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; Bob Olstein, president of the Olstein Funds, and Bob Froehlich, chairman of investor strategy at Scudder Investments.
Trading Pit: Pain in the Ga$?
It was a tough time for investors last week, especially at the end. Stocks fell hard on Thursday and Friday, and the Dow dropped almost 300 points. Record high oil prices causing the steep fall.
Can the market rebound if oil continues to flirt with $60/barrel?
Gary B. Smith: Yes, stocks can go higher, but, if oil gets to $75 a barrel, that will be a concern. Right now, the market is still in good shape. A look at a chart of the AMEX Oil Index shows that it’s up 60 percent in just 2 years. This is where the bull market is.
Bob Olstein: Earnings aren’t going to be affected unless oil gets to $60 a barrel. The higher oil prices affect consumer spending and eventually corporate earnings. The market will make up 5 percent if oil prices stabilize below $60.
Tobin Smith: The reason oil prices are up is due to demand. Demand for oil in May was up 8 percent from last year. We have to get to $5/gallon at the gas pump to really kill the demand. I think gas prices will go higher and higher, but the good new is that our economy can absorb these rising prices.
Bob Froehlich: Oil prices will come down to $45/barrel. Everything has to do with China. China will have great demand, but this demand will play out over 8-10 years, not 8-10 weeks. Right now in China they are still riding bicycles. But the demand will increase as they move to mopeds, then cars.
Scott Bleier: Yes, these high oil prices are going to hurt the market! Not only have energy prices capped the stock market; it is going to hurt corporate profits. Oil is now making new highs. The China demand is down, but oil prices are still going higher. It’s going to hurt everything.
Pat Dorsey: Oil is not nearly as big a drag on the economy as it was 20 years ago. The skyrocketing oil prices will hurt the economy a little, but not a whole lot. The market has to worry about many other issues, which have much greater impact on stocks.
Tobin, Scott, and Pat each picked a stock that’ll head higher even if oil and gas prices go even higher.
Tobin: I like UnitedHealth Group (UNH). The economy is going to slow down, but the medical economy won’t. UnitedHealth has it all. It’s a low cost health care provider with the best information technology-based business available. I like it so much I own it. (UnitedHealth Group closed on Friday at $51.30.)
Scott: This is a powerhouse stock and a powerhouse company, but it’s priced to perfection.
Pat: This is the best-managed health care company in the country. It is the best operator with the most diverse customer base. I agree with Scott, though, that it’s priced to perfection.
Scott: My pick is National Fuel Gas (NFG), a mid-cap stock. It has strong cash flow and pays almost a 4 percent yield. This is the type of stock that Warren Buffett, the most successful investor ever, likes to buy. (National Fuel Gas closed on Friday at $28.41.)
Tobin: If gas prices go up, this stock will go down because we get less from them.
Pat: This is a fairly valued stock. It has a good dividend, but I don’t see a lot of upside for it.
Pat: I’m betting on scandal-tainted, American International Group (AIG). It’s cheap and the company’s competitive advantages are still in tact. (American International Group closed on Friday at $54.54.)
Tobin: I love buying a bad story when it gets better.
Scott: The headline risk is too great, and the stock will head lower.
Battle of the Bobs! Bob Olstein and Bob Froehlich each picked their favorite stocks. Then Gary B. used his charts to decide which stock is best.
Bob O: My top stock is Walt Disney (DIS). Everything is going right. Hong Kong Disneyland will be opening and ABC is doing well with Desperate Housewives and Lost. I own the stock and think it’s going to $35 in the next two years. (Walt Disney closed on Friday at $26.04.)
Bob F: I don’t like this stock. Desperate Housewives is only a small part of Disney. The company has corporate governance issues and it doesn’t pay a great dividend. However, my biggest problem with Disney, is that it split from Pixar.
Gary B: I have to “dis” Disney. The stock has been in a slump all year and needs to break above the downtrend it’s been in all year.
Bob F: My pick is Alcoa (AA). I like the industries they service: aerospace, automotive, and construction. I own the stock and love that it pays a dividend. (Alcoa closed on Friday at $26.46.)
Bob O: This is a commodities play. The stock is fully priced and has excess expenditures.
Gary B: Alcoa’s chart is UGLY! It began a downtrend in 2004 and hasn’t been able to break through it. Also, the stock recently broke below a multi-year support line. Run away from this stock!
Tobin's prediction: Bad news for housing; Miami condo crash by Christmas
Bob F's prediction: Fed is done raising rates; Bank of America (BAC) up 10 percent
Bob O's prediction: Marsh & McLennan (MMC) gains 40 percent within a year
Gary B's prediction: AMR (AMR) is about to take off! Up 30 percent by end of year
Scott's prediction: Hear me now! Verizon (VZ) up 15 percent and pays 4.5 percent yield
Pat's prediction: I still like IGT (IGT); up 20 percent more in 1 year
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cavuto on Business
Neil Cavuto was joined by Sir Richard Branson, founder of the Virgin Group, Ben Stein, author of “Yes, You Can Be a Successful Income Investor” Gregg Hymowitz, founder of Entrust Capital, Charles Payne, CEO of Wall Street Strategies and Meredith Whitney, Executive Director at CIBC World Markets.
Neil Cavuto: 40 million credit cards exposed to fraud in a massive security breach announced last week. If credit card companies cannot protect customers’ information, will Americans become wary of credit card use and slow their pace of spending bringing the economy to a halt? Charles are you worried?
Charles Payne: I am not worried about the broader economy, but I am worried about small Internet companies trying to compete with companies like eBay and Yahoo! Fear of fraud will almost certainly hurt online transactions broadly and smaller transactions significantly.
Ben Stein: I don’t see a connection between credit card fraud and a slowdown in spending. These types of scares have never been shown to affect consumer spending. Consumer spending is affected by enormous factors like interest rates, unemployment, productivity, and energy prices.
Gregg Hymowitz: I agree with Ben. People are not going to stop using their credit cards, and I would doubt you would be able to find any evidence that any Internet transactions have slowed at all.
Charles Payne: Gregg is absolutely wrong. Gartner this week came out with a massive report that showed that consumers are slowing down their spending on the Internet because of this type of thing.
Meredith Whitney: At the moment the numbers are small — 40 million accounts represents just 5 percent of all outstanding credit card accounts, but psychologically people are moving away from using their debit cards because if there is a risk of fraud they don’t want it linked to their checking accounts. Credit cards are a third of all commerce in the United States and consumers use credit cards for goods of higher value, so a systemic issue could prevail if people think there is widespread fraud.
Gary Kaltbaum: I don’t know how you can think this security issue will not affect the economy. We are talking about the credit card industry, which is trillions of dollars, and the fastest growing crime in this country right now. I stopped using my credit card on the Internet in the last couple of weeks after reading about this, but you can still get hit even if you use your card in stores.
Meredith Whitney: The Internet is less than 10 percent of total retail sales, but the issue is that this security problem extends far beyond the Internet, so we have to worry about it and financial companies across the board are very focused on it.
More for Your Money
Neil Cavuto: Could buying stock in the companies that are helping to fight credit card fraud and identity theft help you get more for your money? Gary, a company helping to fight fraud that you would buy now?
Gary Kaltbaum: Equifax (EFX), a company that provides credit reports, has come up with something they call the “Credit Zone” which actually alerts the consumer when there are important changes to their credit reports. It is a head on hit against fraud and identity theft. Equifax closed Friday at $34.90.
Charles Payne: I like the company, but I’m a little afraid of the stock right now — it’s a little expensive. I’d like to see it pull back and test $34, because if it doesn’t hold, it looks like it could go down to $30.
Neil Cavuto: So, what do you like Charles?
Charles Payne: I like Symantec (SYMC). It’s an Internet security company, which has outperformed its peers over the last few years, and there are two reasons the stock is down: One is because eventually Microsoft is going to get involved in this game and everyone is intimidated. Two is the fact that these guys are taking over Veritas, which is not necessarily a perfect fit, but I think everything is going to work out. Some of my clients own the stock. Symantec closed Friday at $21.25
Gregg Hymowitz: I think that the problem with Symantec is exactly what you said: Veritas is probably going to slow down their growth rate, and that’s what’s causing some weakness in the stock, but it’s not and expensive stock.
Neil Cavuto: Gregg, what company do you like?
Gregg Hymowitz: I hope people go along with everyone but Ben and me in that first block and sell all their credit card stock because it would create a buying opportunity in a company we like which is MBNA (KRB) — one of the best credit card companies out there. It trades at 10 times earnings. MBNA closed Friday at $21.45.
Gary Kaltbaum: I’m a growth stock guy and MBNA’s earnings last quarter were a big fat zero, and it looks that way for the next couple of quarters. I think you stay away from it.
Neil Cavuto: Ben?
Ben Stein: I love Citigroup (C) – if not the largest credit card company, then one of the largest. It’s an incredibly well run company. They are so on top of the game in terms of new developments in credit cards and are incredibly efficient, smart credit card issuers. If anyone is going to find the solution to this problem, it’s going to be Citigroup. Citigroup closed Friday at $46.95.
Charles Payne: There’s going to be some consolidation in the industry, and I think Citigroup is going to end up making some acquisitions that are going to make it very expensive for them to stay in the game, and I think that’s going to hold the stock down for a little while.
Head to Head
Neil Cavuto: Big convictions and some big sentences for some big-time CEOs. Is it enough to keep the crooks out of Wall Street? Well who better to ask than Sir Richard Branson, the founder and chairman of his own global empire, the Virgin Group? Sir Richard, good to have you.
Richard Branson: Hi, good to see you again.
Neil Cavuto: Do you think that there is a connection that if people feel the bums are going to prison, maybe for a long time, they can put their toe in the water, invest in companies again, feel safe about companies?
Richard Branson: Yes, I certainly think so. The actual number of situations where people have truly messed up is tiny. I think that most chief executives of companies realize that all they’ve got is their reputation – the reputation of the brand and the company, the reputation of the individual concern. And they just don’t go over that line. You know, reputation is all you’ve got in life.
Neil Cavuto: So why do so many abuse it?
Richard Branson: I think it could be exaggerated about how many have abused it. I mean there have been some spectacular, spectacularly bad examples, but when you think there are literally hundreds of thousands of companies out there, it is still miniscule.
Neil Cavuto: It is, and that doesn’t get enough attention, does it? I know in the British press, the American press, if you read it you would assume all CEOs are Ken Lay, all corporations are run like Tyco. Does that bug you?
Richard Branson: Yeah, if you take Britain as an example. I can’t remember since, say, Robert Maxwell, you know, fifteen, twenty years ago, of a big scandal involving a British company. Europe, there may have been one in France, but going around the world, it is very much the exception to the rule.
Neil Cavuto: Do you notice whether investors in Britain, or investors in the United States, have such low opinions of business and business titans, I’m sure yourself excluded, that the attitude is basically: “A pox on all your houses!”
Richard Branson: I actually think that may have been the case, say, twenty years ago. I actually think that entrepreneurialism is now in fashion in Britain. People now respect entreprenuerialism. They’re pleased to have entrepreneurialism. They realize that they pay for the hospitals, and they keep the roads sorted out, and they keep their taxes down. But if you turned the clock back twenty, thirty years, it was not the done thing to go into business in Britain. You had to become a lawyer or a doctor. Business was a dirty thing. But I actually, I think that the mood really has changed now, and I think it is seen as a positive thing to do.
Neil Cavuto: Do you think in your case, because you’re so different, so outside the CEO mold, that maybe it will encourage other executives to either loosen the tie, or take off the tie, or be a little flamboyant?
Richard Branson: All I can say is that I dress as I feel comfortable. You know, I’ve got people who work for Virgin who look as smart as you.
Neil Cavuto: Oh man! And they don’t go anywhere!
Richard Branson: Well they don’t wear that color tie! But personally, I just find the tie the most restricting thing. I’m not very good at wearing them.
Neil Cavuto: But you seem to me a very real guy. Do you think that the problem with a lot of corporate America, corporate world leaders, is that they don’t let their hair down? They keep a façade, or this austere image that doesn’t click with a lot of folks. And that’s the problem?
Richard Branson: Yeah, I mean, just an amusing story – I was talking to the president of Nigeria about a year ago, and we were talking about setting up an airline in Nigeria, and a mobile phone company. And he edged across the table and he said, “Richard, I like you.” Thank you Mr. President. I said, “Why do you like me?” And he said, “You don’t wear those stuffy suits those English gentlemen wear. So, I was thinking that if everybody wears suits, everybody looks the same — why not be a bit different occasionally.
Neil Cavuto: Or wear a pink tie.
Richard Branson: Or wear a pink tie.
FOX on the Spot
Ben: Buy stocks next week and keep on buying!
Gary: President Bush gets bupkis on Social Security!
Charles: Fed hints hikes will end; market soars!
Meredith: China can forget Unocal; no way Chevron loses
Gregg: Karl Rove NEVER apologizes; hurts Iraq effort
Neil: Iran elections won’t improve U.S.-Iran relations
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Forbes on FOX
In Focus: Dems Blocking Bush Agenda: Is it Hurting the Economy and the Market?
Jim Michaels, editorial vice president: Wall Street is worried about what is happening. When Bush was re-elected the market was strong because Bush stood for the things that the market wanted: Social Security reform, tax simplification, tax cuts a strong energy policy and a strong foreign policy. The Democrats are blocking him on every turn.
Lea Goldman, staff writer: If the markets are upset at anything, it's the fact that Bush takes every policy issue as a bullet to the heart if it doesn't go as is. He's unwilling to compromise; he's unyielding. If he worked with the Democrats like he is doing with the energy bill, you might see some better results.
Victoria Murphy, staff writer: I can't believe we're turning the Bush administration into something that we should pity. If anything, Bush has the perfect environment to pass through regulations. He's got majority in the House and Senate, yet he's getting blocked at every turn and in some cases by his own party. He doesn't deserve our pity. The Democrats don't have a real agenda right now so they are following the "just say no" campaign.
Quentin Hardy, Silicon Valley bureau chief: I think it's a problem when a President who's elected with 51 percent of the vote has trouble trying to get his agenda through just the way he writes it. The market has a problem because he spends time on Terri Schiavo, making Social Security as complicated as possible, and disassembling the situation in Iraq. This has nothing to do with what the Democrats are doing.
Neil Weinberg, senior editor: We have some serious problems, Social Security, Medicare and Medicaid. Our deficit is a problem. The real problem is that Bush has a great economic idea with the privatization of Social Security but it's dead in the water politically and he needs to move on and start dealing with some of our other problems.
Elizabeth MacDonald, senior editor: I think the market would take off if there was true Social Security reform but I don't think that Bush is getting blocked. He got the Iraq war that he wanted, he got the tax reform that he wanted, he got a bankruptcy reform that he wanted and a class action reform that he wanted. The thing is, he didn't sell the Social Security thing right. He didn't put out a plan.
Victoria Murphy: Bush hasn't had a lot of swift, decisive moves. Social Security could have been one of those and that would have been a boost to the market because historically the market has benefited greatly from a large influx of cash. Social Security could have had the same effect but you can't blame the Democrats for that. You can't form policy solely with the goal of boosting the market.
Jim Michaels: I think the market badly wants solutions to some of these problems. It wants a sign from the United States that we know what we are doing and that it's providing for future policies. The Democrats with no plans of their own are just saying no, no, no. By blocking John Bolton, they're not even letting President Bush carry out his foreign policy even though he received a clear mandate.
Elizabeth MacDonald: I see three things the market wants. Low interest rates. They want Social Security reform and both parties are to blame for that. And they want success in Iraq.
Lea Goldman: I agree, but the buck stops with Bush. It was his fault for not having a bipartisan effort on Social Security. He screwed everybody left and right. John Bolton is a great example of that. He's unyielding when it comes to that nomination.
Jim Michaels: The president is entitled to appoint that person!
Flipside: Don't Buy Stocks Until September!
Victoria Murphy: You can't time the market if you're looking at a 20-year horizon. But if you are more short-term in your thinking, you can try and access how the market feels. Let's look at the facts. Oil hit $60 a barrel this week, there's a political quagmire in Iraq, interest rates are rising and corporate profits have probably peaked. I don't think it's a great time to be in the market right now. If you have cash on the sidelines right now, leave it there.
Elizabeth MacDonald: I think with that mode of thinking you're going to get microscopic returns that you can hardly see similar to a money market account at a bank.
Victoria Murphy: A money market account would have been better than the market this year.
Elizabeth MacDonald: I'm in it for the long haul. What you're talking about is a great market with solid fundamentals. Yes oil is a problem right now. But people right now aren't looking for safe havens. They are looking at growth.
Quentin Hardy: Steve Forbes' magic worry number for gold is $450 an ounce. We are near that right now. The stock market is valued at a historic high, corporate profits have to supercede anybody's expectations. How does that happen?
Jim Michaels: The market is way off of where it was three or four years ago. The most important point here is if you want to wait until all the stars are aligned to buy your stock, you're going to pay a much higher price. If these problems go away and Victoria feels like buying again, she's going to pay a much higher price.
Lea Goldman: As an investor you have to say to yourself, what is the second half of the year going to look like. Is it going to be a bull market or a bear market? I'm personally bearish.
Elizabeth MacDonald: We're not just talking about the second half of the year. Look at what's happening in China. They're picking up oil companies and looking at aluminum companies and information technology companies. Those guys aren't thinking bearish, they're thinking bullish. Invest in the long-term.
The Informer: Big Risk, Big Reward
Kerry Dolan, senior editor: You've got to be in biotech. There are a couple of factors that are really important. We've got an aging baby boomer population that is going to need more and better medical care going forward. I like the granddaddy of all biotech, Genentech (DNA).
David Asman, host: They've had a huge run up. They're close to their 12-month high. Does that concern you?
Kerry Dolan: It's pricey but they've got a good pipeline going forward. And they're looking at new ways to sell their cancer stocks.
Lea Goldman: It's way too expensive. It's a great company, but the stock has doubled in the past year. This was yesterday's great company, not the great company of tomorrow. I have a company called Allergan (AGN), the maker of Botox. I was surprised to learn that only 1.5 million women across the world have had Botox injections, which is bogus. Oprah's book club has more members. I think there is a lot of room for growth here.
Victoria Murphy: This stock feels old and wrinkly to me. I don't think that many women need Botox. There is not a second act for this company. They are trying to prove that Botox helps with headaches and they're not getting anywhere with that. Their other treatments are having lackluster effects.
John Dobosz, senior editor: I like a company called Exelixis (EXEL). They have about ten compounds in development now. One is in phase three trials right now. Nine of those compounds are targeted against cancer. What they do is they turn off the receptors in your cells that tell the cancer to start growing and dividing. Nothing on the market yet. They've lost a lot of money but they are a good long-term buy.
Kerry Dolan: I think John's last point is right. Nothing on the market yet. I don't like this stock. Big risk here, they've only got one project in late stage trials. Who knows if that's going to work? Very long-term wait for a payoff if you go with this one.
Victoria Murphy: I don't have an MD so I don't understand this stuff, so I'm going with a fund. ICON Healthcare (ICHCX). This fund has an interesting approach. They invest in companies that are pioneering gene-oriented tests. Tests that determine what kind of cancer you have and determine what kind of treatment you need. I think it's very innovative thinking.
John Dobosz: This has been a great fund this year but the top ten holdings of this fund are hospitals and HMOs.
Makers & Breakers
• Internet Security Systems (ISSX)
Chris Russo, senior vice president of GunnAllen Financial: MAKER
I like this company a lot. They're protecting more against identity theft. I think you can see growth over 20 percent.
David Asman: You've got a target price of $27. (Friday's close: $21.37)
Jim Michaels: BREAKER
I wish you brought this stock a few months ago when it was 6 points lower. I think it's overpriced now, I wouldn't buy it.
Elizabeth MacDonald: BREAKER
I wouldn't feel secure with this stock in my portfolio. The free cash flow results are coming in kind of poorly and it's richly valued.
Chris Russo: You saw what happened with MBNA last week when credit card numbers were stolen. They only got numbers and names. If they start getting Social Security numbers this could be a real problem. This stock is a little high, but I think the trend is your friend.
• Pacific Sunwear of California (PSUN)
Chris Russo: MAKER
Their retail sector has been extremely strong. They were lagging a bit but now on the first quarter they beat out by 17 percent. There's a hundred million share buy back. I think this stock has some room to run.
David Asman: You think it can go to $29. (Friday's close: $22.79)
Elizabeth MacDonald: BREAKER
I'm a breaker. I'm looking for solid blue chip companies. Not stocks that rely on fickle teenagers.
Jim Michaels: MAKER
I'm going to buy this one. It's got a good growth record. They've kept their margins high in a very fickle industry.
Bulls & Bears | Cavuto on Business | Forbes on Fox | Cashin' In
Stock Smarts: Di$a$ter at Home?
Home sales continue to be strong, but a new study shows a lot of that strength is concentrated in just a few major metropolitan areas, like New York and Los Angeles. And if those markets head lower, the report says the entire economy would be in trouble.
So is this theory on target?
Jonas Max Ferris, MAXfunds.com: I totally buy into this theory, because there are a few markets, it’s not a national bubble, but these few markets such as California, Florida and New York, represent about half of the total market value of all homes. So if these markets tank, then all the stimulus we’ve had from home equity loan borrowing, new home construction, and buying junk to renovate your house, is removed from the economy. It’s similar to how, in the tech bubble, people stopped spending money on that. We had a recession.
Stuart Varney, FOX Business News: He is absolutely correct. Two-fifths of all the jobs created in America in the last four years were real estate related. We’re borrowing money out of our equity stakes at record levels. If there is a bust in real estate, and I think there will be, the economy definitely slows and it’s not good for the stock market, either.
Terry Keenan: Alan Greenspan says there are local bubbles, but no national bubble. He is not worried, Barbara. Are you?
Barbara Corcoran, The Corcoran Group: The first question is: what does Alan Greenspan know about the local bubbles? The whole thing is just ridiculous. I’d like to declare a moratorium on the “bubble” word, because I think it’s totally fictitious. No one can prove anything. It has just been tossed around. Money is so cheap, there’s such a short supply, there’s so much of a demand, and these particular markets we’re all worried about are the strongest markets. They’re not one-horse towns. They have tremendous economies and I'm not the least bit worried. I'm buying real estate where all you people talk about the bubbles. It's like enough already with the bubbles.
Terry Keenan: Wayne, enough for you?
Wayne Rogers, Wayne Rogers & Company: Well, I'm a builder. I've got a 500 home subdivision going on in Florida. I grant you that a lot of that is already sold. So I'm not as concerned. But there is speculative froth in certain markets. There are people flipping second and tertiary homes where they buy a home, buy a condo, they think they are going to sell it quick to somebody else who sells it to somebody else. That sort of stuff is going on and that is bad.
Jonathan Hoenig, Capitalistpig Asset Management: That's what I'm worried about. Barbara is right.
Wayne Rogers: Well, you should be.
Jonathan Hoenig: I think people who have leveraged themselves to the hilt are the ones who are going to get hurt. It is the interest-only mortgages with all the adjustable rates; when rates start to rise, that’s when those people are going to get hurt. Real estate is strong right now, I wouldn't bet against it.
Wayne Rogers: You are right in the following sense, because the backlash to the banks is going to be a tragic thing. When they start foreclosing, and that is not an arithmetic, but a geometric thing that happens, then a lot of people are going to get hurt.
Adam Lashinsky, Fortune Magazine: Let's not forget — Barbara made an excellent point that money is cheap and that money is going into real estate right now, because the industrial economy, by and large, isn't using it. If the money stops flowing into real estate, it has to flow somewhere, it’s going to flow into the larger economy. All I'm saying is that the real estate market alone coming undone is not going to tank the economy. There is no evidence to prove that would happen.
Terry Keenan: Well, there is evidence from Japan. The real estate bubble bursting in Japan is really what set off their decade-long depression; not the stock market collapse.
Stuart Varney: I think we have got a boom in the key housing markets in America. But I think that that boom is largely over. There is a sure sign you have reached the top and that sure sign is the get-rich-quick schemes, the no money down deals that are appearing everywhere on radio stations and TV stations all across America. Sure sign we are at a top.
Terry Keenan: That's why you are selling?
Stuart Varney: I’ve sold all my single-family real estate. But I am buying land.
Barbara Corcoran: I am going to come back a week from now when you realize you have already lost 5 percent of your value by selling short. I'm going to be here with a big tissue box, drying up those tears.
Stuart Varney: I've made my money; I'm a happy guy.
Terry Keenan: Jonas, it was only five years ago when we had the bubble in the tech stocks, and that went so much further than anyone anticipated.
Jonas Max Ferris: That’s true. And maybe it is only like it was in 1998 and we have a couple more years of insanity. But to Adam’s point, if money comes out of real estate, why would the economy have to fall? That’s what caused the last recession was tech spending declined.
Jonathan Hoenig: Jonas, you’re thinking too much. Listen to what Terry just said: we are only in ‘98. What did the NASDAQ do in 99? It was up 100 percent.
Jonas Max Ferris: Do you deny that if people stopped borrowing against their home and spending that money, the economy wouldn’t slow?
Jonathan Hoenig: You think too much. You write wonderful articles and your newsletter is great, but you leave a lot of money on the table. You have been talking about a bubble in real estate for years.
Adam Lashinsky: Let's get serious for a second. There is no reason why people who are speculating shouldn't be extremely nervous, because it won’t take much for them to lose everything.
Jonas Max Ferris: But it’s not just them. They are spending money and it makes the whole economy strong. If they get burned, with their interest-only mortgages, everybody gets burned when all the spending stops.
Jonathan Hoenig: The market has a wonderful way of transferring risk. People want to leverage themselves and put all their money in real estate, and take big bets; they are going to get hurt whether it’s General Motors (GM), real estate, or anything else. But I don't see this trend reversing. I see the trend in real estate as being strong and why fight it?
Terry Keenan: Wayne, do you see this continuing?
Wayne Rogers: Absolutely not. It is not going to continue for a few more years. There is a point about interest rates and housing following interest rates. A condominium on the coast of Florida in one place is going at $900 per square foot. In Palm Beach, it’s going for $625 per square foot? Does that tell you that something is wrong if Palm Beach is a much more desirable place to live? Beverly Hills is $500 per square foot. Why wouldn’t people buy in Beverly Hills? There are local bubbles and if you don't believe it, you are absolutely wrong and you better get set. You are going to get hurt. Now, on the other hand, the whole market is going to be sound for another six months at least.
Stuart Varney: I’ve got a dollar that says that 500 home place you are building, you have already sold a lot of it, I’ll bet you’ve sold a lot of it to the Brits who are coming over here with the cheap dollar, buying things up, am I right? The Brits are your biggest buyers?
Wayne Rogers: I don't know who they are...
Terry Keenan: Their money is just as green as everybody else's. But Barbara, what would be the bell-ringer for you, when you would say ‘OK, we’ve reached the top.’
Barbara Corcoran: I think if Alan Greenspan lost his total mind and increased interest rates like 2 percent, another 2 percent and another 2 percent, and people were shocked, everybody would have to believe there is a bubble out there. But anything short of that, nothing is going to stop this market. There is no factual piece of it that points to a bubble. It is just in fashion to talk about the bubble.
Terry Keenan: Would you be buying a new home if you didn't own anything?
Barbara Corcoran: Without a doubt. But trying to get your hands on real estate is almost impossible. I’d be buying as quick as I could. You can't get your hand on the damned stuff.
Best Bets: Boom or Bust?
Ready to make money no matter what happens to housing prices? Jonathan, you’re a bull on housing, how are you going to play it?
Jonathan Says Buy: ING Clarion Global Real Estate Income Fund (IGR)
Friday's Close: $15.03
Jonathan Hoenig, Capitalistpig Asset Management: It’s a closed-end fund, Terry, the ING Global Real Estate Income Fund. We talked about this last in January. Even if home and real estate prices don’t go up, you are going to make money on the income. This fund yields over 8 percent. It’s trading at a 12 percent discount to its underlying value. Here we are back at DOW 10,000, even if the market is flat, I think this is a good, income producing security in today's seemingly “trendless” market. (Jonathan owns shares of IGR).
Jonas Max Ferris, MAXfunds.com: I like that you are back to buying discounted REITs instead of the premium ones, but you just said buying real estate on leverage is a bad idea. This fund borrows money to buy more REITs. That’s why it yields so much.
Jonathan Hoenig: But Jonas, maybe someone has this as, maybe, 5 percent of their portfolio…
Jonas Max Ferris: It's a leveraged real estate investment, which you just said is a bad idea, I thought.
Jonathan Hoenig: If your overall portfolio is leveraged, Jonas, but as one part of an overall portfolio you are going to earn at least eight percent.
Terry Keenan: We know where you are stand on real estate Jonas, you are playing the other side, what’s your pick?
Jonas Says Buy: Thor Industries (THO)
Friday's Close: $30.50
Jonas Max Ferris: The RV market is a potential area that can do well wherever real estate prices go. Thor Industries owns my favorite RV company, Airstream, which has a retro cool thing. Here is the deal, if second home prices are so expensive, people might buy RVs and go to campground. If home prices tank, people might think ‘it’s risky, they’re falling, let me just buy a big RV camper and cruise the country.’ It's win/win.
Jonathan Hoenig: Jonas, you live in a fantasy world. You’ve written the whole story.
Jonas Max Ferris: You’re saying ‘if it's going up, buy.’ That's a fantasy.
Jonathan Hoenig: Winnebago (WGO) is a stronger name.
Jonas Max Ferris: No, Airstream is a stronger name.
Jonathan Hoenig: Not for me.
Terry Keenan: Let's go to Wayne here. What do you think of Thor?
Wayne Rogers: I kind of like them. They’ve got a stock buy-back program. I wouldn't buy it at this price and I would put a stop under it, but they have increased earnings and revenues. I think it’s a good stock.
Terry Keenan: You are in the fantasy world too, I guess. Wayne, what’s your pick here?
Wayne Says Buy: Aaron Rents (RNT)
Friday's Close: $23.30
Wayne Rogers: My fantasy is the stock goes up and you make money. Not to put the money in the mattress like Jonathan on his pick. I'm talking about home furnishing here. You could go with Bed, Bath and Beyond (BBBY), but everyone has to furnish these homes that are being built and Aaron Rents has a very good financial statement and they have increased earnings. Their revenues were up this last time and it is a strong company. I would also operate here with a stop because in all of these housing stocks, or furnishings stocks, as I'm a little concerned about whether you are getting closer to the top.
Terry Keenan: Interesting idea because a lot of people can't afford to furnish the houses because they buy them.
Jonas Max Ferris: But my problem is it focuses on the low-end consumer and that has been a weak area for retails, and for everybody. Everybody who has been focused on the high-end consumers have been doing very well lately.
Jonathan Hoenig: Don't bet against him, hasn’t he moved out of last place in the Challenge?
Jonas Max Ferris: He has recently.
Jonathan Hoenig: I wouldn't bet against him.
Cashin’ In Challenge
Check out the $10,000 Cashin’ In Challenge at: www.foxnews.com/challenge
Question: "How does China's recent jump into U.S. businesses help or hurt the stock market and our economy?"
Wayne Rogers, Wayne Rogers & Company: Well, you know, China is a huge economy. We have talked about this a lot in the past. It is probably going to be the largest capitalist country in the world if they maintain their political stability in the next 15 years. I own a lot of Chinese stocks: PetroChina (PTR), Chinadotcom (CHINA), China Unicom (CHU). And I think they are a terrific place to put your money. The fact that they are buying Unocal (UCL), they are going to make more entries into the US market. And the competition for oil, if you think it has gone high right now, this has major political implications in the Middle East, because the Chinese are going to be competing with us for Middle Eastern oil.
Adam Lashinsky, Fortune Magazine: I think Wayne is on to something here. Namely that the Chinese are going to take their enormous surplus of dollars and put it into the United States, because they are looking for things to buy. This is an unparalleled good thing for the U.S. stock market and economy. You are going to be hearing people say ‘oh but we don't want Chinese owning things.’ We said the same thing with the Japanese and it worked out well for us.
Terry Keenan: Well, we’re already hearing from them, Jonathan. Cries of protectionism all over the place this week.
Jonathan Hoenig: Yeah. Greenspan warned against that. If we have free trade with China, - not fair trade, but free trade — both countries will benefit. The quality of life in both countries will go up.
Question: "What's a good stock that plays on nuclear energy?"
Jonathan Hoenig: Yeah, Terry, I have been so all over the utilities. You have George Bush and Warren Buffett talking about making money in the utilities this week. I like Southern Company (SO). It is a boring, big-cap utility stock. We’ve talked about it on the show before.
Terry Keenan: You own it.
Jonathan Hoenig: We own it. For me the proof is always in the profits. To me these are still the strongest things on the board. The list goes on and on. It’s still the strongest sector for me.
Wayne Rogers: Well, I love Jonathan. He talks his philosophy of libertarianism. And what does he do? He invests all his money in a regulated industry. A highly regulated industry.
Jonathan Hoenig: That's the catalyst for these stocks. People are talking about finally building a nuclear plant in the company. Regulation is slowly being turned around. That’s what’s benefiting these stocks.
Adam Lashinsky: But Jonathan, that has nothing to do with a utility like Southern, which looks like a perfectly nice company. This could be a big boom for General Electric (GE) over the next 15 years. They stand to benefit if we really do turn back to nuclear energy in the United States.
Question: "I'm interested in the shipping/tanker sector. What are your thoughts on Nordic American (NAT) and Knightsbridge (VLCCF)?"
Adam Lashinsky: I looked at their charts and I thought these look like Internet bubble stocks from five years ago. I know Jonathan is a big fan of running with your winners, but I'm a big fan of taking profits and that's what I think she ought to do here.
Terry Keenan: Would you run with these Jonathan if you owned them?
Jonathan Hoenig: Sounds like she is looking to make a position. I think Todd Shipyards (TOD) is probably stronger. But Adam might be on to something here. They are not in their prime right now for me.
Stock of the Week
Last week’s pick from Price Headley was Morgan Stanley (MWD). For the week of June 20 – 24, MWD went up 3.4 percent.
Mutual Fund Face-Off: New Funds, New Money
Two mutual funds that could add some new profits for your bottom line? Jonas and Adam are back with the best new funds on the market.
Adam's New Fund: PRIMECAP Odyssey Aggressive Growth (POAGX)
Minimum Investment: $2,000
Since Inception: UP 0.5 percent
Adam Lashinsky, Fortune Magazine: This is a great opportunity. The same managers who manage the Vanguard PRIMECAP fund (VPCCX), which is closed, you can’t get into it, and which is giant - these guys are now managing a small fund. The reason why it is such a good opportunity is because they’re going to be able to invest in much smaller companies than they do in their Vanguard fund.
Jonas Max Ferris, MAXfunds.com: OK, by the same logic, why not get the Vanguard PRIMECAP Core Fund, run by the same people, it’s .5 percent cheaper per year, it’s also pretty small, under $1 billion in assets, why not buy the cheaper one?
Adam Lashinsky: It has a much bigger minimum, though.
Jonas' New Fund: Vanguard Diversified Equity Fund (VDEQX)
Minimum Investment: $3,000
Since Inception: DOWN 0.8 percent
Jonas Max Ferris: Vanguard has just launched this two weeks ago. This is the best way to buy a diversified portfolio of US stocks. It’s not index funds, but they do own other Vanguard great funds all in one portfolio. They rebound so you get large cap, small cap, value, growth, you don’t have to worry about balancing and which area you want to be in. Really cheap. You only need $3,000 to get in. Brand new, good fund.
Terry Keenan: Adam, do you like this one?
Adam Lashinsky: Well, I’m a Vanguard lover, so I like it, but Jonas, the only thing I’d say, similarly back to you, is why not just own the Vanguard Total Stock Market Fund (VTSMX). This thing is a mutt. You don’t need to worry about over diversifying. Just buy them all with that one fund.
Jonas Max Ferris: That’s an index fund, and these are actively managed stock pickers, basically eight different funds. I think if you don’t want an index, this is a good long-term owner of fund managers.
Terry Keenan: Adam, is it risky to go into a new fund to begin with because there is no track record?
Adam Lashinsky: Not when you have managers like both of these that do have long track records. Not at all.