CNBC's Jim Cramer: Borders can't survive 'the way it is now'
It’s not hard to diagnose the infirmities that ail Ann Arbor-based Borders Group Inc.
So says CNBC host Jim Cramer, who filmed his investment advice show “Mad Money” earlier today inside Ford Motor Co.’s Dearborn Truck Plant at the Rouge manufacturing complex.
CNBC host Jim Cramer fires up a crowd of University of Michigan business students during a 2006 taping of his show in Ann Arbor.
File photo | AnnArbor.com
Borders has acknowledged that it may face a cash crunch early this year if it can't find a new source of lending and restructure vendor financing arrangements.
“Amazon did to them what iTunes did to music,” Cramer said. “It just took the profitability out. And you’ve got leases that are probably too expensive and you’ve got a balance sheet that’s not too good.”
Cramer is a lot more optimistic about Michigan and the auto industry, which he believes is headed for a dramatic recovery.
On a special “Invest in America” version of his show today, Cramer enthusiastically recommended Ford’s stock (NYSE: F) and said he believes Ford shares could double from where they closed today at $18.71.
“I think American manufacturing and the auto industry are in a really serious resurgence,” Cramer said.
Cramer spoke with AnnArbor.com’s Nathan Bomey about the future of Ford, Borders and the state of Michigan. Excerpts:
AnnArbor.com: You’re optimistic about Ford. But a lot of people are still concerned about the level of debt they have compared to GM and Chrysler.
Cramer: Yeah, I mean, the paydown is pretty radical. If I were concerned about something, it would be that the labor agreement isn’t reached promptly or that there’s issues with the labor agreement.
The reason I say that is because I think the ratings agencies are just simply waiting to get that labor agreement done. And if it’s favorable and it doesn’t ruin profitability or hurt profitability, then I think what you’ll see is that the rating will go up and they can reissue debt and do it at a very cheap price if they want to.
So, while I do always worry about debt - because anybody would be, especially after what we’ve gone through and it would be too glib to say it’s not an issue -- the company does generate a huge amount of cash. Huge.
Cramer (right) interviews Ford CEO Alan Mulally for today's show, which was taped at a Ford plant in Dearborn.
Nathan Bomey | AnnArbor.com
That’s my reaction is that a good employment contract, lots of free cash flow, ratings agency upgrade and they’ll be fine.
AnnArbor.com: Borders Group, the bookseller, is based in Ann Arbor.
Cramer: That is such a tragedy.
AnnArbor.com: A lot of people are concerned about it right now.
Cramer: I think they should be.
AnnArbor.com: Do they think they can survive on their own?
Cramer: Not in the way it is now, no. Not in this form. And it’s really unfortunate. I was out at Borders headquarters -- it was maybe April 2006 I went there. It was still, you know, kind of an interesting stock.
And then Amazon did to them what iTunes did to music. It just took the profitability out. And you’ve got leases that are probably too expensive and you’ve got a balance sheet that’s not too good.
There are very few companies where it matters that it’s a shame. As someone who writes books and someone who knew the people who worked at Borders, Borders is an important institution, but the world has changed.
AnnArbor.com: Bill Ackman of Pershing Square Capital Management pitched a bid for Barnes & Noble. He said he’d finance it at $16 a share. Analysts seemed not to like the idea. Do you like the idea of a Barnes & Noble, Borders merger?
Cramer: I happen to be a huge fan of the management of Barnes & Noble. I very rarely do this, but if the Riggios think it’s right, then it’s right. They are fabulous and great business people. They had to do the Nook, which was expensive.
A projection onto the wall of Ford's Dearborn plant shows the logo for Jim Cramer's "Mad Money" on CNBC.
Nathan Bomey | AnnArbor.com
I rarely do this, but if management thinks it’s right, then it’s right, because those guys deserve that.
AnnArbor.com: When Circuit City died, some people assumed all the business would go to Best Buy, but that didn’t necessarily happen. Some of it did. So if Borders dies, does all the business just go to Barnes & Noble?
Cramer: Some of it will obviously. You’ll have a quarter or two bump.
I’m also reluctant to say that that’ll happen given the fact that Best Buy hurt a lot of people. That’s been a bad, bad stock. The industry’s bad. Best Buy did well for a little bit because of the destruction of Circuit City, and then poof.
AnnArbor.com: Is the e-book a threat to Barnes & Noble in a few years? They’ve got the Nook.
Cramer: They’ve got the Nook, but I’ve got to tell you: I’m a big supporter of Amazon stock. Apple took on Microsoft. Amazon is taking these guys on. And the Kindle is fabulous. They’ve just got great infrastructure. America is really comfortable shopping at Amazon.
AnnArbor.com: Publishers are very concerned about Borders with Borders delaying payments.
Cramer: They have to be.
AnnArbor.com: The publishers would want Borders to survive, though, right?
Cramer: Oh my God, yes. As someone who has fortunately sold a lot of books, you can see that Borders really matters.
Mr. (Greg) Josefowicz was running it when I was out there. And he’s a book guy. I actually bumped into him at that fantastic book store. Something ‘drum.’
AnnArbor.com: Shaman Drum. It's gone now.
Cramer: Shaman Drum. I literally bumped into him. I said, ‘What’s your name?’ He said, ‘Josefowicz.’ I said, ‘Hey, you’re the CEO.’
It’s a company that’s been so supportive of writers. It’s really painful.
AnnArbor.com: To shift gears, if the state of Michigan was a stock, would you invest right now?
Cramer: Yeah, absolutely - and not Pollyannaish. I think American manufacturing and the auto industry are in a really serious resurgence.
If you can go from having 11 million units - 10, 11 million - to 16, which they’re predicting for 2013, then you want to play Michigan.
And the way I would actually do it is by playing DTE, Detroit Edison. That’s the best analog to Michigan.
AnnArbor.com: Obviously you took the route from the airport to this plant. This plant is thriving, but a lot of plants are empty.
Cramer: Yeah, I know. You need something as big as what I think the auto sector will turn.
I was on a TV station this morning, it was the NBC affiliate, and I told them, I said, ‘Listen, you know, I’d like to look at the Victorian homes in Detroit. I know that they’re run down. I’d like to look at -- maybe there’s farmland.’
He was very bearish. A lot of my investing - and I’m not allowed to own stocks - is based on the idea that I might lose everything.
But that I was not dissuaded at all from what I heard from him. I was out in California (years ago) to kick the tires twice to buy land and homes. And I didn’t pull the trigger cause everyone said, ‘Jim, it’s going to zero.’ It was a very bad mistake. I would love to take a shot (with Michigan).
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Comments
talker
Sat, Jan 15, 2011 : 12:27 a.m.
I was referring to the interviewee.
talker
Sat, Jan 15, 2011 : 12:25 a.m.
I have a phrase for some people: "revisionist history."
Gorc
Thu, Jan 13, 2011 : 7:13 p.m.
@Jon Saalberg - you are absolutely correct, and I agree, that the average American is very irresponsible and ignorant making financial decision. People that bought more house than they could afford and financing it with exotic loans that blew up on them. Leasing or buying vehicles as status symbols in order to keep up with the Jones. Or buying lottery tickets by the boatload believing this is the way to their retirement. These are poor decisions made by those folks and if they are not prepared for retirement, they have no one to blame but themselves. In most cases, SSI entitlements by themselves are not enough to support a person's basic living expenses. And I am not as naive as johnnyA2 in believing that Social Security fund is not in jeopardy of bankruptcy. Our government's debt is in the trillions and they can't continue to keep selling US Treasuries to foreign entities to keep paying these entitlements. Something will give out sooner or laterincluding the insolvency of the SSI program. So take it from a person who is over 20 years away from retirement, is FAR ahead with his retirement planning (compared to a majority of our population), and doesn't listen to Lady GagaI trust my abilities to prepare and investment for my retirement before our inept government can. And if people are to financially ignorant making proper choicesthen let them sink.
Gorc
Thu, Jan 13, 2011 : 7:13 p.m.
@Jon Saalberg - you are absolutely correct, and I agree, that the average American is very irresponsible and ignorant making financial decision. People that bought more house than they could afford and financing it with exotic loans that blew up on them. Leasing or buying vehicles as status symbols in order to keep up with the Jones. Or buying lottery tickets by the boatload believing this is the way to their retirement. These are poor decisions made by those folks and if they are not prepared for retirement, they have no one to blame but themselves. In most cases, SSI entitlements by themselves are not enough to support a person's basic living expenses. And I am not as naive as johnnyA2 in believing that Social Security fund is not in jeopardy of bankruptcy. Our government's debt is in the trillions and they can't continue to keep selling US Treasuries to foreign entities to keep paying these entitlements. Something will give out sooner or laterincluding the insolvency of the SSI program. So take it from a person who is over 20 years away from retirement, is FAR ahead with his retirement planning (compared to a majority of our population), and doesn't listen to Lady GagaI trust my abilities to prepare and investment for my retirement before our inept government can. And if people are to financially ignorant making proper choicesthen let them sink.
johnnya2
Thu, Jan 13, 2011 : 9:01 a.m.
@ Gorc It has already been proven that people can not manage their own retirement. Your 10's of thousands paid to SSI would be part of the ponzi scheme that is the stock market. You have the decision to do what you want with your money. SSI is forcing people to invest. This crazy notion that people have that they will never see SSI benefits is just a scare tactic by the right. The average person collects far more than they actually put in the system. The system is working well. Ask those who have it. Getting information about the success of a program from somebody who is over 20 years away from receiving it, is like asking a 75 year old to explain the popularity of Lady Gaga. Let's pretend we allowed you to use the SSI money and risk it at your own discretion. You put money with Bernie Madoff, Enron, Global Crossing, GM, Chrysler, Borders, Circuit City etc. Now you are 65 and unable to find work. Would you kill yourself for the benefit of society, or want a SOCIAL SAFETY NET to protect you from people who stole your money. Yes Madoff is in prison, but that won't get people their investments back, but I can assure you those people all have some money to survive on.
glimmertwin
Thu, Jan 13, 2011 : 8:08 a.m.
He has an entertainment show on a financial news network. I use "financial news" loosely. Need any more be said?
Jon Saalberg
Thu, Jan 13, 2011 : 7:58 a.m.
@Gorc: You think the government is doing a poor job of managing our money? You would rather the millions of Americans who entered into mortgages that have gone into default, bought vehicles that have been repossessed, and who buy lottery tickets by the boatload, should manage their own money? Really? The reality is that most Americans say they want to invest for retirement, but many don't do it. If the government didn't invest some of our earnings, where would those people be when they retire?
Gorc
Thu, Jan 13, 2011 : 7:39 a.m.
@Johnny - I would rather the government get out of the business of handling SSI and give me control over my own contributions. It is obvious the government can not manage money at all levels. If I choose to save that money in risk adverse accounts or increase my risk in the market...that's my free choice. On January 1, 2011 the first baby boomers became elgible for SS., There will be 6,000 baby boomers a day having the option for SSI entitlments that day (or they can delay it a few years, if the chose to). I'm forty two years old and I don't believe any of the tens of thousands of dollars in FICA taxes that I've paid will be there when I retire. Let me manage my own money, the government is irresponsible.
KJMClark
Thu, Jan 13, 2011 : 7:27 a.m.
Sure, Cramer is mostly an entertainer, and when I saw that our intrepid reporter interviewed Cramer, I thought "What's the point to that?" But on the other hand, just about everything he said in the interview makes sense. (Don't know about trusting B&N management, though.)
pseudo
Thu, Jan 13, 2011 : 5:53 a.m.
Right on Ghost! It has been proven that Jim Cramer's opinion is influenced factors beyond actual fact-based analysis (like what he ownes, who he personally likes, who he hangs out with etc). As a result, his opinion is irrelevant.
johnnya2
Thu, Jan 13, 2011 : 12:25 a.m.
" A lot of my investing - and Im not allowed to own stocks - is based on the idea that I might lose everything." OH, I get it. You want everybody else to invest THEIR money while you put on an entertainment show and expect them to risk their own? Jim Cramer and the like are what is wrong with the American ponzi scheme they call stocks. In fact, the Wall Street people were finding the people on the bottom of the pyramid drying up (401k's for baby boomers) so they wanted SSI money funneled into the stock market, to create more demand. The stock market is based on supply and demand, and if fewer dollars are in it, it goes down. If SSI money flooded into it, the market would inflate until suddenly it was pricked, and we would go into bubble/ burst again.
CynicA2
Wed, Jan 12, 2011 : 11:30 p.m.
He's an egotistical charlatan who thrives on adulation... and who knows what else?! I wish John Stewart would rip him a new one on "The Daily Show" - again! I wonder if he has a runny nose?
Kai Petainen
Wed, Jan 12, 2011 : 11:29 p.m.
Neat article!
Carl
Wed, Jan 12, 2011 : 10:49 p.m.
If he says to buy Ford, I would sell it
John B.
Wed, Jan 12, 2011 : 10:45 p.m.
I would strongly echo what The Ghost and alan just said.... (Not that you can't invest in Michigan - you certainly can. Still kicking myself for not buying Ford at $2 per share. However, I wouldn't trust that guy Cramer any farther than I could throw him).
alan
Wed, Jan 12, 2011 : 9:58 p.m.
It troubles me that Americans are happy to take financial advice from an entertainer. Even sadder that the media gives him attention.
Lola
Wed, Jan 12, 2011 : 9:04 p.m.
Excellent article! Nice to see that Jim Cramer isn't totally down with Michigan.