Chinese, but not about these folks.
John Layfield, Northeast Securities: Jonas has said everything but the sun was in their eyes and their shoes are untied. Management has bailed on this company. The problem is downloads and distribution are becoming commoditized. You have to have original content, I don't they think they have enough of it to stay afloat.
• John's "Greedy" Play: Geron (GERN)
Friday's close: $8.90
John Layfield: My high-risk stock is Geron. It's stem-cell research. I based it on the fact that if the Dems come into power, if they can pass the embryonic stem-cell research, which is going to be very hard with this administration. They do therapeutics for spinal cord injuries and HIV. This stock is going to fly.
Jonathan Hoenig, Capitialistpig Asset Management: I appreciate what they do, but the stock is lost right here.
Terry Keenan: What about if the democrats push this through?
Jonathan Hoenig: Well, the stocks are forward looking, and this one was down big last week. Just not on my list.
Price Headley, BigTrends.com: I like it; I think it will pop near 20 in the next few years.
• Price's "Greedy" Play: Pacific Ethanol (PEIX)
Friday's close: $17.11
As for my pick, I like Pacific Ethanol. I think gas prices are not going down and you need more ethanol in our system. We only use about 3 percent ethanol. This stock is beaten up. It can go back to $40 and double in the next two or three years.
Jonathan Hoenig: Isn't the name of your website BigTrends?
Terry Keenan: That's a big trend.
Jonathan Hoenig: Well, the big trends are not in Pacific Ethanol or any of these alternative energy plays. It's in Conoco Phillips (COP) and Chevron Corp. (CVX). I mean if you are bullish on oil, why not buy the oil stocks. Don't own them, but I sure wouldn't short them.
• Jonathan's "Greedy" Play: BlackRock Global Floating Rate (BGT)
Friday's close: $19.08
Jonathan Hoenig: BGT is my pick. We own this whole group. All the floating rate income funds. Right stock at the right time and I think it's very much in the zone right now.
Terry Keenan: Wayne, do you like these?
Wayne Rogers: I like it but Jonathan this is supposed to be a high-risk play. There is nothing high-risk about this stock at all. Why not go and put it in a savings bank?
Jonathan Hoenig: I don't think that's true. When this I.P.O.'ed it dropped 15 percent, if currencies and interest rates don't go my way, this thing could get hit. But I think it's the right stock right here.
Wayne Rogers: Well, the world could dissolve, too, I mean, you know.
Question: "What's the deal with the Roosevelt Anti-Terror Multi-Cap Fund (BULLX)? Is it any good?"
Dagen McDowell, FOX Business News: It's really easy to dismiss this fund and the idea as a marketing gimmick and frankly I was about to do that, but you know if you want to invest your money with your mind, your conscious, you values, then so be it. People buy socially responsible funds; if you want to buy an anti-terror fund, take a look at this. It has had solid performance, not unreasonable fees. It you want to look, have it.
Terry Keenan: You might have liked Teddy Roosevelt in your time, Jonathan. Do you like this fund?
Jonathan Hoenig, Capitalistpig Asset Management: I appreciate, as Dagen said, the ability in America to kind of put your money where you want to and if you don't like pornography and tobacco, you don't have to own those types of stocks. But for me, the way to deal with an enemy of the United States is through military means, not trade embargo.
Wayne Rogers, Wayne Rogers & Company: I think Jonathan is right. We live in a free country. You can pick a green stock, you can pick any kind of stocks you want to. That's the wonderful thing about living in the United States.