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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 ChangeWave Investing; and Scott Bleier, president of HybridInvestors.com; Danielle Hughes, president and CEO of Divine Capital Markets; and retired U.S. Army Col. David Hunt, FOX News military analyst.
Trading Pit: Stock Victory
Last Thursday’s deadly and tragic terror attack in London did have an initial affect on the European markets, but came back to finish well off their lows on Thursday and Friday.
Here in America, there was a huge stock surge; with the Dow gaining 300 points from it’s low on Thursday after the attack. This was a strong victory in the wake of terror.
Tobin: The attacks in London last week was a horrible attempt to try to scare economies that won’t be scared. These terrorists are not going to get in our faces and change our economy. It’s not going to change us. It will just strengthen our resolve.
Gary B: It’s kind of sad, but we’re starting to get used to these events occurring. If the terrorists really want to affect the markets, they will have to be on a whole new level. That’s what is scary.
Col. Hunt: The British reacted extremely well. The markets are people. We are not going to be beaten. The problem is that the G8 Summit didn’t even have terrorism on the agenda. This attack put it back on the front burner and it needs to stay there. We have to stay strong, find these guys, and kill them.
Pat: Attacks like this don’t affect large economies over the long term. And since it’s the economy that drives the market, these attacks don’t hurt as badly as the terrorists hope. However, in the short term, these attacks hurt the market because they are unexpected.
Dani: We’re looking at this event in hindsight a little bit. We didn’t have to close down any markets. The British were resilient, but we can’t anticipate what terrorists will do in the future. The only thing we can do to protect ourselves is to back the markets up. The economy continues to be strong and that’s what the investors came back to see.
Scott: The scope of 9/11 was quite unparallel. The surprise factor is over and we’re all used to this. What the market did on Thursday and Friday was the best and biggest short covering rally we’ve had all year.
But would happen on Wall Street if our subways and buses were attacked?
Dani: We went through that already. The market will tank, but we now have taken a lot of precautions.
Gary B: It’s one thing for the U.S. markets to hold solid when it happened across the ocean. There would be a much different reaction if that attack had happened here.
Tobin: I live in Washington, D.C. and New York City, and know one of these cities will get hit. But I think Americans have made a resolve not to let the terrorist win and won’t let another attack matter.
Col. Hunt: We have done a great job of rebuilding after 9/11. But we are a vulnerable society. However, if something happens again, we will fight back even harder.
Pat: The market would have a terrible sell-off in the short-term, but after a few weeks, the market will be back where it started.
Scott: I don’t think we would get a gigantic sell-off. Certain segments of the market would go down sharply: hotels, casinos, airlines, etc. However, “nesting stocks”, like Internet stocks and shop-at-home stocks, would go straight up.
Hurricane Dennis bearing down and possibly pushing record oil prices even higher. But will oil prices head higher? And which stocks will profit no matter which way oil goes?
Dani: I think oil will continue to go up, but not necessarily because of the hurricane. In the energy industry, it takes about 6-8 years for supply to catch up with demand. I like oil tanker company, Nordic American Tanker (NAT). It pays a dividend. But just a warning, it is a very volatile stock. (Nordic American Tanker closed on Friday at $45.70.)
Gary B: Nordic is old news. It’s overbought.
Pat: Oil is going down. However, no matter the price of oil, Forward Air (FWRD) is going to keep flying high because the company adds on its fuel costs. It’s a logistics firm that moves cargo between airports. The stock is going to $40. (Forward Air closed on Friday at $28.65.)
Tobin: I think it goes to $35, but that’s it.
Gary B: Oil will keep heading down. Buy Disney (DIS). The chart looks great and many people will be traveling to Disney’s theme parks with gas prices going down. (Disney closed on Friday at $25.00.)
Dani: Unlike oil, Disney has a supply problem. Put your money elsewhere.
Scott: Oil prices are peaking now and will start to head down. The economy is going to slow and when that happens, people will be shopping at Costco Wholesale (COST). It’s the number one wholesale retailer, is building up new stores, and has a lot of cash. (Costco Wholesale closed on Friday at $45.55.)
Pat: This is a wonderful company, but the stock is a bit pricey. I’d rather buy Wal-Mart (WMT).
Tobin: Oil goes up. Buy Nexen (NXY). It’s an oil, gas, and chemical company focusing on exploration and production. The stock is going to $40. (Nexen closed on Friday at $35.02.)
Scott: I don’t like it.
Tobin's prediction: Fed stops hiking; stocks roar back! Market up 5 percent by fall
Gary B's prediction: Terror doesn't threaten oil prices! Down to $40/barrel
Pat's prediction: Terror won't slow travel; buy Expedia when it spins off
(Pat owns InterActiveCorp-IACI. InterActiveCorp is the parent company of Expedia.)
Dani's prediction: Boeing (BA) beats down terrorists and goes up 25 percent
Scott's prediction: British keep a stiff upper lip; Barclays (BCS) up 30 percent
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cavuto on Business
Neil Cavuto was joined by former New York City Mayor Ed Koch; Ben Stein, author of "Yes You Can Be a Successful Income Investor"; John Rutledge, president of Rutledge Capital; Meredith Whitney, executive director at CIBC World Markets; Charles Payne, CEO of Wall Street Strategies; Gregg Hymowitz, founder of Entrust Capital; and Adam Lashinsky, senior writer at Fortune Magazine.
Neil Cavuto: The London bombings are a grim reminder that Usama bin Laden is still on the loose. Is he still Wall Street's worst nightmare? The streets of London turned deadly this week, images evoking memories of 9-11 here in America. Usama bin Laden is still at large, now almost four years since the attacks on our soil. Is he still the number one enemy of America and the stock market?
Ed Koch: There's no question that he is one of the worst. What's key about what happened in London is the response of the British. It was different than Spain's reaction after their attacks where they caved and withdrew their troops in Iraq.
Neil Cavuto: The British don't have any elections. Spain did have elections coming up at the time.
Ed Koch: What difference does it make? You can poll people. It's clear the British are going to show the same kind of strength they showed in the Blitz. And that's very important.
John Rutledge: That's exactly right. If you let terror rip you, then Usama wins. I see this as a technology story. The story here is that technology has turned the lights on around the world -- poor people can see rich people and vice versa. The return on being a terrorist has gone up because of that. But we also have less government terrorism because of that too. And in the end it's really good for investors. This makes poor people around the world force their governments to do things to attract capital. Big gains in the market and growth in the world as a result of this is the same thing that's created Usama bin Laden.
Ben Stein: Usama bin Laden is clearly a very evil nasty human being and a dangerous person. But the number one enemy of the market is the bubble that burst in 2000-2001. You're still seeing the effects of it. He's not the problem, but we should be putting more resources into finding and capturing him.
Gregg Hymowitz: It's hard to get your arms around the fact that bin Laden as a representative of terrorism in general is not weighing on the markets. It clearly weighs on the economy. It's shifted spending priorities. It's changed the deficit picture. Clearly it seems that bin Laden symbolizing all of terrorism does affect the equity markets.
Neil Cavuto: I wonder if you took the guy out would it change?
Meredith Whitney: That'd be very nice, but I think he's really an afterthought now. The market was pretty resilient on Thursday after the bombings. That's pretty amazing.
Neil Cavuto: Or how resilient Israel is to terror.
Meredith Whitney: I don't mean to put this guy in the same camp, but the worst enemy of the market right now is Eliot Spitzer. The regulatory pendulum has swung way too far.
Neil Cavuto: Adam, if we got Usama bin Laden would that make a difference?
Adam Lashinsky: Gregg makes a very good point, which is that there is a political risk discount in the market. It's the Usama risk. The problem I'm concerned about is even if we were to get Usama tomorrow, it'd still be the age of Usama. It wouldn't do a lot to alleviate terrorism.
Gregg Hymowitz: You have to take out the leadership of these organizations. As far as most of us know, he still seems to be the leader. The fact that we can't find him is a real problem.
Adam Lashinsky: I agree.
Ben Stein: It would be great to take him out, but there are hundreds of thousands who will take his place.
Charles Payne: I agree with Ben that if we had to rank terrorism, it would be very low on the list. If we got bin Laden of course it would help the market. But the market is not, not moving because of bin Laden. A sideways market is typical after a bubble bursts. In 1929 when the market crashed it didn't recover until 1954.
Neil Cavuto: Charles if you're right, then you're saying we won't see a return till 2026.
John Rutledge: Terrorism is not about the terrorists, it's about the terror-ees. We're clenching our buttocks and not buying stocks. We need to exhale a little bit and just let go.
Neil Cavuto: Mayor, you ran New York for 12 years. You know how frightened people can get. But you also know how resilient people can be. If we were to have another terrorist attack in this city, what do you think the reaction would be?
Ed Koch: We will most likely have another attack. Anytime anyone is willing to give up their life, they can ultimately kill you. But I believe the people of the United States under the direction of George W. Bush ... I'm a Democrat but I supported him on this issue because the Democrats didn't have the stomach to stand up to international terrorism.
Gregg Hymowitz: Why do you say that? Right after 9-11 the world came together to go into Afghanistan to fight terrorism. We did not come together to go into Iraq, because clearly it's not linked to terrorism.
Ed Koch: John Kerry himself, when asked the question why did you lose, said: 'I couldn't convince the American public.'
Gregg Hymowitz: Do you think we went to Iraq to fight terrorism?
Ed Koch: Terrorism is all over the Muslim world. The fact is it was not Saddam Hussein who blew up the World Trade Towers. It doesn't make any difference.
Gregg Hymowitz: Of course it does.
Ed Koch: No it doesn't. All of those people are working together.
Gregg Hymowitz: There's no evidence of that at all.
Ed Koch: Not a single major Muslim cleric or institution has put out a Fatwa that Usama be killed. They put out Fatwas against Christians, against Jews, against Salman Rushdie. It says a lot about where they stand.
Neil Cavuto: How much money will America have to spend to make subways, buses and trains safe from terror? Or is that simply an impossible task?
Ed Koch: We're never going to have absolute security. You have to learn to live with the dangers in life. It doesn't mean you have to accept it. You ought to be more acute and observant.
John Rutledge: I don't think our biggest risk is dying; our biggest risk is not living. I lived once in West Berlin. The guards across the border would walk two by two because that was the only way they could secure each other. They weren't having a good time. We won't either. We have to let go of this thing and get on with our lives.
Gregg Hymowitz: If you were still mayor would you be happy with the amount of money we received from the Federal government for our first responders?
Ed Koch: Of course not.
Gregg Hymowitz: Ok so at some point you have to discuss your spending priorities.
John Rutledge: Do you know how much money we're spending on Homeland Security?
Gregg Hymowitz: Not nearly enough for the first responders. Speak to the policeman and none of them will tell you they're getting enough resources.
John Rutledge: The fastest growing commercial real estate in America is properties leased to Homeland Security. I have had the pleasure of leasing them some buildings myself. It's great business, but it's too much money.
Meredith Whitney: I don't think any nation is secure from terrorism. Israel has the most amazing defense systems in the world, and it's not secure from terrorism.
Ben Stein: What John said is the single smartest thing we've heard on the show. We have to get used to living with risk and danger. We have to get used to the fact that we have deadly enemies out there. We also have a giant problem with immigration too.
Gregg Hymowitz: The fact is we have to make decisions and we have to set priorities.
Ben Stein: But Gregg, the point is it's never going to be perfect.
Ed Koch: It's primarily the infiltration of the Muslim cells that's required when you get the information and then you can respond to it. We're not there yet.
More for Your Money
Neil Cavuto: Companies on the cutting edge in the war on terror. Why their stocks could help you get more for your money. Adam, what's your pick?
Adam Lashinsky: Neil, I've got Flir Systems (FLIR). It makes pattern recognition and infrared monitoring cameras. It's been a big demand for Homeland Security and border control. It's going to do well with or without Homeland Security contracts.
Gregg Hymowitz: This stock trades at roughly 26 times earnings. It's not cheap. I don't understand how they could do well if the spending does not go to Homeland Security.
John Rutledge: I like Symbol Technologies (SBL). Their old business is scanners. Their new business is RFID chips, the little chips that emit radio frequencies that Wal-Mart is requiring all their suppliers to have.
Charles Payne: I know we have to live, but do we have to live dangerously? I mean this stock is a disaster. We were in this when we were stopped out about 2 or 3 weeks ago. Anytime you see a stock that's gapped down two times in one year, something's wrong. I like L-3 (LLL). It does benefit from Homeland Security, and it's just a great company to be in.
John Rutledge: It's a Rambo stock. They make these whiz-bang things that the military uses. Military spending on these areas is very strong, but it is a one-trick pony.
Charles Payne: I'll tell you what: the military has a pretty consistent budget.
Gregg Hymowitz: I like Ben's favorite stock, Boeing (BA). It's one of the three largest defense manufacturers. The new CEO comes from GE. He went to 3M and did a great job there. If Boeing can be run like GE, it'll be one of biggest turnaround stories ever.
Ben Stein: Gregg is my brotha' and I think Boeing is the leading defense integrator, not in volume but in terms of quality of its work.
FOX on the Spots
Ed Koch: The market rises, if not next week, the week after!
Gregg Hymowitz: Bombing shifts focus from Iraq back to al Qaeda.
Charles Payne: Patriot Act renewed in the wake of U.K. terror.
Meredith Whitney: Market not afraid of terror; buy now!
John Rutledge: America exhales and buys stocks!
Ben Stein: Despite everything stocks are cheap; BUY! Ben likes the iShares Russell 2000 Value Index (IWN)
Neil Cavuto: Gitmo... you're not going to hear as much about it now. Since the attacks in London, we rightly have other issues we're more focused on… like ourselves and getting killed.
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Forbes on FOX
In Focus: War on Capitalism: Do the Terrorists Stand a Chance?
Steve Forbes, editor-in-chief: Obviously democratic capitalism will win this war. It appeals to the best in human nature rather than the worst in inhuman nature. People work to live rather than work to die. As long as we don't cash in our will to live and will to fight we're going to beat them. Just like we won two World Wars and the Cold War, we'll beat these guys as well.
Lea Goldman, staff writer: I think what this is going to do is prompt us to take a stronger stand with these rouge nations that are giving these terrorists a place to sleep, a place to eat and a place to die.
Elizabeth MacDonald, senior editor: The terrorists can't stop democracy's march. I'm for free trade and free markets. How about a super NAFTA (North American Free Trade Agreement) . We all talk about taking a fight to the terrorists. The way you do that is you put in a democracy and let people choose for themselves. That's what happened in Iraq.
Bob Lenzner, national editor: I think these terrorists are only a small part of the Islamic society and the world. They are blowing up buses and subways, that's not going to defeat democratic capitalism. In the last 40 years we've defeated the Communists, pretty much taken care of the Socialists and the Marxists. Terrorists are not going to be able to change and destroy our system.
Victoria Murphy, staff writer: Terrorists are tricky. It's not like traditional enemies where you can point a gun. Al Qaeda is not a centralized organization and that is a disadvantage. But capitalism is kicking butt. Look at China where there is a thriving middle class. Look at India where there is flourishing entrepreneurialism. That's amazing and the terrorists can't go after that. Terrorists are a target that is mysterious and complicated and they are going to be a threat to us for a long time.
Bill Baldwin, editor: Our capitalist society will win this eventually, but it will only happen when we get control of our boarders. Unfortunately, I think that is going to mean a radio frequency national ID card that will allow the police to spot someone that doesn't belong.
Steve Forbes: That shows a wonderful faith in government, that we are going to know well in advance who the good guys are and who the bad guys are and have data centers that actually work. All you have to do is look at the Immigration and Naturalization Service and you can see that they are still back in 1895 in terms of handling paper work and in terms of handling who should be here and who shouldn't be.
Lea Goldman: The issue goes way back and it's bigger than just guarding our boarders. You have to go to the root of it. At the root of it are nations that have said to these terrorists, have at it. And part of the problem is that we have countries like Saudi Arabia masking around like democracies with somewhat functioning stock markets, when the fact is 30 percent of the population hasn't even set foot in a school and 20 percent of the population doesn't even have jobs!
Elizabeth MacDonald: Jobs are at the root of this. In their minds we are Zionist crusaders who are trying to keep Muslims poor and weak. If you get the free trade going and get free markets in place and democratic institutions, you get people invested in democracy. I think the tide will turn when you get a cleric to stand up and put a fatwa on the heads of Usama bin Laden and Zarqawi.
Steve Forbes: The key here is, you want to have a society with a growing middle class who are interested in improving their lives and not blowing up their neighbors.
David Asman, host: But Mohamed Atta, one of the 9/11 terrorists, came from the middle class.
Victoria Murphy: I think he is the exception rather than the norm. It's hard to take on these guys in their twenties and thirties who think that Allah is speaking through them. That's what makes this so hard to fight. But our economy and our markets are much stronger than they were after 9/11. Look at what happened after London. The market took a dip and then it rebounded. We are stronger and we know how to react better.
Bob Lenzner: Our markets aren't immune to terrorists threats, they go down very briefly and then they bounce back. But al Qaeda did a disservice to themselves by killing the Egyptian Ambassador to Iraq. They are trying to kill their own Arab leaders.
Elizabeth MacDonald: It shows that we are dealing with serial killers. I think that the developed world and the free markets are going to have to learn to shrug off these attacks as the stock market did after the attacks.
Steve Forbes: The key is leadership. When George Bush responded positively after 9/11, the market, which took it's biggest dip since the Great Depression came roaring back. Same thing with Tony Blair when he was firm. The markets in London and in the world came back.
Flipside: Terror May Fuel Our Housing Boom
Bob Lenzner: If terror has an effect of softening the economy and keeping interest rates low and keeping the mortgage rate between 5 percent and 6 percent, the housing market will remain strong.
Bill Baldwin: The theory is that terrorism raises the value of real estate. This is absurd. The reason home prices have gone up the past five years is because interest rates have been low for the past 5 years. It's that simple.
Victoria Murphy: Yes, but if we had an attack in this country the economy would take a hit and that might cause the FED to not increase interest rates and that would keep rates low and fuel the housing market. The housing market has thrived in a post 9/11 world.
David Asman: In August 2001 the median home price was $145,000 and the 30-year fixed mortgage rate was 7.01 percent. Now the median home price is $204,000 and the rate is 5.7 percent
Elizabeth MacDonald: Interest rates dropped mainly because of the bubble in 2000 and not in reaction to 9/11. Interest rates were being cut well before then.
David Asman: 9/11 hit New York the hardest and it's in New York where housing prices are skyrocketing.
Steve Forbes: The fact of the matter is it's low taxes. Capital gains taxes on housing was virtually eliminated in 1998, three years before 2001 and that's what started the real housing boom. Post-1998 housing has increased faster than pre-1998. Taxes are key. Interest rates the same thing. If you think terrorism has anything to do with the housing market, you should be in a padded house.
Bob Lenzner: After 9/11 Federal Reserve Chairman Alan Greenspan, increased the nation's money supply.
Victoria Murphy: The 9/11 attacks did take a hit on the economy and future attacks would perhaps dampen interest rate increases. It's simple logic.
Elizabeth MacDonald: After 9/11 people did not want to sell. What we saw was a drop off of 50 percent of people wanting to sell their homes. People wanted to stay at home because people felt insecure and uncertain. Home sales did not take off because of 9/11, it was the opposite.
Victoria Murphy: The reality is, there is no demographic trend to explain the increasing demand for housing. So something else is going on.
Steve Forbes: There is an aging population and they are now doing to housing what they did to cars. They want a second home and a third home and with low interest rates and low taxes you get more houses.
The Informer: Terror $urvivor$
Elizabeth MacDonald: A stock I like that survives the fallout from terror attacks is Northrop Grumman (NOC). Defense spending is going to continue to go up. We still have the Iraq war to deal with and problems in Afghanistan. Northrop Grumman is a solid blue chip that makes command control systems and they are into space technology. I think it's a good buy.
Bill Baldwin: Northrop Grumman makes very expensive fighter jets. They are great for fighting the Korean war but useless for fighting terrorists.
Elizabeth MacDonald: They're not just into fighter jets, they are into space technology as well. They've got solid earnings and great management.
Bob Lenzner: After disasters you need insurance. After 9/11 the rates for casualty insurance doubled and even tripled. I think this could help the insurance company Chubb (CB).
David Asman, host: But what about worries over recent scandals in the insurance industry and hurricanes, which could cause insurance companies to pay out huge claims.
Bob Lenzner: Hurricanes could be a problem but I don't think the scandals are going to hurt Chubb, they haven't so far.
Victoria Murphy: I have a company called Symbol Technologies (SBL). If we really want to tighten up our boarders we are going to need a national ID card. Symbol Technologies made a name for themselves with barcode scanners and they are going to do the same with the RFID chips, which would come in handy if we had any kind of national identity system.
Elizabeth MacDonald: I don't like this stock. This company has been in a constant turnaround mode. Retail companies just took off recently. They made barcode scanners. What did Symbol Technologies do? They cut their revenue estimates. That shows you that the company is not being well managed.
Victoria Murphy: It's a risky company. The stock has plummeted in the past year. That's why there might be opportunity.
Bill Baldwin: I don't like Victoria's stock but I like her concept. I'm also thinking security and technology, but I'm thinking Intel (INTC). Right now they are not very big into radio frequency identification and sensors, but I think in the next 10 years they will be.
Victoria Murphy: I like Bill's concept but not his stock. Intel is facing an antitrust lawsuit from its rival AMD. This will take years to play out and I think it will be a distraction. It's going to make Intel more conservative and less aggressive in their negotiating and deal making. Now is not the right time to buy this stock.
Makers & Breakers
• GERDAU (GGB)
Don Schreiber, CEO of Wealth Builders Inc: MAKER
This is a Brazilian Steel company. It has great earnings. This is a company that did great earlier in the year and has sold off big. It's selling almost like it's going to go out of business.
David Asman: You've got a target price of $12. (Friday's close: $9.20)
Peter Newcomb, senior editor: BREAKER
I'd prefer to buy American steel companies.
Elizabeth MacDonald: MAKER
I don't know why this company is trading like it's going to go bankrupt, three times earnings. This is a great company with a powerful earnings growth rate of something like 28 percent.
• Dow Chemical (DOW)
Don Schreiber: MAKER
Dow Chemical is a stock that is going to be helped if oil prices fall. We think the company is growing its revenues and its earnings significantly. It is also under priced. This is a good opportunity for growth and to pick up a nice juicy dividend of 3 percent.
David Asman: You think it can go to $55. (Friday's close: $45.75)
Elizabeth MacDonald: MAKER
Dow Chemical had a problematic two years in 2001 and 2002. They have put those problems behind them and they've gone through a painful restructuring, but their earnings growth is coming in strong.
Peter Newcomb: MAKER
Operating earnings are way up. Free cash growth is way up. What's not to like?
David Asman: But didn't they have to shut down a plant in Texas and the stock price has been beaten up in the past couple months?
Don Schreiber: Yes the stock has dropped, but that makes it a cheaper and better play. Pick it up while it's cheap.
Bulls & Bears | Cavuto on Business | Forbes on Fox | Cashin' In
Stock Smarts: Shaking Off Terror
Stocks all over the world sold off on the news of the London terror attacks last Thursday, but then rallied back. Here in America stocks were actually up that day. In Israel they deal with the threat of terror daily, and that market is up for the year.
So are we in a position to say that we are shrugging off terrorism?
Wayne Rogers, Wayne Rogers & Company: Yes, because the fact that it is an isolated event, in the sense that it’s an explosion in the city of London, has nothing to do with the economy, ultimately. It’s horrible. We all recognize that it’s horrible, but it has nothing to do with the economy. It’s not going to wreck anything. However, if someone were to set off a nuclear device or something like that, the severity of that would cause problems in the market. You’ve got to remember that this is a world market - a global market. It’s not just a London market or a New York market.
Stuart Varney: Steve Emerson. You’re our terrorism expert. The terrorists closed down London and most of Britain for the day. The market shrugs it off. Are we complacent?
Steve Emerson, Investigative Project: No, I don’t think we’re complacent. This is a human reaction, and I think it’s a good one; that basically people want to respond in living their lives normally. In the United States, it took a year to really get back on track. Lower Manhattan didn’t really come back, economically, until last year, and now real estate prices are booming in lower Manhattan, at a site where there were 3,000 people were almost killed. So the reality is that it’s a good thing to come back normally, like the Israelis have with 112 suicide bus bombings, they live every day as if there were no suicide bus bombings.
Stuart Varney: Jonathan, we get terror in London and the market goes up in America. What do you make of this?
Jonathan Hoenig, Capitalistpig Asset Management: Well Stuart, it didn’t start up, right? The morning of the atrocious murders, the Dow futures were down about 180 points, so I think in the short term, terrorism is always going to have an effect on markets, because the market hates uncertainty, and we didn’t know if there were 10 bus bombs planned, or if they were going to hit other cities. Over the longer term, the only way that terrorism can have a long-standing impact on the economy is if we stop getting tough on these murderous bastards. If we start going easy on terrorists, then you’re going to see the economy and the market really start to tank.
Leigh Gallagher, SmartMoney: Well, I do think that the market is proving that it is much more resilient. This isn’t even resilience, this is defiance. Emotionally, we did not shrug it off. This is a horrible tragedy, and I think everyone appreciates that and recognizes that. The market’s doing what it should do, and that is to say, ‘it’s an event, it’s not going to have a tangible effect,’ and while I think we knew it was going to have a short-term effect, even how short-term surprised everybody.
Gary Kaltbaum, Kaltbaum & Associates: Everyone’s correct here. The key word is ‘event.’ It happens, it goes away. Look -- these maggot terrorists are out to get us, but they’re not going to get us by blowing up a bus. They didn’t get us on September 11, 2001. We’re back. The markets are ahead from where they were when the event occurred, and we move forward. The bottom line is we have more things to deal with; the economy, interest rates and things like that.
Jonas Max Ferris, MAXfunds.com: We’re talking about this like we think it’s a good thing that it was shrugged off. Is Israel really that much of a model? Do we want there to be so many terror attacks that the market just shrugs it off as ordinary? I’d rather the market tank because it’s out of the ordinary, that we don’t expect them to happen. Can we make this go away? Is it going to keep happening? This was a minor terrorist attack, so the cost was insignificant in dollars.
Gary Kaltbaum: No one is saying that it’s not a bad thing. It is a bad thing. But the key is what our economy is saying about it. What is our market saying about it?
Jonas Max Ferris: Exactly. It’s saying it’s going to happen and it’s to be expected, so we’ll discount it just like hurricanes or anything else that’s part of the ordinary bad things that happen. It’s sad.
Gary Kaltbaum: Welcome to the market.
Wayne Rogers: Jonas, with all due respect, it isn’t disruptive of the entire market. We have a global market now. There are multi-national corporations. What happens in Great Britain is not necessarily going to affect the rest of the world that much. As I said, though, if you had a nuclear device and you blew up half the south end of Manhattan, yes you’d have a hell of a time.
Stuart Varney: Let’s bring it back home for a second. Steve, could it happen here?
Steve Emerson: Well certainly another attack like September 11, 2001 could happen here. The only question is whether the markets could get restored to their normal levels.
Stuart Varney: But what I mean, Steve, is could we get a series of bus bombings, for example, in the subways of New York City; a disruption of transportation in a major American city. Do you think it’s likely?
Steve Emerson: Well, I don’t know about likely, because that’s a statement that’s almost impossible to make in light of the fact that the attacks that occurred on Thursday occurred thoroughly below the noses of the British intelligence. Three weeks ago, they lowered the threat level. So, you can’t say likely or unlikely. There’s no doubt that there is a jihadist movement, worldwide. There are jihadist cells in the United States. They could carry out attacks.
Jonathan Hoenig: They want to kill us, right? They would love to murder us in our beds, on a bus, on the train?
Steve Emerson: All they want to do is kill us and destroy our economy. And if, in fact, we can restore our way of living and basically shrug it off, even though I think we should maintain our anger in order to strike at them, if we can shrug it off and basically not allow them to do the economic damage, and not allow them to see us wallow in our misery, then they get deterred, because they realize it doesn’t have the same dividends.
Jonas Max Ferris: What I mean is, the market is probably 1,000 Dow points below where it would be if there never was terrorism. So, there’s already this discount in the market permanently, and in the economy, that this is a permanent part of society now. That’s a sad thing. My point is that the market has already fallen. It’s not that it doesn’t fall now. It’s already predicting this will happen, and therefore it is at a discount. We’d be at Dow 12,00 right now.
Gary Kaltbaum: There’s always going to be the risk premium there, because they’re out there. They want to come after us. Jonathan said it best. My main point is that, ‘how strong is this economy? How strong is the world economy?’ And they’re speaking loud and clear. Since September 11, 2001 and, in the short run, since this event happened, the markets are coming back strong.
Stuart Varney: If I’m an investor, I’ve got to look at what happened as a plus from the investment scene. The market went up in the face of terror and wickedness in London.
Leigh Gallagher: It did, and the few sectors that did suffer more like travel and retail – you could look at that as opportunity. Now I do think that if the loss of life were far greater, or if something happened on U.S. soil, we would see a much different reaction this week.
Stuart Varney: Jonathan, you’re angry, I can tell. And you’re pleased with this market response, I can tell that too.
Jonathan Hoenig: Yeah, absolutely. Listen, if I had to bet on a bunch of hooligans with backpack bombs or great, multi-national corporations, whether here or in London, I would bet on the corporations any day. I think a big distinction that we’re missing, though, between the London attacks and what happened on September 11, 2001, is that the attacks then were focused on financial infrastructure. I mean - the World Trade Towers crumbled. As horrible as the bus bombings were, it wasn’t focused on the financial infrastructure.
Steve Emerson: Look, I think the bottom line is that bin Laden and his comments right after September 11, 2001, were relishing the fact that the United States lost a trillion dollars in capital markets. I don’t know if that’s the figure that he used, but he relished that idea. The fact that the United States ended up restoring its markets, the fact that we are now living with only 1,000 point loss in what would have been the normal high of the stock market means we really are discounting the potential for him disrupting our economy. That’s the best type of revenge, aside from actually going after him and killing him.
Terror in London: What’s a Bigger Threat to Stocks: Oil or Terror?
Last Wednesday, oil hit a record high, and the Dow dropped over 100 points. When the attack in London happened on Thursday, oil fell and stocks headed higher in America. So is oil the bigger threat to stocks?
Gary Kaltbaum, Kaltbaum & Associates: Look, not to belittle what happened in London, but I believe oil is the main problem, going forward. Every time we’ve had oil prices in a shock like this, we’ve ended up in a recession. The longer it stays at these prices, the tougher it could be for the economy and the markets. Not to belittle anything that’s happened, or anything that Jonas says, because I do agree with what he did say.
Jonas Max Ferris, MAXfunds.com: I don’t agree because, yes oil is expensive. It probably costs the global economy $1 billion a day. Terrorism is expensive: fighting it, the loss to the economy, it’s probably close to $1 trillion after all is said and done to the global economy. But I also say that terrorism changes people’s behavior more than oil. We’ve had high oil prices for a while now. People don’t avoid driving. They haven’t avoided flying. No one is avoiding something because of high oil prices. Now, terrorism has that power. If there were bigger attacks, people would stop doing stuff, and that would grind the economy to a halt.
Wayne Rogers, Wayne Rogers & Company: What’s going to cause an even bigger disruption is this hurricane (Hurricane Dennis) this week. This is something that’s really going to cause problems, because if it gets in the gulf and it’s a class 4 or class 5 hurricane, all of those platforms in the gulf, which have probably been evacuated by now, will really be a disaster.
Stuart Varney: Jonathan, I know you’ve been an oil investor in the past. What is the bigger threat, terrorism or oil?
Jonathan Hoenig, Capitalistpig Asset Management: So has Wayne, and I’m glad that a lot of Wayne’s oil services stocks are doing well, because isn’t Wayne’s house right in Dennis’ path?
Wayne Rogers: Jonathan, that’s what I’m saying. It’s going to kill me. It cost me around $40,000 the last time when Ivan hit. This is going to cost me even more. And this is after the insurance.
Jonathan Hoenig: Do you still own Plains All American (PAA)?
Wayne Rogers: Yes.
Jonathan Hoenig: For me, Stuart, I guess that’s the thing. Is oil a risk? Yes, but it’s not a risk to a lot of companies in the oil business, like Plains All American, or like some of the oil trusts like BP Prudhoe Bay Royalty Trust (BPT) or San Juan Basin Royalty Trust (SJT). Some people see a risk; I guess I see it as more of an opportunity.
Jonas Max Ferris: That’s like saying terrorism’s not a risk because you can make money in defense stocks. I mean it’s still a risk to the economy even though some stocks go up.
Jonathan Hoenig: There’s always a bull market somewhere. We know that the higher oil prices have benefited oil services companies and oil-related stocks.
Leigh Gallagher, SmartMoney: I think it’s also important to remember here that we’re far less reliant on oil than we were 50 years ago. But there was an interesting headline that sort of went unnoticed on Thursday, and that was Saudi Arabia came out and said ‘we have enough reserves for about 10-15 years.’ I think that’s a lot sooner than people expected.
Wayne Rogers: We know, also, that there’s a lot of oil in Kazakhstan, Russia and even in China, even though China is the second-largest oil-consuming nation in the world after us, there is still a lot of oil out there.
Stuart Varney: But you can’t get it out very quickly. That’s the point.
Leigh Gallagher: The benefit of rising prices is that it prompts more exploration. I mean it makes things profitable.
Jonas Max Ferris: Oil is a solvable problem. Terrorism is not solvable. We’re one global recession away from $20 oil, right? If Alan Greenspan raised interest rates 2 percent, oil would go to $20, so that’s solvable. How do you stop terrorist attacks so easily?
Jonathan Hoenig: You can’t stop terrorist attacks. The only risk of terrorism is that we get an issue like we had in Spain, where the people elect this socialist, pacifist leadership who become complacent about terrorism. If we stay tough on terrorism, it’s not going to have any effect on the global market or the global economy.
Stuart Varney: Let me ask you this. If oil goes to $70 a barrel, will the Dow drop well below 10,000?
Gary Kaltbaum: I just think it’s a major headwind, and that’s what I’m watching. And to some of the things that Jonas said about behavior and terrorism, all I know is that yesterday 11 of the 13 London rails were up and there were people on the double-decker buses saying, ‘I’m here and I’m here to stay.’ So, I think the defiance is out there.
Cashin’ In Challenge
Check out their stats at: www.foxnews.com/challenge
Best Bets: Freedom Stocks
Jonathan, Wayne, Gary and Jonas are back with their stocks that celebrate the spirit of freedom and represent everything the terrorists hate about America.
Jonathan's Freedom Flier: Target (TGT)
Friday's Close: $56.93
Jonathan Hoenig, Capitalistpig Asset Management: Target is a great company. It’s a great American success story. They invented the first two-level shopping center. There’s a great history of innovation here. And you know what? The trend is with the retailers here. I wish we owned this stock. I wish we owned JC Penney (JCP). But if you love America, I think right now you’ve got to love Target. It’s in the zone and it’s a terrific American success story.
Stuart Varney: What’s with this sour face, Jonas? Are you some kind of communist here? We’re talking about Target stores, all America.
Jonas Max Ferris, MAXfunds.com: I like Wal-Mart (WMT) better. In some ways, it’s more all-American. I don’t know why terrorists would hate it, but I think they’re going for the more high-end audience, and I think they’re going to start butting up against Wal-Mart, who’s got the low-end totally locked up.
Stuart Varney: Do you own Wal-Mart, Jonas?
Jonas Max Ferris: No; I’ve recommended it on the show a few times recently.
Gary's Freedom Flier: American Express (AXP)
Friday's Close: $53.93
Gary Kaltbaum, Kaltbaum & Associates: What’s more American than American Express? Consumers are charging their way into oblivion right now, and if you’ve seen my latest American Express bill, you’d know why I think this stock is going higher. Case closed on that.
Wayne Rogers, Wayne Rogers & Company: I like American Express. I think that the fact that it’s got American all over it means it’s obviously going to be a target.
Jonathan Hoenig: They’ve been in business since 1850. They must be doing something right. This company invented the money order. For me, it’s a market performer, though, amongst financial stocks. I wouldn’t short it, but I don’t see it leading the pack.
Wayne's Freedom Flier: Halliburton (HAL)
Friday's Close: $48.36
Wayne Rogers: What could be more unsympathetic to Al Qaeda than Halliburton? They have a great presence in the Middle East. Halliburton was a troubled company. They had two divisions in bankruptcy. They turned it around. This year, their earnings are up substantially. Their revenues are up. You can’t be a bigger target of anti-Americanism than Halliburton represents for America.
Jonas Max Ferris: It’s not just the terrorists who don’t like it. Half the country thinks there’s some sort of conspiracy thing going on here. It’s hated even in America for crazy reasons.
Wayne Rogers: It may be hated by you, but apparently institutions like it, and some other people like it because the chart is going north.
Gary Kaltbaum: If things were so bad, it wouldn’t be doing what it’s been doing.
Jonas' Freedom Flier: Lockheed Martin (LMT)
Friday's Close: $62.50
Jonas Max Ferris: This one is really hated by the terrorists. What do the terrorists really hate? One of the things they’re always talking about is arming the Israelis. Lockheed Martin arms the Israelis. Israel has the second-largest F-16 air force after our air force, supplied by Lockheed Martin. So they are really the kind of company that the terrorists don’t like.
Gary Kaltbaum: I love the company, but don’t like the stock. In perverse way the market went opposite. It’s selling off the General Dynamics’ (GD) and the Lockheed Martins’. I think these stocks have topped out here. I’d stay away.
You can mail your questions to email@example.com
Question: "What does the attack in London mean to the average investor here in America?"
Jonathan Hoenig, Capitalistpig Asset Management: I think it means they’re still out there. You have to be on guard. You have to remember, Stuart, that militant Islam is not a glee club or a debating society. These are murderous, hateful people who would love to splatter our guts all over 5th Ave, so I think the average investor has to keep a ‘get tough’ attitude on terrorism. I think that in terms of the market, though; set your stops a little bit wider here. A lot of people got stopped out on the initial down draft on Thursday morning. I’d rather trade a smaller position with a wider stop than given the risk in a lot of markets right now.
Wayne Rogers, Wayne Rogers & Company: I agree with Jonathan, but the thing that is really horrible about is just what Jonathan originally said and it’s more political than it is financial. It has to do with the fact that we have to arm ourselves much more strongly, not just in a real sense, but also in a character sense as to how we deal with terrorism. As Tony Blair said, this is an attack against nations. It’s not just an attack against one nation.
Stuart Varney: Bottom line: set your stops wider.
Question: "What does the crew think about Canadian bank Toronto-Dominion (TD)?"
Leigh Gallagher, SmartMoney: I think that there is more opportunity in US banks. Bank of America (BAC) right now, is cheaper of a P/E ratio. The other thing is that Toronto-Dominion just sold TD Waterhouse, its online brokerage, to Ameritrade, which gives them a stake in this big, discount brokerage. But that business, right now, is plagued with commissions falling and consolidation. I would stay away.
Jonathan Hoenig: I wouldn’t stay away. We own Allied Irish Banks (AIB) and Bank of Ireland (IRE) -- those are Irish banks. Leigh, even you would admit that the group’s got the wind at it’s back here. There’s consolidation in the regional banks. A rising tide lifts up boats, and this is in that sea right now.
Wayne Rogers: I agree, and that’s probably the best of the Canadian banks right now. I would probably stay away from it. I think there are better investments in regional U.S. banks.
Question: "I'm a senior in high school and want to invest in a stock. Does Jonathan have a pick for me?"
Jonathan Hoenig: I think I would probably go with a mutual fund. When I was in high school, people said, ‘stick with index funds. That’s your best bet.’ I think this is the kind of market where a good stock picker is really going to outperform. Bob Olstein is on our network all the time. He runs the Olstein Financial Alert Fund (OFALX). Bob is a top-notch stock picker. I think this fund, which only needs $1,000 to get started, is a terrific long-term place to be.
Stuart Varney: Any caveat on the fees from that particular fund?
Jonathan Hoenig: Bob works hard and he’s made money.
Wayne Rogers: When I was in high school, the mutual funds didn’t even exist. That tells you how old I am. Jonathan is way ahead of me.
Leigh Gallagher: I would say it gets very expensive to buy small amounts of an individual stock, and I would say that maybe an exchange-traded fund, something in a sector with good long-term potential like utilities or healthcare would be the way to go.
Stuart Varney: A high school senior is going to let it sit there. This is not going to be traded.
Leigh Gallagher: That’s great. Time is on her side. She’s got all the time in the world. She should make the most of that with a good long-term pick.