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
Brenda was joined by: 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; Chris Lahiji, president DailyTrends.com; and Barry Minkow, author of Cleaning Up.
Trading Pit: Tyco Verdict: A Bullish Sign?
Guilty and going to prison!
That's the fate of former Tyco CEO Dennis Kozlowski. He and another company executive were convicted of looting Tyco of more than half a billion dollars. These crimes could send both of them behind bars for the rest of their lives and sends a clear message to corporate chiefs.
But does this say to investors that the "game” is clean and now is the time to get in and start buying?
Tobin Smith: This verdict is great for stocks. There’s finally an unambiguous verdict—these guys are going to jail. It will make a CEO who’s thinking about doing something like this reconsider because if you get caught and convicted, you’re facing some serious jail time. The verdict is good for stocks because it builds investors’ confidence and at the end of the day, confidence is what capitalism is all about. What these guys did was not right. They stole and they should go to jail.
Gary B. Smith: This verdict won’t have any impact on the stock market. People have lost interest and are wondering if this is the Enron guy or the Tyco guy. It’s too inside baseball and very few people care about it. Most have written it off.
Barry Minkow: This will have a long-term good effect because it increases the perception of detection and increases the perception of prosecution. It sends a message to investors that there's a level playing field. Also, there’s a cumulative effect for verdicts like this.
Chris Lahiji: I am so pleased that these guys are going to jail. It instills confidence and is a great triumph for small investors. But I’d like to see them get even longer sentences. How can you make $10 million a year and steal $600 million from your shareholders?
Pat Dorsey: This is a non-event and will have no effect on the stock market. Interest rates, the economy, and earnings all matter much more. CEOs are afraid of being caught, because once they get caught, their credibility is shattered. The real fear is getting indicted.
Scott Bleier: It doesn't matter at all for stocks. The market is looking well beyond this. Everyone’s waiting for the next shoe to drop. People only care when stocks are going down. When stocks were going up, no one cared about fraud. There are criminals on Wall Street. It’s a fact of life. I’m just wondering why Kozlowski doesn’t split town because I’m sure he’s got garbage bags full of cash somewhere.
Lightning Round
Four mutual funds: The quickest 60 seconds on TV.
First up, Vanguard 500 Index (VFINX), one of the most popular mutual funds in the world. It’s a mirror of the S&P 500 and the minimum investment is $3000.
Pat: Bull. This is a good choice for someone who wants an autopilot type of investment. Large cap stocks have lagged the market for the past few years, so it’s about time for them to catch up.
Gary B: Bear. Vanguard has had a good run, but it’s still below this year’s high. Until it breaks that, I would stay on the sidelines.
Chris: Bear. Why would anyone pay a fee to mimic the S&P 500? I don’t understand that. The S&P is going lower.
Tobin: Bear. If you’re that lazy, put money under your mattress. It’s under performing because the smart people are picking the good stocks out of the S&P.
Scott: Bull. You can go to sleep and never have to worry about the market. This is the cheapest way to do that. However, it should only be a portion of your portfolio.
Next, a play on the housing boom: Fidelity Real Estate Investment Portfolio (FRESX). This is a huge real estate fund with a very good performance record. The minimum investment to get in this fund is $2500.
Gary B: Bull. This is one of the only funds that has beaten its high for the year. The chart is still strong and looks good. I like it.
Chris: Bear. The fund has doubled in the last five years and there are pockets of bubbles all across the country.
Tobin: Bull. I like it.
Scott: Bull. Owns the most savvy real estate players in the country. It’s well hedged and well protected.
Pat: Bear. This fund mostly invests in REITs, which are extremely overpriced right now.
Now on to American Funds New World (NEWFX), which is a new way to get in on emerging markets. It doesn’t just invest in stocks; it also invests in bonds. The minimum Investment is $250.
Scott: Bull. It’s good to have a little overseas exposure in your portfolio and this is very smart in positioning itself in both stocks and bonds.
Tobin: Bull. I like it for the $250 minimum investment. It’s great for small investors who don’t have the opportunity to buy European or Asian stocks.
Pat: Bull. American Funds New World is great for a small part of your portfolio. It allows you to have a little less risk, but still have exposure to the growth of emerging markets.
Chris: Bull. This fund also has a great concentration in Argentina and India, which are markets that will continue to head higher.
Gary B: Bear. I don’t like it.
Finally, the PIMCO Commodity Real Return Strategy Fund (PCRAX), a unique way to get into commodities—everything from wheat to oil. The minimum Investment to get in this fund is $5000.
Chris: Bear. The 1.25 percent expense ratio is too high.
Gary B: Bear. The chart is starting to look good, but it still needs to break its high from this year.
Scott: Bear. This is mostly a financial commodities fund. You could do better with a local municipal bond.
Pat: Bull. The yield is 5 percent. I don’t know how municipal bonds have done, but this offers great exposure to commodities. Energy is limited to 30 percent of assets and your risk is hedged.
Tobin: Bull. Most people don’t have enough exposure to commodities and this is an easy way to do it. I’d probably have 5 percent of my portfolio in this fund.
Chartman
Young and exuberant Chris sets out to battle the more mature and experienced Chartman. Whose stocks will come out on top?
Chris: Plantronics (PLT) is one of the best stocks on the market right now. It is one of the world’s largest headset makers for telephones and is growing in every one of its businesses. This stock is going to $45. My clients own this stock and I recommend owning it. (Plantronics closed on Friday at $38.27.)
Gary B: Plantronics was ugly and trending down, but now has a beautiful chart. It is a bit expensive, so wait for a little pullback. Buy in the mid $30s and watch it head up to $50.
Gary B: I like AtheroGenics (AGIX), which develops drugs for chronic diseases like coronary heart disease, rheumatoid arthritis, and asthma. The chart is very similar to Plantronics. It was trending down, but recently broke out. Get ready for AtheroGenics to head up and beyond the low $20s, which is its high for the year. I own this stock. (AtheroGenics closed on Friday at $16.05.)
Chris: I don’t really like this stock. The company is losing a lot of money this year and its artery-clearing drug isn’t very effective.
Predictions
Gary B's prediction: I was wrong! Nasdaq is going to 2200 not 2100 by Labor Day
Tobin's prediction: Frontline (FRO) up 20 percent and pays 30 percent dividend for 50 percent gain
Scott's prediction: Bush says to use Methanol; Methanex (MEOH) gains 30 percent
Chris' prediction: Best Buy (BBY) is a must sell; Pier 1 (PIR) is a best buy
Pat's prediction: Forward Air (FWRD) moves forward 30 percent in 1 year
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cavuto on Business
Neil Cavuto was joined by John Rutledge, president of Rutledge Capital; Charles Payne, CEO of Wall Street Strategies, Leigh Gallagher, senior editor at Smart Money, Bob Beckel, Democratic strategist; Tom Adkins, ReMax real estate expert, Jon Najarian, CEO of Najarian Capital.
Bottom Line
Neil Cavuto: A new house or the stock market? Which investment will make you the most money over the next 12 months? Let's get the bottom line. John Rutledge?
John Rutledge: Real estate would be great if you could short it. But if you're talking about buying it, I'd rather own stocks right now. If you go back 25 years, since the Gipper, houses have gone up twice. Stocks have gone up six times. Stocks are a better long-term investment.
Neil Cavuto: What if you own housing stocks like Toll Brothers or Hovnanian?
John Rutledge: I don't want to own them because there's too much risk there. I think stocks will be up 10 percent a year for the next five years.
Tom Adkins: This coming year, the next twelve months, the Dow will go somewhere between twelve and thirteen thousand. We may even see thirteen thousand by end of this year. Corporations created magnificent amounts of profit but it's not showing up yet, but it will. Housing still beats it. A house can appreciate 5 percent and if you just put 5 percent down you just doubled your money. The key is houses can be leveraged, stocks can't.
Leigh Gallagher: I have to go with John here. If you look at the long term, stocks have trounced real estate. The easy money has been made in this current move in real estate. Stocks are safer. This is a great time to be a contrarian. If you are going to go into real estate go outside of the bubble in areas where there is still room for growth.
Charles Payne: Tom is like the "Baghdad Bob" of real estate. The reality is there's a lot of risk in housing in the sense that no one can predict the bubble. We know we're in one. We don't know when it's going to burst. Even if your house doubled in the next couple of years, what are you going to buy?
Neil Cavuto: You can buy vacation homes.
Charles Payne: You can, but we have these adjustable rate mortgages and interest only mortgages, and the reality is we're running out of so-called "greater fools" and that's the scary part.
Jon Najarian: The pool of buyers has shrunk significantly. You'll still be able to get a great interest rate a year from now, but I do think the pool of people that you've been getting has been shrinking considerably. I'm not looking for a bubble to burst. But I am looking for it to slow down.
Neil Cavuto: So if he's right, stocks give a better return just for the next twelve months?
Tom Adkins: The key is Jon says the pool is shrinking. He is sort of right but the pool of buyers keeps dramatically expanding because more and more people are making money. And your net income keeps growing.
Neil Cavuto: What about all these communities that keep raising their taxes?
Tom Adkins: It's a pain in the neck. If they raise taxes by $1000 but you have $150,000 more money it's a deck chair off the Queen Mary.
John Rutledge: I like the stocks that pay cash dividends. Houses go up and down pretty quickly when the market pops.
Neil Cavuto: If home prices have doubled in the past few years and start going up at a 6-7 percent clip, that may seem like a crash from 30-40 percent annual run-ups but it still ain't too shabby.
John Rutledge: In the next few years you can get 2-3 percent on the houses, not 5 or 6 percent.
Neil Cavuto: Two or three percent on a $500,000 property is a lot.
John Rutledge: Absolutely, but that's on average and you don't walk across a river on average. In San Diego and Tampa and New York there are very high prices.
Neil Cavuto: And those are going to reverse?
John Rutledge: Absolutely.
Neil Cavuto: If we are running at a 35-40 percent clip in those markets, what happens in the years ahead? Do they reverse 10-20 percent?
John Rutledge: There was a story in the front page of the Wall Street Journal this week that has high end housing prices coming off big numbers with big name stars.
Charles Payne: Any asset class can become a bubble. We've learned that from the tulips to the Internet stocks. The homebuilders have become a cartel. They control the supply and they think they can manipulate demand.
More for Your Money
Neil Cavuto: Want a truly original Father's day gift idea? Buy dad a stock that could help him — or really anyone — get a whole lot more for their money. Leigh, what do you like?
Leigh Gallagher: Polo Ralph Lauren (RL) is the quintessential American fashion brand. This is a company with solid growth. The hipper chain, Club Monaco, has a position with the youth market. I think it's a great stock.
John Rutledge: I don't like it because I've lost a lot of money in retail smelling brands. I just think I have better ways to make money right now.
Charles Payne: I like Harley-Davidson (HDI). The company had a spill out, if you will. The stock is relatively cheap. Their margins are expanding. The last two insider transactions have been buys.
Jon Najarian: I like the stock but one of the things I'm concerned about is the exclusivity of Harley. If the stock trades sideways a little bit, then Charles is right. After the next quarter I think it goes up. I'm buying and I own Brunswick (BC). It has a 13 price to earnings ratio, which I think is very reasonable. And it pays you a 1.5 percent dividend.
Leigh Gallagher: This is a company that relies on gas consuming products for a majority of its income so I would be a little concerned there.
John Rutledge: I like the Asian stocks. There's an exchange traded fund, iShares MSCI Pacific Ex-Japan (EPP). Think of it as a Chinese play outside of China.
Neil Cavuto: But China itself, the market is at a 12-year low?
John Rutledge: In China, if you bring your money in they're going to steal it.
Neil Cavuto: But how much of this fund is invested in China?
John Rutledge: It's in New Zealand, Australia, Taiwan, Thailand. Places like that.
Neil Cavuto: So not Japan and China?
John Rutledge: It's not in China or Japan, but the resources in Australia, New Zealand, and Indonesia are being pulled up north to feed Chinese growth.
Charles Payne: I would be down with EPP if you had Japan in it. Australia and New Zealand are really commodity driven. So I have to worry where commodity prices go over the next twelve months.
Head to Head
Neil Cavuto: Howard Dean says if you're a Republican, chances are you're a white Christian who's probably never made an honest living in your life. If he's hurting the Democrats' chances in the mid-term elections will that actually help the stock market?
Bob Beckel: Yes, well sure. And if Charles puts his tooth under his pillow tonight he'll have a brand new stock certificate tomorrow morning. Nobody votes on what a National Chairman says or does.
Neil Cavuto: Well, because most of them haven't had as big a mouth, right?
Bob Beckel: That's not necessarily true but the real problem Republicans have is they think they have a big advantage with Howard Dean. If they're grasping for that straw, they've got a president whose negatives are going up faster than Tom's fees are. The president has a Social Security bill that's dying and a war that the people have turned negative on.
Charles Payne: Bob made some great points and that's why some people look at Dean as being a godsend. To pull out the race card. To offend white Christians. To offend Hispanics who are really voting in big numbers for Republicans.
Neil Cavuto: Did he offend you?
Charles Payne: To a certain degree he did offend me. But the Democratic party has been offending me for a long time.
Tom Adkins: Howard Dean is arrogant, rude and he's crazy. The problem with Howard Dean is that's what most Democrats are. This is the face of the Democratic party.
Bob Beckel: Tom was just describing a man out of control and a little crazy, which is why Tom and he would get along great. And Charles, one thing that's insulting for me is to say Dean is playing the race card when the Republican party has built its modern party using race-baiting, race-baiting, race-baiting.
Charles Payne: African-Americans have been led astray by the Democratic party with this race card all the time. It's starting to not work anymore and the Democrats are becoming desperate.
Bob Beckel: I disagree with you on that. The biggest problem for Democrats is getting those percentages back up, particularly among Hispanics. The majority of the Democrats in that party are white Christians. So Howard maybe should go and take a long vacation.
FOX on the Spot
Jon Najarian: Homebuilders drop 10-15 percent; buy 'em when they do!
Charles Payne: Biotech breakout! Check out ImClone (IMCL).
Leigh Gallagher: Water and power! Buy Aqua American (WTR), Exelon (EXC).
John Rutledge: Happy days are here again; economy and market soar!
Tom Adkins: Bush is in a box; gets zero done for rest of his term!
Neil Cavuto: President Bush is hurting. Republicans are all but abandoning him on Social Security, and now putting off tax reform until at least next year. Don't count him out, but maybe count him out "this" year.
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Forbes on FOX
In Focus: Are Health Care and Retirement Benefits Being Phased Out?
Neil Weinberg, senior editor: I think benefits are going the way of the dinosaurs and I say good riddance to them. Do you really want a General Motors or United Airlines style pension that is going to go bankrupt? Or do you really want the inflation we see now with health care, or the 40 million people we have totally uninsured? I say good-bye to those company benefits. If employees had to pay for their own health care, costs would drop significantly.
Jim Michaels, editorial vice president: I don't think benefits are going away at all because it's still the most tax efficient way to attract good people. It's not taxable as a recipient. With the present system there is no substitute for it. They're not going away.
Dennis Kneale, managing editor: The government auditing office says right now there is $13 billion in under funded private company pensions that the government will have to step in and cover. But if you look at it over the next 25 years it's more like $100 billion. The government is fully expecting that some employers are going to have to back away. The one thing we can hope is that the commercial marketplace will recognize that employees want to go to companies that have good benefits without having to pay tax to the government. So it will come back in style. But it's going to be a long time until that happens. In the meantime, Medicare spending is out of control and they're going to have to cut back on that. So we get caught in the middle. And you know what the one rule is? You're on your own. It's up to you.
Steve Forbes, editor-in-chief: I think the traditional style of pensions are going to go away but you are going to get more things like 401Ks, IRAs and health savings accounts. Benefits need to belong to the employee. That's the way to go.
Victoria Murphy, staff writer: I agree with Steve, especially when it comes to health care. Our system is out of whack. Partly because there are eight layers between you and your doctor. If you are a healthy patient you are getting a bum deal. The people who abuse the system and go to the doctor more frequently are getting the free ride. I think if more money came out of your pocket then people would make better decisions. It will lower our health care costs which are up 11 percent this year.
Mike Maiello, staff writer: Benefits are going away. It's the cheapest and easiest way for companies to cut costs. Cutting salaries is hard. Steve brings up 401Ks, but employers can cut the amount that they match. This is the 'you're on your ownership society.' Employers have failed American workers in a lot of ways.
Dennis Kneale: Benefits should not go away because benefits are what breeds loyalty. There are companies that have good benefits and good programs and their turnover is very low and they have to pay out less in wages because they give good benefits.
Victoria Murphy: I don't think young people feel loyalty to their company anymore. I don't think that health care benefits are doing anything. I do think it's a way for companies to attract employees and it's a cheap way because of the tax benefits.
Steve Forbes: We must remember why we got these health care benefits in the first place. During WWII they waged price controls. This is a way of paying people. Now we have a tax advantage but if we put in a flat tax those advantages aren't as big anymore. The key thing is, if you give people money for health care instead of having to file for it they'll get more value for it upfront. That's what health savings accounts do.
Neil Weinberg: I agree with Steve, but what we have to do is get rid of the employer in the middle. When you're not paying for your own health care you don't care about the price and that's a big part of the inflation. You can create a system and bring in these 40 million people without any health care. Give us some money and give us the tax benefits outside the company to create a system like you have with auto insurance.
Jim Michaels: What we're forgetting is that these pension problems are only in certain industries. The airline industry is a disaster. The American auto companies are close to disaster. These are not systemic problems, so don't discredit the whole pension system just because of the problems in these two industries.
Steve Forbes: Every industry over a persons lifetime is going to go through hard times. That's why if you own the account and have it well diversified it doesn't matter if your employer has an up or a down period. It belongs to you, it grows with you and you don't have to worry about them.
Mike Maiello: On the health care issue, employers have already failed a lot of American workers across the board. One in five full-time workers do not get any health care coverage from their employer at all. So this is a societal problem that society needs to take care of. I think at the government level.
Flipside: We Need More Tax Cuts Now!
Mike Ozanian, senior editor: If you want to improve the standard of living in this country for the most people you should cut the effective top income tax rate from 38 percent to 30 percent. And you should cut the capital gains tax and reduce it to the rate of inflation. Look how successful it's been under President Bush. You have the DOW up 20 percent since his tax cuts, you've had the unemployment rate drop from over 6 percent to 5.1 percent. You've had interest rates fall. It worked under Kennedy and under Reagan and even Clinton cut the capital gains tax in 1997 which really boosted the economy.
Quentin Hardy, Silicon Valley bureau chief: We are about to have a quarter where we are going to get a lot more in tax revenues than originally thought. Unfortunately, it's due to the destructive alternative minimum tax which we should get rid of. Now if you think that one good quarter in a string of defeats makes a big difference then go ahead. If you think it's a victory to have a deficit of $350 billion this year which is as much as we had in 2003 but less than 2004 go ahead.
Jim Michaels: This has nothing to do with tax cuts. Government revenues from income taxes are up 20 percent this year. Corporate taxes are up even more. People are more generous if they have more money in their pockets. It worked in the 60s, it worked in the 80s, it's working now.
Lea Goldman, staff writer: It's so misleading. The reason that those tax receipts are up is because the alternative minimum tax kicked in. And the reason charitable giving is up is because when you are in a drought and you are starving you learn how to forage better. And these charities have learned how to solicit better. This administration has spent $1 trillion more than it has taken in. It is a fiscally reckless administration.
Steve Forbes: Receipts have been growing in recent months, not just one quarter, on both the personal side and the business side. Like in the 60s and 80s tax cuts worked. When you reduce the burden on people they do more. If Washington can't get control of spending that is no reason to punish the rest of the nation.
Mike Ozanian: Forget about the numbers. It's common sense, when you reward a certain type of behavior you get more of it. When you cut top tax rates you get more investment and you get more incentive for people to start businesses that create jobs. Europe has a very high income tax rate and it creates no jobs. They have a 12 percent unemployment rate. Our economy is growing at a rate of 3.5 percent. You know how many times in the last 12 years Europe has grown that much? One time!
Lea Goldman: There is no evidence that we are starting to see the trickle down. Before you make the tax cuts permanent, cut spending.
The Informer: Superstar Stocks
Lea Goldman: My superstar is Gisele Bundchen. She is ranked 77 on the Forbes 2005 celebrity list and she is the face and body of Victoria's Secret which is owned by Limited Brands (LTD). The company had a terrible last quarter but that makes it dirt cheap. And if you believe that Victoria's Secret can buoy the other brands, like Limited and Express that have had some bad quarters, then you should buy this stock now.
Mike Ozanian: I like Victoria's Secret, but they have other businesses that are losing money like Express and Limited, so I don't like the overall parent company. My superstar is the tennis sensation, Maria Saratoga and she is a big sponsor of Canon (CAJ), the camera and photo copier company. The company's earnings are growing better than 20 percent, the stock is very cheap relative to earnings. I would buy it.
Lea Goldman: Everything said about the company is true but it is already built into the price. The stock is way too expensive.
Dennis Kneale: I like the number one superstar on the Forbes list, Oprah Winfrey. She made herself over $200 million last year. Her show is distributed by KingWorld which is owned by Viacom (VIA.B). Viacom is a $26 billion company. It's down 35 percent in two years. It's got great assets. They plan to split the company in half.
Victoria Murphy: Oprah is hot, but Viacom is not. They are splitting the company which is causing a lot of uncertainty and there's going to be a lot of internal reshuffling. You don't want to invest in the company until they split. Then you pick the winner. I like Tiger Woods and the company he endorses, Nike (NKE). They're a phenomenal company. They're so innovative. You can design your own shoe on their website which is very smart because they are tapping into what customers want. Buy Nike.
Dennis Kneale: Tiger is good, Nike is a good company but the stock is up over 50 percent in two years. I think it's had its run.
Makers & Breakers
• Wal-Mart (WMT)
Christopher Zook, CAZ Investments: MAKER
Wal-Mart is a great company. It's trading at the lowest valuation in over seven years. The company has increased cash flow every single year. The stock is reasonably priced and it will make investors a lot of money over the next year and next five years.
Stuart Varney: You've got a target price of $65. (Friday's close: $48.93)
Jim Michaels: BREAKER
It's a great company. If I owned it I'd hold it, but I wouldn't buy it at this price.
Quentin Hardy: MAKER
I think landmark companies are about a process as much as any product or service. Wal-Mart's process is squeezing the inefficiency out of retail. If they do bad here in the courts, they'll go overseas where there are even more inefficacies to squeeze out.
• American International Group (AIG)
Stuart Varney: The CEO of AIG recently left over questionable accounting practices.
Christopher Zook, CAZ Investments: MAKER
AIG is bigger than one man and bigger than one management team. This is a great company that has a one time but very fixable problem. And as they right their ship they will not only survive, but they will thrive and this stock will go up dramatically from here.
Stuart Varney: You think it can go to $75. (Friday's close: $55.55)
Quentin Hardy: BREAKER
The lawyers are going to come in, and when the lawyers come in the red meat traders can't do what they do best. They get scared and they move slow. Same thing is going to happen with AIG.
Jim Michaels: MAKER
I would buy this one. It's got great foreign growth possibilities. It's selling pretty cheap compared to its cash flow and earnings. And it's got a good possibility to increase its dividend.
Bulls & Bears | Cavuto on Business | Forbes on Fox | Cashin' In
Cashin' In
Stock Smarts: Prison at Guantanamo Bay – Good For The Stock Market?
Calls to close the prison at Guantanamo Bay are getting louder by the day, some even comparing it to the Nazi camps in World War II. But America still needs to detain and debrief suspected terrorists. So if Gitmo goes away, would Wall Street be worried about another attack, causing stocks to fall?
Jonathan Hoenig, Capitalistpig Asset Management: It would be terrible. When we go soft on the enemy, the market is going to get just as soft. Let’s not forget who is at Gitmo, OK? These people weren’t arrested for jaywalking. They are sworn enemies of the United States. They would come to your house and slit your throat in the night and praise Allah at the same time doing it. The government’s job is to protect us. They go soft and the market’s going to tank.
Terry Keenan: Adam, if we cut and run from there, aren’t all bets off from the market?
Adam Lashinsky, Fortune Magazine: No. The question isn’t cutting and running. The question is what do we stand for? The war on terror has always been more than just about catching and punishing terrorists, but it’s been about ideals. We love it when we see the Iraqis with the ink on their thumbs from voting. And what we’re sending right now is the wrong message; that America talks about democracy, but doesn’t believe in due process.
Terry Keenan: But we’re talking about prisoners here. These are detainees. They’re not voters trying to get their independence.
Adam Lashinsky: I understand that. So what are they? The question is, ‘what message do we want to be sending?’ If they’re criminals, let’s convict them and move on.
Wayne Rogers, Wayne Rogers & Company: Well, I don’t know what Gitmo has to do with the stock market. What difference does it make? They’ve got to detain them somewhere. They could put them where they put John Gotti. It doesn’t really matter. Gitmo has nothing to do with it. By the way, it’s a wonderful naval base. I’ve been there several times. It’s a terrific place. It’s a bastion in the Caribbean for U.S. power. And all of that’s wonderful. It has absolutely nothing to do with the stock market, though. You guys are nuts.
Price Headley, BigTrends.com: Wayne, generally I would agree with you, but the issue is that 12 of the detainees have already been proven to go back and actually fight for al Qaeda, and, from that perspective, if this increases the pressure to release more of these criminals, who are criminals in a lot of cases, then basically you’re setting up for more risk of terror strikes. And I think that’s bad, long-term, for the market.
Wayne Rogers: That doesn’t have anything to do with Guantanamo Bay. That could be anywhere.
Dagen McDowell, FOX Business News: But Wayne, what if they shut down Guantanamo Bay and move those suspected terrorists onto U.S. soil, into the continental United States? That would hurt confidence. That’s not good for the market or the economy.
Jonas Max Ferris, MAXfunds.com: They’re not going to move them into the Hilton up the street.
Wayne Rogers: Listen to me. Guantanamo is a lot more about a naval base than it is about detainees. That just happens to be one place they can put them. They could put them in Alcatraz. What difference does it make?
Terry Keenan: Jonas, as a symbol, perhaps, of going soft on terror, is that something we should worry about if we close Gitmo?
Jonas Max Ferris: I don’t think it is going soft. First of all: why is being hard on prisoners such a brilliant strategy? The Russians are really hard on prisoners and they have a terror problem that’s pretty bad. They’re not solving it by being tough. You beat someone hard enough; they’re going to tell you that they started the Chicago fire. It doesn’t exactly mean that they did it.
Jonathan Hoenig: Jonas, let me tell you how hard these people have it at Gitmo, OK? None of them were caught with Korans, by the way. We’ve given them language-specific Koran. They get three Islamic meals a day. We give them a brand new prayer rug, a skullcap….
Jonas Max Ferris: It’s not Auschwitz believe me. It’s not so bad for these guys there. I’m just saying, look how they’re treating the prisoners. They’ve got the rednecks out there putting the hoods on people. Is that going to work? Is that really going to get information out of these people? We let 12 people go, and they obviously shouldn’t have been let go. It’s not working.
Wayne Rogers: More importantly, does it mean that your stock is going to go up or down? It just doesn’t have anything to do with the stock market.
Adam Lashinsky: Wayne, here’s where it does have something to do with it, because we need to have a victory on the war on terror. We need to declare victory. And we can do that. Wayne, by the way, I don’t like the idea of Alcatraz. I really wouldn’t like to have that here in the San Francisco bay. No one’s talking about shutting down the Guantanamo Bay naval base, all we’re talking about is shutting down this embarrassing detention facility. We don’t want the embarrassment anymore.
Dagen McDowell: So far, the international opposition to the detention camp at Gitmo is not hurting our market. Stocks look solid. Foreigners are buying our bonds hand over fist. The dollar looks good, so what’s the problem? You don’t see it in the market.
Terry Keenan: The world loved us a lot more in the late ‘90’s. That certainly didn’t prevent a 9/11. Are we wasting our time trying to get international approval?
Price Headley: Exactly. I think so. And it’s not a popularity contest. I mean we’re trying to do the right thing for the war on terror, and I do think that it is an issue in terms of what symbol it sends to the market.
Jonathan Hoenig: But what is so embarrassing about what’s going on in Guantanamo Bay? Terry, putting women’s panties on somebody’s head, taking some embarrassing photos; this is tame. Do you know what they did with soldiers in World War II that they found who weren’t in uniform? They shot them. And you know what? People cheered. We go soft on the enemy and how can you have any confidence in this country. We’re fighting an enemy here. We’re not trying to make friends with the Muslim streets.
Wayne Rogers: Jonathan, this is not about politics. You don’t have to make a speech. We’re talking about what this has to do with the stock market. The stock market has not reacted one iota to what is going on down there. It’s absolutely meaningless when it comes to the stock market. You guys can dream all you want. It has nothing to do with it.
Terry Keenan: Is that, perhaps, because we haven’t had another terror attack?
Jonathan Hoenig: Exactly. Wayne, they come back and set another bomb, and I promise you it’s going to be just like 9/11 with S&Ps limit down for days in a row.
Jonas Max Ferris: Jonathan, President Bush just told Neil Cavuto in an interview that everything’s up for grabs with that place, when he asked him if they’re going to close it. The market didn’t tank in fear that they’re going to close Guantanamo, so I really don’t think it has a whole lot to do with the market if they close it.
Jonathan Hoenig: It’s the philosophy of actually getting tough with the criminals, Jonas, and not just saying that you’re getting tough with them and trying to curry favor with someone.
Jonas Max Ferris: Bush doesn’t just say that he’s getting tough on people. If Bush is going to close it, you know he’s not doing it because the foreigners don’t like it, because he doesn’t play that way with the PR, so I don’t think it says that.
Wayne Rogers: It’s a totally separate subject. If we’re going to talk about the stock market, let’s talk about that. If we’re going to talk about politics, it’s a separate subject.
Terry Keenan: Let’s talk about it. You jumped in with two feet, Wayne, the last couple of weeks in the Cashin’ In Challenge, are you a little bit more bullish on the market right now?
Wayne Rogers: Yes. I have been a little more bullish. I wouldn’t say right now, right today, but I have been a little bit more bullish on the stock market. I’ve certainly been bullish on the economy since the first of the year. That has not changed.
Dagen McDowell: You wouldn’t be if you didn’t feel safe, and Gitmo is part of that.
Wayne Rogers: Oh, please.
Money Mail
Question: "I recently sold my house for a great profit, but I am not ready to buy a new home yet. How will the market be in a year?"
Dagen McDowell, FOX Business News: It’s really too late if he’s already sold his house, but this move is just as likely to work in his favor as it is likely to work against him. Let’s hope some of the steam comes out of these housing markets that are boiling over, like Florida. But if housing prices go up, you just might have to buy a smaller house next year.
Terry Keenan: Wayne, prices going up or down?
Wayne Rogers, Wayne Rogers & Company: Well, you can’t say it like that. It’s geographic. There are parts of Florida where you have stuff selling at $1,000 a foot, and some selling at $300 a foot. It depends on where he is, but I’ll tell you this. He’s a lot closer to the top than he is the bottom, so if he can take his money off the table now with some of it, he’s smart to do it.
Adam Lashinsky, Fortune Magazine: Yeah, most of us don’t have the luxury of being able to do that, but if you had to bet, maybe you’re thinking about a year, housing prices are going to be a little bit lower, and he’ll be in good shape.
Jonathan Hoenig, Capitalistpig Asset Management: I think they’ll be higher, actually. You know, Terry, if the REITs are any indication, they’re probably going to be a lot higher. Some of these REITs are the hottest thing on the board right now. I wish I was playing them, and I wish I owned more real estate, but I’d say higher here for now.
Dagen McDowell: One thing worth noting if the bubble does start to burst; you might just see prices flat line rather than fall dramatically, at least in the near term.
Jonathan Hoenig: I don’t know about all this talk of a bubble. People talked about a bubble in the NASDAQ from ’96, ’97, ’98, and you know what happened in ’99? The NASDAQ went up about another 100 percent, so who knows?
Question: "I bought Universal American (UHCO) back in January, and it's had a great run. Does Wayne think it has more juice?"
Wayne Rogers: I wish knew. As a matter of fact, they did a secondary on Thursday.
Terry Keenan: So they sold more stock.
Wayne Rogers: Yes, 7 million shares: five million for the shareholders, two million for the company. But the stock was still up around $23. I don’t know how much the stock has left in it. I’ve done very well in it. I would do just what I’ve always said to do: put a stop in there. And then you’re OK.
Jonathan Hoenig: Wayne, do you have a stop? Don’t you own this in the challenge?
Wayne Rogers: Yes I do.
Jonathan Hoenig: How far is it below where we are now? This is a hot stock right now.
Wayne Rogers: It’s a very hot stock. I don’t remember where my stop is, but I should probably move it up.
Terry Keenan: He’s on your tail, Jonathan.
Jonathan Hoenig: It’s like I said. I’m more worried about Wayne than I am about Jonas. I think this is where the action is now. People have discovered this stock, so let your winners run.
Question: "Which is a better place for my money over the next five years: a value fund or a growth fund?"
Adam Lashinsky: I think in a value fund. For example, in my retirement account, I own the Vanguard Value Index Fund (VIVAX). I’m really conservative with a lot of this money. Value is less popular right now, that’s why I think it’s the place to be with someone with a 5-year time horizon.
Dagen McDowell: Adam, you want to own both growth and value, because when one style is doing well, the other usually will not be. That gives you balance in your portfolio. There’s the Oakmark Value Fund (OAKMX) and Marsico Growth (MGRIX) if you want both.
Wayne Rogers: Well, I’m a growth person, I want value with it, but I must say that I like growth better.
Question: "I inherited Altria (MO) at $30 a share. It's now close to $70. Should I sell it, or hold on for more gains?"
Jonathan Hoenig: Well, it depends on what his financial condition is, Terry. If this is where the majority of his money is, then he should probably take some off the table, but if this is one part of an overall portfolio, dividends are in. Whether it’s utilities or REITs or tobacco stocks, stocks that pay dividends are really where the action is right now. There are great brands with Philip Morris. I know the socially responsible guys don’t like it, but I’d certainly hold this stock.
Dagen McDowell: You stopped smoking, though.
Jonathan Hoenig: I have, but I wouldn’t stop holding Altria, if I owned the stock.
Terry Keenan: Adam, the obituary on this stock has been written so many times and it keeps pushing higher.
Adam Lashinsky: Yeah, absolutely, because Jonathan’s right. It keeps pumping out more cash in addition to the smoke. As a matter of fact, it’s in the value fund that I mentioned a moment ago.
Terry Keenan: Wayne, do you like it?
Wayne Rogers: Yes, I like it. And coming back to whether or not he should take some off the table or not, I would put a stop in around $62. I think that’s a good place, and let the market take out some of it.
Cashin' In Challenge
Check out the $10,000 Cashin’ In Challenge at: www.foxnews.com/challenge
Best Bets: Stocks for Jacko
Lots of legal fees pilling up for Michael Jackson — so how about some stock picks that could help the king of pop pay the bills?
• Petrofund Energy Trust (PTF)
Friday's Close: $15.38
Wayne Rogers, Wayne Rogers & Company: This is a Canadian royalty trust. The stock pays over 10 percent. And it pays a monthly dividend, and that’s something Jacko could use if his lawyers are knocking on his door. (Wayne owns shares of PTF)
Jonathan Hoenig, Capitalistpig Asset Management: San Juan Basin Royalty Trust (SJT) is one of my ultimate ‘shoulda, woulda, coulda’s.’ These energy trusts are hot once again, and whether it’s North European Oil Royalty Trust (NRT) or SJT or Sabine Royalty Trust (SBR).
Terry Keenan: Didn’t you say that the commodity play was over last week or the week before?
Jonathan Hoenig: I left a lot of money on the table, but that’s the story of my life.
Jonas Max Ferris, MAXfunds.com: I think it’s for old people, and also these royalty trusts pay out all their assets. It seems like there won’t be a business in 20-30 years. It’s a scary business model. It doesn’t seem appropriate, especially for somebody young.
Terry Keenan: But he needs the cash flow.
Jonas Max Ferris: Yeah, I think he needs to invest like someone his age.
• Sony (SNE)
Friday's Close: $36.29
Jonas Max Ferris: Well, I would buy Sony for Michael Jackson, because Michael’s biggest asset, bigger than the ranch, is his joint ownership of the Sony/ATV music catalog with the Beatles songs, it’s worth hundreds of millions of dollars. If his lawyer bills get so high that he has to go belly up, Sony’s probably going to buy him out. This way he gets to hedge that a little and own some of this very valuable asset, which is getting more valuable as these songs are being used in ads for boomers and stuff.
Jonathan Hoenig: Are you talking about Sony as being a valuable asset, Jonas? Since I looked at it, it’s gotten less valuable.
Jonas Max Ferris: Since you recommended it in March it has gotten quite a bit less valuable, actually.
Jonathan Hoenig: And I liked it better at $41 than I do at $36.
Jonas Max Ferris: I like it better at $36. That’s the difference between the two of us, actually.
Terry Keenan: Wayne, Jonas is suggesting that Jacko hedges his bets by buying Sony because he owns the other half of the library. Does that make any sense to you?
Wayne Rogers: No. Not unless he’s going to fleece the other shareholders by taking his library out. I don’t know how you do that. Sony is too big to turn around. It’s too big and you can’t move it. I don’t know what’s going to move that stock. Howard Stringer’s a terrific executive, but I don’t know how he’s going to move that. It’s too big.
Cohen & Steer REIT and Utility Fund (RTU)
Friday's Close: $18.96
Jonathan Hoenig: My favorite Jacko song is “PYT.” He was 24 when that song came out, and he’s 47 now. His portfolio needs to be a bit more income-oriented; I’m picking Cohen & Steer REIT and Utility Fund (RTU). It’s a closed-end fund that combines what I think are the two top sectors right now; REITs and utilities. We do own it in my hedge fund. The thing yields 7 percent. It’s trading at a massive discount to its net asset value. I think it’s right where you want to be right now. It’s strong and dividend-oriented.
Jonas Max Ferris: I like the discount. I was looking at it for a client who’s 88. But this guy’s a little young. I don’t know.
Jonathan Hoenig: Jacko’s been to the hospital 100 times in the last 6 months. He might be close to death’s door. We never know.
Jonas Max Ferris: It doesn’t scream ‘Michael Jackson’ to me.
Terry Keenan: What do you think about this one? It’s in one of Jonathan’s favorite areas, Wayne. Do you like it?
Wayne Rogers: I happen to like it. I think it’s very similar to PTF, the stock that I picked. So I like it. I think it’s very good.
Jonathan Hoenig: It’s almost like people are waking up and saying, ‘boy, we’re still at DOW 10,000. OK, what do I have to show for myself in dividends over the last 4-5 years.’ I think it’s favoring those stocks.
Stock of the Week
Last week’s pick from Mike Norman was AGCO (AG). For the week of June 13 – 17, AG went down 1.2 percent.
Price is back and he says that Morgan Stanley (MWD) is where you want to be on Monday morning, but Wayne says stay away. Price, Morgan Stanley's CEO Phil Purcell announced this week that he's going to retire. How do you think this will affect the company?
Price Headley, BigTrends.com: I think it’s going to be great news for the company, Terry. Basically this has been an under performing stock for the last several years compared to the rest of the brokerage industry.
Terry Keenan: Which is why he was shown the door.
Price Headley: Exactly. I mean, he was basically pushed out, and I think that’s great news. So you’ve got the catalyst with the earnings due on Wednesday (6-22-05), they’re expecting 93 cents a share from Morgan Stanley. I think that regardless of what happens with the earnings, because of the force-out, I think that Morgan Stanley is prepared to start outperforming the brokerage group.
Terry Keenan: Wayne, this is a company that’s in the business of advising other companies, and it’s in total chaos. They have to hire an executive search firm to find a replacement. The board is still in Phil Purcell’s pocket, do you like this one?
Wayne Rogers, Wayne Rogers & Company: No. And that’s why. I think this is a distress situation. Why it took the board so long to get rid of Phil Purcell when executives were walking out of the door by the dozens is beyond me. I cannot believe that. The assets of a brokerage firm are the people. They go home every afternoon at 5 o’clock. These guys are going home at 8 o’clock in the morning, and the board doesn’t even know it. I mean it’s just dumb.
Price Headley: Well, I think part of the problem there, Wayne, is that some of the board has probably been aligned with Phil Purcell, and I think you’re going to see a lot of those board members change. That’s already being pushed for by the dissident shareholders. So the bottom line is you want to buy when there’s this chaos. You want to buy when there’s this negativity. There’s a catalyst here for change, and I think the change is good. Especially with a good market.
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