10/22/10 Midnight Report: Will Geithner’s plan at G20 hit the spot?
The market was mixed today as fears of currency wars formed the yin to earnings beats’ yang (or the teeth to earnings beats’ hummer if you will) and with macro data more non-existent than Mel Gibson’s career, there wasn’t much for the Street to manipulate. That said, a number of US officials were in the spotlight today sharing their views on the economy.
First of all, Tim Geithner wrote a letter to fellow finance ministers at the G20 meetings (though unclear if it was SWAK) where he urged countries to keep their current account balances below 4% of GDP and stay the fuck off of his front lawn. The idea was Geithner’s way of trying to find a backdoor solution (other than more lube or an extra pillow to bite) to try to avoid the wave of global currency manipulation, especially with the dollars’ upcoming plunge with QE2 on the way. Unfortunately, his suggestion was met with a more tepid response than Jaleel White‘s comeback as countries with large trade surpluses like Germany and Japan don’t want to be held to any kind of hard targets.
Elsewhere, the president of the Fed Bank of Dallas, the honorable Dick Fisher (which sounds like the name of an Atlantis cruise ship) told Bloomberg that the Fed needs to be mindful of the impact that their decisions have on the dollar while also maintaining that no decisions have been formally made about more quantitative easing. He then informed the interviewer that he had to go as his unicorn was impatiently waiting outside to take him back to the land of “you’re so fucking gullible.”
In addition to Dick Fisher getting a bit flaccid on QE2, noted Fed turd in the punch bowl Thomas “T. Ho” Hoenig got his gangsta on and told an audience in Albequerque, New Mexico that the Fed needs to be wary of excess liquidity because it can fuck a market worse than he fucks his bottom bitch. T Ho opined “My experience tells me that if you wait until you’re absolutely certain that everything is fine, you waited too long” and followed with “My experience also tells me that “no” don’t always mean “no,” and most Fed Bankers ain’t shit but hoes and tricks. You hear that Benny?”
And kind readers, on Wednesday (also known as hump day or as we call it in the offices of the award winning When Genius Prevailed, Spankwire.com day) you should recall that Money McBags commented on the fantastic returns the government made on their bank and insurance TARP spend. Well today, data was out about the toxic mortgages the Treasury has been buying and the data is even fucking better. The Treasury so far has had a 36% return on their purchases of toxic mortgages in their Public-Private Investment Program (PPIP) which gives Money McBags’ newly established party, Bail Outs Get Us Savings (BOGUS for short), even more fucking street cred. Money McBags’ new party boasts the greatest idea for the government to get out of debt since hyperinflation and selling pet rocks.
What Money McBags proposes to do is to first cut off all unemployment insurance thus killing mortgage payments, strangling consumer spend, and crippling companies. Then he will tax the shit out of exports in order to make US businesses even less competitive. While this all sounds as dumb as giving a shit about finding a more humane way to kill chickens or an episode of “Are You Smarter than a Christine O’Donnell Supporter” (where the questions will range from “name a current Senator,” to “the First Amendment calls for the separation of Church and State per the Supreme Court’s ruling: True or definitely true?,” to “name a color that rhymes with nurple?”), but stick with Money McBags here for a second. Using the current fiscal system that relies on borrowing from China, increasing the spiraling debt, and “printing money” to continually add juice to the market, the country is destined to continue to flounder as that has proven to be more of a losing strategy than challenging George Michael to a game of gay chicken.
So what Money McBags is proposing is for the government to do what it does best: Step one: Ruin the economy. And we’re not going beat around the bush about it this time, we’re going all out. No financial regulation, no safety nets, and the fewer documents the better. Step 2. Bail companies the fuck out. Step 3. Profit. It’s much more sensible than stealing underpants and as we’ve seen from the TARP and PPIP returns, it works a fuckload better as well.
Sure it might not do much for main street in the short term (or the long term), and sure there is a little something called moral hazard, and yeah the FNM and FRE bail outs may cost taxpayers $300B which outweigh the gains from the other bailouts, but those are just shortsighted details. Come on, we’re talking about a 35% fucking return on troubled assets and an 8% return on bailed out banks. So suck on that Warren Buffett. Those type of earnings can put plenty of pork on the table so next time you go to vote, don’t vote for the status quo, vote “none of the above” and write in Money McBags from the BOGUS party as he promises to restore prosperity one bailed out company at a time. That said, Money McBags could use some help on his campaign slogans, he is deciding between: “Bail outs we can believe in,” “To let interest accrue and transfer it too,” or “Ma Ma, where’s the law? Gone to bail outs ha ha ha.”
In stock news, AMZN was up after the company beat guesses yesterday and analysts upgraded the stock from “really fucking overvalued” to “really fucking overvalued but you should buy even more of it.” The company grew top line 39% as sales of the Kindle continue to rise as Americans grow tired of having to lug both People magazine and US Weekly around on their staycations.
Elsewhere BIDU jumped ~5% after another strong quarter as Chinese people increasingly search the fuck out of shit. AXP charged off by ~2% as even though they beat analyst guesses thanks to a huge reserve release (where they followed the rest of the financial sector’s lead in manipulating earnings on weak revenues and now won’t be ready for the next round of defaults). That said, the stock traded down as investors worry about the anti-trust suit filed by the federal government against the company for what Money McBags is told is technically being called: “running your network like a bunch of douchnozzles.” Finally, Schlumberger served up some turdburgers to anyone who was short the company by rising ~5% on the strength of a solid Q (and yeah, that joked sucked, but you got anything better for Schlumberger?).
In small cap news, EPAY put up a nice Q and Money McBags pointed out this interesting little company when he broke down their last Q a few months ago and they are up ~20% since then. In their fiscal Q1 release today, revenue was up 15% to ~$42MM driven by a 39% rise in subscription and transaction revenue to ~$11MM (and to get that kind of growth, they must have been selling subscriptions to walking walking tours of NY or India Reynolds’ vagina). Core net income was up 26% yielding $.27 eps which was up $.03 sequentially on basically flat sequential growth so they are getting some operating leverage. Cash was up by ~$14MM to $135MM and they continue to have no debt with $24MM of FCF in the last 12 months. So all pretty fucking nice.
That said, their guidance was a bit underwhelming with revenue for $172MM to $175MM for the fiscal year (which was up a bit from last Q) and eps ~$1.02 which is down from the $1.20 Money McBags triangulated from their 20% net income growth guidance last Q (though to be fair, he even questioned that calc last Q before saying ~$1.11 sounded more reasonable). They also claimed eps will be down sequentially next Q because they will be paying a higher tax rate (so Money McBags recommends they do what GOOG did by shifting revenue overseas to avoid paying taxes in strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” which are probably more lucrative than either “Irish goggles” or a “Dutch milkshake” but only half the fun). So the company should earn ~$1.00 to $1.10 on the high end but is basically forecasting the next 4Qs to look exactly like the previous 2Qs, which is fine, but less interesting than youth league soccer or watching ants hump (unless one of the ants has a huge coxa).
Anyway, the company was very cheap and now it is about fairly priced for its growth (or lack of) by trading at ~17x guidance though they do have ~$4.25 of cash per share on the balance sheet so ex. that they are trading ~13x fiscal year guidance. It’s not a horrible name to own because they still have three areas of growth including: 1. General market dynamics as the payment industry continues to move away from paper and to electronic payments. 2. The Paymode network they acquired from BAC is just starting to gain steam which would be very nice upside if they can sign some more big banks (and on the call they said “We are also in active discussions with several new bank partners who could potentially adapt and resell the Paymode-X platform,” so that is pretty positive). and 3. they are going to make an acquisition with their excess cash.
That said, the fact that this company may make a large acquisition worries Money McBags a bit and makes it almost impossible to value their business because it’s not clear what their balance sheet or earnings will look like after a deal (though hopefully it won’t look like this). So Money McBags is fine-ish if you want to own this company, because there is potential upside, that said, he’s not sure when that upside hits, and there are some risks (especially as banks are their biggest customers and bank spend could be fucked any day now). So do with EPAY what you will but their longer term outlook should be reasonable (unless they fuck up an acquisition).
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