12/15/10 Midnight Report: Rich Guys Vote To Extend Tax Cuts For Rich, Laughter Trickles Down to Middle Class
The market continued to move sideways today as economic data was less relevant than Bernie Madoff’s thoughts on the CAPM and fund managers don’t want to rock the boat (though they’ll happily tickle the little man inside of it) this close to year end bonuses. This lack of volatility in the market is less surprising than John Boehner crying over a paper cut (or a tax cut) or finding out that old men still want sex (and you really needed to do a study to for that?).
The big news of the day was that the Senate passed the tax cut plan ensuring the “spend and don’t tax” policies of George W. Bush will continue to bankrupt this country for generations to come. It is the Government’s ultimate fuck you to anyone who still believes in the Ricardian equivalence proposition or the mathematical concept of compounding.
The bill extends all of the tax cuts that were enacted in 2001 and 2003 for another two years (until they will be extended again so Wall Street traders who make billions of dollars by hitting a button won’t ever have to downgrade from their daily diet of five unicorn fetuses to only four) and it extends expanded unemployment insurance benefits through 2011 (so the unemployed can eat for another few months while employers tell them their skills have become more obsolete than rotary phones, penny-farthings, and full bush). The compromise will also cut payroll taxes by 2% (which might stimulate hiring if margins weren’t going down like Gayle King at Oprah Winfrey’s house) and will allow businesses to write off 100% of capital investments until 2011 which means executive suites will all soon be redone with neorests, rockstars, and Ashley Dupre. At this rate, Wesley Snipes will be let out of jail early, and not for good behavior, but rather for paying too much in taxes over the past 10 years. But party on, politicians, party on.
In macro news, both the core and actual CPI rose by .1%, slightly below analyst guesses of .2% and completely irrelevant to anything. Industrial output rose by .4% which was its biggest gain since July as a spike in utilities partly offset a 6% decline in the production of motor vehicles and a 15% reduction in hope. Finally, applications for home loans fell last week as mortgage rates rose to 7 week highs and people still don’t have any fucking money to waste on expensive declining assets (which is terrible news for Elizabeth Taylor’s vagina).
The only other bit of interesting US market news was that the inconceivable Lloyd Blankfein and his fellow warlords are slated to get $111MM in bonuses from this year and 2007 as a reward for destroying the economy but having enough political pull to stay afloat. Wow. And who said only massages have happy endings? Blankfein will net $24.3MM by himself which he promises to put towards world peace, making sure all of Camille Crimson’s classes (probably NSFW) at the Learning Annex are free, and developing a vaccine for iocaine powder. Just kidding, he’s probably going to put it all in a pile in the middle of his bedroom and dance naked around it as he wildly cackles at the robbery he got away with in front of everyone’s eyes. Damn it feels good to be a Banksta.
Internationally, fears of European defaults are once again rising (though it’s unclear why they ever sank) as Moody’s said they are putting their credit rating of Spain on review for a possible downgrade. While this would have more credibility if Moody’s hadn’t both missed the biggest global financial meltdown in 80 years and also been complicit in it, it was enough to spook the markets (and Money McBags means spook in the literal sense, so don’t go all Coleman Silk on him). This news, coupled with violent worker strikes in Greece (and Money McBags would have coupled that news with a nice Chianti, and not worker strikes, but whatever), sent the Euro down and once again made people realize that like RuPaul, Europe’s banking system may be hiding something underneath.
In the market, Goldman and Nomura cut EPS guesses for Morgan Stanley from “made-up” to “made-up and shitty.” Joy global was up~7% after a better than expected Q which saw profits rise 18% as the CEO said they “simply dug the fuck out of some more shit.” Elsewhere, Honeywell fell a bit after they gave below guesses 2011 earnings guidance even though profits are supposed to rise 17% to 24% thanks to the production of huge cockpits. And finally, Best Buy continued to get pounded as this is one dip investors refuse to buy (and this is another dip investors refuse to buy).
In small caps, an old Money McBags favorite that we all made money on earlier in the year put up an ok quarter today and jumped up ~7%. That stock is of course RICK, where we were once proud not just to be owners, but also to be clients, especially when we basked in the greater than 50% returns we had before selling at the beginning of March. One of the reasons we sold was their announced acquisition of competitor VCG Holdings but apparently RICK pulled out of that early as they didn’t have proper protection, so that makes this company much more interesting again.
On the call, they said the economy is still too hit or miss to give guidance, but November was on par with October after seeing a ~10% drop in that time period last year. Other positives include the Las Vegas club not leaking money anymore (because right now all of the Vegas club owners have a truce on not paying cabbies too much to bring people in) and coming up basically EBIDTA breakeven (ok, it’s bad that this club is still eating a dick, unless it were Money McBags’ dick the lovely entertainers were eating, but whatever). They’ve also started having success with promotions such as $2 drink night. The CEO said $2 drink night packs the clubs so much that they are able to upsell more VIP tables so guys can get away from the mass of cock crowding the main floor and enjoy their tits in a much more refined area. As bottle service is usually about $500 per in these VIP areas (and Money McBags has the credit card bills to prove so), that certainly makes up for the cheap drink promotion.
Other positive include the announcement that they are buying two more clubs (one in Indianapolis and one by the Dallas airport) and have been snatching up (pun intended) shares in the market at ~$6 (or .3 lap dances, and for the rest of this piece, Money McBags will be using his preferred denomination of lap dances). And oh yeah, the Super Bowl is in Dallas this year where RICK’s will have 7 clubs so that January weekend will likely make it rain in RICK’s P&L like the P&L were in Tutunendo, Colombia.
So look, RICK’s top line has shown it can hold up in the recession having grown ~11% for this fiscal year with same club sales up ~7%. Even unemployment officers understand lap dances aren’t discretionary but rather therapeutic distractions to help people forget that they live in a cruel and angry world. For the year, RICK had a GAAP loss of ~400k lap dances but taking out the 1MM lap dance impairment of assets they took on their Las Vegas club (for buying it at the top of the fucking market a few years ago), they would have earned ~485k lap dances and taxing that at 35% would have equaled ~.033 lap dances per share so the stock is trading at ~11.5x that trailing number which is not bad for a consistent grower.
They also earned ~880k lap dances of adjusted EBITDA for the year which means they are trading at just over 5x EV/EBITDA (and they have been buying shittier clubs on sale for only 3x EBITDA). So the stock is actually pretty fucking cheap. That said, this stock will always trade at a discount just because one toothy hummer in the champagne room to the wrong Senator and they could be shut down in a second.
That said, if they can grow top line 10%, have operating costs only grow 7.5% (like they did in 2010, though they just upgraded their systems so operating costs shouldn’t grow as much), lose 200k lap dance in interest expense and pay a 35% tax rate, they will earn ~.044 lap dance per share and they are currently trading at only 9x that. This company has all of a sudden become interesting again with a solid year.
Yeah, it’s a bit of a shady business, and sure they have made some bad acquisitions (which is why walking away from the VCG Holdings deal makes Money McBags feel a fuckload better), and of course it is a bit disconcerting that the economy is so fucked that they can’t get a proper read on next year, but as long as the company can maintain the same pace that they have had throughout the downturn, it is pretty fucking cheap. Should this sell off and get back down to ~.3 lap dances per share, it is certainly worth buying.
Anyway, pay attention for the next couple of days to see if it can build a new base, and if it does, that could mean a good entry point (though not as good as this entry point) and should provide enough returns for plenty of champagne in the champagne room.
Editors Note: As the next 2.5 weeks promise to be duller than amish porn or a Henry James novel (and Money McBags still hasn’t forgiven Mr. James for the 4ish hours of his life he wasted reading The Bostonians which had all of the action, intrigue, and humor of a shriveled taint hair), Money McBags may struggle a bit to make this shit interesting. He could just post pictures of Rosie Jones, fabricate stories like other great media outlets, or simply try to write in only rhyming iambic pentameter (Today nothing went on in the market, news was lighter than a tiny ant’s shit) but those are all gimmicks and you all know Money McBags is cockposterously against gimmicks and all for originality. So bear with Money McBags for the next few weeks as he navigates the dulldrums (misspelling intended) of the end of the year, and tries to continue to take the market from boring and stuffy, to boring and slightly less stuffy.
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