Motley Fool Money - Motley Fool Money: 06.03.2011

Episode Date: June 3, 2011

The economy adds fewer new jobs than expected.  Groupon files for an IPO.  Google fights with China.  Nokia tumbles.  And 5-Hour Energy scores with seniors.   Our analysts discuss those stories and share some stocks on their radar.  Plus, former Gambino family associate Louis Ferrante talks about his new book, Mob Rules: What the Mafia Can Teach the Legitimate Businessman.     Learn more about your ad choices. Visit megaphone.fm/adchoices

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Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill, and I'm joined by Motley Fool Senior Analyst, Seth Jason, James Early, and Ron Gross. Guys, good to see you, as always. Good to see you, Chris. We've got a fun show this week, guys. We've got Groupon filing to go public.

Our guest is Louis Ferranti, a former member of the Gambino crime family. He will share some legitimate business advice from the mafia. Plus, as always... Is that all legitimate? Oh, it's all legitimate. It's all on the up and with the Gambino crime family. Plus, as always, we'll give you an inside look at the stocks on our radar. But we begin with the big macro and some ugly jobs numbers. The Labor Department reported on Friday that the unemployment rate in May rose to 9.1%. Employers added just 54,000 new jobs in May. That's down from the 200. 32,000 that were added in April. Ron Gross, I'll start with you. What'd you make in the numbers?

Yeah, I know we like to kid around here, but this isn't that funny. This is some concern to me. I've been concerned for a while. The high unemployment rate, not adding jobs anywhere near the rate we thought we would. QE2, our quantitative easing program about to end, brings up questions about, do we need additional stimulus going forward? The big question here, is this just a soft patch on our bigger road to recovery or are we actually in trouble here and on the verge of a double dip recession or even worse. I actually

don't know the answer but I do know I'm concerned about it. So you pose a question without answering it. Well I'm not on a nationwide radio show. The second we start to make economic predictions here is the second listeners to start clicking us off. Oh they know with it. We know the future. This is

a pretty ugly report. The best, I was looking at the details too and the best thing you could say about it is that in a lot of places, job losses didn't get bigger, except in public government. But, of course, everyone in the country right now is up in arms about debt. And so the debt ceiling and all that kind of stuff. So go ahead and cut government employees. Just be aware everyone that when you get what you wish for, sometimes what you wish for

is lower economic activity. And one of the worrisome bits is that temporary employment, if it is actually a bellwether of increasing employment to come, was not so great. So, yeah, this is an iffy report, and everyone should be wary. James, what did you think? Well, the economy is like a water balloon, Chris. If you squeeze it in one place, it's going to bulge somewhere else. And we were overspending for quite a while, and we just kind of have to pay the price.

I mean, we just need to pay our dues, and this is, this is to me just a reality. I'm not surprised by it. I'd be surprised if the economy just bounced right back. So I agree with Ron that that employment is really the thing that predicates everything else. I mean, people can't be buying houses, buying clothes, buying cars if they don't have jobs. Ron? And the more worrisome number, for me, not just the 9.1%, but the broader measure of unemployment where you factor in the people that are working part-time but prefer to work full-time

and the folks that have gotten discouraged and stopped looking, that's at 15.8 percent, which is actually down slightly, but 15.8 percent of our workforce is not working or is not working to the ability they would like to. That's a scary number, and that's a lot of people in this country that are having trouble. making ends meet, putting food on the table, paying their bills. But that was one of the things I thought, if you want to look at the glass being half full, at least it hadn't gotten worse. There were several.

There were several. Wagging my fingers. I know. I'm waggling my fingers. I'm wrong. You guys need to be more optimistic like me. Groupon, the daily deal site, has filed to go public. It has a few of the juicy financials from Groupon's filing.

The company lost $413 million last year. That was on revenue of... of 713 million. First quarter of revenues for this year, 645 million. James, I'll start with you. Do you want a piece of the Groupon idea? I would love a piece if I were one of the Groupon founders. I mean, these guys, it's hard to lose $413 million in a year. I mean, that's actually difficult. These guys are having their flash in their pan. I think they're trying to grab the cash at the best possible time. It looks like they're succeeding. I mean, the company's losing tons of money. Social media stuff is red hot. The business model is not sustainable, but they're

cashing out at the best time, I think. Seth? This is, I think this is going to be the worst IPO we will have seen for quite a while. After what happened with LinkedIn, which fell apart even though it's marginally profitable and has the potential to scale, Groupon looks horrible. Groupon looks really bad. One of the dumbest analysts comments I saw said, well, you know, most of their expenses are salesmen, so they don't have a lot of fixed costs. They got a lot of room to cut costs and become profitable. That is idiotic. The only reason they have the revenue is they have to keep hiring people to go out and sell this stuff.

They've got competition coming from everywhere, from Google, from Microsoft, from Facebook, from living social. Small newspapers. Small newspapers. Everybody can do this. And some people will be able to do it better. They have better information. Groupon is really dead meat. Ron, what do you think?

Summed up by saying the CEO recently said that their success is largely, I quote, largely due to the relationships that we have with local merchants and it is difficult thing to replicate. I couldn't disagree more. And not only is that their relationships from what you read aren't very good. The merchants don't like working with Groupon to a large extent because they have to look at it as an advertising cost. And what I've read, a lot of them say that it tends to bring in

people who aren't going to become customers. It brings in cheapskates who are there to get something one time and then they never come back. So it's not even effective advertising. When a company files to go public, obviously, you know, a private company, they have to make a lot of things public. Here's one little nugget from the filing. Groupon founder Andrew Mason says that the metric

investors should focus on is something called, and I quote, adjusted, consolidated segment operating income. What in the hell is that, you may ask? That is a metric that actually does not include online marketing expenses. And to give that some context, in the first quarter this year, Groupon spent $208 million on marketing, and about $180 million of that was for online marketing. marketing. Why would you want anyone to look at all your expenses? Investors don't look at the detailed stuff, Chris. But what they're doing, they're capitalizing their marketing expenses. You make something an asset. You make an expense and asset and then you take little pieces of that to use as your fake expense for many years. So that's what they're doing. They're making

it's a small expense year after year as opposed to the big expense it is now, which definitely helps their numbers. Ironically, analysts sometimes make this adjustment when they're looking at companies like Coca-Cola because they're building their brand and that's something that lasts for a long time, but these are more one-off expenses to pay the sales force to advertise. So I don't think this is something that should be capitalized. I mean, yet they do. But it's an online marketing company. And now they're saying, don't count our online marketing expenses. To be fair, take the other side. They're saying that creating the relationships with these merchants is expensive. Once you have the relationships, maintaining them is not nearly as expensive, and therefore

their expenses in their future will go down. And as an analyst, you do want to be aware of that. But you have to believe it, though. You have to believe it and raise your hand if you believe that. Anyone in this room? Anyone? This is radio. It doesn't matter if we raise her. Yeah. People can't actually see that. For the record, only Steve Broido has his hand up, but he's scratching his head. So again, this is Groupon's founder saying, adjusted, consolidated segment operating income. That's a... Please don't say that again. That's a preferred metric. So, you know, in that spirit, when it comes to your life and your work, what's your preferred metric, Ron? How would you like people to judge you? Chris, I've recently begun running, jogging.

Have you? That's good. Yeah, actually, very recently. Like yesterday? I don't believe the time at which I can run a mile now is indicative of how well I'll run it 10 years from now. So I would much prefer if we just count every other minute. Let's adjust. And then I'm right in there.

Adjusted mileage. Or adjusted for the time that you've been running. Gotcha. James? You know, I have a little confession, Chris. Well, my metric, first of all, is how much money I've saved. on outdoor gear. See, I'm a minimalist usually,

but when it comes to climbing gear and skiing gear, I'm kind of a gearhead. So I got this email from this site that I frequently patronized saying, congratulations, you've saved X much dollars over the life of your purchasing here. It was basically enough to buy a small car, one of those little smart cars

that Ron is so fond of. So I guess I'm not proud of saving that much money, but it's still a good thing. Seth, do you have a preferred metric? Well, nobody out there can see me, but in addition to being devastatingly handsome, I'm also quite thin. Emphasis of the devastating.

That's because I run a lot. I've been doing about a marathon a month. And so among marathoners, there is a way of trying to figure out what your optimal racing weight is, and that is to take your height and inches, double it, and that should be how many pounds you weigh.

And if you do this for me, I'm slightly overweight at my current, I stepped on the scale absolutely naked last night, after the shower at my current 155 pounds. We don't need that. I'm overweight. Let's move to Steve Broido behind the glass. Steve, do you have a preferred metric?

My preferred metric would be intent. I'll just leave it that. Is it a better? My intentions are usually very good. And I don't know how we quantify that. So no matter what you do, no matter what your job performance, no matter what your wife says about how you are at home, the intentions are usually quite good.

You're brazing that seems to bring up the, there might be discrepancies between your intent and your outcome. Is that true, Steve? Yes, sometimes that is true. There might be, but again, we should measure him by his intent. By his intent, yeah. All right. Moving on, interesting week for Google.

The Gmail accounts of some U.S. government officials were breached, and Google has alleged the culprits are based in China. This has prompted an angry response from the Chinese government, which in turn accused the United States of launching a global internet war to bring down other governments. Seth, we don't need to play peacemaker between nations on this show, bringing it back to business. What does this say about Google to you? Well, it says a couple of interesting things, one about China, which is their response is, did not, did not, did not. Google has been trying to sell the idea that it's cloud services like Gmail and this kind of what I consider

a very lame word processor and all these applications online are a valid alternative for businesses. And I think this is just another reminder that they may not be. because this wasn't a very sophisticated scheme from what I've read. This basically involved sending emails to try and trick government officials into clicking on an unsafe link, fishing, basically, to get you to a website that looks like a real website, but it's not, so that they could then collect usernames and passwords. And then, according to the Google blog on this, go ahead and say forward email from there on out so that, you know, any email that Hillary Clinton got.

at her Gmail address would also be sent to some guy, certainly not in China, by the way. And this just goes to show you that you don't actually need to, all the security in the world, and Google has good programmers, all the security in the world doesn't matter if people make silly mistakes, and Google has a lot to learn still about helping people make better choices. On the lighter side for Google this week, speaking at the All Things Digital Conference in California,

Google Chairman Eric Schmidt admitted that he, quote, screwed up in the area of social networking when he was the CEO of the company. Ron, in hindsight, what could Eric Schmidt have done when it comes to social networking? Well, he could have developed its own product. He could have made acquisitions. He could have been more aggressive in creating an alliance with Facebook. He could have fritted Mark Zuckerberg. He could have. Yeah. I think, you know, it's honest of him to say he screwed up. I actually think he's sure he's correct. He could have focused more effort and capital in that direction.

I happen to like Google. We owned it in a million-dollar portfolio. So regardless of the fact that I think they misstepped on that social media aspect, I still like the company. But they did do that. They did make acquisitions in social media. They tried to develop their own. They blew it. Sometimes one of the things that Google needs to realize is they can't be everything. And Eric Schmidt is one of the worst offenders. He thinks Google can do anything at once. And Google has here to four only been able to do two things.

One is sell ads. They're very good at that. The other is give away a phone off. operating system. But this is about ads. It's about Facebook capturing, advertising. But nobody thinks of Google in a social networking way. And I'm some just saying, I don't think there's anything he could have done. I'm letting him off the hook. No matter what he tried and he tried a few things, I don't think he could have done anything about it. Coming up, Nokia is the number one maker of mobile phones in the world, but that didn't prevent shares of Nokia stock from falling 20% this

week. We'll explain in a moment. This is Motley Full Money. Welcome back to Motley Full Money. Welcome back to Motley Full Money. money. Chris Hill here in the studio with Seth Jason, James Early, and Ron Gross. Shares of Nokia down big this week after the company warned its second quarter sales and margins will be, quote, substantially lower. Seth, speaking of lower, everybody loves lower, right? Nokia's stock is at its lowest point in 13 years. Only 13? What is going on? Well, what's going on is they decided to completely revamp their phone strategy, get rid of their Symbian smartphone system, which had enormous market share, but it was way too complex.

It'd go with Windows Phone 7, but they are not going to be selling those phones for a while. People don't know how well those will sell. And in the meantime, nobody wants to buy the phones that are going to be obsolete in a few months. And that turns out to be quite painful. The market obviously loves their new plan. They're working out really well. They're losing on the low end. They're losing on the high end.

The new stuff isn't available yet. I mean, it's a mess. The problem is, the problem, really Nokia, I think, is destined to become something like a Samsung, but with far fewer products, because they don't have their own thing anymore. And I'm not sure that's good or bad for them. If they tried to stick with Symbian and had their own thing, they may have gone completely away. Maybe they can hang on this way. But that is what has got investors worried, and that's why I would stay away from the stock. The makers of the five-hour energy shot drinks initially built their sales.

by targeting college students and people who work long hours. The Wall Street Journal reporting this week that there is a new market for five-hour energy shot drinks. Senior citizens! Yes, the new group that is helping five-hour energy to acquire nearly 80% of the market share of this product. That's a staggering number. At what point do Starbucks and McDonald's get nervous

about the caffeine market? Well, you know, I think the appeal is, in fact, I read one of the stores, the appeal for truckers was that you needed fewer bathroom breaks because you got more caffeine in this smaller. China little shot. The amazing thing to me is that seniors could go to McDonald's for a quarter. They could, instead of the $3, they could get the caffeine for a quarter at McDonald's in the coffee. Because really, this is just a large cup of coffee's worth of caffeine.

That's the only thing in this. What I love about this story is that the AARP vetted the product and decided it was fine and that, you know, they could market it to senior citizens through their. It has caffeine they found, and then a bunch of vitamins, which you can get any other way. And if you get too many, you just whiz them out. What would you do with five hours of energy, Ron? You'd do some of that running he talked about. That's one mile right there.

All right. We're going to do stocks on our radar a little early this week. But before that, we've gotten a lot of great email recently. And by the way, you can always drop us an email, Radio at Fool.com. I wanted to give a special shout out to Captain David Lawson, who is serving in Iraq. dropped us an email. Gent, great job. I listen every day possible. He also included a photo of himself and fellow serviceman Rob Burnett decked out in fatigues and motley full baseball caps. So we love that. We saw the photo, guys. Thank you guys. Thanks for listening. Just in the time we have left,

the stocks on our radar. Ron Gross, I will start with you. All right. I like Bridgepoint Education, ticker symbol BPI. We own it in a million-dollar portfolio. It is a for-profit education company, and there are some moral and ethical considerations with this industry, so listeners should make up their own minds about that. Recently, we got some information that the Department of Education was not going to be as strict as some had thought in terms of re-regulating this industry. You get a little bump this week? Stocks were very strong this week, across the board, actually. I think BPI is quite undervalued here at this level, and the future looks good. James Early.

Chris, my stock is Cato. This is a clothing company, lower-priced-price. clothing company, operates a lot in the southern U.S. and Northeast, and they've really been expanding their plus-size line in the South, where obesity has really become an epidemic, and that's been good business because, you know, everybody needs clothes, and it actually pays a 3.5% yield, $700-something million market cap, a lot of cash, so Cato is the name. I really disagree that everybody needs clothes. That's part of what's wrong with this uptight country of ours. Thankfully, that's not the case in this studio. Seth, you're stuck this week.

I'm going to go back to Jin Pan International. The ticker is JST. This is a small maker in China of cast resin transformers and specialized electrical equipment that is going towards wind generation farms. They just announced this week some sales to an American wind farm, and I believe they're going to do more of this in the future. They have a pretty good presence over here. A lot of their business is based in China,

So if you believe that the economy in China is not as robust as those official figures suggest, then you might worry. But the stock looks really cheap to me if they can continue to operate as well as they have in the past. All right. Jason, James Early, Ron Gross. Guys, thanks for being here. Thank you, Chris. Yes, money in my pockets, but heart aches in my heart.

And how many times have you heard it said a fool and his money will part? Coming up, we'll talk with Louis Ferranti, a former mobster with some legitimate business advice you will not want to miss. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Forget Harvard Business School. My guest this week says, you want to learn about business?

Study the mafia. Louis Ferranti is a former insider with the Gambino family. And after spending eight and a half years in prison, he is now an author and motivational speaker. His latest book is Mob Rules. what the mafia can teach the legitimate businessman. And he joins me now. Lewis, thanks so much for being here. Thanks for having me, Chris.

I'm happy to be on your show. I want to talk about the book in a minute, but first, let's start with your own experience. What was your role in the Gambino family? And what was the primary business of the Gambino family? Well, the primary business is making money. I kind of had, I guess you could say I shared three different roles at one time. The commission, which you may manage.

crew, and I was a CEO of my own crew. I said directly to me, we were like a small company within the family. We know, you answer to the franchise. Wow, it's amazing. I guess I never thought of the mafia as having middle managers. I just think of that as sort of like, you know, office parks out somewhere have middle managers. Yeah, the middle managers are usually an analogy you could use for them. But yeah, it's it.

And in terms of your own operations for your own little business, you were, among other things, hijacking trucks, weren't you? I was. I was the guy the family came to it. if they had a thing. I had, like I said, over a dozen guys, or whatever it might be. If you think about it, just imagine how funny.

So you end up eventually going to prison, and what changed for you in prison? How does a guy go from being an elite performer for a mob family to becoming an author of multiple books? My eyes opened up in a prison cell, and I saw that. You know, there is a violence. So that was the moral question, but aside from that, you know, where was I going to come out of it in one day and then send me away again? Like anybody can, and they may leave their...

So when you're, you know, on the inside, you make this decision to sort of turn your life around, what leads you to the world of writing? I was locked. I was the lock. John Gotti was the big... And he was the caretaker of the body and some of the ters on him. And he sent me Napoleon. So did you get these ideas? He did you tell her? He says, I told her you was short and bossy. With that, he said, you three dictators.

My reading. But as I kept going, and as I kept reading more and more books, luckily I went to jail, I was reading. You're listening to Motley Fool Money? I guess this week is Louis Ferranti, author of the new book, Mob Rules, What the Mafia can teach the legitimate businessman. Before we get to a few of the rules, a couple of questions about the mob itself.

In what industries is the mob? is the mafia most prevalent? Today, Chris, I would say that they're losing their strong, that they once did hold. When I was coming up in the mob, a lot of the old time has had control of all of the Garmin Center industry. As far as New York is a job in cleaning a lot of the, you know, so today, I mean, today, they're probably grasping on to a few unions now. You know, I've been out of that life since I came home from prison.

I went straight. I'm a writer now. But from what I understand, it's very, very big for the Urizes in Manhattan. So, you know, they're still there. You're listening to Motley Full Money, our guest this week. Louis Ferranti, author of the new book, Mob Rules, What the Mafia Can Teach the Legitimate Businessman. Let's talk about the book. I want to spot you up with some of the business lessons in the book and have you elaborate on them.

Let's start with one, which is Get Your Own Coffee. An example in that chapter, that's a real problem. prime example. I mean, there were a number of examples that popped in my head. The full chapter title is respecting the chain of command without being a sucker. And that's go get your own coffee. Here in the mob did follow that chain of command, but you can't spend your day making coffee for the boss. You're never going to go anywhere. Pacino's at Starbucks for the butcher, a high-ranking Gambino.

He met me really on the street. There's a lot of Gambino family. You're in my pants. Me and I'm a pants. I paid somebody to them. You know, so he asked me again, and because of his high rank, and I was a Gambino guy in my pants, I'm not here facing the rest of my friend. I want you to get him a brand, tremendous respect after that.

And he would never ask me to do it. So there are ways in the corporate world. We'll cost me every day at Starbucks. You could let the boss, you know, get the message in a funny way. Coming up, more mob rules with Louis Ferranti. Stay right here. This is Motley Full Money. You're listening to Motley Full Money.

our guest this week, Louis Ferranti, author of the book, Mob Rules, What the Mafia Can Teach the Legitimate Businessman. Another rule from the book, don't build Yankee Stadium, just supply the concrete. Great chapter. This chapter is, when the mob operates, and you were asking early streets that they once controlled, maybe years ago the mob was able to, they may see, they may look at Yankee Stadium as, gee, maybe we can't get the major contract to build a stadium. The stadium needs that the stadium needs that we could provide, whether it be concrete, whether it be plastic seats, whether it be flat in the coffee shop, if they will see if we could get them cheap enough, and we could get the kind of the sign.

Oh, I know Johnny signs. Johnny signs make signs over in Brooklyn. Maybe we could make the Y, the A, the N, the K, the double E's, and the S. You know, they'll try to really, really attack that stadium from every different direction. And there might be areas of the, other people would turn their... nose up that and the mob will run into. You know, a mobster might say I could supply the urinals. Let me do the, let me get the bathroom contract. All I need is the urinals, and I'll have a $4 million contract just putting the urinals in. You know, so this is what the mob does,

and they really, really then work hard at getting anything used in that stadium. Those contracts, they use their networking, catering is huge in the mob. Every mobster has a huge list. Another lesson from the book, which is near and dear to my heart, certainly my favorite film of all time, and the lesson is leave the gun, take the canoli, and beware of hubris. In this particular chapter, I started out with leave the gun, take the coin,

and that's symbolic for the findings I'd learned along the way, that did each other the right way. Not the canoli is a sweet, a leader, flashy, and causing so much attention. We're going to wrap up with a round of buy-seller hold, and let's start with this faces more and more competition buy seller hold

the future of Atlantic City just briefly people still like a place to go people still like e-books will not overcome books completely look like no one was going to in that prime rib dinner that they can't get in their living room you know the whole

that that nice Romeo and Juliet cigar that the waitress is going to bring over with the bunny outfit you're not going to get that in your living room but then again you're going to lose lot of people. We'd hold it and see where it goes. This is someone who built his name by cracking down on crime. By seller hold, the presidential prospects of Rudy Giuliani. Tremendous amount of respect for Giuliani. I mentioned earlier in the show that he did change around New York. You don't want to hold just in case?

I don't see it, and I have a tremendous amount of respect for him. Once again, a great guy, I'm going by his last campaign, which was horrible. Unless he's a new campaign strategy, if he thinks he's going to trouble again. You think he just went to minute. So he definitely can't do that. Right now, I'd sell. I might keep an eye on the stock and see if it moves and maybe grab onto it later.

And finally, the Hurricane is an Oscar-nominated film about a tough guy who becomes a writer in prison. Buy-seller Hold, a movie based on the life of Louis Ferranti. And, I mean, you get to cast it. Who are you picking to play you? The book is Mob Rules. what the mafia can teach, the legitimate businessman. It's just out this week. It is available everywhere. Pick up a copy. It is great stuff. Louis Ferranti. Thanks so much for being here.

Thank you so much, Chris. I had a great time with you. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Thanks to our special guest this week, Louis Ferranti. The book, once again, is Mob Rules, What the Mafia can teach the Legitians. legitimate businessman. And speaking of books, we've actually got a book of our own coming out later this month. It's entitled Warren Buffett Invest Like a Girl and Why You Should Too. The forward of the book is by Motley Fool co-founder and CEO Tom Gardner. It goes on sale June 21st, but you can get the first chapter for free right now. Just go to www.fool.com

slash girl. Steve Brodo, that URL one more time? Fool.com slash girl. fool.com slash girl and don't tell our publisher that we're giving the book away or the first chapter away for free. That's it for this edition of Motley Fool Money. Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.