First of all, apologies for the fuckawful headline pun, but some days you simply have to play the cards you are dealt.  That said, the market was quiet today as it digested marginal macro news and even more marginal earnings news while it continues to wait for next week’s QE2 which promises to be a worse proposed sequel than Amistad II: The Return Trip Home.

On the QE2 front, New York Fed President and voting member of the FOMC William “Dollar Bill” Dudley got his college on today at Cornell University (known as the Harvard of Ithaca, NY) where in a speech he said “The Fed cannot wave a magic wand and make the problems remaining from the preceding period of excess vanish immediately.” He then explained “For the millionth time, we’re not magicians, we’re fucking witch doctors so we don’t waive magic wands, we dance around fires and chant incantations to the great Jobu.  Come on people, that’s Wiccan 101 shit for you.

Dudley went on to say that QE2 would be unwarranted unless “the economic outlook were to evolve in a way that made me more confident we would see better outcomes for both employment and inflation before too long.“  And with that, Money McBags can see why some teabaggers want the Fed to be shut down since evolution is a myth and thus the economy can’t evolve, it can only intelligently design itself to something better and do you trust these people to design anything intelligently?

As far as tangible macro news, consumer confidence rose slightly last month off of an unsurprisingly downwardly revised number and still remains near record lows as most consumers are only confident that the economy is getting worse than Bob Guccione‘s lungs (and Money McBags tips his jimmy hat to the great media mogul).   Digging in to the number shows that the “jobs hard to get” index rose to 46.1% from 45.8%, the “jobs plentiful” index slipped to 3.5% from 3.8%, and the “jobs you’re never going to get again” index rose to “oh fuck I’m screwed.”

In other macro news, the Case Schiller index weakened, in what Money McBags calls the “no shit Sherlock” fact of the day.  While the index rose 1.7% y/y which was below analyst guesses of 2.1%, it fell .2% sequentially or .3% on a seasonally adjusted basis.  But here is what Money McBags loves most about the data, per the NY Times “S.& P. announced earlier this year that the unadjusted numbers were a more reliable indicator.”  So riddle Money McBags this Mr. Case, Mr. Schiller, and Standard and fucking Poor’s, if the seasonally adjusted numbers are a worse indicator than the non-seasonally adjusted numbers, WHY THE FUCK DO YOU BOTHER ADJUSTING THEM?  That is more mind boggling than the fact that they just now stopped making the Sony Walkman.

Seriously, why take shitty, dated, questionable data in the first place, and manipulate that data to make it even more worthless?  It’s like whatever the opposite of putting lipstick on a pig is (perhaps putting Rosie O’Donnell in a bikini or Alan Greenspan on CNBC?).  So while the adjustment didn’t matter this month, making data worse and then presenting that data as relevant can be more misleading than something called naked table building (which apparently involves no nudity, but plenty of wood), so why it is done is more perplexing to Money McBags than anything involving Randy Quaid.

One other piece of interesting news is that Warren Buffett, the original inspiration for the hit show Sister Wives, picked a successor to run the investment side of Berkshire Hathaway, a company that never saw a bail out it couldn’t manipulate.  The successor is a 39 year old named Todd Combs (and we’re told he’s no relation to Sean “Puffy” Combs) who won the competition to be the next curmudgeon after blowing Buffett away with his financial stock selections, his refusal to tip more than 13% for subpar service, and his stunning closing statement in the debate part of the competition where he vociferously argued the affirmative side of “Dodd was Graham’s bitch.”

Internationally, Standard and Poor’s raised their outlook for Britain to AAA after running in to Lucy Pinder in a Heathrow bathroom.  In addition to the ratings upgrade (though Money McBags cares what S&P rates Great Britain about as much as he cares what Stevie Wonder rates a fireworks show), Britain saw GDP expand by 0.8% from the previous quarter which was double analyst guesses and a result of the first dentist opening up shop in the country.

In the market, F posted their 6th consecutive profitable Q, announced they will be paying down debt, and then reiterated that GM and Chrysler are a bunch of ass hats.  In WTF earnings of the day, Coach and Royal Caribbean Cruises both shot up 10%+ after putting up strong quarters in a signal that either the economy is not as weak as Money McBags thinks, or well, simply WTF?  Elsewhere, steel makers were all down today as US Steel warned that demand was slowing, prices were falling, costs were rising, and no one is building shit anymore.  And finally investment banking losses at UBS drove the stock down as revenue dropped in fixed income, currencies, commodities, and everything else people are no longer trading as they flock to gold while the market dances to beat of the algorithm of the night.

In small cap news, HSTM announced their Q yesterday and remember Money McBags talked about this stock a while ago as being cheap until it ran up in to the mid $6s and now is no longer such a great buy but still has some potential (kind of like Neve Campbell).  As for their quarter, revenue was up ~18% to $16.6MM, operating income was up 57% to $1.7MM, and yes EPS was down by $.01 to $.04 because their tax valuation ran out so unlike last year, they had to pay Uncle Sam like the rest of us (well, that is all of us but Wesley Snipes).  That said, their 53% tax rate seems exorbitant but it is what it is.  The Q was essentially flat sequentially with gross profit margins down ~300bps to 62% and operating margins down to ~10% from 14% due to a pick up in Sales and Marketing costs which could be related to their SimVentures JV.  With the quarter being more of he same, is there anything we should do with this company other than file it away for a rainy day selloff?

Well, updated guidance is for 12% to 14% growth for this year and with only one Q left, that means that revenue in Q4 will essentially be flat with the previous 2 Qs and up 11% y/y.  Hold on, Money McBags is going to type more but he has to let out a big fucking YAWNNNNN,  Ok, that’s better.  Now guidance for operating income is for 30% growth and the tax rate to be ~45% which gets us to ~$.16 eps for the year and ~$.03 for next Q due to costs increasing a bit due to a SimVentures JV.  So again, pretty fucking pedestrian, no matter what Craig-Hallum has to say with their bizzaro 8 year DCF model.

So look, lets say their learning segment keeps growing, they sign up some more hospitals, and maybe they get something out of SimVentures (which Money McBags understands less than Charlie Sheen understands moderation, but whatever), and they are able to push growth to 20% next year.  If we use a 65% gross profit margin, juice up operating expenses to ~$9MM a Q, and tack on a 45% tax rate, we’re at ~$.30 in earnings per share, so the company is at >20x that which just seems too expensive.  Yeah they have ~$1 per share of cash on the balance sheet and no debt so that is nice, but it does less for Money McBags than Minnie Driver.

So on superficial numbers, Money McBags isn’t changing his opinion that HSTM seems at best fairly valued, though most likely a bit expensive.  That said, it is a nice little company that seems like it might have a competitive advantage in a growing market so if you can figure out how they can accelerate growth (maybe through SimVentures, maybe through more partnerships like they have with the American Nurses Association, or maybe by changing their whole business model to just selling taint tickles from Carmella Bing), perhaps Money McBags’ numbers are too low.  If management is out there, shoot Money McBags an email at moneymcbags@gmail.com and lets talk.

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