Archive for January, 2010
The market is bouncing around today even though GDP grew 5.7%, the fastest pace in 6 years and beat estimates of 4.7% growth. The upside was led by a restocking of inventories from their depressed levels (and inventories were more depressed than Kathy Griffin’s bikini waxer the time she ran out of rubber gloves). The change in inventories accounted for 3.4% of the growth with purchases of equipment and software up 13%, negating the 15% drop in commercial construction because building cardboard boxes is so much cheaper than actual homes. So the question becomes is this a one quarter inventory rebuilding and stimulus induced anomaly or are we really on the way to a recovery? In the delightful Elisabeth Kubler-Ross’s model on the stages of grief (and for those who missed Ms. Kubler-Ross’s induction into the National Women’s Hall of Fame in 2007, the finger sandwiches were to die for), the economy has passed steps one and two by moving past denial (we are definitely fucked) and anger (openly calling for Dick Fuld to have his dick folded) and is now in the bargaining stage (please hire me, please, please). Unfortunatley the next stage is depression, which hopefully isn’t caused by another market crash when inventories fail to turn and/or by China’s bubble bursting like Christina Hendricks’ bustier. Of course the last stage is acceptance and with any luck we will be accepting growth and recovery and not the realization that we are Japan circa 1989 or Taylor Rain‘s lovely backside in her brilliant performance in 2004′s much overlooked film, Apprentass.
What is most concerning to Money McBags is that the market has been selling good news and is trading down now that the expected results are coming in much better. Of the 195 companies in the S&P 500 that have reported earnings since Jan. 11, 154 have beaten analysts’ estimates, according to Bloomberg data. That is an amazing stat and yet the market rally seems to have fizzled out like Lindsay Lohan‘s singing career (and acting career, and pretty much anything other than her whoring career, which actually makes us all winners).
The other big news of the day is that Ben Bernanke was confirmed by the Senate for another 4 year term by a 70 to 30 vote. The thirty who voted against him also voted for Mountain Dew in the Pepsi challenge, Curly Joe as their favorite of the 3 Stooges, and Anna Karenina as their favorite Tolstoy novel. Money McBags is a Bernanke supporter and thinks he has done a perfectly reasonable job as Fed Chairman, so kudos and huzzah for the Senate who took a wide stance and voted bi-partisanly on this one.
In stock news, MSFT earnings were up 60% thanks to Windows 7 and a little something they refer to as a “monopoly.” They beat estimates by $.15 by earning $.74 per share and promised that with earnings like this Bill Gates may finally be able to move out of his mother’s basement. Amazon also put up a huge quarter with sales rising 43% and earnings coming in at a robust $.85 per share, well ahead of the $.72 estimates. They also announced a $2B share buyback which boggles the mind considering that they are trading at 50x next year’s earnings and with the iPad coming in to the market and potentially taking share away from the Kindle. Why a commodity business with low barriers to entry should trade at 50x is beyond me, but then again, so is M-theory and all of it’s absurdly thought out 11 dimensions.
In small cap news MED and ZAGG continue to trade down while EBIX gives back some of their gains from yesterday. CRUS is also down despite their better than street guidance yesterday and run of analyst upgrades today. Money McBags did dip his toe into the CRUS waters yesterday (and it was delightfully stripper piss warm) and buy a small position so go buy some iPhones. Next week promises to be a wild week in the small cap space with more earnings announcements than Jack Nicholson has chins, so enjoy your weekend and be prepared.
1/28/10 Midday Report: Global economy still more fragile than faberge egg wrapped in Donald Trump’s ego
The market is down again today thanks to Qualcomm giving a subdued forecast and something again about people not having jobs. Luckily, according to the Fed, the recession may be over which has left many of the 10% of unemployed people loudly cheering from their urine stained cardboard boxes. The Fed upgraded its economic outlook, reaffirmed it will end liquidity backstops and a $1.25T program to buy mortgage-backed securities, and then shook their magic wand over the grave of Benjamin Strong while singing an incantantion from the Atharva Veda. While they pledged to keep the benchmark rate low for an “extended period” (and remember by low they mean zero, and by zero they mean free money for banks), they did question how long inflation will remain “subdued” citing the fact that they just printed enough money to deplete the rain forest or for PacMan Jones to make it rain for six consecutive hours at his local Rick’s cabaret.
Despite the Fed’s modestly upbeat statement, weekly claims for unemployment came out today and while they were slightly better than last week (in the same way that Paris Hilton is only slightly dumber than a centipede), they were still worse than expectations as there were 470k new filers and expectations were for 450k. Additionally, durable goods orders were well below expectations growing .3% in December vs. expectations of 1.7% growth. This was driven by a 38% decline in orders for civilian aircraft, a 5% decline in orders for computers, and a 10% decline in things that “cost money.” However, if transportation is excluded, durable goods orders grew .9% which was above the .5% median estimate. So as always, you show me some data and I’ll make it look good or bad, depending on what you want to hear (she was fat, she had a good personality. Potato, puhtaato). Those analysts who have used Excel have a word for it, it’s called “solver.”
In international news, George Soros is now looking for a seat on the “China is a bubble” bandwagon joining Jim Chanos and everyone else looking at the market on a daily basis. I’m not saying China is moving too fast, but it shunned foreplay and offers of lube and then demanded to receive immediate insertion in to it’s Shanghai. Also Greece continues to worry economists but at least they are being honest about their problems as their finance minister, George Papanotgonnaworkhereanymore, has denied reaching out to other governments for help. Despite needing to raise an estimated 54B in euros, the finance minister said they can solve their budget crisis themselves and currently “have no plan B,” which puts him with Joseph Hazelwood, Tischman Speyer Properties, and John McCain.
As for earnings today, Ford posted a $2.7B profit for 2009 which was their first profit since 2005 and they now expect to also be profitable in 2010. When asked how he did it, Ford CEO Alan Mulally said “two words: vibrating seats.” NetFlix also put up a huge quarter earning $.59 per share vs. analyst estimates of $.49 per share. The company citied that 48% of users had watched streaming videos up from 41% in Q3 and 28% in Q4 2008 which should help deflate some business model concerns that people will stop using DVDs and shift to the on demand delivery model because NetFlix is showing it can also sucessfully provide movies on demand (unless you demand adult movies because NetFlix is prude).
In small cap news today CRUS is trading down heavily after they had their quarterly release which was exactly inline with their pre-announcement and included guidance above the street. Guidance was for next Q to have $55MM-$59MM in revenue, 54% to 56% gross margins, and $24MM-$26MM in operating costs with $1.5MM being non-gaap. Remember, this company is barely paying taxes right now so you can get to about $.11 of non-gaap earnings for next Q which is above the $.09 of the street. Now the stock could be trading down with AAPL being down since they provide an IC for audio in the iPhone and there could be concerns that the iPad will cannibalize iPhone sales and thus hurt CRUS’s revenue, but I have no idea if they are providing any ICs for the iPad so that is just conjecture for why they may be down today. Money McBags laid out his case for CRUS after their pre-announcement on 1/12/10 and said this: “Money McBags would hold off on buying today, but there is still probably $2-$4 of upside (15x FY 2011 $.60 estimates + $2ish in cash per share) and that is if the energy market does not have a big comeback. It is worth tuning into their 1/28/10 call to see what they have to say, so put this on your watch list and be ready to buy the dip.” So he is now going to listen to their call and may buy this dip (though he hasn’t yet so as always, do your own research).
In other small cap news, EBIX pre-annonuced that they had $10.3MM cash from operations in the Q, $19.3MM cash on the balance sheet, will be resuming buybacks, and are in fact a real business. The CEO, Robin Raina, also gave this statement: “In recent times, I have been asked about the decline in stock price and the rather high shorting numbers on our stock. As the CEO of Ebix and one of the largest stakeholders, I continue to believe in Ebix and the opportunity to make Ebix the largest insurance player globally. The Company continues to do well on all fronts and we expect Q4 results to be in line with our expectations. We have always believed in letting our numbers speak for themselves and towards that extent we will continue our efforts to create new benchmarks in terms of revenues, cash growth, earnings, and net margins for Ebix.” Money McBags has mentioned it here before, EBIX has a ridiculously good business from a numbers perspective, but there are concerns as to how real those numbers are given their predilection for firing auditors, complexity of business model and tax domiciles, and a CEO who thinks he is god’s greatest gift to the planet (when we all know that Hanna Hilton is god’s greatest gift, with duck confit and spankwire.com being a close second and third). The point is, this is either a ridiculously great buying opportunity for EBIX or you are just going to be giving your money away. As Money McBags can’t say which with any certainty, he is happy to sit on the sidelines as a spectator, though he’d be happier to be sitting on the sidelines as a spectator for the upcoming Brooklyn Decker photo shoot or the live reunion of the cast from the Facts of Life.
1/27/10 Midday Report: In bid to increase approval ratings, Obama to unveil Apple Tablet at State of the Union address as a panacea for US budget problems
The market continues to limp it’s way down as investors await tonight’s State of the Union address where President Obama is likely to whip out his small business tax breaks and smack them against a non-defense discretionary spending budget freeze. This budget freeze supposedly applies to 17% of the Federal budget and will have enough loopholes in it to make it less well-followed than the failed reality TV series: Federal Reserve Bank Governor Idol (though Sandra Pianalto yelling at Chuck Evans for leaving the toilet seat up in the house was must see TV). It does likely mean that the president won’t be getting the X-Box he asked for for his birthday as times are tough. In addition to Obama going after the budget tonight, Apple is set to finally release their new tablet which has techies more excited than they were for the release of Avatar, extra-strength Accutane, or Olivia Munn’s Princess Leia photos. Honestly, Money McBags has not seen anything this eagerly anticipated since the release of those vapidly redundant Harry Potter books or Hanna Hilton’s first girl on girl scene (and Money McBags gave that two bums up). The tablet is supposed to be so awesome that it is said to have cured Steve Jobs’ cancer and to run on the tears of baby unicorns. And finally, the FOMC is meeting today with Bernanke expected to keep rates at their current 0 to 25bps or what we in the business call “free.”
While the market awaits that news, there were some macro-reports that came out which highlight the worries people are starting to get about the economy. New home sales fell in December by 7.6% and were short of expectations as analysts expected sales to rise (and I believe this now makes analysts’ incorrect prediction of the simple 50-50 guess at the direction of home sales statistically significant at the 95% level, so they’ve got that going for them). Home sales were down as a result of the government tax breaks drying up and the forgotten fact that no one has any money. Plus as the job market is more frozen than an Alaskan’s nuts after a midnight skinny dip in Lake Chilkoot (and yes that is really the name of Lake in Alaska), people simply aren’t moving.
In world news, Greece teeters on bankruptcy causing investors to stock up on credit default swaps of sovereign debt and all the tzatziki sauce on which they can get their hands. Greece is trying to remedy the situation by pawning off 25B of Euro bonds to China as well as stadium naming rights to the Parthenon, and the Golden Fleece. The flight to quality and away from sovereign debt like Greece has caused one month treasuries to have a negative yield for the first time since March of last year which is about as good of an omen for the stock market as stairs are for Stephen Hawking.
Berkshire Hathaway’s B shares are shooting up today like a young Drew Barrymore as word is they will be added to the S&P 500 index after their acquisition of BNI. Also, Toyota announced they will be shutting down production on eight lines of cars which make up 57% of their 2009 sales due to problems with the accelerator pedals seemingly caused by something called a friction lever. A friction lever joke is way too easy for Money McBags but this bears watching as the street wonders if Toyota has started to slack on their quality which has been their competitive advantage. In other stock news, YHOO turned a profit despite a 4% drop in year over year revenue. Revenue was up 10% sequentially and management said they see search revenue stabilizing so any investor who wants to own a portfolio of market laggards, now is your time to buy.
As for small cap stocks, ZAGG once again continues to trade down making Money McBags’ bet on 12/31/09 seem even better as it was likely risk free. So just remember, betting against Money McBags is like challenging Greg Oden to a cock off (very NSFW or actually anyone, but the news needs reporting), you can’t possibly win. And SMCI put up a huge quarter. Now SMCI basically makes custom servers and server solutions for businesses, usually being the first to market with new INTC chips, hence the Nehalem release has been driving new business for them. They just put up $.22 of earning per share on $182MM of revenue (up 42% y/y), easily beating analyst estimates of $.17 and $160MM. The company also gave above street guidance of $.18 to $.21 eps for next Q and $180MM of revenue in what is typically a down quarter for the industry. SMCI is an extremely well run little niche company with $82MM of cash on their balance sheet and no debt. They have a competitive advantage in that they are small and nimble (like Speedy Gonzales or the slightly smaller and more nimble, Shawn Johnson) and therefore can be first to market and customize at the same time. The company may be peaking but on the call management said they could get back to 30% growth rates as the end of the year should be good for them with AMD and INTC introducing new products. Estimates for fiscal 2011 are for around $1.10 and they are currently trading at 13 or so times that not including their cash after today’s run up. This should be a cyclical company and this may be the top of the cycle as they have just strung together some very good quarters so Money McBags would not be buying today as the easy money has likely been made. That said, this really is a quality company and has proven over time that they are good at what they do and well managed. Should there be a dip, this is definitely a company to accumulate but either way it is worth doing your own research here as they could continue to outperform.
1/26/10 Midday Report: An Apple a day will keep the recession away (especially if it’s one of those new tablets)
The market is bouncing around after Apple put up a ginormous quarter and is likely to announce their tablet on Wednesday while the global economy still sputters. In macro news, US consumer confidence rose to 55.9 from 53.6 and we all know how important it was to break that 55 barrier (actually, I’m just kidding, I don’t have a fucking clue as to the difference between 53.6 and 55.9, and I am guessing no one else does either, but bigger is better, just ask Keeley Hazell). Also in the US, the Case-Shiller home price index was either up or down, again depending on which news source you use. According to Bloomberg, home prices rose sequentially in November by .2% while according to the Wall Street Journal, home prices declined .2% sequentially in November. As always, our tie breaker is the NY Times because the irony of having a newspaper noted for their lapses of fact act as our determining factor makes me giddier than Charlie Sheen at a hoedown. According to the NY Times, home prices rose by .2%, so woofuckinghoo, home prices were slightly up, or not. I think the moral of this story is that home prices remain stagnant and you can’t believe everything you read, unless it is about Money McBags’ way with the ladies, and then all reports are 100% accurate, and delicious.
In international macro news, Standard and Poor’s lowered Japan’s outlook to negative and warned that they might cut Japan’s debt rating if Japan can not trim their mounting public debt and reliance on Pokemon cards to spur their economy. Seeing as how the S&P credit ratings analysts did such a good job assessing US financial institutions before the biggest failure of the US banking system since the Great Depression (and yes, that is sarcasm), Japan yawned at the reports and went back to their game of Dance Dance Revolution. In Europe, the UK announced that they have momentarily come out of their longest recession since the 1930s as GDP rose .1%, or by its more familiar name “a rounding error.” The growth disappointed most Brits, though not as much as their disappointment in General Cornwallis or dental floss. Weighing most on the global economy though continues to be China where some banks are said to have been ordered to stop lending for the month. With China threatening to make their monetary policy tighter and already less rigid than Joan Rivers’ face, the global economy may be in for a bigger slow down than the current market implies. Be wary of what is going on in China as they are currently driving the global economic rebound so if they put on the brakes, we all may get Chris Henry-ed.
In terms of stocks, the big news is that Apple demolished numbers like they were auditioning for the lead role in a Monsters of Cock video. They earned $3.67 a share, up from $2.50 and had $15.68B in revenue, which was 32% topline growth. This was led by Mac sales which were up 33% and grew at twice the rate of the computer market thanks to a 70% increase in iMacs. Sure Apple did an accounting switcheroo from non-GAAP to GAAP which essentially pulled iPhone revenue forward by about $2B or so, but it’s not like Apple has ever had other accounting issues so there’s probably nothing to see here (though there is something to see here). Some analysts were disappointed that the 100% growth of the iPhone was a bit below expectations, but being disappointed in 100% growth is a bit like faulting Brooklyn Decker for having bad breath for like one second every few years (though even her bad breath must smell of gold).
In small cap news, ZAGG continues to get pulverized, though it is unclear that there is any news, except for perhaps people realizing that this one trick pony’s trick may not be that hard to repeat, like walking or dividing by 1. As the market for smart phone covers has fewer barriers to entry than Paris Hilton’s pants, ZAGG’s business model should remain challenged. EBIX also continues to trade down making Money McBags glad he sold his EBIX holdings to avoid the attack of the shorts there who may or may not have something on EBIX’s accounting. Also RICK has been selling off with the market but Money McBags missed a key announcement from them last week (unfortunately the announcement did not involve the words “free,” “champagne,” and “room”). Last week RICK said their high end spender is coming back. CEO Eric Langan said: “What we are seeing is customers are spending more money on higher-ticket items. For example, last year, guys who were (used to) drinking $1,000 bottle champagne were ordering the $300 bottle. Now, we are back to selling… those premium bottles of wine and champagne again.” In that same interview, RICK forecast fiscal 2011 to have 20% growth to $100MM of revenue. They also expect operating margins to start expanding in Q2 and op margins were at 17.8% last year after being at a 26% the year before. So let’s say RICK can earn $100MM in fiscal 2011 and their operating margins go back to only 20%. That is $20MM of operating earnings and then subtract out $3MM of scheduled interest payments and tax them at 34% and you get around $1.20 per share for their year ending September 2011. They are currently trading less than 10x that number and margins could be a lot stronger than 20%. As always, Money McBags is aware that there is a taint on this stock (pun intended) as they are just one rusty trombone away from being in serious trouble, but as long as they can keep the ladies walking that fine line of legality and awesomeness, this company should have improving financials and strong growth. Money McBags is an owner of RICK and this is one time where he tries to do as much primary research as possible.
1/25/10 Midday Report: Bernanke likely to get bipartisan support despite claiming he doesn’t swing that way
The market is trying to rally after last week’s sell off which was caused by Obama letting Paul Volcker threaten to open up a can of whoop ass on the banking system, the senate seemingly hedging on reaffirming Ben Bernanke as Chairman of the Federal Reserve proving once and for all that the Senate is as good at making decisions as NBC is at handling their prime time schedule, and something called “data” which showed that unemployment remains higher than Brittany Murphy on the morning of 12/20/09. Money McBags has been saying this for a while, but we are at an inflection point. The market has rallied back to above a fair value based on earnings, so either earnings are going to have to be strong, or the market is going to have to do a very public walk of shame and re-trace some of its steps.
The news today is that the Senate has defied all known human physiology and started to think with their asses (because that is where their brains appear to be) and is likely going to reconfirm Ben Bernanke as Fed Chairman. This move is said to largely be a result of the Senate’s other top choices, Bernie Madoff and Raj Rajaratnam (or Raj-squared for short), currently being a bit indisposed (though to be honest, Money McBags highly approves of Mr. Rajaratnam’s hiring practices and only wonders if he would have hired Mrs. Brosnan to cover large cap stocks or some woman named Heidi Montag to cover plastics). InTrade is betting there is a 95% chance Bernanke stays as Fed chair which are exactly the same odds of the US highest income tax rate being above 38% in 2010 and Hilary Clinton being a man.
In macro news, US existing home sales plunged 17% which was the biggest decrease since they started keeping records in 1968 (thus after both the Great Depression of the 1930s and the scratch and sniff paint fad of the 1940s). The drop in home sales was driven by the end of government tax incentives for first time buyers, continued unemployment, tougher lending standards, and not being able to find a carpet to match the drapes (a problem which Jenny McCarthy can sympathize with in this very not safe for work image).
In stock news, it’s still earnings season and most people are eagerly awaiting Apple’s earnings tonight after the bell. If they beat estimates, will they be able to rise or will the market sell the news like they did to GOOG, INTC, and Jay Leno on prime time? Haliburton announced earnings today and profits were down 7%. The company cited weaker drilling activity and the fact that Dick Cheney is no longer vice-president. And Ericcson will be cutting 1,500 jobs due to an 82% drop in profits. However, the drop in profit does disprove Tiger Woods theory that Swedes don’t go down.
In small cap news, HAFC continues it’s fall from a silly rally as it shows that the book value depends on the book (you hear that Peter Cooper Village?), and ZAGG is also taking it in the yingus as the market realizes that no one wants to pay $30 for an iPhone cover (and honestly, this might have been the easiest short since Bridget the Midget). In fact on 12/31/09, Money McBags said this in the comment section of this very blog while debating with a reader: “In fact I will wager 1 share of ZAGG (and that is funny because ZAGG is going to $0).” Just a few months ago, ZAGG was trading at a multiple greater than 30x, despite the fact that they sell one product which is overpriced, don’t even own the technology, are in a market with low barriers to entry with a lot of competitors coming in, and it is easier and less time consuming to get Artie Lange off drugs than it is to apply their ZaggSkin product. Plus management was talking about building ZAGG stores for all of their future products instead of figuring out how to make their current product easier to apply and cheaper. They are now trading at around 14x 2009 expected earnings of $.20 per share, a number by the way which has maintained stagnant despite top line growth (which happens when you have to distribute products to more expensive channels and you pay more for shipping than you receive). The easy money has been made on this short, but it is unlikely their ZaggBox sells even as well as Rosie O’Donnell’s box and their App Store or marketplace or whatever they want to call it is more commoditized than fake boobs at a casting call for Van Wilder 3: The Rise of My Pants. In other small cap news, MED pre-announced a good quarter today of 75% growth and EPS to be $.17 to $.20 in this Q. The company has great ROEs, is growing faster than a steroidal weed, and is trading at only around 20x 2010 earnings and estimates will likely move up after today’s pre-announcement. Money McBags would ordinarily like a stock like this, especially after it’s big recent sell-off, but there is something about multi-level marketing that feels oh so dirty to him and apparently others agree. MED could be a big winner, but Money McBags is going to sit this one out.
The market continues to sell off as fears grow that Obama’s financial service regulation will limit the profitability of the banks who nearly destroyed the global financial system. How fucking dare he try to regulate these fine bastions of our economy who did nothing to deserve this other than invent complex derivatives based on loans made using lax lending standards to people who couldn’t afford to purchase what they were getting loans for and then trade these derivatives using their customers’ deposits which in turn created a minor global economic recession (and by minor, I mean the exact opposite of that) when these customers could not make payments. Seriously, so they fucked up a little, big freaking deal. What’s next, is the government going to ban foods that kill us or make sure blindfolds are always available in case of a Lady Gaga sighting? Anyway I’ll get off my high horse for now (mainly because have any of you ever tried to type on a high horse? 1. It is extremely difficult to find a place for your laptop and 2. a high horse isn’t exactly steady, especially because of the resulting munchies from being so high) but fear is that while regulations may limit the banks’ ability to give the economy monetary AIDS, they will severely limit profitability and this has caused the market and bank executives to get their panties in a bunch today (which is why Money McBags is always a strong advocate of thongs (barely safe for work link)). Banks now must know how Ron Jeremy felt in the 1980s when the AIDS epidemic struck and he was forced to wear condoms, sure it still felt good (banks can still earn money), and sure he was no longer at risk of dying (the government bailed the banks out), but can’t a dude just enjoy some good old fashion bareback (prop trading)?
In macro news, 43 states reported an increase in the unemployment rate in December, reversing the November trend. All 50 states had higher unemployment rates than last year led by Michigan at 14.6%. Michigan was closely followed by the state of Nevada, the state of Rhode Island, and the state of utter fucking despair. As Money McBags stated a few days ago, the S&P P/E ratio is above it’s historic mean so the market has recovered to the point where we are going to have to see some real economic and earnings progress.
And speaking of earnings progress, GOOG absolutely crushed their quarter today but they are trading down despite beating analyst estimates because they were short of whatever their whisper number was (and the only number Money McBags ever likes having whispered to him is 69). Google’s sales were up 17% to $6.7B and they quintupled their net income which tired net income out so much, it was unavailable for interviews. CEO Eric Schmidt was also giddy calling this an “extraordinary end to a roller coaster year,” and maintained “We are optimistic about the future as a result.” He then went on to say “And China, if you fuck with us again, I know where you live, no really I do, I put China into Google maps and there you were, but the point is, I will track you down should you hack us again and you don’t want to see me when I get mad. I will take away your surfing privileges and that means no more spankwire.com.” (that last quote may have been off the record).
In other earnings news today, people continue to eat the fuck out of some McDonald’s hamburgers as they grew US same stores sales by 1% after 2 months of declines and saw solid international growth with 5.1% growth in Europe and 1% growth in Asia/Pacific/Middle East/Africa or what is known as “the non-white areas.” GE also reported a $.02 earnings beat though it was considered somewhat of a low quality beat as it was driven by tax benefits and not buying new office furniture but simply reupholstering it with pleather. The stock is moving though because big-ticket capital goods orders were up, GE Capital staved off implosion for at least another quarter, and their sale of a majority stake of NBC has investors yawning over NBC’s 30% drop in profitability due to something called producing shitty shows (and NBC, if you’re reading this, Money McBags is available to deliver his Midday Report as part of your National News any day except for Friday, because Fridays are his date nights and he needs his personal time to prepare). Finally AXP and COF are both trading down big today after strong quarters. COF announced that they expect charge-offs to increase (something about people not having jobs) so that explains their drop but AXP did nothing wrong other than be in the financial services industry and already be relatively fairly priced. If AXP continues to sell off, it may bear digging deeper.
In small cap news today HAFC is finally dropping after it’s huge run up that Money McBags has been mentioning here over the past several days. This company is more speculative than the beef and broccoli at a Panda Express located next to a pet store, but someone seems to want to take that risk. Also, KITD pulled their European share offering after raising $31MM in the US markets saying they prefer to find less dilutive ways to eliminate their warrants. Money McBags thinks this is a positive decision for shareholders and KITD remains his favorite potential buy (other than any movie that has a Hayley Atwell nude scene). One small cap company that bears following here is a stock that Money McBags owns and that is MLNK. MLNK is the former CMGI (go ahead and chuckle now, get it out if the way, it will be better for all of us) but now focuses on a core business which is basically a supply chain and rebate/repair management system mostly for computer hardware manufacturers with 70% of their business coming from Fortune 500 companies. They just put up a Q of $18MM of non-gaap operating earnings, have $145MM cash after their TFL acquisition in December and no debt and a market cap of $452MM. So that puts them at around a 4.5x run rate EV/EBITDA if one considers the $18MM per Q a good run rate, but it might not be, it might actually be too low. The company expects ths upcoming Q to be inline with their last one and then they expect to see growth in the second half of the year and they are still cutting costs which contributed to a 500bp margin improvement in the last q. It’s not a dynamic business and probably in a market growing at high single digits plus they rely on a few big customers (HP is 25% or so of revenue) and are highly levered to consumer technology purchases, but this company is cheaper than an AIDS ridden bangkok hooker who hasn’t eaten for a week. Their revenue is starting to come back, they are still streamlining the business and they are making acquisitions, but even should EBITDA somehow drop to $10MM per q, they would still be trading at less than 8x that. Money McBags is a shareholder, and will likely buy more in this downturn, so you should all take a look.
Enjoy your weekend, Money McBags will be back on Monday.
The big news spooking the market today is Obama’s unknown plan to try to regulate banks. He is now said to be giving former Fed Chairman Paul Volcker the keys to palace and Volcker is rumored to be getting all Glass-Steagall on bankers’s asses telling them they can’t trade financial securities using their own deposits. Money McBags is usually for the free market (especially if that free market specializes in foie gras or taint cleanings), but large financials firms need to be regulated. They have too much sway over the global economy, like Rasputin had over the Tsaritsa Alexandra or ugly chicks have over former President Bill Clinton.
The other news moving the market today is that China’s GDP rose the fastest it has in two years as it grew 10.7% thanks in part to their ability to make really cheap shit and therefore have consumers need to continually replace said really cheap shit when it breaks/tears/poisons them. Q4 economic growth was driven by a $586B stimulus package, subsidies for consumer purchases, a credit-fueled investment boom, and buy one get one free happy endings at local Shanghai massage parlors. The strong growth in China has investors worrying that the Chinese government will finally try to slow down their lending to avoid more of a bubble than they have already created, which in turn will dampen the global economic recovery.
In US macro news, first time claims for unemployment rose last week by 36k to 482k defying analyst expectations for a 4k drop. Money McBags is not going to harp on analysts for getting the number wrong as he knows it’s not easy to guess at a number that can be anywhere from 0 to 300MM, but guys (and gals), can we at least get the fucking direction right? You have a 50-50 chance on that one which is slightly better than your odds of not contracting herpes from shaking Tiger Woods’ hands, so can we do a little better? Luckily an economist for the U.S. Labor Department (or as it is soon to be renamed, the U.S. Non-Labor Department or simply You’re Fucked) cleared everything up by claiming that last week’s numbers were higher than expected in part because the Christmas and New Years holidays created a backlog in some states. To quote this brilliant economist: “It is not an economic thing — it is an administrative thing.“ He then went on to explain that the recent market crash also “wasn’t an economic thing, it was a math thing,” John Edwards denials about being some broad’s baby daddy “wasn’t a lying thing, it was a syntax thing,” and for the ladies out there, swallowing after a hummer “isn’t a romantic thing, it is a nutrition thing, so bottoms up” (when of course, we all know it is both). The main point is, whether or not the rise in new unemployment claims was due to an anomalous administrative glitch or more people simply losing their fucking jobs (you know, what the statistic actually measures), there were still at least 450k people who recently filed for unemployment so this economy is about as healthy as Amy Winehouse at an all you can smoke crack bar or a Krispy Kreme donut with extra transfats.
Also, the Philly Fed showed the pace of manufacturing slowed a bit in January as the index fell to 15.2 from 22 and was below the expectations of 17. Apparently a positive number still signals growth so since we have no idea of the impact of the relative values of the arbitrary numbers (how much worse is a 15 than a 17? And about 10% is not likely the correct answer), all we can say is that the Philadelphia area produced some shit, though it was likely all stolen by the residents, so should have minimal economic impact.
In stock news EBAY put up a huge quarter as PayPal revenue was up 28% thanks to an uptick in Nigerian princes needing funds to return to their homelands and reclaim their fortunes, while Starbucks (SBUX) beat analyst estimates by quadrupling profits from a year ago. Same store sales were up 4% proving that overpriced coffee may be a giffen good. The biggest stock news of the day though was Goldman Sachs beating profit estimates by raking in $4.95B in the Q. More surprising than Goldman’s success under the Obama administration was the Streltsys’ profitability during the reign of Ivan the Terrible, the benefits earned by the Imperial Guard during the Napoleonic era, and Haliburton’s favorable business wins during Dick Cheney’s vice-presidency. Goldman’s revenue was mostly inline and their outperformance was caused by putting aside only $16B for bonuses. The pay ratio dropped to 38.5% which means the average worker will be forced to scavenge with only a $500k bonus and with the way the dollar is dropping, that means these poor Goldman employees will only be able to buy one Maybach and 3 nights with Charisma Cappelli (though to be honest, if all 32k employees had 3 nights with young Ms. Cappelli, she may get a little tired, so to those Goldman employees reading this out there, try to be in the first 1k if possible).
As for small stocks, HAFC continues to love it’s long time shareholders as it erupts for the second day in a row on no news. As stated yesterday, TBV is somewhere around $3.60 so this stock has plenty of room to move up, but this is very speculative as Money McBags trusts that TBV number about as much as he trusts politicians, Mexican water, and 35 year old virgins. Also, anything that has recently risen, like RICK, is selling off faster than Rachel Uchitel’s 10 minutes of fame. This is going to present some buying opportunities for the better companies. Over the past several weeks Money McBags has mentioned several companies he thought were solid but had run up a little too much (CRUS, NTRI, TMRK, heck even INTC) so use this sell off wisely to re-evaluate and make some smart decisions like the guy who married Christina Hendricks. Oh yeah, a big shout out to When Genius Prevailed reader Matthew who has nailed NLS like a 19 year old girl in her first Monsters of Cock video. Kudos on that pick.
1/20/10 Midday Report: China flexes pimp hand and vows to curb lending, businesses cower in the corner and promise to work harder for daddy
The big news bringing the market down today is that China is beginning to realize they may have a bit of a bubble on their hands as they opened up their fortune cookie last night and saw their fortune was written on the back of a yuan (as for the fortune, it said “man who puts balls in peanut butter is fucking nuts”). As a result, China will reel in their profligate lending. The chairman of the China Banking Regulatory Commission said that he expects banks in China to decrease their loans by 22% in 2010. So in the year of the golden tiger (and also the year of Tiger Wang), businesses may not receive the showers of money they saw in 2009 (now aptly renamed from the year of the Ox, to the year of the golden shower). It is good that China is realizing that they need to reign in their stimulus sooner rather than later, but this news of course is putting fear in to investors who worry about the short term recovery from the global recession.
In US macro news, US wholesale prices showed virtually no inflation as energy price declines offset increases in food prices. This is bad news for fat people but good news for the Tin Man.
In stock news, BAC and WFC reported earnings, well to be more precise, WFC reported earnings and BAC reported losses. BAC underperformed analyst expectations by posting a loss of $.60 per share vs. estimates of a $.52 loss per share. They blamed the $.08 miss on analysts being really bad at math. Without the TARP repayment and dividends paid on preferred stock, the Q4 loss would have only been $194MM, and in related news, if I didn’t have a dick, I’d be a chick, so unfortunately the details matter (and if I were a chick, I would be totally gay for Aubrey O’Day). BAC also raised their provision for credit losses to $10.1B in Q4, from $8.5B a year earlier because of some little thing I believe they referred to as “people not wanting to fucking pay shit back.” They also had total write-downs for the year of $33.7B, more than double the $16.2B in 2008, so at least we finally know the price of dignity.
The point is, BAC benefited from the investment banking gains of Merrill Lynch while they still took it in the yingus from their consumer portfolio. They suffered a loss of $4.9B on their consumer credit card business, compared with a $3.3 billion loss a year earlier. So guess what market, things aren’t getting much better. People still love charging off like Martha Coakley loves being bad at politics (and I need to digress for a second here. Money McBags does not get involved in politics. He does not care one iota what the fuck happens in this world as long there is world peace, no capital gains tax, and free blumpkins for all. And to be honest, he’d be happy with just one of those three, unless that one was world peace, and then he’d need at least one of the other two. The point is, Money McBags is completely apolitical, for all he cares, a gay person could marry an abortion while smoking a joint through the barrel of a shotgun in the middle of the oval office while spraying chlorofluorocarbons all over a bald eagle, so the fact that he has an opinion on this senate race is unusual. But this must be said. For a democrat to lose Ted fucking Kennedy’s senate seat in Massachusetts after having a 30 point lead in the polls and without having killed someone, been arrested for fraud, or openly rooted for the Yankees and claimed Bill Russell was a bitch, is perhaps the worst performance not just in the history of politics, but in the history of anything. Think about it. Ted Kennedy killed a lady and that couldn’t stop him form winning election after election. All this Coakley broad had to do was be alive, and yet somehow she fucked that up. Sure the dude who beat her (and yes this is really him, and sorry to my straight male readers) had a secret weapon in his lovely daughter Ayla, for whom Money McBags would cure cancer (though not one of those hard cancers like nut cancer, something much easier, like cancer of the mouth, also known as Kathy Griffin), but Coakley’s loss is so colossal it should be part of the lexicon. So here we go, BAC did not lose $.60 per share this Q, they Coakleyed $.60 per share. Diatribe over).
Most interesting was the verbiage from BAC’s CEO who said “economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth.” Which seemed at odds with WFC’s CEO’s statement that: “While losses remained elevated during the quarter as expected, a more favorable economic outlook and improved credit statistics in several portfolios further increase our confidence that our credit cycle is turning, provided economic conditions do not deteriorate.” Of course, WFC managed to turn an $.08 profit compared with a ginormous loss last year, so things are looking a bit rosier for them, except if you look at their charge-off numbers which were up sequentially $300MM to$5.4B driven by commercial and consumer real estate.
So are all banks created equal or will performance differences really start to show now that the economy has sort of recovered? More importantly, has the economy actually recovered? Here are four interesting stats from this NYTimes article (as always, buyer beware with facts and the NYTimes):
1. Bank of America said the percentage of credit card loans it thinks will never be paid hit 13.53 percent in December. JPMorgan Chase expects to charge off 10.5 percent of its credit card portfolios in the first half of 2010.
2. Fourth quarter of 2009, the number of domestic credit card accounts has declined by 20 percent from its peak in the second quarter of 2008, to 341 million from 426 million
3. the amount of available credit on cards has declined by 21 percent since its peak, from $3.51 trillion in the third quarter of 2008 to $2.77 trillion in the fourth quarter of 2009, the data shows
4. Hayley Atwell is still really hot, and Money McBags will drive this bandwagon into the ground until playboy drops by the Atwell residence.
So available credit is shrinking for the US consumer. What would be interesting to know is how utilization rates have changed and whether anything can be gleaned from this other than people got rid of their 3rd and 4th credit cards which they rarely used anyway and unemployment is still high (no word on how it can afford to keep getting high though).
In small cap news, KITD, a company Money McBags is following closely announced they will be issuing shares in both the US and Prague (where they will soon be listed). They are seemingly raising capital for more acquisitions where they buy companies for their customers, fire all the employees, and enjoy the benefits of leverage. KITD is basically a large database of videos for internet/IP delivery. They get raw video from customers and then help clients manage, view, distribute, manipulate, and store that data. They have a greater than 99% customer renewal rate because once a customer gives them their data, it is a huge pain in the ass for that customer to get all of the data back and have to reformat it, etc. (it is more of a pain in the ass than Valentine’s day). KITD’s market is growing 100% a year as IP takes off, they have little competition, they also have a ton of NOLs, and 93% of their business is outside of the US. IP video is cheaper and better than digital and it represents only 23% of the global video market so there is a lot of room to grow. That said, the company is a bit odd as it has had headquarters in Dubai and now Prague and they are still unprofitable from an operating eps standpoint. Also, the CEO loves himself almost as much as he loves money and looking silly at the movies and the company basically just relaunched less than a year ago when this new CEO came in and developed a new strategy. Now the good news is that the CEO is the biggest owner and has a substantial portion of his net worth in the company, the bad news is that the CEO has led failed companies before. But he has had success recently and at least we are betting with him. Also, despite little US exposure, they did win the business of Verizon Fios which is the only IPTV telco user in the US. The company has little sell side coverage but recently announced fiscal 2010 guidance for revenue to increase at least 60% to more than $75 million, with an annual operating EBITDA margin exceeding 17.5%. Ok, so EBITDA will be somewhere around $13MM and their market cap $120MM is with $13MM of net cash as of their last 10Q, so they are trading at around 8x EV/EBITDA before their just announced capital raise and at around 1.5x revenues when companies like this who use the software as a service model tend to trade at between 2x and 6x revenues. These are relatively cheap multiples for a growing company with a high recurring revenue base which contains many blue chip customers. Money McBags does not yet own KITD because he is still trying to fully understand the company’s competitive advantage, but he is thinking about buying a starter position and will throw down the gauntlet to his loyal readers to do some of their own research here and see if they come up with anything else important.
Oh yeah, a Money McBags longtime reader e-mailed him about a Korean-American bank HAFC which is apparently now trading at around .5x of TBV (even with today’s big run-up) and promises to love you long time. Money McBags knows nothing about HAFC and how real their TBV really is but if it is even 80% correct then there is room to grow here. So you should all do some due diligence.
1/19/10 Midday Report: Citigroup? More like Shitigroup (and yes, i’ll be here all week so don’t forget to tip the waitstaff)
The market is rising on news of Citigroup putting up another quarter so bad that even Dan Brown refused to write the press release (and that is seriously bad since that guy was more than happy to put his name on a shitstain like the DaVinci Code. And not to ruin the book for you, but the mystery goes unsolved at the end as no one can figure out how such a crappy book sold so many copies). While C’s quarter was inline with analyst estimates, they still put up a loss of $.33 per share or if you want to forget about them paying back the government, it was a loss of $.06 per share. Of course forgetting about the money they received from the government and subsequently paid back would be like forgetting Roman Polanski’s past indiscretions and inviting him over to baby sit for your 13 year old daughter or forgetting about the current global economic cirsis and re-hiring Alan Greenspan as Chairman of the Fed. The good news from C’s Q was that their loan-loss provisions were down 36% from the prior year (though still $8.2B) and 10% from the prior quarter and net credit losses fell to $7.1 billion sequentially from $7.9 billion. So things are getting mildly better in the same way that an increased T-Cell count is mildly better for AIDS patients (newsflash, you still have AIDS). The surprising thing to Money McBags was that C’s NIM was down 30bps. How does this make sense? Spreads are the widest they have been in history so either C doesn’t quite get the whole lending for more than your cost of capital thing (and as evidenced by the last 5 years at C, it is quite possible) or they are reserving so much for future fuck-ups that they are not able to fully utilize their capital base. Either way you spin it, C’s lending business still has yet to shake off the Charles Prince/Sallie Krawcheck ass rapingly bad mismanagement it went through and their current CEO, Vikram Pandit, who had no financial services operating experience before taking over C still seems to be wondering at how ATMs work (“wait, is there a midget in there who gives me my cash? I don’t get it. Can we go over this again?”). So the market was down last week on INTC’s blow out Q and is up today on C’s ass out Q, makes perfect sense.
There is not much macro news today except for the UK reporting that inflation had a record jump to 2.9%. People, let’s not take our eye off the ball here (especially if you are Carrie Prejean and we’re talking about my balls, and just remember, if Jebus were against hummers, he never would have created mouths). Inflation can’t be overlooked. Sure the record jump in UK inflation was driven to some degree by oil prices, but remember, there is more stimulus in the current financial system than in a truck filled with Viagra, cans of Jolt Cola, and copies of old Bridget Bardot pictures. Rates are likely going to have to rise to stem the oncoming inflation, so be prepared and hope Bernanke isn’t late to respond like the dissenters at Tiger Wood’s wedding. Also, beware that the P/E ratio for the S&P has now risen to greater than 20x so earnings either have to start beating expectations, or the market needs to calm down.
In other stock news today, Kraft finally bought Cadbury and as long as they don’t fuck with those delicious Cadbury Creme Eggs (like putting caramel filling in them, and seriously, whose idiotic idea was that? I mean why not just draw a mustache on the Mona Lisa or let John Meriwether consult on your hedge fund), then Money McBags could give a shit.
In small cap news, a bizarre little company which Money McBags has followed for a while yet does not own, FHCO, announced a $.05 quarterly dividend and reaffirmed their operating earnings guidance of 35%-40% growth for fiscal 2010. FHCO of course stands for the Female Health Company and they are the producers of the Female Condom, which is their one and only product and unfortunately does not come in flavors for all you cunning linguists out there. They derive their revenue largely from sales to NGOs (mostly USAID) who then distribute the female condom in AIDS ridden areas like Zimbabwe, South Africa, and Paris Hilton’s panties. Here’s the thing about this company though, they are the only FDA approved producers of the female condom so they get all of the business (about 35MM sold per year) and while the male condom is cheaper and more commercially available and used, the female condom is just as effective and a terrific option for protection for ladies in third world countries where men love unprotected sex like Joanie loved Chachi and where AIDS is spreading more rapidly than that stupid “Pants on the Ground” video (and you know what, if you put your pants on the ground one more time, Money McBags is going to put his foot in your ass, so shut the fuck up with that crap already). Also, despite the global economic crisis, governments are still earmarking money for AIDS treatment and prevention to the tune of more than $50B between the US’s Pepfar initiative and the British government’s $11B pledge. So there is a huge market, FHCO is the only player, funding is not going away, and oh yeah, people love fucking, so demand isn’t going anywhere. The biggest news though is that the second generation female condom recently got FDA aproval and those can be sold at a cheaper price and with greater margins to the company. The company had ~$6MM of operating earnings last year (and remember most of those sales were from the worse margin FC1) and as mentioned earlier is forecasting 35% to 40% growth in that so they could potentially see $8.5MM in operating earnings for 2010 or roughly $.35 per share. With today’s jump they are now trading at around 15x that $.35 number and with the $.20 annual dividend, they are at a roughly 4% yield. Oh yeah, they have $12MM in Federal NOLS and $19MM in foreign NOLS so they are not going to pay taxes until around the same time Bernie Madoff is up for parole. There are a number of things to worry about with FHCO: It is a tiny company, the board of directors are almost all over 60 years old (seriously, check it out, their board reads like a casting call for Cocoon, led by a 76 year old CEO/Chairman/President.), there is no sell side coverage, it is thinly traded, the company has been around for years and is just reaching critical mass, and it relies on government funding. That said, there is upside as they are looking into partners to promote the female condom in US retail chain stores now that FC2 has been approved by the FDA and thus the costs have come down enough to allow for marketing spend (there are trial runs now in CVS and Walgreens stores in select areas). Plus AIDS isn’t going anywhere and the female condom is reaching an infleciton point in many countries where usage is starting to grow. The company is obviously up on a spike today, but it has an interesting little story and isn’t too expensive, so it is worth all of you digging a bit deeper and it is one product where I highly recommend first hand research.
It is a bizarre day on the market today as INTC crushed numbers and is down, JP Morgan turned a huge profit, yet disappointed, and the dollar actually gained last night as apparently Amanda Drury was at the New York Rick’s Cabaret and only accepted the local currency (ok, the last one may not have been true, but Money McBags would certainly contribute his market insights to Ms. Drury’s Squawk Box anytime). Before we get to earnings today, there were a flurry of macroeconomic reports this morning. Inflation was flatter that Lindsay Lohan’s derrierre as the consumer price index rose only .1% and the Michigan Consumer Sentiment index rose only slightly from “holy fuck” to “we’re just kind of screwed.” These data points continue to signal that the lack of job creation and lingering 10% unemployment are likely to temper the economic recovery like ALS tempered Stephen Hawkings’ dreams of becoming a dancer. With inflation proving to be tamer than a Jay Leno monologue, the fed is poised to keep rates low for the near and immediate future. This should be continued good news for the banking industry (and again, the only business plan better than lending free money for more than free is the US Mint, mmmmmmm mint) despite JP Morgan’s topline miss today. Given that yields are still juicy and rates unlikely to go up, smart investors may want to dabble in NLY and their 16%ish dividend yield as those guys just know how to make money (of course, investing in a company that relies on repo funding makes Money McBags more skittish than a paraskevidekatriaphobic at an all day Jason Vorhees marathon on Friday the 13th, so buyer beware).
As for stock news today, INTC blew away their quarter like they were auditioning for an upcoming role in a bukakke kings film. Expectations were for $.30 eps and they dropped $.40 eps on analysts’ excel models while hitting record gross margins and guided to above Street revenue. The fact that they are trading off today is nuttier than a cock sandwich with extra balls as analysts question whether things can get any better. INTC is suffering from Wall Street’s buy the rumor, sell the news mentality which doesn’t make sense to Money McBags. It’s like boning Brooklyn Decker and then complaining that you’ll never do better. Hey assholes, you’re still boning Brooklyn Decker so quit your whining and ride out INTC. Just because she’s 22 doesn’t mean she’s peaked and just because INTC had record gross margins doesn’t mean Moore’s Law won’t still propel them to better quarters. I mean INTC had a record gross margin despite the record sales of their lower end Atom chip. There is still room to grow here.
The bigger news on the market today is that JP Morgan’s profitlicious quarter disappointed The Street as revenue was a little light (though not as light as a bulimic with a supercharged gag reflex), the retail bank put up a loss, and while EPS beat estimates, the beat was seen as lower quality than a Rollex watch or a Louis Vuittone bag as it was driven by tax benefits, lower comp, and the end of lobster Wednesdays. The low quality beat has sent the market down as investors now worry about other, less well-managed big banks (Citi, cough, Citi) and their retail exposures.
In small cap news today, COOL not only shit the proverbial bed, but they then remade the bed and shit in it all over again before tucking themselves in for the night. Analysts expected $.11 of eps and COOL was able to deliver a not so cool $.16 eps loss. For those of you not familiar with the company, they license and buy the rights to cheap crappy games for the Wii and DS aimed at families and girls in what is called the “casual gaming” segment (“casual” of course being an interesting epithet for “non”). Anyway, in a neat trick (though not as neat as the hidden button illusion) COOL has seen revenues increase but bottom line decrease as they believe profitability is just a suggestion. After diluting shareholders last Q by raising $9MM in cash, COOL further ingratiating themselves to their owners by accruing a $.10 impairment loss because nobody actually wanted their crappy games, a $.05 charge because their Our House franchise was apparently foreclosed upon, and another $.07 eps drop from lower margins due to something called “poor sales”. Their gross margin dipped from 28% to 3% and they guided to 2010 non-gaap eps of $.05, so even though they are down 22% today, they are still trading at 20ish times 2010 eps and that number is less believable than Larry Craig having a wide stance. This company continues to grow revenue and become less profitable every quarter (and for their next trick they will lose weight and become more unattractive) and should probably trade at no more than $.50 or 10x their unlikely 2010 eps. If you were short them, congratulations. Money McBags was on the sidelines for this one, but thought the company was potentially cheap if management could show progress, which of course they didn’t.
Enjoy the long weekend, Money McBags will be back when the market reopens on Tuesday.