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Copenhagen, Cash for Caulkers, and the Rap on Gold

Jason Stipp

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to the Friday Five. This is our look back at the week's most quirky and interesting headlines for investors. Joining me, as always, with the Friday Five is Morningstar markets editor Jeremy Glaser. Jeremy, thanks for being here.

Jeremy Glaser: Always a pleasure, Jason.

Stipp: So give me five, Jeremy. What have we got?

Glaser: We have banks racing to pay back TARP. We might have a "Cash for Caulkers" program. Copenhagen gets off to a good start. We're going to talk a little bit about what's happening with our Ideas Week and the best ideas we've seen. And finally, a new pundit comes out for gold. We'll discuss the implications for that.

Stipp: It sounds like an interesting lineup. Let's start with TARP.

Glaser: Yeah, I think it's not terribly surprising that after Bank of America paid back their TARP, that Citigroup and Wells Fargo in particular are now racing to pay back as well. They don't want to be labeled as the banks that are too weak to pay back the TARP.

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I think Wells Fargo in particular is interesting, because their plan originally was to earn their way out of TARP. So instead of having a diluted equity offering, they hoped to just use the earning and the power of the bank--which is still pretty high--to be able to just pay the government back.

And instead, they might have to issue equity, which could be bad for existing shareholders. But I think it will be good for them to get out from under the government's thumb.

Citigroup is a little bit more complicated. They have a lot of other government involvement beyond just the TARP money. So I think even after they pay it back, they're still going to be pretty tightly controlled.

Stipp: So certainly they're feeling some pressure to get that money paid back, for maybe a reputational reason even.

Glaser: Yeah, absolutely.

Stipp: Speaking of TARP, I know that there was some discussion about how some of these funds could be redeployed. And one of the areas that was a big hot topic on Capitol Hill was jobs. That leads to your second point. What do you have on that front?

Glaser: President Obama laid out a plan to spend maybe around $200 billion of the unused TARP funds on a targeted jobs bill or a second stimulus package. And there's going to be things in there like tax cuts for small business to help them to continue to hire more people or to start hiring more people again.

But I think one of the most interesting elements is something that instead of having Cash for Clunkers, you have Cash for Caulkers, where you give homeowners a tax credit to hire handymen to essentially improve the efficiency of their house.

And this could be stimulating in two ways. The first being that you get to start hiring people in the construction trade, which has been one of the hardest-hit industries, had one of the highest unemployment rates. And then you also have the knock-on effect of having people with more energy-efficient homes.

So it seems to be if you're going to be spending money on jobs, it seems like a decent place to be doing it.

Stipp: Speaking of efficiency and green initiatives, there's some news out of Copenhagen. What do you have on that front?

Glaser: The Global Climate Summit seems to be getting off to a pretty good start. I think in the past, if you look at for the Kyoto Accord or the Kyoto Treaty before, the biggest issue seemed like the United States seemed like they weren't going to be a big player.

And without the United States agreeing to something, it's hard to get a lot of developing nations such as China and India; it's hard to get even some other Western nations to sign on to a pretty comprehensive climate change accord or climate change legislation.

This time seems a little bit different. EPA has come out and said they're going to regulate CO2 directly. So even if Congress doesn't pass cap and trade or isn't able to get anything through the legislative front, the executive says, well, we're just going to go ahead and do it anyway. I think that that gives the United States credibility on the world stage to kind of negotiate for the climate change treaty.

The knock-on effect to a lot of companies here in the United States is that if we do agree to some global accords, I think there's definitely going to be impacts to utilities, there's definitely going to be in companies that are very carbon-heavy and that are going to be taxed in some way for this.

So it could be interesting to see how this plays out, and it's something we're going to be keeping a close eye on.

Stipp: Sure. Some interesting ideas coming out of that. And speaking of ideas, we had Ideas Week on Morningstar.com this week, so we had analysts from our funds team, our stocks team, our ETFs team all weighing in on what they're seeing as potential opportunities for investors to get into in 2010.

As you looked over some of the material that we released this week, what stood out to you as some of the more interesting ideas?

Glaser: We laid out a lot of good ideas this week, but I think the three that kind of stood out to me were that health care still looks really undervalued. It's something we've been saying all year. But from the ETF team and the stocks team, they really saw that.

People are just still so afraid of the legislation that's coming down in health care that they've just sold off the sector. And there are some really good values there. And even in companies like medical devices that might not necessarily be that impacted by any potential health-care reform.

The second was the idea to invest in South Korea. That the Korean economy is starting to pick up a lot, with a lot of other Asian economies, but the stock market hasn't had the huge rise that some of the others did, which might imply that there's a little bit of opportunity there.

And finally was Christine Benz's suggestion that instead of necessarily trying to save a ton of money in a zero percent money market account, it might make sense for some people to pay against a mortgage because it reduces their debt; it's kind of a guaranteed return based on the mortgage rate, and that could be a better use of cash than a traditional savings account.

Stipp: So given those low yields, maybe put some of that money to use and get some of that debt paid off.

Glaser: Yeah, it's an interesting idea.

Stipp: Speaking of interesting ideas, there's an interesting, unorthodox indicator that we saw on the gold front this week. Tell us a little bit about that.

Glaser: We saw that MC Hammer seems to have taken an equity stake in Cash4Gold. It's one of those services where you send your gold in and they send you back cash. I think at the point that MC Hammer is getting involved in the gold market and there's that much hype about it, it might be a sign that we're in a bit of a bubble there. And that gold, as it continues to reach these new highs, might be a little bit pricey.

Stipp: So, Jeremy, if you had to say, "Gold: 2 Legit 2 Quit," or "Gold: U Can't Touch This," which one would it be?

Glaser: I would not touch gold right now.

[laughter]

Stipp: Thanks so much for your insights.

Glaser: You're welcome.

Stipp: For Morningstar.com, I'm Jason Stipp. Thanks for watching