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August 1, 2010
Bulls And Bears Weekly Wrap Up
By Tobin Smith
It didn't take long for the top Democrats in Congress to start playing the class warfare card. The latest talk on Capitol Hill is to impose more taxes on the most productive U.S. citizens. So, the question for the "Bulls & Bears" this week: Will these new "tax the rich" proposals be good or bad for the market and the economy?
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Gary B. Smith of Exemplar Capital says that not only will a new tax on the rich hurt the market and the economy, but it's downright depressing. Forget the fact that the "rich" employ the most people, provide the most research and development, and generally fuel the entire economy. Gary says the real issue is that it just isn't fair that successful people be punished precisely because of their success.
Adam Lashinsky feels quite differently. He says there are very good reasons we've had a progressive tax for so many years in this country, and Adam says he doesn't want to return to the time when we had robber barons. (I'm sorry Adam, at this point, I just couldn't contain my laughter at the utter absurdity of what you just said).
Former Major League Baseball all-star and resident "Bulls & Bears" sports star Lenny Dykstra put things quite bluntly when it comes to House Speaker Nancy Pelosi and her tax-the-rich chatter. "She is the Wicked Witch of the West." Lenny says that we have a great economy now, but Pelosi will "reverse it without even trying."
Pat Dorsey of Morningstar says that there is absolutely zero empirical proof that tax policy has anything to do with the overall performance of the economy. He claims that when marginal tax rates on the highest tax brackets went up form 29% to 36% between 1989 and 1995, we still enjoyed a solid economy and an even better stock market.
Scott Bleier of Hybrid Investors wanted to return to Adam's slanderous comments about robber barons. First off, says Scott, these guys created some of the greatest industries in the world, and their efforts made life in America much, much better. Scott also disagrees with Pat, saying that the Reagan-era tax cuts helped to spur on economic growth, and any deviation from these tax cutting concepts will be bad for the economy and stocks.
First off, I know that there's some perverse math operating in the Democrats' thinking on this issue. Here are some facts to chew on: The richest 2% of Americans pay 56% of all the personal income taxes -- sounds unfair to me, but there's more. That same 2% account for 60% of all of the discretionary spending. So, if you take a dollar out of the hands of that 2%, you are really taking $20 out of the economy. The Democrats and the liberals still don't understand who creates jobs in this country and who fuels this country's economic engine -- sad, but true.
WALL STREET VS. DICTATORS
The Coliseum in Rome was recently lit up to protest the hanging of Saddam Hussein. Hugo Chavez took control of many industries in Venezuela while boldly proclaiming "socialism or death." Vladimir Putin in Russia is acting more like a Soviet premier than a democratically elected president. So, should Wall Street be worried about a rising tide of dictators throughout the world?
Pat says that what worries him is that nobody really seems to be worried about any of this. According to Pat, it's when we aren't worried about these kinds of exogenous threats to the market that their effect -- at least in the short term -- is actually felt the most.
Adam thinks that in the case of Chavez, as oil prices drop so does his grip on power and how he wields that power on the world stage. "The guy's nuts," according to Adam, but he does have control over a big chunk of oil. Of course, Adam had to get a lick in on the Bush administration, saying that the president has exacerbated the whole situation with dictators because he would rather fight with them than talk to them.
Lenny says that a dirty bomb detonated on U.S. soil will kill the economy, and that's what we all should be worried about when it comes to any anti-American dictator out there.
Gary B. argues that when it comes to dictators, in a bizarre way it's actually good for America. He thinks that the United States does better when it can focus on a single individual as the enemy, and not just an amorphous ideology aimed at harming this country.
Scott says that as far as the market is concerned, it "doesn't give a hoot about these guys." The only exception here is for international investors, who are always subject to the political risks associated with investing in markets with heavy exposure to the whim of dictators.
My feeling is that most of these dictators are not playing with a full baseball team. However, the great part of this is that history tells us the most egregious violators of the human condition nearly always get their comeuppance. It might take awhile for some to be deposed or otherwise lose control, but time is always on the side of freedom and righteousness.
'IDOL' STOCKS
The pop-culture phenomenon is back on the air this week. Yes, I am talking about "American Idol," which begins its sixth season on Tuesday. So, in the spirit of this week's "Idol" debut, the gang was tasked with auditioning our favorite stocks in front of our very own version of judge Simon Cowell, the often rapier-like critic Pat Dorsey.
Lenny was up first with his pick of trendy women's clothier Bebe Stores (BEBE). He cites their "pristine balance sheet" as his chief reason for the pick. Pat says that although this is a solid company, we should never take advice on women's clothing from a man who owns a car wash.
Gary likes General Electric (GE), and chiefly because after having done virtually nothing for the past several years, the chart is finally starting to break toward higher ground. Pat, doing his best Simon Cowell, said that of all the stocks with great chart patterns out there, "you give me GE?" Pat's ultimate judgment: "Boring!"
Scott was up next, and he offered up health care company VCA Antech (WOOF). Unlike most health care picks, this one is a veterinarian firm operating pet hospitals throughout the country. Pat says although this is a pedigree stock, you are paying a pedigree price.
My "Idol" stock was actually related to the show. Hey, people are going to watch this show over their new IPTV outlets, and the technology that makes this possible is provided by Sigma Design (SIGM). This stock is going to go from $25 to $40. Pat quipped that if this stock's future was as bright as my teeth, he'd already own it. Nice one, Patrick. Hey, if this stock picking thing doesn't work out, you may indeed have a second career as an "Idol" judge.
AND ... PREDICTIONS
Time once again for my favorite segment, the Predictions round. I was in the hot seat this week, and you all know that's exactly where I like to be. My prediction is that based on the great work of our ChangeWave Alliance, Apple (AAPL) is set to blow out its earnings numbers on Wednesday. I think AAPL shares will be up 15% by next week's show.
Lenny predicts that Microsoft (MSFT) will buy Yahoo (YHOO) for a 35% premium sometime in the next six months. Gary B. says that in "Lenny world, anything is possible."
Scott claims that Cisco Systems (CSCO) is going to try to get into your living room by buying TiVo Inc. (TIVO). Pat says they're already in your living room with their purchase of Scientific Atlanta.
Pat predicts that Energy Transfer Partners (ETP) will be up "a lot" soon, as it is a wonderful company fundamentally, and their 6% dividend makes the stock a very attractive buy here. Gary says it's good that you have that 6% dividend because it will make up for the loss you're going to take on the shares.
Gary finished off the segment by pulling his prediction straight from the headlines. He thinks that soccer superstar David Beckham coming to the United States is going to be great for one of soccer's big promoters, Pepsico (PEP). According to Gary, the stock will be up 25% in 2007.
Lenny got the last word in on this one with the following proclamation, "Soccer sucks!"
What more can I say? See you next week.
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 twice weekly in the ChangeWave WaveWire and he provides more specific recommendations and advice through his ChangeWave Investing service. Click here to sign up for RISK-FREE trial subscription.
