Motley Fool Hidden Gems Investing - Motley Fool Money: 01.15.2010

Episode Date: January 15, 2010

President Obama wants to impose a fee on TARP recipients. Is it an unfair tax or a "financial crisis responsibility fee"? Google gets hacked over its Chinese site getting hacked. Should the Internet giant leave China? And Conan and Leno continue to battle it out. What does it mean for investors? All that plus three stocks for on our radar. Learn more about your ad choices. Visit megaphone.fm/adchoices

Stop wasting your nights on a mattress that doesn't get you. Experience the most comfortable mattress in the world. The Sleep Number Smart Bed. At the touch of a button, you can personalize your comfort. Choose firmer or softer. Adjust cooler to warmer. And right now, save up to $2,500 during our massive Labor Day event. Hurry into your local Sleep Number store today.

Because we have your number. Welcome to Motley Fool Money. I'm Chris Hill, and I'm joined by Motley Fool Senior Analysts Seth Jason, James Early, and Shannon Zimmerman. Guys, good to see you. Good to see you, Chris. All right, before we jump in, we should mention that the week's news was dominated by the earthquake in Haiti and all of the human relief efforts that are going on at the moment. It's kind of the event that really puts everything in perspective, and our thoughts go out to everyone involved. Shannon, did you want to weigh in? Yeah, it's just obviously a terribly sad story.

I encourage everyone to read David Brooks' column in the New York Times. He points out that when we had a magnitude 7 earthquake in California, 63 people died. And so Haiti experienced a magnitude 7 quake. Apparently 50,000 people have died as a result of that. And Brooks writes that it's really a story about poverty and about the way developed nations use aid well or not so well. So I encourage everyone to read it. It's an interesting article about a very tragic event. All right. With that said, let's turn to some of the other news this week, and we'll start with the big macro. President Obama wants to impose a fee on banks that receive TARP money.

He's calling it a, quote, financial crisis responsibility fee. But others are calling it a tax, and it would need congressional approval. James, is it a good idea? You know, actually, it sounds bad, but I think banks should be rejoicing, Chris. This is more like a friendly little pat on the butt versus a full-on. Like in the NFL. Seth's giving me a knowing look. As opposed to, like, taking them out back and hitting them with a switch.

Exactly, exactly. The old-school corporal punishment with the hole drilled in the paddle. Yeah, I mean, this is a 0.15% tax on basically anything but the safest assets, like deposits, things like that. And it's supposed to collect up to $90 billion or more, I should say, over about 10 years. probably going to ding banks' bottom lines by a single-digit percent, at least this year. I don't know what the future is going to look like, but I think it could have been a lot worse.

The real big bailout was not the TARP. This is just public window dressing because the banks are sort of easy pickings for that. It was low interest rates. The banks really, really benefited from that. Let's ask for some of that money back. How many billions do we get for that? Low interest rates are almost like stealing from people. Because when you have deflation, especially, that hurts everyone's purchasing power.

But the public doesn't really understand that, unfortunately. They do understand TARP. So, yeah, I think this is great if this is all there is. I'm sure the bank CEOs are seeing it exactly that way, aren't they? No, they're pretty ticked off. Yeah, I think J.P. Morgan wants to pass it on to consumers. They're going to say the same things they say about everything, which is that, you know, and already there are lobbyists and there are puppets in Congress are already saying,

if you put up taxes, they'll stop lending, they'll do this, they'll do that. I don't think they'll actually pass this along to consumers the way people claim, of course, because it's only going to hit the top 50 banks. And so to pass along these tiny fees would put them at a competitive disadvantage against those other banks. The other thing is that I think you need to put this into a little bit of context. According to a Wall Street Journal article that came out, I believe it was today. Anyway, I'm reading it this week. And bank pay is up 18% for the year, which is about $21 billion.

So this is a $9 billion. This is two years' worth of increases for bankers. And, you know, come on. Anybody can make money borrowing at nothing and lending at more than nothing. And so on the one hand, the administration should stop feigning shock because they gave these guys a license to print money, and of course they're going to divert a large portion of it into their own pockets. Yeah, well, to me, it's such a no-brainer.

And the fact that it took this long to devise and announce it, Just another indication of how Washington, to pick up on Seth's puppetry analogy, is just the Goldman Sachs break room. You know, it's amazing to me that this is, well. Shannon, really bring in the heat. Can I try this again? That was so good. That was so good. I demand you keep going with that.

In fact, the vampire squid. Go to the vampire squid. Let it roll, baby. So if it passes, and it's tough to pass any kind of tax increase during a campaign season, But this populist furor that's out there in the nation is something that will give politicians something to demagogue around. So maybe it will actually pass. And if so, that's 100% fine. Because even at $90 billion, if that's what this recovers, that won't cover what taxpayers are going to be out.

The current estimate is about $117 billion. And so President Obama, who said we're going to get back every dime, well, apparently not. Yeah, and you get it back later, which is the same as getting back even less. There's a time value for money. That's right. Yeah, but I mean, if we're not going to get the full $117 billion, hey, $90 billion is close. That's $90 billion more than we got right now, isn't it? Yeah, but you know what?

A dime, it's more than a dime. Fair enough. Let's move on to China, where earlier in the week, Google disclosed that hackers had gained access to Gmail accounts of Chinese human rights advocates in the U.S., Europe, and China. At least 34 companies, including Yahoo, Symantec, Adobe, Northrop Grumman, and Dow Chemical were attacked. Google has decided to stop its self-censorship of its site in China

and may shut down the site altogether and close its offices there as well. Chinese authorities defended online censorship and encouraged users to censor themselves. Seth, what do you do if you're Google in this situation? I think you do what they're doing. I normally don't have a lot of very nice things to say about Google. They're one of the most overrated companies around. But Larry Page and Sergey Brin, who I guess are the guys who are behind this, golf clap for them, apparently Eric Schmidt

this is great I still get to continue to hate him because he came with the argument that if you just let them do this it's better to engage with China and then help open them up that is a crock the Chinese, I wanted to say aristocracy

that's sort of what it is, the party in China is not going to let Google do whatever it wants, it's not going to let any company do that there's no way to engage China into openness so this took some real guts for Page and Bryn to say, listen, we're potentially willing to give up $500 million, $600 million a year in revenue

because we can't live with what this means. They can't look in the mirror. Totally agree. I mean, I'll say this hoping it doesn't jeopardize my access to low-cost dog food and children's jewelry, but I'm glad to see Google get a backbone here. I mean, this is a great move. Academy of Laced Children's Jewelry, right?

Yeah, I'll believe it when I see it, but it's such a useful story. You know, back when we had most favored nation status that had to be reauthorized every two years, Investors in China, and I'm one through mutual funds that I hold, had to look themselves in the mirror every two years and say, hmm, is this the kind of country that I really want to try to profit from? Well, that conversation has gone away because the most favored nation status has gone away,

and it's a permanent relationship now. So if Google actually does pull out, that will be something. But even if they don't, this is an opportunity for everyone who's invested in China to think about what they're investing in. Now, what about Baidu, which is the big search engine in China? I mean, are they, I mean, you gave them off applause. They're doing somersaults. They're doing handspring.

Yeah, woo-hoo. They're capering. I wonder if Motley Fool money is available in China. You know? Not after today. Maybe not after this, yeah. I think we're going to be shut down. All right, guys.

Shocking news from the world of retail sales. According to a report earlier this week, turns out retail sales fell 0.3% in December. This came as a surprise to analysts outside of this studio, many of whom predicted increases in December of 2% or more. Do we have any tape from last week? I'm sensing we're not really shocked by this news since last week. Nobody could ever have predicted. What do you know?

Oh, except that we did. Come on. I mean, everybody knows this is coming. And this is a stimulated economy. This is some pretty terrible news, but I will one-ups you if I can here. Consumer sentiment numbers still below normal recessionary levels and certainly far below the levels you get when you're about to turn the corner out of a recession. Industrial production and capacity utilization, wow, it's up in December.

Oh, except that nearly 6% of that is owed just to electricity and gas production because it was really cold. If you look at manufacturing, actually lower. So, in other words, most consumers, the people making stuff, don't really believe we've turned the corner. We had an inventory bounce, and that was responsible for a lot of the growth that we saw. And, you know, in the face of 10% unemployment that we'll feel the effects of well after the economy gets back on its feet, the retail sales numbers are not going to be robust at all. Let me widen the lens slightly here, because the phrase happy talk is a phrase that you guys used last week. We've used it before in this room. Is that something that investors who are looking at

retail stocks, is that something that they should begin to be worried about? It seems like there's a pattern here of almost analysts willing to believe anything to take the rosiest scenarios. Wall Street, stocks in general have gone crazy. On days of bad news, people say, well, this is great because it means the Federal Reserve will keep the spigots running. And when there's good news, that's good news. So bad news is good news. Good news is good news for the stock market. And that's just how things go. It was a while ago when, well, okay, there wasn't a whole lot of good news but even if there was something it would have been painted as bad news so it's just how we're people and we're all insane but do you think that for retail in general speak for

yourself that people should that investors should be not only taking what is being predicted with a grain of salt but maybe with a pound of salt with a salt lick well james go ahead all right uh so what i was going to say is that even if you're the world's most wide-eyed optimist about the u.s economy, you have to ask how much of the recovery is priced into a market that is up more than 60% since its March lows. And in the retail sector in particular, I think, I don't know, a dramatic level of the recovery is already priced in, perhaps all of it is. But, and it depends from company to company because some of this, you know, if there are, you know, restaurants or other businesses out there that are going under, then presumably the survivors are picking up some of

what's left over. And so it might mean things are fine for certain stocks depending on where they're priced. So yeah, you have to pay close attention to, but you really kind of have to get into the details in the individual companies, which is, we've said that maybe a thousand times too. And finally, since everyone else is weighing in on the NBC late night debacle, we figured we would too. This week saw Conan O'Brien, David Letterman, Jimmy Kimmel, and others all teeing off on Jay Leno and NBC. Personalities aside, there are tens of millions of dollars at stake, not to mention the reputation of the NBC network, which is set to become the property of the Comcast Corporation. Guys, who has the most to lose in this whole scenario?

Because part of me thinks it's Comcast. I think Jay Leno does. So it looks like, well, first of all, I should say that I loved Conan's statement. And the fact that it began, what was the opening line? People of Earth. People of Earth. And it ends with some reference to his hair. I think it looks like Leno's going to get his 1135 slot back.

Conan's going to move on. And the interesting thing is, what will this do, if it will do anything, to the ratings race between Letterman and Leno, which was over back when OJ was looking for the real killer. And so maybe this will rekindle that. But in terms of Comcast, I mean, they kind of have to be worried, because Comcast went out and bought NBC, and their strategy was essentially, we've got the pipeline with our cable network, with literally the pipes, and now we've got this great new shiny toy full of content. And now that shiny toy is starting to get a little bit of rust on it. Yeah, but I mean, this is, I think it's tough to figure out exactly how much the Tonight Show is worth or whatever the Leno show is. What is it worth? I've seen estimates

that point to maybe a couple, 250 million a year in ad revenue. And if you look at all of Comcast's 30 some billion in revenue, this comes out to under a percentage. So shareholders don't have a whole lot to worry about here. And as for the rest of it, I don't think I've watched late-night TV for about five years. Well, you know, you're kind of a curmudgeon like that, James. Yeah, you know, what interests me

is that the decision made... Conan O'Brien is not mainstream humor the way Jay Leno is. And I'm saying this because if you look at the ownership of media companies, especially newspapers, but just in general media, you know, they have these weird share-class structures that often give super-voting shares to an owning family.

And the idea is to prevent decisions exactly like this, where this guy, was it Jeff Zucker, who now wants to kick Conan off, was actually the one who I think originally signed the deal with Conan to give him the late-night slot. So it's a strange decision, probably from the bowels of bureaucracy, and they're paying the price. So not that I'm defending bizarre ownership, but it does prevent stuff like this. All right, Shannon, you said that Leno has the most to lose, as we do from time to time.

If you could buy shares of Leno, Letterman, or Conan O'Brien, which one would you be buying? I would double down on David Letterman, I think. Really? He was just as funny as he ever was, and now his star is shining a little brighter than it was. And it comes out of the sex scandal, I guess, and the way he handled it in a very forthright way. James? I think Leno is way funnier than all of them. combined i mean definitely you cannot possibly mean that you i really do you're not saying that

out loud david letterman is the kind of humor you have to like want it to be funny it's like a disciplined humor but leno is more more now to me to me i think that's true i would love to be able to be hip enough to say that i enjoy letterman more but leno makes me laugh more and letterman letterman's a little bit like uh wait wait don't tell me or some of those the shows i listen to on the weekend on public radio that they're not funny until you've listened to them for a while and then they get funny. This is what happens when you become

so reflexively contrarian you actually adopt the mainstream position. Exactly. Exactly. It's like the old John Waters thing when he said

basically children of earth if you really want to have the craziest haircut possible what you need to do is get your haircut exactly like your father.

Steve Broido can you jump on my care? I'd love to get your thoughts on Leno Conan O'Brien David Letterman are you buying shares of any of them?

Not really, no. I don't really watch a lot of late-night television, either. I think Conan probably will come off the best, because I bet he'll move to Fox. He'll probably start something very new and exciting and interesting. Do you think he'd want to come talk to us about it? Totally. Absolutely. Who wouldn't? All right, before we get to stocks on our radar, on last week's show, I promised we'd be sharing some big news about the future of Motley Fool Money. And the news is, quite simply, that Motley Fool Money is making the leap from podcast to broadcast.

Starting the weekend of January 23rd and 24th, Motley Fool Money is going to be a weekly one-hour radio show syndicated to stations across America, coast to coast. We should have clapped a while ago. We should be cheering this whole time. For our regular listeners online, you'll be getting the same show you're used to, plus additional interviews, investing segments, and anything else fun that we can think of. And no stinking pledge drives. Exactly.

No pledge drives. The show will still be available online, but we hope you're going to help us spread the word to radio stations in your area. We're going to be putting information on the radio show on MotleyFullMoney.com, so check that out in a few days. We'll have information about which stations are carrying the show, even photos of the guys here in the studio. You know, that's really a move for our 17 listeners who want to know exactly how handsome James Early is. All right, with that, let's look at the stocks that are on our radar. Shannon, we'll start with you. Well, so this week there was a little bit of news out of Walmart.

They're shuttering some of their Sam's Club operations, and it's basically a wash. They're closing some, they're opening some others. The subtext there, though, is I think that they see Costco executing a brilliant business concept perfectly, and they want more of that action, and maybe the rejiggering is going to help them to do that. So my stock on my radar is Costco, a fantastic company that I think is going to shine, especially bright into the year ahead, given the economic circumstances that we find ourselves in right now, discount retailing, deep discount retailing is the place to be. This is a company with a bulletproof balance sheet, unbelievable management team. And it looks a little pricey

right now, but you pay for that kind of quality. And I think the Costco is certainly worth putting on your watch list. C-O-S-T is the ticker. James Early? Chris, I have been looking at REITs for time to time. REIT stands for Real Estate Investment Trust, if that acronym is new to you. These are basically holding companies that hold real estate and collect money, and they have been beaten down really hard in the credit crunch. They've bounced back a little bit. Just because those rents are dropping like 10%? Yeah, you know, hey, little things like that.

Things like that just happen to affect the economics of these businesses, yes. So one that I think is as good as any is, ticker is O, Realty Income Corporation. It has a bunch of different properties around. It's a pretty diversified REIT with a good management, owns about 2% of the business. I think it's a solid 6.24% yield according to Google Finance, although I should be quitting from the Motley Fool site. If I'm quoting from Google, so be it. See how they've got that market share.

So that's my stock. So, Jason. Oh, jeez, which joke do I go with? The opposite of Costco or the company that could maybe use a pledge drive in the near future, which would be Abercrombie & Fitch. They are, wow, their sales have been terrible lately. They just continue to return these comparable store sales in the negative high teens. So is it on your radar as a short?

It is on my radar as, you know what, I have trouble shorting any of these companies, but it's finally, the price was levitating against gravity for quite a while in the face of some really horrible sales reports, and it's just started to crack. I recommended Abercrombie a couple years back in one of our year sort of look-ahead products, but at the time I said watch out, and if they put up a string of bad same-store sales, you need to watch out and get out. And I think we're at that point. I think Abercrombie is not only suffering because it charges too much and there's low-cost competition like Aeropostale and others, but I think that if they stay unpopular for economic reasons for long enough, they will sort of lose their popularity that they had before, which is sort of based on price. And I think Abercrombie might sort of be done. So if I own shares, I'd look at getting out.

And if I was feeling really spicy, I might short. Because you think American Eagle and Aeropostale have just basically taken over that look at a lower price, and that's that. I think there's a lot of competition for that look, yeah, and I just think that Abercrombie is proving that it doesn't know what to do to counteract these same-store sales drops. Maybe you could take Shannon shopping there and spruce up his wardrobe a little bit

and help out Abercrombie and Fitch, too. Yeah, I don't think Shannon— I need a midriff-exposed operation. Neither one of us has the pecs for that. All right, Seth Jason, James Early, Shannon Zimmerman. guys. Thanks for being here. Thank you, Chris. That's it for this edition of Motley Fool Money. As always, people on the program may have interest in the stocks they talk about. Don't buy or sell stocks based solely on what you hear. Do your homework and make your own

decisions. Thanks for listening and tune in next week for our first radio show version of Motley Fool Money. You won't want to miss it. I'm Chris Hill, and we'll see you next week. Thanks for watching!