Bulls And Bears Weekly Wrap Up
By Tobin Smith
Stock Selloff: Should We Blame the Primaries?
It's been the worst start of any year for the Dow in nearly two decades, and that bad beginning is taking place during one of the closest presidential primary elections in more than two decades. So, is there a direct connection between these two circumstances?
Gary B. Smith, a.k.a. The Chartman, certainly thinks so. Gary says the market hates uncertainty, and he claims that everyone on Wall Street and in Washington are on pins and needles waiting to see who will emerge as the true front-runner in each political party.
Scott Bleier of Hybrid Investors says the presidential primary race has no effect right now on the market. He thinks the race may be a factor down the road, but right now Scott thinks Wall Street has so much to worry about that it isn't even beginning to think about what might happen six months from now.
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John Bradshaw Layfield of Northeast Securities (JBL as he's known to fans) made the point that what we don't have right now is an incumbent president who is defending this economy, and because of that, the sentiment on this economy is "going through the basement." John argues that consumer spending is the key to this economy, and he says people are willing to spend when they have something great to buy. However, he does think that consumers may not be willing to spend much because of all the negative news out there.
Pat Dorsey of Morningstar says that the market's decline has nothing to do with the election and everything to do with the economy being at a true inflection point. Right now, Wall Street is trying to determine how severe an economic slowdown will become. If we have the first consumer-led recession since 1991, things could get ugly. But, Pat says if we have a mild recession everything could be fine. Right now the market is in flux trying to determine what will happen, and Pat says that's why things are so volatile.
It's been the worst start of any year for the Dow in nearly two decades, and that bad beginning is taking place during one of the closest presidential primary elections in more than two decades. So, is there a direct connection between these two circumstances?
Gary B. Smith, a.k.a. The Chartman, certainly thinks so. Gary says the market hates uncertainty, and he claims that everyone on Wall Street and in Washington are on pins and needles waiting to see who will emerge as the true front-runner in each political party.
Scott Bleier of Hybrid Investors says the presidential primary race has no effect right now on the market. He thinks the race may be a factor down the road, but right now Scott thinks Wall Street has so much to worry about that it isn't even beginning to think about what might happen six months from now.
Who wouldn't want to earn a decade's worth of wealth in the next two years? Find out how you can ... click here to learn more.
John Bradshaw Layfield of Northeast Securities (JBL as he's known to fans) made the point that what we don't have right now is an incumbent president who is defending this economy, and because of that, the sentiment on this economy is "going through the basement." John argues that consumer spending is the key to this economy, and he says people are willing to spend when they have something great to buy. However, he does think that consumers may not be willing to spend much because of all the negative news out there.
Pat Dorsey of Morningstar says that the market's decline has nothing to do with the election and everything to do with the economy being at a true inflection point. Right now, Wall Street is trying to determine how severe an economic slowdown will become. If we have the first consumer-led recession since 1991, things could get ugly. But, Pat says if we have a mild recession everything could be fine. Right now the market is in flux trying to determine what will happen, and Pat says that's why things are so volatile.
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I think that if we do see a recession -- and I think the chances of that are excellent -- then people are going to be frightened at the prospect of electing a Democrat who will most likely want to increase the tax burden. Raising taxes is quite possibly the worst thing to do during a recession, and if things are tough economically, this election is going to be really, really interesting.
Comeback Kids
The New Hampshire primary was a great comeback story for Senators Hillary Clinton and John McCain. Of course, the political arena isn't the only area where comebacks are commonplace. Wall Street has plenty of its own comeback stories, and the task this week was for the gang to pick our favorites.
Gary B. likes home improvement retailer Lowe's (LOW). He argues that this is a great company that's just caught up right now in the selling fever in anything related to housing. Gary thinks Lowe's has a very bright future in 2008.
Pat's comeback kid is Vulcan Materials (VMC), which he jokingly calls a "super sexy" manufacturer of rocks used in concrete and asphalt. He says Wall Street is missing the fact that there is a tight supply of stone quarries in areas like Florida, and VMC is one company who will benefit from supply deficiency.
Scott thinks Web commerce firm GSI Commerce (GSIC) is going to make a strong comeback in 2008. He thinks the online retail commerce firm provides a great service and will go up despite economic softness.
JBL likes beaten-down bank and brokerage firm E*Trade Financial (ETFC). He says that Ken Griffin of the Citadel Investment Group is a genius, and if Ken likes E*Trade, then JBL likes it.
My comeback stock is a short play. In fact, it's a leveraged short play. It's the Direxion NASDAQ 100 Bear (DXQSX), which moves 2.5 times the inverse of the NASDAQ 100 index. Hey, if you are bearish on this market, DXQSX is one way to put your money where your mouth is.
Danger Zone 'Wicked Weather' Tax?
Many areas of the country got slammed by winter tornadoes last week, and many of those areas were declared federal disaster zones. That declaration means that federal tax dollars will go to help rebuild those regions. But should people who reside in natural disaster danger zones be forced to pay a "wicked weather" tax to help account for the cost inherent in living in certain areas? I wasn't included in this discussion, but here are a few interesting thoughts from JBL, Scott and Gary B.
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JBL says absolutely yes, those who live in the danger zones should have to pay more. John argues that he shouldn't be forced to subsidize people who choose to live in areas where natural disasters like tornadoes or floods happen nearly every year.
Scott disagrees. He says you can't tax people more because of random acts of weather. Scott argues that high insurance premiums and bearing the cost of rebuilding is something people do in these regions, and they shouldn't be hit with an additional tax on top of that.
Gary B. weighed in on this issue, and it seems as though we've finally found a tax increase The Chartman agrees with. His theory is that if people choose to live in danger zones where natural disasters occur frequently, then they should pay more for that federal assistance when the time comes to cash in on those disaster dollars.
And … Predictions
It comes too fast, I know, but we've reached the final segment of the show. It's the fast-and-furious foray into fortunetelling we fondly call, Predictions.
Gary B. was in the hot seat this week, and he says now is the time to be a bull. He predicts a huge gain here for those who buy the Diamonds (DIA), which is just an exchange-traded fund that tracks the performance of the Dow Jones Industrial Average. I say no way. There's more pain to come in the recession of 2008.
JBL thinks oil companies are going to start going after those harder-to-find reserves, and that means that offshore drilling and exploration company Transocean (RIG) is going to surge 30% by summer.
Scott points out that Sony (SNE) has won the high-def DVD wars with its Blu-ray format. This victory, argues Scott, will help SNE shares garner a 50% gain in 2008. No way Scott; I fear you're forgetting that the yen and dollar disparity are going to hurt Sony's earnings in 2008.
Pat predicts that medical device maker Zimmer Holdings (ZMH) will do well no matter what the economy does. People need their healthcare goods, and Pat thinks this healthcare specialty firm is a fantastic bargain at current price levels.
My prediction is dedicated to Gary B., as I know his birthday is coming up very soon. I say if you really want to have a happy Chartman birthday, then you should purchase the UltraShort Financials ProShares (SKF). This exchange-traded fund exploits the current -- and I think future -- weakness in the financial sector. Gary, give yourself a present and get some SKF into your portfolio.
See ya next week,
Toby
Tobin Smith is the founder of ChangeWave Research, the editor of ChangeWave Investing and a regular panelist on Fox News Channel's investment roundtable, "Bulls & Bears," which airs Saturdays at 10 a.m. Eastern/7 a.m. Pacific. His market commentary can be found in the ChangeWave WaveWire and he provides more specific recommendations and advice through his ChangeWave Investing service. Click here to sign up for a RISK-FREE trial subscription.
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