DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
Bulls & Bears
This week’s Bulls & Bears: Gary B. Smith, columnist for RealMoney.com; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, editor of ChangeWave Investing; Scott Bleier, president of HybridInvestors.com; Joe Battipaglia, chief investment officer of Ryan Beck & Company; and retired Lt. Col. Bill Cowan, FOX News military analyst.
Trading Pit: America’s Fear Factor
Thursday: Another terror attack on London's subways — the second attack in as many weeks. Thankfully, this most recent one was far less devastating than the July 7th bombings.
Friday: British police shoot and kill a suspected terrorist and release pictures of those wanted in last week's bombing.
With terrorism hitting closer and closer to home, take a look at this shocking poll.
FOX News/Opinion Dynamics Poll
More concerned about:
Having enough money for retirement — 59 percent
Surviving future terrorist attack — 24 percent
Not sure — 17 percent
(July 12-13, 2005. Margin of error: +/- 3 percent)
Americans are far more afraid of not having enough money for retirement than about a future terrorist attack. And by no small margin, either, more than 2-to-1!
But if terrorists go after our subways and buses will that poll tell a different story?
Joe Battipaglia: The market's reaction to the London bombings indicates that a terror-risk premium is already built into financial market valuations. Unless there is a terror event of a 9/11 magnitude, which in my opinion is unlikely, investors should worry more about having enough money and medical care coverage for retirement. Overtime, inflating health care costs and eroding living standards are the greatest challenges to retirees.
Tobin Smith: Saving for retirement is a much bigger problem. I think the average savings for a household over 50 years old is something like $58,000. That is absolutely scary! These terror attacks are being put into context. Americans are realists and realize we can’t stop someone from putting a bomb in a subway.
Lt. Col. Bill Cowan: You’re more likely to die from a terrorist attack than a bad retirement plan. Those poll numbers will shift when we hear about a terrorist plan to set off a thermonuclear device in a major U.S. city. Then people will stop worrying about their retirement plans and start worrying about the threats against their own lives.
Gary B. Smith: We’re complacent and don’t worry about things until they’re on our shores. However, if there’s a nuclear device in Washington, D.C., I’d be worried too. But like Colonel Cowan said, you don’t die from a bad retirement plan, but it is a slow death. If you only have $58,000 saved for retirement, and you still have 20-30 years to live, you’re in for tough times.
Pat Dorsey: The low rate of national savings is a disgrace. Most people save 1 percent of their yearly income. But at least you can control how much you save for retirement. Saving is something you control. Terrorism is not, unless you move to the middle of nowhere and never leave.
Scott Bleier: You have more chance getting hit by lightning than by getting killed in a terror attack! The odds are much greater that you will make it to retirement. Be prepared! Buckle down and start saving because Social Security is not going to be here for much longer.
Americans are more afraid of being poor when they retire than terrorism. Which stocks will help you retire rich?
Pat: I like Fairfax Financial (FFH), a diversified insurance company. Its management has a great track record and I think this stock can go to $300 in a couple of years. I own the stock. (Fairfax Financial closed on Friday at $172.87.)
Tobin: I hate it.
Scott: I do like it and think it’s a good takeover target for Warren Buffett, who could easily integrate it into Berkshire Hathaway (BRK.A).
Tobin: Long term, if you want to retire rich, look in the biotech industry. I’m betting on industry leader, Genentech (DNA). I like this stock so much, I own it, and think you need at least 4-5 percent of biotech in your portfolio. (Genentech closed on Friday at 87.60.)
Scott: It’s a big company and the stock is already up 65 percent this year. I would rather find a smaller biotech company. There are tons of names out there that will also make money over the long term.
Pat: You won’t get rich by owning an overpriced biotech stock. And this is an overpriced biotech stock.
Scott: The future is the internet. My pick is NetRatings (NTRT), a small cap company that measures how many people go to a website. About half of the company is owned by VNU, which also owns Nielsen, the TV ratings giant. NetRatings will be used by big companies to determine ad rates for the internet. (NetRatings closed on Friday at $15.10.)
Tobin: I think eventually this company will be bought out. You won’t get rich, but you will make money.
Pat: This company has more cash going out than coming in. I don’t think you’ll make any money off it.
The Chartman and Joe each picked the stock they think is the best to own right now.
Gary B: Apple (AAPL) is the best stock right now. It’s the American Sony. The iPod is a huge hit and there’s more to come. The chart looks good now that it broke through a downtrend it’s been in all year. It’s going to $60 in a year. (Apple closed on Friday at $44.00.)
Joe: Gary, I’m surprised you’re picking this. There’s nothing new to this story. My biggest worry is that expectations won’t be met on a quarterly basis. There’s not much left in this stock.
Joe: My top stock is MicroStrategy (MSTR), which provides business intelligence software. The company ran into some troubles due to mishandling its last quarterly release. Things are looking up with the introduction of new products. I also like that its revenue continues to grow. I own MicroStrategy. (MicroStrategy closed on Friday at $67.80.)
Gary B: The stock has gone too far, too fast—up 60 percent in just 2 months! Now’s not the time to buy.
Gary B: My other best bet is Boston Scientific (BSX). This medical supply company has been trending down, but is set for a big move. Buy once it closes above the downtrend (around $29) it has been in for the past year. (Boston Scientific closed on Friday at $28.43.)
Joe: I like it and even own it. Boston Scientific is a fundamentally sound company. However, in the next couple of quarters, it will really have to demonstrate that things are in order so it can reverse some of the setbacks it has had.
But Brenda pointed out that Boston Scientific has big competition, especially from Johnson & Johnson (JNJ), which is trying to grab more market share. Plus, due to so many acquisitions, the company has debt on the balance sheet.
Joe's prediction: Even with more terror attacks S&P 500 up 6 percent by 2006
Tobin's prediction: Verint (VRNT) helps take terrorists down! Gains 40 percent
Pat's prediction: Terror can't trouble insurance; Markel (MKL) up 40 percent
Scott's prediction: Nas up 10 percent while Washington is "Supremely" distracted
Gary B's prediction: Roberts gets in too easily; stock market yawns
Cavuto on Business
Neil Cavuto was joined by Ben Stein, author of "Yes, You Can Be a Successful Income Investor"; Jon Najarian, founder of InsideOptions.com; Rebecca Gomez, FOX News correspondent; Charles Payne, CEO of Wall Street Strategies; Rob Stein, managing partner at Astor Asset Management; Marvin Kalb, senior fellow at the Joan Shorenstein Center on the Press, Politics and Public Policy; Herman Cain, author of "They Think You're Stupid," and Price Headley, investment strategist at BigTrends.com.
Neil Cavuto: Panic again on the London subways. This time the terrorists screw something up and thankfully no one is killed. Now America wonders "if" and even "when" it will happen here, but no panic in the stock market. Since the first attacks in London on July 7th it's been off to the races with the Dow realizing a two-week gain of 381 points. Ben, what do you think?
Ben Stein: The market is about earnings and interest rates. Interest rates are still low and earnings are incredibly strong. It is a well-known fact that the market reacts to earnings.
Charles Payne: The markets represent America. Look at the targets, the financial districts. We know the terrorists are trying to attack us that way. I think it goes way beyond earnings. There's definitely a correlation between patriotism and the stock market going up in the face of these terrorist attacks.
Rob Stein: It also has to do with the economic environment that we're in. When things are good, terror creates very short-term problems in the market. If we were in an economic recession, I'd feel more confident that the market would not recover. If the economy wasn’t in a big expansion when 9/11 occurred, I believe the stock market would've eventually gone up. But because of 9/11 there were businesses that were affected immediately and the market went down.
Rebecca Gomez: A lot of it has to do with patriotism. The day of the first London bomb attack, July 7th, there was no major sell-off. Wall Street did not overreact. If you panic then you're just giving in to the terrorists. So kudos to Wall Street. I talk to these people on the street everyday. They are very passionate about showing the terrorists that they are not going to win.
Marvin Kalb: The market is sensitive to what happens in the United States and sometimes to what happens abroad and how it effects the United States. If you go back to 9/11 there was a momentary bounce, but then the economy went into a deep spin. There is a direct relationship between the market and global terrorism. But that relationship, in my opinion, is not understood by those who run the market. We're talking theory right now. The bottom line here for me is it is not touching us directly yet. When 9/11 happened the effect was entirely different.
Herman Cain: Freedom is a bigger incentive than fear. Secondly, competitive markets perform better than controlled markets. Look at the country of Ireland. Two years ago they put in a flat tax, and its economy is out-performing all of Europe. When you talk about freedom being a bigger incentive, look at the Iraqi people when they had an opportunity to vote with an 80 percent turnout. All of it is freedom over fear and competitive over controlled markets.
Cost of Freedom
Neil Cavuto: It's a strong economy and earnings have been mostly good. So why does the news media keep reporting like it's all doom and gloom? Herman Cain you have a theory about this: What do you think is going on here?
Herman Cain: Mainstream media is very biased. When news is good they say it's below expectations. When news is really good they say they're disappointed. Two of the major networks didn't even report the most recent 5 percent unemployment number. Then when the jobs report comes out positive they say the number was below expectations. Well, and an expectation is a guess, and the 146,000 people who got jobs that month don’t care about expectations.
Marvin Kalb: With all due respect, I beg to differ. The media is not your problem at all. The media of course runs with negative news all the time. But if the market went up tomorrow 200 points, they will report it. If there's peace in the Middle East, the media will report that. If there's a cure for cancer, it will be reported. The media is not against good news. The problem has to do with different factors such as the war in Iraq, terrorism and the challenges it poses, and the economy is not quite even on any given day. Journalism will try and cover a story honestly and directly.
Charles Payne: There's always been friction between Wall Street and Main Street. And the media does play that up negatively. 14,000 jobs lost. Another headline could've been: 80,000 jobs saved because of what those job cutbacks do.
Rebecca Gomez: We all know there's this saying in news: If it bleeds, it leads. Unfortunately, that's the mentality of a lot of people in the news business. But if you look at Wall Street, the markets are doing very, very well.
Rob Stein: Reporters don't have this unwritten rule to try and bring down Wall Street. They're trying to get a story out there that will attract the most attention. And in order to attract attention, sometimes you have to say 14,000 people lost their jobs rather than 80,000 jobs were saved.
Ben Stein: It's very simple, if the economy is in good shape under Bill Clinton, it's a new ‘Golden Age.’ If the economy is in far better shape under a Republican, the economy is ‘struggling and uneven.’
More for Your Money
Neil Cavuto: Dow stocks making themselves over. Will they help you get more for your money? Price, what do you like?
Price Headley: I like General Motors (GM). A lot of the bad news is already out on GM. You have a 5.5 percent yield. You get paid to wait here. I don't see the stock going back below $30.
Herman Cain: General Motors is between a rock and a hard place, the unions and a cost structure. I wouldn't bet on that one. My pick would be Pfizer (PFE). It's a $52 million company that's going to do a $4 billion restructuring.
Price Headley: The only problem is all of Pfizer's earnings this last quarter were driven by tax reasons. Their sales are flagging.
Ben Stein: I like Hewlett-Packard (HPQ). They work incredibly hard and remind me of the people I met at Boeing three years ago when I started recommending Boeing. Hewlett-Packard is a big turnaround story in the making.
Jon Najarian: I agree, but it may take a while for the turnaround.
Rob Stein: I like IBM (IBM). It had some problems earlier in the quarter. The stock price is now trading above that. They're in a position right now to really take advantage of this next leg up in the economy led by technology.
Jon Najarian: I'm not as hot on IBM. Where it's at right now, I think its going to struggle. I like Wal-Mart (WMT). Wal-Mart opened a bank. It’s not approved yet, but the company is opening this bank and they do 140 million transactions per month and I think it’s going to be a great business.
Rob Stein: I think the China problem with Wal-Mart is going to be a lot bigger than you think. They buy a lot of things from China. The prices are going up. Now it's causing interest rates to go up.
FOX on the Spots
Ben Stein: More UK terror ahead, but England will never be cowed!
Rebecca Gomez: 2nd London attack fuels support for the Patriot Act.
Charles Payne: Oil prices head higher; buy Massey Energy (MEE).
Jon Najarian: Canada tops Saudi Arabia as biggest oil exporter by 2010.
Herman Cain: "Do-nothing" Dems split & confirm Judge John Roberts.
Neil Cavuto: Terror, we'll see more incidents of it, but even more reminders that free-loving folks around the world won't get dissuaded by it. They'll move on with their lives even as terrorists are trying to destroy those lives.
Forbes on FOX
Flipside: Stop Terror in America by Tripling our Defense Budget!
Mike Ozanian, senior editor: We are only spending 6 percent of our economy on defense and homeland security. During WWII we were spending 30 percent. We need to triple what we are spending right now in order to make this country more secure and to fight in Iraq.
Quentin Hardy, Silicon Valley bureau chief: I think Mike believes that the government is going to get more money and spend it correctly. That's not going to happen. If you give more money to the Homeland Security department they'll spend it worse. I thought Defense Secretary Donald Rumsfeld was about spending less and making it more efficient.
Jim Michaels, editorial vice president: War and defense is inherently wasteful. $100 million on a fighter plane is a lot of money but that is the nature of war and defense. I do think that we don't have to pour a lot of money into Homeland Security. It's becoming a pork barrel. But I think we should give the military everything it needs.
Lea Goldman, staff writer: It's not how much you spend, it's what you're buying. The problem is that what we bought is a massive military bureaucracy straight out of the Cold War. Tell me how a big expensive warship is going to prevent what happened in London. What we should do is funnel more money into counter-intelligence and counter-terrorism, which has really gone neglected.
Elizabeth MacDonald, senior editor: We need to have a unified voice and a force that will fight these terrorists. Congress is behaving like elephants in a tar pit right now with transit security. They slashed the $150 million budget by a third to $100 million when there were requests to raise it to $1 billion. Now London was able to catch these terror suspects on camera and on video. We don't have that on the U.S. subway systems and we need it.
John Rutledge, Forbes contributor: Unfortunately, I don't think there is a way to prevent terrorists. Anyone can blow anyone up if they want to. You can't spend enough to protect yourself. I think we've seen a lot of wasteful spending on Homeland Security. We ought to triple our military spending, but we should focus to be ready for an upcoming conflict with China.
David Asman, host: But if we give the government all this money, won't they waste some of it in defense spending?
Mike Ozanian: There is no question that there're will be some waste. But the point is that we have global threats from North Korea, China and Iraq. China is spending a larger percent of their economy on their military than we are.
Lea Goldman: If you want more money for defense spending, you're getting it. The Department of Transportation, the Department of Energy, the Justice Department and the Department of Defense are all spending on the war on terror.
Jim Michaels: The best defense is a good offense. You're never going to prevent terrorism. It is impossible. You could spend the whole gross national product and you couldn't stop it. You've got to seek them out and kill them where they are. And you need a strong military to do it.
David Asman: Where is this money going to come from? We already have a debt. We are spending more than we have.
Mike Ozanian: How about from this crazy multi-billion dollar prescription drug bill that's basically going to be wasted. It's not going to solve our healthcare problem.
John Rutledge: The money is going to come from increased tax revenues. The biggest surprise in Washington this month is that the deficit has gone down $100 billion. Why? Because people are paying taxes on their income and on their stocks. When Kennedy was president we paid 10 percent of our gross national product on defense spending. We spend 4 percent today.
Quentin Hardy: The war Kennedy fought was a different war than the one we are fighting now. We're now talking about 6 to 10 pounds of plutonium that North Korea is going to sell someone to make a nuclear bomb. That's about intelligence and some big army and some big aircraft carrier isn't going to stop that.
Lea Goldman: I agree, this is a ruthless band of somewhat organized terrorists. And naval warships and battle ships aren't going to do anything against these guys.
Jim Michaels: The aircraft carrier will not prevent crazy kids from blowing themselves up. Nothing will prevent that. What you can do is go after the bastards who are at the heart of this. Root them out and kill them. But you need the military to do that.
In Focus: Will Baby Boomers Bust our Housing Boom?
Quentin Hardy: I was just in rural Oregon and saw a lot of equity migrants. People who sold their expensive homes in California and moved up north to buy their vacation homes. They're building and buying 6,000-8,000 square foot homes to spend the money they received from their California home sales in order to avoid paying taxes on it. Then they live in 2,000 square feet of the house because they can't afford to keep up the whole house. And they expect to sell that to local people?
Jim Michaels: These anecdotes about specific places don't tell you anything about the entire housing market. The fact is, demand exceeds supply and that always pushes prices up. As far as the baby boomer's retirement is concerned, what about the next generation coming up? They are going to buy those houses from them. They're are going to be entering into their higher earning years. The demand is going to remain high.
David Asman: Of the 108 million occupied homes in the U.S., 37 million are investment homes and 7 million are vacation homes. And a recent survey shows that millions of baby boomers plan to sell their main residences and move into their vacation or investment home when they retire. Could that hurt the housing market?
Heidi Brown, senior reporter: Yes, I think you have to look as a supply and demand issue. Not only will these baby boomers put their primary residences on the market, which are old and small, but the younger generations are not going to want to buy these older smaller homes. That's we have a lot of building going on in this country for the demand of new large homes.
Sara Clemence, Forbes.com staff editor: If baby boomers are selling out at all, they are going to be putting their suburban homes on the market and buying even more real estate. We are talking about a generation that is not afraid to indulge themselves. They are good at leveraging their assets. They are buying condos in the cities. They are seeing cities as their new retirement communities. They're buying vacation homes so they can be near their kids.
Elizabeth MacDonald: I was reading a study from 1988 that said that when baby boomers stop buying they are going to bust up the market. They ignored the fact the Generation X is stepping in and immigrants are stepping in. Immigrants are going to have a huge effect on the housing market. Immigration numbers are underestimated by 40 percent.
Quentin Hardy: In LA in the early 1990s, home prices went down nearly 30 percent. It doesn't always exceed supply. We've had a terrific housing boom in part because Federal Reserve Chairman, Alan Greenspan, has cut interest rates dramatically. Rates have been low. You don't think that rates will go up? You don't think that is going to effect mortgage decisions?
Jim Michaels: Those prices in LA went down because demand dropped.
Heidi Brown: I really can't see these immigrants and these savvy Generation Xers being interested in these older homes. That's why there is so much development going on right now.
Sara Clemence: I think one of the things we are forgetting is the behind the scene. Kids from Generation X aren't buying homes with their money, their baby boom parents are putting money into their real estate investments.
The Informer: Big Stocks v$ Small Stocks
David Asman: Over the past year, small cap Russell 2000 stocks have made investors four times more money than the big Dow Industrial stocks.
John Rutledge: I love the small cap stocks. The story here isn't one of price but one of performance. Small companies really had an anchor behind them between 2000 and a year ago, because banks were shut for business loans. In the past year, banks have been shoveling money out the door. $120 billion in bank loans. Small companies are performing. The profit increases are going to be surprises. That's why they are performing.
Mike Ozanian: Ultimately size does matter. Bigger is better.
Lea Goldman: In this case, small cap stocks have a greater upside for earnings growth and even though you take on more risk you have more chance for return.
Nicole Ridgway: The large caps are a little safer when you consider the weak dollar.
John Rutledge: I like small stocks so much that I buy them in large batches via exchange traded funds. My favorite is the Russell 2000 Index (IWM). They own 2003 stocks so you get no concentration.
Mike Ozanian: It's a safe way to play it if you like the small caps. You do get the whole spectrum. But I prefer big stocks like Ford (F). The stock's gone from $30 to $11 over that last two years. They had a terrible earnings report. But, I think it's ready for a rebound. It can't get any worse.
John Rutledge: I don't like this for a couple of reasons. First, if you buy a turn around you better be a turn around investor. Ford has too much China exposure and they're giving away the cars. They are not going to make money doing that.
Lea Goldman: I like Radiation Therapy Services (RTSX), it's a small chain of out-patient cancer treatment centers. You're playing two areas here: elder care, which is about to boom like nobody's business; and consolidation. The stock has had a big run and it's just beginning.
Nicole Ridgway: I think the market is glutted with a lot of smaller players. I think the big players are really where you should look at if you really want to invest in that space. My big stock is Intel (INTC). They are going to report 15 percent earnings growth this year despite a tough economic environment. They have a ton of cash, which gives them a big advantage over small competitors.
Lea Goldman: I don't like Intel. The thing about chips is it's not about pricing it's about technology and there are other companies that are coming out with better chips. That's really where it is at.
John Rutledge: When you're buying Intel you are buying Chinese growth. I like it because I like the technology growth in Asia.
Makers & Breakers
• Statoil (STO)
Roger Nusbaum, Your Source Financial: MAKER
This oil company trades in the U.S. and is also the largest company on the Norwegian stock exchange. It's the largest oil company in Norway. Very simply, it's a long term play on the demand for oil. Today we're talking about demand for oil in high growth countries like China and India. In a few years we're going to be talking about Vietnam and Pakistan also needing oil.
David Asman: You've got a target price of $26. (Friday's close: $21.21)
Jim Michaels: BREAKER
Their reserves are declining. They are going to have to go into other areas. It's going to cost them a bundle. We don't know how good they are going to be. I wouldn't buy it.
Elizabeth MacDonald: MAKER
I'm a cautions maker on this stock. I don't think their oil reserves are declining. They found a new oil field. And there has been a downdraft in the stock lately because the oil fields have been shut down for maintenance.
Quest Diagnostics (DGX)
Roger Nusbaum: MAKER
This company is in the business of medical testing which benefits from the aging American population.
David Asman: You think it can go to $64. (Friday's close: $51.62)
Elizabeth MacDonald: MAKER
I never bet against a mega trend. Baby boomers retiring are going to need medical tests. They are going to want this stock too. Medical tests are going to be the big thing of the future.
Jim Michaels: MAKER
I'm going to buy this stock because I think it's in a great area and it's competitive.
David Asman: The stock is up 70 percent in two years. Which could have some investors asking if it can keep going up. Plus, the medical industry is under fire from lawsuits and government regulation.
Stock Smarts: If It Happened Here?
It happened again in London. This time the terrorists didn't kill anyone, but they tried. The market in London didn't miss a beat after this second round of attacks. They showed a stiff upper lip Jonathan. Would our market do the same?
Jonathan Hoenig, Capitalistpig Asset Management: Well Terry, let’s be frank. If someone, God forbid, assassinates Alan Greenspan, the market is going to fall. If the Citigroup Tower gets bombed, the market is going to fall. The market hates uncertainty. In the short term, that’s what terrorism is. But if these murderers, these hoodlums think they can shut down a thriving, capitalist economy like the US is and like Britain is, they’re idiots. They’re even bigger idiots than we thought they were.
Terry Keenan: So what if we start to see these subway attacks here?
Stuart Varney, FOX Business News: In my opinion, the market has a one-track mind, and that one track is the pursuit of profits. If there was an attack like the one in London, here in New York, and there was no obvious economic impact, I think the market would simply shrug it off. If there is a severe attack with severely negative economic impact that would be a different ball of wax. The market would respond with a very big sell off.
Wayne Rogers, Wayne Rogers & Company: I happen to agree. He’s absolutely right. If you have an isolated incident or a series of shootings, if this is a constant thing and it’s not sporadic, we’d have a problem. But if it’s sporadic like this, the market doesn’t care. The market is going to do what the market is going to do because it is driven, primarily, by earnings.
Adam Lashinsky, Fortune Magazine: Terry, I take slight issue with that. There’s September 11 on one hand and July 7 on the other. Things like July 7th aren’t going to greatly disrupt the market. We’ve already seen that. Our market is up 3 percent since July 7th, but the first time something like this happens in the New York subway system, God forbid, it’s going to hurt the market because it’s going to be such a rattling event. It will be new to us.
Wayne Rogers: Adam, the reason it’s going to hurt the market is because the traders can’t get down to the street. That’s the only reason.
Adam Lashinsky: I disagree. It’s not the only reason. You’re right that that is one of the reasons why September 11th was so disruptive. Because it actually closed down the markets. But it’s actually going to rattle people. Not the second, third or fourth time, but the first time.
Stuart Varney: But the market response also depends on the response of the target population. In this case, in London, the response of the Londoners was stoic, a stiff upper lip. ‘Let’s go back to work,’ business as usual, the market just shrugged it off completely.
Meredith Whitney, CIBC World Markets: Well you also had a very efficient dissemination of information. Within hours, the subway system was open again, so the markets understood that. And as a result, properly discounted that into the market.
Terry Keenan: And arrests were made very quickly.
Jonathan Hoenig: But, you know what? It did open super weak. The truth is that nobody asks questions. They sell first and ask questions later. I’m telling you guys that if you think the market is going to open up on the day where there is a terrorist attack, you’re smoking the good stuff.
Meredith Whitney: We’re suggesting that you have an opportunity because information is disseminated and it’s appreciated very quickly into the market.
Jonas Max Ferris, MAXfunds.com: Jonathan’s right. It’s going to open down. It’s going to be down a few hundred points. We’re not going to have a major pullback because, basically, global stock markets are saying that terrorists are not a strong enough threat to cause a recession in any country. Even with the isolated bombings around the world, it’s not enough of a hit to an economy to change major behavior, to raise costs such that there would be a recession. Like a real enemy from somewhere like Russia or bombing a real country where you could wipe out a whole economy. ‘They’re not that dangerous’ is what the market is saying. It could be wrong, but that’s what it says now.
Terry Keenan: Stuart, the London market is up 8 percent in the last 3 months. So the predictive quality of the stock market didn’t predict that this was going to rattle investors, and it hasn’t.
Stuart Varney: As I say, it’s the response of the British people, which you have to take into consideration when you are assessing the market’s response. If there had been a panicked reaction, and Londoners did not go to work the next morning, and they fled the subways and they left town, and they literally panicked; if that had happened, I think you would have a negative market response.
Terry Keenan: You were a bus conductor in your prior life.
Stuart Varney: In the interests of full disclosure, I was a bus conductor in the early 1970’s on London transport. I was on the number 176A out of Victoria Station.
Terry Keenan: Stuart, do you think that Americans would react as calmly?
Stuart Varney: Yes, I flat-out do. I think there is a huge similarity between the character of Americans and the character of the British. When this kind of thing happens, you rally around your leader, unlike the Spanish, who deserted their leader, voted him out of office, and retreated from Iraq. There’s a difference in national character.
Meredith Whitney: At the risk of sounding like a crude capitalist, when the July 7th event happened, a lot of people looked at the market for buying opportunities. We’re such a global economy now, and it’s been so difficult to make money this year. The markets are all basically flat. People need an event risk to really make returns.
Adam Lashinsky: The fact remains that there is a risk premium in this market for terrorism. You would have to argue economically that the war on terror is going pretty well. It’s completely contained in terms of a global economic issue, but it is an issue. We are fighting it. It is holding things down. Only Jonathan knows how much.
Jonas Max Ferris: I would say the market and investors are being a little optimistic here. British Airways (BAB) stock barely fell. Does anyone think that if bombings continued like this in London, that people would want to travel there?
Terry Keenan: I know Americans who are going to England next week.
Wayne Rogers: Hold it. Israel has dealt with this for 50 years. They have a bombing every week and everything goes on. Life goes on. And if you don’t think New Yorkers will go right on, they will. They are tough, and they will go right on.
Adam Lashinsky: Wayne, I mostly agree with you, but keep in mind Israel went along like that for decades. But then, when the uprisings got really bad after the 1999-2000 timeframe, tourism was affected greatly in Israel. And now it’s coming back again. My point is that it all depends on how bad it gets.
Jonathan Hoenig: It all depends on how the government acts, in my opinion. The Britons and the U.S. are tough on terrorism. And this is the role of government. Everyone who thinks we should be spending our money on education and health care, should kind of get the picture here that this is the role of government – protecting our rights from these murderers.
Jonas Max Ferris: Jonathan, if there was an attack in London, every other week for the next year, eventually the people would probably say, ‘maybe we should bail out of Iraq.’ Don’t you think?
Jonathan Hoenig: Jonas, there’s not going to be. As long as the government stays tough on terrorism, we’re not going to get the kind of violence that we see in other countries.
Stuart Varney: I simply do not believe that if there were a series of attacks like this in Britain, that the British would leave Iraq. They’re not going to be chased out. It’s not going to happen.
Meredith Whitney: The British police force has been very effective at finding these attackers.
Terry Keenan: Stuart, just on a final note, the British financial center has been fortified for 15 years, at least. It makes Wall Street look very free and open. The Brits are ready for this.
Stuart Varney: About 10-12 years ago, the Irish Republican Army set off a truck bomb in the city of London, the very heart of the financial center of London. It did $1 billion worth of damage. It did not shut the markets down. It did not affect the British economy. It did not affect British politics. Period.
Question: "Would the terrorists cripple our economy if they hit our subways?" – Jeff Weingast, Boston, MA
Wayne Rogers, Wayne Rogers & Company: I don’t think they can hurt our economy at all unless it’s a major event. Where they can hurt our economy is; they control the oil in the Middle East and that can hurt our economy. We’ve seen the price of oil go up. If this continues, oil may go even farther, that can hurt us.
Adam Lashinsky, Fortune Magazine: Wayne, this is an important topic. When you say that they control the oil, I think you should be a little clearer about who you are talking about. Does al-Qaeda control the oil?
Wayne Rogers: Everybody in Saudi Arabia, except for the ruling class, are Wahabis. We know that. We know that the September 11th guys were all from Saudi Arabia. You’ve got Pakistan. All over the Middle East you’ve got religious fanatics who hate us. If they control the oil, we’re in trouble.
Adam Lashinsky: So my argument would be that it’s unlikely that they are going to cripple the U.S. economy, but it’s not impossible.
Terry Keenan: We had an oil embargo in 1973.
Jonathan Hoenig, Capitalistpig Asset Management: Terry, you can’t underestimate a free market economy. Do I think that a hoodlum with a bomb in his backpack can hurt a company like Google (GOOG) or Southern Company (SO)? Absolutely not.
Terry Keenan: No, but if they cut off the supply of oil, believe me. We would go into a recession.
Jonathan Hoenig: I might take the other side of that trade. Whether it’s through hedging or new innovation, the economy will always fight its way out.
Wayne Rogers: Jonathan, they don’t have to cut off the supply of oil, they just raise the price of it and we have inflation. We know how much of our economy is based on the price of oil and getting fuel.
Jonathan Hoenig: Are you buying all these oil stocks, Wayne? You’re sounding a little bullish.
Wayne Rogers: Yes. We saw, just this last week, PetroChina (PTR), because of the UN, and some other things, which I have owned for a long time – all of the oil stocks are doing well.
Jonathan Hoenig: That has more to do with all those guys in Greenwich’s SUVs than it has to do with some sheiks in Saudi Arabia, I promise you.
Wayne Rogers: It won’t when the sheiks in Saudi Arabia turn it off.
Adam Lashinksy: There are completely two different conversations here. One is what the sheiks in Saudi Arabia and Kuwait and wherever are doing to the price of oil, and the other is what terrorists would do to the U.S. economy if they were to hit it big again.
Terry Keenan: And you think that they’re not connected, and Wayne thinks that they are.
Adam Lashinsky: Obviously there is some connection. These people are actually relatives to each other. I’m not going to deny that at all. It’s just a question of which is more likely to hit the U.S. economy, and I think Wayne is right. The impact of oil is a bigger one than the impact of a big terrorist attack.
Terry Keenan: Wayne, do you think that there is a risk? That the Saudis or others would cut off the supply of oil? What would be the trigger?
Wayne Rogers: It’s not whether they cut it off, but if they raise the price.
Adam Lashinksy: It’s not necessarily in their interests to do that, Wayne. They can’t raise it forever.
Wayne Rogers: You’re talking about separate people here, too. I’m saying that the religious fanaticism in any form whatsoever is bad. It’s terrible. And they’ve got religious fanatics over there who are not interested in democracy. They are tribal. They are interested in controlling their own destiny. And they’ve got the oil. It’s in their ground. If they want to keep us out of there, they’re going to try to do it or they’re going to raise the price and it’s going to cost us. It’ll cost our economies.
Jonathan Hoenig: I don’t buy it. There’s oil in Mexico, there’s oil in Canada, in Norway and parts of Europe. There’s oil in America. There’s oil in ANWR, So I don’t put my fate in a sheik or a terrorist’s hands.
Adam Lashinsky: There’s oil everywhere, Jonathan, but we’ve shown over and over that we need their oil. The one thing that I would concede to you is that we need less of it now, relatively speaking, than we did 30 years ago. So, there’s some comfort there, but I think you’re taking too much comfort, Jonathan.
Wayne Rogers: And it’s not whether we’ve got it or not, Jonathan, it’s the price. It’s the cost. I’ll sell you some.
Adam Lashinsky: Just because there is a lot of oil in Mexico and Venezuela; and by the way, I don’t think you’re looking to Venezuela to get your oil either, Jonathan; doesn’t mean that what happens in the Middle East doesn’t have a major impact on the price.
Jonathan Hoenig: I do think that it does, but you can’t point to the terrorist bombings and say, ‘that’s what’s raising the price of oil.’
Cashin’ In Challenge
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The best stocks you've never heard of? Let's get the Best Bets:
Jonas Says: Spartech (SEH)
Friday’s close: $18.82
Jonas Max Ferris, MAXfunds.com: I like Spartech. Spartech is into plastics. No one knows about this stock. Only institutions and mutual funds really own it. They make plastics that help companies move from glass and steel to things that are normally made of glass. The stock is weak. It hasn’t done well lately. I think more companies are going to want to get into plastics with rising commodity prices. Insiders are buying. I think this is a good price to get into it.
Jonathan Hoenig, Capitalistpig Asset Management: To say that no one knows about this is a farce. Goldman Sachs has covered this stock, Key Bank has covered this stock. Fidelity owns about 8 percent of the floats. How can you say that no one knows about it?
Jonas Max Ferris: That’s an institutional investor. That’s what I’m talking about. Retail, individual investors do not know about this stock. It has very low individual ownership.
Jonathan Hoenig: Hopefully they don’t know about this stock, because it’s gotten killed. It’s in a terrible sector. I think it’s probably a big under performer right now.
Wayne Rogers, Wayne Rogers & Company: They key word was “weak.” You said the stock is weak. It’s a weak stock. Not my pick.
Terry Keenan: OK, so what is your pick here?
Wayne Says: China Unicom (CHU)
Friday’s Close: $8.56
Wayne Rogers: I like China Unicom. We just had the Chinese Yuan cut loose from the dollar, and that’s helped all of these stocks.
Terry Keenan: It helps them because they can buy things overseas more cheaply, right?
Wayne Rogers: Correct. And it’s the third largest cellular company in the world. A lot of people don’t realize that. Of course, the Chinese mobile market is growing like crazy. And the stock has done very well. I’ve owned it for about 6 months or so.
Terry Keenan: Jonathan, we’ve always heard that a billion Chinese need a Coca-Cola (KO), well I think they need a cell phone first. Do you like this pick?
Jonathan Hoenig: Sure, and as long as the government doesn’t star telling them what kind of text messages they can send, I think this is going to be a good stock. You guys are right. The currency devaluation has been bullish. We talked about iShares FTSE/Xinhua China 25 Index Fund (FXI) last week. That thing’s off to the races, and China Unicom is right there along for the ride.
Terry Keenan: A political risk here?
Jonas Max Ferris: No, and the dollar not having risen that much in China is good, because then their economy won’t decline, but the best thing about this stock is that they just bought 250,000 headsets from a company that I own in the Cashin’ In Challenge; UTStarcom (UTSI), which needs all the help it can get right now.
Jonathan says: Eaton Vance Senior Floating Rate Fund (EFR)
Friday’s close: $18.20
Jonathan Hoenig: I think you have to actually look off the radar screen, Terry. Everyone I know is talking about China right now. I’m looking at a different asset class, not even stocks. My pick is the Eaton Vance Senior Floating Rate Fund. This is a closed-end fund that focuses on owning leveraged loans, what they call ‘senior loans.’ It’s trading at about a 3 percent discount to its asset value. We’ve talked about it in the past and, frankly I’m getting back on board here. This is one of the few asset classes that can do well if interest rates rise.
Jonas Max Ferris: Jonathan, wait. It’s not a stock, and it’s not undiscovered. They went public and raised about $600 million. That’s more than any dot-com IPO, practically.
Jonathan Hoenig: Jonas, if you look at a lot of individual investors portfolios, how many people do you know own...
Jonas Max Ferris: A lot of people. Fidelity Floating Rate fund (FFRHX), I recommended it years ago. That’s not an undiscovered asset class. Eaton Vance has another floating rate fund. Buy Eaton Vance (EV) stock. They’re the ones making money off of all this.
Wayne Rogers: I can’t settle this. I’m kind of neutral on this thing. If you want to put safe money in the mattress, I think that’s a good place.
Jonas Max Ferris: It’s junk bonds. It’s not that safe. The high-yield debt is risky because if rates go up, those companies are the least likely to be able to pay the higher rate.
Jonathan Hoenig: I would agree with you that it isn’t safe. It’s an investment. It’s a risk like anything else, but I think it’s unique right now because it’s non-diversified to most equity markets, and it’s the only income-oriented investment that I could find that does well when interest rates rise.
Wayne Rogers: You say it isn’t. I’m telling you to look at the chart, Jonathan. For the last six months, what has it moved? 50 cents? 10 cents at a time? A nickel? Big deal.
Jonathan Hoenig: Wayne, I think you’ve got the chart upside down. This thing has gotten killed in the last six months. Now’s the time to step in.
Stock of the Week
Last week’s Stock of the Week from Danielle Hughes was Symantec (SYMC). For the week of July 18-24, SYMC was down 1.0 percent
Mutual Fund Face-Off: Blockbuster Remake Funds
Jonas Max Ferris and Adam Lashinsky are back with funds they say are remaking themselves and could make you some big bucks.
Adam’s “Remake” Fund: T. Rowe Price Science & Technology (PRSCX)
Minimum Investment: $2,500
Adam Lashinsky, Fortune Magazine: I like the T. Rowe Price Science & Technology fund. This is one of the stellar technology growth funds of all time, basically. And like most of these kinds of funds it has had a rough time. It’s just done terribly. If you believe that money is going back into growth and that technology is going to start to do better, which it is, then this fund is a good one.
Jonas Max Ferris, MAXfunds.com: First of all, that fund is so big that it’s just like the NASDAQ-100 (QQQQ). It’ totally correlated to that index. There are better science & technology funds from Wasatch, from Buffalo, that are smaller and way more flexible and have performed better.
Adam Lashinsky: What has done well about it, if you look at last year, for example, it held its own pretty well in a tough tech environment. So that’s what you get out of a big fund like that. Stability.
Terry Keenan: So what’s your remake here, Jonas?
Jonas’ “Remake” Fund: Fidelity Select Electronics Portfolio (FSELX)
Minimum Investment: $2,500
Jonas Max Ferris: Back when ‘Bewitched’ was on TV and was first run, what was all abuzz before dot-coms on Wall Street was “tronics.” Anything electronic was super trendy. The Fidelity Select Electronics fund is a way to play what used to be popular way back in the early ‘60’s. I think it can do well again.
Adam Lashinsky: Let’s be honest. We’re talking about the same exact kind of fund. We had the same exact idea, only Fidelity Select has already started moving and T. Rowe Price Science & Technology hasn’t started moving yet, because it’s in front of the curve, instead of behind.