The market held steady today as headline-y good macro news was mixed with a dose of disappointing earnings news and topped off with a healthy heaping of who gives a shit.  That’s because with mid-term elections looming and everyone waiting to see the details of QE2 (which is now the most anticipated market event since GOOG’s IPO or JWOWW ringing the NYSE’s opening bell, and yes that really happened as somewhere Warren Buffett rolled over in his reasonably priced grave), investors are less likely to be making big bets than Charlie Sheen is to have a date he doesn’t need to tip in the morning.

With QE2 continuing to dominate the market like a Pareto efficiency dominates a Nash equilibrium or like Orson Welles dominated a cookie (or a little something called film making), investors are speculating on how big it will be with ranges from $100B big to Whitezilla big (and google that one at your own peril).  Yesterday the WSJ intimated that the Fed would start small and grow QE2 $100B at a time (known in the lending world as low and grow or inflation by 1000 cuts) while today, strategist to the stars Abby Joseph Cohen (fresh off of her landslide victory in the Ann B. Davis look alike competition where she wowed the judges by reenacting the Brady Bunch scene where Sam the Butcher brings Alice the meat) said that QE2 will be $500B to start (just to get the mood set) and then would ultimately finish off with another thrust to $1T.

If Money McBags were a betting man, he would first take the under on wins for the Utah Jazz, and then he would take all kinds of unders for QE2 as he thinks the news is going to disappoint more than John Hooker’s performance in the Battle of Chancellorsville or the Rent is Too Damn High party’s showing in the upcoming NY gubernatorial election.  And if that happens, the market will sell off from its current elevated levels in the textbook “buy the rumor, sell the news, unless the news has a hot friend who is in to threesomes” scenario.

As for macro news, new claims for unemployment were out today and they were down to a minuscule 434k (and by minuscule, Money McBags means whatever is the opposite of miniscule, like ginormous, gargantuan, or Barbra Streisand’s nose).  That said, it was the second lowest number of claims this year which should make the 434k people who just lost their jobs and the 16%-17% of the workforce who are unemployed (according to the U6 unemployment numbers) feel just dandy.  That said, a few things about the numbers:

1.  New claims from last week were once again revised up by 3k to 455k in the B(L)S’ consistent “hold the shock and hope for no awe” campaign which is actually working much better than their last campaign called “telling the truth.”

2.  Analyst guesses were for claims to actually rise by 3k so not only were they off by 24k (or fewer than 24k when the number is revised up next week) but they once again lost the coin flip by not even getting the direction correct (and there is probably a joke here about all the analysts being male and not wanting to ask for directions, but if you want bad and unfunny finance humor, just go here, or re-read Money McBags’ 10/14/10 column).  Anyway, this once again shows that analyst regression models continue to disprove the entire concept of the normal curves on which they are based since their guesses have failed to revert to any type of long-run mean.  Why people pay for this information is more puzzling to Money McBags than why someone had a cell phone in 1928.

3.  While it’s great that only 434k people are being added to the government payrolls (and yes that was sarcasm), 414k people dropped off the emergency and extended unemployment logs and seeing as how there were negative jobs added last month, it’s not likely that these people dropped off because employers all of a sudden acquired a huge need for employees whose main skill now is knowing at what time and on what channel The Jerry Springer Show is broadcast.

And it really wasn’t just 414k people that dropped out but regular continuing claims dropped by 122k.  So look, Money McBags is no logician (though he does understand both hypothetical syllogism and Jenna Presley causing jism), but it is most likely that 90%+ of those 122k continuing claims simply shifted from the pre-long-term unemployed bucket to the regular long-term unemployed bucket.  So while net 414k people are no longer receiving any benefits, its really closer to 500k gross when you add back the ~100k who just moved over from continuing claims and that should grossly effect consumer spend.

But hey, nothing to see here, rally on because QE2 is the panacea to fix all sinking markets despite things getting hairier than Christine O’Donnell’s bush (no really, don’t shoot the messenger on that one, read the story, or skip down to ~paragraph 18.  Just remarkable.).

Internationally, China is set to once again ship rare earth minerals such as lanthanum, neodymium, and John Edward’s humility, after ending their embargo with Japan.  And speaking of Japan, the Bank of Japan has detailed a plan to buy assets in their own quantitative easing which they hope will fend off both a struggling economy and Godzilla.

The big story of the day though was earnings as 3M released a disappointing outlook despite beating earnings guesses and said if things don’t turn around, they may have to lay off an extra M.  They shaved $.06 off of the top end of their full year eps guidance as a result of acquisition costs yet traded down an astounding ~6% on that which shows how much the market has run and how high current expectations are.

In other earnings news, Kodak pictured a perfect day as the company was up ~10% after only losing $.16 per share thanks to sales of inkjet printers and licensing intellectual property such as “how to operate in a dying business.”  Flextronics flexed their income statement and put up a huge Q and Las Vegas Sands jumped 10% after Charles Barkley spent a weekend on their property.

On the negative side, Teradyne tera-dined on investor gains by issuing disappointing guidanceV beat earnings guesses but missed the whisper number and traded down (and Money McBags laughs at any whisper number unless the number is 69 and it’s being whispered by Breanne Ashley) and finally, AutoNation skidded in to a bad Q by missing estimates since people not surprisingly don’t have money to buy cars.

In small cap earnings, IMAX shot out at investors after a good Q and announcing accelerated theater expansion and if you all remember, Money McBags had doubts about IMAX a few months ago, so fuck him on that one even though he thinks the company has run ahead of itself.  FIRE put out disappointing guidance and dropped >20% and Money McBags has mentioned it being expensive before yet never dove in to it.  And finally Sketchers couldn’t sneak out a good Q as they dropped nearly 20% as inventory built up faster than investors could say “dying trend.”  This is the reason Money McBags avoids trendy consumer discretionary items as one never knows when that trend will be over.

Yesterday, Money McBags mentioned SMCI’s Q and he wanted to break it down briefly as he has always had a special place in his heart for this little cyclical company that could.  As for the Q, it was decent enough with sales up 2.7% sequentially but 39% y/y and net income up 86% y/y but down 6.5% sequentially even with a slight uptick in gross margins thanks to a higher tax rate and a slight increase in operating costs.  That said stripping out non-cash income statement costs, non-GAAP eps was up by $.01 sequentially to $.22 per share which is perfectly fine.  They still have ~$90MM of cash on the balance sheet, had ~$10MM of FCF in the Q, have no debt, and have never been in Money McBags kitchen.

The story last Q was that margins ticked down and revenue flattened sequentially and this Q margins ticked back up sequentially (though still down y/y) while revenue again flattened.  On the call, management said that y/y margin gross reduction was caused by increased costs due to overseas expansion, elevated shipping costs, and component shortages, but they expect some of that to reverse and if Money McBags correctly heard the call, they think margins should go back up another 40ish bps.  So that is a slight positive.

Guidance for next Q which is typically their seasonally biggest Q is for ~8% sequential growth but down quite a bit from last year’s blow out revenue quarter.  They also guided to ~$.23 to $.27 in Non-GAAP EPS for next Q and if Money McBags takes $225MM top line, 16% gross margin, holds operating costs as the same % of revenues, taxes them at 34%, adds back ~$2.5MM of non-cash income statement items, and then does the hokey pokey and turns himself around, he gets about $.25 of Non-GAAP eps which is right in their range.  So whoop de dam doo.

The company is probably going to earn ~$.85 per share to ~$1.00 per share this fiscal year and they are trading ~$11 with ~$2 of cash on the balance sheet so they are actually pretty reasonably priced.  Basically, this company starts growing when INTC releases a new chip and Money McBags doesn’t know when that will be so you don’t need to rush in to this stock, but it is decent exposure to tech trends, not all that expensive, well run, and trading near cyclical lows, so buying now and holding until whenever is fine, but it will likely be dead money for a bit if you want to try to time it better.

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