DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
Bulls & Bears
This past week’s Bulls & Bears: Gary B. Smith, Exemplar Capital managing partner; Tobin Smith, ChangeWave Research editor; Pat Dorsey, Morningstar.com director of stock research; Scott Bleier, HybridInvestors.com president; Charles Payne, Wall Street Strategies CEO, and Bob Froehlich, DWS Scudder chairman of investor strategy.
The Dow closed on Friday at 11,577.74, just 145 points away from its all-time high. A rally at the end of the week took the blue chips within striking distance of its record. Will it break through next week?
Gary B: We most certainly will break through the all-time high. We’ve made it through earnings season without any big blips. Plus, we’ve got a lot of the major economic reports behind us. The Federal Reserve will be quiet for a few days and the greed factor is what will drive people on Monday. Many will see what happened on Friday, and if they do not already invest in the market, they will want to be invested. So, more money will keep piling in. The market will be soaring next week.
Bob: The Federal Reserve is what will stop the Dow from breaking through next week. If we’re focusing on next week, the market is not going to have a lot of money pouring in the day before the Fed meets. The reality is the Fed is going to raise rates, and when that happens the Dow won’t be soaring. The largest part of the market is driven by the financial services industry. It’s the largest part of the S&P 500. That component is so clearly tied to what the Fed is going to do. I do think we will break the all-time high later this year, just not now.
Charles: The bull market is going to turn next week. Everyone knows about the Fed meeting, which is why the market was up Friday and why it will be up Monday. I agree with Gary B. that a lot of people who aren’t invested in the market will decide that they want to be in it. There are a lot of fundamentals to this. I don’t believe Gary B. believes in this rally from the fundamental aspect. We’re really rockin’ and rollin’ because of these fundamentals.
Pat: A lot of the Dow stocks are quality blue chips and that is the asset class that has the most value right now. Stocks like JP Morgan (JPM), Johnson & Johnson (JNJ), Microsoft (MSFT), and Citigroup (C) are all very cheap, relative to earnings power. If you told me to buy an index right now, I would certainly go with the Dow.
Scott: We will hit the high next week. Whatever the Fed does, the market will spike afterwards and test the high. We might break through the all-time high, but we won’t stay through. Now is the time when the laggards are leading and you have to be cautious. I’m going to be the lone dissenter, because I think now is the time to begin to sell stocks. Three years ago when things were terrible, you had to buy stocks. Now things look great, you’ve got to sell them.
Tobin: We do have the issue of oil prices. If there were a pullback in oil prices, we would shoot up to 12,000. We could get a pullback, but that won’t mean oil prices will stop heading up. They will eventually hit $80/barrel. The key thing is that old tech is new tech. If you look at what we have underinvested in for 25-30 years, it’s been infrastructure and what makes our country work. The Dow is the best place position of any index right now.
Many companies had to close their doors because of the May 1 illegal immigrant walkout. Are the best stocks to buy the ones that don’t hire illegals and were able to conduct business as usual?
Gary B: I love FedEx (FDX). The stock has been in a beautiful uptrend since last September and it just started a new leg up. It’s been so solid. It could hit $150 by the end of the year. (FedEx closed on Friday at $119.31.)
Charles: I agree and also love this stock. My clients have been in it for a long time. UPS (UPS) is less undervalued, but this is a play on the global economy.
Bob: This is a great all-American play, but now there’s a high cost of energy, which will start eating into it. I do own it, but I think it’s in for a correction.
Charles: My pick is Bear Stearns (BSC). We’re talking Wall Street, which is all-American in itself. The stock pulled back recently, but it is a juggernaut. I think it will continue to grow. (Bear Stearns closed on Friday at $142.20.)
Bob: Bear Stearns doesn’t have a lot of international presence, but it has some development starting to brew with China. Plus, it has 80 consecutive years of making money. I do own Bear Stearns.
Gary B: The chart shows no sign of problems…yet. It has also been in a beautiful uptrend since late last year. As Wall Street goes up, so will Bear Stearns. However, get out of it if it closes below its trend line, around $140.
Bob: I’m going with Fannie Mae (FNM), which is the largest mortgage provider in the U.S. You can’t get more all-American than having a public company with a government charter. I love that it pays a dividend that is above market share. The stock is cheap, and I own it. (Fannie Mae closed on Friday at $51.41.)
Charles: My clients are long this stock and the scandals are behind them. The problem, though, is illegal immigrants and how they fit into the food chain for housing. We need immigrants to buy those homes that people want to sell.
Gary B: Froehlich, where is your head? Fannie Mae has one ugly chart! It’s been in a long-term downtrend. The stock tried to rally, but is still well under its downtrend line. Don’t buy until it closes above $53 and shows some strength.
Social Security is expected to go bankrupt sooner than expected. Pat’s got the best funds that could help you prepare for retirement no matter what happens to Social Security.
Pat: My first pick is Marsico Focus (MFOCX), which is a large growth fund. Large growth has not done so well the last few years. Typically, what has not done well the past few years, will do well in the future. This fund has the best growth manager around. Expenses aren’t the greatest, but it has a fantastic long-term track record. It has a lower-than-average tech weighting, so it is a good diversifier if you have a lot of tech in your other investments. (Minimum investment is $2,500.)
Tobin: I like his idea, but my problem is that there is no energy, or alternative energy in it. I don’t see anything that will have a lot of growth. I’d rather buy the S&P Index fund.
Scott: I actually like the Marsico Focus fund because it does focus on a small group of stocks. He does, in fact, have a growth component and is allowed to buy foreign stocks.
Pat: Next up, Selected American Shares (SLASX), which invests in large blue chip stocks. It has a fantastic long-term track record, beating the market by 3 percentage points for the last 15 years. This is pretty tough to do. It’s a good, solid core holding fund. Expenses are very low; so you are getting a lot for your money. (Minimum investment is $1,000.)
Scott: I don’t like this one because it is primarily in large caps. That’s good for right now, but won’t be in the future.
Tobin: These are mega caps, not large caps. They lag because earnings do not grow at the same rate. Again, it has no energy.
Pat: Finally, let’s look at ICAP Select Equity (ICSLX), which is more of a value fund. It does have a higher turnover rate, so it would be smart to put it in a tax-deferred account, rather than a taxable account. This fund has done very well with 24 percent annual returns over the past 3 years. It invests in more economically sensitive stocks and has very reasonable expenses. (Minimum investment is $1,000.)
Tobin: When we go through the economic down period, this fund stays 100 percent invested and never builds cash up. That bothers me.
Scott: The manager is allowed to build up his cash. This fund has a good diversity of stocks and has outperformed. This counts for a lot.
Bob’s prediction: Nasdaq no slouch either; up 20 percent by end of year!
Tobin’s prediction: Kennedy crash hurts Ambien; Sanofi-Aventis (SNY) down 20 percent
Gary B's prediction: Bird flu fears boost MedImmune (MEDI) 15 percent
Scott's prediction: Flex-fuel vehicles save U.S. auto biz; Ford (F) up 50 percent
Pat's prediction: Berkshire (BRK.B) is a bargain! Up 35 percent in 2 years
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, “Hot Commodities” author; Jack Wheeler, former adviser to President Reagan and editor of ToThePointNews.com; Herman Cain, radio talk show host; Patricia Powell, founder of Powell Financial Group; Mike Norman, BIZRADIO network host; Chris Lahiji, founder of DailyTrends.com.
Neil Cavuto: First the protest, then an economic boycott. Is violence next? Illegal immigrants boycotting America's economy and ratcheting up the stakes. Jack wheeler, you say sooner or later this turns violent?
Jack Wheeler: The reason I think so Neil is that the illegal aliens from Mexico are different from those from any other place. They feel that this is their land. They’re taught at a young age that America stole the American southwest from Mexico. So when they come back to California, Nevada and Texas they feel they’re coming back to their own land. They feel they’re entitled to it.
Jim Rogers: That sounds like madness to me. We’ve had immigrants in this country for two hundred years. They came here and assimilated and made this country what it is. Are you saying these guys coming from Mexico are carrying M-1’s or M-16’s? I haven’t seen anyone starting a revolution.
Jack Wheeler: These people are taught through childhood that they’re entitled to this land.
Jim Rogers: And who teaches them? They go to school in America. You’re saying American schools are teaching them this?
Jack Wheelers: You’re talking about children born here. I’m talking about illegal aliens coming here.
Pat Powell: It’s very impressive how far we’ve come with the protests without any violence.
Neil Cavuto: You think it will turn violent?
Pat Powell: Yes, I think it’s inevitable.
Mike Norman: I have to agree with Jim. We had rallies and demonstrations in the Sixties and during the civil rights movement. We’re going through a process of assimilation here. The problem is being exposed now.
Herman Cain: I don’t believe that civil war is on the horizon, but there’s a lot of civil unrest. Here are 3 things that the legal citizens do agree on: we agree on one nation under God indivisible. Second, we agree on one language, which is English. And thirdly, we agree on one flag.
Jim Rogers: But Herman, you know as well as I do. The Irish went through this. The Italians went through this. Were the Italians declaring war on us?
Jack Wheeler: But the people from Mexico did not come here to assimilate.
Chris Lahiji: I agree with Jack. If they start enforcing the law and deporting these people back to their country we might have confrontations.
Mike Norman: These are not Muslim fundamentalists. Despite what you’re hearing from Jack that they’re here to overthrow America, they are here for economic opportunity.
Neil Cavuto: Jack, if it does turn violent, then what? Are we shutting our doors and saying no one’s allowed here?
Jack Wheeler: We have to focus on liberating Mexico. Poverty drives people to leave there and come here.
Mike Norman: Mexico has a trillion dollar GDP. It’s the fourth largest oil producer. But
It is incredibly corrupt.
Neil Cavuto: Then why do they all want to be here?
Mike Norman: Very simple. There’s no social policy. The Mexican government, as corrupt as it is, ceded the social policy to America. And we embraced it because we can’t enforce our borders.
Herman Cain: This is why the number one priority must be to secure the borders and enforce the laws.
Head to Head
Neil Cavuto: Soaring gas prices sending members of Congress scrambling to prove they're working to ease the pain, but are they? Or are they just making it worse? Herman Cain, is Congress helping or hurting the situation with gas prices?
Herman Cain: Congress is hurting the situation. Political hot hair is not going to bring down gas prices. Congress needs to focus on doing what it can do to help: Allow drilling in the outer continental shelf and ANWR; strip out the gasoline taxes that don’t go to anything except pork barrel projects; and remove the onerous regulations that are preventing new refining capacity.
Pat Powell: We’ve been on notice since 1973 about this problem, and we’ve had one inept Congress after another. The only thing members of Congress can do is think short term. What they need to do is practice good fiscal policy. Remove taxes on alternative fuels, and give incentives to those who use alternative energy. Forget windfall profit taxes and ridiculous rebates. The cure for high prices is high prices.
Jim Rogers: Herman you have it exactly right. Congress has caused a lot of the problems. The government should let us do all these things that will give us more supply into the market.
Chris Lahiji: Politicians will say anything they want. The oil companies are the ones controlling the government. Why did $220 million go to the GOP since 1994? Why are we giving them $6 billion in subsidies and tax breaks when these guys are making $150 billion a year?
Mike Norman: Chris, get real. All the U.S. oil companies combined account for maybe 8 percent of global production.
Chris Lahiji: The only way we can do this right is if we conserve and give incentives to the people who drive cars that are energy efficient.
Neil Cavuto: What do you drive, Chris?
Chris Lahiji: I drive a 4-cylinder Camry, Neil. I should get an incentive for driving that, and people who drive Hummers should be penalized.
More for Your Money
Neil Cavuto: Sell in May and go away? Not so fast! Our gang's got stocks they say you need to buy right now to get more for your money. Herman?
Herman Cain: Even though a lot of people don’t agree with a lot of the hot air relative to the energy sector, I believe that bigger is not always better. Occidental Petroleum (OXY) is the fourth largest U.S. oil company. It’s making a lot of money. Occidental Petroleum closed Friday at $104.47.
Mike Norman: The problem with these oil companies is looking forward, they just can’t find the reserves. I’d be cautious to recommend or buy it now.
Neil Cavuto: So what do you like?
Mike Norman: Sell in May and walk away in a pair of Timberlands (TBL). This stock is cheap. This company makes a lot of money. Timberland closed Friday at $29.51.
Chris Lahiji: Mike, I love you, but this stock stinks. That’s why I brought my air freshener. Young, sexy hip people like me don’t think this company is trendy anymore.
Neil Cavuto: What are you buying Chris?
Chris Lahiji: I’m buying Microsoft (MSFT). It’s down 11 percent in the last couple of weeks. This stock has hit $23 seven times in the last 5 years and it’s gone back to $26-$27. Microsoft closed Friday at $23.80.
Pat Powell: But how can you make any money on this? With the Dow within striking distance of its all-time high, this company is still 50 percent off its highs. It’s hard to see how this company will grow. It’s just too big.
Neil Cavuto: What are you buying Pat?
Pat Powell: I like Fair Isaac (FIC). Your viewers will know this company as producing the FICO credit rating score. Those scores are now used to determine your employment, your auto insurance rates. Fair Isaac closed Friday at $38.19.
Neil Cavuto: That’s kind of creepy.
Jim Rogers: It is creepy. Secondly, this thing is an expensive stock.
Pat Powell: If you can’t get a job because you have a lousy credit rating you’re going to start paying attention to it.
Neil Cavuto: What are you doing Jim?
Jim Rogers: I would buy foreign currencies. Buy the Euro. That’s where the money’s going to be.
FOX on the Spots
Herman: Minutemen will build a wall on the Mexican border!
Mike: U.S. gas consumption has peaked and so have prices!
Jim: Oil co's can't replace reserves; dump oil stocks!
Pat: American troops will be in the Sudan one year from now
Chris: Forget all-time high; Dow dropping 1,000 points!
Neil Cavuto: The Dow will hit a record next week or the week after, and the media will downplay it, and focus on the negative.
Forbes on FOX
In Focus: Stop Illegals by Boycotting Businesses That Hire Them?
Jim Michaels: The first thing you do is put in an assessable amnesty policy. After you do that, you crack down on illegals. You regain control of our boarders. A good place to start is by boycotting people who hire illegals. You can ask people to put up a sign, "We hire only legal immigrants."
Steve Forbes, Editor-in-Chief: This isn’t going to solve the problem. No business is going to put up a sign that says ‘we hire illegals’. Many buildings are built by illegals. Are we not going to enter those buildings? Are we not going to eat tomatoes because they were picked by illegals? The way to do this is with comprehensive reform. Then you enforce that reform.
Elizabeth MacDonald, Senior Editor: I don’t think you should reward bad behavior. No one is against immigration, but we are against hiring illegals. Often these workers don’t get the protection they need on the job. They don’t get workers compensation because the employers like it that way. They like to hide the abuses and they know that these illegals won’t stand up for themselves.
Victoria Barret, Associate Editor: I don’t think a boycott is the answer. That would be punishing people for showing up for work. The McDonald’s in the mission district in San Francisco this Monday was closed at 7 p.m. Should I not go to that McDonald’s because I think that they hire illegals? That’s absurd!
Elizabeth MacDonald: Boycotting businesses would send a message to the illegal worker. They’re not getting the protection or the benefits they deserve from the employers that hire them. The employers should make them legal citizens. Why are we rewarding bad behavior?
Dennis Kneale, Managing Editor: It’s not the people’s job to enforce the custom laws of this country. It’s the government’s job. Let the government take care of it. Elizabeth wants to help illegal immigrants by getting them fired? I’m not going to boycott a company because an illegal brings me water at a restaurant.
Elizabeth MacDonald: I’m not saying fire them. I’m telling the illegals to become legal, get the protections they deserve and work for an employer that is going to protect you.
Quentin Hardy, Silicon Valley Bureau Chief: What is the mechanism behind this idea. Are you going to have big government come in and check and announce when companies have illegals or are you going to have vigilantes go in and prove this and 'out' these companies? The companies are never going to say this themselves. Immigrants are coming to this country in part because of the opportunity and in part because the countries they are coming from are a mess.
Jim Michaels: If we want to gain control of our boarders we as individuals have to contribute to that. If we encourage law breaking, we’re making it harder to control our boarders.
Steve Forbes: No one is going to put out a sign that says we hire illegals. To get real reform you have to start to get people who are here in this country to register, go through a 10-year program if they want to become legal. We need a comprehensive reform, then we can enforce the law.
Victoria Barret: In California if you want to boycott anything that comes from illegal labor you won’t really be able to eat any fresh produce. It gets messy so quickly. If you look at the children of illegals, 64 percent of them were born in the U.S. What do you do with those people?
Jim Michaels: That’s not the issue. We want control over who comes here and who doesn’t.
Dennis Kneale: The issue right now, is it’s much harder to be legal and go through the right rules than to come here illegally. I have a British friend in Florida who has been here a decade and is having the hardest time getting a renewal to stay because she followed the rules.
Steve Forbes: The immigration service is now dysfunctional in this country. If you try and obey the rules you go through this horrible limbo, you have to hire lawyers, they lose your papers, and you wait years. You have to reform that, then you can enforce the law. People who try and obey the law now get punished for it.
Elizabeth MacDonald: The problem is that this issue is not being framed properly in Congress. People are going around protesting because they think we’re against immigration. This country is not against immigration. It is for people who abide by the law.
Jim Michaels: Amnesty first, then enforcement of the law.
Quentin Hardy: If we boycott businesses be prepared for price increases for everything. This will come at cost.
Elizabeth MacDonald: It wouldn’t be that hard to find out who’s hiring them. Look at the meat packing industry and look at construction.
Flipside: Best Thing for Stocks: "A Day Without CEOs"
Quentin Hardy: You can love immigrants or you can hate them but you have to admit, last Monday they had the guts to walk off the job and show what their impact was. Here at Forbes, we say that some of these CEOs are worth $10-20 million a year. I say, let’s put them to the test, too, and have them walk off the job to see what happens to the economy. Nothing happens, they’re not worth the money. If the place tanks, we pay them more.
Steve Forbes: The premise at Forbes is management makes the difference. What we have here is confusion over management and compensation. You can make the case that many of these people are overpaid. But you need leadership. Look at GM, it was once a great company but look what happened when you don’t have good leadership.
Elizabeth MacDonald: The CFO often matters more, especially today in the age of all of these corporate accounting scandals. They’ve become the corporate narks. There has been a record turnover of CEOs. There has been a mass exodus of CEOs last year, more than after the dot com era. We’re now seeing CFOs become elevated.
Mike Ozanian, Senior Editor: The CEO is like the quarterback of a football team. He’s not necessarily the best player, but he’s the leader. The buck stops with him or her. The whole thing with CEO pay is ridiculous because Bill Clinton put the $1 million cap on CEO salary. So what happened after that? CEO pay got tied to performance and stock options. That’s why they’re making so much money. The more money they make the better it is for the stock market and economy. Don’t kill the whole system for one or two bad apples.
Jim Michaels: A good CEO can go sailing down the coast of South America for a month and his company would do well. CEOs don’t run companies, well-run companies run themselves. The CEO is the leader, he or she sets the tone and represents the company to the outside would. He or she doesn’t run the company. If a CEO were to stay home for a month and the company were to run well it would prove that he or she is a better CEO.
Lea Goldman, Staff Writer: CEOs are not civic leaders, they work for shareholders. I’m sure the shareholders for a company like Best Buy would be very upset if the CEO had left, because he’s responsible for tripling the stock in three years. We’re not talking about super-star CEOs, we’re talking about CEOs that have run well-managed companies. The notion that they are not responsible for overall strategy is absurd.
Jim Michaels: Leadership doesn’t consist of spending 20 hours a day at the office. The test of a well-run company is one that runs smoothly. The CEO sets the tone. He sets and enforces the goal. He doesn’t run the company to begin with.
Steve Forbes: There are more good CEOs than bad. It doesn’t matter if a CEO wants to go sailing or work a 20 hour a day, styles differ. They set the tone, ethics and course of the company. If they do it well, the company does well. If they don’t do it well, companies falter and fail.
Informer: Medical Bet$
Bill Baldwin, Editor: There is no question that big drug companies are on the run. Tort lawyers are tearing them to pieces and their patents are expiring. I’d put my bets on smaller biotechs and device manufacturers like Datascope (DSCP). They make the things that go into vascular surgery. It’s a growth market.
Lea Goldman: I love biotech but I don’t like this sector. They are really getting squeezed on the profit margin front and I don’t see growth coming out of this company. I like Exelixis (EXEL). It’s got 8-9 drugs in the pipeline, which is way more than the 2-3 drugs of a regular biotech. It’s got great partnerships with big pharma.
Mike Ozanian: This company has been losing money for years and it’s going to continue to lose money.
Lea Goldman: That’s the thing with biotechs. You have to wait until they get FDA approval. That could take years. It’s a wait-and-see kind of game.
Mike Ozanian: I like Wright Medical Group (WMGI). They make devices for reconstructive hips, knees and things like that. The company had a bad quarter last quarter because it’s been spending a lot on marketing. But I think the next couple of quarters are going to be good.
Jim Michaels: The company is loaded with debt and it’s competing with Johnson & Johnson.
Mike Ozanian: I like the demographics of this industry as people are living longer. I think there is room for growth.
Jim Michaels: I think Bill is wrong, I thing big pharma isn’t dead, in fact, it’s here to stay. Without big pharma you have no little pharma. Big pharma provides the distribution and the financing. That’s why I like Johnson & Johnson (JNJ). It’s the leader in every one of these fields. I think this is the place to be in the medical field.
Lea Goldman: Johnson & Johnson is a great stock but I think there is room in the portfolio for a smaller biotech because J&J’s growth is coming from consumer products like Band-Aids, not pharma.
Makers and Breakers
Ray Lucia, “Ray Lucia Show”: Social Security isn’t going to be there for you 100 percent. We learned last week that it’s only a matter of years until Social Security runs out of dough.
• Whole Foods (WFMI)
Ray Lucia: MAKER
This stock can help make you money now and save for retirement. I think this is a fantastic stock with great operating margins. They’ve got 78 new stores that they’re in the process of building more. I think it could to $100 in 12-18 months. (Friday’s close: $72.08)
Bill Baldwin: BREAKER
I have a lingering fear that five years from now some scientist is going to discover that organic foods are bad for you. I don’t want to own this stock.
Dennis Kneale: MAKER
Investors have a passion for this stock. It grew almost 15 percent one day last week. It earns triple the profits of any other grocery chain. It’s got half a billion in cash.
Ray Lucia: There is some competition, Wal-Mart and other stores are getting involved with the organic foods. But remember, the upscale baby boomers hop into their SUV and don’t care about $3.50 gas. They drive to Whole Foods and get their products.
• Microsoft (MSFT)
Ray Lucia: MAKER
There is blood on the streets right now. The analysts hate it. They’ve killed the stock. You’re getting paid to own this stock. It’s probably the safest stock in America for people to buy. I think it can go to $30 in one year. (Friday’s close: $23.80)
Dennis Kneale: BREAKER
I’m a breaker on Microsoft for the first time. The problem is a lack of passion. Investors don’t have a passion for this stock. It wants Google. And Microsoft doesn’t have enough passion in its products. It’s a good company, but unfortunately it’s just a lackluster stock.
Bill Baldwin: MAKER
This company has so much cash that it can beat out its competitors and even pay off the evil European governments that are trying to extort money from it.
Our “Cashin’ In” crew this week: Wayne Rogers, Wayne Rogers and Company; Jonathan Hoenig, Capitalistpig Asset Management; Jonas Max Ferris, MAXfunds.com
John “Bradshaw” Layfield, “The John Layfield Show”, and Meredith Whitney, CIBC World Markets.
Stock Smarts: Easy Way Out?
Split it up and get out. That's the plan for Iraq from Senator Joe Biden, D-Del. He wants us to divide Iraq into three religious regions followed by the exit of U.S. troops. But the plan is getting sharp criticism, even from some democrats who oppose the war.
Is it a bad idea?
John “Bradshaw” Layfield, “The John Layfield Show”: I'm so glad that Joe Biden wasn't around during our civil war; I would need a passport to get to New York City. This is a terrible idea. If you do this, you guarantee civil war and you guarantee that southern Iraq becomes western Iran. Iran is already sponsoring Muqtada al-Sadr. They will take over all that oil. Add $300 million a day in oil revenues to Iran and we have the rare unthinkable thing of them putting an embargo on the western world.
Terry Keenan: Did we just hand them southern Iraq?
Jonas Max Ferris, MAXfunds.com: I'm at the point where I really don't care what they do. The worst thing you can do in business is throw good money after bad. We have spent about a quarter of a trillion dollars already. That’s 10 times more than was estimated in Iraq and Afghanistan; what do we have to show for it? Oil prices are higher and we can't even guard the oil facilities over there. They’re still pumping less. Anything taking our budget down from $10 billion a month to a normal amount is fine by me.
Jonathan Hoenig, Capitalistpig Asset Management: Why did we go to war in the first place?
Jonas Max Ferris: Good question.
Jonathan Hoenig: Well, Bradshaw, you visited these soldiers over there. Did they go to war, did they say, because they wanted to spread democracy in the Middle East?
Meredith Whitney, CIBC World Markets: Yes, that's exactly...
Jonathan Hoenig: No, that's wrong. It's not why we went to war. We went to war to protect Americans from Islamic terrorists.
Terry Keenan: Jonathan, you answered your own question.
John Layfield: I've been over there five times and what the troops believe is that they're protecting our soul for the first time since World War II. And these troops believe they're doing their best to preserve America and keep bodies from being dead on our own soil.
Meredith Whitney: The premise was that spreading democracy is the best defense that we can have. From a capitalist standpoint, from a free market standpoint, if we empower people, the world is a safer place.
Terry Keenan: Wayne, you've been no fan of this war. What about the Biden idea, split and exit?
Wayne Rogers, Wayne Rogers & Company: Well, I'll say this for Joe Biden: he recognizes the fact that you do have constituencies in Iraq that are going to have to be listened to and in some form or fashion you have got to recognize that the balance of power in Iraq is going to be maintained by balancing those people. That's exactly what happened before. The Kurds have to be looked after as well, and so you have another mix in there. John is right; if you let Iran in the door, if you let their foot in the door because you have a Shiite majority in Iraq, you will have a bigger problem. We have to remember that Iraq and Iran fought each other 15 years ago and it was a balance of power that helped us and that's what we have to reestablish.
Jonas Max Ferris: Isn't that like saying that if we leave Vietnam, they will go communist? That happened and who cares? It didn’t hurt the stock market, and that's what the question is. I hate to be disrespectful, there are benefits to being there, but I don't care what the soldiers think anymore than I care what the employees of Coca-Cola (KO) think. The fact of the matter is that as a business decision, it’s a terrible one. Are these benefits worth $1 trillion? We're spending more than Vietnam, adjusting for inflation, every day. How long should that go on?
Terry Keenan: Could it possibly work, a loose confederation of three separate Iraqi territories?
John Layfield: Absolutely, it could work. You have 14 of 18 provinces that are secure. The only problem is the Sunni Triangle. We should have known that was going to happen anyway. That was part of Rumsfeld's mistakes that he made in this war. The thing is that the Sunnis were taken care of by Hussein and if this is split into three parts, the Sunnis would have no democracy control and they’d have no oil.
Terry Keenan: This plan would be the Sunnis' worst nightmare, wouldn’t it?
John Layfield: This plan would be terrible for the Sunnis, and as bad as the Shiites hate the Sunnis, you will see genocide in Iraq.
Jonathan Hoenig: Listen. I don’t think we want to sacrifice an American kid so that some Iraqi can elect a mullah that will put in a theocracy that will probably get in bed with Iran. Democracy in Iraq right now is mob rule and that's not a reason that American kids should die.
Terry Keenan: So what is the solution, Jonathan?
Jonathan Hoenig: We have to fight the war. We have spent this war worried that we might offend the viewership of al -Jazeera.
Jonas Max Ferris: What is the most you would spend on your goals in Iraq? What is the most, as a government, that you would spend on your goals in Iraq? $1 trillion? $2 trillion? You have to have a limit.
Meredith Whitney: Jonas, I think you being a little shortsighted. Certainly, we're all exasperated by the seeming lack of progress that’s going on over there.
John Layfield: This is a ridiculous argument. You're not comparing apples to apples. Comparing this to Vietnam is ridiculous. We went into Iraq because they threatened our national security and we're getting democracy as a byproduct. We had to take out the bad guys.
Jonas Max Ferris: There has to be a limit on what you’d spend to secure anything. Is it worth an infinite amount of money?
Terry Keenan: Wayne, what would you spend to secure Iraq?
Wayne Rogers: Well, I love this idea. You say you will make the world safe for democracy? It’s idiotic because it's been the dearth of everything in American foreign policy to take this high road about how we'll make the world safe for democracy. We should care less whether they are democratic or what they are, as long as they're friendly to the good old USA. And we didn't go in to make the world safe for democracy. That became something that Bush had to adopt after the fact because they didn’t have weapons of mass destruction.
Terry Keenan: Why did we go in there then, Wayne?
Wayne Rogers: Because we went on there on mistaken intelligence. We had bad intelligence and we thought there were weapons of mass destruction, and there were no weapons of mass destruction. We went in because we said we'd attack the terrorists over there, as opposed to waiting for them to come over here. And once you got rid of Saddam Hussein, you might as well go home because then Iran and Iraq are left both powerful and they can face off against each other. This way if you have a weak Iraq you'll have a power vacuum, and you're right, Iran will fill it.
Terry Keenan: It's too late for that, right, John?
John Layfield: I believe so. The only thing I ever agreed with John Kerry was this Pottery Barn: if we break it, we have to pay for it. And we have to pay for this. I do care what the soldiers think. They believe they are preserving what they think is America's best interest and we cannot let Iran take over Iraq right now. As crazy as their leader is light now, you’re going to give them all that extra oil revenue and that is a danger. We cannot leave until we are sure that some kind of a stable government, no matter what it is, takes over.
Jonas Max Ferris: But we've been there for three years and we can't secure the oil production. I would stop spending $10 billion at any cost.
John Layfield: What would you do?
Jonas Max Ferris: We would have to leave and let it go to Hell and I don't care because it's costing the American taxpayers $10 billion a month.
John Layfield: You would give $300 a day in oil revenue?
Jonas Max Ferris: Iran is already making a fortune because of what happened with oil prices because we've taken Iraq's production off the market by letting it all go to Hell, but not putting 100,00 extra soldiers there to protect it.
Terry Keenan: You seem confident that the terrorists or the Iranians can get the Iraqi oil out, because we certainly can't.
John Layfield: There is no doubt about it. You put some type of Taliban or Al Qaeda rule in that country and you let the Shias take over and let Iran take over, they'll get the oil production facilities up and they'll have that money in the terrorist hands and that's a terrible thing. If we leave now, we have screwed ourselves and we'll go back within five years.
Meredith Whitney: I agree, just to suggest that this wasn't for the greater good in terms of stabilizing Qaddafi. Iran is the big threat, and Iraq has to be dealt with.
Cashin’ In: Kill Social Security?
2040: that's the year that the Social Security system will be totally broke according to a new report. Well, for some that actually may not be soon enough.
Jonathan, you say end the program now? Are you crazy?
Jonathan Hoenig, Capitalistpig Asset Management: No, Terry, I mean, listen if a private citizen ran a business like Social Security, which is a Ponzi scheme, they would go to jail. Social Security is much worse than anything that Ken Lay did. But worse than terrible economics, it's also immoral. It's not my responsibility to take care of my neighbor's retirement. If you want to give to charity, give to charity. I work for my money and it's not Ted Kennedy's to pass out to whomever he sees fit.
Meredith Whitney: Selfish man. There are so many people that are at the point of no return. They can't turn back. I appreciate that people like me and Jonathan, who is probably several years older than me, don't count on retiring on Social Security. So cut our dependence on Social Security off. Let's pay for our elders and have a date where we cut the system off. So I agree to a certain extent, but we can't abandon my grandmother.
Terry Keenan: Wayne, we're in a situation where talk of raising the retirement age by one year is verboten among the politicians.
Wayne Rogers, Wayne Rogers & Company: I have a more personal interest in this than the other two people here, I'm closer to that, and so I need it. No, Jonathan and Meredith both make a point, what you should do is do take a date and decide that. A 401(k) has been as good as Social Security, better than Social Security, you control it, anything that the government does we know will be a disaster. They got to get out of it. It's a Ponzi scheme and we know that. You have to find a way to stop the Ponzi scheme and get those people who have put their money into this, back to them, because this is a disaster.
Jonathan Hoenig: You say that to Nancy Pelosi and she looks at you like you are saying that the world is flat.
Wayne Rogers: Jonathan, wait a minute, Nancy Pelosi is not a rocket scientist.
Terry Keenan: You know, Jonas, the democrats were successful in convincing the country that there was no problem and that's how they derailed the president's plan last year.
Jonas Max Ferris, MAXfunds.com: Nobody in government wants to say what has to be done, which is that you have to cut this over a 50 to 80-year period. And what Jonathan is suggesting, just wiping it out in a week, is totally insane, because there are people that are living off of it and they'd be living on the streets tomorrow and that's absurd. To cut it properly has to be done over two generations and slowly raise the taxes to make it solvent. And it's not run as bad as the war budget. $2 trillion expenditure, but this is somehow evil.
John “Bradshaw” Layfield, “The John Layfield Show”: I didn't know that I was sitting next to a dove. The guy hates the war.
Terry Keenan: That's why we put him next to you.
John Layfield: Jonathan is 100 percent correct on this. $1.5 trillion surplus, our government took out and put an IOU in the box. They spent it and put it in general revenue. This is worse than what Ken Lay did, and what Meredith and Jonas say is correct, you have to take care of people like Wayne who are about to enter Social Security. Because Social Security has done one thing, it's virtually eliminated poverty among our senior citizens. People who are deserving of that need to have it, but you have to phase it out. The government is reactionary and not proactive. They have to do something now or in 2040 we will look at this and say, "Why didn't someone do something about this in 2006?"
Terry Keenan: Is it going to take a crisis to fix this thing, a major crisis?
Jonathan Hoenig: Well, a crisis is looming and to be honest it's the third rail again where people on both sides of aisle don't want to touch it. It's terrible economics but it's also immoral. It's not this compassionate program.
Terry Keenan: What is immoral about it, Jonathan?
Jonathan Hoenig: What is so bad about it?
Terry Keenan: For the people who are paying into it and getting out what they paid in...
Jonathan Hoenig: Let's issue bonds then. Pay them out and close the system. But to make me a sacrifice for older generations and make future generations sacrifice for me, that's not American at all.
Wayne Rogers: It was a bad system to start with. You cannot just currently fund something, and you're right, it's a scheme, it's a Ponzi scheme. If you said that I'm taking my money now and putting it in some fund that I'll get out later, that's fine. But my money that I put in now is going to pay somebody else. So there's no way to get out of this unless you gradually, as you say, let it in some way, and substitute something. A 401(k). Give us credit for that and let us put our money so our money comes back to us and the government doesn't steal it.
Best Bets: Stocks Under $10
Some big wins with little cost? Our crew has their best stocks for under $10.
John says: Sirius Satellite Radio (SIRI)
Friday's close: $4.73
52-wk High: $7.98
52-wk Low: $4.36
YTD Return: -29.4 percent
John “Bradshaw” Layfield, “The John Layfield Show”: Sirius Satellite Radio. This is a trading stock; fundamentally this is not a good company. H-D radio is going to destroy this company in about two years but you have a company that is driven on news. So this summer when the new comes out that Howard Stern and Sirius are going on the Internet, the price is going to jump. If Mel Karmazin is right that they will become cash-flow-positive in the fall, you’re going to have this stock potentially double.
Jonathan Hoenig, Capitalistpig Asset Management: Bradshaw, people bought this because Stern was going to Sirius. The stock is lower now. And this is one of the names that everyone owns, and XM Radio has been a terribly weak stock. To me this is a trading stock, but I don’t think this is going anywhere.
Terry Keenan: Wayne, this reminds me of the Krispy Kreme (KKD) of 2006. But do you like this stock?
Wayne Rogers, Wayne Rogers & Company: I love your comparison. No, I think that Sirius is here to stay. I think it will be a long term. But I wouldn't invest in it right now. I'm just thinking five years from now both XM and Sirius will be something you have to contend with, because they'll do programming that is innovative and the networks won't be able to compete.
Wayne says: China Unicom (CHU)
Friday's close: $9.70
52-wk High: $9.70
52-wk Low: $7.42
YTD Return: +20.3 percent
Wayne Rogers: Mine is China Unicom. I'm going back to China again, if you will, because I think that China Unicom, which has 34 percent of the cellular business. It’s growing constantly. China is going to grow and this will grow along with China. They reported better earnings since last year. The stock is moving up. It's a good stock, good company, solid, if you believe in China, you have to believe in this.
Terry Keenan: Bradshaw, what do you think?
John Layfield: Wayne is dead on here, as he normally is. China won't build landlines; they are going mobile. They have this huge, growing population. It's a terrific pick.
Terry Keenan: Jonathan, the government owns a lot of this (company).
Jonathan Hoenig: But every inch that the government goes toward free market capitalism, the market shoots up higher and considering you can't smoke in a lot of bars in America, there’s an argument that China is looking more capitalist than the United States. I wouldn't fight this one.
Jonathan says: Aquila (ILA)
Friday's close: $4.44
52-wk High: $4.45
52-wk Low: $2.90
YTD Return: +23.3 percent
Jonathan Hoenig: Well, I'm out of utilities, I'm not in that trade anymore, but I wish I was in Aquila. It’s one of these distressed utilities that have come way back. And you have some of the other names that were washed up for a time. Speculative pick, distressed situation, but this could get a quick bid.
John Layfield: Very speculative. After their last earnings reports, their CEO went to every extreme saying the sun was in his eyes and so that's why they had no earnings. I'd stay away from it.
Question: "China and oil are hot, so how does China Petroleum & Chemical Corp. (SNP) look?"
Jonathan Hoenig, Capitalistpig Asset Management: It's in the zone. Maggie is on target with the two hottest areas in the market right now. We talked about U.S. Oil Fund (USO), which is more of an oil play than a China play, obviously, a couple of weeks ago. Don't fight the tape on this one. Again, China, Taiwan, Singapore, the whole Far East is a strong place to be right now. I wouldn't fight it.
Terry Keenan: Jonas, not too late to come to the party?
Jonas Max Ferris, MAXfunds.com: I don't like any commodity plays in any country. I don’t care if I’m too early or if I’m missing the last hurrah. That's my story.
John “Bradshaw” Layfield, “The John Layfield Show”: You are seeing that the commodities are in a demand increase and not supply constraints. This commodity bull market will last until about 2012. Yes, it's a great play.
Terry Keenan: Wayne, what do you think? The Chinese economy has grown at 10 percent, despite the naysayers.
Wayne Rogers, Wayne Rogers & Company: I just talked about recommending a Chinese stock, CHU. I owned PetroChina (PTR) and I love all of those stocks. I've said a million times on this program that they are going to be the biggest capitalist country in the world if they maintain their political equilibrium. They are smart and they'll work hard.
Question: "I bought Corning (GLW) several years ago. Its recent price swings have given me heartburn. How does this one look?"
Wayne Rogers: I still like it and I do have it in the Challenge. I have a stop/loss under it though. I got stopped out of a few things this week, and rightfully so. But I think it's a strong company. Listen, fiber optics is going to increase, that's the answer.
John Layfield: You are seeing a fiber optic glut and this stock is starting to get a little ahead of itself. And I don't think that they're best in breed.