The latest episode of Motley Fool Money, hosted by Chris Ellen and featuring Senior Analysts James Early, Shannon Zimmerman, and Tim Hanson, covered a range of economic and corporate news. Kicking off the show, Chris lightheartedly noted the absence of Seth Jason, who was celebrating the birth of his first child.
The podcast began with a discussion of Friday's better-than-expected July jobs numbers, which saw the unemployment rate fall to 9.4% from 9.5%, sending markets soaring. Shannon Zimmerman acknowledged this as good news, noting that fewer people out of work is positive, especially given the economy's reliance on consumer spending. However, he cautioned against over-optimism, reminding listeners that the unemployment rate is still near 10% and most economists predict it will reach that figure by year-end. With the market up 40% since March lows, Shannon advised investors to be selective, urging them to "cultivate their inner stock snob." James Early added nuance, explaining there are two unemployment numbers: the official 9.4% (U3) and the payroll number, which indicated 247,000 jobs were lost, suggesting the situation isn't as robust as the headline figure implies. He warned that unemployment could remain above 9% for five years. Chris Ellen further highlighted worse-than-expected retail numbers, with same-store sales falling 5.1% in July, reinforcing concerns about consumer spending. James Early also critiqued the "Cash for Clunkers" program as a "boondoggle," which he felt grossly underpriced and subsidized gas guzzlers, with the allocated funds disappearing in days.
Next, the panel discussed AIG, the giant insurer 80% owned by U.S. taxpayers, which reported its first quarterly profit in nearly two years. Shares surged 23% on the news. James Early tempered expectations, labeling AIG a "Lazarus of a stock" that was up 80% *before* the official announcement. He noted that while AIG posted a $2 billion profit, it still owes over $80 billion in taxpayer loans, out of $180 billion received. He explained the profit was primarily due to "mark-to-market gains" (improvements in existing asset values) rather than core operational strength, which actually worsened. Early predicted the government would eventually dismantle AIG, with financial advisors benefiting most from the spin-offs.
The conversation then shifted to the tech sector, with Google CEO Eric Schmidt stepping down from Apple's board of directors. Shannon Zimmerman called this an inevitable move, given the escalating competition between Google and Apple in operating systems for both computers and mobile devices. James Early echoed this, stating that the former "enemy of my enemy" alliance (against Microsoft) was over, and the two companies were now on a collision course, especially in mobile. Tim Hanson, a self-proclaimed "Mac maniac," declared his preference for Apple, calling Google's shareholder treatment "abhorrent" due to its dual-class share structure, discretionary spending on non-core projects, and options repricing. Shannon, however, sided with Google for the long run, betting on its inventive ad sales and potential breakthroughs like the Chrome OS.
A striking news item followed: China's execution of two business people for defrauding investors out of more than $127 million. Tim Hanson, just returned from China, recounted being told in 2007 that executing fraudsters was China's deterrent strategy. He explained that China aims to improve its global standing (as a G2 nation) and sees such measures as a way to enforce corporate governance. While acknowledging that some Chinese stocks may be overvalued (especially real estate and banking), he suggested the RMB might hold its value better than other currencies as investors flee the dollar. James Early expressed deep skepticism about China, citing untrustworthy accounting (where growth is counted when government funds are released, not when consumers buy), conflicting state and national figures, and human interest stories like toxic drywall. He noted the PowerShares Gold Dragon China ETF was up 62% this year versus 11% for the S&P, suggesting the market might be "a little bit rich right now."
Finally, the analysts shared their "stock ideas" for the upcoming week:
1. **Shannon Zimmerman:** **Sprint Nextel (S)**. Despite being up 100% year-to-date, he sees it as a bargain below $4, with significant free cash flow and a potential 40% discount to intrinsic value.
2. **James Early:** **Sasol (SSL)**. A South African company that converts coal to fuel and is exploring natural gas to liquid fuel. A risky commodity play that could soar with economic recovery.
3. **Tim Hanson:** **NSTAR Group (ESGR)**. A Bermuda-based company that buys unwanted insurance lines for less than fair value and closes them out, potentially benefiting from AIG's breakup.
The podcast closed with a humorous segment offering parenting advice to new father Seth Jason, with non-fathers Tim Hanson and Steve (a recent newlywed) offering simple tips like "Don't drop the baby" and "Baby-proof things."