Friday, April 3, 2009
(Cont'd from above)...

Jim (cont'd):   

Right now, in Congress they are getting ready for what is essentially a referendum on Wal-Mart (WMT*), and the referendum name is the Employee Free Choice Act, also known by slang as Card-Check… a bill that will make it much easier for workers to form unions… and much harder for employers to get in their way… for Wal-Mart who has 1.4 million employees in the United States… a company that is loathed by most Bolsheviks… by the Democrats, it is my own party, you think I would be getting the name right by now… it is loathed by the unions, Wal-Mart, like no other company… the stakes for this legislation couldn’t be higher… card-check as it currently stands, is a guided missile pointed straight at Wal-Mart’s profitability.

If it passes, you know this company is going to be the first ones that the unions go after… and they are going to hit it hard… so far organized labor has already spent $500m in lobbying efforts to get card-check passed… and you can bet that hey will spend a lot more in organizing if the government gives them what they want… why am I talking about this… isn’t Mad Money a show about stocks, not about politics… there is not always a clear cut difference… not when the politics matter so much to the fate of a given company… and right now just about every body who manages money professionally, all the big boys, when they think about Wal-Mart or pretty much any other national retailer that has a lot of non-union workers… they are terrified… they are completely scare… and they are mesmerized by card-check.

It is keeping them out of this stock.. do you know that Citigroup downgraded Wal-Mart from a buy… to a hold… on the day that card-check was introduced… precisely because they are so concerned about what card-check could do to Wal-Mart… yeah, card-check is make or break legislation… you think the job numbers we got today were bad… you don’t like 8.5% unemployment… well, guess what… that number only goes higher if this bill passes… because when companies have to pay their workers more, they hire fewer people, or as is the case probably now, they will fire more of them… if this bill passes, all bets are off… and I say that as someone who personally thinks that unions are terrific, I have belonged to two of them in my lifetime, and I helped organize a wild-cat strike… as opposed to the Villa Nova Wildcats, who I have to go all the way… anyway, they are the reasons that we have weekends and child labor laws… but right now in the middle of a truly miserable economy, card-check is the wrong thing to do for anyone who has a 401K, and IRA, or a 529 plan… you have to be against it if you have one of those.

And even though I have been very impressed with the President lately, and I am glad that he is now talking about the market in positive terms… this bill is part of his too much, too fast agenda that could really, really hurt us… my focus though is on stocks, and Wal-Mart specifically, because so many investors have been scared from this one… if card-check fails then a sigh of relief will wash over the market.. the uncertainty will be gone, and a lot of institutional investors will flock back to Wal-Mart hand over fist, sending this stock much higher… maybe to the 52 week high… so if you buy Wal-Mart, you are betting that card-check will fail, or that the current bill will get amended and watered down to the point that it is not a threat… I am willing to speculate on that, but if you want to join to me, you have to understand that the stakes and what the politics of this look like, what I am basing my decision on, are murky.

What does card-check do specifically that makes it so bad for Wal-Mart and other retailers… it makes it much easier to unionize and the average unionized worker makes 30% more than someone who does not belong to a union… so that is a huge hit to labor costs for a company that employs 1.4 million people… the way things work now, if employees want to start a union a secret ballot election is called, where all of the workers vote on whether to unionize… they can take up to 50 days to organize that vote, which gives employers lots of time to campaign against unionization… if card-check passes, then all it takes for the national labor relations board to certify a union is for a majority of workers in any given bargaining unit to sign cards saying that they want one… card-check… they could unionize practically over night with no push back.

Card-check eliminates the secret ballot requirement too… which would make on the waterfront/ Johnny Friendly style intimidation from the unions a lot easier… the bill also has a provision that lets the union or management refer contract disputes over the initial agreement to Federal arbitration… where government officials with no experience in the business could essentially force the terms that they decide are right right down the companies throats for two years… and finally card-check makes it much more expensive for companies to engage in traditional union busting behavior… upping the penalties for disrupting the unionization process.

For Wal-Mart the bills passage would probably mean that it would have to pay higher hourly wages, spend more on employee benefits, and worst of all, the company might have to increase prices to offset higher labor costs and will still will probably have to numbers slashed by Wall Street… the success of Wal-Mart is all about selling things at the lowest possible price… that is why it is one of the best retailers to own during a recession… if it becomes a more expensive place to shop, then you are throwing the company to an existential crisis… I had no doubt when I was shopping at my Wal-Mart last weekend, that I was getting the lowest price for the giant fiberglass outdoor frog that I bought… and sure enough, when I compared for that exact frog at Lowe’s, I knew I had a steal, and I should have bought two of them.

Anyway, of this union stuff, it has got Wall Street very worried… and I don’t think that the big boys will stop being concerned until card-check either fails or is filibustered to death… the President is a strong backer of card-check… there is no doubt that the House, which might as well be Nancy Pelosi's own little Polit bureau… will approve this legislation… given that card check passed, the exact same bill, with 20 votes to spare in 2007... so if you buy Wal-Mart, you are putting your faith in the Senate… sounds crazy… that is why I consider this speculation… the good news here for share holders though is that the Republicans will definitely Phil buster the bill… and the only Republican who voted for it in the last Congress, Arlen Specter, has switched sides… because of a primary challenge… also a number of moderate Democrats, I like to call them the Menchavik block, have expressed lukewarm feelings about the bill… maybe the most encouraging news from the Democrats is that Diane VanStein has explicitly withdrawn here support for the current version… even some Democrats seem to want to pass this thing… in the middle of a recession… I don’t know… that could set us back I don’t know how many months.

I don’t think that card-check will pass, but the street is not going to stop fretting and start buying until it fails… that is why I think you have an opportunity to get in ahead of the big guys on this one.

Here is the bottom line...

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