Motley Fool Money - Motley Fool Money: 03.12.2010

Episode Date: March 12, 2010

Is Lehman Brothers the new Enron? Will Cisco's new router technology connect with investors? Are the latest retail numbers really cause for celebration? On this week's Motley Fool Money Radio Show, we'll tackle those stories, talk about the latest numbers from American Eagle, IMAX, and McDonald's, and debate the relative merits of Lindsay Lohan's lawsuit.  We'll also share three stocks on our radar and talk bailouts and consumer protection with Congressional Oversight Panel Chair Elizabeth Warren. Learn more about your ad choices. Visit megaphone.fm/adchoices

If you're a small business owner, you already know what it takes to keep everything moving. You're juggling customers, invoices, and about 100 decisions every day. Thankfully, taxes don't have to be one more thing on that list. With Intuit TurboTax, you can get your business taxes done for you with a full service expert. TurboTax matches you with your dedicated tax expert. Who knows your industry understands your business write-offs and gives you the personalized advice your business deserves. Upload your documents right in the app, hand everything off, and still feel like you're in the loop the whole way through. You can even get real-time updates on your expert's

progress right in the app, which makes it so much easier to stay on track. And you can get unlimited expert help at no extra cost, even on nights and weekends during tax season. Visit turbotax.com to get matched with an expert today, only available with TurboTax full-stress. service experts. Everybody needs money. That's why they call it money. The best thing in life are free, but you can get them to the pie. From Fool Global Headquarters, this is Motley Fool Money.

Welcome to the show. Thanks for being here. I'm your host, Chris Hill. I'm joined my Motley Fool senior analyst, Seth, Jason, James Early, and Shannon Zerrick. Guys, good to see you. Good to see you, Chris. Coming up, we'll talk with Elizabeth Warren, the woman keeping an eye on the money in the TARP program.

We'll check out the latest numbers from IMAX, McDonald's, and American Eagle, and we'll also look back at the 10-year anniversary of the tech bubble. And as always, give you a look at the stocks that are on our radar. But we begin with Lehman Brothers. A court-appointed examiner's report is shedding some light on the sudden collapse of Lehman Brothers, which, turns out, wasn't all that sudden. According to the report, Lehman executives had been cooking the books for a while as they tried to deal with regulators, investors, and credit ratings agencies. guys, that includes using an accounting trick to temporarily remove $50 billion of troubled assets off the balance sheet. James, this is stunning. $50 billion.

Where do you hide that? Chris, Lehman used what's called a repurchase agreement. By itself, this is not a bad thing. It's like if I loan you my car over the weekend, you give me $20,000. I give you $20,200 back at the end of the weekend and get my car back. I'll repurchase my car. However, these were fancy repos basically that had... very high collateral rates, 105%, and Lehman was able to transfer these office balance sheet

into this separate entity. So basically hid this debt and did it at the end of the quarter to make itself look better. Now, as bad as this sounds to us right now, I think what's really the worst thing is that the New York Fed apparently knew this all along, or at least for a few years and didn't do anything. And who was the head of the New York Fed? Tim Geithner. And I think we need to investigate him. Well, you know who else knew nothing about this?

The former CEO Dick Full. He told the, I don't know anything about this, or the I know nothing, the Colonel Kling. The current Kling goes out of the loop too. Yeah, so he didn't know anything about it either. There are a lot of takeaways from this. One of the ones that gets to me and comes back from a recent show is that the SEC is still worried about short selling and is trying to constrain short selling. And there's this alternate fictional, alternate reality, but it's really a fiction that short sellers are the ones who hurt Lehman. But in actuality, now we know that the short sales.

sellers knew what was going on. They knew Lehman was doing a lot of bad things. Yeah, they had underestimated how bad Lehman was. And so there's, we really need to think about that as we try to rein in these evil short sellers. I mean, it turns out that Lehman didn't just suck. They were kind of dirty. Yeah, right now, there's a conversation on Capitol Hill going on about financial regulation and reform. And maybe the silver lining of this is as it happens now, that conversation continues. They'll actually come up with some reform that has, has meaningful teeth to it. The New York Times has a story covering this as a coroner's report. on the Lehman meltdown.

And it's a really interesting read. It covers the details that we've been discussing, but also sort of amplifies the extent to which the counterparties were applying pressure, almost like Joe Pesci and Goodfellas or something, to make them provide some collateral for their debt. I think that maybe they knew what was going on behind the scenes as well. I mean, this smells like Enron all over again. Nigerian barges.

You buy it from us and won't buy it back, but we just kind of pretend that's not going to happen, right? Yeah. Let's move on to the Big Macs. The Commerce Department reported that retail sales increased 0.3% in February. Good news since analysts were expecting a decline. So, Shannon, what's your take on the much better than expected retail numbers? Well, Farby, for me to be an economic optimist because I haven't been to this point.

But it is impressive, particularly if you back out auto sales, and they report that as a separate figure. It's an uptick of nearly 1%. So something is going on with the consumer, capital T, capital C. And this is a much more telling metric than what we talked about. week, which is personal spending. Personal spending also up, but that owes to inflation, fuel costs are increasing, so people are required to spend more. But retail sales, which suggest that consumer demand is ticking up, an economy like ours that is led as heavily by consumption as it is, that's good news indeed. The question for investors is how much of that has already baked into

a stock market that's been up 50% over the last year, happy birthday rally, and I think quite a bit of it has been. I can help you out, Shannon. I can help you out by... Just come sit on his left. Seth Jason, helpful guy. Do tell. You can hate this report in just a second because when you look through the details, one of the first things you notice that the press will never tell you about is that this 0.3% increase is actually, comes with a margin of error of 0.5%. So in other words, it could be completely the other way.

You can't draw a conclusion from this data. Another thing that the press is not really putting into the foreground here is that gasoline station sales were up 24%. And when that is 10% of the total, that means the price of gas is making it look like consumers are spending more. And that's not really the case. Finally, remember last month when we all said, oh, goody, consumer sales are up. This is on the advance monthly sales report. That's the report we're talking about for February today.

That was a report we talked about last January. Well, now the real January retail sales were out today. The revised numbers? Adjusted downward, sharply, 0.1% higher rather than the hefty. point five percent gain first reported as I'm reading a little bit from a Wall Street Journal article here and is anybody talking about that no we're only looking at the the lousy number which has been revised and everyone wants to ignore that one so the 16 pairs of jeans I bought didn't have a manikin by the way you know because the

companies always have their best outfits on the mannequin on the mannequin you said you said more thing before we go to the mannequin and everything consumer sentiment University of Michigan Reuters consumer sentiment index also down for February. So, come on. You're such a naysay. You should try being a yaysay every once in a little set. I think it would be helpful to the economy. I know. I had this little bit of me that likes to actually read beyond the headline, and that

hurts me. Well, Shannon, you mentioned the one-year anniversary of the bull market. NASDAQ up more than 60%. Happy birthday to you. S&P and Dow up around 50%. Exit question around the table. Are you feeling more bullish or less bullish than you were a year ago? less bullish, I guess, given how far the market has run up over the course of the year,

value. I mean, there's always a case for individual stock selection. There's no doubt about that. But for folks who are invested primarily in index funds, I think now is a really good time to reconsider your level of equity exposure. The dumb money has been made. Yeah, as Jim Kramer says, there's always a bear market somewhere, I guess, a bare market too. And I think dividend stocks are going to do very well.

Now I'm paid to say that because I'm a dividend stock guy. But I think we have had sort of a junk rally, and quality stocks will relatively outperform. Wow. So now I get to do my 180, which is that I'm fine, even with a lot of retailers. They're posting individual retailers. Some of the ones we follow with Hidden Gems are posting some pretty good numbers and some pretty good guidance. So I'm actually fine with this. Despite the fact that I think that this report is bogus, American consumers are going to be spending more in the future.

How near that future is, I'm not sure. You're listening to Motley Full Money. We're going through some of the week's big headlines. Cisco Systems introduced a new router technology that will provide all. ultra-fast speeds, and will be able to offer downloads of up to 322 terabytes per second. How fast is that? How fast is it? How fast is it?

Fast enough to download the entire printed collection of the Library of Congress in one second. Fast enough to stream every movie ever created in less than four minutes. Fast enough for everyone in China to make a video call at the same time. So, Seth, I get that it's fast. Wow. What does it mean for investors? It means it's just too bad that that original Napster business model or lack thereof isn't around because, boy, could you pirate MP3s with one of these in your house.

I've become the resident expert on this with a few minutes of Google searching. And no, actually, these are, this is called the CRS 3, which stands for, what is it, carrier routing system. This is a big routing box that only a company like AT&T or somebody of that size is going to buy. I looked back, I couldn't find any prices on this new model, but if you look back at the CRS 1, a predecessor from a few years back, at launch those costs in the neighborhood of $450,000. They're available online for about $90,000 today. That's a bargain. Yeah, that's the price range you are looking at.

So this is really an infrastructure type investment. And while those are great numbers, it does not address the bottleneck that most of us feel, which is, you know, how big is the pipe coming? coming into your house. And if you've got an old DSL line or a crummy cable line, then this isn't going to help you at all. We're trying to suck a slurpy through a coffee stir. Yeah. But if things pan out, then, you know, a lot of companies are going to benefit by this. You'd have your Netflix. You'd have, you know, AT&T and others are going to benefit from this. All right. Coming up, this week, Lindsay Lohan went from the gossip column to the business

section. We'll explain why. You're listening to Motley Full Money. Welcome back to Motley Full Money. Chris Hill here in the studio with Seth Jason. James Early and Shannon Zerman. Guys, let's hit some company earnings. IMAX reported a 98% increase in fourth quarter revenues and posted a profit compared to a loss a year ago. Behind the strong numbers, 10 new theaters, six digital upgrades, and the success of 3D movies like Cloudy with a chance of meatballs and the somewhat creepy A Christmas Carol. James, pretty good numbers when you consider that most of Avatar's box office isn't even baked into this quarter.

Leo, Chris, I mean, you're certainly pretty excited about IMAX. little bit less so. When I look at it, I say 98% growth this quarter, but from what? In this case, we're talking from 27 million to 54 million, which isn't that much revenue for a billion-dollar company, a billion-dollar market cap. Now, IMAX is a Canadian company that makes money off the actual theater, hardware, the mechanics, the screen, makes money off the theater operations, as well as money from the licensing of the film itself, a little bit of revenue there. But, unfortunately, it just doesn't make that much money. It earned only four. million dollars profit, which is better than a $9 million loss the previous quarter. But for me,

it's just not profitable enough. What? You wouldn't pay a billion dollars for that? Come on man. You know what? I maxed, I looked on the Google finances up actually 518% this year, but it's still down 34% from a decade ago. So it's maybe getting a stack together now. But you got to give them a little time to work out the kinks. I mean, a decade is really a short time. All kidding aside, all kidding aside, don't you think that IMAX is pretty well positioned the way that movies are trending because there are so many more movies that are going the root of

3D TV at home and everything? I short this one is what I'd say. This one is a hold your noser to me. Chris, you're multiplex and the big, you know, the stadium arena that's definitely supplanted old style theater so maybe IMAX is the new wave. I mean, yeah, IMAX used to be so much bigger than

other screens, but other screens are now so huge that the difference is smaller. So it's safe to say that none of you are going to see Alice in Wonderland in 3D? Unless I'm actually going to figure out a way to guarantee that the child behind me will not kick my seat. I'm not going. They could probably do that with some decent padding, actually.

We should patent that. All right. American Eagle reported better than expected earnings. The company also said it would close its Martin and OSA stores. Seth, ironically, you were quoted in the media the day before saying that they should give M&O more time. There's nothing ironic about that. It's just me being in the media.

Come on. First, let's hit the numbers. The numbers, everybody's doing better than expected, but they were actually pretty good. You had a 5% same store sales growth. You had gross margin going way up here, merchandise margin increasing by 600 basis points over last year. Those are really big improvements. Of course, last year was a pretty lousy quarter for everybody, but still a very strong showing. And I own American Eagle stock because they can operate like this when they have to.

So I'm happy to see that. As for Martin and Osa, I actually do believe that, yes, it was burning a little bit of money. This, for those who don't know, Martin and Osa, was sort of American Eagle for geysers like me, and I have some of their clothes. Had pretty nice clothes. They came out. They started everything at too high a price point. And, of course, they started at the top of the real estate bubble. And people haven't had as much money to spend.

I probably would have given it another year or so to work things out because it burned 33 million in cash this year, according to American Eagle. And closing it next year is going to burn between. 10 and 40 million in cash. I probably would have given it a more normal year just to see what happened. All right, moving on, more earnings. McDonald's reported a nearly 5% gain in same store sales for February. Company had strong international sales and in the U.S. strong sales of the breakfast dollar menu, McCaffee drinks, and the Olympic-themed chicken McNuggett promotion. Shannon? Are you loving it?

How could that fail? McNuggets are golden. I mean, it makes all the sense in the world. The tie-in is obvious. Why they didn't do this before? Was I the only one watching those commercials wondering, how did all these finely-tuned athletes get to the Olympics on a diet of chicken McNuggets? Have you had the McNuggets lately? Oh, my gosh. Bruce Jenner should endorse them, come out of retirement to endorse them.

Yeah, very strong, same store sales, and international sales robust as well. It would have been stronger if the dollar had been weaker, ironically enough. But that wasn't the case. I think that it's impressive. And management apparently likes what it's seen with the Mick Cafe experiment, too, because it's going to double down on that smoothies are coming soon. So be on the lookout for that. What's not coming, though, are price increases on the menu that are consistent with McDonald's historical norm.

Typically, they raise prices 2 to 3% every year to keep up with the rate of inflation. Management is guiding analysts to expect that they will not be doing that because they don't want to take a chance on that already weak American consumer getting weaker still and being priced out of their menu. Price out of McDonald's is really sad. It is. And I think that the consequence of that is. that investors should be aware of the possibility for thinner margins. But McDonald's obviously a great operator. They'll try to make up what they're losing there with greater volume. Exit question. IMAX,

American Eagle, McDonald's. If you could only hold one stock for the next five years, which one of those three? And why? McDonald's, because I just covered it. McDonald's. Whoa, whoa, whoa, James? Because I just covered it? Yes. Isn't that at odds with your incredibly healthy lifestyle? 100% at odds, but I have to look at the reality of the nation we live in, and this stuff is popular. Olympic athletes eat it even, so I've got to go with McDonald's. Olympic athletes pretend to eat commercials for crying out a lot. You know, I really like McDonald's.

I think American Eagle is going to have a good couple of years, however, and McDonald's is going to be a slow grow. So if you were looking a couple years, I'd say American Eagle. If you want to have something you can put away and never look at it again, McDonald's would be that stock. Time for some quick takes. Forbes is out with its annual list of. billionaires. Topping the list is Mexican tycoon Carlos Slim with a net worth of $53.5 billion. Bill Gates in second place with a mere $53 billion. But his net worth increased $13 billion last year. Warren Buffett in third place with $47 billion. James, how can I grow up to be the next

Carlos Slim? Well, you could take his advice. Compared to Gates and Buffett, who have actually given a lot away in charity, and that's probably why they're down so low. Carlos says, businessmen do more good by creating jobs and wealth through investment, not by being Santa Claus. Now, he does have some sort of a foundation, but he basically bought, he had a lot of businesses throughout his life. He bought Mexico's national phone company from the government in 1990, Telmex, which charges some of the highest telecom fees in the world to a poor country, which is obviously, you know, I guess great for him. So you're saying that to be the next Carlos Slim, you need to be a monopolist in a third World Country. Or something like that.

All right. Moving on. Lindsay Lohan is suing E-Trade for $100 million over the company's Super Bowl ad. At issue, a line in the commercial about a milkaholic boyfriend stealing baby named Lindsay. E-trade says Lohan's claims are without merit and says the spot was intended to be witty and memorable. Is this a viable business strategy for Lindsay Lohan just to start suing E-trade? I just, I'm creeped out, speaking of creepy, I'm creeped out by the whole thing. Lindsay Lohan, the babies that are sort of flirting. It's vaguely disturbing. They creep me out too.

They creep me out of a little bit as well. I think they've been hugely successful. I think Lindsay Lohan has gotten a lot of free publicity out of this already. I think that's the entire thing. I want to point out that if you go to the Social Security website, you can find out which baby names are popular. And so for Lindsay to claim that she's the only Lindsay is pretty ridiculous because Lindsay with an A-1. Y at the end was the 380th most popular name. And that's how she spells it.

In 2008, which is the latest year they've got. And Lindsay E.Y was the 277th most popular. If you lump those together, which I think you need to, you've got one of the most popular girls' names around for a baby. So for her to say that Lindsay is Lindsay Lohan? Completely ridiculous. How popular is Seth? Is that on there?

It's come back, actually. Hey, I got an idea. After the show, maybe we could get together and find out how popular Shannon is for a boy name. Oh. We can't do that. By the way, it's a regional thing and in certain parts of the country is quite popular, and I would be in the majority.

Hey, Shirley used to be a guy's name too. Don't call me. One of us had to say that. All right, drop us an email at motleyfoolmoney at fool.com. We want to know where your name ranks on the popularity scale, and we also want to know your odds for Lindsay Lohan's success ensuing e-trade. The guys will be back later to talk about the stocks that are on their radar,

but coming up after the break, Time magazine named her one of the 100 most influential people in the world. Elizabeth Warren joins us to talk about how your bailout investments are doing. Stay right here. You're listening to Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill, and now it's time to check on your taxpayer dollars and see how they're doing. Elizabeth Warren is the chair of the Congressional Oversight Panel, which was created to oversee the TARP bailout funds. She's a professor of law at Harvard University and has written eight books, including the two-income trap and all your worth. She joins us from Washington, D.C. Elizabeth, thanks for being here.

Oh, it's good to be here. So let's talk about the bailout because we, the taxpayers, are putting up the money. In some cases, like with AIG, we own a big chunk of the company. How's our investment doing? Well, we're getting part of the money back. That's the good news. We may not get it all back. That's the bad news.

But, you know, I look at it this way. What the bailout did for us is it pulled us back from the abyss, and that's the really good news. The bailout did something really important. We are not in free fall as we were in October of 2008. The worst news from the bailout, from my point of view, is we also gave a big, loud message to a market that pays attention that we will pay any price, go any distance in order to save the largest financial institutions in this company. country. And so, you know, long after we get our money back from TARP, that too big to fail promise, that implicit guarantee will linger in the air. So that's kind of it in a nutshell.

Is there no way to walk back from that? Is there no way for our government or our economic system to step back from that and at some point in the future say, you know what, we made a mistake with too big to fail? And in fact, yeah, we're going to let some companies fail. I think the only way we can step back from that as we have to change the rules. Otherwise, it's just not credible. We can say, oh, no, no, no, we'll never do that again until there's an emergency. And in the minute there's an emergency, everyone's going to turn to the Secretary of the Treasury and expect, you know, him to come in again and say the same thing he said to Congress last time. So I think this is really and truly about regulatory reform. If the Senate comes up with some decent rules and they hammer them together

with the bill that came out of the house, we might actually have some rules that would walk us back from too big to fail. If they don't, then quite frankly, we simply live in a new economy. You started in your role with the Oversight panel back in November of 2008. What do you know now that you wish you had known then when you first started? That's a hard question. I wish, what would it be? I guess I wish that I had known more about just how much was being given away, how fast. You know, not just the dollars, but how quickly our government was signing off on business deals that surely should have taken a second and third look. You know, AIG is I think everyone's prime example of that, but I'll go to this month's report.

GMAC. You know, the point was made that we can't save the auto industry if we don't save its financing arm GMAC. And so there was just a wholesale bailout of GMAC just bang. And GMAC was allowed to become a bank holding company. And then it was put through a stress test with the promise that if you fail the stress test, you can't raise the money that's needed. Uncle Sam is going to put it all up for you. And all of that just kind of was a headlong run. rush, evidently, without a long pause to say, wait just a minute, let's take one more quick look at GMAC's business model, a portion of which is doing financing for the auto industry, both dealer financing and retail, you know, the purchase of cars, but a large portion of which is something

called Rescamp. They have a great old big home mortgage arm. And right now, that home mortgage arm is losing four out of every five dollars that GMAC loses. And we're shoveling taxpayer dollars into that with no obvious business plan, either for the company or ultimately for the taxpayers to get out of it. So I guess all that's a long way of saying, I feel like what I wish I'd known better and been able to ring the bell on even harder is that we really needed to look at the business model of some of what we were doing rather than just. shovel money out wholesale. What do you think fueled that speed? Was it just sheer panic on the part of the people who were writing the checks? Like, well, we better do something fast, so let's just write a big

check. Was it ignorance? Was it a combination of those and more? You know, I can't say in part. I can say that there were a lot of, let's put it politely, there was a lot of change of direction in those early months. You may remember. That's being incredibly polite. Yeah, I grew up in Oklahoma and I have good manners. But remember how this started. Secretary Paulson starts out and he says to Congress, you've got to give me $700 billion by Monday or the economy will be gone. And he says, and I'm going to use it to buy toxic assets off the books of the banks. And he explained this very elaborate plan for what he was going to do. And everybody kind of got it. Nobody much liked it, but they thought they had to do that.

And, you know, the Congress had barely finished voting before, whoops, that wasn't the plan. We've now moved to Plan B. And I'll tell you, back in November and December of 2008, I sat across the table from Neil Tashkari while he said to me, this is a healthy bank's program. We're not giving money to anyone that's not a healthy bank. Healthy bank, we want to triple underline that.

And as it turned out, just down the hall, they were negotiating with Citibank to pump another. $20 billion into it because the first $25 billion hadn't been enough to staunch the bleeding. We're talking with Elizabeth Warren, the chair of the congressional oversight panel overseeing the TARP bailout funds. You mentioned consumer protection before. Let's talk about that. There is a proposal on the table for a consumer protection agency. One of the things you've said is that the Fed, as it's currently constituted, could handle a lot of these protection duties. but the Fed isn't interested. Why?

I wish I understood why. The Fed had the power to completely head off the entire subprime mortgage crisis. There were people, and listen, I was not the only one. There were many people who were saying to the Fed, you have the tools, they clearly had legal authority. There is a problem going on. Let me speak to you of liars' loans and all the crazy mortgage products, teaser rate mortgages. This is creating a bubble, which is bad for the economy, but it is also

destroying millions of families. And the Fed basically said, la, la, la, I can't hear you, and kept on with keeping on. And then the whole thing crashed. So the consumer financial protection agency, here's an irony. It's not actually about giving new tools to the federal government to regulate financial instruments, it's about making sure that the tools are in the hands of somebody who cares enough to use them. Right now, there are seven, count them seven agencies in Washington, each of which has a piece of the consumer financial regulatory obligation, and none of which make it not only not their primary mission, none of them even make it their secondary or tertiary mission. So what this agency is really about is about a giant pair of scissors that cuts this out from all of the other agencies and takes this really bloated, ineffective bureaucracy, skinnies it down and says, now let's make it effective.

Let's have one person in Washington who is accountable to Congress, accountable to the president, and ultimately accountable to the American people on consumer financial protection issues. and let's see if we can just kind of clean up this market and get a level playing field. We're going to hold it right there coming up more with Elizabeth Warren about how the new credit card laws affect you, plus an inside look at the stocks that are on our radar. I don't know if I'm going to file bankruptcy. I said I don't know if I'm going to file bankruptcy. All my credit cards max and I just want to be free. You're listening to Motley Full Money.

Welcome back to Motley Full Money. I'm Chris Hill, and we're talking with Elizabeth Warren, chair of the Congressional Oversight Panel, overseeing the TARP bailout funds. We have a new credit card law that cracks down on some of the abuses by the credit card companies, but we're already reading reports. Some of those companies are getting around the new law. What are some of the things that you're seeing, things that we should be on the lookout for with regards to our

credit card companies. Look, let me be clear about this new law. I supported this new law. I think it would have been terrible if we'd said no, it's okay to do those practices. But basically this new law took 10 practices, and it was like hammering 10 fence posts out on the prairie. You know, if you're dumb enough to run straight into one of them, it will hurt. But if you just kind of adjust just a little bit, you can go to the left of it or you can go to the right of it. So, And that's exactly what the credit card companies have done. So, yes, universal default has been outlawed. So we have changed ours to if we decide that you've done anything that we don't like,

and therefore we want to raise your interest rate to 28%. Then you agree that not to raise your interest rate to 28% is an event of default. And I have to tell you, if you can explain to me why that new provision doesn't violate the law, you're a better lawyer than I am because I've read it 10 times, and I can't figure out how the bank that's doing that isn't a direct violation of the law, but they clearly think they've managed to skin right past it, just a quarter of an inch over. And that's the whole game here. That's the reason behind an agency approach, is that Congress can't,

not because they're not good people, they just can't functionally say, we're going to outlaw 10 practices. And then we'll, you know, in 10 more years we'll outlaw 10 more, and 10 more years after that, we'll outlaw 10 more. Financial services, those guys are just selling money. You know, it's kind of the ultimate fungible good. And so with the few strokes of the pen, they can change the terms of the contract

and make it a different kind of deal. And so you need an agency that kind of stays on top of it. And as the products move, the agency moves. And we try to level the playing field. You were born and brought up in Oklahoma. Your parents grew up during the Depression in Oklahoma. How did their experience shape your attitudes about money? Well, you know, we grew up without very much money.

And my parents were very much afraid of debt. All my life, we had a doctor bill. And I watched my mother every time. One of us got sick, one of the kids. She would put a hand on your forehead. to figure out how hot you were and look in your throat and ask a couple of questions and then say out loud as she kind of looked up she'd say well let's see i paid dr buffington 10 dollars last month i think it'll be okay to take you to the doctor again and sometimes she'd look up and say

it's been too long we're just going to let's see if we can make it a few more days um because she felt like she hadn't paid recently enough um debt matters uh it matters a lot to families and so what I think is the difference is that debt was a kind of necessary evil when I was growing up. My folks didn't run a doctor's bill because they wanted to. They ran it because they just didn't have any other options. And that's true for a lot of families today, a lot of people who just can't make it from front to back. But the difference today is that lenders, have figured out that selling debt is a really valuable thing to do. It's better than selling

cars or better than selling haircuts or socks. You can make a lot of money off it. And they've really changed their business model from the sort of old-fashioned, you know, do we really think you'll be able to repay it or is it the only way I can sell my goods or services? Over to a model that's about tricks and traps. I'm going to pretend to sell you credit at 9.9% financing. But by the time we finish up with the $29 late fee and the $49 fee fee and the interest goes up to 28.9% because you sneezed on a Wednesday, they figured out how to make a lot more money and how to charge a lot more than people understood when they got into these. So I guess the bottom line for me is, look, we all make mistakes. Human beings make mistakes. We get into tough times. But none of that is an excuse to trick people. None of that is an excuse to trap people.

I really see this agency is about, is trying to wind that out of the system, trying to put a cop on the beat that just says, you know, level playing field. Everybody understands what the deal is on the front end. No tricks and traps on the back end. Elizabeth Warren is a Harvard law professor and head of the Congressional Oversight Panel keeping a close eye on the TARP bailout funds. Elizabeth, thanks so much for being here. Thank you for having me. Collectors calling on the phone each day. I said collectors are calling on the phone each day. A minimum payment is what they say.

What's in your wallet? 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. Chris Hill and joining me in the studio once again, our trio of senior analysts, Seth Jason, James Early, Shannon Zerman, Guys, before we get to the stocks on our radar, this is the 10-year anniversary of the tech bubble. A few stats to chew on. Ten years ago, there were 360 million people on the web.

Today, 1.7 billion. 400 million people using mobile phones 10 years ago. Today, it's 4.6 billion. And 10 years ago, Google's revenue? Just over 19 million. Today, it's 24 billion. Let's just go around the table real quick. When you think about the tech bubble, what pop up?

in your mind. Shannon? I was actually working here at the Motley Fool when the bubble burst, and I'd just come recently from grad school. I'd sworn off that vow of poverty, and then I got poor again. James? I had a bit more hair backed in. That's what you think about when you hear the tuck? Well, it was one thing. I didn't really, you know, I started a hedge fund a little bit after that. It was a good time to be doing that. But when I came to the Fool and we got these options, I really didn't give them too much mind because I had been burned in the past. I'd been by options before. Yeah. Seth Jason?

I was not buying stocks then. I didn't have a chamber pot to whizz in, as they say at the time. So I had no money to waste on that, which is a good thing. I watched friends trading Cisco and looked at the basics of the valuations they were running, which were none. That was this friends of yours or the TV show friends? Yeah, no, friends of mine, and I thought they were crazy, and these were smart guys, and they could do math, but they were making some dumb decisions, and they paid for it. Steve, Broido, you and I were both here at the Motley Fool 10 years ago, and if memory serves correctly, we did a radio show out in California with Meg Whitman. She was eBay CEO.

Yeah, that was crazy. How did that go? It went well. I think the highlight of the show for me was she was on a microphone that had the stand that the hinge was loose and it kind of kept sinking down. And at one point during the break, I went over and I said, Miss Whitman, if this microphone droops again, you just droop with it. I don't think she was as amused as I thought she might be by that. That sounded funnier in your mind that it actually did out loud? Absolutely. Wow.

The possible governor could be the governor of California, and you told her to droop. Let's move to stocks on our radar. Shannon Zimmeret, we'll start with you. We said earlier in the show that the dumb money's probably been made, a lot of the recovery priced into a market that's up 50%. So I'm very much focused on theme investing right now and sort of using a divining rod to find the market's most, fertile ground, I suppose. I've done some work recently on small cap stocks. You know, the small cap stocks have

typically led the way out of recessions. And lo and behold, since July, small cap stocks have just plastered the big boys. That's predictable. But small cap growth stocks have not done as well. So one of those I'm looking at is a company called the Minas Staff, which is an HR outsourcercer. It's a cost center for companies. And so I think that this is a good sort of theme for cost containment into the future. It's a deeply cyclical company. And so if you think that the economy is going to cycle back around. This is an interesting company to look at, particularly now, because last month, took a huge hit on some disappointing quarterly results. It's yielding about 2.7%. So there's a yield component to it as well, and the thing just looks cheap to me. The ticker is ASF.

James Early. Chris, I'm going to go with that wretched bastion of all this evil McDonald's. It's just unavoidable. It's actually, I hate it. I would never actually go. We'll have been to McDonald's in the past decade. Salads are fine. You would enjoy the salad. I'll try the salad. I'll try the salad. I can probably get a bottle of water there, but I don't drink bottled water. It's a good company, though. It has 3.4% yield, 33% return on equity, lots of free cash flow, and it has raised its dividend every year since 1976 when it started paying it. No wonder you're in love with them. Seth, Jason. I'm going to just

have to go back to American Eagle, a stock I own about almost a quarter of the market cap and cash on the balance sheet these days, trading about 9.5 times peak free cash flow that I think they can earn and also paying a 2% dividend yield. I mean, that to me, in the face of a company that will probably be increasing scales and will get better leverage, that sounds okay. Seth Jason, James Early, Shannon Zerring. Guys, thanks for being here. Join us next week.

Bestselling author Michael Lewis will be talking about his new book about the financial collapse. Thanks to this week's special guest, Elizabeth Warren. And if you miss any part of the show, you can find it at our website, motleyfoolmoney.com. You can also get a copy of our free report, the Motley Fool's top. stock for 2010. All that and more at Motley Fool Money.com. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.