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.
Katrina and the war.
All of these things are hurting President Bush, but they have nothing to do with economics. We have a 4.7 percent unemployment rate and the economy looks great. Every economic data point that came out this past week was strong and non-inflationary. In addition, the War on Terror is probably taking a backseat to the situations with the oil market. I think it’s a little bit more important right now than the so-called war with Al Qaeda.
Gary B. Smith: All that matters to Wall Street are that stock prices keep going up, which sucks more people into the market. I agree with Charles. The background looks fantastic. I would also like to point out that in October of last year, President Bush’s ratings were pretty dismal, and yet the market has made nice gains. I don’t see any correlation.
Pat Dorsey: The market usually influences approval ratings, not the other way around. In this case, as Gary pointed out, there is no correlation. The reasons for poor approval ratings are completely non-economic. The economy’s doing fine, earnings are doing well, so it just doesn’t matter at whole lot. The bigger issue right now is with Al Qaeda. As we saw a couple of weeks ago, it’s this campaign they may be waging against oil facilities worldwide. That’s probably going to increase the fear premium on oil prices. That’s the aspect of the War on Terror that’s going to affect the market more than any other.
Tobin Smith: The bigger issue, however, could be if we are unable to extend the Capital Gains Act. If these get knocked out, we will see people selling stock to get the capital gain treatment. Then there will be a sell off. That’s the one issue I’m scared about.
Scott Bleier: The president’s approval rating doesn’t have an impact on the market at all. There’s only two poll numbers that are important: job creation and your monthly statement from your broker. When the stock market does well, like it has been doing, it trumps every other poll number out there. The president can have these miserable numbers now, but if the stock market and the economy hold up well, he’s remembered for that, not his low poll numbers.
Stock X-Change
Down, but not out. Stocks the Bulls & Bears say are ready to make a huge comeback.
Charles: Intuitive Surgical (ISRG) is one that is really ready to come back. It designs and makes systems for robotic-assisted surgery. This is a high flyer that came down hard in the last couple of months. Now is the time to buy because this one is ready to rise again. I own it and think it’s oversold. (Intuitive Surgical closed on Friday at $90.37.)
Pat: It did come down really hard, but the expectations are still really high. It makes a great product and is selling well, but it’s just way too expensive.
Tobin: I really like Merge Healthcare (MRGE), which develops medical imaging and software for MRIs, ultrasounds, and digital X-rays. The stock just got hammered, but now’s the time to buy. Because of strong sales, the company had to re-state some of its earnings. I do own and recommend it. (Merge Healthcare closed on Friday at $17.56.)
Scott: This is an interesting company, but the management really messed up. This gives it a problem going forward.
Scott: I’m racing ahead with International Speedway (NASCAR. The sport is really growing fast. I love this company and own the stock, which I think is going to $60. (International Speedway closed on Friday at $47.92.)
Tobin: Scott, this stock hits $60 when you win the Daytona 500! NASCAR’s television ratings are down and television revenue is down. Not a good one.
Pat: Dell (Dubai deal? Jim?
Jim Rogers: This is rampant protectionism at its worst. Dubai is one of our fastest friends. They lend us huge amounts of money. They buy a lot of our bonds. They have more to lose in terrorism than we do. The unions however are another story. Very few containers get inspected in the U.S. because the unions have all this feather bedding and job protection. This is unions at their worst!
Gregg Hymowitz: That is absolutely ridiculous. The longshoremen today are completely different. Most of these guys actually operate behind computers now. The ports in the United States are some of the most efficient ports in the world. Just recently in Los Angeles, longshoremen were responsible for finding security violations. And the Council on Foreign Relations, which is not the most liberal organization, recently came out and said one of the biggest risks at the ports are non-unionized workers. At least in the unions they’re trained correctly. And they’re well-paid. You don’t want poorly paid day laborers controlling the ports. I agree with you on Dubai, but you’ve got the union story completely wrong.
Jim Rogers: You know as well as I do that Singapore and Dubai are the most efficient ports in the world and they handle much more traffic than our ports do.
Gregg Hymowitz: If the Dubai company gets control, it’s still going to be U.S. longshoremen and unionized workers. They’re not changing anything in the workforce.
Jack Welch: I agree with Gregg. Productivity at our ports has improved dramatically over the years. We’re doing in 20 minutes what used to take us 20 hours to do. And as far as hirings go, these longshoremen hire their nephews, their sons, and their family. The screening will be a lot tougher as to who gets a job. So I don’t think the unions are a threat here. I agree with Jim on the issue of Dubai.
Bill Sammon: I agree with Jim that we’re starting to get into protectionism. I would raise the ante and say we’re getting into isolationism and nativism. Lawmakers in both parties, in both houses of Congress, are now pushing legislation that would make it illegal not just for an Arab country or company to have ownership of such an interest, but any foreign country or company. At that point you have to ask the question, if we’re going to prevent a foreign country or company from investing in America, are they going to retaliate and have us not invest in them? This raises a major concern for business interests who make their livelihood from international commerce.
Neil Cavuto: Mansoor, what do you make of this idea that we’re so concerned with the people who control the ports that we’re not focusing on the people who work the ports?
Mansoor Ijaz: The structural difficulty here is that Dubai has very little to do with the day-to-day operations of a port from the standpoint of the dockworkers. What the dockworkers’ problem is all about is they’re essentially creating a “bogey” if you will, whereby technology is not being allowed to come in and make the ports more efficient and make them structurally more efficient in terms of neutron scanners and things like that. These are the kinds of problems the dockworkers need to get around. If we made these ports more efficient, it helps the dockworkers.
Daria Dolan: Mansoor is absolutely right. Only 6 percent of 9 million containers are ever searched by customs officials. We need new technology, but you can’t get new technology when the head of the longshoremen’s union makes a promise to union members that in fact they’re going to challenge every piece of technology for fear that it might displace some of its workers. And on Jim’s point of protectionism, it’s not protectionism against Dubai. It is pure and simple politics. Why else would you have so many high-powered Democrats lobbying and representing Dubai Ports World, including the firm of Madeline Albright? Has she gone over to the dark side? Why would Bill Clinton lobby to get Joe Lockhart out working with Dubai World Ports?
Gregg Hymowitz: You guys have the longshoremen story completely wrong on the technology front. In the last four years, they’ve spent $10.5 billion on technology. In the last 60 years prior to that, we spent about $24 billion. So the unions are all in favor of technology.
Neil Cavuto: Don’t they want guarantees that they can’t lose a job?
Gregg Hymowitz: No, in the last three years business in U.S. ports is up 32 percent. And Jack talking unions here is dead right.
Jim Rogers: You need to go back to Bill’s point. Right now the French are saying you cannot buy our steel company or our energy company. So you know what they say? Well, the Americans are doing it. So if the Americans don’t allow foreign capital in then we don’t have to either.
Gregg Hymowitz: The amazing thing is that everyone here agrees on that point. The shocking thing is what is the administration thinking on that point? I think the Democrats got it wrong on Dubai. But it’s not a union issue.
Jack Welch: I totally agree. I don’t think it’s a union issue at all.
Daria Dolan: The Journal of U.S. Commerce at the end of the 2002 lockout of the West Coast longshoremen quoted the head of the union saying at that point that the union would challenge every piece of technology.
Gregg Hymowitz: The lockout on the West Coast was about accountability. It was about making sure the longshoremen had the tools to do their jobs correctly. It wasn’t technology. Again, they spent $10 billion in the last few years.
Daria Dolan: Read the quote.
Gregg Hymowitz: I’ll give you the report on the Council on Foreign Relations.
Neil Cavuto: Ok guys. We’ll read all this stuff after the show. Bill Sammon, how big a deal is this going to be for the administration, the whole Dubai thing?
Bill Sammon: As somebody who covers the administration on a daily basis, the thing that strikes me is the President’s detractors have been saying for years, “You’re too rough on the Arabs. You’re putting them in prison. You’re torturing them. You’re not treating them properly.” And all of a sudden, they’re changing their narrative and saying, “You’re too soft on the Arabs. You’re letting the UAE come and run our ports.” There’s an internal inconsistency narrative that the Democratic detractors are putting forward, and I don’t buy that people are suddenly going to say, “Hey, the Democrats are running to the right of Bush.”
Mansoor Ijaz: Neil, there are three points that have to be made here. Most people in America probably don’t know this, but Venezuela has a big stake in Citgo gas stations. Now, if we were to take what the Venezuelan President — who’s a real nut — says to the American people about the United States at face value, we could worry about every gas station that Citgo’s got going up in smoke. I mean, it just doesn’t make any sense to do this. Especially, when Dubai is home to the largest number of U.S. vessels outside of the United States anywhere in the world. We need to get a reality check into what our hearts and minds strategy is all about.
More for Your Money
Neil Cavuto: Stocks our gang says will rocket higher thanks to some major new breakthroughs! Time to get more for your money! Tracy, what do you like?
Tracy Byrnes: EchoStar (Hezbollah has been a proxy for Iran in Lebanon and it’s not limited to the Middle East. They’ve kidnapped, killed and bombed American targets over two decades. And to say that this is a Middle Eastern problem or a diplomatic problem is a naive oversight.
Mark Tatge: Why should we be the one to decide who gets nukes and who doesn’t? How do we even know that the data is correct? We based the war on Iraq on faulty intelligence data.
Steve Forbes: Iran is awash in oil but they need nukes for nuclear power? That doesn’t make sense.
Mike Maiello: I have the same faith in Iran that I do in everyone else. We all have a self-preservation instinct. And they are not going to do anything crazier with their nuclear arsenal than anyone else has done.
Quentin Hardy: We’re going to have to use the Russians who have better relations with them and the other European nations. We're going to have to give them sanctions.
Steve Forbes: What we’re doing is allowing everyone else to do their diplomatic dances so that we don’t get criticized for doing this unilaterally. We are going to first use sanctions like cut off some of Iran's gasoline imports, which is 40 percent of its gasoline needs. If that doesn’t work we’re going to use the military option.
Lea Goldman: Sanctions might work but I think we also should give a blank check to Israel to do what it has to do. Let Israel be involved in this decision.
Mike Ozanian: I think we’re kidding ourselves if we think anybody can do this but the U.S. In the end it has to be the U.S. and I bet it will be with military action.
Steve Forbes: Politically if some dirty work has to be done we should do it, not Israel.
Quentin Hardy: Militarily this will involve a massive amount of ground troops, which we simply can’t afford. But we have to do something. We seem like all talk and no delivery. If we let these guys go, the world is going to be laughing at us.
Lea Goldman: Russia needs to get in on this. When Iran gets nuclear weapons, they’re defiantly going to be aiding the Chechnians.
Mike Maiello: You can’t rely on intervention from anyone, including ourselves. The fact is, as time goes on, in a nuclear world there will be more nuclear nations.
Mark Tatge: Why do we have to be the world’s policemen here? Why can’t we let the region work this out? And the fact that there is going to be nuclear proliferation in that region, what effect does that have on us?
Mike Ozanian: We’re the only ones with the economic and military power. And how can you compare Iran to India? India is a free country, they’re moving more towards capitalism.
Steve Forbes: India is the largest democratic country in the world. What these guys are saying is that the 1930s appeasement didn’t work but maybe it will work today. You’ve got to face up to evil.
Mike Maiello: You have to face up to reality, which is that this has nothing to do with politics and everything to do with physics. You learn how to manipulate an atom because atoms are what the world is made of.
Steve Forbes: If a country has a nuclear bomb that is a supporter of terrorism, watch out. This Iranian President is like Hitler, he means what he says.
In Focus: Port Controversy: Proof Congress Needs to Be Fired?
Rich Karlgaard, publisher: I’m embarrassed as a Californian that Senator Barbara Boxer came out against any foreign companies running our ports when the vast majority of ports in our state our already managed by foreign firms.
The real thing to worry about here is politicians pandering toward “protectionism.” This is the biggest threat to the U.S. economy and global peace.
Dennis Kneale, managing editor: This is not the fault of Congress. The Bushies blew this. I think they were hard of hearing after the Vice President shot gun blast. They didn’t realize the political controversy that would arise. They should have prepared Congress better for this so Congress wouldn’t have looked so stupid.
John Rutledge, Forbes contributor: I think Congress is an embarrassment and I’d fire every one of them. The problem here isn’t Congress; it’s the voters. Voters have been scared for some time. They’ve been supporting these kinds of paranoid politics from the right and the left. We need some leadership from Congress to calm people down. And we need leadership by principles instead of daily opinion polls.
Quentin Hardy: I think that the Democrats and the Republicans lined up behind a right wing radio nut and no one seemed to mind this. That this just shows how corrupt this system has become. I can’t believe either side has done this but they have for short-term political gain.
Victoria Barret, associate editor: This is definitely an issue that brought out the ugly American in our Congress. But sound bite candidates grow up to be sound bite Senators. It’s the nature of the beast. I don’t think getting these people out of office is the answer. Our job as journalists is to see the facts and tell the facts. It’s unfortunate that Senators aren’t held up to the same standards.
Rich Karlgaard: It’s up to the President to really articulate why we need to engage in the world, keep free trade and so on. Do we want to be engaged in the world or do we want to withdrawal like we did in the 1930s, which lead to disastrous results?
Steve Forbes: Most politicians are more interested in the sound bite. But not all of them. John McCain went against popular winds and he’s coming across as a man who stands up for principle and that’s what people look for in a leader. Voters should start to make some real choices and not throw their hands up in despair.
Quentin Hardy: It’s up to the people in Congress who have a lot of power to have sufficient information to inform and push the country in one direction or another. Once people know the facts they will line up. But Congress needs to have the right facts before they go firing them off.
Informer: Economy: Boom or Doom Stocks
John Rutledge: The economy is a boom, but people are worried so I have stock that will do well either way. iStar Financial (TPX). It’s cheaper and its been sold off by the market and I know the managers!
Makers & Breakers
• Hillenbrand (HB)
David Trainer, president of New Constructs: Maker
They’re very well positioned in the health care products industry and in the funeral services industry. Management just bought back a lot of stock. If you clean up earnings, cash flow is actually very strong.
David Asman, host: You think it can go to $65 in one year (Friday’s close: $51.83)
Rich Karlgaard: Maker
There are 80 million baby boomers. We’re obsessed about health but we’re all going to die anyway. This company covers it all.
Victoria Barret: Maker
This company is often the sole supplier of caskets to funeral homes.
David Asman: Here’s a caveat. They’ve got a new CEO. What if he doesn’t do so well?
David Trainer: I think that’s already priced into this stock. Any good positive news will shoot the stock up.
• Dow Chemical (DOW)
David Trainer: Maker
This is a very well diversified business. Unless the world economy goes into the toilet we are going to see something very good from this stock. This is trading at a big discount to the current cash flow. Any kind of recognition in the market, this company is actually going to see incremental growth and you’ll see a lot of upside in this stock.
David Asman: Your 1-year price target is $55 (Friday’s close: $43.67)
Victoria Barret: Breaker
I want to like this. It’s a well-run company and a cheap stock but I’m afraid that oil prices could derail it.
Rich Karlgaard: Maker
I think oil prices are coming down and I firmly believe that the global economy is going to grow 5-6 percent.
David Asman: What if oil goes up even higher than it’s been?
David Trainer: They’re a very diversified business so it’s not going to kill them. They’ve got a lot of other investments, whether it’s pesticides, plastics, etc. that will keep the business moving forward.
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cashin' In
Our “Cashin’ In” crew this week: Jonathan Hoenig, Capitialistpig Asset Management; Jonas Max Ferris, MAXfunds.com; Dagen McDowell, FOX Business News; Gary Kaltbaum, Kaltbaum & Associates; Barbara Corcoran, The Corcoran Group
Stock Smarts: A Buyers's Market?
There have been more signs of a slowdown in the housing market, with new home sales down in January, along with new home construction. But mortgage rates are historically low, and home prices have stalled.
Is all this putting buyers back in the driver's seat?
Gary Kaltbaum, Kaltbaum & Associates: I’ve been saying it for months and it is now, absolutely, becoming a buyer’s market, but it’s going to become more of a buyer’s market, because inventories are picking up all across the country. Times to sell houses are extending right now. The only way to move properties is to lower prices and you’re going to see it happening, so it will be more of a buyer’s market in months to come.
Terry Keenan: OK, Barbara, what do you see? You’ve been a bull on housing.
Barbara Corcoran, The Corcoran Group: I’ve been a bull on housing for the same reasons, and I have to disagree with Gary wholeheartedly. Inventory is up, of course. Prices are still up, which people are ignoring right now. You have to pay attention to that. Prices are up, volume is down and inventory is up.
Terry Keenan: But isn’t that what happens when people don’t want to sell? Are they holding out for the higher price now?
Barbara Corcoran: It’s nothing more than a reaction to all the hype over the bubble that has been out there. Who in their right mind would go out there and buy a piece of real estate now, thinking they could get it cheap tomorrow? And that is what has kept people out of the market. Can I mention just one other thing? The information that is the most crucial is how many people are going on the web and looking at real estate? How many people are going to open houses? In the last two weeks, open house attendance and web attendance have quadrupled, and that is the first sign of a turnaround. You’re going to pay more for that house next month than now.
Jonathan Hoenig, Capitalistpig Asset Management: It’s like the real estate version of the ‘whisper number’. I haven’t heard that before. You’ve got to live somewhere, right? I think that homeownership is part of the American dream. Everybody should own their own home, but do I want to be ‘super leveraged’ in real estate right now? I just don’t think so. For me, it’s not my best bet, but I think you have to live everywhere.
Dagen McDowell, FOX Business News: Jonathan, the danger is that it makes more sense, financially, to rent in a lot of these hot markets like out in California and certain places in Florida and New York City, in certain instances. You wait. It’s a much better bet right now to just keep renting and waiting for prices to come down in six months to a year from now.
Terry Keenan: Jonas, my sister's getting free breakfast almost every day for herself and her child going to these open houses in the Boston area because sales numbers have really come down.
Jonas Max Ferris, MAXfunds.com: It’s a buyers market when you’re not at some meeting with a broker, getting food. You're buying the house from a bank. That’s when it’s a buyers market, because the bank had to repossess the house from somebody who was trying to flip it with an interest-only mortgage and got caught at the wrong time. Yes, the average home price has been down in the last few months. Yes, they're still building homes at record rates but the sales volume is there. That glut has just started. We have yet to see panic.
Jonathan Hoenig: I agree with that.
Gary Kaltbaum: Let me tell you what I’m seeing. This is where I do disagree. I don’t know, maybe Barbara is looking at the Hamptons’ prices –
Terry Keenan: And you [Gary] live in a hot market.
Gary Kaltbaum: Exactly, but I am seeing full-page ads from the homebuilders across the country, in the local papers, for homes that were $400,000 now you can come in and buy them for $360,000. They’re offering LCD projectors inside the places. When they start giving away things, it means that things are soft, and that’s when I start seeing a buyer’s market. I think there’s more to come.
Dagen McDowell: You’re getting the whiff of desperation, but they’re not that desperate yet. If you can wait until the spring and summer, you’re going to get an even better deal.
Gary Kaltbaum: I agree.
Terry Keenan: Barbara, what if interest rates start to go up a lot. We know that people aren’t putting that much money down, half of the homebuyers aren’t even putting any money down, but what if rates really start to go up?
Barbara Corcoran: If they were to really go up to the double digits, of course, it takes out the bottom of the market, and even though a lot of people don’t feel sorry for the people at the bottom of the market, if they get knocked out, the market is like a pyramid. If you knock those people out, the rest will start to tumble. But that’s not going to happen. Interest rates creep up. They don’t jump up. I’m talking about interest rates of 12-13% would scare the crap out of people. But that’s not going to happen.
Jonas Max Ferris: Terry, even 4% is a lot of the house is declining and you bought it to go up. Now you’re losing, even if it goes down 2%. Really, the question is, are the prices still going up? Once they stop, the speculators are going to get out. Getting to your point about the inventory, Gary, in South Miami alone, 15,000 condos are being made right now. That’s more than was made in the last decade.
Gary Kaltbaum: There are some buildings in Miami where 28% of the condos are for sale at the same time. Prices are going to have to come down. I’m going to buy some of those condos in a year or two.
Jonathan Hoenig: But Gary, let me ask you, if you owned a condo at $250,000 and the thing fell to $200,000, would you sell that condo?
Gary Kaltbaum: I don’t, but the speculators are going to jump off the roof.
Jonathan Hoenig: Right, and I think if you are a speculator, it doesn’t matter if it’s in gold or stocks or real estate or anything. If you’re leveraged to the hilt, I think you’re going to get hurt. But if you’re a young couple and can just afford that first condo, maybe for $200,000, I think you should buy it.
Jonas Max Ferris: Jonathan, you say that everyone has to live somewhere, but some people are owning houses just to make money, so those houses can become new inventory when they don’t want to own it anymore. It’s not like they have to live there. It’s a spec house.
Jonathan Hoenig: And if they’re leveraged to the hilt, they’re going to get hurt. It doesn’t matter what the asset is.
Gary Kaltbaum: But it’s all going to be regional when it’s all said and done. There are places that have been soft the whole time. Then you’ve got the maniacal places like Miami and New York City.
Dagen McDowell: To really see a bubble collapse, you would need to see job losses. You would need to see localized recessions to really wipe out housing.
Gary Kaltbaum: Unless we get a real recession or interest rates skyrocket, there is not going to be a collapse. It will be a moderation. There are going to be some places where there is going to be some pain, but it should be fine, overall.
Barbara Corcoran: And I’m sure you’re not going to buy anything, because in the end, people like to buy in a pack. Until a pack is out there, people don’t come out in the market. You’re going to be in the pack, wishing and hoping that you had bought a month ago. Too bad on you.
Terry Keenan: In these really red-hot markets where you do your business, especially in New York and the Hamptons, do you think they’re going to stay hot, Barbara?
Barbara Corcoran: They’re going to stay hot. The part of the market that’s already soft is the very top, because the rich jump out first. But they’re just waiting. They’re watching their cards. They’re coming right back in. You don’t have to wait for long.
Terry Keenan: Jonathan, the housing stocks did pretty well this week, but they’ve been going pretty much straight down in the last couple of months. Does that worry you at all?
Jonathan Hoenig: That’s the thing. It’s one of the best leading indicators. Interestingly, Terry, a lot of the REITs are doing well. We own a couple of the international REITs. I just don’t think that real estate is my best bet right now. Like the panel, I’m not a bear and I’m not short, but I just don’t think it will be the next place for my next $100,000.
Terry Keenan: Barbara, what would make you a bear on real estate?
Barbara Corcoran: If there was an ounce of credence to this bubble theory. This poor market has been running against the wind while everybody has been shouting, ‘you’re a bubble, you’re a bubble.’ The proof is in the facts, which are that prices have not come down. You can’t argue against that.
Best Bets: “Brokeback” Stock Winners
“Brokeback Mountain” is a small, low-budget film that has done great box office business. So what are the small stocks that could be a big success?
Gary’s “Brokeback” Pick
Trimble Navigation (TRMB)
Friday’s close: $42.97
52-wk High: $44.55
52-wk Low: $26.64
Gary Kaltbaum, Kaltbaum & Associates: I’m gong to go with Trimble Navigation. GPS positioning is going to be a very big product. It has double-digit earnings and revenue. The stock broke out this week. I think it’s got a big move. The whole group is moving right now.
Jonas Max Ferris, MAXfunds.com: It’s not really a small cap at 2.4 billion. The whole GPS thing, in my opinion, is kind of over blown. I do agree. I like this stock. It’s expensive. I’m still worried about the valuations.
Jonathan Hoenig, Capitalistpig Asset Management: As a technician, does it bother you when you see insiders or management selling a stock?
Gary Kaltbaum: Not when the stock is doing well. When a stock is dropping and they’re selling, I worry. But insiders are very right to sell when things are going right.
Jonas’ “Brokeback” Pick
Fidelity Small Cap Growth (FCPGX)
Minimum Investment: $2,500
Jonas Max Ferris: I like Fidelity Small Cap Growth Fund. This fund is a mutual fund that owns very small cap stocks. It’s a pretty new fund that came out late in 2004 from one of the biggest fund families around. That’s kind of like ‘Brokeback Mountain’ in that it was a small movie, but it was really GE and the other giant movie company. The point being, when they’re small and they’re new at a big family, they tend to do well and beat other small cap funds because they juice these funds, they stick IPOs in them. It has been and it will continue to beat the indexes.
Gary Kaltbaum: That’s a lot of words for a fund that will just go up if small caps go up.
Jonas Max Ferris: It’s going to go up more when small caps go up because they favor these new funds in these big fund families.
Gary Kaltbaum: It’s a better fund than most for small caps, but it’s a fund.
Jonathan's “Brokeback” Pick
Vanguard Small Cap VIPERs (VB)
Friday’s close: $64.74
52-wk High: $65.14
52-wk Low: $50.56
Jonathan Hoenig: Gary is onto something. A rising tide lifts all boats. My hedge fund doesn’t own a lot of small caps, but you only had to own the S&P 500 from the mid 1990’s and you made money. VB is the Vanguard Small Cap VIPERs fund. It’s an exchange-traded fund, so it trades throughout the day. It’s an index of the small caps. Let me tell you, the S&P 600 and the Russell 2000 are at all-time highs. You don’t want to be short the small caps right here.
Gary Kaltbaum: Jonathan, I expected a water company from Outer Mongolia from you. You’re going with a fund all of a sudden?
Jonathan Hoenig: A lot of those companies are doing well, Gary. I think you don’t fight the trend. You know that. Any index of small caps is going to do well right now, because I think the index itself is running, so don’t stand in the way.
Jonas Max Ferris: An index of small caps is really a little bit of an oxymoron, because they tend to be over weighted in the index. If you really want small caps, you usually have to be in a non-index-type mutual fund. And is this your first index pick in the history of this show?
Jonathan Hoenig: I don’t own it. I have to say, I don’t own it. Again, in the late 1990’s, if you own the QQQ’s, you would have made money. Only index when the index is doing well. I think that’s your best bet.
Terry Keenan: Jonathan, you have broken down and made a pick in the Cashin’ In Challenge this week, what makes it so special? This is your first buy in 2006.
Jonathan Hoenig: I’m betting against bonds. I’m betting on higher interest rates, so I bought a mutual fund that shorts bonds, essentially. To me, that’s my best bet right now, betting on higher, long-term interest rates. It’s the ProFunds Rising Rates Fund (RRPIX), and for me, is a compelling buy right now. It’s more compelling than chasing small caps or even tech right now.
Money Mail
Question: "I do a lot of driving, but I think a higher gas tax might be the only way to get us off of foreign oil. What do you think?" – Doug Krintzman
Dagen McDowell, FOX Business News: A gas tax is wildly unpopular, especially in Washington, but it would be wildly successful. This is, frankly, the only way to wean us off the pump. Cut our consumption of oil, tax gas and set a floor for gas prices at $3 a gallon. If gas is below that amount, then you funnel the money to the treasury and then cut our taxes somewhere else.
Jonathan Hoenig, Capitalistpig Asset Management: We’re not addicted to oil. We use oil. We’re productive with oil. If you tax gas even more, you’re just going to make it harder for those people who are just trying to live their lives. The government’s job isn’t to shape our behavior; it’s to let us shape our own behavior. More tax isn’t going to do more than put people out of work.
Dagen McDowell: The only thing that will get us off our addiction to oil is high gas prices. That’s it.
Gary Kaltbaum: We already have high gas prices.
Dagen McDowell: No way.
Gary Kaltbaum: The only thing that higher taxes do is make people spend less, which hurts the economy. Higher taxes never did anything for anybody and the government should not raise taxes to shape somebody’s thoughts. I always hated tax credits.
Jonas Max Ferris, MAXfunds.com: The question is, ‘how do you lower addiction?’ High prices. It will either happen in 20 years, naturally, or you can do it now with a government tax. It would work. It’s worked in other countries. They drive little cars because the gas is $6 a gallon. That’s what would happen. We would use less.
Dagen McDowell: Unless you have consistently high gas prices through a tax, we are doomed to the boom and bust cycle where we then switch to energy and fuel-efficient cars and energy efficient appliances and then oil gets cheap again and then we start driving the hogs and driving the SUVs.
Gary Kaltbaum: And how much more of a tax do you want us to pay?
Dagen McDowell: Gas should be at least $3 a gallon.
Jonathan Hoenig: Great. Let’s make it $5 a gallon. Let’s make it $20 a gallon.
Gary Kaltbaum: Let’s make it $10 and we’ll all buy little motorcycles.
Jonathan Hoenig: And you know whom you really hurt? The guy who has to commute from the city to the suburbs, who an extra $50-100 a month is a big deal. You don’t hurt rich people in New York; you hit Middle America who is just striving to get by.
Terry Keenan: So how do you bring down our consumption, Jonathan?
Jonathan Hoenig: I don’t think we need to bring down our consumption. I think our consumption is just fine. Let’s get the bombers in the air and take care of Iran.
Dagen McDowell: So we are doomed then to buying oil from countries that hate us for years and years to come. That is a stupid idea, Jonathan.
Jonathan Hoenig: Alaska might hate us, but I think there’s plenty of oil up there. There’s plenty of oil in Canada.
Dagen McDowell: That’s not enough.
Gary Kaltbaum: Social engineering does not work. You don’t try to change someone’s behavior by making them pay more for things.
Terry Keenan: But it does change people’s behavior. When prices went up, people stopped driving as much this summer.
Gary Kaltbaum: But then you are going to hurt businesses and you’re going to hurt the economy. Higher taxes are not a good thing. They have never been a good thing. Lower taxes for everything.
Dagen McDowell: It doesn’t happen all at once, Gary. You figure out a plan and implement it.
Gary Kaltbaum: If you think there’s an addiction, it should be about individual choice. If you drive a Navigator and you think you need to drive a Hugo, go ahead and do it. This is a democratic society. You get to decide what you want to do.
Dagen McDowell: Unfortunately, over the last 30 years, we have made bad choices.
Gary Kaltbaum: Who’s we?
Dagen McDowell: We, as a nation have made bad choices, driving those dumb, big SUVs, which my parents drive.
Face-Off: President Hillary?
Is Wall Street ready for another President Clinton? The election is more than 2 years away, but there is heavy speculation that Hillary Clinton is getting ready for a run at the white house. And remember - when hubby bill was in office, the stock market took off. So what would wall street think about Hillary as president?
Barbara Corcoran, The Corcoran Group: I think some people would like her and some people wouldn’t. What’s very true about Hillary is that she is polarizing. You either love her or you hate her.
Jonathan Hoenig, Capitalistpig Asset Management: Barbara, do you love her or do you hate her?
Barbara Corcoran: I have to say that I love her. I respect her. And I knew you were going to shake your head right away.
Jonathan Hoenig: She’s going to be president-in-chief. I respect the curator of my local museum, but I don’t want him or her running the country.
Barbara Corcoran: Then you mustn’t know her very well. If you’ve heard her speak, if you looked at any of her programs that she’s initiated here, as a senator, everything she is for is for equality. That turns a lot of people off, but she is a phenomenal leader. She’s toughed it out. She has a very popular president who is her husband as an asset. She’s got a tremendous Rolodex in Washington DC.
Jonathan Hoenig: It’s pretty embarrassing when her biggest asset is that her husband was president. I can’t find one pro-free-market: in education, she’s against school vouchers. For the environment, she’s against drilling in ANWR. In health care, she’s for nationalized health care. I’m not a Dick Morris who just hates Hillary. I just can’t find anything about her that’s pro-free-markets or pro-Capitalism.
Barbara Corcoran: She’s pro-business all the way. She’s the daughter of a small businessman.
Jonathan Hoenig: And she wants to cite the oil companies for making too much money. What’s the good of having an abortion if you can’t own a gun? I just don’t understand it.
Barbara Corcoran: The question here is what assets does she have? She’s powerful. She’s a great speaker. Put her in front of a microphone and she’s got great charisma.
Jonathan Hoenig: Put her in front of a bunch of school children. She could be a schoolteacher, but she’s not going to be the commander in chief.
Barbara Corcoran: You know what you’re doing? You’re denigrating her on the fact that she’s female.
Jonathan Hoenig: I am ready for a female president. I’m ready for a black president. But she’s got to be a capitalist.
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