Motley Fool Money - Motley Fool Money: 07.13.2012

Episode Date: July 13, 2012

China reports its slowest growth in three years.  JPMorgan Chase updates investors on its big loss.  Bridgepoint Education and SuperValu get slammed.  And Microsoft's CEO has some fighting words for Apple.  Our analysts discuss those stories and share three stocks on their radar.  Plus, Motley Fool retirement expert Robert Brokamp shares some 401K tips.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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for Motley Full income investor James Early and for a million dollar portfolio, Ron Gross. Gentlemen, good to see you as always. We will talk big banks, big dividends, stocks and one big prediction for the TV industry. We'll help you rule your retirement with retirement expert Robert Brokamp, and we will give you a look at the stocks on our radar. But we begin... It's a lot of show. It's a big show this week. You're really getting your money's worth out of this show.

We're going to start with the big macro, and that's China. China's economy for the latest quarter came in at 7.6%. That's the lowest rate in more than three years, Ron Gross. What do you think? Well, lowest rate, but pretty strong still. But the big thing here is, you know, what happens in China doesn't stay in China. China is a little bit weak in part because of Europe. The U.S. will be a week in part because of China and Europe. The world, we don't live in a vacuum any longer. So we'll watch this closely. China has already cut interest rates twice because they really want that growth to stay high. They probably still have room to cut more because inflation is relatively tame. But listen, 7% is still strong growth.

We'd love to have seven. Exactly. What they really want to do is they want to be able to engineer a nice, slow growth, what's called a soft landing, instead of one that crashes to the ground, which would obviously be bad globally. James, what do you think? Of China? Yeah. I don't trust the numbers. That's my problem.

Years ago, we've had discrepancies between GDP numbers and industrial output and and power usage, which is tied to industrial output. And it's kind of hard to imagine the growth rising so much when the power is not being used. So you think maybe growth is slow? I think there's a lot of fudging, a lot of pressure on kind of the middle and low-level Chinese managers to make these big numbers, and they end up building these ghost towns and doing these arbitrary things just to hit the numbers. Unlike our government. Value additive growth.

A lot of the slowdown besides coming from Europe is coming from a stagnant real estate market. They've been really trying to kind of pop their bubble, their real estate bubble there. I would agree that perhaps their real estate is worse than they're letting on. Of course, we have no idea, but that wouldn't surprise me. Joe, what do you think? Well, you can see in the valuations. The Shanghai composites down about 30% over the last three years, and the S&P 500 is up 50%. So it's not like the market isn't oblivious to this.

When you think about those low valuations, and 7%, as Ron said, is still pretty decent that if you get a long view, could be a nice time to buy some of the better Chinese things. But if I'm an investor who doesn't really have that kind of exposure, does it ultimately matter to me? And if so, what's the impact on my portfolio? Well, you probably have exposures that you don't even realize. I mean, if you own any multinational company, any global company, there's exposure. They're all there. So, you know, how do you play it?

I mean, are you going to time the Chinese economy? I don't think so. I think you continue to do what hopefully you always have done, which is you buy good, strong companies, and you hold them for the long term. Warren Buffett was on CNBC this week, did a sit-down interview with Becky Quick on Squawk Box, weighed in on a number of topics, including the more macroeconomic things. Ron, we've talked about this before. And earlier in the week, we were saying, Boy, Buffett was kind of sounding pessimistic for the first time in a long time. This is a guy who we've talked about, really the cheerleader for the U.S. economy, and for the first time

in a while, was sounding, I don't want to say bearish, because that's a long time. would be inaccurate, but he was pretty cautious. He tries to sprinkle in some optimism, but this was more pessimistic than I've heard him in a very, very long time, which made me say, uh-oh. Because I don't know if he's, you know, he's no economist. I don't know if he has the ability to predict the economy better than anybody does, but still hearing the Oracle of Omaha be pessimistic. What was the previous time you've heard him pessimistic? It was in a very, very long time. I mean, during the recession, I mean, things were certainly, he was more realistic. He wasn't just a cheerleader there.

But still buying. I mean, urging people to get in there and buy before anybody else did. But we've talked before about recognizing that Buffett is sort of the unofficial cheerleader for the U.S. economy and adding a grain of salt or two to his pronouncements when he is being optimistic. On the flip side, should we actually give more weight to his statements when he's sounding pessimistic? Or should, as investors, should we just sort of not really factor that in order to think?

Well, now you can go, you can drive yourself crazy. because do you buy when others are fearful, including Mr. Buffett? Or do you sell when Mr. Buffett is fearful? It's a really hard. You can just drive yourself crazy. Buy good companies, hold them for the long term. Joe, what do you think? Well, there's a difference between Buffett saying he's worried about the economy and his being fearful.

I think he would view a pullback as a big buying opportunity. Agreed. One topic that we have not addressed that has gotten a lot of attention in the media is the LIBOR scandal, which, frankly, I'll be honest. I saw the headlines. I started to follow the story, and my eyes just glazed over. But James Early tells me that this is... Oh, Jay. I'm glad you asked Chris. James says this is like a legitimate, important, relevant stories. Chris, this is like the hot, nerdy girl who's with glasses, who's beauty, nobody notices but you.

This is like my story. Okay. That's quite a set up. Break it down for me, please. Uncfortable. Libre, London Interbank offered rate is a rate used to set $350 trillion worth of dead instruments. It happens every day to, for perspective. the whole Earth's GDP is $69 trillion.

So LIBOR affects more than seven years of the Earth's economic output every day that it's set. But it's set based on the honor system. Thompson Reuters calls up a bunch of big banks and says, what do you think you would have to pay to borrow money at 11 a.m. today? And they just tell them. So the charge here, the U.S. and British investigators are basically saying that there was, these banks were low-balling this rate for reasons, including that they had swap positions in certain investments that would benefit from a low-li-bore rate.

and they've been doing it for a long time. Who knows how long? So this is actually a pretty big deal, not just in terms of fines, but in terms of lawsuits. So does this affect my investments in any way, or is this a kind of thing that is going to affect me more if I'm looking to get a home loan or something like that? Chris, if you own Bank of America City Group or J.P. Morgan or a lot of the big European banks, it certainly could affect your investments in terms of fines and lawsuits. So yes, we don't know yet. That's the thing. We don't know what's going to happen. There are going to be congressional hearings, and I predict one person is going to jail for perjury at some point. In order of magnitude, this is the biggest financial crisis ever. Speaking of J.P. Morgan Chase, the company reported solid earnings on Friday, but the big headline was that the bad trade in London cost the bank $5.8 billion nearly three times the original estimate.

CEO Jamie Diamond said that the managers tied to the trade had been fired without severance pay. Joe, Friday morning, shares a J.P. Morgan Chase up about 4%. Is this, for all intents and purposes, is this whole trade problem over for them? Pretty much. In a 24-7 news cycle world, I think the market is going to move past this after today. There had been concerns the loss might be as much as $9 billion, so 5.8 isn't so scary. And you've got to keep this all in context. They made money this quarter, and the loss on that one trade is actually about equal to what the stock is up today. J.P. Morgan's a huge company, and I think ultimately this is just going to prove a speed bump.

It was a big speed bump, but when you look back on it, it won't be a game changer for them. Right. Agreed. I think the scenario where this will come back around is they've come out and said their worst-case models show that this could go an additional $1.7 billion to the negative for them. If it's some reason his three or $5 billion to the negative, we'll be right back here talking about it again. And just to show you what kind of a leader, Jamie Diamond is, he did claw back everyone's bonus except his in this situation. Also, on Friday, Wells Fargo posted a quarterly profit of $4.6 billion and also agreed to pay $170 million to settle claims. It discriminated against minorities with its home loans. Shares of Wells Fargo trading near a 52-week high. We mentioned Buffett earlier. Wells Fargo, as we've talked about before, that's Buffett's favorite bank. I just want to run down

the table real quick. Do you have a favorite bank or a favorite financial stock? Joe, I'll just start with you. Well, my favorite's Goldman. Oh, really? I think it is dirt cheap. It's only been at a price as low relative to its liquidation value for about 10 of the 3,300 days. It's been public. It was selling it four times tangible book value five years ago.

Today, it's 0.7. I think the truth is probably somewhere in between, and if you're a patient industry, you can make off really well. Hasn't it been dirt cheap for a while, though? For a couple months. I've been flogging it pretty hard. Just keep mentioning it. James Early? Chris, I like Scotia Bank, or Bank of Nova Scotia.

The ticker is BNS. This is an income investor recommendation. The Canadians are not like us. They're financially responsible. They're a lot less levered up. So this bank is centered there. It's only a few big banks that basically dominate the Canadian banking environment. And they have emerging markets exposure. Rod? Well, I'm notoriously not a bank investor, but I do like the insurance model. If we're going to look at a little broader in the financial industry and one I like very much is Markell, MKL, which is a great niche insurer as well as a great investor. And so you get both things fire in there. I prefer to think of you as famously, not notoriously. Either way. Bloomberg is reporting that some of Procter & Gamble's board members are unhappy with CEO Bob McDonald's performance. There's talk of a change in leadership. And James Early, this also syncs up with activist investor Bill Ackman taking a stake in Procter & Gamble. I mean, this is a huge company. What is going along? The back story here is that Procter & Gamble has languished stock-wise. While its competitors have

actually done pretty well over the couple of the past couple of years. North American sales have been flat for everybody, but the other guys have been cutting costs. They've been in emerging markets, and that's been helping out. But Procter & Gamble is only doing this stuff now. It's like the guy whose power has been out for a couple of weeks, and now he's getting candles. So everybody's been mad at Bob McDonald, and he's not really admitted culpability adequately on these calls. So here comes Bill Ackman. He's got a 1% stake, so I don't know if he's going to be able to really shake up anything, but it might help.

Yeah, that's what I was going to say. As a former activist myself, Not notoriously, but in a former hedge fund life. 1% is kind of low. Normally you'd want to take a bigger chunk in order to kind of push your weight around a bit or if you want to hold a proxy contest, if you want to get board representation. So he's trying something that is a little bit risky here, but he obviously thinks maybe he can get something done even on a friendly basis. Just be honest, did you like the feel of pushing your weight around in these situations?

Not my cup of tea to be honest with you now. What is Ackman's track record like? I'm not a P&G shareholder, but for P&G shareholders, is this guy a white knight or is he? He's a gray knight. He's done well overall. He's had some kind of high profile ones that haven't worked out yet, Target, JCPenney, but some good ones, Canadian Pacific Rail. He helps split fortune brands.

He's had some good ones. His overall track record is phenomenal, which is why the stock went up on the news. Coming up, CEO Steve Ballmer made it clear this week, who Microsoft's number one competitor is, And it's not Google. Details next. You're listening to Motley Fool Money. Welcome back to Motley Full Money. Chris Hill here in the studio with Joe Maker, James Early, and Ron Gross. In an interview this week, CEO Steve Balmer left no doubt that Microsoft is now gunning for Apple. Joe Mager, here's the quote. We are trying to make absolutely clear, we are not going to leave any space uncovered to Apple. We are not, no space uncovered. That is apples.

Eloquent. Eloquence issues aside, what do you think of a statement like that? Well, it's pretty immature sounding, kidding aside. And what I don't like about it is that it's showing that they're really lacking focus. Microsoft is trying to compete everywhere right now. And I think the reason that Apple has done so well against Microsoft is they stopped trying to compete everywhere. And they narrowed their focus. And it served them so well.

Meanwhile, Microsoft's throwing money after acquisition. positions, set in and on fire practically. I'm really not a big fan of that. Ron, what do you think? I can't argue with that, although I'd like to. What you're going to? No, but I still, I actually like Microsoft and Apple, both as investments. I don't think it's in either or here. I think they can both be cheap in their own right for their own reasons. You know, Microsoft still did $30 billion in operating cash for the last quarter

alone, and they have $58 billion in cash to throw at things to see what the next thing will be. Or light on fire. Well, you know, but they do have some initiatives, whether it's, you know, you the rumored own-branded Windows phone. The Surface is coming out. The tablet. Windows 8 is coming. I still think Microsoft is it the most innovative company in America. But they're finding it harder to win by extortion, which has been their model, right? So they actually have to beat and make product people want. What is the best bet that that company has? Is it the Surface tablet? Is it Windows 8? As a shareholder, I'm curious as to what you guys think about, the best chances for a big win.

I think the surface tablet, but they've already screwed it up at the price point. They needed to come in really aggressively, and instead they're coming in at a higher price than they should. James? Sorry, I zooned out for a second. I think the business market is something that they have to really maintain as best they can. That's their strength. Try retail, shotgun blast approach for a year or two, but really focus, like Joe says. Agreed. Operating system, operating system, operating system.

You've got to keep your market share there. That's a bread and butter. Shares of Bridgepoint education have been cut in half in the past week. Ron Gross. Isn't that one of your stocks? I'm sorry, but this is an MDP rec. And now there are questions about the schools' accreditation? Yeah, it's actually, I wish I could make a joke here, but it's not that funny when the stock is down 55% in one week. This is an online educator. It's an industry just in general filled with some controversy, some regulatory issues. And quite frankly, that was one of the reasons the stock was cheap in our view. But we're We think they actually do a better job than most of the online educators out there. The saga began this week when an accreditation they applied for was turned down. Not great.

It was turned down for a variety of reasons. And the stock got smacked. Then their current accreditor sent a letter saying, you know, I think we should maybe take a review as well. Stock got smacked again. Stocks either dirt cheap or really in trouble here. And it's very hard right now to handicap the odds of them losing the last. that accreditation.

I'll help you out, Ron. I'll go online and order a few degrees. Hey, pre-year. I mean, is this, you mentioned the industry, Ron. Is this an industry not unlike the airline industry where there might be one or two good operators of Southwest Airlines? They're real assets in the airline industry. Listen, I think there's no doubt that education in general is going to move, at least in part,

online. And they do actually have campuses as well, by the way. But you have campuses? Yeah. You need to demonstrate that you are having good education, good professors, that people are graduating able to earn an income that will allow them to pay their student loans. If you can't do that, then quite frankly, what good are you doing for society and for the kids out there that are taking the classes? Has the stock been knocked down to the point where it's now a value play?

Well, it was always a value play to us, quite frankly. Now it is what Joe calls a dirty value play, and we need to do more work to really figure out what our next step is. It's 20% away from filthy value. Super Value is the third largest grocery chain in the country with brand names like Albertsons, Shaw's, and Shoppers' Food. Shares were down more than 45% on Thursday. Joe Mager, take your pick. There were bad earnings.

The company is suspending the dividend and exploring strategic options, which include selling part or all of the company. What do you think? Yeah, I think the business is on a path of bankruptcy unless they pull a rabbit out of the hat by selling some assets or spinning it off. They want to compete more aggressively on price, but I don't think that's a long-term war that they can win against, say, Walmart.

And they've also cut back their cap-ex spending to where it's going to be about half of depreciation, which means they're really underinvesting in stores, which frankly I've shopped in and aren't all that nice to begin with. So they're in a really tough, competitive position. I really think the smart thing is to do what they're doing. which is trying to conserve cash now and try and find a suitor for some of the assets, because otherwise there is no long-term story. James, what does it mean when a company suspends its dividend? What's the ripple effect there for the stock and for investors?

Well, if this dividends was unsustainable, then it can actually be good, but overall it is not good at all. Ned Davis, and by the way, if I have another son, I'm going to name him Ned Davis because he does so much dividend research. Found that from 1972 to 2009, dividend cutters performed return negative 1.3% annually versus positive 9.3% for dividend raisers. So it's a pretty bad side. So I was just going to say, I mean, if you're in, it seems like that's an automatic red flag if someone's cutting their dividend. Yes, it's pretty bad. Just a few seconds left, but guys, there's growing speculation that Amazon is coming out with a smartphone, Bloomberg reporting that Amazon is working with Foxcon, China's biggest mobile phone maker, and also acquiring patents. And Joe, if that's not enough, they just hired the senior. Director of Business Development at Microsoft's Windows Phone Division. Do you like this idea of an Amazon smartphone?

Not crazy about it. Tablets made a lot more sense because they're media consumption devices, so you can read a book pretty naturally on a tablet. But smartphones, you know, it's an established market, a lot of good players already. It's so competitive. It's like the airlines of the tech industry, right? I just don't know why you want in. Ron, what do you think? Agreed. Very risky play. They're basically the world's biggest retailer. They can do that fine through apps and how they're doing it now. go into that realm is a risk I don't think they need to take. Coming up, we will help you rule your retirement with Motley Fool retirement expert, Robert Brokamp. Stay right here. This is Motley Full Money.

If you've got the money, honey, I've got the time. Welcome back to Motley Fool Money. I'm Chris Hill. For many investors, one of the big financial goals is having enough money to retire on. And here to talk us through a few of the key topics is the Motley Fool's resident retirement expert, Robert Brokamp. Robert, could Good to see you. Thank you, Chris. Good to be here. Good to have you back in the studio.

Let's talk 401 plans, because that is a key for a lot of people, and there are some new regulations requiring better disclosure about the fees with the 401K plans. First, what is that going to mean for the average person? Well, most people don't know that they're actually paying fees. There was a survey from ARP that found that 71 percent of people thought they weren't paying anything for their 401K, but that's not true. In fact, there are expenses associated with it, and the vast majority of those are costs. expenses are usually covered by employees. How are they covered? Well, it's basically just taken

out of your account directly or by higher expense ratios within the mutual funds that you have in your account. But most people don't know that. So, thanks to new regulations that are coming out, later this year, your account statement will show exactly how much you are paying for your 401k. And I think for at least some people, they're going to realize that their 401k plan kind of stinks, which is something you captured in an article brilliantly entitled, Your 401K plan stinks. Here's what to do about it. It's true, and it stinks for a couple reasons.

First of all, those expenses. And you might say, well, my expenses aren't that high. Maybe you're paying $300,500 a year. But compounded over your lifetime, depending on how you calculate that, it can cost you up to a third of the value of your account that you've handed over to Wall Street. The other reason that they stink is the funds within the 401Ks tend to be not very good. Why? Because they're higher expense.

And frankly, they're often chosen by the human resources people. Wonderful people love HR people. They're not necessarily investing experts. So they will defer to the plan provider who then choose funds based on how much money they can get or how much they, you know, the expenses they can save themselves by putting these funds within the plan. So you wake up, you find out your 401K plan stinks. What are one or two things that the average person can do about it once they realize that? Well, the first thing is, fortunately, about a third of 401K plans have what they call a side brokerage account. So it allows you to open up a little separate account and you can buy individual stocks, exchange-traded funds, probably a choice of thousands of other mutual

funds. So if you don't like the funds within your 401K, you can choose these other investments. Also, every company has a group of people that choose the 401k and manage it and choose the investments. They might be called the 401k committee or it might be just the HR department. You can go to them and say, listen, this is your 401K as well. This is your retirement on the line. What can we do to improve this plan? Now, you've also written recently about a stat regarding 401K plans, which is that on average, women have about 40% less in their 401k plan than men do, which obviously means that it's going to be tougher for women to save for retirement.

What are some things that women can do about that? Right. In general, retirement planning is a greater challenge for women and for several reasons. First of all, we all know that on average, women, earn less than men, about 80% of what a man does. Also, on average, a woman spends 12 years out of the workforce, mostly take care of kids, but it might also be taking care of older relatives. So you put those together, and you can see why they're going to have a smaller 401K. And on top of that, that when you look at retirement, retirement lasts from the day you quit to the day you die. Women live, on average, longer, yet they also retire earlier. Why are they

retiring earlier? Well, on average, a wife is younger than the husband. The husband wants to retire, so the wife retires too. But then she's going to live longer. So she's going to have a longer retirement, so she has to worry about her money lasting longer. So a couple of things that the average woman out there can do to maybe do a better job of saving for retirement? Well, first of all, don't retire just because the husband is retiring. Do your own analysis and say, okay, if something happens to my husband, if my husband passes away, will I still have enough money to be retired and be safe and secure. Also, many studies show that on average financial literacy is lower for women and that they defer the financial planning to the husband. This is partially

generational issue. It's much more of an issue for my mom who's in her 70s than younger women, but it's still an issue. So take control of your own finances, know what's going on with the financial planning. So if something happens to your husband, then you can take over. And the reverse is true, of course, too. There are plenty of situations where the wife is doing all. this, both members of the couple should be aware of what's going on and can handle things. Now, you manage the service we have here at the Motley Fool called Rule Your Retirement, which involves research. You're doing a fair amount of writing. You're also on the discussion boards online answering questions from sort of running the gamut of retirement issues.

What's a common question that you're getting these days about retirement and retirement planning? Well, when people think of retiring, they think of, well, I got to be a bit of, I got to be a be a little more conservative with my investment. Got to get safe. Got to be safe. So what's the safe investment? Well, it's bonds, right? But people are really worried about bonds now, and they should be.

Interest rates are at decades-long lows. And when interest rates go up, as they eventually will, the value of existing bonds go down. So people are questioning, you know, are bonds really safe after all? And it's a good point. So the advice is, for money you need in the next one to five years, consider cash short-term. bonds because they won't drop as much when rates go up, or even old-fashioned CDs. That way you know the money is safe. For longer-term money, bonds are not as attractive as they used to be. They sure aren't. They aren't. So that you might consider taking some of your bond portfolio

and investing in safe, blue-chip dividend-paying stocks. Now, I say that with a little trepidation because even dividend-paying stocks can drop 30-40 percent, whereas bonds, at least when the market drops, you know that that money is still going to be there. So you got to, it's a tradeoff in risk versus reward. But the other risk of just owning bonds is that your money is not going to keep up with inflation, whereas on average, dividends from stocks keep up with inflation and actually exceed it. So you've got to decide which of those risks are more important to you. Now, I got to say, you're one of the most disciplined people I know when it comes to money and saving and planning for the future and all of those things. But you've been working on a different

kind of discipline lately, and that's getting healthier. Right. And it's something you've written about in Rule Your Retirement, just the whole notion of trying to get healthier, trying to lose weight, and sort of equating it to managing money or saving money. How is it going, and how do you think the two are the same? Well, I wouldn't be surprised if neurologically, they're the same things, right, because we have this need to consume, whether it's food, whether it's stuff to buy, you know,

you'll read research on how genetically we're not really that different from humans of 100,000,000 of years ago when if there was food there, you had to eat it because they didn't know if you're going to get another meal. So I think it's the same sort of thing. Studies have shown that when you eat something or when you buy something, you actually get a very positive reaction. You get a little squib of pleasure. So I think they're very similar that way. Also, it's sort of a long-term goal, right? If you see something you want to buy or if you see a cupcake in the office, you think, well, I could get that little bit of pleasure now. and really how much can it hurt?

The payoff is decades down the road, or at least years down the road, and you have to be able to say, no, I'm going to give that up because I know down the road I want to be healthier or I want to be wealthier. And for me, it really was money in that I was getting to a point where I would have to buy a whole new wardrobe if I kept going the way I was going. So that's really what pushed me over to needing to lose weight. But you actually have a bet on the line now, right? I do.

I have a bet with the Motley Fool's personal trainer that I will get my BMI down to a certain amount in a couple of months, and this is what he did. He found what my leverage was. What's going to motivate me? And being a financial planner, he knew money was a motivation. And he said, listen, you got to get down to this in two months, or you owe me 200 bucks, and it's not going to go to him. It's going to go to something here at the Motley Fool and probably buy some fitness equipment. But that means something to me. Sure. That's money. That's a big motivation. And the other thing about that is it's a decent time frame. If he told me I had to lose that in a year or two, that's too far off. Because I can say, eh, I'll do that later. But that's a good time frame to say, I've got to

start acting now. And that's one of the problems with retirement planning, because for many people, it's decades away, so they ignore it. But for every decade you put off retirement planning, you're cutting your savings by half. So you've got to start as soon as possible. Now, we've talked on this show many times before, or at least made reference to the fact that James Early is an incredibly healthy guy with respect to what he eats. But apparently, you two are involved in some sort of like jazercise class that's helping you lose weight? Thank you very much. What is that? What is the class? I use the word Zumba. I think it's actually a form called Kazas Shea or something like that. Very intense. You dance for an hour. You burn a thousand calories.

And as James has demonstrated, he's lost something like 30 pounds or something crazy doing this. Yeah, but he also eats like lettuce for lunch. That is true. That is true. He's really big into the caveman diet thing. So like eating pterodons or something like that, I don't know what it is. He is a certified financial planner. He runs the Rule Your Retirement Service, and he is our resident expert here at the Motley Full. Robert Brokamp. Always a pleasure.

Shaky your money maker. Coming up, we'll give you an inside look at the stocks on our radar. Stay right here. You're listening to Motley Fool money. 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 ourselves stocks based solely on what you hear. I'm Chris Hill, and back in the studio with me one more time, Ron Gross, James Hurley,

and Joe Mager. And guys, before we get to the stocks on our radar, wow, how about that interview with Robert Brokamp? James. So, I mean, I thought you'd lost a little bit of weight, but I mean, you've lost something on the order of 30 pounds? That is actually incorrect. It's a bit less, maybe like 16 or 17 pounds, but it's gone from like 180 something to 166. And this is that reflect the giant mustache you've grown up? No, in spite of the mustache that I currently sport. Do it Brokamp dance together? Or is it individualized? It's not together in a romantic sense. It's more like we're in the same class. But they

actually, they come to the fool now. Are there other people in the class? Are there are a bunch of people? The actual class has hundreds of people. It's packed. It's a lovely business. A thousand calories an hour. Totally out of character for me, but I love it. Now, before we get to the stocks on our radar, one topic that got a lot of attention this week for a bunch of different reasons. One industry, I should say, was the cable TV industry. We had the ongoing feud between direct TV and Viacom. And earlier in the week, out at the conference in Sun Valley, Idaho, Robert Johnson, who's the founder of Black Entertainment Television, said that online viewing options are going to force the cable TV industry to unbundle its channel choices within two years.

Now, Joe, we talked a little bit about this on market foolery earlier in the week. this is not some outsider. This is one of the leaders in the cable TV industry, someone who's been very successful, gotten wealthy in the cable TV industry, and he's basically saying this is all going to go away in two years. I'm not so sure about two years. This kind of reminds me of unbundling is like the college football playoff system that we all thought was a great idea of 15 years ago, and it's just now coming around to happening. I think it's going to be a similar deal here. There are a lot of long-term contracts involved, and it's tough to shake the inertia with

cable companies. But that said, I do think there is a lot of pressure moving towards this, because the reality is there are only a few channels that people really care about and are willing to pay up for, namely ESPN, which is this huge Goliath and it's owned by Disney. But there are so many other channels that people just don't care about. And now that we're consuming media from so many sources online and, you know, through tablets, through iPads, it's just not all that exciting to pay this huge amount for cable every month when it's like, dude, all we really want is ESPN or CNBC. One of the stats that Robert Johnson threw out, 17 channels account for 85% of cable TV viewers.

I have that written down right here, and I was going to sound smart, and you just took that away from me. Sorry. Thank you. Appreciate that. This makes sense to me. It just sounds like how can it not happen as we move towards more and more to the Internet and various things like that. However, if I'm only ordering one, two, or three of my favorite channels, the cable business is an extremely expensive business. It has a very huge amount of over- overhead and fixed costs. And the revenue model has to make sense to cover those costs. So something here is going to have to happen that's way above my pay grade in order for us to get what we want, but them to be able to make money. James?

Yeah, there's sort of two orbits orbiting in my mind here on this. I mean, the production business is risky. In other words, you make a lot of so-so stuff and then there's a few big, big hits. The traditional MO of production companies was to bundle all this junk together with the high-value stuff to play on this elasticity of demand. In other words, it's sub-suff subsidizing all the non-hits. So if we move to an iTunes model, you know, or just more a la carte, what's going to happen? The other curious thing is that TV is fundamentally a passive activity. And having to go, people just sit there and zone out. But if you have to actively, you know, choose what you're watching, might you watch less? I think that could happen to.

I have to believe that on some level, companies like Netflix are hoping this does not happen because they sort of benefit from that. On the flip side, if you're Comcast, if you're Time Warner, you're probably hoping to just ride this for as long as you can't. I mean, when you think about companies and stocks in terms of potential winners and losers from this, what do you think of, Joe? I think if Disney is a winner because of Disney Channel, because of ESPN, which is such a huge cash cow, you know, I wonder about a Scripps Networks. They own a couple good properties, HGTV being one.

Food Network is another biggie. But they've also got a bunch of also-ran channels that probably getting paid for that, you know, if we move to this all the cart option would probably go the way of the dodo. Right? I agree with Joe. Content will always be king. If you own content and you make content, you'll always be able to kind of be in the driver's seat. If you're just something that distributes or conglomerates it, you're not in the driver's seat as much. I see the industry as large as being a little bit of a loser and the consumer as being

a winner. I would actually be a little more bearish on the content providers because it's very hard to make guaranteed hit content. I mean, people, people choose, but they have the benefit of all these other things. But if content providers are not getting paid for the stuff that's not as popular, but they don't know what's not going to be popular in advance, that's tough for them. Yeah, and there's... I didn't say it was easy. Well, and there's cheap competition coming on there, too.

So you see production quality keeps creeping up, and there's more risk, you know, for an ESPN, for Disney, when they take on a new show. But at the other end of the spectrum, you've got so much user-generated content now that's coming out that's free and basically costs nothing to be put online. And that's why YouTube has been such a huge hit, and it's eating up tons of mindshare and eyeballs. We got an email from Travis Hager in Philadelphia. He writes, Joe Magar mentioned on Wednesday's edition of the Market Foolery podcast that CNBC is pretty much the only reason that he keeps cable.

I'm happy to inform Joe that the Roku box, aside from having Netflix, Amazon, and Hulu Plus also has a CNBC live feed. Joe, I hope this cuts, I hope this helps you cut the cord. It did. We got this even. We got this email. I talked to my wife about it, and we canceled our cable. No HBO, Showtime. We didn't get those anyway. We have an Apple TV that we love, and we watch stuff online all the time. But other than that.

I think you need to send a little thank you to Travis Hager. All right, let's get to the stocks that are on our radar. And our man, Steve Broido, is on vacation. He's not on the other side of the glass. But fortunately, who we do have on the other side of the glass is Allison Southwick, our media got us here at the Motley Fool. So kind. So kind. Hi, guys. So you guys know the drill. Allison will be asking you a question about your stock, and then she's going to pick one that she likes the best. So make it a good pitch. Ron Gross, you are up first. Well, Allison, I happen to know that you're a great believer in America. So I've

got a great American company for you, and it's Ford, ticker symbol F. And the reason I'm picking the stock is because we had our MDP member vays vote on a couple of great American companies, which ones we should dig into first, and they chose Ford. Ford is struggling in Europe. Not surprisingly, stock is down 25% in the last three months, but the U.S. is strong. They're moving into emerging markets and China. There should be some great growth there. So we're going to really dig into this one, make sure the valuation makes sense, and the growth drivers are there. But we think it looks interesting. Allison, do you have a question about Ford? Yeah, I guess my question is, when was the last time you saw a Ford car and said, ooh, I got to

have that? Good question. The new escape SUVs are pretty sharp. Take a lot. Take a lot. Take your breath away. Yeah. All right. James Early, what's your stock? Well, Allison, I'm going to guess that you like to shower, and so do a lot of people the world over, even the French. That's why I'm going with Violia. This is a French water, sewage, municipal transportation, and other services company. It's been beaten down, a really beaten down. I've taken a beating on the I-I-score card, but it pays a decent yield, and I think it could be a double. And the idea is that it's whack, but it's in a recession-resistant business, and no one's going to stop using water and sewage. Do you have a ticker symbol for this? VE. VE. Allison, question? First, a comment. I would like to say that while early eats like a caveman, he dances like a fly girl. And I invite all of you guys to come join us for Kazashay because it's a lot of fun. But my question is, I guess, how did you even find out about this company?

Are you spending a lot of time in France flushing the toilet? No, I just am drawn to the sewage industry because it's not glamorous and it just pays steady dividends. So to speak. So to speak. Joe Mager, in the time we have left. What's your stock? Well, Allison, I know you're a great American and a capitalist, which is why I'm sure you'll be thrilled to hear that the government's actually going to turn a profit on its bailout of AIG. AIG is a totally different business from the one that had to be bailed out. It's streamlined, sold off non-core assets, and Uncle Sam is slowly selling off his position.

Meanwhile, the company's buying back stock, hand over fist, at a great valuation. I think it's a great pickup today. A lot of investors are missing out on. Question about AIG? Yeah, actually, I don't have a really good idea of what AIG does. Most people don't, and they didn't either during the crisis, but life insurance and property and casualty insurance. All right. So, Allison, Ford, AIG, and James is it? Violea.

Violea. What do you like? You know, I'm going to have to go with AIG. I like the idea of insurance. I don't know. I just like it. I like America. I like America, you know.

There you go. Allison Southwick. All right. Guys, that's going to do it for this week. Joe Mager, James Early, Ron Gross. Guys, thanks for being here. Thank you, Chris. That's it for this edition of Motley Full Money.

Thanks to our special guest, Robert Brokamp, and our special behind-the-glass guest, Alison Southwick. Our producer and engineer this week, the dynamic duo in one, Mac Greer, doing everything this week. I'm Chris Hill. Thanks for listening. We'll see you next week.