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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; Lenny Dykstra, former MLB All-Star, and Tracy Byrnes, New York Post business writer.
Trading Pit: North Korea Says "No More Nukes": Does Wall Street Buy It?
North Korea reportedly apologizes for setting off a nuclear weapon and says it will abandon future tests. But stocks were unimpressed Friday... the Dow finishing down 9. Is Wall Street buying North Korea's promise?
Tobin: No way! No one on Wall Street believes North Korea. If they did, the Dow would have been up triple digits on Friday. Wall Street can see through this and knows that North Korea is playing a game. This is on China's plate. It's time for them to step up.
Gary B: If there were even a 1 percent chance we believed them, the market would have rallied. But no one believes him and the fact that he is trying to play us is idiotic.
Tracy: Wall Street is tickled that China is finally stepping up. China had been so indecisive but decided to cut its money supply to North Korea. This didn't have that much of an effect on Wall Street, because Wall Street is always ahead of the curve and knew that China eventually would have to do something. This is not and should not be our problem.
Lenny: How can you trust them? Kim Jong-Il is a freak. This guy is a character, a complete joke, and is running a country? He needs to be taken out by his own people. I favor diplomacy, but I want to know if Russia is going to step up to the plate.
Pat: Kim Jong-Il's actions have been very inconsistent and irrational over time. What probably happened was that China said, "We're going to publicly threaten to cut off oil if you publicly say, ‘We're not going to do it again.' And then everyone goes home happy." But I'm sure in a few months Jong-Il will test another nuke because North Korea is going to do what they want to do.
Scott: Wall Street views this as an Asian problem. Even though it appears China is stepping up to help us, they are not. North Korea is China's pit bull. This allows China to have more power in the region. If North Korea is belligerent and China is able to come in and calm things down, China looks good. North Korea is going to have another test. The U.S. should back out of Korea because it will eventually merge into one country anyway.
D.C. Paralyzed: Just What Wall Street Wants!
Democrats are leading in the polls as the midterm election draws near. If they win both houses of Congress and split the government — will that paralyze Washington, D.C.? And is that exactly what Wall Street wants?
Gary B: Yes! That's exactly what Wall Street wants! Government is too big and it is getting bigger. There would be nothing that Wall Street wants more — D.C. paralyzed and no legislation going through. This would leave spending money in our pockets — good for us and for Wall Street.
Tracy: Look where we are: Dow 12,000. We haven't had any terrorist attacks on U.S. soil in five years. How could Wall Street want change?
Tobin: The Dems will win in a lot of key areas. Then, when Rep. Charlie Rangel, D-N.Y., introduces a bill that will backtrack everything the Republicans want to do, the President will veto it. Plus, there won't be the two-thirds vote to get over it. But, if we get a Democratic President plus a Democratic Congress and they pull back capital gains, watch out!
Lenny: I actually almost agree with Tobin — again! If the Democrats take over, it adds uncertainty to an already overvalued and overbought stock market.
Scott: They call this the "do-nothing" Congress. The Dow is up more than 40 percent and the Nasdaq has doubled since the crash of 2000 and recession of 2001. If nothing gets done, can you imagine how much higher we'll go?
Pat: This Congress has done very well at spending money. I don't really care who wins as long as they stop spending like drunken sailors. If it takes Democrats and a paralyzed government, great! If it's the Republicans, I hope they wake up, smell the coffee, and realize we are spending way beyond our means. The deficit has got to come down because it is unsustainable.
Stock X-Change
It's a "Bulls & Bears" fall classic: the Stock World Series! Lenny, our own baseball all-star, is picking his home run stocks. He loves them so much he owns all his picks.
Lenny: My first home run is agricultural giant, Archer-Daniels-Midland (ADM). It's the top producer of ethanol in the United States. Watch this one go to the mid $40s. (Archer-Daniels-Midland closed on Friday at $37.50.)
Tobin: I agree that ADM can get to the mid $40s, but that's where it's going to stay. This is a single, not a homer.
Lenny: I love Yahoo! (YHOO) The stock's just so cheap right now and has very little risk. The site is very underrated and I see a lot of upside here. (Yahoo! closed on Friday at $23.21.)
Gary B: Yahoo! had a great 2005 and went right to the cellar. It is very cheap but also very weak. Why buy now?
Lenny: My next pick is Anadarko Petroleum (APC), a monster oil and gas company. The company reports earnings on November 6th and I think it will show a big number. (Anadarko Petroleum closed on Friday at $45.65.)
Pat: I like Anadarko and natural gas a lot right now. However, I prefer companies like Devon (DVN) and Newfield (NFX) that have faster production growth ahead of them. Anadarko's a solid company, but if you want to play natural gas, there are better bets out there.
Lenny: Finally, Unit Corporation (UNT), which is involved in the drilling and exploration of oil and natural gas. This is a $65 stock masquerading as a $45 stock. (Unit Corporation closed on Friday at $45.90.)
Scott: A nice little company, but natural gas is a large part of its business. This stock is where it belongs due to all of the volatility is out of natural gas. I don't see Unit rising in the near-term.
Predictions
Scott's prediction: Uber-economy: Housing and stocks up for next 2 years!
Lenny's prediction: Tigers win and Detroit parties! Diageo (DEO) up 40 percent
Tobin's prediction: NFL dirty bomb hoax helps L-3 (LLL) gain 25 percent by March
Pat's prediction: Move into Home Depot (HD) for 30 percent gain in one year
Gary B's prediction: No tricks only treats with Retail HOLDRs (RTH); up 20 percent
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cavuto on Business
Neil Cavuto was joined by Jim Rogers, "Hot Commodities" author; Gregg Hymowitz, Entrust Capital founder; Stuart Varney, FOX News Business contributor; Cody Willard, Financial Times columnist and hedge fund manager CL Willard Capital Partners; Sara Nunnally, MaterialProfits.com editor; Laura Schwartz, Democratic strategist.
Bottom Line
Neil Cavuto: The "Common Good" has become a common theme for Democrats this election year. But what does it mean when it comes to your money? I want you to listen to what Bill Clinton said earlier this week: "Where us common-good folks favor equal opportunity and empowerment, they believe the country is best served by the maximum concentration of wealth and power in the hands of the right people." Stuart, what do you think of that?
Stuart Varney: France. The Democrats want to make America just like France. It's class war all over again. They want to end this wonderful period that we've had of wealth accumulation and turn it into a period of wealth redistribution.
Laura Schwartz: Common ground isn't capitalism, socialism or even communism. It's a way of governing. It's about equal opportunity, shared opportunities and inclusive communities. This is about giving people a hand up not a hand out. Stuart is right. We've had incredible economic growth and economic productivity. CEOs are making 369 times what their employees are making. But let's be real here. For the top 1 percent of the country, their incomes have gone up 12.5 percent, for the bottom 99 percent they've gone up 1.5 percent which is basically flat.
Cody Willard: Good isn't a zero sum game. If you want to help kids in Mississippi then you better work hard in New York City so there's enough excess wealth that we can help the other people.
Gregg Hymowitz: Another way of using "Common Good" is to say the general welfare. If you go back to the Constitution and look at the Preamble it specifically talks about the general welfare. The Democrats are saying we want the most good for the most number of individuals. You can't be against that.
Stuart Varney: That's what capitalism is all about.
Gregg Hymowitz: Capitalism's main tenant is about the common good. It is about individual liberty. It's not socialism.
Jim Rogers: The Democrats' definition of the "Common Good" is what is good for their friends. They will do everything they can to promote the well-being, the "Common Good" of a few special interests in America. Who is Bill Clinton to decide what is good for me? Let me decide what is good for me.
Stuart Varney: Today the top 1 percent of income earners pay more in terms of total taxes and they get less in terms of total income than they did under Clinton.
Gregg Hymowitz: It's a basic principle. The Democrats want to spread out the opportunity in this country to all. You guys do a very good job of taking a simple concept and turning it on its head to scare people.
Jim Rogers: Gregg, the Democrats want to take more money. They want to increase taxes and then let the Democrats decide how to spend our money.
Gregg Hymowitz: Jim, if you want to talk about economics and fiscal policy, you and I both agree that this Republican administration has been a disaster on that.
Stuart Varney: A disaster on economics? The most successful economy of all industrial democracies?
Gregg Hymowitz: That's not because of the Republicans, please.
Stuart Varney: It's to the credit of the Republicans.
Gregg Hymowitz: All we're talking about is the opportunity that you two talk about so glowingly; that's what the Democrats want for everybody.
Neil Cavuto: Laura, I'm looking at 4.6 percent unemployment. I'm looking at retail sales that remain strong, car sales that remain strong. I'm looking at productivity that is, I think, the best that it has been in 28 years now, and I'm also looking at all these records in the markets. I'll put all that aside for you guys and ask you this basic question: If you can ignore all the good economic news that has been inspired by letting people do their own thing, what is it that the Democrats are proposing that will make things better?
Laura Schwartz: Targeted tax cuts for the Middle Class. Repealing the tax cuts that this administration put in place for the top 1-2 percent of the country.
Neil Cavuto: Jim, because of those tax cuts we've seen revenues soar. A criticism of yours and many is that they take all that extra money and they spend it. But the tax cuts created the revenues did they not?
Jim Rogers: There's no question that the tax cuts have been good for the country and good for the economy, and the spending has been good for the economy, but it is not good long-term to have gigantic debts. You give me $5 billion and I'll show you a very good time. And that's what they're doing in Washington. They're spending too much of our money.
Cody Willard: I don't understand why we're trying to give either party credit for this economy. The credit belongs to the people as the money does and has the good does.
Gregg Hymowitz: The inequality between the wealthiest in this country and everyone else has increased more under this administration than any other time in history.
Neil Cavuto: Will you argue that there are extremes in any time and in any period and that that's just a given? If you're using all the numbers like unemployment and growth, these numbers are comparable to what they were ten years ago when Bill Clinton was president. At the time Clinton was a hero and Bush is a leper.
Gregg Hymowitz: You missed the point. What's not comparable is the disparity between the rich and the poor.
Neil Cavuto: So you look at the good news and you say, ah but there are so many have-nots right?
Gregg Hymowitz: There are more have-nots!
Neil Cavuto: Laura, that's what you're saying, right?
Laura Schwartz: Exactly. More households have to employ two people to put food on the table. There's a difference between Wall Street and Main Street America.
Head to Head
Neil Cavuto: Bob Ney, the latest Congressman facing jail time for a federal crime. One thing he can count on though, his pension will be paid for by American tax dollars. Sara, what's the deal with this? You go to jail, you get a pension.
Sara Nunnally: This is absolutely wrong. Here's the thing, Bob Ney could get 17 percent more on his pension than the median income of people in Cleveland, Ohio. The same goes for Mr. Cunningham. He will get 7 percent more than the people of Sacramento, California from his pension. That's absolutely wrong.
Neil Cavuto: Jim, how did this happen?
Jim Rogers: Congress always protects itself first. Congress exempts its members from all sorts of laws that the rest of us have to deal with.
Neil Cavuto: Cody, I guess the only way to change this is to have the guys in Congress change it, which means it ain't going to change.
Cody Willard: Apparently a bill did go up and of course it didn't pass. It just adds insult to injury. Corrupt congressmen have already fleeced the taxpayer for millions of dollars, now they're going to live off of us too?
Stuart Varney: It's actually worse than we've made it out to be. Not only do convicted Congressmen get a financial pension, they also get heavily subsidized health care.
Gregg Hymowitz: I could go along with everybody, but then it'd be a little boring right? I think the guys who are corrupt should be locked up period. However, I think you have to treat them like everyone else in this country. You can be convicted of crimes and you don't lose your pension. You could kill your wife, and you don't lose your pension.
Jim Rogers: They also get to keep all their campaign money that they have in their treasury.
Sara Nunnally: They're getting paid with our money. They're perpetrating a fraud on us, and they're actually taking votes.
Gregg Hymowitz: No, some of that money is theirs too. A lot of Congressmen defer their income over time. And that money they should be able to get back, right?
Sara Nunnally: Our tax dollars paid for their income.
Gregg Hymowitz: Oh that's a circular argument.
Neil Cavuto: But bottom line, you're saying if you're thrown in prison you shouldn't get a pension.
Gregg Hymowitz: No, I'm saying you should treat them like anyone else.
More for Your Money
Neil Cavuto: An executive pay scandal tarnishing over 100 companies traded on Wall Street, but our crew has the squeaky clean stocks they say won't be in those headlines and could make you money.
Cody Willard: The fact is these companies involved in the pay scandal are basically lying to shareholders about profits and payouts so you don't want to touch them. But one 'clean' company I like (and own) is Adobe Systems (ADBE). It's the underlying platform for YouTube and all these other video sites on the Web. This is the beginning of a very long game — a revolution in the video world. Adobe closed Friday at $38.20.
Jim Rogers: It's been a very good company, but its stock is expensive. When things go wrong those kinds of stocks collapse the most.
Gregg Hymowitz: I'm sticking with a baseball theme here — the triple play in Comcast (CMCSA) – phone, cable and Internet. Comcast is taking business from the satellite companies and from the phone companies. I think the stock is going to double in the next three years. Gregg owns shares in Comcast. Comcast closed Friday at $37.98.
Cody Willard: I don't think Comcast will be over $40 in five years. You pay for bundled programming. YouTube, Google, Apple — the Internet revolution — is going to completely blow apart the pricing scheme of video.
Sara Nunnally: I like Veolia Environnement (VE). It's had 150 years in the water business — water treatment, water plant design. It has made the Dow Jones Sustainabilty Index. The company has a great ethics committee that is independent of management, and I think that is the icing on the cake. Veolia Environnement closed Friday at $61.56.
Gregg Hymowitz: The company trades at about a 42 percent premium to its sector. It's an expensive stock. Earnings expectations are very high. I think it's all priced in.
Jim Rogers: American Airlines has some bonds, which yield 9 or 10 percent. This is essentially the only American airline that did not go bankrupt. If you want to earn 9 or 10 percent with some degree of safety, buy American Airline bonds.
Sara Nunnally: I don't agree with the American Airlines bonds theory. The company ended the year down $861 million and already have $1.25 billion in off-sheet balance obligations this year. That number is only going to grow. I don't think that's good for the stock or the bond.
FOX on the Spot
Stuart: Muslims told to 'fit in or fly out' of U.S. and Europe!
Gregg: Dems carry both Houses thanks to the Christian right
Cody: Nasdaq rises 50 percent by end of '08; buy now, sell then!
Sara: Williams (WMB) up 30 percent on homegrown energy boom!
Jim: Bet big on small U.S. electric utility companies!
Neil: Record stock market good for ALL Americans!
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Forbes on FOX
In Focus: Would Wall Street Care if North Korea Declares War on U.S.?
Mike Ozanian, senior editor: If North Korea declares war I don't think anything will happen to the markets. If and when we take out their nuclear area, I think the markets will go up.
Steve Forbes, editor-in-chief: If you have a real declaration of war that's a resumption of the Korean War, which ended in 1953 with an armistice. If the war begins again, initially the market is going to tank until we find out what's going on. Long-term it will be a good thing. Short-term, uncertainty will cause the markets to dive.
Quentin Hardy, Silicon Valley bureau chief: There may have been an armistice, but North Korea and South Korea are still technically at war. They have been for 50 years, which is why we have tens of thousands of troops in South Korea. However, war is very unlikely to happen. Secretary of State Condi Rice had a very successful visit there this week. The Chinese banks have cut down their cash flows into North Korea. And Kim Jong-Il reportedly said he was sorry for the test. So things look like they're cooling off.
Jim Michaels, editorial vice president: North Korea is not stupid. Since it got away with its nuclear program and its missile launches, it is are going to try and push America ever further. We may have an event like when they seized the USS Pueblo with our sailors. We were at the brink of war. They may try something like that again. This time we're going to come down on them like a ton of bricks and the markets will be upset.
John Rutledge, Forbes contributor: I think if North Korea declares war on us, how would we know? This is not a great power. If the market goes down, I'm buying the market. There are 50,000 North Koreans who have sneaked into China, there are 50,000 South Koreans in school in China. North Korea lives off of Chinese money. If the Chinese want Kim Jong-Il out of there, he's out. Ahead of the Olympics, the Chinese will not allow this to interrupt their big coming out party.
Elizabeth MacDonald, senior editor: I find it interesting how poor North Korea's nuclear technology is. Kim Jong-Il's missiles don't even fly straight. On Oct 9th when he did do a test the Asian and European markets fell. The American markets also fell overnight but recovered slightly. So I think the markets would take a hit.
Flipside: Dems Will Extend Tax Cuts if They Sweep the Midterms
Victoria Barret, associate editor: I don't think the Democrats will raise taxes. I think they will extend the Bush tax cuts because they care more about getting Hillary Clinton in the oval office than they do about raising taxes.
Steve Forbes: Can a donkey grow elephant tusks? I don't see that happening. Raising taxes is embedded in their DNA. The Democrats' base hates tax cuts! They're going to have tax increases if they win control of Congress.
Quentin Hardy: I believe there are laws of politics. Republicans have very low approval ratings. The first rule of politics, if your opponent is messing up, don't change a thing! Why would they want to change the conversation over to raising taxes? What they might do down the line is tax simplification by eliminating corporate loopholes.
Jim Michaels: The Democrats don't have to raise taxes, all they have to do is not extend the tax cuts and taxes automatically go up. They can claim that they are socking it to the rich and they may make up for it by giving some token cuts to the middle class.
Mike Ozanian: I agree with Victoria that Democrats are going to cut taxes. They spend more money than Republicans, and they know the best way to increase revenues to the government is to cut taxes.
Elizabeth MacDonald: I think the pivot of the election is Iraq. I think the Republicans will lose the House. This whole idea is absurd. The Democrats have already said they want to raise taxes to cut the deficit. I assure you that will be last on the list. There is always more spending to be found and more pork to throw on the pork wagon. Pelosi already said she was going to raise taxes on the upper bracket and that will hit small business, which are the engines of economic growth in this country.
Informer: Booming Population Buy$
Steve Forbes: A population boom will help retail and Wal-Mart (WMT). Everyone hates Wal-Mart except its customers, which are growing.
Victoria Barret: I think Wal-Mart is a great company but I think its growth is going to increasingly have to come from abroad and they've stumbled there in Germany and South Korea. I like Continental (CAL). Continental has successfully grown profits and globalization is a great trend for this airline.
John Rutledge: An airline is owned by its own employees. Shareholders never make any money. I think airlines are not a good bet in the long-term. I like Level 3 (LVLT) because 100 million more bodies coming into America is like 100 million charged batteries ready to bring their energy here. When they come here they are going to want to talk to each other. Communication equipment stocks like Level 3 will benefit.
Elizabeth MacDonald: I agree with everything John said but this is not the stock to buy. They have no earnings and no free cash flow whatsoever. And they have had a long track record of poor earnings results. I like Amdocs (DOX) because more people means more phones means more customer accounts to be managed. That means that you need customer management software that Amdocs sells. This stock is undervalued right now.
David Andelman, executive editor Forbes.com: Customer service? Isn't that an oxymoron when it comes to telephone companies? What we really need is a person to answer the phones and talk to us. What we need to buy is UnitedHealth Group (UNH). If we're looking at those extra 100 million people coming along, they are all going to need healthcare.
David Asman, host: There was a scandal involving the CEO. Is that going to hurt the stock?
David Andelman: He was a celebrity CEO. Now he's gone and we have a guy in there that can actually run the company.
Makers & Breakers
• Disney (DIS)
Dave Nelson, DC Nelson Asset Management: MAKER
You gotta love the mouse. News that the company is serving up healthier food in its theme parks is typical of the great information coming out of Disney, and the reason the stock keeps hitting new multi-year highs. What's going to really shock people is how quickly this stock is going to hit all-time highs. I think it can go to $42 in one year. (Friday's close: $31.45)
David Andelman: BREAKER
I've been burned by the Mouse for so long. Why put your fortune into fickle family feelings on which movies they'll like or not like?
Victoria Barret: MAKER
Why pick on the mouse? I think the American consumer is strong this year and that is great for a company like Disney.
• Titanium Metals (TIE)
Dave Nelson, DC Nelson Asset Management: MAKER
At $47 it was a little frothy. But under $30, you have to step up! I think it can go to $42 in one year. (Friday's close: $29.02)
Victoria Barret: MAKER
I think you can get this stock at a cheap price right now given the price drop.
David Andelman: MAKER
Titanium is going to be in all our artificial hips before long and we're getting older, right?
David Asman: But commodities have been hit hard. What about titanium, will it rebound?
Dave Nelson: The CEO has bought more than a million shares in the past six months. That's a $27 million commitment and that's good enough for me.
Bulls & Bears | Cavuto on Business | Forbes on FOX | Cashin' In
Cashin' In
Our "Cashin' In" crew this week: Jonathan Hoenig, Capitalistpig Asset Management; Jonas Max Ferris, MAXfunds.com; Dagen McDowell, FOX Business News; Charles Payne, Wall Street Strategies; Tom Adkins, Re/Max Fairlawn, and Gary Kaltbaum, Kaltbaum & Associates.
Stock Smarts: Another Hou$ing Boom?
300 million strong and counting: America's population continues to boom. Does this make another boom for the housing market a lock?
Tom Adkins, Re/Max Fairlawn: Housing is pretty much a supply and demand thing. And when you bring in 100 million more people, they have to live somewhere. And here is something else, they tend to buy houses in cities in some of the tougher areas and revitalize them. That's a big deal because over the past 50 years, they have taken the place of the great "white flight" where all the people were making money in the suburbs. Immigrants are coming in and keeping cities from falling into the toilet.
Terry Keenan: It's not had a news flash that our population continues to grow. Is this a reason to buy housing stocks?
Jonathan Hoenig, Capitalistpig Asset Management: I think it's a reason to buy America. People vote with their feet. They still want to come here and still want to be here. Population growth is essential not only to the housing market but to the economy. Americans are productive, resourceful and innovative and there is no limit on the amount of wealth this country can create. So absolutely: bigger population, taller buildings, better cities. Bring it on.
Terry Keenan: OK, Gary, what happened to the collapse if the housing bubble? Wall Street doesn't seem worried about it; Middle America doesn't seem worried about it.
Gary Kaltbaum, Kaltbaum & Associates: You separate Wall Street from housing. The bottom line is that housing topped 15 months ago and it's now going through the process. I don't care if there is a billion people (in America), price does dictate demand. And you have houses that went from a half million to a million and a half dollars. I'm just wondering where are all these people coming from to pay that price. I think we have years of a correction here in housing. It has happened before and it's going to happen again.
Terry Keenan: I think about 90 percent of the people living in the New York suburbs couldn't afford to buy their own house today if they had to.
Dagen McDowell, FOX Business News: I know. And all these babies being born right now are not going to be out there shopping for houses and the people coming in from overseas don't have enough money to afford houses, not just in New York City, but in major metro areas across this country. You're looking at maybe 20 metro areas that are looking at double-digit price declines just in the next couple of years. And this is going to last longer than people think. 2009, we are talking about.
Charles Payne, Wall Street Strategies: I'm surprised you and Gary are so negative. This is not the stock market. First of all, we can't flip houses. Some people thought they could. But it's not the stock market where we get these sharp, prolonged corrections. Obviously there are dips. This is true, the story about America and how attractive it is. Every day I turn on the television. When I'm not watching FOX, people tell me how unpopular America is around the world, yet the whole immigration story is what growth is about. 40 percent of our growth is from overseas and some of those people are coming with a lot of money. You know the new Time Warner building (in New York City)? The first place sold there sold for $60 million from a guy in Europe. They have a little bit of dough.
Terry Keenan: He's probably not here illegally with the $60 million.
Jonas Max Ferris, MAXfunds.com: Let's get back to the population. Everyone's got these political philosophies about the country. The fact of the matter is that the population is growing. And if the amount of housing stock didn't change, that would be great for prices but the reality is the homebuilders keep building houses.
Charles Payne: You can't make more land, though.
Jonas Max Ferris: No, but you can make more houses. There's a lot of land in this country, and right now they are building 1.7 million units a year. That's more than households that are being created by population growth. So that can't go on forever.
Tom Adkins: First of all, if you have immigrants coming in and you have more hand more people who get married and say, ‘I don't want to live in this crappy little apartment, please, I want to get out and get a house.' And 1.7 million houses is about what he we have been doing for the past 25 years. It's about how many houses we need.
Jonas Max Ferris: It has gone up in the last five years during the boom.
Tom Adkins: We need it because people were coming into the country. You need it.
Gary Kaltbaum: Let me touch upon what Charles said. Charles, I'm not being negative, I'm being realistic and you have to realize every investment out there goes through cycles and I believe housing had this big cycle already and now it begins the process of winding down.
Charles Payne: It is winding down.
Jonathan Hoenig: How come all the real estate stocks continue to do so well if housing is so weak?
Gary Kaltbaum: Well, the housing stocks are still near relative lows and are still down 50 to 60 percent from the highs. Those are different.
Terry Keenan: Jonathan, you are talking about the commercial real estate trusts that you own.
Jonathan Hoenig: If you bought the spec condo, the Trump building in Las Vegas, and leveraged yourself to the hilt, you are going to get hurt. But for Ma and Pa Kettle, who living in Des Moines, I don't see what a 10 percent decline means to them in their house.
Terry Keenan: There aren't a lot of these real estate stocks like Jonathan likes to invest in, going up because they're apartment buildings and people can't afford a house, so they're going to rent and the rents are going way up.
Dagen McDowell: The rents are going way up and hopefully this cycle will correct itself in the long run. I'm a renter, but there is gridlock out there in the housing market right now, where the buyers are offering prices that sellers are not willing to accept. Frankly, births and immigrants are not going to change that and population growth isn't going to change the fact that somebody's adjustable-rate mortgage is going up several hundred dollars every month.
Terry Keenan: The market seems to think that we will have a soft landing in housing.
Charles Payne: The key is that we are going to have a landing, forget about soft or hard. It is coming down at such a point where it looks like we are going to hit terra firma over the next three to six months. That's why you look beyond that. You talk about prices. Prices are beginning to come down and that is the linchpin to this whole thing. Once people realize they can't get what they want, they are either going to take their homes off the market, hence lower supply, or they're going to take a lower price for their homes.
Tom Adkins: And it's going to happen just in time for the classic spring market. Residential housing is having a tough time, but it will be back on the beam by early to mid spring. Commercial housing is doing fabulously. When you have an economy expanding as the best economy that we have had in America's history, you're going to have great commercial growth. That's what we're seeing right now.
Dagen McDowell: There was a report out this past week that said commercial is peaking. Peaking: that means falling.
Tom Adkins: I can find a report that says it's not peaking.
Terry Keenan: It doesn't worry you? All the cranes that we see around Manhattan?
Tom Adkins: It's great! You want that. You want growth. Why would you not want growth?
Jonas Max Ferris: If you're building more houses than households, it's going to crash. It has to. There are more houses than households being created. How can that go on forever?
Tom Adkins: I'll tell you why: because a lot of this happens under the radar screen. All these immigrants come in these poorer neighborhoods and nobody ever keeps track of those.
Charles Payne: There will be a short-lived correction in housing. It's not going to be like the stock market where it takes the DOW 6 years to get back to where it was.
Jonathan Hoenig: Bring them on. We should have more people coming to live here, to work here, to be a part of the American dream. Part of that dream is owning your own home. So I think you find a home you can afford, even if interest rates do pick up a little bit, you live in it, enjoy it and that really is part of American dream.
Fixing Social Security: President Bush Had It Right?
Gary Kaltbaum: I find it ironic that the same Democrats who gave a standing ovation or Social Security not getting done gave Bill Clinton a standing ovation when he proposed Social Security being fixed, so you have political hypocrisy at it's highest here. The bottom line is that if you just had to put a little bit of your Social Security into the stock market 20 years ago, we would be solvent for next couple of hundred years. This is something that should have been done a long time ago, needs to get down now. Unfortunately, voters are too scared to get it done.
Terry Keenan: And when the president made his proposal, Jonathan, we had gone through several years of a bear market, but now that the DOW is back in record territory, doesn't it indicate that he could have been right?
Jonathan Hoenig: And Hillary (Clinton) was so happy that she is keeping this Ponzi Scheme going. If you and I did that they would put us in jail. I mean, there is no investment with Social Security. It is literally a Ponzi Scheme. It's a promise to tax future generations to pay for your benefits. So if you really want to fix Social Security, just end it all together. Of course that would be my pick. But the fact that it continues is almost unbelievable.
Dagen McDowell: We can't just end it all together: these are promises that we made to the American people. Frankly, it's not just the Democrats' behavior that is disgraceful but also many Republicans. They have to get together and fix this thing and unfortunately it will take a financial crisis and they are going to wind up raising taxes dramatically to make up the shortfall.
Terry Keenan: Isn't it unnerving that the president, when he did have a lot of political capital, couldn't get this thing through?
Charles Payne: This was the snowball that began his decline in popularity. It's amazing.
Terry Keenan: And he was doing the right thing. You may not agree with the solution, but he was bringing up the problem.
Charles Payne: This is main street America's distain for Wall Street, wealth and also rocking the boat. People would rather not rock the boat. And it's such an entitlement that no matter what happens, even if this thing crashes, the government better find a way to give me money.
Terry Keenan: If the DOW goes to 15,000, do you think there will be some will to fix Social Security?
Tom Adkins: It depends on how stupid the American are. Frankly, so far, they're pretty stupid. This is not a promise made to the American people. It's a lie made to the American people. You want to beat Social Security, take that 12 percent that gets sucked out of your wallet every month, take the Wall Street Journal, put it on the wall, blindfold yourself and throw darts at it. You'll have six times the return.
Terry Keenan: But you don't have the choice, and your employer doesn't have the choice.
Jonas Max Ferris: There are so many mistruths being spoken here. First of all, 90 percent of that money is going to old people who are currently retired. There is no money you can invest and save the system. The average investor has underperformed the Social Security trust fund over the last ten years. That's a reality fact. They earn money on that trust fund. If you think stocks are better than bonds, then let's put the trust fund in stocks. But, people on the road are going to beat the trust fund.
Terry Keenan: The government invests that money in its own debt, buying bonds that keep interest rates lower. That's a positive.
Jonathan Hoenig: Well, I guess if you are really grasping at straws it's a positive. Is it crazy to think that if people earn money, they have a right to take care of it? Is it crazy to think that maybe I don't have a responsibility to pay for my neighbor's retirement or other generation's retirement but save for my own? Is that such a far out idea for the Nancy Pelosi and Hillary Clinton?
Terry Keenan: Do you think we will ever see Social Security investing in the stock market?
Gary Kaltbaum: Until politicians grow some, I don't think so. There's a reason why it hasn't gotten done. They are worried about the voters voting for them or voting them out. So I don't think so, unfortunately.
Best Bet$: College Football Special — Dagen's Top Rankings!
• Legg Mason Opportunity (LMOPX)
Min. Investment: $1,000
Dagen McDowell: The manager of this fund, Bill Miller is your superstar quarterback. He is having a rough year, but if Miller can get back on his game, then this one is going to be a winner.
Terry Keenan: His earlier years are better than the last few. What do you think of this one, Jonathan?
Jonathan Hoenig: Underperforming and expensive, I would skip it.
Dagen McDowell: His other fund, by the way, I did beat you in the "Cashin' In Challenge" with that.
Jonas Max Ferris: He has a long enough track record; I will let him slide on a few months' underperformance.
• SPDR Biotech ETF (XBI)
Friday's close: $49.80
Dagen McDowell: No. 2 is the SPDR Biotech Exchange-Traded Fund. It is an index that the shares trade like a stock. This is your wild card. Very unpredictable, you never know how these stocks are going to play but these companies should keep baby boomers healthy for years to come as they all start retiring and getting older.
Terry Keenan: But Gary, it's also a sector that has lots of booms and busts.
Gary Kaltbaum: Yeah, already had a big move, I'd wait for a 5-10 percent pullback. And if we ever do get in a bear market, it's going to lead down. I would be careful.
Charles Payne: Listen, the biotechs have a lot more credibility now than they did 10 years ago. The booms and busts are going to be a lot tighter. This is a great place to be and our clients own three of the top ten stocks.
• Harbor International (HIINX)
Min. Investment: $2,500
Dagen McDowell: No, 3 is Harbor International. I have this fund in the "Cashin' In Challenge." And this is diversity. The global economy looks great and this fund should continue to do well.
Jonathan Hoenig: A lot of concentration in natural resources. Are you bullish on natural resources right now?
Dagen McDowell: I don't think oil is going into the basement. I think it's at least going to stay where it is right now.
• SSgA Yield Plus (SSYPX)
Min. Investment: $1,000
Dagen McDowell: No. 4 is the SSgA Yield Plus Fund. This is a souped-up money market fund.
Terry Keenan: This sounds like something Jonathan would like.
Dagen McDowell: I think Jonathan owns it in the Challenge, right, Jonathan? This is your defense. Always have some cash. This is where it should go.
Jonas Max Ferris: I'm the first person to ever to own this fund on this show. It's basically a money market fund.
Dagen McDowell: Exactly, defense.
Gary Kaltbaum: I do not like short-term bond funds. I'd rather you just buy short-term treasuries. Who needs the expense? Keep it easy.
• Fidelity Freedom 2040 (FFFFX)
Min. Investment: $2,500
Dagen McDowell: This is your entire football team. It is a fund of other Fidelity funds. We have a bunch of them. The 2040, that is your target retirement date and it will get less aggressive as you get older. But there are other funds like that with different dates. Look for it in your 401(k) plan. This is the all-in-one fund.
Charles Payne: First of all, it's expensive. It's like $2,500 to get into. Underperforming and I don't like these predetermined kinds of funds where they will invest 10 years from now. They should go where the money is and where you can make money now.
Money Mail
Question: "I love that Wal-Mart is expanding its generic drug program. What does it mean for Wal-Mart and for big drug companies?"
Jonas Max Ferris: Great for Wal-Mart (WMT) stock in general. It's a great political move because they're getting a lot of heat for a lot of other stuff they do. This takes the attention off of them. As far as the drug companies, I think it's good for big pharma, which I consider to be stocks like Pfizer (PFE) and Merck (MRK). A lot of their products are patent protected so they can't get the prices eroded by Wal-Mart doing this. The discount drugs are the ones that get hosed. They are going to have pricing pressure, I think.
Dagen McDowell: This move has been really hard on other drugstore operators like CVS (CVS) and Walgreens (WAG); those stocks have been taken out to the woodshed. Until we see how this plan at Wal-Mart shakes out, I wouldn't get into those.
Terry Keenan: Jonathan, will it keep you away from some of the big drug stocks.
Jonathan Hoenig: They are leading the charge right now and everyone who talks smack about Wal-Mart, look how wonderful this company is. If that stock could hit $50 and hold $50, that might be a buy here too. But I think big pharma is strong and a lot of the retailers are strong. I wouldn't fight either one.
Dagen McDowell: Jonathan, both you and Jonas are right: this is going to help Wal-Mart's reputation and that has been a huge thing weighing on the company lately.
Question: "Jonathan liked a stock called Suez (SZE) a while back. What does he think now?"
Jonathan Hoenig: Well, another "shoulda, coulda, woulda." I should have held on. Made a lot of money on it, but eventually moved on to other trades. It seems like all the utilities we used to talk about are doing well right now. I think this is a smart place to be, across the whole utility sector.
Dagen McDowell: Wouldn't bet on them now.
Jonas Max Ferris: I don't like popular areas.
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