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Tickers in this Article: MRK, GOOG, GS
I like talking stocks, and I really like it when readers of my column write in and ask questions. So, without further ado let's answer some of the questions from the past month.

Q: What do you think about investing in brokerage firm stocks?

A: Generally speaking, over the long haul I like the idea. And among my favorites is Goldman Sachs (NYSE:GS).

That said, the brokerage industry is under pressure right now. After all, while the major domestic equity indexes have fared well in recent weeks, the fact is that the market for IPOs is lackluster. In addition, the outlook for issuing bonds isn't exactly rosy either. This in turn means that these firms could have a rough go in the future. On that basis, I consider brokerage stocks a bit too risky at the moment, but I could see them as more attractive if they dropped in price a bit more in the future. (For more on the problems brokerage firms have faced lately, check out the Subprime Mortgages Feature.)

Q: What is the biggest threat to our financial markets?

A: If you asked that question to 10 different people, I think you'd probably get 10 different answers. That said, in the near term I think the biggest risk is the potential lack of consumer spending heading into the holiday season and its possible impact on a variety of companies. Over the long run, I think the biggest risk is the debt that our nation has rung up over the years as well as the mounting personal debt of our citizenry. Sooner or later, we are going to have to repay all of this money. (For more insight, read Using Consumer Spending As A Market Indicator.)

What's the solution to this problem? In my opinion, our government and our citizens need to be more fiscally conservative - they have to watch their spending. In addition, I think our government should reduce taxes to spur businesses to grow, and also cut government spending so that it can reduce its overall debt load.

Q: Will the market and the economy do better with a Democrat or a Republican in the White House?

A: Again, this depends on who you ask. I would argue that Republican policies have historically been more business-friendly, but it doesn't seem to have mattered too much over the past 25 years. In fact, the market did well during the Reagan and George H.W. Bush administrations as well as during the Clinton administration.

That said if the Congress (regardless of whether it is controlled by Democrats or Republicans) continues to increase our national debt and runs deficits, I think it could prove to be a big negative for our economy. In addition, I worry that Congress might clamp down on estate taxes, which I think would be a mistake. I think it would hurt a number of middle class people, not just the rich. (To learn more about the issue, see Get Ready For The Estate Tax Phase-Out.)

Q: What do you think about Google? (Nasdaq:GOOG)

A: Well, I wish I bought the stock. But of course, I did not.

From a business standpoint, I think Google has a pretty solid business model, and reputation. However, from a valuation standpoint, I can't give you an opinion because I am not sure how to produce a truly accurate valuation for such a company. That said, I am worried that one day, if the company does fall out of favor with investors, that the stock could get unduly punished.

Q: You write a lot about fast food stocks and companies that make or sell consumer goods. Why?

A: I've always been attracted to these companies because I understand them. I understand the products, and consumer sentiment, and I think I can, generally speaking, measure or estimate whether or not those types of companies will generate meaningful earnings going forward.

On the flip side, internet stocks and development-stage companies do not generally intrigue me, because, while they can have enormous upside potential, there seems to also be a pretty big possibility that they could go bust. And frankly, I'm not able to predict the eventual winners and losers in these industries.


Q: I noticed that you like Merck (NYSE:MRK) despite the ongoing Vioxx litigation, why?


A: I like Merck because I think it's built out its pipeline quite nicely over the past five years. In addition, it continues to lure talented individuals to work for it, which is important when you are trying to find the cures for some of the world's most awful diseases and afflictions. And finally, I think the company is doing a terrific job reining in expenses and communicating with Wall Street.

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