Motley Fool Money - Motley Fool Money: 05.14.2010

Episode Date: May 14, 2010

On this week's Motley Fool Money Radio Show, we talk EU bailout, gold prices, Disney earnings, Whole Foods earnings, and stocks on our radar. NYU Economics Professor Nouriel Roubini talks about the next big financial crisis. And business author Jeanne Bliss talks about the power of apologies.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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Thanks for being here. I'm your host, Chris Hill, and I'm joined by Motley Fool Senior Analyst, Seth Jason, James Early, and Shannon Zimmerman. Guys, good to see you. Good to see you, Chris. On today's show, economics professor Noriel Rubini talks about the next big crisis. Dr. Doom. And business author, Gene Bliss. talks about the value of an apology. So that's right. We've got Dr. Doom and Miss Bliss.

We'll also talk gold, Disney, and Whole Foods, and we'll give you an inside look at the stocks that are on our radar. But we begin with Friday's Better Than Expected Retail numbers. Seth Jason, you're a retail guru. What did you think? Let's put finger quotes around this better than expected. I don't know why anyone would call it that. If you take a look below the headline and read the report, you see that almost all of the gain here was in building materials and garden supplies. And this is all just a bump because of the upcoming or the then-upcoming expiration of federal manipulation of the housing market, all those housing credits and all those programs. And so people were buying in advance of that.

If you look at other segments, furniture and home furnishing stores, electronics, food beverage, all these are flat or slightly down. This is not good news. And I think that's why the market was less than enthusiastic when this report was released. All right. Let's move overseas. Earlier in the week, the EU announced a one-tenth, trillion dollar bailout to help Greece and other struggling EU countries. The markets were up sharply

on the news. James Early, the EU bailout is being called Lettarp for its similarity to the troubled asset relief program here in the U.S. So what exactly will Lettarp mean for lay investor? You know, it depends on where the lay investor is. I'm still digesting this. The big, in a nutshell, the problem is it's just throwing money at the problem without a structural fix. The best thing about this is that the does have the right to impose austerity measures on these countries, which they have not done yet. And the Greeks don't seem happy about that. But I think at some level, it obviously needs to happen. Shannon, what did you make of it? Well, I thought it was necessary. Apparently, there was a little off-stage diplomacy between Obama and Merkel. He had to sort of give her a nudge

to do something big. Once Germany was in, then the deal was on. I absolutely do think it was necessary. There was all kinds of speculation that the EU might come unraveled and that the euro would go away as a currency. I don't know that that actually puts that story to rest. I mean, we'll see what happens as a result of the bailout, but at some point, as the insistence on having austerity measures as a part of it indicates, it can't mop up this liquidity and who's going to be left standing remains to be seen. Well, and it's not, let's be clear that this money isn't flowing. It's a promise of money to flow, and the idea was really shock and awe. You have to look at, you have Sarkozy and you have Merkel over there saying, oh, the Europeans, we are at the victims of,

I don't know what kind of accident I'm doing that. That was good, though. That was good. That was good. Yeah, that was Angela Merkel doing French. But they wanted to pretend that they were the victims of speculators. Of course, speculators are the people who ask for a big return on what they loan you. The fact that you rely on them to loan you money, we just kind of sweep that out of the rug.

And so this was designed to sort of shock the markets into not. picking on European countries anymore and to try and staunch the bleeding on the rates they're being forced to pay. All right. On a scale of 1 to 10, 10 being the EU bailout is a great thing for U.S. investors, one being it's a horrible thing. Where do you think this ranks? I think it's a wash. I mean, essentially it is. We've seen this movie before. We say how it plays out. And so the same issues apply in the same way that the stimulus spending in this country is going to pay it out over or is going to peter out over the course of the summer.

this bail out money if it actually happens is also going to go down the tubes and then the economy will have to stand on its own or not. James, what do you think? Three or four. Our producer, Matt Greer showed me an article before this show. 54 billion is the total commitment the U.S. would have to the IMF if all these loan commitments were tapped. But I think the real risk is just global instability. Seth? I gave it three or four. This is history repeating. This has happened over and over again for hundreds of years.

Governments assume that they can throw money at these kinds of problems. and it never really works. The best thing of this story to me is that there's a new phrase that's come out of it, to murkle along. Have you heard about this? No. To procrastinate and still not make a decision at the end of the procrastination. To murkle along. Wow. Do any of the other EU leaders get their own little analogy?

There's one about Sarkozy we cannot use on the air. Yeah, yeah, probably not. All right, let's move along. On the heels of the EU bailout, the price of gold hit a new high, rising to over $1, $1,240 an ounce. Shannon, gold is up around 30% over the last year, and it's up nearly three times in value over the last five years. I mean, the Motley Fool, we're all about stocks, but what should investors make of gold?

Well, so I'm going to play the straight man and let Seth have all the laugh lines. So there is a thinneneer of reason for this, right? So when the market went haywire last week, two asset classes, which should not be correlated, were closely correlated. Treasuries, U.S. Treasuries, and gold. Now, why would that be? Well, there's a lot the capital sloshing around, that money's going to go someplace, and if people don't want to be in equities, well, and they're fearful, treasuries make sense, and gold, at least a surface level, seems to make sense. The other angle on gold's rise, and I think this also has a veneer of rationality to it is, it is perceived to be a hedge against inflation.

And so if you've gone through this period where, wait, wait, wait. I can't take this anymore. Let me get the straight line out, and then you can smack down. If you think that mean reversion applies when it comes to inflation, and if you think that after a protracted period of low inflation to deflation, you're going to have a rise in inflation as someone as significant or

thoughtful as El Aryan at Pimco does, it's probably a good idea to hedge against inflation. The question, of course, and this is over to you, Seth, is gold a meaningful hedge against inflation? And before it says Starz, I'm just kidding. Seth Jason, take it away.

I have to head it to Shep. and he can say some great things that he doesn't actually believe when he has to. The problem with the way this story is being reported in the press, it's assonine, and it is sort of true. It's, okay, everyone is afraid that the EU plan won't work, and they're afraid of inflation. Well, you're talking about deflation versus inflation, so you buy gold to hedge against both.

It makes absolutely no sense. Gold is a safe haven in deflation only when you have a massive deflation, and you all are bartering gold for, you know, squirrel on a stick or whatever it is. And it's a hedge against inflation. I'd prefer real estate or a nice dividend-paying stocks myself. But we're nowhere near inflation, and in fact, the extraordinary measures that are still going on

are out there to prevent deflation. We may get some minor inflation coming up, but we are not going to get anything, I think, that will make gold gold. Gold is going right now because people are afraid and because gold is popular, but we're going to get a lot of hate mail from gold bugs. It is a religion more than anything. Yeah.

It tells me, When you see treasuries and gold in the same thing, people are investing by omission versus commission. They don't know, they don't necessarily love those assets. They just don't want to be in anything else. I do think they do fear stagflation, you know, high inflation but economic stagnation, which we may see. All right. So one more point of devil's advocacy. So all this money, all this currency that's been printed at some point, that is going to have an inflationary impact, correct?

I mean, that's economics 101. Well, only if we start moving it through the economies, and that's just not happening. Yeah. Exit question. As you indicated, Seth, gold has a passionate following. Some might say crazy. Apple. Apple also has a passionate following.

Some might say crazy. So who would you rather be stuck on a cross-country flight with? A gold bug or an apple lover? Oh, you guys, everybody, you know how much I love Steve Jobs? I would be cuddling up to Steve Jobs before I would sit next to a gold bug. Wow. You're listening to Motley Full Money. We're going through some of the big headlines this week.

SEC Chair Mary Shapiro told Congress this week that last week, that last week's market plunge was largely the result of big Wall Street firms pulling out of the market. But Shapiro says the SEC is unable to point to a single event which could be the sole cause. She did discount many of the popular theories like the Fat Finger Theory. Shannon Zimmerman, CNBC reported that the SEC is going to unveil new circuit breaker rules next week as part of their preliminary report. Is that going to help? Well, you know, it's a case of something anything right now because it's in the news. and the side story, the meta story here, is just to see how hyperactive the SEC has been

after a long period of not doing much at all, sort of sitting on its hands. It seems to be coming back with teeth. Now whether or not the teeth are biting the right things remains to be seen. There are circuit breaker rules in place right now, but they happen, at least on the NYAC, at the level of the exchange itself, not individual stocks. What's being considered now would take into account individual stocks, and they have to decide how long would the circuit breaker stay. Thank you very much.

They just appreciate that. Stay in effect. And then what the breakpoints would be, is it 10%, 50%, 20%. So it's going to be a while before these get implemented. But we'll have to see what comes out of it, and it could be substantial reform. And it's a lot more difficult than that because there is a lot of volume out there of trading that doesn't happen on these exchanges, and orders can be automatically routed to other exchanges. A lot of orders are matched just inside big banks or brokerages themselves.

and so there's a lot of places where stuff can happen unless they encompass everything, unless they really get the octopus out there and get a circuit breaker and every one of these places, they may not be effective. And I think actually the decentralized nature of the market is what contributed to what they're calling the flash crash, I think. Right. Yeah, and I've got tons of friends to do flash trading and I love them to death. Actually, I don't. I'm just making it up.

I do believe, though, someone who worked in the hedge fund business, that the hedge funds will have now already added algorithms to exploit this sort of thing if it were ever to happen again. So I actually don't believe that this thing would happen without these funds jumping in a second time around. I do think, though, if we need circuit breakers, they are useful to prevent the human panic, less so the machine panic. And there'll always be something new. Let's remember that this kind of thing has happened once every, what, eight years or so ever since computers took over. The black swan that we see every five minutes coming around. Oh my gosh, who could have predicted?

Guys, obviously a lot of lingering unanswered questions around this issue. So exit question, what's one lingering unanswered question that you have? And it can be about anything at all. Seth? Oh, geez. Area 51? Yeah. Is there anything in Area 51?

Really? At the moment, I don't think... I like Spaceman stuff. I don't think if we can get an affiliate radio station. in Roswell, New Mexico, then maybe we can do a site visit and get some answers, but I don't know. James Early, any lingering unanswered questions? Chris, if I'm honest, I've wondered how Teflon gets in the pan. It doesn't stick to it in the first place.

That's a good one. Shannon's that right? Well, Area 51 is a good one, and why Jimmy Carter didn't open it, as he said he would during the campaign. That's of interest to me. Just what has happened to Cato Caelin? Have you ever seen Lionel Richie and Phil Collins in the same room at the same time? These are all very much burning questions to me. Wait a minute.

Lionel Richie and Phil Collins? Same guy. Really? Based on the recorded output, I think you can make a case, and having never seen him together. Steve Brodo, any lingering unanswered questions in your life? All I can throw out right now is the Grand Canyon. What's your question about the Grand Canyon?

Have you guys ever seen the Grand Canyon? It is spectacular, just how that was formed. I know it's sort of trickles of water over... Colorado River? Millions of years, but the fact that it's so massively large, it's just humbling. Weren't gnomes involved? Didn't like hundreds of gnomes just build that thing?

That's what I'd like to know. All right, coming up, the latest news from Disney, Whole Foods, and more. Stick around. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in the studio with Seth Jason, James Early, and Shannon Zimmerman. As we dig into some of the companies making headlines this week, Whole Foods reported better than expected earnings as stronger sales help more than double its second quarter net income. Seth Jason, I'm a Whole Foods shareholder, so please tell me that the next several quarters are going to be just like this one. Yeah, that's the rub. There's no way they will. You're coming, this is the same story that we've told you about many companies' earnings reports that we've been talking about the past few weeks. Last year's quarter was horrible. People weren't buying things. It's certainly not expensive groceries. This quarter, they're back, or just completed quarter, and so that helps Whole Foods do a much better job with its net income. The problem is, I looked a little bit deeper into the earnings report. If you look at comparable store sales over the

over two-year period, you end up with a 1.9% figure. That's fairly inflationary, so that's not so great. And none of that would matter so much for shareholders out there if they weren't paying such a high price right now for Whole Foods. Whole Foods is a very expensive stock, especially for a grocery store, which generally carry pretty low price to earnings ratios. And they don't have a ton of growth ahead of them. They have good growth ahead, but nothing that warrants the current price. And, you know, their cost structure isn't that much better than another grocery store, so the valuation makes no sense. In fact, and so it's worse. They pay better, but I do think they prefer the term grocery experience, not grocery store. I don't know about you guys, but my cost-saving suggestion would be to cut the salt in all the prepared food.

It feels like me looking at salt lick every time I'm eating there. You're listening to Motley Fool Money. We're going through some of the big companies making news this week. A mixed quarter for Disney as the company's movie business thrives, while the amusement park's attendance remained flat. and TV properties like ESPN and ABC providing so-so results. Shannon Zimmerman, what stood out for you in Disney's quarter? I actually saw it as a strong quarter, but I have to do a little full disclosure here, Chris. I own shares in Disney. I'm a big fan. I think I've mentioned before that I've met my wife here.

She worked in guest relations with her costumes. It's not a uniform at Disney. You're a cast member, and you wear costumes, included a riding crop boots and a plaid skirt. So I'm a big fan of... And we're still awaiting photos of that. Anytime you want to get those to us to us. You guys are bad. My read of the earnings is strong, you know, 56% increase over the year ago period.

Alice Wonderland was a much bigger hit than I understood it to be, so that's fantastic news. The acquisition of Marvel has not shown up in these results. That's to come, and Iron Man 2 appears to be a big fat hit, and the parks were slow, but that's to be expected. That's the most cyclical side of Disney's business. But they're reigning in promotions, pricing promotions, which indicates that management is thinking, well, that's going to turn around. Disney vacations are expensive, worth it, in my view, but expensive, and typically booked well in advance. So what's happening in the parks reflects what was happening probably four, five, six months ago.

That's going to turn. As that does, if they can keep up the operating results in the other units, then I think it looks fully value, but who knows, maybe it's cheap. As a shareholder, is this a company where, obviously, they have so much going on, do you look at this business and think, God, I wish they would just sell this part of it? And if so, what is that part? It's a pretty far-flung conglomerate, basically. I don't know. Having come through what we've just come through, and I'm torn because I do love the parks, and I'm kind of nostalgic about the time that I spent there. But that's the most cyclical part of their business. And the rest of it, you know, is more or less stable. I guess if I had to sell one off and you could sell it at quite a premium, it would be the parks unit. Not the Jonas Brothers? All right. Well, that one guy drops all kinds of important rock names when he's describing it is a own musical taste. Exit question. You mentioned they own Marvel. They also own Pixar. What's going to be a bigger? hit, Iron Man 2 or Toy Story 3? I'm going to pick Iron Man 2, and I will pick Scarlett Johansson

over Buzz Light Year any day of the week. Well, I think we all would in that regard. James Early? Traditionally, the animated movies have done pretty well. I might go with Iron Man 2 just because it's the known thing. I've never seen a toy story movie, actually. I've just never been brave enough to bear the suspicious looks from all the moms. You have a son now, so you... Yeah, now I can go in as a family, yeah. But if there's just some dude in there with like all these little kids, it's creepy, yeah, yeah. Seth, what do you think? Wow. I really hope it's Toy Story.

I just saw some stills of Iron Man in that suit he's wearing, that plastic suit is so thin and flimsy looking that I cannot... Thinineer of it. Yeah, I just can't get it. And then he flies around in it. Where do you keep the fuel?

I mean, none of this... I can't suspend disbelief in something that bad. Well, first of all, let's clear something up. It's not thin. It's iron. His name's Iron Man. It's not thin. No, when you see the stills,

it looks so flimsy like a child's toy that you would buy in a bad. the store would actually have to be more sturdy than this because this thing would break. You know, Tony, you should feel sorry for him. He spent a lot of his life in an iron lung. Exactly. Let's get Steve right away. Steve, what do you think?

Iron Man 2, Toy Story 3, what's going to be bigger? Toy Story 3, I saw Iron Man 1 and I want those two hours of my life back. Total miserable film. All right, we want to hear from you. Which movie do you think is going to be a bigger hit, Iron Man 2 or Toy Story 3? and we also want to hear from gold bugs and apple lovers out there. And if you're neither of those, tell us which one you'd rather sit next to you. We must have made some of you mad somehow.

And maybe not the gold bugs, actually. Drop us an email, Motley Fool Money at Fool.com. That's Motleyfulmoney at Fool.com. The guys will be back later in the show to talk about the stocks that are on their radar. but coming up, he's known as Dr. Doom. NYU economics professor Noriel Rubini talks about the next big crisis as well as his portfolio. Stay right here. You're listening to Motley Fool Money.

Welcome back to Motley Fool Money. I'm Chris Hill. In September of 2006, Noriel Rubini predicted the United States was likely to face a once-in-a-lifetime housing. bust, an oil shock, sharply declining consumer confidence, and ultimately a deep recession. The New York Times labeled him Dr. Doom, but an IMF economist says, in hindsight, he should have been labeled a profit. His new book is Crisis Economics, a crash course in the future of finance, a book he co-authors with Stephen Mim. And now he joins me on Motley Full Money. Pleasure to being with you. Thank you for being here, Professor Rubini. I want to get to your

book in a minute. We're right on the heels of the EU approving a trillion dollar bailout to help stabilize the euro and Greece. What is your take on the plan and the future of the EU? Well, as I discussed, surprise, because many crises that start from excessive amounts of debt and leverage in the private sector eventually lead to solving that problems because many of the private losses are socialized. So we're now facing in the next stage of this global financial crisis where the problems are spreading from the private sector to the public sector. So that's happening already in Europe, but even the United States, we have budget deficit

of the order of a trillion dollar or more. I'm worried that this particular trillion-dollar rescue package in Europe is not going to work because even if there is money on the table, first of all, is conditional on this country making lots of sacrifices. And then you have to ask yourself, can you reduce the budget? deficit by 10% of GDP by cutting spending or raising revenue in places like Greece or other European countries. Political is going to be very hard. Two, if you raise taxes and cut spending, you're going to have more recession in the short run. And can a country accept year after

year of a recession in order to achieve a stabilization of the deficit, highly unlikely? Three, these countries were facing also an issue of competitiveness because they were losing market shares to China and Asia already a decade ago. their exports are labor-intensive, then they had a decade of wages growing more than productivity, and the final nail in the coffin was the appreciation of their currency for the last few years. So they need to restore fiscal stability, they need to restore competitiveness, they need to restore economic growth. I think it's going to be very, very hard for them to do that.

That's why I'm still bearish in spite of this trillion-dollar rescue package. You're listening to Motley Full Money. We're talking with Professor Noreal Rubini. his new book is Crisis Economics, A Crash Course in the Future of Finance. You write that the financial crisis was less a function of subprime mortgages and more about a subprime financial system. It's obviously a big topic here in Washington, D.C. So what do you think are two or three things that need to be done to fix the financial system?

The three most important ones are to deal with the too big to fail problem. by breaking up financial institutions are too big. So if they're too big to fail, in my view, they're too big. Using a resolution regime or capital charge is not going to work. Two, we need to give the incentive to traders and bankers not to take excessive risk, and that means to change the system of compensation by having a bonus malus model, meaning having clawback of those bonuses in case over time those risk investment turn out to have led to losses rather than profits.

And three, I think we have to go back to the kind of restrictions we had under Glass-Sigel of separating investment banking from commercial banking. The Volcker rule goes in that direction by restricting bank-holding companies from doing prop trading, private equity and hedge-fan activities, but in my view, doesn't go far enough. I would go back to the restrictions we had under Glass-Sigel. So there are three most important things that need to be done. You're known as someone who is bearish in general. You've certainly made some great predictions.

The one back in September of 2006 was spot on and certainly done at a time where few, if any, others were saying that sort of thing. But in March of last year, you said we were having a bare market suckers rally, and the Dow is up around 50 percent since that point. I guess my question is, is it easier to predict a crisis than it is to predict a recovery? And if so, why is that? Well, I would say the contrary is much harder to predict the crisis because crises don't occur very often and the timing of them. It's very hard.

I would say even about the stock market issue, throughout this crisis, there were about six different bear market rallies between essentially the fall of 2007 and March of 2009. Five times out of six, I said, this is a bear market rally, and I was right, when 99% of the people said, this is the beginning of the recovery, I admit I missed the rally that came after March, but I would say everybody else got it wrong five times out of six. I got it wrong only once. So we have to put these kind of things into perspective. You're listening to Motley Full Money. We're talking with Professor Noreal Robini. His new book is crisis economics. How do you invest your own money? Well, it's bifurcated. On one side, I believe in long-term passive investment,

and I've, you know, my 401k is into equity, 50% U.S., 50% global indices, passive, because I don't believe in active asset management that leads to high fees and taxes. On the other side, however, for the last three years, every kind of extra dollar savings that have made out of my income has gone into cash as I got out of the stock market in the middle of 2007. Let's talk about Dr. Doom. I don't know of many, well, for that matter, I don't know of any economists who have nicknames,

but you recently said you'd like to change your Dr. Doom nickname. Let me play devil's advocate. Hasn't that been kind of good for your career? I mean, the nickname Dr. Doom is kind of cute, but I would like to point out that I'm not a person. Mabere, there is a global economic recovery, however, anemic. And in my business, it's important to be right, and not just to be permanently either optimistic or pessimistic. You have to be realistic, and I see a situation in which today there is a beginning of a global economic

recovery, but there are significant also downside risk. That's why, from a formal point of you, I'd rather be called Dr. Realist, even if the nickname of Dr. Doom looks like cute. What if we shorten it? What about Dr. D? Does that work for you? I don't know about that. Dr. R for Rubini, maybe. You know what? We'll have people email us, Motleyfulmoney at Fool.com. If we get any good nicknames, we will pass them along to you. Thanks a lot. In preparing for this interview, I checked with a lot of my colleagues, a lot of advisors and analysts here at the Motley Fool. They offered up some questions. And one of them came from Robert Brokamp, who's our retired

expert. And this is a guy who knows more about retirement planning than anyone I know. An incredibly smart guy, a published author. And when I said I was going to be interviewing Noriel Rabini, here was the question he gave me. How can we meet hot chicks like he does? Because, again, kind of like you're the only economist I know with a nickname. You're the only economist I know who is photographed with just a stunning array. of women? Well, I would say I'm an economist, but I'm not a white-dead economist, and therefore I live and have a social life.

Good for you. I have a four-year-old son. Should I be encouraging him to become an economist someday? Yes, you know, being an economist these days is cool. You know, if you think about it, macro issues have been dominating the headline for the last few years. So while you can follow individual stock or market, unless you have the big picture, then you're not going to get it right.

You know, if the forest is burning, picking the right tree or the right fruits on a tree, it's not going to do you any good because you have this global macro shocks that affects actually investment returns. That's why having the macro picture I think is actually very important and interesting. Is that level of celebrity strange, though? Because, I mean, you're a noted economist. You're a professor at NYU. It's got to seem almost surreal for that sort of thing, though. Well, you have to take it with some grain of salt.

This is a business in which you feel a bit like an athlete. You're as good as your last call. That's why me and also my company, I have 40 analysts. We follow every country day by day, and you have to be in one and understanding what's happening and try to understand how this global economy and financial market are going to evolve. So with celebrity, you're also on the spot, and therefore you have to be realistic and sensible

and try to understand and get it right day after day. All right, Professor, we're going to wrap up with a round of buy, seller, hold. And let's start with, you know, there's a lot of uncertainty in light of the BP spill. So buy, sell or hold oil? I would say hold. Why is that? Because on one side, the supply is not growing fast enough in the oil market. On the other side, in my outlook for a weak economic growth in advance of economy.

demand is going to be also weak. So compared to current levels, I would say all price are not going to go much higher. Buy seller hold the likelihood that we'll see a crash in China's real estate market in the next two years. I would say buy in the sense there will be a crash in the real estate market, both commercial and residential in China in the next couple of years. All right. You've been bearish on this in the past. Buy seller hold gold. I would say hold for the time being. Gold may gradually increase, but to get to gold to $2,000 an ounce, you need either a very high inflation or another global financial meldance in his depression. Those two tail risks so far have been reduced because of the policy response. Therefore,

I see gold moving sideways and only gradually increasing in value. Okay, this woman is also an international celebrity. By-seller-hold, Lady Guller. I would say bye. She's really a superstar. Are you a fan of her music? Yeah, I love her songs, and she's a great performer as well. And finally, you will be appearing in two movies this fall, including Oliver Stone's sequel to Wall Street. So buy, sell or hold, the acting career of Noreal Rubini. I would say bye. I'm going this weekend to Cannes at a film festival, and there'll be the world premiere of these two films.

Can I borrow your life just for a week or so? I'm sure your life is quite interesting as well. It is quite interesting. It just doesn't involve the Cannes Film Festival. The new book is Crisis Economics, a crash course in the future of finance. Professor Noriel Rubini, thanks so much for being here. It was great being with you today. All the jaws will drop and all the girls will scream.

I show up on the scene. up, we'll talk about the value of an apology and give you an inside look at the stocks that are on our radar. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. This week, executives from BP, Halliburton, and TransOcean appeared before Congress to answer questions about the Gulf Oil spill. The Washington Post reported that the executives all agreed on one thing, someone else was to blame. So how should companies handle a crisis? And are there companies that have succeeded by not playing the blame game. Gene Bliss is the author of, I Love You More Than My Dog, Five Decisions that Drive Extreme Customer Loyalty in Good Times and Bad,

and she joins me in studio. Gene, welcome. Thank you. So the executives at these hearings, they apologized, but they didn't accept the blame. Did they miss an opportunity? They missed their finest moment. Really? That could have been key for them? Well, I think the accountability is the big thing. You show your true colors of your organization. in terms of how swift and how accountable you are and how you solve the problem. All right. Let's talk about some companies that do a good job when it comes to apologizing,

accepting blame. Let's start with one of the companies that you write about, Southwest Airlines. Yep. Every morning they convene their meteorologists, their operations people, the different folks across the organization, as well as a team called the proactive customer service team. They look at all the day's flights the day before, even if it wasn't their fault, like weather. and before the customer can send them an email or call or be worried or concerned, there is a contact back from Southwest sending them either an olive branch or Love Bucks for their free next flight. And each of these letters is personally created based on your situation.

So they're not form letters. Now, we did talk earlier in the year on this radio show about a little snafu that Southwest had with Kevin Smith, the filmmaker. What did you make of that? I think that was a very unfortunate incident that was outside of the normal approach that Southwest had. And you know what? Every company is going to step in it every once in a while. And the good thing about Southwest was they said, we messed up. One last company near and dear to a lot of people's hearts here at The Motley Fool, Netflix. Netflix, yes.

What makes Netflix so great at customer loyalty? You know, Netflix is not afraid of saying every once in a while, our... feet are made of clay. We are stepping in it. What happened was this was late 2008 or early 2009. They had a glitch in their technology systems like a lot of us do. And they weren't teeing up and sending out DVDs as fast as you might have imagined out of your queue. Well, if you're like me, you don't even notice they're slower. But they sent an email to all 10 million of their subscribers and said, look, it's not coming fast enough. We want you to know we're going to take care of this. And if you had just started on your trial subscription, they pressed the restart button so your trial subscription started again because they wanted to really be in control of your first impression of them. So by admitting to customers, even though customers

didn't know anything had gone wrong, they brought them even closer in the fold and got so many virtual hugs from the social media community. It was amazing. You're listening to Motley Full Money. We're talking with Gene Bliss, the author of I Love You More Than My Dog, Five Decisions that Drive Extreme Customer Loyalty in Good Times and Bad. All right, Gene, it's time for a round of buy-seller hold. This is our all-apology edition of buy-seller hold. So I'll spot you up with something. You tell me if you would be buying, selling, or holding it. And let's start with buy-seller-hold, Toyota's apology. Sell. They've really violated to me a lot of the basic tenets of apologizing. Swift, humble, remorse, accepting accountability. I mean, we've got finger-pointing, a lot of describing

about what happened. It just didn't feel real genuine to me. Buy seller hold, Tiger Woods apology. I would, that's a, I would sell that one. For all the same reasons you just mentioned? All the same reasons and then just a little bit of the ew factor. All right, buy seller hold, apologizing by email or text message. Hold, I think it depends on who did it and how and how swiftly it came. If it's a, if it's a swift apology and then followed up with some other things,

I'd say that earns them the right to keep going forward. Okay. And finally, buy seller hold, the expression, love means never having to say you're sorry. I don't even know how to respond to that. Hold? Is that giving me and our listeners some insight on the state of your marriage and that sort of thing? No, I mean, I think that you need to say. I mean, our male listeners in particular need some advice here.

I mean, help us out. How about buy? Bye. No, hold. No, you know what this says? Women don't have a clue either. Thank God. The book is, I love you more than my dog,

five decisions that drive extreme customer loyalty in good times and bad. It's a business week bestseller. Gene Bliss, thanks so much for being here. Thank you. As always, people on the program may have interest in the stocks they talk about. Don't buy ourselves stocks based solely on what you're here.

I'm Chris Hill, and joining me in the studio once again, our trio of senior analysts, Seth Jason, James Early, and Shannon Zerrin. All right, guys, time to go around and talk about the stocks that are on our radar. Shannon Zimmerman, we'll start with you. So my radar stock is Google. Ticker symbol is G-O-O-G,

and it's on my radar because of news that it is partnering with Verizon to come up with arrival to the iPad. It seems to be clear to me why this is a good idea for Verizon, and apparently they're going to generate some revenue from the data plans that they would sell to people who are going to use this.

It's less clear to me why it works for Google, because if, like, the Nexus 1, it's a bit of a dud, then it will dim their reputation for innovation. and then it's just one more thing to slap ads on. That's how they derive the vast majority of their revenue. And this to me seems like it could be the fruit sticky advertisement. James Erling? As a dirty-minded guy, I'm still liking sewage companies. I also do water companies.

California Water, Aqua America are two that I like. CWT and WTR are the tickers there, but I actually feel it's too hard to go wrong. It's hard to go too wrong in this space. A lot of the municipalities are having budget crises, and these water companies are able to buy up smaller players on the cheap. Seth, Jason? I haven't have to go with the brand on my wrist here. Fossil F-O-S-L. They make the watches. They make a lot of other stuff. Amazing first quarter results this week. Net sales up almost 22 percent gross profit margins way up, operating income way up, doubling. Their operating profit levels have reached, expected to reach low teens this year, which is something I didn't think what happened for a decade. Still looks cheap to me. We have it in Hidden Gem. I own it, and I think it's worth another look even now.

All right, Seth, Jason, James Early, Shannon Zerring. Guys, thanks for being here. Thanks also to our special guest, Noriel Rubini and Gene Bliss. If you missed any part of the show, you can get it at our website, motleyfoolmoney.com. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening.

We'll see you next week.