Chris Edmonds and Eric Gillin on Yahoo!

Chris Edmonds and Eric Gillin chatted on Yahoo! on Thursday, Nov. 1, at 5 p.m. EDT. For an audio transcript click here.

Eric Gillin: It's Thursday -- 5 p.m. on the East Coast, 2 p.m. on the West -- time once again for TheStreet.com "Martini Chat."

Good afternoon, I'm your host Eric Gillin, coming to you live from the world headquarters of TheStreet.com on Wall Street. Also here is my co-host, Chris Edmonds, contributing editor of TheStreet.com and columnist for RealMoney.com. Once again, this week, Chris joins us from Topeka, Kansas.

Chris, there's a real tug of war this week between the bulls and bears on the Street. What is driving this market?

Chris Edmonds: Eric, we've talked a lot in past weeks about the choppy nature of the market. You've seen some of that chop this week, although the resilience remains impressive. Clearly, there are geopolitical concerns that are having an impact on market psychology, and I think politics is slowly beginning to creep back into the mix.

Still, the bounce off of negative sentiment has been strong as we expected. Remember, the fact is, there came a point in late September and early October that the mood was so negative that there wasn't a lot of negative news that could make things worse. And conversely, most news -- regardless of how negative -- could be viewed as "not as bad as expected." You clearly saw that in some of the tech names and in many of the energy names, sans Enron.

That said, sentiment isn't as negative as it was, and we are running into economic and political news that may be worse than expected. The uncertainty will weigh on the market and, combined with the natural resistance to go anywhere in a straight line, I think we get more chop. So I'm still optimistic, but a little less so. You also probably are seeing some mutual fund buying into the new fiscal year.

Eric Gillin: Interesting analysis, and we'll have more on the markets in our weekly roundtable later in the show.

We have another packed show this week. Our first guest continues our discussion of the impact of geopolitics on the markets. Charles Krauthammer, a columnist for the Washington Post and New Republic, will discuss his views of the current war against terrorism, the politics of the conflict in the Middle East and the anthrax scare at home.

And we'll wrap up the week with an extended version of weekly markets roundtable with a group of seasoned Wall Street pros. Plus, all the news headlines and the Five Dumbest Things on Wall Street.

But first, a toast.

Eric Gillin: If you've ever seen a group of soccer-playing children, then you have an idea of how Washington, D.C., is approaching the economic stimulus package. Regardless of position or skill, everyone's furiously kicking and chasing after the ball. As a result, you're left with intense passion, well-intentioned chaos and a ball that is going nowhere fast.

Today I'd like to raise a glass to the misguided people who are deciding what to do with the $100 billion package. Of course, I'm being sarcastic, but I'd still like to toast them for their ineptitude.

The congressional deadlock over the issue of economic stimulus may drag into 2002, which oddly enough is good, since there are far more pressing issues of national security for politicians to address. Hopefully, security will continue to trump stimulus, but in the meantime the war of meaningless words continues as the economy weakens.

As it stands now, the House plan has $70 billion in tax breaks for business, $29 billion in tax breaks for individuals and $12 billion in non-tax provisions. The Senate plan is smaller, with only $21 billion in business tax breaks, $14 billion in individual tax breaks and $35 billion in non-tax provisions.

On one hand, the differences between the two are staggering, with the House granting $50 billion more in tax breaks for businesses. On the other hand, the two economic stimulus plans are no different than choosing between a lunch at Burger King or McDonald's -- both lack nutrition but fill you up in a hurry.

For a Congress that has claimed bipartisanship since Sept. 11, no one outside of Capitol Hill seems to like either plan.

The Wall Street Journal editorial board, conservative champions of supply-side economics, blasted it on Tuesday. They wrote, "It's simple: Reduce tax rates on incomes of the company's most productive individuals and eliminate frivolous forms of economic regulation that stifle business activity. Protect the right of each individual to enjoy what he has created, that is to say, his property."

Later they concluded, "The measures likely to be approved by Congress are too modest to offer much stimulation."

So the Wall Street Journal doesn't think the tax cuts for business go far enough to stimulate anything. I'm going to ignore the high possibility that even more than the $70 billion in business breaks won't stimulate the economy. Extra money in corporations' pockets won't necessarily lead to additional capital investment in a market that is already fighting inventory backlogs.

Meanwhile, those who are against doling out corporate welfare are screaming that this will do nothing to alleviate the crippling affects of unemployment. Beltway folks might point to the billions in individual tax breaks and non-tax provisions and say there's enough there, but not when you consider how the staggering number of layoffs will hurt consumer confidence, which has kept this country out of a recession during the last two quarters.

After all, won't giving more money to corporations only encourage them to expand, and offer a wider array of products to consumers that many can't afford because they don't have jobs? If that scenario unfolds, the government has wasted money and only made matters worse.

A few weeks back, I had the pleasure of interviewing Joseph Stiglitz, who recently won the Nobel Prize for economic science. And he doesn't like the plan either. His view: It's more prudent to give money to those who can't borrow at will -- namely the poor and unemployed -- so that they can go out and maintain their lifestyles.

In this world where everyone buys on credit and thrives on instant gratification, giving the have-nots money strengthens the consumer base, which in turn could produce growth. Consumer spending can eat away at the glut of inventory and prepare businesses to expand again.

Then again, skittish consumers may squirrel that extra money under a mattress, fearing that the economy will worsen. As a result, corporations will shrink. And if this scenario unfolds, the government has wasted money and only made matters worse.

My point is not so much to criticize both options, but rather to highlight how difficult it is to stimulate the economy. And so I raise a glass to those in Washington who are kicking furiously at the same damned ball. If they had the best interests of the economy in mind, they would stop trying so hard right now.

America is recession-bound, a state we were in prior to the war on terrorism. Instead of looking for a shiny marble to take home to constituents, politicians would be better off waiting for the smoke to clear. Let's see how the economy reacts to Sept. 11 before you blow $100 billion on a Band-Aid. It's been seven weeks, and the data show a near-term plunge across the board. That was expected.

We've also had 10, count 'em, 10 interest rate cuts in less than a year. No doubt, more are coming. It will take time for those to take hold, too. Cheers to Congress for trying to do something on behalf of business interests, but really -- hurry up and pass an airline security bill. Give more money to the Postal Service to irradiate the mail. Make people feel safer so they'll want to spend money. That's the best economic stimulus.

Eric Gillin: Chris, what are your thoughts about congressional action of late?

Chris Edmonds: Politics is clearly creeping back into the process. You see it in the airline safety bill, you see it in the stimulus package and, importantly, you saw it in the change in President Bush's tone yesterday, chastising Congress for not acting more diligently.

As for the stimulus package, Alan Greenspan made a good point when he told Congress a package needs to be both focused and reasoned. Economics and politics don't mix well, especially when the economic action is meant to provide for a certain outcome. Politics simply doesn't lend itself to focused outcomes, and that is exactly what we are finding out, once again, in Washington.

We heard early on in the war effort that "it is different this time" with politics on Capitol Hill. I'm afraid we are quickly finding that that phrase may be about as applicable to politics as it was to the markets in the late 1990s. It isn't!

Eric Gillin:No doubt, Washington will be interesting to watch in the coming weeks. Speaking of Washington, Chris, our first guest has a lot to say about Washington and the current state of geopolitical affairs.

Chris Edmonds: Indeed, Eric, he does. Our first guest is Charles Krauthammer, Pulitzer Prize-winning columnist for the Washington Post. In addition, his political commentary has appeared in the New Republic, Time and theWeekly Standard.

Before launching his journalistic career, Dr. Krauthammer was a practicing medical doctor, served as an advisor in the Carter administration and was a speechwriter for Vice President Walter Mondale.

His edgy commentary has been called "independent and hard to peg politically." His independent voice is well known on issues of international significance, including the Israeli-Palestinian conflict, as well as issues of domestic import, most recently regarding American's fight against anthrax.

Mr. Krauthammer joins from his offices in Washington, D.C. Welcome to TheStreet.com's "Martini Chat."

Dr. Krauthammer: Good to be with you.

Chris Edmonds: In your Tuesday Washington Post column you said the U.S. effort against terrorism "has been fought with half-measures." And there seems to a growing concern among U.S. citizens that we haven't used the force necessary to show our resolve. In your view, what haven't we done that we should have, and given our lack of force out of the starting blocks, what should we do now?

Dr. Krauthammer: What we didn't do ... what we're beginning to do ... is to try to destroy the Taliban forward positions in order to allow the ground opposition to occupy the capital. As President Bush said, we have a new doctrine. If a government protects terrorists, that government will fall.

We have to make an example of the Taliban. We have not hit them in the front-line positions in order to let the north cities come in. We've held back because Pakistan does not like the Northern Alliance. We've been holding the military back. That's changing.

Eric Gillin: Mr. Krauthammer, Eric Gillin here. In that regard, Ramadan is approaching, and many insist that the American military must stop out of respect for the holy month.

You've argued that such a pause is foolish, the kind of moderation that led us to defeat in Vietnam. But others would say that diplomacy, and getting other Muslim nations to offer assistance, is part and parcel of fighting war. How do we balance the aims of diplomacy with the needs of the military?

Dr. Krauthammer: The whole idea that the reason the Muslim countries are following us is because they like us is nonsense. They're following us because they think we'll win.

There are bad guys in their midst, and we say we'll root them out. The reason these are coalition partners is because Al Qaeda and Osama are their enemies. If we show them we are feckless -- like Vietnam -- they're going to flee and leave us hanging in a second.

The reason we got the coalition 10 years ago is that they saw Americans on the ground and they wanted to be on the winning side. Important now is to show them they're on the winning side. About Ramadan -- it's a fabrication that that's a time when they're not supposed to fight.

Chris Edmonds: The longer the conflict, the less likely strong popular support will continue. What can and should President Bush do to solidify his current level of support, and what does that say about our strategy in the war going forward, and how important is a big victory to sustaining support?

Charles Krauthammer: The problem is we've been there for three weeks and held back. We've been making all the mistakes of Vietnam. Colin Powell was at Vietnam and swore they'd never make that mistake again. His doctrine is to use overwhelming support to win quickly. There's no substitute for victory -- Patton.

When you demonstrate that you're determined to win, you lose allies? I don't think that's so. Domestic support is rock-solid. The American people are clearheaded. There are 5,000 dead Americans in New York and D.C. An attack by an enemy bent on destroying us. This is not a war of choice. This is a war of necessity.

We know it. The American people understand it. They will not waver because there is no choice. In Vietnam it was different. We cannot lose this war. Al Qaeda and the others are trying to destroy us. We know they want chemical weapons and things of mass destruction. They want to kill us in the millions.

Eric Gillin: In his 1995 essay "The Clash of Civilizations," Samuel Huntington suggests the next conflict would not be between nation-states but civilizations themselves, exactly what bin Laden and other radical Islamic elements would like. Is this truly a conflict between the West and Islam, and do we really want the conflict to be defined that way?

Dr. Krauthammer: Americans understand the necessity of waging this war and winning it. That is how the enemy defines it. They make it clear it is the Islamic entity against the infidel, and their grievances go back 1,000 years. Their dominance was once a major part of the world.

From their point of view, it's been downhill ever since. Bin Laden wants to reestablish the empire of Islam with no separation of church and state, with him as the leader. He has a minority following.

We have never declared war on Islam. We welcome our Muslim friends and allies. But we can't prove how nice we are. The President is asking our kids to get a Muslim pen pal and stop fighting on Ramadan. You don't find the leaders in Egypt and other places rising to say "What Osama bin Laden has done was wrong." And we're waiting to hear that.

Chris Edmonds: The administration has made it clear that this is not a war against Afghanistan but a much larger war against terrorism. Yet we remain focused, half-measures or not, on a nation that can offer little resistance except for rhetoric, and in many ways, as you suggest, they are holding their own.

Given our experience in Afghanistan and what appears to be our near-paralysis to take any action that could place American soldiers in grave danger, how do we expand this campaign?

Dr. Krauthammer: Everyone understands we have to win the war in Afghanistan. We don't have to find Osama today or tomorrow; we'll find him one day. If we're in control, he'll have to flee, and we'll find him. We don't have to go cave to cave. But we need the government to fall.

The world has to understand that the penalty for harboring a terrorist is the death penalty for the regime. That has to happen. Assuming we do that, I think the psychological dynamic there will change dramatically. People will start to fear and respect the U.S. again.

They won't want to harbor a terrorist because they'll see what happened to the Taliban. We should go country to country where people are harboring terrorists, and say, "Cough up your terrorists." Once they see what happened to the Taliban, the other countries will do it.

Eric Gillin: One key piece to this discussion is clearly the relationship between Israel and the Palestinians. A month before the World Trade Center attack, you argued that Israel should use overwhelming force to expel Palestinians from Israeli lands, while at the same time abandoning some settlements and consolidating the border.

The solution you gave: Build a wall and wait for peace to come. Is this still an option today? Has the emergence of Osama bin Laden made it impossible to treat the Palestinian situation independent of the global Islamic unrest?

Dr. Krauthammer: That's not what I said. The links people have developed between that and 9/11 is a fabrication. The president himself said that Osama had never even mentioned Palestine before 9/11. The planning of this attack on 9/11 went on for a year and a half. At that time, we were on a peace summit with the Palestinians.

To say that the reason this happened is because fighting broke out in the Middle East is wrong, because we know the operation was planned before that. It's used by bin Laden to stir up animosity toward the U.S. But he's concerned about U.S. troops in Saudi Arabia, because that's the holy Mecca for him. It's the 1990-91 war against Iraq that has made his cause for him. He's about expelling the infidel from the home of Mohammed.

Chris Edmonds: Let's turn our focus to domestic issues. It looks like we are returning to politics as usual. The level of partisanship is rising, President Bush took a public swipe at congressional inaction yesterday, and almost every postwar initiative appears to be stalled in Congress.

What's your take on the political landscape? Will we get an airline security package and a reasonable stimulus package, or was the post-September congressional unity rhetoric just that?

Dr. Krauthammer: Yes and yes. We'll get the airline package by tomorrow and the stimulus in a few weeks. It's normal politics. We are a democracy, and we're not going to suspend all our differences.

The president has enormous power and he's using it. That's good. That's how you lead in wartime, and this is what this is. In World War II there were a lot of debates in Congress.

Chris Edmonds: Understanding your focus is politics, I am curious as to your thoughts on what impact the military action and congressional response is having on the economy, consumer confidence and the markets.

Dr. Krauthammer: We're getting a return to semi-normal. The president has a stronger hand than before 9/11 and he'll get his way in most of these issues. My view is that the 9/11 was a great shock to the economy.

What it did was accelerated trends already happening. I'm not an expert, but I think it made what was going to happen, happen a little more quickly. Folding of the airlines and Polaroid. Companies on the edge fell off earlier with less agony. We've compressed in time the bottom of that recession.

I'm hoping what we find is a sharper V shape rather than a U shape. I'm guessing and reading the markets -- there seems to be a sense that we'll get a sharper rebound than what we think, because of this artificial collapse we got after 9/11. I don't believe it.

Eric Gillin: Speaking of domestic issues, the terrorist network that committed the World Trade Center attack operated in Florida, New York and New Jersey -- three states affected by the first wave of anthrax attacks.

Yet the government has come out and said domestic terrorism could well be the culprit. Can we really believe that? Who do you think is responsible for this?

Dr. Krauthammer: It's extremely unlikely it's domestic. When there was one case in Florida, it sounded like a nut. But now with more cases and the fine powder in the Daschle letter, I think the likelihood it's domestic is low. Question is, is this Al Qaeda, and did they get it from Iraq? If so we're in very serious waters. A confrontation between us and Iraq, which would be monumental.

Chris Edmonds: We have some reader questions.

Reader: What do you make of the concerns of the India/Pakistan flair up?

Charles Krauthammer: It's a balancing act. We have to balance Pakistan and India. Their war has been running 50 years. The Muslims and non-states have been in war ever since. India has offered us airspace and help, and that has not yet alienated us from Pakistan. Each is trying to be our friend so as not to have the other with America alone on their sides.

Reader: How likely are bioterrorist attacks? And what do you think about all the warnings the government is giving?

Dr. Krauthammer: I think they're just covering their asses. I don't know if it helps to give these warnings. They feel they have to share with a time-limited alarm.

It just scares everyone. It would help if we had more details. Bioterrorism is here. The question is, how sophisticated and widespread are our enemies? We have to get them before they get us.

Reader: What are the odds we still try to remove Saddam Hussein and attack Iraq as part of this campaign?

Dr. Krauthammer: It depends. If we succeed in Afghanistan we put pressure on other countries to cough up their terrorists. We cannot live with Saddam building up chemical and nuclear weapons.

He and his regime we'll have to destroy. It's a monumental task. The war on terrorism cannot be won unless Iraq is changed.

Chris Edmonds: Charles, thanks for being with us.

Dr. Krauthammer: My pleasure.

Chris Edmonds: Eric, a fascinating man with some very strong views. I'm certain we haven't heard the last of Mr. Krauthammer here on the "Martini Chat."

Eric Gillin: No question, this is a discussion I know will continue here. Speaking of people with strong views, its time for the Five Dumbest Things on Wall Street. Back this week with her take on market silliness is TSC staff writer K.C. Swanson, live from our San Francisco bureau. Hey, K.C.

K.C. Swanson: Hey, Eric, Good to be back.

Chris Edmonds: Plenty to talk about today, so lets get right to it. First off, the skies don't look so friendly for United Airlines shareholders.

K.C. Swanson: That's right. Rule No. 1 in CEO school: Never say that your company may soon collapse. Seems kind of obvious, but that rule was flouted by United Airlines chief James Goodwin, who warned in a letter to employees that the company "will perish" next year unless it can stanch its tremendous losses, which have worsened since the terrorist attacks. "Today, we are literally hemorrhaging money," he wrote.

But in response to the disclosure, Goodwin has been roundly attacked. Feeling that he had been all too honest, investors have knocked an additional 24% off the stock's value. Bottom line: CEOs may get pilloried when they try to dodge the truth, but sometimes it doesn't pay to be too candid about worst-case scenarios, either. Especially when that scenario is the company's own demise.

Eric Gillin: Also, this week, a swipe at the whole war-bonds notion.

K.C. Swanson: Sure, we're at war with a band of cave-dwelling outlaws hell-bent on our annihilation. But would all freedom-loving Americans please go out and buy some DVD players? Maybe even a nice new car?

That was basically the message from the Treasury Department, on news that Congress had voted for the creation of war bonds to finance antiterrorism efforts and rebuilding following the attacks. Officials at the Treasury applauded the sentiment, then politely suggested it would be even better for the economy if Americans just went to stores and bought stuff.

In the meantime, it's a little dislocating to hear politicians talk up war bonds -- which most people associate with hardship and sacrifice -- at the same time top economic gurus are practically begging people to shop. War bonds notwithstanding, we're a long way off from the era of ration books.

Eric Gillin: And looks like Enron makes an encore appearance.

K.C. Swanson: Last week we noted the extent of alarm about Enron's revelation that its shareholder equity had dropped $1.2 billion, following some unusual and possibly inappropriate high-level transactions. Following that disclosure, besieged CFO Andrew Fastow has finally left the company on what's delicately termed a "leave of absence."

Management acknowledged Fastow would have to go as a prerequisite to restoring investor confidence, but that won't be an easy task, given the resentment about Enron's disinclination to explain its problems. One analyst called Fastow's departure "unsettling," noting that management had given the CFO its endorsement only the day before.

And there could be more trouble to come: The Securities and Exchange Commission has issued Enron a letter of inquiry related to some of its transactions.

Eric Gillin: And things just keep getting more interesting at Enron as the SEC is now into the "formal investigation" stage. Finally, on the list, gold bouillon and Amazon.com, not exactly two items that go together.

K.C. Swanson: It's understandable that investors felt panicky in September. Unfortunately, some reacted by shoving their hard-earned money into gold funds. According to Financial Research Corp., which tracks fund flows, the specialty precious-metals category was the best-selling equity category during September, with net inflows of $101 million.

Granted, that's not a huge sum in the mutual fund world. By comparison, during the same month, large growth funds saw net redemptions of $7.4 billion. But the fact that so many people are jumping into precious metals is noteworthy, given that gold funds have performed so badly for so long.

Moreover, circumstances that would seem to be the most favorable in decades -- a combination of attacks on the U.S. government and war -- still don't seem to have boosted gold prices significantly. Despite an initial surge in prices after the terrorist attacks, they're again approaching their pre-Sept. 11 levels. It's too early to say, but it's likely the gold bugs will confront disappointment once again.

And Amazon still maintains it will become profitable by the fourth quarter. Well, at least it will post a pro forma operating profit. OK, so maybe that wouldn't include Amazon's service on $2.17 billion in long-term debt or extraordinary charges. In fact, a pro forma operating profit is basically just an accounting concept that would lend a fuzzy, meaningless aura of minor triumph. The company still hasn't said when it will turn an economic profit.

For that matter, even the fourth-quarter prediction is iffy. After announcing the company expected to turn the pro forma operating profit, CFO Warren Jenson added the humble qualifier, "There are no guarantees."

Eric Gillin: And K.C, give us a hint of what we can expect in this week's installment.

K.C. Swanson: You know you have a crummy broker when he not only steals your money, but proceeds to lose it all through bad stock-picking. That was the case with one San Francisco broker recently sanctioned by the SEC.

Eric Gillin: Thanks, K.C. K.C. Swanson's Five Dumbest Things on Wall Street can be found each and every Friday on TheStreet.com.

Eric Gillin: Now, with the latest news including how the markets finished at the closing bell, from the Wall Street headquarters of TheStreet.com, our news editor, Yi Ping Ho. Yi Ping, another strong rally on the day. How'd we finish the day and what's ahead.

Yi Ping Ho: Stocks closed higher as investors chose to shrug off a rash of discouraging economic data. Instead, Wall Street celebrated the news that Microsoft has struck a tentative deal with the Justice Department to settle the antitrust lawsuit against the company.

The Dow Jones Industrial Average gained 188.76 points, or 2.1%, to 9263.90. The Nasdaq was up 56.10 points, or 3.3%, to 1746.30, and the S&P 500 climbed 24.32 points, or 2.3%, to 1084.10.

Today's market enjoyed some broad-based buying interest with leadership from the tech, financial, transport and retail sectors. Chips gained 6.5%, while Internet stocks rose 2.5%. Leader of the day Microsoft rose 6.4% to $61.84, and among the most actives were tech bellwethers Sun Microsystems, Intel and Cisco, which all ended on a higher note.

Shares of automobile companies also lifted the Dow industrials, with General Motors climbing 2.4% after it reported that its October sales in the U.S. rose 31%. Ford climbed 2% after its U.S. sales rose 34% in October, a month when many automakers drew customers with 0% financing programs.

On the economic front, manufacturing activity declined for the 15th consecutive month in October, pushed lower by the Sept. 11 terrorist attacks. The National Association of Purchasing Management said its index of business activity plunged to 39.8 from 47 in September. A number below 50 indicates contraction. Economists surveyed by Thomson Global Markets had estimated a reading of 44.5.

In addition, the Commerce Department said construction spending dropped 0.4% in September, though it was less than the 0.7% decline economists anticipated. And separately, the Commerce Department said consumer spending fell 1.8% in September. Economists surveyed by Thomson Global Markets had forecast a 0.7% decline.

Meanwhile, the Labor Department reported that the number of Americans filing initial jobless claims fell to 499,000 in the week ended Oct. 27 from 509,000 a week earlier. Economists expected 498,000 jobless claims.

Bonds extended Wednesday's rally, fueled by the Treasury Department's decision to stop issuing the 30-year bond, but the dollar weakened. And overseas markets were stronger, with all the major bourses, except the Nikkei, finishing higher.

Eric Gillin: Yi-Ping, thanks. Chris, plenty to talk about today in the markets. We made it through Halloween with few ghosts or goblins. November is off to a solid start. Let's get right to the Roundtable.

Chris Edmonds: Indeed, plenty to talk about including a very nice rally today. We'll talk about the markets and several specific issues with our panel of market pundits -- always candid, never coy.

With us today is Tony Dwyer, chief market strategist at Kirlin Securities, Scott Preston, a trader with Toronto-based Research Capital who joins us from San Francisco, and our own Aaron Task -- Papa Task as we refer to him after the birth of a new baby girl -- who also joins us from our San Francisco bureau.

Chris Edmonds: Aaron, you talk to almost every market guru on the Street. What's Wall Street saying about the recent strength. Can it continue and what could cause this rally to stumble?

Task: Wall Street's job is to be bullish. A lot of folks remain bullish. They are still expecting 25% to 30% moves from now to the year-end. The trader types are skeptical about the rally and what could put it to an end -- if there was a renewed terrorist attack. There was an announcement from the governor's office here in California that there were threats to the bridges here in California. That type of news is not going to go well on Wall Street.

Chris Edmonds: Scott, thanks for being with us today. I know you are trying to catch a flight out from San Francisco this evening. Can we end the week with a continuation of today's strength? What's the attitude and the feeling out there, given that warning? Where do we go from here?

Scott Preston: People are a bit more nervous. Gen. Ashcroft has come out and said, "Be on high alert this week. But all the safeguards are in place. You try to counteract that. We could be entering a new stage in a bull market.

Bull markets emerge when you least expect it. The rosy expectations will come down a bit further. There is a lot of money sitting on the sidelines. The general population still wants to be in stocks. We could come back down to the lows.

Eric Gillin : There is a lot of conflicting economic data now in the wake of Sept. 11. Consumer spending has fallen off of a cliff, and the manufacturing index dropped below 40 and the unemployment rate now has a "5" handle.

But GDP came in better than expected. What have we learned from the data -- are we at the bottom or does it get more difficult from here? Aaron, you first.

Aaron Task: If you're talking about consumer spending falling, that's to be expected. But we had some pretty hefty auto sales numbers. The American consumer is willing to be incentivized. The American consumer is willing to spend. People are going to say "We're not going to let the terrorist ruin Christmas or Hanukkah."

Eric Gillin: People are now going to want "happy things." Does the American consumer know a good value when it sees it?

Aaron Task: We are a consumer nation. If there is a bargain perceived, people will spend money. That's what we do.

Chris Edmonds: Scott, you are an equities trader. Shed some light on how economic data play into your trading strategy. Are there specific trades you have put on as a result of economic data or your forecasts?

Scott Preston: Economic data is usually very backward-looking. It tends to impact the markets for a short period of time. People are looking forward, and economic data is usually revised a few times. It will have an impact, but you have to keep looking forward because stocks will trade toward the future.

Chris Edmonds: Tony, you had a few technical difficulties, but you are here now. Scott, I know you have some new ideas this week. What are you currently looking at, especially on the paired-trade front?

Tony Dwyer: Today, I don't think it can be emphasized enough how the Treasury secretary's decision can affect stocks. The long end of the yield curve had to come down.

All the factors that were a reason have come to pass except the long end of the curve. After 1 p.m., when the bombs began to weaken, stocks began to strengthen. You're hard pressed to be a fund manager and not take money out of bonds and put it into stocks.

Eric Gillin: Tony, there was an interesting piece of fixed-income news this week as the 30-year bond is being decommissioned. Not a big deal, as axing the long bond has been talked about for some time. However, for the uninitiated, what's behind the decision and what does it mean for the average investor?

Tony Dwyer: I'm not sure what's behind the decision. It was a stroke of genius. If you wanted one thing to bring the long end of the yield curve down, that was it. You can get historical sub-par performance out of equities now, and that's outperforming the bond yield. There's got to be a rotation. When you throw that in with the Fed money, even on the poor earnings outlook, valuations have become more attractive.

Aaron Task: Tony, I agree with you. This decision is going to force people to re-evaluate their valuation models. But it seems that equities are attractive. Don't you agree?

Tony Dwyer: I would agree. As you and I know from talking to people, we're not at low valuation levels. We don't have double-digit interest rates. This is a whole new game, and the valuation part has become a lot more unclear because we don't have those typical factors that have led to bear markets and higher rates.

Chris Edmonds: Aaron, I know you are sad to see the 30-year bond go; you wanted to get some for your daughter's college education. What are the gurus saying to you about this?

Aaron Task: My column is about this issue. I've talked to a few folks today and there's still an attempt ... I also think there's a concern because people are wondering if this is a factor. When the Treasury decision came out ... is a tech move? There seems to be an agreement that lower yield and long ends mean equities are more attractive. Fund managers are going to have to allocate more into stocks.

Eric Gillin: Aaron, you are Mr. Inflation Watch.

Aaron Task: I've been on the wrong end of that debate. Clearly those pressures have not come to bear. If you believe inflation is a monetary phenomenon, when the economy heats up again, price pressures will come back late next year, early 2003. But the bond market will start to anticipate, and you might see as the economy starts to improve, the bond market might back up a little bit. At some point, the expectation is that it'll start tightening again, and that's not good for equities.

Chris Edmonds: Scott, what's your strategy going forward?

Scott Preston: I really think tech and financials will perform well. And some gas stocks in Canada. Natural gas is down 20% and some of these producers in the northern territories. CNQ. Xenon and the water pollution. They will continue to benefit. Within tech, like some of the specific chips. Cell phones. Stuff related to consumer devices. DVD and process. Stay away from commodity-oriented things.

Chris Edmonds: Tony are you back?

Tony Dwyer: I'm back, I'm sorry!

Chris Edmonds: We did pull back last week, we're back on the green side --

/ Tony Dwyer: You have to manage expectations and figure out why you buy.

Chris Edmonds: What's your strategy going forward?

Aaron Task: You have to believe stocks are going to outperform bonds. Even though things have great momentum here .... tech..... we just had a rate cut with the Secretary's decision on the 30-year bond. At some point the realization will come that it's December, and the numbers aren't looking so pretty. As Scott mentioned, it's a traditional time when stocks do well. We might have a good rally at the end of the year.

Chris Edmonds: You made a good point about energy prices. We'll talk more about that next week, but OPEC compliance is awful right now. Putin isn't on our side because it's the right economic thing to do. He's on our side because it's the best thing for him economically.

Chris Edmonds: Let's take some reader questions now.

Reader: What do you think of Yahoo?

Scott Preston: The company has the best brand outside of AOL. But the advertising market is in a big slump. Don't see a recovery coming at Yahoo. Their corporate strategy hasn't upset the fall. Valuation is still high. Stocks are susceptible to decline. That being said, as a very long-term bet, I think it has good long-term potential.

Tony Dwyer: I agree but the debate is how low is low? It seems like the stock's getting into stronger hands and will act like the Nasdaq.

Reader: Could the Fed cut rates too low?

Tony Dwyer: It really depends on over time. The Fed raised rates too high. That's only something you'll know after the fact. We're in unprecedented times. It's not improving that much from what I understand.

Chris Edmonds: Great insight. Thanks to Tony Dwyer, chief market strategist at Kirlin Securities, Scott Preston of Toronto-based Research Capital and TheStreet.com's own Aaron Task.

Eric Gillin: Next week we'll take an early look at the holiday shopping season with the help of a handful of retail pundits. In addition, we'll take a look back at the year that was on the PGA Tour and the business of golf.

And, of course, we'll take a look at the markets, the Five Dumbest Things on Wall Street and Yi-Ping and the news.

Until then, thanks to all of our guests and Chris, thanks to you. See you next week.

Chris Edmonds: Look forward to it. And, look forward to being -- as they say, live from New York -- with you next week.

Eric Gillin: Excellent. Until next week, Cheers.