Motley Fool Hidden Gems Investing - Motley Fool Money: 07.02.2009

Episode Date: July 2, 2009

The unemployment rate hits a 26 year high. Bernie Madoff gets hit with a 150 year sentence. And Wal-mart takes some hits for its support of employer mandated health coverage. So what does it all mean for investors? In this installment of Motley Fool Money, we tackle those stories, debate the relative merits of Home Depot and Lowe’s, and get under the hood of high-tech car safety company AutoLiv. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey Ontario, come on down to BetMGM Casino and see what our newest exclusive, The Price is Right Fortune Pick, has to offer. Don't miss out! Play exciting casino games based on the iconic game show, only at BetMGM. Check out how we've reimagined three of the show's iconic games, like Plinko, Cliffhanger, and The Big Wheel, into fun casino game features. Don't forget to download the BetMGM Casino app for exclusive access and excitement on the Price is Right Fortune Pick. Pull up a seat and experience the Price is Right Fortune Pick

only available at BetMGM Casino. BetMGM and GameSense remind you to play responsibly. 19 plus to wager. Ontario only. Please play responsibly. If you have questions or concerns about your gambling or someone close to you, please contact ConnexOntario at 1-866-531-2600

to speak to an advisor free of charge. BetMGM operates pursuant to an operating agreement with iGaming Ontario. with The Big Macro. The government announced earlier today that the nation's unemployment rate in June rose to nine and a half percent. Shannon, it's the highest unemployment in 26 years. Right. So you have to, given where we have come so far, you have to ask, is the glass half full or half empty? And of course, the answer is that it's all relative. If you want to feel thin, you hang out with the obese. If you want to feel buff, you hang out with Seth. And if you want to feel sober, you hang out well with you, Chris. Absolutely. It is all relative. And whether or

you think the glass is half full or half empty depends on how much you have had to drink. And we have been quite clean and sober here around this table. So none of this is a surprise. Not to this crowd here. Or folks who've been tuning in, you know, everybody I think who is paying attention anticipates that unemployment will eventually go to double digits, which is, of course, tragic for folks who are losing their jobs, but it is not at all a surprise. You know, the conventional wisdom is that unemployment figures are a lagging indicator and as a barometer, an economic barometer, of course they are. But there is a way in which they kind of point to where we are likely to land, too.

And I don't want to push too hard on this analogy, but it is somewhat analogous to inventory reductions. The more that stores and manufacturers take off the shelves, the more replenishment has to happen when we do finally bounce back. The same dynamic occurs with the labor force as well. The higher the reductions, the more folks will have to be hired back when the economy really does turn around. And so the stage is being set, even though, again,

for folks who have lost their jobs, it's quite grim. The stage is being set for a nice bounce back. Such a callous, callous explanation. But it actually makes sense. But, yeah, I agree with Shannon. You agree that employees are inventory? It's just inventory to Shannon. I love each and every one of them.

Shannon's the one who's stacking them like cordwood and putting them on. Seth, Jay. This is really not a surprise, I don't think. I'm always surprised when people are surprised. What this also means going forward is that this is something we've said over and over again, and it also bears repeating, which is that you have to look at some of this market rally and say to yourself, all right, with weak employment, continuing longer, a little more than people thought, how much of that is justified? How much do you think the consumer is going to be

spending coming up? And the answer is probably not as much as before we went into this economic tailspin. So just be careful out there. Yeah. And so the takeaway for investors here, I think, is when the recovery occurs, I think it will be more robust than it otherwise would have been. But there's no telling when that's going to happen. It's just a magic eight ball guess. For right now, it's a great time to sort of take a look at your portfolio, make sure that it really does match up with your risk tolerance and not the one that you thought you were regaining as the Dow was bouncing back, pay careful attention to beaten down value stocks as well. You know, the rally that we've had, as impressive in some ways as it's been,

has actually been quite thinly traded. And there's a lot of money on the sidelines. As that begins to come back in earnest, and you see companies like IBM, Walmart, Johnson & Johnson trading at or below the markets multiple, I think that those are going to be the beneficiaries early on. This week, Bernie Madoff was sentenced to 150 years in prison. Madoff's $65 billion Ponzi Scheme claimed a who's who of big names, including Steven Spielberg, Jeffrey Katzenberg, the CEO of DreamWorks Animation, Sandy Koufax, and, as we discussed at length on a previous podcast, actor Kevin Bacon and his wife, Kira Sedgwick. James, Madoff was on the SEC's radar for a long time. What gives here? Well, I think the first lesson is just because

Kevin Bacon does something, it doesn't make it automatically okay. Heresy. Exactly. First First of all, yeah, investors need to do their own homework. There are some very basic red flags. As someone coming from this, you know, the institutional investing world, but before Motley Fool, it should have been caught. I mean, you never, you don't do your own clearing, your own custody. I mean, if I tried to start a hedge fund today doing those two things myself, I would never get any money.

Bernie Madoff did simply because he had been doing it for so long and he was this authority figure, but that's mistake number one. Second, there are a lot of these feeder funds out there, people who didn't necessarily realize that they even had money with Madoff for me, they sort of kind of knew. And these people obviously failed in their due diligence. But the big failure goes to the SEC, which should about be abolished, in my view, and started fresh. It's so messed up. You know, the Post did an article, recent Washington Post did an article that mentioned this SEC lawyer, Jean-Vivette Walker Lightfoot, if I pronounced that right,

who found in 2004 some very basic things like trade settlement and clearings weren't matching up. And she brought them to the attention of her boss, who sort of seemed to have dismissed them, according to the story, and kind of routed her elsewhere. Come to find out the boss later married Madoff's niece. Not like that. Not like that. Coincidence? No. Oh, come on.

But, yeah, this is ridiculous. It is good. So let me move on to my opinions here. But just to be clear, for those listeners out there who are thinking about starting their own Ponzi scheme, it helps to marry into the business. Not just the SEC, but the SEC Enforcement Division. You can't do it any other way. Correct. It is good.

It is good to see a guy get a stiff penalty for a financial crime, finally. My dad is upset that he has to pay for Bernie Madoff to live off the rest of his life in prison, but at least it's better than having him out on the loose. You know, there are a couple of questions, actually, I've got here for my Confederates. I can call this Name That Madoff. And we're going to try to flag the odd one out. There's one false answer out of three true. So number one, Bernard Madoff has worked at all the following jobs except one,

tap dance instructor, lawn sprinkler installer, or professional lifeguard. Oh, it is tap dance instructor. I'm going to pick lifeguard because if that's true, it's just so ironic I can't stand it. He was actually a lifeguard. He was not a tap dance instructor. Yes. All right, give us one more. Okay, one more, one more.

Which of the following was not a feature at Bernard Madoff's parties? And this was my source for the 2020 or Dateline the other day. One, topless waitresses. Two, marijuana. Dude, that was part of his sales force, I think. Three, Yahtzee. Okay, we know the answer to that. But he was obviously a slimeball, so I'm an sociopath.

In a weird way, I almost feel for him, but he certainly got what he deserved. Really? You almost feel for the guy? No. Just because he has to have this, I mean, he just, he seems to be on a different wavelength from the rest of humanity. And I don't feel bad for his punishment. I just feel bad that he, because he clearly, the only thing he regrets is getting caught. Yeah.

I just, just that he's in that state of mind. I mean, it's just a thing unto his own. Sympathy for the sociopath. Very interesting. Yeah. Wait, which was it? They didn't have marijuana at the parties? They did, actually.

Apparently, Bernie indulged a lot of Yahtzee. They did not have it at the party. Oh, wow. Any truth to the rumor that- I go to the wrong parties. Any truth to the rumor that a part of his punishment for Bernie Madoff is that he has to share a cell with Jack Abramoff? Is that true? Nice.

All right. We move to an item from our Who Would Have Thunk It department. This week, Walmart announced its support for President Obama's plan to require companies to provide health insurance for employees. Walmart is the nation's largest employer with around 1.4 million employees. Around 53% of employees are insured by Walmart, below the national average of 63% for companies with 200 or more employees. Seth, Walmart's announcement surprised some folks. Were you one of them? No, I had thunked this a long time ago. This didn't surprise me too much, actually, because as big an evil, in finger quotes, as Walmart is,

and don't get me wrong, I'm not a big fan of Walmart. I really can't stand shopping there. They actually have been okay, I think, in moving towards getting more health care to their employees. And the writing is on the wall here. Something has got to give. Our health care system is broken. Walmart realizes that. And I believe they realize that putting it off and not being involved in a decent fix is ultimately going to be a lot more expensive than getting involved and getting their voice heard. And so part of the reason I think they made the right decision is that the hired goons at the Wall Street Journal editorial page sort of came out swinging against Walmart, and their attack is really hilarious.

They're calling Walmart self-interested, first of all, as if that's a bad thing in a capitalistic exchange, and second of all, as if they expect anything else from any other company. Of course Walmart is doing this because they want other companies to be on a similar playing field with them. But Walmart also understands efficiency better than just about any other entity in the world, I would argue. And I think Walmart sees an opportunity for us to take control of this situation. Now, we don't know what the health care fix is going to be, but I believe you need the Walmarts out there to be on board. I'm not a Walmart historian, but weren't these guys, like, vigorously fighting any kind of health care legislation, you know, five, ten years ago? Of course, because at that point they were able to foist the costs off onto others. suit now they realize it sooner or later it's coming back to them you better

figure out the way to make sure that it comes back on to you the way you want to was there as soon as they had been a have to do it now they want to to jump on board and force everybody else to be a competitive is exactly exactly yeah when hopefully uh... wal-mart's a lead by example here you know uh... says said that uh... it well what do you say set except for a large evil company exactly a lot less evil than said it was a pain to say to admit is that is exactly right to me the

thing that is surprising though is that it's taken the wal-mart's the world is long to figure it out. The healthcare system is broken, but it has been broken for a long time, perhaps even five or 10 years ago. And why businesses have fought so hard to keep this wildly unpredictable cost on their side of the balance sheet has always been a surprise to me. I'm glad that conversation has moved on. Because nobody paid attention and it was hidden for so long and not accounted for. We're just finally paying a bill that we incurred a long time ago. All right, guys, it's Independence Day this weekend, so I'm going to give you your independence. Let's go around the table, pick any story from the

week that you want to highlight or shout about? It can be business, sports, pop culture, whatever. Shannon, let's start with you. Well, so fire up the way back machine because I was not here last week and did not have an opportunity. I was on vacation. I was going to say you were cozying up on a beach somewhere. Well, so you say. I was on a so-called vacation and it was hardly relaxing. I was sort of helping 15 kids in and out of the ocean every 15 minutes until I decided to go enjoy the great indoors and that was by far superior to the other. So your wife doesn't listen to this podcast? I'm hoping not, but I'll tell you what, honey, next year it's Alaska. Why would you go someplace hotter than the place you already live? It makes no sense during

summer. So that was tragic. And I was not here to comment on the tragedy of losing both Michael Jackson and Farrah Fawcett on the same day. So I wanted to sort of get on our record around that. So, you know, Michael Jackson obviously morphed eventually into this sort of very strange cartoon figure, but the guy was just unassailably and unquestionably talented. You don't sell 40 million copies of a record by accident. So there was some business acumen going on as well. And just a cultural sea change too. You know, MTV in its early days wanted to be a rock outlet and his record label epic pushed back hard on giving mtv their rock artist videos if they would not also air michael jackson's videos they didn't want to

show michael's videos which were vastly superior to most of the you know i think some some black and white footage of rush was what mtv was showing in those days and so and that opened up that's where it created the future as we as we lived it through the early days of mtv so that uh obviously was doing something right and then on the fair side not nearly as uh uh much of a game changer but she was one, particularly for most of the people that I will charitably call my contemporaries. How we ever got away with having her posters on our walls, I'll never know. Maybe she was so iconic that even moms could not resist her charm. James?

I'm going to go with a Barney Frank story from about a week ago who thinks we should relax lending standards for Freddie Mac and Fannie Mae, especially on condos. I think he's a little bit late to the party on that. Okay, late to the party. I think he's been at the party, and he's been there way too long. is it like a yahtzee party or a non-yahtzee party because it sounds like there are two categories i think barney's at the one where they're passing around the tucci on the left hand side okay there's a great blast from pass seth car sales has everybody seen the car sales

no the best looking bottom this side of farah i don't know that's not that's not what sold that Is your wife listening? Yeah. No, seriously, car sales, okay. The annualized rate for June was a little bit below the annualized rate for May. But it appears that we're not going to stay down in the $9 million forever. And this is consistent with something we've been talking about over at Hidden Gems. And it'll lead into my stock on my radar.

We were at a place where people were buying so few cars that the scrap rate was going to exceed that. The good thing about cars, if you're an investor in any of the auto biz, is that they eventually wear out. And so we are probably seeing the bottom, I believe, for annual car sales. Are they going to zoom back up where they were? Not probably, but they're not going to stay as bad as they were. Well, and we were talking about this before the taping today. You're going to help in that regard. Aren't you out, like, test driving a bunch of different vehicles?

Me? Yeah. Well, I bought a car a few months ago, so I was helping the economy while the rest of you communists were talking it down, man. I'm waiting for the incentives to get a little richer. All right. As we are now officially in the second half of 2009, Shannon, give me one stock that's on your radar. Well, so let me sort of lean into it this way and circle back around to what I was saying earlier on.

So the rally that we've been on since the March lows has been very thinly traded, low volume, which does sort of underscore the fact that there's a lot of money sitting on the sidelines. When that begins to trickle back into the market in earnest, I think that the beaten down blue chips are a good area to look to. And who is more beaten down than anyone who's associated with home builders? Homebuilders themselves, not going to take a look at those, but the Lowe's and the Home Depot's of the world I think are quite interesting right now. I like Lowe's, ticker is L-O-W, of course. A little bit better than Home Depot, primarily on valuation grounds,

but they've also grown market share relative to Home Depot. And also because Home Depot is a terrible place to shop. Sorry. You're the secret shopper of Lowe's. You're like Mr. Cranky Shopper Guy. Lowe's does make their stores to appeal to women, they say, compared to Home Depot. I don't know what that says about me, but I really like Lowe's. All right, James?

Actually, I do, too. I do not like Walmart to shop at. Says the other guy in a pink shirt here. I do not like Walmart to shop at, but I do like them as a stock. I'm convinced the company is taking over the world one of these days. I think this health care stuff does bode well for them competitively, so I'm going with Walmart this week. All right, Seth?

I have a stock on my radar with the most amazing noncommittal opinion on what to do with it that I've ever had. It's Autoliv, and they make safety equipment for the large automakers and small automakers all around the world. They obviously got killed as car sales plummeted. Probably, I believe still their biggest customer is Ford, which you will probably notice did the best recently in auto sales. I think in June their sales were maybe down only 10%. We'll double-check that. If I'm wrong, I'm sorry.

But they were a lot better than a lot of their compatriots. And Autoliv, the stock, I'm trying to decide whether it's a buy or a sell, quite honestly. Because if I look at it- No wonder it's on your radar. It is literally on your radar. We know that for sure. If I look at it based on what I think I know about car sales and everything, it looks close to fully valued or did a couple of days ago before the market kind of swooned. But then I look at news like today.

The National Transportation Safety Board said maybe we're going to think about putting these sort of radar systems in bumpers to help keep us all from killing pedestrians and also to keep you from swerving off the road. These systems, Autoliv is a leader in these kind of systems. They would cost a lot more than the airbags and other things that are more of Autoliv's products. And if that stuff goes through, and believe me, eventually it will. It may not in the next year or two, but it'll be there eventually. That's the kind of thing that can power this kind of best-in-breed company forward for a long, long time. So it may be a buy, even though it looks fully valued. I'm still thinking about it.

So it's either a buy or a sell, but just to add a little more fog to that very foggy advice. Could it be a hold as well if you own it? It could be a hold. This is how worthless I am, everybody. When you want advice, you come to Motley Fool Money. You come straight to Seth. We'll give you buy, sell, and hold. All right, Seth, Jason, James, Early, Shannon, everyone, guys, thanks for being here.

Thank you, Chris. Happy Fourth of July to everyone. Thanks for listening to this edition of Motley Fool Money. you can check out past episodes at MotleyFoolMoney.com. 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. And remember, the conversation continues 24-7 at Fool.com. I'm Chris Hill. We'll see you next time.