Ruh roh.  After yesterday’s euphoria around the new year wiping the economic slate clean, investors woke up and realized that, well, a new year does not wipe the economic slate clean and unemployment remains unhealthily high (and as unhealthily high as if it had shared a needle with Gia Carangi), housing prices have either already started their double dip or are getting ready to double dip (and for the record, Money McBags hates double dippers), and JWOWW still wants her nude pics back. So some things are still rotten in the state of Ben’s market.

A sobering day caused large cap stocks to mildly sell off while small cap stocks went down like someone named Ms. Candy Deepthroat at an NBA all-star weekend (and Money McBags promises he couldn’t make up anything as bizarre as that).  So has the market topped or do we pray to the great Bernanke Put in the sky and buy the fucking dip?  Money McBags’ cognitive dissonance hasn’t been this high since Paul Krugman won a Nobel Prize in Economics or since he learned of something called adult chocolate milk (because really, why would one need to mix malt liquor with anything?  It is perfectly delicious on its own), so he is going to remain cautiously hedged right now even though the market still feels like it wants to go up more than a priapism sufferer after shotgunng a case of viagra.

As for macro news, the Fed released their minutes from last month’s meeting and to save you from inelegant prose, Money McBags can sum up the minutes in four words “Same shit, different day.”  If you read the minutes, and Money McBags recommends that if you do, you not be operating heavy machinery (so sorry Lexington Steele, you’ll just have to read the Cliffs’ Notes) and you say goodbye to your loved ones ahead of time (because reading the minutes could put you in a deeper sleep than Terri Schiavo), you’ll see that the Fed governors found some things were getting a nut hair better and other things (like unemployment, housing, and shit that matters) remained worse than a Mary Meeker internet call or whatever it is they show on the Style Network.

The key point is that the Fed is determined to stick with the pace of the $600B Treasury bond-buying program because in their estimation (and remember these are highly paid witch doctors), the economy is still struggling, or to use a more technical term, “eating a fat dick.”  Some investors thought the Fed may not employ the full extent of the $600B but “members emphasized that the pace and overall size of the purchase program would be contingent on economic and financial developments; however, some indicated that they had a fairly high threshold for making changes to the program.” So this means that QE2 is here to stay because to give you a hint how high the Fed’s threshold is, Janet Yellen doesn’t even have a safe word to mumble out of her ball gag when playing “bubble my asset” in the Fed’s headquarters.

In other macro news, according to the Commerce Department factory orders were up .7% which beat analyst guesses of a .1% decline and is consistent with yesterday’s rise in the ISM (and leave the first J off for savings).  This marks the first time since the depression began that two disparate yet similar statistics have kind of matched when delivering relatively positive news which has left Money McBags more confused than he is over whatever this angry birds thing is to which people are so fucking addicted.  But he guesses even a broken clock is right twice a day (unless it is digital and out of batteries, but whatever).  Orders have now risen in four of the last five months and excluding transportation, orders were up a cockriffic 2.4% which was the highest since March and likely driven by demand for the production of more naval movies.

Internationally, inflation is coming to Europe and Money McBags only hopes it remembered to bring its deodorant with it because it sure as heck won’t be able to find any when it hits the continent.  Annual inflation rose 2.2% in December from 1.9% in November according to an initial estimate from Eurostat, which is the EU’s version of the B(L)S only even douchier.  It is the first time inflation has been above the ECB’s 2% target since 2008 but luckily core inflation was only ~1% (you know, the prices of shit people don’t actually buy) so the ECB can continue to make up different metrics to show inflation has been tamed.

In the market, auto sales were up ~7% for the month thanks to people losing their jobs and having to downsize to cars from apartments.  Ford, GM, and Chrysler sales were all up over 7% while Toyota was down .4% as a result of a spate of recalls and people preferring shittier made cars.  In addition to strong auto sales, retail sales were up 3.6% last week compared to a year ago despite a ridonkulous snowstorm on the East Coast and people not having any fucking money.

As for stocks, Motorolla split in to two companies today which will allow shareholders to lose in two different ways now instead of just one.  The company split its consumer business, which makes cell phones people no longer use and cable set-top boxes which will soon be outdated, from its professional business, which sells police radios to state governments who can no longer afford them and barcode scanners to stores going out of business.  So in short, the business plan may be a bit more lacking than that of sex.com’s (and two important notes here on that sex.com article.  1.  The url sold for $13MM which is only $3MM more than the asking price for the award winning When Genius Prevailed and WGP certainly has the better content so just remember that potential buyers.  2.  To the guy who bought the url and has no idea what to do with it, um, you have heard of titties, right?  Shit, you don’t need to go all Porter’s five forces to figure out what to do with sex.com, fuck, it’s an easier business plan write than the one for BAC (Step one: Get too big.  Step 2: Fail.  Step 3: Profit) so Money McBags will be happy to put his MBA, his CFA, and his love of T&A, to work on a consulting basis to help out).

Elsewhere grocery stores sold off after Morgan Stanley cut its rating on Supervalu to “Nofuckingvalu” and told clients to underweight the stock due to margin compression.  And finally Atheros Communications was up 18% on a rumored buyout from Qualcomm as Qualcomm seeks a way to get in to the tablet market to lose to Apple in yet another vertical.

As for small caps, BGP is going to zero because apparently not being able to pay for inventory isn’t a great long-term business strategy.  Also, WGO was down 5% and WGO remains Money McBags’ favorite short.  Yes, all it has done is go up on him but there is ~50% downside from here as a company with marginal growth should not be selling at 30x fingers-crossed earnings.

As for new ideas, shit, this is the part of not working for a fund anymore that Money McBags hates most because he finds a lot of interesting little companies, but unfortunately, management teams are less likely to give him the time he needs to understand their businesses than HP is likely to rehire Mark Hurd or Chuck Klosterman is likely to write something that isn’t self-serving and overly douchey.

For example, this little company CTCH came across Money McBags’ screens today and it smells a bit growthy (though that could also just be gas) but it is weird enough that Money McBags needs more than non-existent 10Qs and Ks (and they are non-existent for CTCH because it is an Israeli company that files crappy 6Ks) and an investor relations section without even a presentation, to understand the business.

The company has some sort of cloud based software (and when Money McBags hears the term cloud, his dick gets harder than an old Swedish dildo) that they sell to OEMs to help cut down SPAM, and provides virus protection and web security.  Sounds fucking interesting, especially since they are selling into service providers (and Money McBags wishes Carla Ossa would provide him some service) and not in to the retail market.  Sales were ratcheting up, going from $7MM in 2006, to $11MM in 2007, to $14MM in 2008, before slowing down in 2009 to just over $15MM.  This year guidance is for $17MM to $18MM and ~$5.5MM of Non-GAAP income which is ~$.23 in EPS.

But here is the interesting part, they just bought an antivirus company called Command for $4.5MM to $8MM depending on the earnout which should contribute $3.5MM to $4MM of revenue in 2011.  So if one assumes the core business will be flat in 2011 (even though it will have grown ~10% organically in 2010) and adds $3MM to 2010 estimates (which includes ~$1MM from the Command acquisition in Q4), then you get at least 16% growth to $21MM.  At $21MM the company could earn ~$.30 per share and is trading at only ~12x that, so at worst it is reasonably priced, especially if they can grow their core business 10% and get closer to $23MM in revenue.  So there seems to be some interesting shit going on but Money McBags simply does not have enough information to go on right now.  What he really needs to understand better is:

1.  The actual software.  Yeah yeah virus protection this, anti spam that, johnson rods all around.  Great.  Sounds dreamy, but how do OEMs integrate this with what they have, what do they use it for most, and how is it better or different from what is out there?  There is a ton of mail and messaging virus protection shit, so what is CTCH doing that allows them to grow?

2.  Why the fuck did they buy Command?  Was it just they had cash to use?  Did Command have software they needed?  Or did CTCH see growth in their core business waning and thus needed to buy more revenue?

3.  Could Fani Pacheco have a more perfect first name (and this has nothing to do with CTCH, but it has been on Money McBags’ mind for quite some time)?

4.  What happened in 2009 that growth slowed?  Was it the economy or was there something else going on with the business?

5.  Why is the CEO retiring and what does the new CEO bring to the role?

6.  Why have gross margins been ticking down ~100bps in the first 9 months of this year?  Is there a mix shift?  Are there pricing wars? Or have input prices increased (and Money McBags hopes they remain below Rhian Sugden‘s likely input prices).

So look, Money McBags has just given the company a cursory look, but it is trading at only ~12x his potential low end 2012 eps guess, is in a vertical that should be growing ridcockulously fast because everyone hates feeling inferior when they open their inboxes to see all of the spam wanting them to start penis enlargement treatments, and has had solid growth rates for the past few years, so it is interesting.  Money McBags will try to continue to do work on this name in the next few days because it looks like there could be potential, but he needs a much better understanding of the technology before he can do much else.  Take a look for yourselves though because there may be upside.

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