Recap of Saturday, Jan. 1


Bulls & Bears

Brenda was joined by: Gary B. Smith, columnist for; Pat Dorsey, director of stock research at; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of; Charles Payne, CEO of Wall Street Strategies

Trading Pit: Bullish New Year!

Another winning year for stocks! This makes 2 years in a row that the Dow, Nasdaq and S&P have made investors money. Will this streak continue in 2005?

Gary B: We will have a winning 2005. Looking at a chart of the Dow, we see that it moved up in ’03, paused in ’04 and now it looks ready to head higher. I predict Dow 12,700 in ’05!

Charles: I think small cap stocks will definitely outperform large cap stocks this year. The Nasdaq will be up 30 percent or more in 2005.

Tobin: Looking at a combination of inflation, interest rates and earnings growth, we see that the market is undervalued now. I think the market on the whole will be up 7-8 percent this year. I agree with Charles that small cap stocks will lead the market.

Pat: I disagree that small caps will lead the market this year. Large cap stocks will do better because the small caps are more expensive. We’ve seen a lot of large cap stocks like Wal-Mart (WMT), Johnson & Johnson (JNJ), and Medtronic (MDT) that haven’t gone anywhere the past 5 years, but they have lots of cash and continue to grow. This means each will be a lot cheaper.

Scott: The first half of the year will be good and we will test the old highs on the Dow, but the second half will not be as good. I disagree with Tobin, the market is not cheap right now.

The Scoreboard: Best and Worst Calls of 2004!

First, the best calls:

Last November, Charles said to buy Goodyear (GT). Since then, it is up 20 percent. (Goodyear closed on Friday at $14.66.) He isn’t sure how much further it can go from here. He suggests taking your profits now.

About six months ago, Scott liked Hovnanian Enterprises (HOV). It has gone up more than 60 percent since then. (Hovnanian Enterprises closed on Friday at $49.52.) Scott sold it, but he does think it has 20-30 percent more to go.

In March, Gary B. suggested buying eBay (EBAY). Since then, eBay is up more than 68 percent. (eBay closed on Friday at $116.34.) Gary says it still looks good and there is no reason to sell. eBay is ready for another nice run up.

Three months ago, Tobin said to buy Sirius Satellite Radio (SIRI). Since that time, it is up 106 percent! (Sirius Satellite Radio closed on Friday at $7.62.) Toby still likes it and thinks it will eventually hit $10-11.

And the best call of the year goes to Pat! One year ago, he said, “Buy the Chicago Mercantile Exchange (CME)” and since then, it is up 227 percent! (Chicago Mercantile Exchange closed on Friday at $228.70.) He still likes it and says to keep holding on.

And now, the worst calls of 2004:

In May, Pat said to buy Alliance Gaming (AGI), but it is down 38 percent since then. (Alliance Gaming closed on Friday at $13.81.) Pat said this was a terrible call. The company made some huge strategic errors and he doesn’t think it will turn around. He says sell now and take the loss.

Last February, Charles suggested buying Corinthian Colleges (COCO). Since then, it is down 40 percent. (Corinthian Colleges closed on Friday at $18.46.) Charles said it did well, but then hit a brick wall because of some scams. He said that ultimately, it would come back. He does like it now, but noted that it is risky.

In June, Scott predicted the housing market would slow down, but that didn’t happen. The housing market has been doing very well and has been at record numbers since then. Scott initially thought interest rates would cool the housing market, but says it’s still red hot and will continue to be as the market does well.

Also in May, Tobin said the Google (GOOG) IPO would fail. Since then, it is up 127 percent. (Google closed on Friday at $192.79.) Google did go down 10 percent after it’s IPO, and then started heading up. Tobin said his initial idea was to buy on the dip.

Six months ago, Gary said that Martha Stewart (MSO) was topped out. But, since that time, it has gone up 146 percent! (Martha Stewart closed on Friday at $29.02.) Now, it is at its all-time high, and he thinks it’s the time to sell.


Gary B's prediction: Top 2005 Stock: Microsoft (MSFT)

Microsoft’s Friday Close: $26.72

Scott's prediction: Top 2005 Stock: Equinix (EQIX)

Equinix’s Friday Close: $42.74

Tobin's prediction: Top 2005 Stock: PetroKazakhstan (PKZ)

PetroKazakhstan’s Friday Close: $37.10

Pat's Prediction: Top 2005 Stock: Lloyds (LYG)

Lloyds’ Friday Close: $36.79

Charles’ Prediction: Top 2005 Stock: Wireless Facilities (WFII)

Wireless Facilities’ Friday Close: $9.44

Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In

Cavuto on Business

Neil Cavuto was out this week. Stuart Varney was host and he was joined by Jim Rogers, author of "Hot Commodities"; Ben Stein, author of "Can America Survive?"; Tom Adkins, publisher of; Jon Najarian, principal at PTI Securities; Meredith Whitney, executive director at CIBC World Markets; Mike Norman, founder of Economic Contrarian Update, and Bob Beckel, Democratic strategist.

The Bottom Line

Stuart Varney: Is America really stingy or way too generous when it comes to helping other countries? So far, America has sent Navy ships, cargo planes, pledged $350 million and is leading an international coalition to aid the countries devastated by the catastrophic tsunamis. Hardly "stingy" despite what the U.N. had to say about America's early response last week. Jon, our hearts go out to the victims of this tragedy. But America's stingy?

Jon Najarian: Actions speak louder than words, Stuart. America is in fact the single largest contributor to international relief efforts since forever, going back as long as there have been such efforts. In fact, last year America gave out over $19 billion just for emergency relief. It's just unfair to categorize us as stingy.

Ben Stein: America is incredibly generous in every way. Not only in the government sector but in the private sector. Here's an interesting little sideline. Little tiny Israel has given millions of dollars. The Arab loving mainstream doesn't even mention it.

Stuart Varney: Anyone on our panel here think we could give more?

Tom Adkins: Well of course it's going to go up. It's inevitable. Jan Egeland thinks we should all contribute 1 percent of our GDP to the world's do-good projects. Fine, that's great. We'll do that if the rest of the world says they will give 4 percent for the defense of freedom. Right now we spend over $400 billion freeing the world. I want the rest of the countries to buck up.

Mike Norman: It's in our interest to spend that for defense of freedom and it helps us as well.

Tom Adkins: Of course it is. But those countries don't do it.

Mike Norman: It's also terrific to have America as a sole super power.

Jim Rogers: I hate to rain on everyone's parade but I looked at the Constitution last night. Nowhere does it say that the government is supposed to take my money and give it away to a bunch of foreigners. Let private people contribute. Cut my taxes and let me give what I want to charity.

Meredith Whitney: On paper that sounds like a great idea but the fact is this aid was needed ASAP and the government provided it.

Stuart Varney: Ok, I'm going to play devil's advocate. The gentleman you referred to Tom is Jan Egeland, a U.N. official. The U.N. demands that the rich countries of this world give 1 percent of their GDP in foreign aid. For America that would be about $110 billion. No country measures up to that, therefore we are stingy.

Tom Adkins: My view is the reason these countries, especially the European countries, don't speak German today is because Americans spent our money, billions and even trillions.

Ben Stein: I agree with Meredith. We had to get the aid there and it had to be done by the government. But in general it should be done by private donors.

Stuart Varney: In 1970, the countries of this world agreed formally to give .7 percent of their GDP in foreign aid. None of us have ever lived up to it. We're stingy by that agreement in 1970.

Ben Stein: That was a lot less money.

Stuart Varney: It was still a percentage of GDP.

Ben Stein: We're talking about stupendous sums of money. And it's all a trick because these countries get to be rich by globalization and private enterprise, not by government hand-outs.

Jim Rogers: We don't have the money first of all. Second of all, if we do give it to Florida. Lots of people are sitting down there living in cardboard boxes. I don't like giving away money that we don't have. We are borrowing money to give it away to other people.

Tom Adkins: We would have this money if all the other countries in this world would buck up their share.

Mike Norman: I agree that the United States is very generous in many ways. We have private donations totaling $35-40 billions annually. In addition we have research here that leads to the formation of drugs and medicines that go to the benefit of these countries. And we sell military equipment that keeps the world safe.

Meredith Whitney: In my effort to be generous in the New Year, I'm going to give the United Nations an "Economics 101," or an "Accounting 101" handbook. I don't think they have any clue how to run themselves or direct who should pay what.

More for Your Money

Stuart Varney: The stocks that will lead the market in 2005! Let's get the names so you can get more for your money.

Leigh Gallagher: I'm bullish on healthcare. Companies are doing anything they can to reduce health care costs. A company I like is Caremark (CMX). It's a pharmacy benefits manager. It is very big in the mail-order side of pharmaceuticals, which is the wave of the future.

Jim Rogers: The first thing you said was that companies are looking to reduce their costs in healthcare. The government is also trying. Why would you buy any of these stocks?

Leigh Gallagher: That's what Caremark does. Companies hire Caremark to take the cost out of the business.

Stuart Varney: Jon, what's your stock?

Jon Najarian: I love Microsoft (MSFT) because we've got accelerating earnings and revenue. It trades at 7 times sales roughly. I think they're a real value and guess what? They paid the world's largest dividend this past year. I think that's going to accelerate.

Mike Norman: I don't know where you see accelerated earnings and revenue. There's no acceleration in growth whatsoever. And to your point about the dividend, up until now it's been known as a company with a huge amount of cash. It is starting to distribute this money. Before this it was thought of as a company with an enormous amount of cash. It could've been used for acquisitions. It won't have it anymore.

Jim Rogers: I hate to agree with Mike, but I'm short the stock.

Ben Stein: I love Microsoft. I don't understand how their word processor program works and I don't think it's as good as Word Perfect, but I love the way the company is operated. I would never bet against Microsoft.

Stuart Varney: Next is Mike. What do you like?

Mike Norman: I like the retail pharmacies and the leader is Walgreen (WAG). It's going to continue to go up and up and up.

Jon Najarian: Mike, I'm not just going after you, but Walgreen has CVS at their back pushing them hard.

Mike Norman: Jon, thirty years in a row of record earnings.

Jon Najarian: What about Wal-Mart? That's the one to buy for pharmacy sales.

Stuart Varney: All right. Ben, what do you like?

Ben Stein: This is going to shock you because there's so much bad news in the stock. But I still like Boeing (BA). I think the military side is going to suffer. There's going to be cutbacks in the military orders. But I think Boeing is an extremely well managed company. They managed to raise earnings even in the face of declining advanced purchases.

Leigh Gallagher: I am optimistic about almost everything in this market except airlines and anything that touches them. Boeing has problems on a number of levels, the first of which is the airline business. The commercial airline business is in the tank. Secondly, in the last four years, Boeing has lost market share to airbus in a major way.

Ben Stein: Yes, but they make a lot of money per plane.

Leigh Gallagher: It's not selling as many planes anymore.

Ben Stein: U.S. airlines are in the toilet. But worldwide, airlines are fairly strong and they make a lot of money. I think they'll do okay.

Head to Head

Stuart Varney: The Social Security crisis. There's one sure fire way to fix it. But it could mean that you don't get any. Is that fair? Bob Beckel says everyone should pay Social Security, but not everyone should receive it. Jim Rogers says that's balderdash! Bob, a leading Wall Street figure says if you have a yearly income of $50 thousand or more when you retire, you shouldn't get any Social Security. Do you agree?

Bob Beckel: I don't know if $50 thousand is the right figure but absolutely. Let's go back to the original debate on Social Security. This was never meant to be a retirement fund. It was meant to be an insurance fund against shortages in your own savings. It is no different in my mind than paying a lot of money for car insurance every year. If I don't get in an accident, I can't go back to the insurance company and say give me back my money. Wealthy people who have that kind of money should not pull from Social Security.

Jim Rogers: In the original debates they never said that if you pay in, you will not get it back out. They said we're going to take this money, put it aside for you, and when you get old we're going to supplement your own savings and you're going to get your money back. Would you suggest that after 40 years we now say that we changed the rules?

Bob Beckel: It was never said that this was a guarantee that you were going to get this back. There was even a part of the debate that asked what happens if the system goes broke? A lot of people pull money from the Social Security system Jim, who don't put so much money into the system.

Jim Rogers: But Bob, this is 2005. Let's forget the 1930's when they had the original debate. If you give me the option not to pay in then fine, I'm happy with not taking any money out of it. But I don't have that option. I have to pay it in and they promised I'd get it back. And now you're saying we're going to change the rules. How can you do that to the American public?

Bob Beckel: Let me pose this question to you. I pay a lot of money in taxes, both local and federal. I must've paid tens of thousands of dollars in school taxes that I never used. At the federal level I paid money that's used by the military, which I consider a terrible waste of money. Why should I have to pay for that?

FOX on the Spots

Tom Adkins: The Dow will be at 13,500 on January 1, 2006.

Jon Najarian: The Dow will be at 12,000 on January 1, 2006.

Meredith Whitney: The Dow will be at 11,600 on January 1, 2006.

Ben Stein: The Dow will be at 11,600 on January 1, 2006.

Jim Rogers: The Dow will be at 9,500 on January 1, 2006.

Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In

Forbes on FOX

In Focus: 2005: Year of Better Jobs and Better Pay?

Jim Michaels, editorial vice president: Yes, it will be better. You can't complain about the economy. We're looking at a 3.5-4 percent growth next year, that's way above average. Unemployment is now down to 5.4 percent. That's one percentage point from what is really full employment, because you can't have 100 percent full employment. So the economy is not the problem. The economy is as good as you really want it. You don't want it to get overheated. If it goes too fast then you have problems with inflation.

Pete Newcomb, senior editor: I don't want to start the New Year complaining, but interest rates are rising and I don't see any momentum in corporate earnings. I'm kind of worried, I'm a little pessimistic.

Elizabeth MacDonald, senior editor: Happy New Year. I'm bullish and I'm with Jim. I think that the S&P earnings are going to grow 8 percent to 10 percent in 2005. We just saw a great jobless claims number last week, it actually dipped unexpectedly. I see job growth hopefully in the 220,000 a month range. It's not so great, but I think that the economy is going strong.

Lea Goldman, staff writer: I'm with Pete, I'm cautiously optimistic. There are two major uncertainties here: the issue of the dollar and what happens if it keeps weakening against other foreign currencies and overseas investors start fleeing; and the other issue is the oil crisis and what happens if we see a terror shock overseas that is going to send the energy market roiling. Those I think are big uncertainties.

Chana Schoenberger, staff writer: I'm a bull. I think that the outsourcing wave is going to continue. I think that the unemployment rate is going to fall to 5 percent even, which is a lot of new jobs.

David Asman: Even though there is still outsourcing you still think that we are going to have big job growth here?

Chana Schoenberger: Outsourcing actually can be a good thing. It does mean that certain Americans lose jobs. But it also means that companies have more money to spend on innovation and research and development, which is what America does best. We should be spending more money on innovation. And venture capitalists are going to be funding a lot of new ideas this year.

Jim Michaels: I think that's absolutely right. After all, outsourcing simply outsources the less well paying jobs and creates more well paying jobs here.

Elizabeth MacDonald: I'm still waiting for when we outsource all those overpaid chief executives.

David Asman: The mean of the salary of these chief executives is $2 million each.

Elizabeth MacDonald: Another sign that the economy is doing great is looking at all those great companies that are stepping forward to help with the tsunami tragedy in Asia. You see General Electric may be coming forward, you see Citigroup, Johnson and Johnson and Pfizer making tremendous donations.

Pete Newcomb: I live out in Jew Jersey where there are thousands and thousands of people laid off, thanks to companies like Lucent. I haven't seen any of these people find new jobs. I've got friends and neighbors still looking for new jobs.

Lea Goldman: There is also a number of people who have waited on the sidelines, waiting for it to heat up because they couldn't find jobs for one year, two years, three years. So they decided to wait and they went back to school. Those people are going to enter the job market in addition to college graduates in the next few months.

Chana Schoenberger: A lot of those people who are "waiting on the sidelines" have actually been temping or freelancing. Some have even started their own companies. There has been a huge surge in entrepreneurship.

Jim Michaels: I think about these people laid off by Lucent, but the big companies have always been laying off people, this has been going on for 50 years. It's the new entrepreneurial companies that are creating the jobs, always have and always will. So those guys have not found a job in the smaller companies yet.

David Asman: So like Lucent, sometimes some of those jobs do have to move out and that makes the whole company more efficient, no?

Chana Schoenberger: It's good for shareholders.

Lea Goldman: Well for the poor fellow in New Jersey who is trying to pay the mortgage, unfortunately that's a reality.

Elizabeth MacDonald: Well that's a good point, but you still can't get technical expertise for a dollar an hour in Malaysia. But we are kind of turning into a freelance, temporary worker economy. Manpower, which is this big temp firm did a survey of 16,000 employers and they found that businesses are going to step up their temp hiring in the first quarter. More than 25 percent said they'll be hiring in 2005.

David Asman: It's not just the temp hiring, there is also some real hiring being created as a result of the increase in the economy. The Gross National Product as a measure of our economy, you can't argue with those figures, is booming.

Chana Schoenberger: Look what's happening at Telecom right now. What's happening is the big telecom companies are kind of floundering. New companies like Vonage, who we did a big story last year, basically turns your phone into digital packets and I just purchased this at home and let me tell you it's awesome and instead of paying $50 for my phone bill, I pay $15. That is an American thing, it's fantastic.

David Asman: The unemployment rate is now at 5.4 percent, where will it be a year from now.

Elizabeth MacDonald: I'm hoping it goes to 5 percent and I hope the economy grows to around 4 percent, that's optimistic.

Pete Newcomb: I think it's going to stay flat at around 5.4 percent.

Jim Michaels: I buy Elizabeth's numbers.

Lea Goldman: I'm with Pete, 5.4 percent.

Chana Schoenberger: I think it's going to be 5 percent. The administration is saying the GDP is going to grow 3.5 percent, I don't think they are optimistic enough, I think it's going to be 4 percent growth.

The Flipside: We Need a War Tax!

Pete Newcomb: Yes I think we need a special tax to help pay for our war on terror. It's costing the U.S. about $5 billion each month to prosecute the two wars in Iraq and Afghanistan. I think optimistically it's going to run close to $300 billion and I don't think you can settle that totally on the economy. What's more patriotic than helping to pay for the war ourselves.

Jim Michaels: I don't think attacking our economy is any way to show gratitude to our soldiers. We owe them a lot. One thing we owe them is a prosperous economy when they come back. The tax cuts that George Bush implemented impelled this recovery. A tax increase right now would weaken the recovery. As a result of the recovery, tax revenues are rising again. The deficit last year came in lower than people expected. And this year it's going to come in lower than people expected, too. Don't raise taxes now!

Elizabeth MacDonald: I'm defending the indefensible here. I feel that the country is too detached from this war. I think we need a gas tax or a SUV tax instead of saddling future generations with debt to finance these wars, including the children of soldiers who are dieing. I think the right and moral way to go is to pay for this with a gas tax or an SUV tax.

David Asman: Chana, you have an alternative to this?

Chana Schoenberger: I have a radical idea. Let's tax those countries that have not been contributing, like the French and the Canadians. Why don't they pay for it? They are sending a few token troops to Afghanistan, but in the meantime the US and the US taxpayer has been shouldering the entire burden of making the world safe for democracy. I don't know how the mechanics of it would work, but I'm sure we could figure it out.

Lea Goldman: Call it whatever you want, but the reality is that there is an historical precedent for using a tax to pay for war. Presidents Lincoln and McKinley used an estate tax to help pay for there wars. An estate tax was used in WWI, WWII, Vietnam, and Korea. I'm all for an estate tax.

David Asman: Let's look at the actual cost of freedom. The amount our war on terror has cost so far, $186 billion, is much less than our fight against communism in Vietnam, $494 billion, and a fraction of what it took to defeat fascism in WWII, $2.9 trillion. It seems like we're not paying as much as we should for this war.

Jim Michaels: We're paying $5 billion a month for this war. The government is paying for it, but one reason that the government can't pay for it is because the economy is recovering. One of the reasons that the economy is recovering is because we lowered taxes. Let's look at the facts: Europe, France and, Germany have 8 percent-9 percent unemployment; they also have high taxes.

Elizabeth MacDonald: When you are saying that the government is paying for it you are saying that taxpayers are paying for it. People who say deficits don't matter, are the same people that say ketchup is a vegetable. The quickest way to kill something you are addicted to is by taxing it. So maybe having a gas or SUV tax will help get us off this addiction to middle eastern oil gangsters and our dependence on them.

Jim Michaels: I have a suggestion. Let's tax all goods coming in from countries like Germany, France and Russia. A 50 percent tariff and use that money to pay for the war.

The Informer: New Year Trend$

Chana Schoenberger: I like RFID, radio frequency ID tags. These are the chips that are going to be replacing the bar codes. Wal-Mart is going to be requiring in 2005 that the vast majority of their merchandise have these chips. You can play on this trend by buying Texas Instruments (TXN) which makes a lot of these chips.

Lea Goldman: I love RFID but I don't think Texas Instruments is the way to go. Every Tom, Dick and Harry company that has been more entrenched in these kind of tags is getting in and it's just going to co-modify them. I think you can go better with the retailers who are really going to enjoy the upside of RFID.

Chana Schoenberger: Well you can never go wrong with buying Wal-Mart (WMT). It's one of the biggest retailers in the world, it's a big China play as well. Target (TGT) is also a good buy in RFID.

Pete Newcomb: Animated movies stole the show this year, I like Pixar (PIXR). They make great movies, but I like it for another reason. I think it's a takeover play. I think you're going to see Disney come in and make a bid for Pixar. They're are going to re-up their distribution deal with Pixar. Steve Jobs and Disney chief Eisner had a falling out. Eisner is out at the end of the year, look for Disney to come in and buy Pixar and look for Steve Jobs to become the new chairman of Disney.

Chana Schoenberger: I think Pixar is great, I love "The Incredibles", but I think Disney lost it's mojo. Steve Jobs is Mr. iPod. I do give him credit for that, but I don't think he can bring it back. I think it's a theme park stock. I'm not such a fan.

Lea Goldman: I'm looking overseas. I think there is a lot of money to be made in the trend of emerging markets. Specifically, I would look at Brazil, Russia, India and China. They are the strongest with the most solid base of consumers. I like a Brazilian poultry company called Sadia (SDA). They bury Tyson, they bury Perdue.

Jim Michaels: If you want to play against the weak dollar you don't need to buy Brazilian chicken stock. Go the direct way via euro denominated bonds and you've got a clean hedge. I've got an old stock with a new twist. About a month ago, Bill Gates went on the Berkshire Hathaway board and it was announced that be put $300 million of his own money in. If I can have Warren Buffet and Bill Gates manage my money, and not charge me very much like the way a mutual fund would, I want to own Berkshire Hathaway (BRK.B).

Elizabeth MacDonald: You don't want the class A shares, you want the class B shares. When you think about it, when you go to invest in a mutual fund the minimum balance to invest is $2,500. Why not go $2,900 and get Warren Buffet's and Bill Gates' expertise in stock picking. Basically Berkshire Hathaway has stakes in about 20 different companies and they are really smart guys. I think this is a brilliant way to go.

Chana Schoenberger: This is called key-man risk. If anything should happen to Warren Buffet in 2005 I don't know what would happen to that company.

Jim Michaels: There is very good succession in line. Warren Buffet isn't running the whole thing. With Bill gates on board I think we have some additional strength.

Elizabeth MacDonald: I think housing is still going to soar in 2005. There are simple stocks that you want to get in on. They are Toll Brothers (TOL), Lennar (LEN) and Centex (CTX). Lennar just had a great quarter and Centex has a great management team. There is not a housing bubble nationwide, I still think housing is going to be hot in 2005.

Lea Goldman: I feel correction in my bones. I wouldn't go into this sector when there are other hot plays to be had.

Elizabeth MacDonald: I don't think it will crash. You see real estate values soaring, values tripling. Even with the interest rate hike, I still think housing is going to be hot.

Makers & Breakers

• General Electric (GE)

Doug Lockwood, president of Harbor Lights Financial Group: MAKER

GE is a global powerhouse that is going to be able to take advantage of this weak dollar. First and foremost, there are 11 companies in the GE family. Over the last 18 months, 6 of 11 probably were hitting on all cylinders. Now we are getting this company in shape. When we think of 9 of 11 cylinders going into next year and '06, they are going to hit very strong.

David Asman: Your target is $47 which is about 30 percent up from what it is now. (Friday's close: $36.50)

Elizabeth MacDonald: MAKER

Happy New Year, I'm a maker on this stock. Jeffrey Immelt has done a masterful job. This is a world class financial management team. It's a great stock.

Jim Michaels: BREAKER

I'm afraid I'm going to sit this one out. I think this stock is going to perform along with the market. I don't see it beating the market.

• Bank of America (BAC)

Doug Lockwood: MAKER

Best dividend story of any bank stock out there. 26 years at 13 percent average growth rate.

Dave Asman: You think it can go to $58. (Friday's close: $46.99)

Jim Michaels MAKER

I like it. I'll take a shot at that one.

Elizabeth MacDonald: MAKER

I'm a Maker as well!

Cashin' In

StockSmarts: Tax Cuts = Stock Surge?

Can more tax cuts in 2005 be the key to big gains for the market? President Bush is pledging to work hard in the New Year to make your tax cuts permanent, letting Americans keep more of their own money. Will all this extra money be just what the market needs for another bull run in 2005?

Gary Kaltbaum, president of Kaltbaum & Associates: Yes, absolutely. Look, whatever George Bush has done over the last three years has worked. The market has done great. The economy has done great. My biggest issue is that he is not just going for small things but the whole enchilada right now. And I think it’s going to take time. I don't know if he will get anything more through in 2005. So that lack of liquidity may keep 2005 with a little headwind in front of it.

Dagen McDowell: If people look ahead in the market and see these tax cuts going away and not being made permanent, wouldn't they freak out in 2005 and send stocks down?

Jonas Max Ferris, founder of Yeah. To Gary's point, I think Bush deserves an “A” for ambition. He’s really accomplished a lot. He has proposed a lot and gotten a lot big stuff on the table, but more tax cuts or even extending the tax cuts, to me, is not what the market wants to see. This is not what investors want to see unless we can pay for them. What we want to see is reducing the size of government, cutting spending, that’s a hard thing to do. To rationalize the tax cuts, to get rid of some of the deficit and to be able to extend the tax cut.

Jonathan Hoenig, portfolio manager at Capitalist Pig Asset Management: Bravo. You're absolutely right. You can't cut taxes and increase spending. And to this president's credit, he has made some big moves toward reducing the size of bureaucracy. Social security, the third rail of politics, is the best example. And I would love to see him sell the post office, and all the federal parks next, I don’t think that’s going to happen. Stocks have a bid right now, though. I wouldn't fight the trend in equities.

Dagen McDowell: Dani, is tax cutting more important than cutting the deficit?

Danielle Hughes, president and CEO of Divine Capital Markets: I don't know. We have to look at the fact that Bush has really taken on something that's not a four-year term here. We are looking at 12 years. He wants to do social security overhaul. He wants to do a tax overhaul. We're looking at about $3 trillion in money. And where is that going to come from? Us. So we have to ask ourselves, ‘President Bush, what are you doing? How will you justify it?’ And they even talked about taking some of this stuff and putting it off the books, which kind of brings a tinge of Enron and WorldCom. So I'm a little nervous about that.

Dagen McDowell: Gary K., a lot of the best performing sectors in 2004 were benefits of the dividend and capital gains tax cut. Dividends, utilities were hot. What do you think?

Gary Kaltbaum: Well, all I can tell you right now is that it has been a broad based rally. The dividend tax cut did a great thing. And the first thing I do have to say is we did dodge a bullet in the election. His opponent wanted to raise every tax out there. Everybody talks about deficits ending the world. It's not going to. Deficits do happen. They’ve been happening for a long time. I've been hearing interest rates would go up because of it all. So we need pro growth and pro growth is for the customer, us, keeping more of our money, less regulation. Everything Jonathan talks about is right on. That's what made this country great.

Jonathan Hoenig: We know the best performing sectors of 2004: utilities, and real estate. What were the best performing markets? The truth is this was another year where foreign markets outperformed domestic ones.

Gary Kaltbaum: By a mile, too.

Jonathan Hoenig: That worries me because, for whatever reason, the world is losing confidence in US assets.

Jonas Max Ferris: Isn't that the point? Maybe we are the biggest economy in the world, but are we losing our stance as the number one financial super power? The foreign markets are doing well.

Jonathan Hoenig: What do you think? I say yes.

Jonas Max Ferris: I think the Europeans are getting together and making their currency the strongest currency in the world. Because they're being fiscally more responsible even at the cost of economic growth.

Danielle Hughes: I was just going to say that President Bush is also proposing that some of the large corporations can take their money that's overseas right now and get a tax benefit of bringing it back into the US so I think that could help the US going forward. I do agree with you, Jonathan. We've seen a tremendous move in the foreign markets as opposed to the US, but we've still done OK this year.

Gary Kaltbaum: And it's not even about what we think. Look at what the dollar is doing. The dollar is the vote as far as what's happening in this country. And I'm watching it every day hitting new lows. Back to the tax front, I'm a Steve Forbes guy. The less complication the better. I don't know if you have ever seen what it looks like about the tax regulations. You can fill a library with it. It has gotten to be taken care of. Social security needs to be taken care of. If we get through that, we're up, up and away for the economy for many years to come.

Dagen McDowell: Tax reform does not necessarily mean more spending. It could be revenue neutral. That would be great. And simpler is better for the economy, isn't it?

Jonathan Hoenig: Dagen, do you do your own taxes?

Dagen McDowell: No.

Jonathan Hoenig: I need an army of Wharton grads to figure mine out. The cost of tax compliance alone is in the billions of dollars. So listen, Kaltbaum, you're on the wrong show if you're a Forbes guy. This is "Cashin' In." But I'm for a flat tax, a national tax sales, anything to make the process of funding the government in its rightful duties like protecting individual rights an easier process.

Dagen McDowell: Jonas, the president is also looking at more tax-preferred savings accounts. That would be great for the stock market.

Jonas Max Ferris: Yes. We've talked about privatizing social security on any level is going to be putting money into stocks. That's why stocks like T. Rowe Price, which we've mentioned are zooming this year because even the potential of getting even more money into mutual funds. But there already are so many retirement type accounts: 401-K, IRA, Roth, and most people don't max them out already. I don't want to overplay this benefit to the average person. Most people need to save up to their current limits with these plans.

Danielle Hughes: President Bush's plan is for you to take about 33 percent of your payroll tax and allow that to be segregated into a retirement plan, which it would be a huge boon for the market but it could cost up to $2 trillion.

Jonas Max Ferris: Again, the missing picture is, there are all these great ideas but it’s like kids, “I want an Aston Martin but I don't have enough money to buy one right now.” Until we can pay for these great ideas, they’re just ideas that aren’t going to work in the long haul. They’ll have to be reversed later.

Gary Kaltbaum: You have to have a vision. George Bush has a vision. For not next year, but for 10, 20, 30, 40 years down the road. His programs are not about yesterday and a day from now, but way down the road. If you look at social security, this thing will be bankrupt and then what happens? At least there is an idea out there, versus people that are just sitting there on their thumbs.

Jonas Max Ferris: It’s better than sweeping it under the rug, that's true.

Dagen McDowell: Let's not forget the deficit for 2004 came in $100 billion lower than earlier projections.

Jonathan Hoenig: Bush bought the senior vote with the prescription drug plan. Let's hope he doesn't have to cater to as many special interest groups. This is a business guy. He understands that you can't spend money you don't have. Given that, I'm content to focus on overseas markets right now. I think they will, once again, outperform in 2005.

Cashin' In Challenge: The 2004 Winner Is

Dagen McDowell: Time to find out the champ of our 2004 "Cashin' In" Challenge. Back on January 17, in 2004, the four of us started with $10,000 to put to work in the market and up to five stocks or funds. We got docked every time we made a trade. Before we get to the winner we will start with those who are running behind. Jonathan, before we look back at what you did, there’s a little wager you need to pay up.

Jonathan Hoenig, portfolio manager at Capitalist Pig Asset Management: I made a bet with Jonas that I would win the challenge. I haven't won so it's my honor to present to you and to say that I've made a donation. I think your choice of tsunami relief is a great idea. So, $1,000 to them and kudos to you and to our winner of the challenge. (Jonathan will be donating $1,000 to CARE in Jonas’ name.)

Dagen McDowell: You guys are real winners by giving that money to the tsunami victims. Jonathan, you’ve got to tell us what went wrong?

Jonathan Hoenig: Size kills. I made a big bet in Scottish Power (SPI). It’s a sector, the international utilities that we still own. And I still like the stock. But I went from first to last pretty darn quick. Needless to say, I'm holding on to SPI, and I think 2004 wasn't its year. 2005 is shaping up. It will be its year. (Jonathan owns shares of SPI)

Dagen McDowell: Jonas, what do you think?

Jonas Max Ferris, founder of I think Jonathan made the same mistake I did. If you look back, I owned an energy and natural resource fund, a utility and a telecom fund in the beginning of the year. If I just held on to them, I would have possibly won this sucker. But no, I had to overtrade and get into some bad stuff that tanked. I pulled it back at the end by getting into Merck (MRK). Semiconductors were beaten down, I made some money. So now, I beat the Dow, the Nasdaq, I think I'm neck and neck with the S&P. I wish I could have done better, but I’ll let it go. Jonathan, you would have won with Metso (MX) if you just stuck with it.

Jonathan Hoenig: Shoulda, coulda, woulda.

Dagen McDowell: Up 26 percent this year, I think.

Jonathan Hoenig: Every time you are down 15 percent a trade and you don’t get out, that's when it turns into a Merck or Pfizer (PFE).

Jonas Max Ferris: Actually, I had this stock that was down 35 percent. It came almost all the way back. So if I had put in a stop-loss order, I wouldn't have come in second place.

Dagen McDowell: What's the lesson for the New Year, don't touch it?

Jonas Max Ferris: I think it’s to stick with your some of good ideas and don't over guess yourself. We all had some really good ideas in these portfolios, but some of us got out of them. They went up and we missed it. I would stick with the pharmaceuticals and the semiconductors. I think they’ve come back now since I first got into them this summer when they got really killed. But I think they will keep going this year.

Dagen McDowell: Ok. Now, Wayne is our defending champ. Unfortunately, he's snowed in out in Utah. He said he wasn't able to make it. Maybe it was because he couldn't repeat. Next week we will give him a chance to give us some answers about what happened. That leaves us with the winner, me.


I did what you guys didn't. I didn't touch any of the four funds I owned during the year. I was in some great parts of the market. I had a broad market stock fund, the Wilshire 5000. I had an international stock fund. A biotech fund, which was rocky, but I did not get out of it when it was having some hard times. But then I had energy and natural resources.

Jonathan Hoenig: You have proven that less is more. And this was a year as Jonas pointed out, if you had been able to sit and wait through the rocky periods you made money in the last couple of months of the year.

Dagen McDowell: If there is any message, you can make really good money in mutual funds, not take a lot of risk. And you can leave them alone and not touch them, look at them carefully and you can do well and beat the broad market.

Jonathan Hoenig: Huzzah for Dagen.

You can check out the final holdings and results of the 2004 $10,000 Cashin’ In Challenge at:

Stock of the Year

Last week’s pick from Mike Norman was Fannie Mae (FNM). For the week of December 27-31, FNM went up 2.3 percent.

Dagen McDowell: Danielle Hughes is back and she says that (CRM) is the one stock you have to own in 2005. But Gary K. says she may be hung over from her New Year celebrating. What is this stock and what does the company do?

Danielle Hughes, president and CEO of Divine Capital Markets: The stock is called (CRM). It trades on the New York Stock Exchange. It came public early in December of 2004. The stock has yet to really do anything exciting. But we like the space because CRM is customer relationship database management. And what that means is it allows companies to drive their business based on what their customers want to do. Siebel (SEBL) does this. They're the real leader in the market. But really came up and tangled that market away from them. I think we have yet to see anything happen in the stock, but this year we're going to see the stock move quite considerably.

Dagen McDowell: Gary K., the stock has come down a little bit from its high this past year. What do you think of it?

Gary Kaltbaum, president of Kaltbaum & Associates: I have a plethora of reasons not to. They came public and the worst thing a company can do in the first few months of being public is warn Wall Street. So they have already lost credibility. That's number one. Number two, and listen to this number, it's trading at 320 times earnings right now. More importantly, it's trading 120 times 2006 earnings. This is the type of company that if we hit a bear market, they will cut this thing in half.

Danielle Hughes: Two years from now, we might hit a bear market. However the great thing with this company is that this company has scalability like no other company. So they don't need to have people go in and install this anywhere. They don't need a tremendous sales force. This is something that's browser based. All you have to do is see it on your computer. Huge sales force companies use this. I see potential for the company going really, really high.

Gary Kaltbaum: Valuations count. They may have potential and it is a good company, but I'm dealing with stock prices and not a popularity contest. They can have scalability; it does not matter.

Danielle Hughes: It’s all about what the market thinks.

Gary Kaltbaum: When we get into a bad market they will kill stocks that don't have the underlying earnings. And 120 times 2006, forget it. This is single digit stuff.

Danielle Hughes: We will see what happens.

Gary Kaltbaum: Happy New Year.

Dagen McDowell: Tech stocks were working in the last couple of years. So you don't think they can work next year or this coming year?

Danielle Hughes: You don't like tech, Gary?

Gary Kaltbaum: I like some tech. There are some “Apples” doing well; some companies out there. But on the whole I'm not that excited.


Question: "With interest rates on the rise, what are your thoughts for the housing market in 2005?"

Gary Kaltbaum, president of Kaltbaum & Associates: First off, Jeff in Massachusetts, just be happy the Red Sox won. Congratulations. Home prices are regional. Do not worry. And just because the Fed is raising rates, keep in mind where rates are. They are still very low. There will be pockets of weakness. We’re already seeing it in some areas of California and Vegas and a few areas that got crazy. On the whole I think we're fine. If interest rates skyrocket, and I do mean skyrocket, there can be some heck to pay. As of right now everything is just fine. People calling for a bubble in housing have been calling it for 50 years.

Jonathan Hoenig, portfolio manager at Capitalist Pig Asset Management: And on the publicly traded side, weren't REITs strong again in 2004?

Gary Kaltbaum: All you had to do was own REITs this year and nothing else and you would have been in great shape.

Jonathan Hoenig: We own a closed-end fund that's international. ING Clarion Global Real Estate Income Fund (IGR), Inversiones y Representaciones SA (IRS), Alto Palermo SA (APSA), Equity Residential (EQR); we own a lot of these REITs. I don't see a bubble.

Dagen McDowell: What do you think about the actual property? Thirty-year fixed rate mortgage ended 2004, same rate it was at the end of 2003.

Danielle Hughes: That's right.

Dagen McDowell: So the housing market is not dead yet.

Danielle Hughes: It's definitely not. A lot of people are saying ‘it's still booming, so let's still get in,’ and everybody is really wondering about this very question. They're going to raise rates. I think this year, especially in February; we might even go to 50 basis points. That doesn't mean that that market will fall apart but it is regional. That’s something to really keep in mind.

Gary Kaltbaum: Just remember housing is not stocks. Everybody has this idea about stock bubble equals housing bubble. No way, shape or form.

Question: "What does the crew think about Target (TGT) in the coming year?"

Danielle Hughes: It is a great store. I love Target. They just opened one up by me. I love Target. It's a great company and we see this company doing very well over the next year. We are looking at about 15 percent, probably, return for 2005. But the company has grown tremendously. They've grown their shareholder’s equity, the net worth of the company, in double digits over the last two years.

Jonathan Hoenig: Dani, didn't you find the store was a little skuzzy?

Danielle Hughes: No, I love it. I think it's fantastic.

Jonathan Hoenig: I thought the store would be as hip as the commercials.

Danielle Hughes: Maybe you are living in the wrong part of town. You should come to my Target.

Gary Kaltbaum: Jonathan, no gift cards from Target for you this year.

Jonathan Hoenig: What about JC Penney (JCP) or Federated (FD)? These are not terrible stocks right here. What about Sears (S)?

Gary Kaltbaum: We actually own a little JC Penney as they got rid of it Eckerd’s. There are some other names out there like American Eagle Outfitters (AEOS), Urban Outfitters (URBN), bebe stores (BEBE). These stocks are on a roll because of accelerating earnings and revenue. Those are the ones I would be concentrating on. I don’t mind Target. I would rather own Target than Wal-Mart (WMT) at this point in time, though.

Question: "With the recent news of Glamis Gold (GLG) trying to acquire Goldcorp (GG), should I hold my shares of GG?"

Jonathan Hoenig: This is truly a soap opera in the gold sector. A lot of consolidation. If I were holding GG, I would vote to accept the Glamis’ offer. They’re valuing the company at $17 a share. It's at $15 now. Towards the end of the year, the gold stocks did not work as well as owning gold itself. If I was going to put new money to work in gold right now, I would focus on streetTRACKS Gold Shares (GLD), which is an ETF, or exchange traded fund, that tracks the price of gold tick for tick.

Gary Kaltbaum: You are absolutely right. What's happened in the last three months is the stocks have completely under performed the metal, which is usually the first sign that the metal has probably topped out, near term. I’ve liked gold for a while. Right now, I’m more neutral as they go back into a trading range. There’s not much to do right here.

Danielle Hughes: It's an inflationary move. I'm not crazy about gold. I think it's just the hype right now. They're marketing a lot of these ETFs. So I'm waiting. I’m holding off.

Question: "I bought shares of the Chicago Merc (CME) back at $75 — I sold half my position at $220. Should I sell or hold the rest?"

Gary Kaltbaum: I should be asking him what to do because he bought it before me. And I sold it before him. I made a lot less money than he did. All I can tell you right now is that the Chicago Mercantile Exchange is probably one of the strongest stocks on the New York Stock Exchange and it continues to act perfectly in this market. You have big volume up days, light volume down days, relative strength, and great earnings growth. You’ve got to keep the stock right here until otherwise.

Jonathan Hoenig: You have to like the exchanges. Nasdaq (NDAQ.OB), the London Stock Exchange’s (LDNXF.PK), having a takeover bid. There is a consolidation. Trade there as well.