Motley Fool Money - Motley Fool Money: 07.02.2009

Episode Date: July 2, 2009

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

This episode is brought to you by Colagard. Do you know what's really scary? Not screening for colon cancer when you turn 45. The Colagard test is non-invasive, requires no special prep or time off work, and ships right to your door. In just three simple steps, Colagard takes the scare out of colon cancer screening.

If you're 45 or older and at average risk, ask your health care provider about the Coligard test. Colagard is available by prescription only. Learn more or request a prescription today at colagard.com slash screen. Welcome to Motley Fool Money. I'm Chris Helm. I'm joined by Motley Fool Senior Analyst, Seth Jason, James Early, and Shannon Zimmer. Guys, happy Thursday. Good to be a little.

Happy Thursday. Good to be a short week this week. So we're going on Thursday. Coming up, we'll discuss the latest in the Bernie Madoff saga. Walmart's decision to jump into the national health care debate and share a few stock ideas. But we start once again this week with the big macro. The government announced earlier today that the nation's unemployment rate in June rose to nine and a half percent. Shannon, it's the highest unemployment in 26 years.

Right. So you have to, given where we have come so far, you have to ask, is the glass half full or half empty? And, of course, the answer is that it's all relative. If you want to feel thin, you hang out with the obese. If you want to feel buff, you hang out with Seth. And if you want to feel sober, you hang out well with you, Chris. Absolutely. It is all relative.

And whether or not you think the glass is half full or half empty depends on how much you have had to drink. And we have been quite clean and sober here around this table. So none of this is a surprise. Not to this crowd here. Or folks who have been tuning in. Everybody, I think, who is paying attention anticipates that unemployment will eventually go to double digits, which is, of course, tragic for folks who are losing their jobs, but it is not at all a surprise.

The conventional wisdom is that unemployment figures are a lagging indicator, and as a barometer, an economic barometer, of course they are. But there is a way in which they kind of point to where we are likely to land, too. And I don't want to push too hard on this analogy, but it is somewhat analogous to inventory reductions. The more that stores and manufacturers take off the shelves, the more replenishment has to happen when we do finally bounce back. The same dynamic occurs with the labor force as well. The higher the reductions, the more folks will have to be hired back when the economy really does turn around. And so the stage is being set, even though, again, for folks who've lost their jobs, it's quite grim.

The stage is being set for a nice bounce back. Such a callous, callous explanation. But that actually makes sense. But, yeah, I agree with Shannon. This is... You agree that employees are inventory? inventory to Shannon. I love each and every one of them. Shannon's the one who's stacking them like cordwood and put them out on. Seth, J.S. This is really not a surprise, I don't think. I'm always surprised

when people are surprised. What this also means going forward is that this is something we've said over and over again, and it also bears repeating, which is that you have to look at some of this market rally and say to yourself, all right, with weak employment, you know, continuing longer, a little more than people thought, how much of that is justified? How much do you think the consumer is going to be spending coming up? And the answer is probably, not as much as before we went into this economic tailspin. So just be careful out there. Yeah. And so the takeaway for investors here, I think, is, you know, when the recovery occurs, I think it will be more robust than it otherwise would have been. But there's no telling when that's

going to happen. It's just a magic eight ball guess. For right now, it's a great time to sort of take a look at your portfolio, make sure that it really does match up with your risk tolerance and not the one that you thought you were regaining as the Dow was bouncing back. Pay careful attention to beaten down value stocks as well. You know, the rally that we've had, as impressive in some ways as it's been, has actually been quite thinly traded. And there's a lot of money on the sidelines. As that begins to come back in earnest, and you see companies like IBM, Walmart, Johnson, and Johnson trading at or below the market's multiple, I think that those are going to be the beneficiaries early on. This week, Bernie Madoff was sentenced to 150 years in prison.

Madoff's $65 billion Ponzi scheme claimed a who's who of big names, including Stephen Spielberg, Jeffrey Katzenberg, the CEO of DreamWorks Animation, Sandy Kofax. And as we discussed at length on a previous podcast actor Kevin Bacon and his wife, Kira Sedgwick. James, Maydiff was on the SEC's radar for a long time. What gives here? I think the first lesson is just because Kevin Bacon does something, it doesn't make it automatically okay. Heresy. Exactly. First of all, investors need to do their own homework. There are some very basic red flags. As someone coming from the institutional investing world before Motley Fool, that should have been caught.

I mean, you don't do your own clearing, your own custody. I mean, if I tried to start a hedge fund today doing those two things myself, I would never get any money. Bernie Madoff did simply because he had been doing it for so long, and he was this authority figure. But that's mistake, number one. Second, there are a lot of these feeder funds out there, people who didn't necessarily realize that they even had money with Madoff,

maybe they sort of kind of knew. And these people obviously failed in their due diligence, but the big failure goes to the SEC, which should about be abolished in my view and started fresh. It's so messed up. You know, the Post did an article, recent Washington Post did an article that mentioned this SEC lawyer, Jean Vivette Walker Lightfoot, if I pronounced that right,

who found in 2004 some very basic things like trade settlement and clearings weren't matching up, and she brought them to the attention of her boss who sort of seemed to have dismissed them according to the story and kind of routed her elsewhere. Come to find out the boss later married Madoff's niece. Not like that. No. Oh, come on. But yeah, this is ridiculous. It is good. So let me move on to my opinion.

But just to be clear, for those listeners out there who are thinking about starting their own Ponzi scheme, you need to marry. It helps to marry it, too. Not just the SEC, but the SEC can't do it in the other way. Correct. It is good. It is good to see a guy get a stiff penalty for a financial crime finally. My dad is upset that he has to pay for Bernie made off the last. live off the rest of his life in prison, but at least it's better than having him out in the

loose. You know, there are a couple of questions, actually. I've got here for my Confederates. I can call his name that Madoff. And we're going to try to flag the odd one out. There's one false answer out of three truths. So number one, Bernard Madoff has worked at all the following jobs except one. Tap dance instructor, lawn sprinkler, install.

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

Which of the following was not a feature at Bernard Madoff's parties? And this was my source for the either 2020 or dayline the other day. One, topless waitresses. Two, marijuana. Dude, that was part of his sales force. I think. Yatzi. Okay, we know the answer to that.

But he was obviously a slime ball, so, you know, I'm an sociopath. In a weird way, I almost feel for him. But, you know, he certainly got what he deserved. Really? You almost feel for the guy? No. Just because he has to have this. I mean, he just, he seems to be on a different wavelength from the rest of humanity. And I don't feel bad for his punishment.

I just feel bad that he, because he clearly, the only thing he regrets is getting caught. I just, just that he's in that state of mind. I mean, it's just a thing unto his own. empathy for the sociopath. Very interesting. Yeah. Wait, which was it? They didn't have marijuana at the parties? They did, actually. Apparently, Bernie indulged a lot. Yotsie, they did not have it. Yotsie. Oh, wow. I go to the wrong parties.

Any truth to the rumor that a part of his punishment for Bernie Madoff is that he has to share a cell with Jack Abramoff? Is that true? Nice. All right. We moved to an item from our Who Would Have Thunkett Department. This week, Walmart announced its support for President Obama's plan to require companies to provide health insurance for employees. Walmart is the nation's largest employer with around 1.4 million employees. Around 53% of employees are insured by Walmart, below the national average of 63% for companies with 200 or more employees. Seth, Walmart's announcement surprised some folks. Were you one of them?

No, I had thunked this a long time ago. This didn't surprise me too much, actually, because as big and evil in finger quotes as Walmart is, and don't get me wrong, I'm not a big fan of Walmart. I really can't stand shopping there. They actually have been okay, I think, in moving towards getting more health care to their employees. And the writing is on the wall here. Something has got to give. Our health care system is broken.

Walmart realizes that, and I believe they realize that putting it off and not being involved in a decent fix is ultimately going to be a lot more expensive than getting involved and getting their voice heard. And so part of the reason I think this is they made the right decision is that the hired goons at the Wall Street, Journal editorial page sort of came out swinging against Walmart, and their attack is really hilarious. They're calling Walmart self-interested, first of all, as if that's a bad thing in a capitalistic exchange. And second of all, as if they expect anything else from any other company. Of course, Walmart is doing this because they want other companies to be on a similar playing field with them. But Walmart also understands efficiency better than just about any other

entity in the world, I would argue. And I think Walmart sees an opportunity for us to take control of this situation. Now, we don't know what the health care fix is going to be, but I believe you need the Walmarts out there to be on board. I'm not a Walmart historian, but weren't these guys like vigorously fighting any kind of health care legislation, you know, five, ten years ago? Of course, because at that point, they were able to foist the costs off onto others. Now they realize it sooner or later it's coming back to them. You better figure out the way to make sure that it comes back onto you the way you want. But as soon as they know they have to do it,

now they want them to jump on board and force everybody else to be at a competitive disadvantage. Exactly. Exactly. Yeah, well, and hopefully Walmart is going to lead by example here. You know, Seth said that... What did you say, Seth? For a large evil company, they've been a lot less evil than some people with... As much as it pains me to say to admit it, Seth is exactly right.

To me, the thing that is surprising, though, is that it's taken the Walmarts of the world this long to figure it out. The health care system is broken, but it has been broken for a long time, perhaps even five or ten years ago, and why businesses have fought so hard to keep this wildly unpredictable costs on their side of the balance sheet is always been a surprise to me. I'm glad that conversation has moved on. Because nobody paid attention and it was hidden for so long and not accounted for it. We're just finally paying a bill that we incurred a long time ago.

All right, guys, it's Independence Day this weekend, so I'm going to give you your independence. Let's go around the table, pick any story from the week that you want to highlight or shout about. It can be business, sports, pop culture, whatever. Shannon, let's start with you. Well, so fire up the way back machine because I always, was not here last week and did not have an opportunity, you know, I was on vacation. I was going to say, you were cozying up on a beach summer. Well, so you say, I was on a so-called vacation and it was hardly relaxing. I was sort of helping 15 kids in and out of the ocean every 15 minutes until I

decided to go enjoy the great indoors, and that was by far superior to the other. So your wife doesn't listen to this podcast. I'm hoping not, but I'll tell you what, honey, next year it's Alaska. Why would you go someplace hotter than the place you already live? It makes no sense during summer. So that was tragic, and I was not here to comment on the tragedy of losing both Michael Jackson and Farah Fawcett on the same day. So I wanted to sort of get on our record around that. So, you know, Michael Jackson obviously morphed eventually into this sort of very strange cartoon figure, but the guy was just unassailably and unquestionably talented.

You don't sell 40 million copies of a record by accident. So there was some business acumen going on as well. And just a cultural sea change, too. MTV in its early days wanted to be a rock outlet and his record label, Epic, pushed back hard on giving MTV their rock artist videos if they would not also air Michael Jackson's videos. They didn't want to show Michael's videos. Which were vastly superior to most of the, you know, I think some black and white footage of rush was what MTV was showing in those days. And that opened up, that sort of created the future as we lived it through the early days of MTV.

So that obviously was doing something right. And then on the fair aside, not nearly as much of a game changer, but she was one, particularly for most of the people that I will chair to be called my contemporaries, how we ever got away with having her posters on our walls. I'll never know. Maybe she was so iconic that even moms could not resist her charm. James? I'm going to go with Barney Frank's story from about a week ago who thinks we should relax lending standards for Freddie Mac and Fannie Mae, especially on condos. I think he's a little bit late to the party on that. Okay. Late to the party. I think he's been at the party and he's been there way too long and by the punch bowl. Is it like a Yotsie party or a non-Yotsie party? Because it sounds like there

are two categories now. I think Barney's at the one where they're passing around the Tucci on the left hand side. Oh, okay. There's a great blast for the class. Seth? Car sales. Has everybody seen the car sales? No.

The best looking bottom, this side of Farrow? I don't know. That's not what sold that post. Is your wife? Yeah. No, seriously, car sales, okay. The annualized rate for June was a little bit below the annualized rate for May.

But it appears that we're not going to stay down in the $9 million forever. And this is consistent with something we've been talking about over at Hidden Gems, and it'll lead into my stock on my radar. We were at a place where people were buying so few cars that the scrap rate was going to exceed that. The good thing about cars, if you're an investor in any of the auto business, is that they eventually wear out. And so we are probably seeing the bottom, I believe, for annual car sales. Are they going to zoom back up where they were? Not probably, but they're not going to stay as bad as they were. Well, and we were

talking about this before the taping today. You're going to help in that regard. We're chew out like test driving a bunch of different vehicles? Me? Yeah. Well, I bought a car a few months ago, so I was helping the economy while the rest of you communists were talking it down, man. I'm waiting for the incentives to get a little richer. All right.

As we are now officially in the second half of 2009, Shannon, give me one stock that's on your radar. Well, so let me sort of lean into it this way and circle back around to what I was saying earlier on. So the rally that we've been on since the March lows has been very thinly traded, low volume, which does sort of underscore the fact that there's a lot of money sitting on the sidelines. When that begins to trickle back into the market in earnest, I think that the, you know, beaten down blue chips are a good area to look to, and who is more beaten down than anyone who's

associated with home builders? Home builders themselves, not going to take a look at those, but the lows and the Home Depot's of the world, I think are quite interesting right now. I like lows, tickers LOW, of course, a little bit better than Home Depot, primarily on valuation grounds, but they've also grown market share relative to Home Depot. And also because Home Depot is a terrible place to shop? Sorry. You're a secret shopper over there. You're like Mr. Cranky Shopper guy.

Lowe's does make their stores to appeal to women, they say, compared to Home Depot. I don't know what that says about me, but I really like Lowe's. All right, James. Actually, I do too. I do not like Walmart to shop that. Says the other guy in a pink shirt here. I do not like Walmart to shop that, but I do like them as a stock. I'm convinced the company is taking over the world one of these days.

I think this healthcare stuff does bode well for them competitively, so I'm going with Walmart this week. All right, Seth. I have a stock on my radar with the most amazing non-committal opinion on what to do with it that I've ever had. It's Auto Live, and they make safety equipment for the large automakers and small automakers all around the world. They obviously got killed

as car sales plummeted. Probably, I believe, still their biggest customer is Ford, which you will probably notice did the best recently in auto sales. I think in June, their sales were maybe down only 10%. Well, we'll double-checked that. If I'm wrong, I'm sorry, but they were a lot better than a lot of their compatriots. And AutoLiv, the stock, I'm trying to decide whether it's a buy or a sell, quite honestly, because if I look at it, based on what it's on your radar. It is literally on

your radar. We know that for sure. If I look at it based on what I think I know about, about car sales and everything, it looks close to fully valued or did a couple days ago before the market kind of spoon. But then I look at news like today, the National Transportation Safety Board said maybe we're going to think about putting these sort of radar systems in bumpers to help keep us all from killing pedestrians and also to keep you from swerving off the road. These systems, Autoliv is a leader in these kind of systems. They would cost a lot more than the airbags and other things that are more of AutoLiv's products.

And if that stuff goes through, and believe me, eventually it will. It may not in the next year or two, but it'll be there eventually. That's the kind of thing that can power this kind of best and breed company forward for a long, long time. So it may be a buy even though it looks fully valued. I'm still thinking about it. So it's either a buyer or a sell, but just add a little more fog to that very foggy advice.

Could it be a hole as well if you own it? It could be a hole. This is how worthless I am, everybody. When you want advice, you come to Motley Full Money. You come straight to Seth. We'll give you buy, sell, and hold. All right, Seth, Jason, James Early, Shannon's everyone. Guys, thanks for being here.

Thank you, Chris. Happy Fourth of July to everyone. Thanks for listening to this edition of Motley Fool Money. You can check out past episodes at motleyfulmoney.com. As always, people on the program may have interesting. in the stocks they talk about. Don't buy or sell stocks based solely on what you hear. Do your homework and make your own decisions. And remember, the conversation continues 24-7 at fool.com. I'm Chris Hill. We'll see you next time.