Motley Fool Hidden Gems Investing - Motley Fool Money: 06.08.2012

Episode Date: June 8, 2012

Our analysts discuss some of the big investing stories from 2012 and share some stocks on their radar.   Plus,  journalist Andrew Blum talks about his book,  "Tubes:  A Journey to the Center of the Internet". Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill. And joining me in studio this week, for Motley Fool Inside Value, Joe Mager. For Motley Fool income investor, James Early, and for Million Dollar Portfolio, Ron Gross. Gentlemen, good to see you. Good to see you, Chris. We are stepping back from the week's news. We are going to do our mid-year review because you know what? We're not waiting around like all the other shows. We're doing our mid-year review now. We're not even waiting for the middle of the year. We will get to predictions and sort of forward-looking stuff a little later in the show, but I want to start with sort of where we've gotten to so far in 2012. Ron, I'll just start

with you. What's the business story of the year so far, as far as you're concerned? For big story, I got to go macro. Weakening global economy. 14.8% real unemployment in this country. Europe about to implode. China growth is slowing. Things are not good globally. That creates opportunities, yes, but it does create some pain. And it is the biggest thing that's going to impact the stock market over the next year or two. James, what do you think? Chris, for magnitude, I kind of have to go with Ron and say that Europe, the Eurozone doesn't work. We saw this coming for a long time now, which has really kind of come home to roost. It's derailing the whole economy, as Ron knows.

Reggie Middleton has been calling this for some time. Reggie. Shout out to Reggie. It's really a big, big issue to me. James, we see different predictions from time to time with respect to Greece exiting the EU. Where do you put those odds? I saw earlier this week someone, I think it was Standard & Poor, came out and said now a one in three chance. Do you think that's high? Do you think that's low or spot on? Yeah, maybe closer to 50-50 even.

I saw a funny study, Chris, a survey about Europeans. And one of the questions was, what group is the hardest working group in Europe? And pretty much everybody said the Germans, except the Greeks who said the Greeks. So they're really like kind of a different batch. I've been to Athens. It is not the Greeks. No offense. Joe Mager, what's your business story of the year so far? Well, the Facebook IPO.

It was like the Beatles got back together and then went public. It was just such a huge hype story, which it was like Y2K just turned out to be a total bust. But it was a huge story. Do you think it was ultimately a good thing for the market? I mean, the fact that it is trading below where it IPO'd? What do you think, Ron? Is this sort of a sign of sanity with the investing? Yeah, I like to see the little mini bubble pop.

It is a sign of things getting back to a little bit more normal and people saying, you know, that valuation just wasn't appropriate. And the market is self-regulating. sometimes. Eventually, it gets back to where ... Now, if you're a selling shareholder of Facebook, you're thrilled with that high valuation, but if you got in afterwards, you're not. You're a little bit of a masochist, then. That's okay. To Joe's point, Facebook certainly sucked up a lot of the oxygen in 2012. With that in mind, obviously, things are getting overlooked. What do you think, Ron, the overlooked story from your standpoint as an investor?

For me, you see it occasionally, but you don't see much about mortgage rates, where you have a 30-year fixed rate mortgage at about 3.6%. You have a 15-year fixed at under 3%. They're both tax-deductible. It's almost free money. Eventually, they're going to start paying you to get a mortgage. That's incredibly cheap capital. And the housing market hasn't really rebounded much. Hopefully, that will be, because it's a big lever in the economy. But those mortgage rates really should be spoken about a bit more. In terms of the housing market bouncing back, do you think we're going to see that reflected in housing stocks? Obviously, they're the toll brothers of the world out there,

but also the housing-related industries, where you've got Home Depot and Lowe's, that sort of thing. Is that going to follow, or are they going to be a predictor of where the housing market is rebounding? First, you have to still clear out excess inventory that we have in the housing market, and that includes all the short sales and all the real problems out there. Then, we'll start rebuilding. People thought it was a year ago that would happen. It's taken a much longer time. Eventually, the interest rates will spur that kind of investment. You'll see it a lot in the refinancing. That doesn't really do that much to help the economy, but you do see the refinancing.

Would you be buying a house now? I would absolutely be buying a house now. It's a great time. But your wife is in the real estate business. She is, right. God, I actually didn't think of that one. We'll keep it to ourselves. James Early, your Overlook story of 2012. The EPA is proposing very seriously to regulate coal emissions or emissions on new power plants that mainly affect coal.

And this has a lot of coal stocks, including Alliance Resource Partners, an income investor recommendation, trading way down. Basically, the idea is that no new coal plants could be built because the emissions requirements of new coal plants are so low that nobody can feasibly build one. And so it's kind of boring, but it's hugely important because it's coinciding at a time where we have very low natural gas prices and we could see an overall shift. There's already more installed gas generating capacity in the U.S. for electricity than there is coal. So we could definitely see a big shift to gas. Joe, what do you think? Well, unfortunately, I'm going to go down Ron's path. Interest rates, the 10-year Treasury hit a record low of 1.45% this past week.

That's just incredibly low. it's one-tenth what it was 30 years ago, and a full percentage point below the dividend yield on the S&P 500. To me, there's never been more of a no-brainer time to own stocks relative to bonds than there is today if you're a long-term investor. And I think it's really interesting that we should note that the reason those rates are so low is that even though the U.S. economy is somewhat troubled, there's a flight to the U.S. Treasury because it's safe, and people are willing to take a 1.45% yield for 10 years, and that's what people are dying to get. Hold up.

The least drunk driver on the road analogy. And that's really an indication of how weak things are. I want to close out the segment with your investing philosophy. Again, stepping back from the day-to-day news, which is, it's easy to get caught up in. But first, just quickly down the line, anything surprise you this year? Any big surprises in 2012? Ron? I actually thought we'd be more along the way to a recovery rather than taking a step back. I thought unemployment would be maybe below the eights and things would be significantly better from a GDP perspective. We keep going lower and lower and lower with GDP. That's a little

surprising to me. James? I'm going to go with the London Whale scenario with J.P. Morgan. We knew this was some risk, but I'm surprised that the banks haven't gotten a little bit more aggressive internally in policing this sort of thing. Joe? I'm not surprised by that, having worked at one. I'll make it a little personal. I have a total crush on LinkedIn, and that's a stock that I had completely written off as being grossly overvalued. But just some of these social media stocks at large, I think, actually do have a lot of potential. I just don't think the valuations are reasonable. O' At the right price, you'd get interested. I have a total crush on LinkedIn. O' Let us wrap up. Ron, if you could,

for folks who were just tuning in, just a few seconds on your approach as an investor a stock that you think embodies your philosophy? So I'm a classic value investor, which basically means I'm looking to buy stocks for less than I think they're worth. As opposed to the rest of us. Now, in that sense, you could say everyone's a value investor, because no one willingly would pay more than they think a stock is worth. But some people don't practice it as detailed as I do, where we really want to try to come up with valuations and buy a stock

significantly less than what you think they're worth. And for that, you can go big cap, like Microsoft right now is an interesting value play, or a well-known gaming company, Activision is interesting. Or, things that I like to look at, which Joe calls dirty value, I call deep value, would be like a Horsehead Holdings or an Amco Pittsburgh, really small companies that are somewhat troubled, sometimes cyclical, but you're still getting them at great prices. James Early? Chris, as you were a big fan of Income Investor, you likely already know that I look for what I call the three Ms. Management, moat, and money situation when I look for a company.

All the companies I'll talk about right now have solid money situations. In other words, the cash flow is good. So it comes down to the other two. Some examples would be Diageo. This is a British booze company that has a lot of the best brands in the world. Johnny Walker, Captain Morgan. They have a big moat. Guinness.

Yeah, Guinness is a big one. A big moat. It's a well-run business. Coke is another one that's up, I think, 82% in the past couple years for income investor. It was down at first, but it's got a very strong brand, and I like it. Flowers Foods is my final one. This is a back-to-back double recommendation I made in early 2010. It has just a big network of bakery distribution centers throughout most of the southern U.S.

So it can buy a smaller regional bakery and plug it into this network and basically increase its value just by having this reach. You had me at bakery. Joe Mager, in the time we have left, sort of what's your approach and a stock that embodies that? Sure. I'm a value guy like Ron. Only I'm willing to pay up a little more for growth. both. I like to buy companies with bright futures at discounted prices, and ultimately just let time, fundamentals, and management take care of the rest. Probably the poster boy of stock of that, both because of its CEO and because the stock is cheap, is Berkshire

Hathaway, which I love right now. You're not worried at all about Warren Buffett and the planning succession for him? That is a risk, but I think the stock is cheap enough to reflect that, and that he's built the business for the long run. Ron, you feel the same way? Yeah, you're already seeing the transition, especially since he announced he had prostate cancer, I think it makes it even more real that one day he won't be at the helm. So, he's brought in two investing guys, and he's got a firm succession plan in place. So, I think that risk has somewhat been mitigated. Okay. Coming up, a look forward at the rest of 2012, including predictions. Details next.

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 Joe Maker, James Early, and Ron Gross. It is our mid-year review. Guys, let's look forward through the rest of 2012.

Ron Gross, what's your big question as you look out over the investing landscape? It's got to be macro, Chris. I can't help it. That's okay. Are we going to fall back into a recession? Where's Europe going? Where's China going? so much uncertainty, it's going to impact the direction of the market. No way around it. James? Chris, I'm wondering what's going to happen with Ron's tax rate.

Not just Ron, all the other top 1%ers too. I mean, we have this issue. Dividend taxes may go up if Obama gets reelected and doesn't change something. I think something's going to happen, but it is a big unknown. It's going to affect stocks. Is that like your worst nightmare scenario, that dividend taxes go up? I try not to think about it too much, but actually, no, it's not- Would you say you dream about it? It's not going to, I won't answer that, but it's not going to affect stocks as much as people think, because a lot of dividend stocks are actually held in non-taxable accounts

or by non-taxed entities, and this is already priced into some degree, but it's still something. All right, Joe Maker? Yeah, are we living in kind of a new normal deflationary world, or are all the printing presses that the Federal Reserve and other federal banks are cranking up, is that going to drive a lot of inflation, and how investors respond to that is going to be kind of a defining question on a personal level in the next few years. My son asked me the other day, why can't they just print as much money as we need? They are!

Fast forward to three hours later, I still couldn't explain it to him. With that in mind, let's focus a little bit more narrowly in terms of industries. What's an industry you're watching for the rest of 2012? And give me a stock within that industry to sort of ground it. Ron, I'll start with you. I'm looking at commodities. And the reason is because they look very inexpensive. But they look very inexpensive because there's so much uncertainty out there. And we don't know which way it's going to go. And a lot of it hinges on macroeconomics, for example, China. But whether you're looking at metal commodities or natural gas commodities, so many interesting opportunities.

A good name would be Range Resources, RRC, even like Horsehead Holdings, ZINC, Zinc, in the zinc space, metal space. So commodities is where I'm looking. James Early? Chris, along Ron's lines, I know he and I both love natural gas. One thing that could happen since the EPA has gotten stricter on coal emissions and gas has gotten cheaper is we could see more of a structural shift to natural gas. This could benefit master limited partnerships, which have traded down a little bit recently. These are mostly infrastructure-based pipeline plays that just get paid or largely get paid based on volume. So if you're looking to jump in, Enterprise Products is an I.I. recommendation that I like.

Kinder Morgan is another partnership in there, too. And the ticker on those? KMP for Kinder Morgan and EPD for Enterprise. Joe Maker, what about you? I'm looking at banks right now, and I like them because everyone else hates them. The funny thing about banks is that we can all agree the best time to buy them is when they're selling at a discount to book value. you. But when that actually happens, all anyone can talk about is how you can't trust what's on the books, or history doesn't matter.

That's just what I said to him yesterday. Yeah, well, you're always going to name names. But yeah, that's true. And I think a lot of banks are very cheap right now. You look at a Goldman Sachs, for example, it's a 143-year-old company, and survived 30 U.S. recessions. Someone at a big discount to book value, and I think if you're patient, you're going to do really well with something like that. Joe, are you interested in mostly the big money center investment banks, or some of you go in the regional and some of the smaller places? Usually the big money center ones, I think visibility is expensive and they lack that.

And so for that reason, I think they're all pretty cheap right now. It seems like when we talk about the banking sector, rightfully so, we focus on the big Wall Street banks. But what about, to Ron's point, what about these sort of community banks, these regional banks? It seems like for people who are looking for exposure to the financial sector, at least in terms of the sleep factor, Ron, you're not going to have sort of the nightmare scenario where you wake up and your small regional bank is reporting a $2 billion trading loss because of the London desk. Agreed. I'm typically not a bank investor, but if I was, that's where I would look.

But then you've just got to make sure you do your research on the local economy, where that bank is. If you have a real good handle on it, you should be fine. Some of them can be even worse than the big banks if they're highly exposed to a bad economy, and they could also be small enough to fail, Whereas J.P. Morgan, Goldman Sachs, those guys just can't fail. All right, let's bring in our man Steve Broido from the other side of the glass for this next section. Because I want some business predictions, and I want Steve to weigh in with a prediction of his own. So business prediction for the rest of 2012.

Ron Gross, what do you got? All right, it's June, right? Last time I checked. Before the end of the year, an offer will be made to acquire Netflix for about a 25% premium to where we are right now. Wow. That's pretty specific. And do you expect Netflix to accept said offer, or you're just saying the offer's going to be made kind of like, as we've talked about before, Google made that offer to buy Groupon? Right, so let's really go down the road of predictions.

I think they don't accept the offer, they negotiate, and they get somewhere higher than 25%, but in the end they do take it. Is it cash, cash and stock, or a mix of both? Is it Facebook? That's as far as I'm going. Does Facebook buy them? No, I think Amazon buys them. What time will the offer be published? If nothing else, I've got to give Ron credit for being highly specific.

Setting the bar high in terms of specificity. You want vagueness, listen to one of those other radio shows. Exactly. You want vagueness, listen to me. I'm going to be a lot less specific than Ron. I think, looking at the banks, almost to counter Joe's point, I think bank investors are going to be in for more pain before they get more pleasure. I think J.P. Morgan, Citigroup, Goldman Sachs, these guys are going to have a rocky next batch of results.

Maybe in three years they're trading up, but I think in the meantime they're going to trade sideways, if not a little bit down. I'm willing to wait a couple years for pleasure. I was just going to say, you're going to sit there and take that, Joe? I am willing to take that. What do you got for a big prediction? I think the Apple TV is going to be a big flop. Apple has come out and upended MP3s and smartphones, but those were relatively nascent technologies.

The TV has been around for 86 years. There's a lot of competition. Margins are low. Prices are falling. And I don't think Apple is going to step in here and dominate in the same way they have other spaces. I am taking the other side of that trade. Steve Broido, what do you got? I'm predicting that things look very weird out there in the market

and that things may get a lot worse before they get better. That is my big prediction. And everyone has that consensus opinion, and that's why banks are so cheap. Do you want to get more specific on the weird? I'm just focused on the weirdness. It's technically very accurate as he expressed it, though, right? It is accurate. All the news that's coming out just seems very ambiguous.

Jobs look terrible, then they look okay. None of it makes any sense. I can't tell what's going on. But people seem very pessimistic. What do you think, guys? I think that's a real concern that you have a lot of people out there, especially the Facebook IPO just kicked dirt all over retail investors and really highlighted the lack of trust that these people have in the stock market.

And I think that's hurt prices. What a visceral analogy. Kicked dirt all over the stock market. I like that. Unfortunately, I think it's going to be a while before you see a lot of these mom-and-pop investors get comfortable coming back in the market. And it's good news for those of us who are in the market. it and taking a long-term perspective, but it's unfortunate.

Ron, do you have a non-business prediction? It can be as reckless as you like. Sports, anything. What do you got? For the rest of 2012. Be specific. I got to do something with food. Okay, so the cupcake craze kind of died. The burger craze, are we still there? We got the cake pop craze now. The next thing, rice crispy treats in many different forms. Wow. Again, going very specific.

In the first place his mind goes, this is interesting. I'm not a real predictor, Chris. I think the Chinese will do better than we think at the Olympics. I think we will have an average to slightly worse-than-average hurricane season. And I hope we don't have a hot summer, but I think one's coming. Joe Mager? I think Ron's going to buy an Apple TV and be like, Why did I pay this much for this television? That's business-related. I'm sorry, you'll have to pick another.

Steve Broida, you get the last word. I'm predicting that romantic comedies will make a stunning showing at the box office this summer. I love romantic comedies. Jennifer Addison's finally going to make a good movie. Ron Gross, James Early, Joe Mager. Guys, thanks for being here. Thank you, Chris. Oh, I'd like to be that man.

He's got money to burn. Oh, I'd like to be that man. Coming up, what does the center of the internet look like? Journalist Andrew Blum will take us on a tour. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill.

Most all of us have been on the information superhighway, but what does it actually look like? Andrew Blum has written about technology and architecture for the likes of Wired and the New York Times, and he's the author of the new book, Tubes, A Journey to the Center of the Internet. Andrew, thank you so much for being here. It's great to be here, thanks. So I believe the origin of this book had to do with a squirrel chewing through the Internet cable connection in your backyard, sort of getting you thinking about all of the nuts and bolts of the Internet.

Where was that cable in your backyard going? Well, the cable in my backyard, my backyard of my building in Brooklyn, I didn't know where it was going. I mean, I figured it had to go to the Internet somewhere. I found out eventually that it goes to what's called the head end of my cable company, Cable Vision, and then from there it very quickly ends up at one of these very few buildings That is the places I like to call the center of the Internet. And now, is that 60 Hudson Street?

I think that's one of the places you write about in your book. That's one of them, yeah. New York has a few. I'd say there are about a dozen in the world that are an order of magnitude more important than the next tier, by virtue of the fact that if the Internet is a network of networks, these are the buildings where more networks connect to each other than anywhere else. Now, I think the last time I was in New York City, I walked by 60 Hudson Street. I was with a friend of mine, and it's sort of an odd-looking building.

And because I'm a technological idiot, I just turned to him and said, well, what do you suppose is going on in that office building? He said, oh, I'm pretty sure there are no people inside that building. Is that really the case, that it's just this massive warehouse of wires and data centers? I mean, it is kind of the jumble of cables behind your couch, scaled up to the size of a very large building. But there are people who work there. I mean, that's the thing, is these networks and these machines have to be taken care of,

and they have to be connected one to another. And, you know, if the Internet sort of operates by itself on a moment-to-moment basis, it only does so because there's some guy, you know, with a sore back, climbing up on a ladder, running a yellow fiber optic cable, you know, through the racking and the ceiling of one of these buildings. Now, the title of your book, Tubes, A Journey to the Center of the Internet, That's a reference to the late Senator Ted Stevens, who called the Internet a series of tubes. But you also write about in your book the underwater cables. You got a firsthand look at these cables that cross the Atlantic.

Walk me through that. How does a process like that work? Well, the cables, I mean, almost all information internationally travels through these cables. Satellite is a rounding error. And they are essentially tubes filled with light. They're these houses, kind of large houses on either end of the ocean. They're called cable landing stations, and they're basically the lighthouses. They flash light incredibly fast, you know, pulses of light that are then amplified by these repeaters

that look like kind of bluefin tuna. They're like, you know, they're about six feet long, you know, not quite as wide as a barrel, and they amplify the photons about every 50 miles to cross the entire ocean where they're received by another house on the other side. Again, because I'm a technological idiot, how does something like that get maintained? I just have this vision of, I don't know, a massive shark or something just sort of scraping it, and all of a sudden at the bottom of the ocean we've got a cable that needs to be fixed. Sharks have been known to chew through these cables, and when something happens to them,

actually the bigger problem is underwater earthquakes. If there's a landslide or something like that, if it crimps the cable, the light can't pass through. And if that happens, they go out on the ship, they throw a grappling hook over the side, they find one end of the cable, they pull it up, they find the other end of the cable, they splice them together, working like a jeweler, and then they drop it back over the side. Let's talk about two of the more dominant companies on the Internet, and that's Facebook and Google. You interviewed folks from both companies. What did you learn? I learned that they have incredibly different attitudes towards the way they share details about their infrastructure

and, by extension, the way that they think their users should understand their infrastructure. And this might be a cliche, but Facebook was incredibly open about everything. They wanted to make sure that I understood, and by extension, my readers understood, exactly what was going on inside their buildings. They wanted to tell about the people who worked there. They wanted to completely open the kimono. Google was the opposite. Google recently has been sharing a few more details about their data center, but my experience with them bordered on farce. They invited me over. I invited myself over.

They said, sure, we'd be happy to have you. And then they gave me a tour of the parking lot of their data center. And I've interviewed a lot of companies, and this was one of the most tone-deaf, most misunderstood experiences I've had with a company trying to explain who it is and what it does. Did that surprise you? Because it would seem like, if you were to ask me to guess, I would have guessed that your reception at both Facebook and Google would have been roughly the same, whether they were completely open or highly secretive. Did it surprise you that Google was so different from Facebook in that regard? Well, it was interesting. From what I'd read about the culture of both companies, Facebook, this is obviously a big topic and a lot of complications

with this, but Facebook has sort of human ideas, has sort of storytelling at its core. And Google has information and information processing at its core. And in the way that they told their own stories about these places that hold our most intimate things, our emails, our photos, our birth announcements, our documents, our instant messages, our search queries, the way that they told the stories of these places really terrified me, or in Google's case really terrified me. I really said, if they trust me so little to understand what's going on, how can I trust them with so much? Has it changed the way you use the internet? In that case in particular, I've never been a Gmail user. I've never thought that the exchange

quite made sense, that you're getting this thing for free and it's very powerful and has all this stuff, but what exactly is going on here? What am I giving them that they're giving me this thing for free. Otherwise, more broadly, it's absolutely made me think more about where my internet comes from. You know, I like to say that at the moment we're eating the internet equivalent of iceberg lettuce. You know, we don't even know what else is out there. We don't even know there's kind of other kinds of internet that we might be able to get that not only are faster or slower, but might have different characteristics or different politics and restrictions of the company providing it that we could begin to make choices about. What surprised you the most when you were

working on the book? I think it was that I never got over how small the internet was. And I know that sounds crazy, because we think of it as infinite. But it turns out there are about 300 or 400 networks. The internet is a network of networks, and 300 or 400 of them are by far the most significant, particularly in North America. And each one has a guy, 9 out of 10 of these folks are guys, who is in the business of connecting this network to another network. So essentially, the Internet is run by these 300 people who gather three times a year, drink a lot of beer. You know, if we say that we go to conferences to network, they go to conferences to network, literally. They actually negotiate the connection between one network and another. And as soon

as I sort of got in with them, the rest of the doors opened up. It was that small a world. You know, one of the things we've talked about on our show before is the relative speed of the internet when you go around the world, and how a country like South Korea, actually the internet speed is greater than it is here in the U.S. What do you think is the biggest obstacle here in the United States to just ramping up the speed and having broadband just everywhere? There are a couple. The three pieces of it, well, first, I mean, our geography is hard.

It's a big country. But what that means is that it's both hard to get faster connections to our doors, the so-called last mile, you know, fiber optic connections, not old copper cables that are carrying DSL signals. But the part that interests me is what's known as the middle mile. And that's the connection between the kind of local or sort of, you know, city-scaled hub and these buildings at the center of the Internet that they have to get to eventually, where the bandwidth is most abundant and cheapest. And the thing is, in a lot of places in the U.S., the middle mile is under monopoly control

by one of the big telecoms, by a Verizon or a Time Warner or a Comcast. And if that's the case, you can't have local startup ISPs because the wholesale costs of that bandwidth are too high. So there's an argument to be made that if you could reduce the cost of the middle mile and reduce the monopoly control to the middle mile, then we would have more competition at the local level, And that might go some of the distance towards solving the difficulty of building new fiber to homes. You mentioned earlier that you were surprised at how small the Internet is.

One of the things that comes up in the news from time to time is cyberterrorism. How fragile is the Internet? Well, my perspective is it's physical. What is it physically made of? Where is it? And from that perspective, it's not very fragile. Yes, there are, you know, it is a relatively short list of buildings that are most important, but each of those buildings is quite large. And more importantly, they're kind of bad targets in that if you manage to do something to one,

the others would pick up the slack almost immediately. There might be a slowdown, but it wouldn't be dramatic. You would be perceived as trying to take down the global economy, and most likely you'd have, you know, negligible impact. To have a real impact, you'd have to think about, you know, many of these at once, And that's a whole other ball of wax and a very difficult thing. So it's interesting. The farther up the food chain I got of the people who own and run these buildings, the more eager they were to tell their story.

I wrote a piece of the book was excerpted recently with the headline, The Bullseye of America's Internet. And the company that I wrote about that I called the Bullseye of America's Internet has been tweeting the piece all week. They can't wait to tell everyone that they are the Bullseye of America's Internet. So the marketing and the market concerns seem to trump the security concerns at every turn. What's the name of the company? That is Equinix. That is Equinix. Okay.

You know, again, at The Motley Fool, we look at the business world and we try and extrapolate where industries are going and how they are using technology. In terms of the potential of the internet, what's an area you think we might be overestimating in terms of its impact and an area where we might be underestimating? Well, I think we do have a ways to go still with how much bandwidth we want at home. You know, I think we're not going to rest until we're able to have, you know, multiple high-definition video streams in both directions. You know, I think we are going to end up with video walls.

You know, and to do that, it's going to require a lot of bandwidth, maybe, you know, 10 or 100 times what we have now, the gigabit bandwidth that's being talked about in a few places around the country. So I think that because of that growth, because that's coming, I think that these companies, well, I think Equinix is a company that's been doing amazingly well. They own the AAA real estate at the heart of the Internet, and they've got a great business where they charge you by what's called a cross-connect. They charge you to connect your network to another.

They charge you for the physical cable. The fiber owners have more of a challenge. You know, the fiber is an incredibly expensive thing to build. You've got to dig trenches, a huge capital cost, and the recurring costs are always falling, you know, because bandwidth is always going up. So that's, as a business, I'm not so sure about that. Yeah, you know, those are the two pieces, I think. Coming up, more with Andrew Blum and a round of buy, sell, or hold. Stay right here.

This is Motley Fool Money. I want the money. Welcome back to Motley Fool Money. Chris Hill talking with Andrew Blum, author of the new book, Tubes, A Journey to the Center of the Internet. Where do you think we're going next? What is, you know, to borrow from Star Trek or to paraphrase from Star Trek, what is the next frontier for the Internet? Well, I think, well, I'd love to see. I mean, I think that we're not going to stand much longer for the lack of choice that we have.

I think that a company like a Comcast or Time Warner is going to say, actually, it turns out you can't watch your Netflix streaming anymore. You have to watch ours. Or we're going to want Skype full-screen HD streaming, and somebody's going to say, hey, we'll offer you that for an extra $5 a month. So what I think is going to happen is we're going to start to be a lot more aware of what's going into our lump-sum Internet bill, and I think we're going to start to be able to make some more choices about that.

uh you know it's that we're certainly not there yet we haven't even started the conversation about that but i certainly can see that we're in for a you know an evolution which you could even you know you could think about ordering a coffee in 1991 you can think about ordering a coffee in 2001 you know you're not ordering your uh your your your tall you know double shot you know skim latte in 1991 and suddenly there are a lot more choices for that with all of the research you've done and you've been working on this book for a couple of years. What is the biggest unanswered question that you have about the internet? Well, the first is what's going on inside Google's data center. That's certainly one of them. And I think it is, I'm still amazed at how little we know. I'm still

amazed that it's been 10 years since we asked these questions. Undoubtedly, we as journalists were really spooked by the broadband bust, you know, and we thought the Internet was done. And now the Internet is being built again. Now there's, you know, there's shovels in the ground. You know, there are new pieces of the Internet being built for the first time in 10 years. So I still am confused about what the, you know, what the hang-up has been, why it's been so under the radar, how we got seduced by this phrase, the cloud, the thing that's supposed to not exist at all.

Yeah, what is that? I mean, because you talked earlier about trends, and it seems like the whole notion of the cloud is a growing trend. When we talk about the cloud, what exactly are we talking about? Well, we're talking about essentially exchanging the computing power and storage that used to be on your desk or in your device, exchanging that for a massive data center somewhere far away. So if my email used to sit on my computer and then it sat on my office mainframe, now it sits on, you know, in a big data center in Oregon or someplace. But as a marketing term, it basically means that it doesn't exist anymore.

As a marketing term, it means, you know, we'll take care of it for you. There might very well be a lot of efficiencies in doing that. But I kind of feel like you're given a lot away and you should, you know, there's a lot of need to know what the parts of the cloud are, because it's not one cloud, it's many clouds. Who is, in terms of companies, who is dominating the cloud right now? And presumably, are they the same people who are rooting for the cloud to become a growing trend? Yeah, I mean, a company like Rackspace is doing a lot with the cloud.

They have lots of computing power, and they actually have been quite transparent about sharing that. They've recognized the advantages of that transparency. I mean, I see it a lot, again, through the perspective of these centers. Equinix, one reason Equinix is so busy is because they enable the cloud. They literally provide the space that allows a cloud computing provider to connect with your ISP or with another cloud computing provider. You've written about technology, architecture, travel. you've really covered a lot of of different topics and industries uh i once you are done with your book tour that i know your publisher is is going to keep you on for the next few weeks

but once you are done with that and you have a chance to catch your breath what is an industry that you are interested in watching over the next three to five years and why well i always all those what ties all those things i write about together is the physical world they're all things out in the physical world that you can go and see and smell and i haven't had a chance to look very deep into this but i'm really curious about weather forecasting you know certainly if anyone ever cracks the code that seems like a good business and i know companies like accuweather and weather underground are are trying so i'm curious where my weather comes from before i let you get away andrew have to wrap up with a round

of buy, sell, or hold. The New York Times says one of these is coming. Buy, sell, or hold a Facebook smartphone. Sell. Tell me why. I think that we're better off if these different elements of our digital ecosystems are separated.

You know, I think, I also really like my iPhone, so I don't think, I like the idea that the iPhone is something you pay for and that's a fair exchange. And the idea of bundling a Facebook phone with Facebook as a service in some form, I'm not seeing it yet. It's a private company, at least for now.

Buy, sell, or hold Twitter. Buy. Twitter has changed my life as a journalist. I know more about more stories than I ever thought I could. It's like being in the same room with both friends and people I admire and thoughtful and occasionally not so thoughtful strangers.

This could be the next big thing, or not. Buy, sell, or hold 3D printing. Buy, buy. The stuff that I am, well, I'm a little biased because my office overlooks MakerBot's office. I look into their window all day, and I see the cool things that they're making. They're one of the big players in the space.

But it seems like it fits really nicely with our desire to make physical things, to not be tied to our screens all the time. And finally, this book is getting great reviews, and Hollywood is always looking for a compelling story with a central character. Buy, sell, or hold Tubes, the movie? Well, we'll have to ask the FBI guys

knocking on my door right now to tell me I can't talk about that anymore. The book is Tubes, A Journey to the Center of the Internet, available everywhere now. Andrew Blum, thank you so much for being here. Thanks, Chris. It was fun. That's all the time we've got.

We're here every week. But hey, if you're looking for a daily dose of stock market analysis and commentary, check out MarketFoolery. It's our daily podcast, and it's completely free. You can find it on iTunes in the podcast section. That's MarketFoolery. It's on iTunes and also online at marketfoolery.com. That's it for this week's edition of Motley Fool Money.

Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.