Motley Fool Hidden Gems Investing - Motley Fool Money: 01.13.2012

Episode Date: January 13, 2012

Natural gas prices hit a 2.5 year low.  Six big hotel chains launch up a new online service. Google cranks up its presence in China.  And Sears deals with new financial woes.   On this week's show, our analysts discuss those stories and share some stocks on their radar.  Plus,  we talk with Peter Schweizer, author of Throw Them All Out: How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison. Learn more about your ad choices. Visit megaphone.fm/adchoices

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from fool global headquarters this is motley fool money welcome to motley fool money thanks for being here i'm your host chris hill and joining me in studio this week from motley full hidden gem, Seth Jason. For Motley Fool income investor, James Early. And for million dollar portfolio, Ron Gross. Gentlemen, good to see you as always. Good to see you, Chris. We've got the latest on retail, hotels, and Google's push back into China. We've got another iconic business filing for bankruptcy. And as always, we've got a few stocks on our radar, but we will begin with the big macro. The price of natural gas has fallen 13% in the past week.

It is now at its lowest point in nearly two and a half years, James. What is going on here? It is cheap, Chris. It's, I think, $2.77 per million BTU. Five years ago, it was over $16. So that's the equivalent of your car gas going from like $3 per gallon to $0.51 per gallon. It's that much of a pullback. A few things are going on.

Natural gas is a byproduct sometimes of producing other things like oil. And also, some of the leases that these gas companies sign require them to drill regardless of the price. So, in other words, they're not just stopping production like they normally would when the price of a commodity goes low. So, the big question, though, to me is what does this do for structural gas demand? Does this mean we're going to use more gas-fired electric generating capacity, for instance? What is the play here for investors? I mean, assuming you're not dabbling in commodities, I mean, is there a stock play? A couple of things, yeah.

I mean, it's obviously good for the half of Americans who use gas to heat their homes. Electricity rates could go down. Another thing, infrastructure companies like pipelines that ship the gas, Kinder Morgan, enterprise products partners, Buckeye Partners, those all are pretty solid plays regardless of the exact price of gas. But low gas prices also help fertilizer producers. They use a lot of natural gas. So Mosaic and Potash are two of those.

Yeah, another one would be Darling International. or others who use a lot of fuel as part of their manufacturing process, whether it's a feedstock or, you know, it's just firing kilns or something like that. One thing to be careful of would be companies that provide a lot of services or equipment to the oil and gas industry, the assumption being that if this stuff stays this cheap for much longer, that eventually they're going to have to pull back on exploration and extraction. 2012 is off to a rocky start for retailers among those issuing profit warnings target sears

william sonoma and tiffany uh seth that i don't so it's not just low end i'm not really all that surprised by target and sears but but tiffany and william sonoma is sort of the high-end retailers that's a little bit of a surprise should it be i don't think it should be i've been looking at all these numbers and i don't think there's uh much of an overarching takeaway except i think two things happened over the holiday season i think all of the retailers or so many of them were so eager to get their sales that they were you know they were out uh early early this year and i think they pulled some of the december sales which were sort of lackluster into november now november sales weren't great but they were okay and i think that americans are also accustomed to deals and i

know james for one went to the mall after and he never goes except when the sexy men are at Abercrombie. And he went hoping to see sales and they were sort of disappointing in the mall. I think a lot of consumers probably feel that way. But honestly, all these stores were having 50% off sales for two months. How much more can they cut? They can't. So I think consumers are a little bit tapped out, but I don't think it's a catastrophic pullback like we saw a couple years ago. Ron? Yeah, building on, I do think because December was so promotional, I think a lot of retailers have inventory that's pretty clean right now. So that's good from that perspective. Now we just need the demand to come in, and then everything should probably take care of itself

from both a pricing perspective and a margin perspective. But the demand obviously has to come in. Six of the biggest hotel chains in the world have united to launch RoomKey.com, a new online hotel search platform. Hilton, Hyatt, Marriott, Wyndham, Intercontinental, and Choice Hotels are the ones behind RoomKey.com. Ron, I look at this story and I have to ask, why now? Yeah, that's a good question. I don't know if now is, if there's anything that has happened specifically. They've actually tried to do this before, if you recall back in the day.

TravelWeb.com was one and that actually eventually got sold to Priceline. It wasn't really a success. I think now they're trying it again because, you know, remember these hotel companies have to pay 15%, 30%, sometimes more to these intermediaries like Priceline or Expedia. And I think they prefer to keep that money, obviously. So they're going to try to form this alliance to do so. And the website basically will take you directly to them so you can book your room rather than having to use these intermediaries. It's a little bit of a threat, I think, to these guys. It remains to be seen how much. Most of the business done by

Expedia and Priceline are independent hotel companies, not these big chains. So the new service, this new room key, will have much less inventory than the Pricelines and the Expedias of the world. It's going to be a huge competitor once the website actually works on my phone, which it didn't this morning. But once they get that cleared out, it's going to be awesome. I don't know if it runs on Flash or something, but it just didn't work at all. And then when I used it on my computer where it worked fine, it was pretty underwhelming. Of course, right now there aren't any reviews, which is one of the reasons that consumers will be adding it. And where are they going to get them?

Are they going to get them on their own website? If that's the idea, I think the game is over because companies like TripAdvisor and others have got that all wrapped up, booking.com. I think that they can make a dent here, but I think that eventually they fail because they're behind. The website business just has huge barriers to entry. Nobody can just start a website. Yeah, and the problem with that is that once you get an actual network effect, a lot of companies claim to have one, but some do have them. And so Expedia did with TripAdvisor, and if you go to Booking.com,

which I do whenever I need a hotel in Europe, they do have so many reviews. It's so useful that you're going to book through them. You're not going to go to a website run just by the majors and have a paucity of reviews. Paucity. Fancy. I think if there's one company maybe than the others that are more under a threat by this, it would be Expedia, probably, because they're more U.S.-focused. Priceline has more of an international business. I was going to say, yeah.

I mean, you look at two of the big hotels that are not involved in this venture, Starwood and Acor. I mean, they're much bigger in Europe. Exactly. So maybe Expedia is a little bit more nervous than the others. But as of now, I don't think this is a major big deal. Guys, remember two years ago when Google pulled out of China after butting heads with Chinese authorities over censorship? Is that rhetorical, or what's the answer? Yes, Chris.

Wall Street Journal reporting this week that Google is renewing its push to expand in China, doing some hiring. Seth, what do you think? None of that is evil, by the way. What do you make of this? None of that is evil. Well, it's evil, right? They're doing business with a company that does things that they find morally reprehensible. Country?

An entire country, yeah. And, well, you know, this wasn't just about censoring web results either. There's also the small issue that Google decided, I think they were correct, that Chinese intelligence agencies were trying to get into the Gmail accounts of various people in order to track what they were up to. And those are all very bad things. China's got a pretty bad record on this. The problem for Google is China is full of dollar signs, and the guys running Google, they want those. And so money is right now more important to them than the ethics.

I think they want to launch Android in the market too, right? Yeah, but that's all about money. I was going to say, I mean, how much of this is about just the basic search, and how much of this is about the Android operating system? All the analysis out there in the press now says this is about Android. But in the end, it's always about dollars for Google. And even the Android system is about search. It ultimately boils down to search. They still have, I think the Wall Street Journal said, 17% market share in search,

down from 35% in 2009 before they moved to Hong Kong. But it's still considerable. I was going to say, if you're Baidu or Cinecorp, if you're one of these companies that's benefited from Google not being in the market for all intents and purposes over the last two years, you can't be happy about this news, right? I mean, this has got to cut into their business. The question is, how much?

Like, how worried are Baidu and Sina Corp. now? It'll all depend on whether Google gets scrappy with the Chinese government again. Shares of Sears fell on Thursday on the news that CIT Group, which makes loans to small and mid-sized businesses, has reportedly decided to stop financing loans to suppliers waiting to get paid by Sears. Is that bad? Well, Ron, Sears downplayed the impact of this. You tell me, how serious is this? From a specific CIT standpoint, not that big a deal, but it's another nail in the coffin, which is the bigger deal. Sears is just not getting it done. Eddie Lampert, who now owns

60% of the company, personally and through his hedge funds, is chairman, been trying to turn this around for quite some time now, just not getting it done. Results are deteriorating, the stock's gotten crushed. And now we have people that are not willing to finance the inventory any longer. So, you know, it's a spiral. James? A dying horse is a dying horse. And it might be slightly less dying than the market thinks. You can make like a little bump out of it really quick, but it's still a dying horse at the end of the day. And people just don't shop at Sears. Which is very sad. It's so sad. I love my Ken Moore stuff. You know, great vacuum cleaner, great tools, Craftsman tools. I even don't hate

The old Sears store, it's near the homebrew shop, Seven Corners, and I go in there once in a while. The store is like a spaceship out of 1968. I've seen that store, yeah. They just don't update them. You just don't want to go in there. And Sears was such a hot stock for a while because everyone thought Eddie Lampert was a genius because of what he did at AutoZone, right?

Well, AutoZone was full of cockroaches and hairballs and stuff, right? And so his idea was, hey, you clean up the stores a little bit, maybe people will shop there. Doesn't work at Sears. And Sears, it was, you know, Eddie Lampert was a real estate play for a while. That's not working out either. I mean, these locations, I mean, they're closing 100 of them, both Sears and Kmart stores, to try to right-size these ships, the ship, but it might be too late. And right-size.

Sometimes companies just aren't hip anymore. And even if they're doing a decent job, they just don't do it. I mean, so at that point, the stock can be a bargain, but you have to be very careful about it. We talked on last week's show about Kodak gearing up to file for bankruptcy. Is Sears going to file for bankruptcy in this calendar year, do you think? That's an interesting prediction. Don't all retailers eventually file for bankruptcy? Isn't that the way it works?

I'm talking in the next 11 months. We would need to look at their balance sheet. If the financing continues to dry up and the liquidity dries up, then yes, right now they have enough liquidity. So it's not imminent by any means. Next 35 months, very likely. Yeah, there you go. Another iconic company going bankrupt, Hostess, the maker of Twinkies and Wonder Bread, is heading for Chapter 11 bankruptcy protection.

People aren't buying Wonder Bread anymore? It's the second time in less than a decade that Hostess is going bankrupt. They didn't get it right the first time. What is this, an airline? These guys, they could run an airline, the people running Hostess. This is a great triumph against one of the evils of all mankind. I mean, if only it were Chapter 7 bankruptcy, but I'll take it. Is that someone where they send them to hell and they burn everything?

Selling all the Twinkies out at half price. Sales of Twinkies did fall 2% last year, James. I'm assuming ... And that's enough to send them to bankruptcy? I pulled my purchases off the market. I know they're not going away. It's not Chapter 7. And it's not just Hostess Twinkies and Wonder Bread.

They've got the cupcakes, the ho-hos, the ding-dongs, the zingers, even the mini muffins. If you get one, if I promise you, you get one for the rest of your life, and only one Hostess product, Ron, what are you going with? I was such a big fan, and I haven't had them in decades probably, but of the coffee cakes, the little mini coffee cakes with the cinnamon crumb on top. Yep. That's what I'm going for.

You could just eat out of the sugar bowl at home. James, is there anything in the hostess menu that you're taking? Not now, but before I had Seven Cavities, I used to eat those cupcakes, those little, you know. The vanilla squiggle on top? Yeah, when I was like six years old. Seth? The snowball, something about the way it felt.

Something about the way the snowball felt, and I won't go any further. Drop us an email, radio at fool.com. Tell us your favorite Hostess product. Coming up, the business implications of Friday the 13th. Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against,

so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in the studio with Seth Jason, James Early, and Ron Gross. Guys, We had Friday the 13th this week, and according to the Stress Management Center and Phobia Institute in Asheville, North Carolina. It's an institute for everything. There really is. And why is it in Asheville, North Carolina? That seems like the least stressful place on earth. That's why it's there.

Oh. According to the institute, 17 to 21 million people in America are afflicted with Triskaideka phobia, the fear of Friday the 13th. The cost to U.S. business is an estimated $800 to $900 million because there are people who won't fly on Friday the 13th. They'll stay home from work, that kind of thing. It's an unbelievable number. Do you have a favorite phobia, Ron? I have an actual phobia.

It's unfortunate, but I hate or I'm nervous or scared of very significantly sized roller coasters. Okay, so like the hardcore roller coasters. Right, so, you know, when my son says, Dad, can we go on the whirly-girly smurly? I'm like, no, sorry. Sorry, Daddy's girly. James? I'm a little bit claustrophobic.

I've always thought the scariest amusement park ride for me would be some kind of a tube where you put your arms to your side, just slide down until it narrows and narrows, and you can't get out, and you just panic. Seth? The corpse disposal fees for that ride are just very too high. Seth is scared of both you and me. I don't have a lot.

I used to be a little more claustrophobic, but when I was poor and had to do a lot of plumbing and stuff in the crawl space beneath my house with giant bugs in my hair and sewage in my face, I lost that. I don't love flying. I need a little booze to get in the mood to fly. Chris, what do you got? You know, I get a little claustrophobic now and then. We're a mess.

We are a little bit of a mess. We'll get to the stocks on our radar in just a moment. But Matt Greer, our producer, back from his vacation in Hawaii, his well-deserved two-week break in Hawaii. Matt, for the folks listening at home, do you have any do's and don'ts when they're going to Hawaii? What do you got? Chris, I would say the whale watching, humpback whales, awesome. That's definitely a do. I'm buying the whales.

As far as don'ts, I would just avoid drinking Mai Tais, Baileys, while having chocolate-covered coffee beans all in the same evening. It's just not a good mix. So, just the Mai Tais. We're going with the Mai Tais. I would have been fine had I stopped there. All right. In the two minutes we have left, let's do the stocks on our radar. Ron Gross, you're up first. Sticking with the natural gas theme, our inside values, Joe Mager recently, actually yesterday, suggested I look at Range Resources, ticker symbol RRC, a natural gas exploration and production company, a low-cost producer. So, I'm going to dig in there and see what we find. Okay. James, what do you got?

Sticking as well with natural gas, I'm talking about Spectra Energy. Ticker is SE. This is an income investor recommendation with a 3.7% yield. This is sort of the whole kit and caboodle of the gas industry. Gathering, processing, storage, transmission, and distribution of natural gas. This kind of company would especially benefit if we see that structural demand shift. Okay. Seth, Jason, what do you got?

Screw natural gas. I've got one of those high-flying internet IPO things. Really and truly. Home away. The ticker is away. so it's easy to remember. One of those triple-digit PE, recent IPO internet things. You hate those.

I usually do, but I like this space, and the approach here makes sense to me. What they've done is they've gathered a bunch of what were formerly smaller or regional websites. This is a fragmented market, regional websites for renting vacation homes. And as you know, a lot of people out there are stuck with vacation homes they're not using. They thought they could sell. They can't. They could still afford the payments. and HomeAway puts renters together

with the people who want to rent the vacation homes and you go from there. And so I think they have a good opportunity for national scale and they seem to have a pretty good market share. And I just like the looks of it. It looks like one of those companies that could take the whole thing.

Aren't you afraid about like crazy people coming to your vacation home? Well, I think anyone who's got a vacation home is a little bit crazy to begin with. But yeah, that's definitely something you need to worry about. But that's what insurance is for, right? All right.

Seth Jason, James Early, Ron Gross. Guys, thanks for being here. Thank you, Chris. Coming up, members of Congress have an unusually great track record when it comes to picking stocks. Best-selling author Peter Schweitzer shares why that is and why it needs to stop. My bills are all due, and the baby needs shoes, and I'm busted. Cotton is down to a quarter of a pound, but I'm busted. Stay right here. This is Motley Fool Money.

Welcome back to Motley Fool Money. I'm Chris Hill. Insider trading is against the law, unless apparently you are a member of the United States Congress. Then it's completely legal. Peter Schweitzer is a fellow at Stanford's Hoover Institution, and he's the author of the new bestseller, Throw Them All Out, How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Deals, and cronyism that would send the rest of us to prison. Peter, welcome to Motley Fool Money. Hey, it's great to be on with you. Thanks for having me.

There is a lot to get to here, but I want to start at the beginning of this project for you. How did you come up with the idea for this book? Well, you know, somebody sent me an article that appeared in an academic journal a few years ago. It's a journal called the Journal of Quantitative Economics. If you have trouble sleeping at night, this might be a good place to go. But this study was actually very interesting because these scholars looked at 6,000 stock trades by U.S. senators, and what they found, shockingly, was that while the average American tends to underperform the market averages, the average corporate executive beats the market by 5% a year, and the average hedge fund beats the market by 7% to 8% a year. This study found that U.S. senators beat the market by 12% a year. And, yeah, so it left me wondering, you know, okay, gee, either these guys are really, really smart geniuses that I don't give them enough credit for, or something else is going on.

And it really only took me a split second to say, you know, I think something else is going on. And, again, there's so much research that you and your team did for this book. How did you go about connecting the dots? Well, you know, it was very difficult. What we really wanted to do was show and sort of overlay the financial transactions of members of Congress. They're required to disclose them once a year. They're required to show what their holdings are and also the dates of transactions, but they only give the amounts in ranges.

So you don't know exactly how much money they're trading. But we took that material and then we looked at their legislative activity or things that were going on where they had access to special information. Like, for example, during the 2008 financial crisis, they had a lot of closed-door meetings with, you know, the Fed chairman and Treasury secretary. And once we overlaid those, you know, we found astonishingly that, you know, people who serve on financial committees were aggressively trading bank stocks. Those that are, you know, involved in the health care bill, the health care reform debate in 2009,

were aggressively buying and selling all sorts of health care-related stocks, and it was kind of stunning. So once we had this overlay, then we started to track to see, you know, what sort of investment decisions they were making and how they did in terms of those investments. Why are we just hearing about this now? I mean, if this has been going on for this long. Well, it's a good question.

I think for a couple of reasons. Number one, it takes a lot of work because they don't file their financial disclosures even electronically. I mean, you'd think this is the 21st century, but they will fill them out on paper, and they basically are put somewhere by the ethics committees. You have to really go and find them and get them. The second thing is that, frankly, I think, you know, journalists in Washington, D.C., that cover Congress are in a bit of a quandary.

The example that I would give is, you know, imagine that you are the sports reporter covering the baseball team, and you write a story that says, you know, the owners are drunk and the players are corrupt, guess what? You're not going to get invited into the locker room anymore. And I think that a lot of reporters in Washington face that dilemma. If they start reporting these kinds of stories, they're not going to get leaks. They're not going to get exclusive interviews. So I think the media has, frankly, in Washington, been much more of a lapdog than a watchdog because they don't want to lose their access.

You're listening to Motley Fool Money, talking with Peter Schweitzer, author of the new bestseller, Throw Them All Out, How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Dills, and Cronyism That Would Send the Rest of Us to Prison. There's a lot there in the subtitle. Let's start with the insider stock tips. Could you elaborate on some of the ways that politicians, let's just take John Kerry, for example. He's one of the people that you cite in the book. How is John Kerry, who was already a wealthy guy to begin with, how is he doing it? Well, that's a great question.

What's so interesting about insider trading, whether it's in the private sector or in Congress, is that whether you're rich or poor, people are tempted to do it. In the case of John Kerry, here's a guy that was very much involved in writing and structuring two big pieces of health care legislation. One was the 2003 benefit for Medicare to add a drug prescription, drug benefit, which basically was a huge boon to the pharmaceutical industry. Carey, at the time he was helping that bill go through the Senate and craft it, he was actually, the investment funds that he and his wife owned were actually aggressively buying big pharma stock.

And they had a capital gain of about $2 million on those big pharma stocks. And again, in 2009, during the debate over health care reform or Obamacare, whatever you want to call it, the same thing applied. He was dumping companies that were going to lose in that reform, and he was buying companies like generic drug manufacturers who were going to be winners. This is perfectly legal. It's deemed ethical. But, you know, were you to do this while you were working for a company, you would face either fraud charges or insider trading charges because you're just simply not allowed to mix your investment decisions with, you know, private information or knowledge that you have of what's going to happen to your company. Every time that you are a member of Congress who is, you know, buying a stock or selling a stock, there's somebody on the other end of that transaction that is not privy to the information you have. So, you know, to pick an example, during the 2008 financial crisis, on the evening of September 18th, there was a closed-door briefing with the Treasury Secretary and with the Fed Chairman, Ben Bernanke. And as Paulson recounts in his memoirs, this was an apocalyptic briefing.

They said that, you know, the market's going to go down at least 20 percent. We're looking at a major economic crisis. Well, people that were in that meeting, members of Congress, the next day, lots of them went out and dumped their shares of stock. And the Dow at that time was at about, it was over $11,000, and within three weeks it would be down to $8,000. So they were able to avoid those trades, and when you're buying and selling stock, there's somebody on the other side of that transaction. So I don't think it's totally a victimless crime. You're listening to Motley Fool Money, talking with Peter Schweitzer, author of the new book, Throw Them All Out. one of the things that is clear from your book, Peter, is that for people who are seeking

bipartisanship in Washington, D.C., they can certainly find it when it comes to insider trading, because you mentioned Senator Kerry. John Boehner, the Speaker of the House, he's in your book for buying shares of different public companies as he's, you know, essentially killing the public option on health care. Yeah, I mean, this is not something that is a partisan an issue. I mean, the bottom line is human nature is human nature, and politicians to varying degrees are looking out for their own financial interests. So yes, John Boehner was doing it. Another Republican that I think was particularly egregious is Spencer Backus, who was the ranking member of the House Financial Services Committee. He was at that apocalyptic briefing that I just

mentioned, whereby they were told the market was going to go down significantly. Literally, the next day, he went out and bought something called ProShares Ultra Short QQQ, which is a leveraged option buy, a leveraged betting that the market's going to go down. And he literally doubled his money in a matter of a couple of days based on that information. And he wasn't done, by the way. He did 40 options trades during the financial crisis and made tens of thousands of dollars doing so. So yeah, this swings to both parties, and I think it's one of those reasons that we haven't heard a lot about it, because both sides have a motive and an incentive to keep it quiet. Well, and just to pick one other example, also in the financial space, but just

sort of outside the big banks on Wall Street, you had Nancy Pelosi, who was the Speaker of the house. At The Motley Fool, we're constantly cautioning people to stay clear of IPOs because you want to see how a public company performs as a public company for, you know, maybe six, 12 months. But in the case of Visa, Nancy Pelosi got in on the IPO, and it really seemed to work out well for her. Yeah, particularly IPOs that are in demand like Visa, which was, you know, a very profitable company, everybody wanted stock, and they simply were not able to because there was so much demand. The Pelosi's, however, while she was Speaker of the House,

were given access to 5,000 IPO shares. They were able to buy it at $44 a share. The day it went public, the next day it was up to $64 a share. And within a matter of a couple of months, it had doubled. It was trading at over $90 a share. So they did very well. They made several hundred thousands of dollars on that transaction. And here's the bottom line. When they took that from Visa, there were two pieces of legislation that Visa was very concerned about that had been introduced in the House that would deal with merchant fees, which is where Visa makes its money. Those bills came out of committees with bipartisan support, but as Speaker of the House, she just simply did not allow them to come to the House floor for even a vote.

So Visa basically had that legislation delayed for not one year, but two years. And the Pelosi's did well. Visa got what it wanted. And I think it raises real concerns about conflict of interest. Coming up, we'll continue the conversation with Peter Schweitzer and talk about some of the biggest offenders. We'll also play a round of buy, sell, or hold. Stay right here.

This is Motley Fool Money. You're listening to Motley Fool Money, talking with Peter Schweitzer, author of the book throw them all out. Politicians and their friends get rich off insider stock tips, land deals, and cronyism that would send the rest of us to prison. When it comes to trading stocks on privileged information, because at The Motley Fool, we're very focused on stocks. Who are the most egregious members of Congress? I know we've talked about a few, but who are the most egregious? And please tell me that on the flip side, There are some shining lights, some members of Congress who are actually being not just above the board legally, because as you've pointed out, this is all legal, but they've really gone beyond the call in terms of being highly ethical.

No, I think that's a great point. I mean, I'll mention one liberal Democrat and one conservative Republican that, you know, if you look at their financial investments, you look at what they do are very clean on this out of principle. The liberal Democrat I would mention would be Barney Frank, who is the once chairman of the House Financial Services Committee. He's from Massachusetts. He's retiring. He does not invest in stocks as a matter of principle. He puts all of his money into municipal bonds.

On the Republican side, you could take a conservative like Michelle Bachman, who basically does the same thing. She's from Minnesota, had an ill-fated presidential run here. She's the political opposite of Barney Frank, but she does the same thing. And there are others, and I think we need to applaud them. I would look at the stock traders and say that, you know, John Kerry and his wife have a lot of assets. They do a lot of stock transactions that seem to be patterned on legislative activity. So he would be somebody I would pick on the Democratic side.

Spencer Backus, who I've mentioned, I would pick on the Republican side. He is an aggressive trader in options. I'm sure you've talked about it, Motley Fool, about how that is a very high-risk investment strategy. Most people don't make money. They lose money doing that. But Bacchus has done this for years, and he does it in trading stock options in companies like United Airlines, for example, or Sony Corporation, or General Electric. And he does this when he's privy to all sorts of information.

And although most options traders lose money, he consistently makes a lot of money. In fact, I think it was in 2007, he made $160,000, which was the equivalent to his congressional salary. Maybe these guys should open up a side business where they can basically be brokers. Because if someone's got that kind of track record, if they're getting those kind of returns, I would think seriously about investing my money with them. Well, what I would do is I think Motley Fool needs to set up a congressional index fund. You know, if we could get these guys to do instant disclosure of their financial transactions and Motley Fool were to just track their investment choices,

we would all be beating the market by 12% a year. So I think maybe that's the future direction we need to go. We've talked a lot about the problems as you've laid them out in your book. Let's think in terms of solutions. there is a bill before Congress right now, the Stock Act. It does have wide bipartisan support in the House. I think it has over 240 co-sponsors. This would effectively kill the type of insider trading that we're talking about. I'm curious, what do you think about that legislation and the chances that it has in the new year to pass? I think the Stock Act has a pretty good chance

a passing, and I think it's a good step forward, but I don't think it goes far enough. And simply because what the law does is it makes congressional insider trading illegal. The question is enforcement. You know, is the Securities Exchange Commission really going to go after, say, a powerful congressman on this issue? And past experience is not good. I mean, when the FBI was investigating William Jefferson, the congressman who famously had the money in his freezer.

In his freezer, yeah. Yeah. When they got a search warrant to search his congressional office, both political parties said that this was a breach of congressional privilege, and they threatened to cut the FBI budget. So I don't think the FCC is going to enforce it. I think that we should pass the bill out of principle. I think we should also pass something that's been introduced called the Restrict Act. It's been introduced by Congressman Duffy and has co-sponsors from both political parties. Duffy's, I think, is very good in that he would basically give members of Congress an option. Number one, you need to put your assets in a blind trust, and one that's certified and recognized as a blind trust.

Or, if you don't want to do that, you have to disclose all of your transactions within three business days. So, in other words, if there's a health care bill on Capitol Hill, we could see on a website that this congressman was buying or selling big pharma stock. And I think transparency would be a huge step forward. So I think we need both of these bills to be passed. You're listening to Motley Fool Money, talking with Peter Schweitzer. His new book is Throw Them All Out. What surprised you the most when you were working on this book?

What surprised me the most is that, you know, wealthy members of Congress did this. This just wasn't the guy who was kind of scraping by and trying to make money. And, you know, how large some of the amounts were. I mean, literally during the health care debate, for example, you had a congressman from Colorado, Jared Paulus, who's very wealthy, making multimillion-dollar bets on health company businesses that were going to benefit from health care reform, which he was supporting. So the sheer amounts in some cases and the frequency of these transactions by members of Congress really stunned me. What is the response on Capitol Hill been to your book? You know, it's been mixed. What I found is that in Washington, D.C., the response has been to sort of, you know, attack me or to sort of say it's not that big an issue. The response around the country has been the opposite. You know, it's been on the bestseller list now for six weeks.

People are very angry and frustrated about it. You know, the media interest has been keen. And, you know, people from both political parties have really adopted the mantra that I've said, which is, you know, even if it's your guy that's doing this, we have to have a zero-tolerance policy. I mean, you know, for example, I'm a conservative Republican. If a conservative Republican is doing this, I need to vote against him and help throw him out of office because they use the fact that, you know, they're with us on the issues to justify themselves staying into power and enriching themselves. And I think we need to stop, or otherwise this problem is just going to get worse and continue. Peter, we are going to wrap up with a round of buy, sell, or hold. Let's start with buy, sell, or hold, the future of the euro. Ah, sell.

Tell me why. I think that the European experiment was nice in theory, but I think you've got political cultures in southern Europe that are so different from those of Germany and elsewhere that it's just simply unsustainable. in the current situation. So I think the euro is going to have a hard time, you know, dealing with sort of the German vision of the euro and financial responsibility and the tendency of southern European countries to, you know, spend beyond their means. As I mentioned, you're a fellow at Stanford's Hoover Institution. This is someone who previously held a post at Stanford. Buy, sell, or hold the chance that former Secretary of State and self-avowed football fan Condoleezza Rice one day gets her dream job as commissioner of the NFL? Oh boy, that's a good

one. I would say buy that. I think that the NFL would like it. You know, football 50 years ago was essentially a man's sport, so to speak. It's not so anymore, and I think they would see the merits of having somebody with experience and maybe a different demographic than has been in that position in the past, leading it. So I think she'd be a great commissioner, and I think the chances are probably pretty good. And finally, one of your previous books was made into a documentary, so buy, sell, or hold a feature film version of your new book, Throw Them All Out. I would say buy, because I think everybody likes to see politicians that are acting in corrupt ways get called out, and that would have to be the theme in the script of the movie.

And who would play you in the movie? Oh, that would have to be George Clooney, right? I was thinking the same thing, you know? You wear glasses, we'd throw some glasses on Clooney, give him sort of a bookish look, and he'd be perfect. That's right. The book is Throw Them All Out, How Politicians and Their Friends Get Rich Off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison. Very thought-provoking stuff, a lot of great ideas. Peter, thanks so much for being here.

Hey, thanks for having me. That's it for this edition of Motley Fool Money. you can check out video highlights at FoolTV.com. You can also check out our daily podcast, MarketFoolery, at MarketFoolery.com and on iTunes. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.