Archive for May, 2010
Money McBags has been busy so today’s report will be brief, like the Anglo-Zanzibar war of 1896 or Gary Coleman’s remaining days (what, too soon?). The market tanked again and closed down 8% for the month of May which is the worst May in 48 years which was so long ago that the Hulk comic book had just been launched and Brigitte Bardot was at the peak of her ungodly powers. Sinking the market today was that it was open, well that and Spain was downgraded by Fitch from cultutral institution to Europe’s bitch. Fitch cut Spain’s rating from AAA to AA+ which means absolutely nothing to Money McBags because he doesn’t use the metric system. That said, if there is an algebra teacher in the house, Money McBags would love to have them solve for X in the equation AAA – X = AA+. The director of Spain’s Treasury, Soledad Nunez, whose first name is so awesome that Money McBags can’t bring himself to mock it, reminded the market that AA+ is “still a high rating” before reminding the market that Fitch is worse at their jobs than he is.
In US macro news, incomes rose .4% but consumer spending was flat in the first logical economic move by US consumers since sales of the pet rock fell to 0. Spending growing at a lower rate than income growth implies that people are actually saving which would go a huge way towards cleaing up this debt driven culture in the long run.
In stock news, some shit went up but most shit went down because we’re in a bear market with more downside volatility than Lindsay Lohan with a dime bag. AAPL was one company that was up strong today on a price target increase to $325 from BofA Merrill, or as they are better known as BofS Merrill. With iPad sales predicted to make PCs obsolete and allow NSFW muff guessing enthusiasts to take their sport on the road with them, Apple is one company that should continue to do well even if Europe falls in to the ocean. In other stock news, GS is said to be ready to settle with the SEC to avoid fraud charges but unless the settlement is inconceivably large for Lloyd Blankfein to handle, Money McBags would like to see this go to trial. If Goldman is not guilty of fraud than Money McBags’ understanding of the words “fraud” and “guilt” are worse than George W. Bush’s understanding of the words “mission” and “accomplished” or Tiger Woods’ understanding of the word “fidelity.”
Anyway, sorry for a brief marginally funny report today but it has been busy at Chez McBags. Of course, if you send 10 or1MM of your friends to When Genius Prevailed, Money McBags will be able to spend more time analyzing the markets, knocking out dick jokes, and sharing his love of all things Sonya Kraus. So enjoy you’re long weekend and remember to be careful out there.
The market was up stronger today than a shot of tequila washed down with a hefty glass of grain alcohol or as its known in the Hasselhoff household: “breakfast.” If you haven’t heard, the Chinese are coming and this time it’s not just from looking at Gaile Lok it’s because they are still hella interested in investing in Europe because apparently they love them some Lucy Pinder. As a tribute to Art Linkletter, China’s foreign exchange regulator said one of the darndest things today by refuting reports that China was reviewing their euro holdings as being “groundless.” Of course Money McBags would take it more seriously if the statement from the Chinese government didn’t end with “in bed.” Fears of China dumping their Euro debt holdings caused the market to tank in the close of trading yesterday but investors appetites for equities have quickly come back as if it is 30 minutes after eating chinese food. Investors are hoping this puts a floor on the Euro but more importantly, they are hoping the coke they were given by the Chinese foreign exchange regulator at press conference contained no pee pee.
In US news, GDP was revised lower going from 3.2% to 3% leaving everyone guessing whether the next downward revision will be 2.8% or the square root of -3 since the number is completely fucking imaginary. The reasons for the downward revision were that consumers spent less than initially estimated (duh), business spent less than initially estimated (big duh), the trade deficit widened, and we’re in a FUCKING GLOBAL RECESSION with markets that are less decoupled than two hydrogen atoms in a covalent bond or the lovely ladies at the end of an extremely NSFW Ultimate Surrender match. In addition to lower consumer and business spend, state and local governments saw their spending drop by 3.9%, the fastest that rate has dropped since 1981 which was so long ago CDO’s didn’t exist, Ben Bernanke was still teaching MBAs at Stanford, and the competitive NSFW sport of muff guessing had not yet been invented. A decline in state and local spending will mean more teachers being laid off, fewer police on patrol, and an increase in car axle sales due to larger and more prevalent street potholes. In other bad US macro news, new claims for unemployment fell by 14k to 460k, but missed analyst guesses and sent the 4 week moving average higher. The disappointement will only be matched by next week’s disappointment when new claims are revised lower.
In stock news, everything was fucking up, well, everything except for MCO. Moody’s once again is taking a hit as hedge fund investor David Einhorn ripped the company a new ratings model in his speech at a hoity toity hedge fund dinner where the managers drank the blood of young bald eagles while rolling around in $1,000 bills and the tears of the first Dalai Lama. Einhorn’s biggest issues with MCO are that they don’t have a long enough time frame and they suck at their jobs. Money McBags has been riding the short MCO gravy train for quite awhile now as he maintains there is absolutely no reason for ratings agencies to exist other than to serve investment banks and help them perpetuate fraud in order to maximize the bankers’ internal profitability. In earnings news, Tiffany’s put up a good quarter with profit more than doubling to $.50 per share causing analysts to throw up their breakfasts as TIF easily beat their guesses of $.35 per share. The company cited strong growth in Asia and Europe with sales up 50% and 25% respectively as apparently rich people don’t give a fuck about the global recession. The company also raised guidance above estimates citing continued strong demand and their customers not being in touch with reality. In other earnings news, both Costco and Jo-Ann Stores put up good numbers as people bough the shit out of bulk goods and cloth to make their own pantaloons. Appraently people are doing this in order to save up for a Tiffany’s bracelet.
In small cap news, everything rose like Gemma Arterton’s popularity during take your kid to work day on the set of the Prince of Persia. Leading the way was TSYS which was up 20% and Money McBags has mentioned them before as the sell off in the name has been way overdone. Sure they put up a quarter crappier than Wilford Brimley‘s used adult diaper with NIM falling and their government systems business showing weak organic growth, but their guidance is still stellar. Guidance is for $85MM EBITDA and 30% revenue growth which means they are trading at ~5x EV/EBITDA. So sure competition from GOOG and NOK is coming and sure their management team talks a good game, but with the sell off, they are now just too cheap and set up for a couple of quarters of expectaion beats with analysts dashing to take down numbers. Money McBags wouldn’t buy today as there was likely more short covering than on a swimsuit photo shoot in the Middle East, but value investors should dig in to this company.
The market tried to rally today like a drunken hobo lying in a pool of his own vomit reaching for the discarded fifth of whiskey by his side to try to taste one last drop. Unfortunately the last drop turned out to be another hobo’s urine as Money McBags hasn’t seen a rally less believable since John Edwards’ ended his presidential campaign. Yesterday’s reversal had given investors confidence that perhaps the market had reached a technical support level (until that technical support level fails again), while common sense should have told them that shit is still worse than Stephen Hawking’s time in the 40 yard dash. Helping the market today, other than cognitive dissonance, was the report on new home sales which showed sales climbed 15% in April, triple analyst guesses which makes it one of their most accurate guesses of the year. Of course sales were once again helped by government tax incentives and bedrooms being wallpapered with posters of Olivia Munn. Also helping sales was the median home price dropping 10% to $198k which is the lowest it has been since December 2003 and means people are not just losing money in the market but also in real estate. Finally orders for durable goods jumped 2.9% to their highest level since September 2008 but they fell by 1% excluding transportation and the 228% rise in bookings for aircraft. The number was less impressive than a George Will stand-up routine and does note bode well for continued economic recovery.
Internationally, European markets rose a bit even with the EU talking about taxing banks to pay for their future fuck ups. Money McBags applauds the move but wonders why the EU doesn’t just better regulate them or find a more efficient financial system. They are basically saying, “you can’t be trusted not to fuck shit up again, and even though we already require you to hold reserves because there is systematic risk in what you do, you do it so poorly that unsystematic risk is less diversifiable than the crowd at a Charlie Daniels Band concert, so we’re going to proactively make you pay for the shit you are inevitably going to fuck up.” So good for the EU. Also, noted economists are out saying Greece is going to either need a debt restructuring, is going to default, or is going to have to start charging for sodas. Economist Steve Hanke and Nobel Prize winning economist (which is a bit like being the world’s tallest midget or the Kardashian with the fewest STDs) Robert Mundell were both on record talking about Greece’s problems. Mundell, who was one of the leaders in the development of supply side economics and the creation of the Euro which gives him all of the credibility to speak about Europe’s debt situation as Mr. T, Professor John Frink, and my left nut said a Greek default may be “inevitable.” Now look, Money McBags hates to nitpick (unless the nit resides on Imogen Thomas‘ and he is doing the picking) especially as Money McBags treats the english language like Joan Crawford treated her kids as he splits his infinitives more frequently than a diarrhetic splits their butt cheeks, but how is it possible that something “may be inevitable?” By definition, the word inevitable mean “unable to be avoided.” So how the fuck can something maybe be avoided if one is unable to avoid it? Chicken meet egg, egg meet chicken, now go screw. It’s just not logically possible, like a funny Dane Cook stand up routine or an MC Esher designed house. Instead of saying it “may be inevitable” the great supply sider should have just said the debt restructuring is evitable which is the correct fucking word for what he was describing. Ugh. And yet someone listened to this dickbag enough to give him a prize other than a booby prize (though to be fair, Money McBags hopes to one day win a booby prize)? Anyway, Mundell thinks the Euro needs to be strengthened rather than put out to pasture like Nell Carter after Gimme a Break, while Mr. Hanke thinks that Greece is likely going to default and thus all of the Euro bailouts will have been for naught. Money McBags isn’t sure what to think other than that everything is currently more fucked than a rent boy in George Rekers’ european vacation suite.
In stock news, who cares, it’s all going down.
5/25/10 Midafternoon Report: Volatility causes market to go up and down faster than a time constrained fluff girl
The markets sold off hard again today until the late afternoon with the the sell off being caused by Europe going to zero, financial reform, and now fucking North Korea dropping a turd in the proverbial kimchee bowl, and the hardness being caused by the market having grabbed a workout with Amanda Carrier. So la-di-fucking-da. With Kim Jong Il apparently getting his Napoleon complex on and dropping a South Korean warship like a diahrreatic drops logs (that is with ease and aplomb), the markets have more to worry about than a parent who sends their kids for music lessons at Gary Glitter’s house. It is ugly out there today (and not Lady GaGa ugly, but Amy Winehouse on crack sprinkled with a bit of Tina Yothers ugly) and Money McBags’ screen was redder than a baboon’s ass with a deep and gaping anal fissure for most of the day. So what is an investor to do other than hide under their desks and dream of long walks on the beach with Melissa Giraldo while hoping the bad man leaves them alone? If Money McBags had the answer, he would certainly let all of you know, but for now, he is hedging the volatility and waiting for things to settle before stepping back in to names that have good long term trends and are right now just guilty by association like the cast of a Robin Williams movie (names like KO, MCD, VMW, GOOG). The market could really go either way at this technical level and while Money McBags is a very cunning linguist, he is not clairvoyant and thus does not want to bet on what will win in the current pissing match between bad macroeconomics and reasonable company fundamentals.
In US news, consumer confidence was up today to it’s highest levels since May 2008 when it was caught doing lines in a Hollywood bathroom with Lindsay Lohan. Americans are now rosier about job prospects as longterm unemployed people can no longer pay for phone service and thus have dropped off of the radar of people running these surveys. Adding to the optimism is the complete lack of global perspective by US workers who think “european” is just something you say to your friend at the urinal next to you. Also, LIBOR in dollars is spiking like it is Karch Karily after a health dose of PEDs. The dollar Libor-OIS spread which is a gauge of banks’ reluctance to lend widened to the most since July and signals that banks are questioning the viability of their peers like a young Michael Jackson used to question the viability of Marlon. And making matters worse is that the VIX continues to shoot up and investors have to hope that it is using one of Magic Johnson’s needles and thus will soon die down. Also, housing prices fell last quarter according the Case-Shiller report and fell sequentially for the month but were up modestly year over year. So taking whatever metric and time frame you choose to use, housing prices were about as robust as Detroit’s economy or Sarah Palin‘s vocabulary.
Internationally, shit is still all fucked up with Europe’s economy sinking like Angela Merkel’s neckline before a night out with the Bundestag and all investors can do is hope to grab on to some floatation devices to avoid sinking. Spain and their banking system are sparking fears today with regional bank Cajasur having been bailed out yesterday and who knows what to be bailed out tomorrow leaving Spain’s banking system under more fire than the Spanish Armada at Gravelines in 1588. There is real fear that insolvency could spread like herpes in the Kardashian family and if that happens, not even extra strength Valtrex will be able to save the Europe’s economy. Of course today, North Korea has slapped their tiny penises (or is it peni? Can someone exhume William Safire and ask him?) on the table to take part in the global cock off to see who can fuck shit up the most. After South Korea finally picked out the right stationary and calligrapher, they formally accused North Korea of sinking one of their warships in an incident that happened back in March. South Korea also relisted North Korea as their “principal enemy” knocking forks, Don Rickles, and Yonggary down on their list. In return, North Korea has suspended any interaction with their neighbors to the South, banned South Korean ships from territorial waters and air space, and taken out an ad in the Rodong Sinmun calling South Korea a bunch of “chodes.” While this is not good news, Money McBags could give a shit if North and South Korea want to go to war, stop talking with each other, or have a fucking pillow fight. What Money McBags cares about is the markets and as long as this threat of war doesn’t stop sweat shops in Seoul from banging out willy warmers, he will blissfully ignore this hissy fit and assume everything will get better.
In stock news, GS is about the only thing up big today as investors fly to the safety of the US government. Other financials continue to trade down as new legislation may require them to raise more reserves. spin off their profitable derivatives desks, and stop being such dicks. In other stocks, DELL announced plans for an iPad rival which they are tentatively calling “failure” and Microsoft announced a management shake-up with the head of their entertainment division “retiring,” no doubt to spend more time with his Zune. With MSFT lagging Apple, Google, Nintendo, and the abacus in developing consumer products people actually want to buy, hiring someone with vision is going to be key for MSFT to grow back to a market leader. Finally Autozone is up 5% today after reporting numbers better than estimates due to new store openings and higher demand for auto parts. They expect continued strong demand for replacement parts as fewer people are buying new cars since it’s not necessary to drive to one’s living room which is where 20MM people now work.
In small cap news, KITD is getting pummeled again today. Money McBags can’t defend this stock anymore as he has said everything he can say. He is going to hold on to his shares and just not pay attention to the price in this volatility. Either their A/R are fucked or they’re not and if they’re not, this stock is easily a double from here. Also, CTGX which Money McBags has blogged about many times and which he puked out the day of the “flash crash” may have bottomed out today as it is up in this tape. The company is trading at ~10x Money McBags’ fiscal 2011 EPS which implies 50% growth. Their upside relies on government spending on electronic medical records and even if Europe falls in to the ocean and North Korea taints South Korea’s kimchee supply, the US government is still going to be doling out billions of dollars to get EMR up and running. So CTGX’s main IBM outsourcing business may come under fire in a bad economy, but EMR should help pull them through. There’s a lot of Y2K about this company, but luckily, we’re about to start the medical Y2K and they should post impressive earnings. Money McBags is likely going to buy back when shit settles down a bit. Right now low liquidity names scare him more than seemingly hot chicks with adam’s apples.
5/24/10 Midafternoon Report: American xenophobes shout “I told you so!” as european fears send US markets tumbling
Stocks were mostly flat today like they had no gaussian curvature or had Heidi Montag‘s singing voice until they took a nosedive over the final 30 minutes of trading. Existing home sales in the US rose by 7.6% and bested analyst guesses thanks to the first time home buyers tax credit, foreclosure auctions, and promises by Sabrina Soto to intervene with buyers’ real estate and show them where to properly lay their pipes. While home sales were up, prices also rose 4% with the median home price now $173k, or three times the cost of Detroit. Treasuries continued to gain in this uncertain market as investors sell out of their equity holdings and seek safety in bonds, even if those bonds are issued by a country whose debt is 2/3 of their GDP and a country who somehow thought naming a town Bumpass was a bright idea. In other US news, the financial services industry is still trying to figure out how they will be affected by the financial reform bill which was recently passed by the Senate thanks to a collective dose of extracorporeal shock wave lithotripsy. Many analysts think the bill will reduce profits but leave industry size and power intact, which is basically like castrating Lexington Steele. While profits could be cut by 20%, financial service companies will no doubt find new ways to exploit loopholes and the cornholes of average workers in order to extract maximum profits for doing nothing other than hitting buttons and passing paper. Fear not though, Money McBags has a solution for America’s impending debt problem that doesn’t involve Faye Reagan offering to service said debt. In an auction this weekend, the first US silver dollar which was minted in 1794 sold for $7.5MM. So all we need Bernanke to do is just mint a fuckload more silver dollars and fudge the dates on them. Problem solved
In international news, the Bank of Spain bailed out a regional bank named Cajasur which of course is Spanish for “We suck at lending.” The bank is apparently largely controlled by the Catholic church whose strategy was to make up for losses by turning water into wine, unfortunately, they were less successful at that than Martin Luther was at keeping his complaints succinct (seriously, 95 fucking theses? I mean we know the benches were too hard and chapped your ass cheeks, but couldn’t you have left that one out and just made it 94?). This marks the second time since 2009 that a regional bank has been bailed out by Spain and the also the second time since 2009 the Bank of Spain has put in longer than a two hour work day. In other international news, Britain announced 6B euro in spending cuts. They hope these cuts work out better than their spending cuts of 1932 which took dental care off of public health plans. Among the cuts in the legislation are tighter restrictions on first class travel by public employees, advertising cuts for public projects, and less material to be used for the uniforms of the national soccer team.
In stock news, C was upgraded by Goldman Sachs to buy, most likely due to a typo or Goldman trying to pump C shares so GS’s majority partner, the US government, can dump them. C remains more full of shit than someone with Prader-Willi Syndrome and no anus. The company is too big not to fail and has seen a talent drain similar to the third season of Flavor of Love. Goldman analysts were busy today though as they also raised Sprint to a buy sending the stock up nearly 10%. The reason for the upgrade was a potential lower churn as Sprint has likely already lost every customer they are going to lose. Also, savings and loans banks reported their highest profit since 2007 when they were actively taking careless risks by lending money to people who couldn’t afford to pay for haircuts, much less pay loans back. Of course not even Thrift banks can screw up getting free money and lending it for more than free with the government ready to bail them out should anything go wrong (well, that is all Thrift banks except for maybe IndyMac). Thus record profits aren’t really anything to applaud as it is like applauding a hefty stripper in a Reno gentleman’s club for convincing a patron to pay for a lap dance (and for those of you who have never been to a Reno strip club, they’re all fucking hefty).
In small cap news, JOEZ was somehow up 8% despite small cap stocks being tossed off like a 21 year old virgin’s wanker while guess 1629′s NSFW muff. Money McBags broke JOEZ down after their last Q and thinks they could earn between $.10 and $.15 per share in 2011 whic means the stock is now trading at 13x to 20x that but the concern is obviously that with Europe going to 0, people may not have money to spend and thus JOEZ’s growth may slow. While their jeans sales aren’t directly related to Europe, the global economy is and the last time Money McBags checked, the US was part of the global economy. Given the current market fear and dislocation, Money McBags has no interest in stepping in to JOEZ here, even if he’d be stepping in to the overpriced and stylish Outsider, but he is keeping abreast of the stock (though he wishes he were keeping stock of Brooklyn Decker‘s breasts instead). In other small cap news, WGO continues their drop to $7.50 as high beta shit companies that rose for no reason are now becoming less in vogue than banana hammocks and Keynesian economics. Money McBags has said this before but WGO is not going to make money this year and next year will be lucky to earn $.50 per share much less $1.20 and it is trading at 10x $1.20. As long as the market continues to sink like all of Money McBags’ hopes and dreams, WGO should be more than a big short (as opposed to these small shorts). Finally, Money McBags dumped his DFZ today. He loves the company and thinks they earn around $1.05 pretty easily next fiscal year with an accretive acquisition on the way. That said, the stock is less liquid than a hefty corn shit and with the market structure broken, Money McBags doesn’t want to get caught holding anything with no way to get out. So he took his 25% profit and went home.
The market was up today as apparently it has been corrected like Stevie Wonder’s vision or Larry Craig’s family values. With Europe now fixed, unemployment shrinking, and monkeys flying out Money McBags butt, it should be back to lobster tails and BJs in no time. The good news is that nothing has really changed between today and yesterday, while the bad news is that nothing has really changed between today and yesterday. Money McBags remains more fearful of the markets than he is of supply side economics, Sylvester Stallone’s face, and girls with bacne so he is just trying to ride today out until the next correction begins.
In US news, the Senate passed a financial reform bill, despite the protestations of Senator Maria Cantwell who won the Huffington Post’s sexiest Senator competition, narrowly edging out Senators Barbara Mikulski (who shocked the judges with a daring hail mary by sporting a thong in the swimsuit competion) and the delightful Mary Landrieu (who tittillated the judges in the talent competition with her pig hunting calls. Soowee indeed.). In the bill, financials will have to go back to their room and think about how they have made the market feel. The legislation includes restrictions on predatory lending (which is bad news for cougars like Kelly Madison who are among the fiercest predators in the animal kingdom), a way to liquidate failed banks without bail outs (like um, doing fucking nothing), and restrictions on derivatives trading (like maybe making sure they all have underlying assets, and Money McBags would love to lie under Lisa Ann‘s assets). It also creates a “financial stability oversight council” which will exist until it fucks up by watching too much trannie porn like the SEC and a new council is created in ten years to clean up this mess. This council reads like a who’s who of economic red tape and includes the Treasury secretary, the chairman of the Federal Reserve, the comptroller of the currency, The “Million Dollar Man” Ted Dibiase, the director of the new consumer financial protection bureau, the heads of the Securities and Exchange Commission and the Federal Deposit Insurance Corporation, Scrooge McDuck, the director of the Federal Housing Finance Agency, an independent appointee of the president, and Malachi Constant so it goes. Wow. It’s like a mental masturbation all-star team where the head of every shitty bureaucracy in the US can get together to form a super bureaucracy and fight off the Legion of Boom. One troubling sign for the markets is that LIBOR rose to a ten month high as risk aversion is back like herpes, since it will never really go away.
In Europe, Germany’s lower house (the Bundestag) voted to contribute to Europe’s bail out followed by their upper house (the Bundesrat) agreeing as well which made Chancellor Angela Merkel (the Bundeshag) unpopular among the German people. Causing concern in Europe today was that the Markit composite purchasing managers’ index fell in May to 56.2 from 57.3 a month earlier. It was the sharpest fall since February 2009 when managers’ subscriptions to Nuts magazine were taken out of the index.
In stock news, DELL beat earnings and revenue guesses but gross margin disappointed like William Henry Harrison’s almost neverending inaugural address (I mean I know there was no televsion or movies or Spankwire to get home to, but really Will, couldn’t you have skipped all of that Roman history crap and just gone with some war stories and then got the fuck out of there? You know it was fucking snowing, right?) or the Pam Anderson-Tommy Lee sex tape (and calling it a sex tape is phonier advertising than the Ed Asner workout video). Dell not only missed on margins, but they tempered investor expectations by pointing out that the iPad is really fucking cool. In other stock news both Ann Taylor and the GAP put up good quarters and gave solid guidance as mediocre fasion is the new style.
As for small caps, TSYS continues to get hammered and Money McBags will investigate next week. This company should be growing as they offer mobile location based software and text message licenses so it is curious that their performance seems to be more stagnant than Mitt Romney’s political career. Money McBags has had a busy day so he apologizes for the lack of new research, next week he will get back to analyzing companies and trying to make money in a market that is rigged against retail investors. He remains very concerned about a big market drop next week but until then, he hopes you have a good weekend and tell a few thousand friends about When Genius Prevailed.
5/20/10 Midafternoon Report: S&P slides closer to next technical level of 0, most economists predict a bounce from there.
Fucking Europe. Seriously. First they tried to tax us without letting us represent ourselves and you know what, we don’t play that way. Then they got all upitty and burned down the White House while poor little James Madison sat on his gelding and got his S’mores on. And after that we’ve had to bail them out of losing a fucking war to the worst human ever (and Money McBags does not mean Bill Laimbeer), got stuck with Pride and Prejudice being taught to every high school class in America, and were subjected to the fucking Spice Girls. Really? Jeesh. As if Europe has not treated us poorly enough by using us like a young lady in Lawrence Taylor’s hotel room, now they have decided to have their whole fucking economy go to $0 because the loose union of countries can’t keep the weakest links from exhibiting worse moral hazard than Magic Johnson’s wife after finding extra strength condoms. Sure, we fucked up the whole financial system first, but for fucksake Europe, at least we know whom to blame. So clean your shit up because Money McBags doesn’t want to have another revolution and have to throw your tea away because his tea bagging is reserved for Faye Reagan only. As an aside, Money McBags is aware that every example he used above refers to Britain and their tea and fucking krumpets eating, bad teeth having, and fag smoking nation, and that Britain does not use the Euro and therefore is not the problem. That said, his commentary stands after all, we all know it wasn’t over when the Germans bombed Pearl Harbor.
In US macro news, ain’t a lot of good shit going on today. New claims for unemployment spiked to 471k, up 25k from last week and the first rise in five weeks which surprised everyone but the 20MM people looking for jobs. Riddle me this, with unemployment so high, how the fuck are all of these economists still getting paid for adding absolutely no value? It is a more fraudulent occupation than the Chief Compliance Officer at Goldman Sachs or Lady GaGa’s stylist. Not only were new claims for unemployment up, but the index of leading indicators was down .1% which was worse than economist guesses for a .2% gain as apparently they confused the word “leading” with “made-up.” Finally, the Philadelphia Fed said manufacturing rose to 21.4 but was short of the 22 predicted by consensus estimates. In that same report, the jobs number fell and more unemployment is only going to do wonders for the lovely metropolitan Philadelphia area where the motto is “if it’s not nailed down, it’s ours.”
Politically, the SEC continues to investigate what is now being called the “flash crash” because “high frequency trade off,” “stock schlock,” and “holy fuck what just happened” apparently weren’t catchy enough. When they’re done investigating the crash and can completely rule out trannie porn as the cause, Money McBags hopes they investigate why the market is going to $0. Also, Senate Democrats apparently voted down a proposal for financial reform because Senators Feingold and Cantwell didn’t think the proposed regulation went far enough and Money McBags applauds the state of Washington’s lovely Ms. Cantwell who couldn’t well pass the current legislation without stricter rules on derivatives. The junior Senator said “Even something like Hoover Dam with all of the great concrete and all of the great engineering and all the great things that make that structure work, still has a problem if somebody drills a hole in the bottom of it.” Well said and to be brutally honest, Money McBags trusts any 51 year old single, never been married, woman when she talks about needing to proverbially put fingers in dykes.
Internationally, well, internationally things are more fucked than Dexter Manley in a spelling bee or Keynesian economics. Germany’s ban on naked short selling continues to spook the market as German traders all run to their nearest Breuninger’s to load up on slacks. Making matters worse is that Greek workers are on a 24 hour strike, or what used to be known as “Tuesday.” Money McBags isn’t saying that Greek workers are lazy, but does it really take more than 300 years to clean up some rubble from the fucking Parthenon? I mean we now have things called cranes and bulldozers. Luckily, French economy minister Christine Lagarde said: “I absolutely do not think that the euro is in danger” before adding “it will provide great kindling for Europeans when they can no longer afford heat.”
As for stock news, well, everything was down, especially financials though the always optimistic, rarely right, and yet deliciously named Dick Bove (rhymes with “oy vey”) said banks stocks “may fall another 10% to 12% reflecting market fears but they are still very attractive investments.” He then opined, “Longer term, I still expect that these stocks will grow in multiples, not percentages, as long as we feed them after midnight, expose them to bright lights, and dunk them in water.” SPLS actually put up a good Q today, unfortunately the market cares less about performance than a John Meriwether investor. Staples CEO said he is a little more optimistic than he has been and raised the low end of guidance for Q2. Williams-Sonoma also posted better than expected profits, raised guidance, and said they are getting more positive about their customers coming back as apparently there is still a demographic that likes to buy overpriced shit that they don’t need. Also, Game Stop also put up a good quarter thanks to popular games like “Battlefield Bad Company 2,” “God of War III,” and “Erin Andrews Peephole Finder.” It’s no surprise that a video game retailer would put up a good quarter because stoners are still selling the shit out of weed, something about inelastic demand. Finally, Sears put up a shit awful Q simply because they are Sears.
In small cap news, everything is going haywire again except KITD has somehow moved up on another high volume day. Money McBags has talked about KITD all week but their sell of was overdone if you believe management. The spike in A/R has investors worried, especially as those receivables are tied to european revenues but management had a mostly logical response to the spike which Money McBags broke down the other day. One of Money McBags’ favorite small shorts (along with Bridget the Midget), WGO, has been getting hammered lately and he’d like to think it is because investors are finally realizing this company is not going to break even for at least another year and not just because everything is down. WGO simply does not earn money and now that inventories have been un-destocked, they can’t play the positive cash flow game anymore. Even if WGO were to somehow earn money, for the stock to trade at its current price of ~$12.50, WGO would have to earn $1.25 next year because Money McBags would never pay more than 10x for a company selling an expensive discretionary good with little operational flexibility in the biggest recession since Herbert Hoover stuck to the gold standard. So if you want to play the downside, shorting WGO is a decent option. That said, when the market settles down, Money McBags will be looking to add with companies like CTGX, ARTG, TMRK, RICK, and QCOR on his to buy list. But hey, be careful out there.
5/19/10 Midafternoon Report: VIX shoots up, claims it doesn’t have a problem, just wants to try to take its mind off global recession
The market got clobbered again today (until a closing minutes rally) like it insulted Preston Brooks’ uncle or like it had one too many shots of tequila while watching the donkey show. Investors continue to fear the impending doom of Europe with their quaint monetary system, silly accents, and love of black jeans. However, macro news in the US was marginal today with inflation at its lowest level in 44 years which should allow the Fed to keep rates at historic lows until it causes the next bubble. Core inflation, which takes out the effects of things on which people actually spend their money like food, energy, and lap dances, was flat and thus led to the lowest 12 month gain since LBJ was president, yo-yos were a fad, and full muff was the style. Overall though, consumer prices fell by .1% so on average the little money you have left will now get you .1% closer to buying some shit you can’t afford. On the housing front, mortgage demand shriveled up worse than your “jumbo arm” after diving into the arctic ocean immediately after viewing a Hanna Hilton opus. With the federal tax credit for homebuying now expired, mortgage purchase applications fell by 27% despite record low rates and home sellers making sure all of their carpets match their drapes (and for the record, Money McBags is not in favor of carpeting for his hardwood). Making matters worse is that foreclosures rose to a record high 4.63% and now 1 out of every 7 homes is either in foreclosure or delinquency or as it’s known on the Street “a AAA rated Goldman MBS CDO.” Finally, the SEC is trying to put in circuit breakers for all S&P 500 stocks to combat the stranglehold high frequency traders have on the market (and as always, Money McBags is a big proponent of the Camel Clutch as the best stranglehold). While these measures may have the effect of bringing a knife to a gun fight or hiring Magic Johnson to judge a grammar contest, the circuit breakers will seek to pause trading for five minutes if the price of a stock moves by 10% or more in a five-minute period or if Bar Refaeli show up on the floor of any exchange.
Internationally, investors are still freaked out by Angela Merkel’s preemptive strike on naked short sellers and will make sure they have an extra pair of pants with them at all times just in case. Germany’s new shortng regulation has caused investors to wonder what exactly German leaders know that is not public as German bank stocks have yet to come under attack and usually politicians wait for things to crumble before acting. Strangely, the rest of Europe has not followed what could now be the biggest Merkel boner since Fred failed to touch second base (and Money McBags would never fail to touch Angela‘s second base). The failure of other european countries to follow Germany’s lead in regulating their markets is causing investors to question the strength of the EU while applauding Europe’s sanity because we all know what happened last time Europe followed the Germans.
In stock news, does anyone really care? No seriously. The market is not trading on fundamentals right now as forecasts for next year are more dubious than receiving a letter from Ted Kaczynski. Money McBags has been harping on analysts using normalized earnings as a valuation metric for awhile now since normalized went out the door with subprime CDOs, easy credit, and the advent of the very NSFW muff guessing (though Money McBags does use normalized earnings in his EPAX valuation, but there is something to be said about being logically inconsistent, just ask Mark Souder who apparently values families so much, he has more than one). Anyway, HPQ put up a nice quarter last night, beating analyst estimates and raising guidance thanks to strong demand for their PCs, a resurgence of their printer business, and absolutely no influence from Carly Fiorina in the past five years. The company earned $1.09 per share, beating analyst guesses by $.04 and gave full year guidance of $4.45 eps to $4.50 eps which topped analyst guesses of $4.45, or by about the amount of their beat this Q. The printing division grew revenue by 8% as they apparently supply the US Treasury with laser printers to spit out more dollars. In other stocks, TGT put up a solid quarter though not nearly as delightful as BJ’s who swallowed up the competition. BJ’s beat estimates and saw a 4% increase in customer traffic thanks to higher sales of candy, cigarettes and awesomeness.
In small cap news, once again Money McBags favorite KITD is getting demolished on high volume. Either a large owner had a margin call, a Portia De Rossi fat finger, or just wants the fuck out like Ricky Martin trapped in a closet. Here is what Money McBags knows:
1. CEO Kaleil Tuzman bought 100k shares the other week. When a CEO is buying, that usually means good news unless the CEO is Ken Lay and he is buying Enron. That said, this should be at worst slightly positive.
2. Their Q was ok by Money McBags’ standards but caused analysts to increase targets. This should be a slight positive as obviously, analysts are just guessing.
3. They diluted the shit out of shareholders last month and have yet to put the majority of that money to work. This is a big negative.
4. They are levered to EU revenues. Another big negative, like hiring Bernie Madoff to help allocate your assets.
5. Kelly Madison puts the ILF in MILF. And that is a huge positive for everyone involved.
6. When the markets are diving, nobody wants to own a weird little company posting negative eps (thanks to one timers and derivative charges) with a promotional CEO who just wants to build something big enough and quick enough to sell. There is obviously risk, that is why they call it gambling, I mean investing.
A lot of little stocks are taking it in the yingus right now. Look at former Money McBags favorite RICK which is down around 30% from where we sold and almost 40% from the top (and it is definitely time to start the due diligence on this stock again, especially if it invloves doing a stress test of their performers’ assets). Heck, FHCO was down 5% today, which was not unforseen by Money McBags, but their business is fine. The point is, no one wants to own dinky little companies when the world is going to zero, so take a deep breath and do some real due dilligence now because when the market stops falling, there will be some very good buys.
The markets fell again today as US macro news was mediocre at best, fears in China have risen from red alert to Kung Pao levels, and Germany has banned naked short selling of stocks and CDS (though you are still encouraged to get long Salzgitter and Money McBags’ “salzgitter” would get very long for Sonya Kraus and he would certainly let her take the other side of his Siemens trade). With the ban on naked short selling in Germany, the markets floundered as traders sought to unwind positions and find alternative ways, or countries, to continue with the same bets they have been making. This market reeks of dislocation worse than Ronnie Brown’s lisfranc.
Not helping matters was that US macro data was more mixed than a can of nuts (and please, write your own punchline). Home building rose in April with new home starts up 5.8%, the most since October 2008 as home builders prove to be more optimistic than Brooklyn Decker‘s bikini waxer. However, construction plans fell to their lowest level this year as the tax credit ran out and people remain unfucking employed. Building permits were down 11.5% and economists had guessed that they would be moderately up which once again proves that a broken clock is wrong 86,498 times a day. In other macro news, seasonally adjusted PPI was down .1% last month due to more people keeping their eyelids shut as a result of allergies (and yes Money McBags has used the PPI pun before, but it is still horribly funny). Core PPI, which excludes the essentials such as food, energy, and oxygen, was up .2%. Money McBags always loves that economists apparently don’t care about food and energy prices as a gauge of inflation which is as rational as a pareto inefficient nash equilibrium like the prisoner’s dilemma (and if Money McBags were ever a prisoner, he would have no dilemma because he simply wouldn’t pick up the soap). Interestingly, energy prices actually slumped by .8% thanks to natural gas prices retreating from booming to silent but deadly and food prices declined by .2% despite meat rising 5.1% and thus beating meat price rises going back seven years. The good news though is that inflation appears to be tamer than a Dane Cook stand up routine.
Internationally, in addition to Germany banning naked shorting (and Money McBags hopes they don’t ban naked cavorting), the EU sent 14.5B euro to Greece today and told them to keep the tip. With that 14.5B, the EU hopes to stave off Greek defaults, restore order to the European financial system, and receive a free two-liter of coke with their souvlaki since their order exceeded $20. Also, the ZEW Center for European Economic Research (ZEW of course standing for zero economic worth) said its indicator of German economic sentiment fell in May to 46 from 53. The good news is that the indicator’s historical average is 27, the bad news is that the 46 was below the consensus guess of 47, and the even worse news is that Lucy Pinder has never been in my kitchen. But it’s not just Europe that is going in to the crapper like last night’s bean burrito washed down with an extra large cup of metamucil and healthy dollop of “we’re fucked,” but also China as Chinese investors are also starting to get more nervous than Jackie Chan trying to roll his “r”s. The stock market in China remains lackluster, down 21% for the year despite being sprinkled with MSG to keep investors coming back for more. Driving the sell off has been expectations of rising interest rates, fear of tighter bank lending to help rein in inflation and quiet soaring property prices, and fortune cookies throughout the region reading “You’re going down” (in bed. Booooyah!!). The markets remain more jittery than Sarah Palin in a spelling bee, so remain careful.
In stock news, Walmart put up a good quarter beating analyst guesses of $.85 eps by $.03. The world’s largest seller of cheap crap had sales of $99B which were up 6% despite a 1.4% drop in same store sales. Guidance was generally inline though management said sales are shifting away from entertainment and apparel and into do-it yourself auto repairs, pharmacy, and tight fitting tops. Home Depot announced a good quarter and raised their outlook, yet the stock traded down as analysts think the outlook to be too rosy after Lowe’s took a giant dump on Q2 forecasts yesterday. Finally, financials fell again as potential new credit card regulations hit card issuers and fear of Europe imploding hit banks. In all, it is uglier out there than Minnie Driver‘s face and tomorrow could get much much worse as fear has seeped back in to the market.
In small cap stocks, everything sucked. KITD got hit with another big block trade around midday despite both Merriman Curhan Ford and Roth Capital’s analysts raising price targets after yesterday’s Q. Money McBags promised he would listen to or watch their quarterly call today but he has been too busy to follow through on that, so his analysis from yesterday still stands. The fact is it is a weird little company, exposed to many different currencies, and highly acquisitve in a market that may soon like none of those three things. So the market may trade this down on technicals and fears, but fundamentally, if you don’t mind some pain for awhile, it is worth holding on to like a drowning straight man would hold on to Christina Hendricks‘ life preservers.
The market was somehow flat today after spending most of the day down again as the perilousness of Europe’s debt situation continues to worry investors like laryngitis worries Pavarotti or like coming in to contact with Paris Hilton worries osmophobes. Not only is Europe raining ash on the market’s parade (both literally and figuratively, though to be fair, the market’s parade today was in honor of Norwegian Constitution Day (better known as pedophilia Christmas for the tradtion of children’s parades), which ranks somewhere between the invention of nose hair clippers and the launch of the Edsel in the pantheon of modern events, so not a big deal) but US macro news was mildly disappointing as well. The NY Fed released their monthly manufacturing report and the gauge of general business conditions fell to empty. The business index dropped from 31 to 19 and analysts had guessed it would be 30. As always, Money McBags has no idea what the difference between 31 and 19 is (other than maybe a few kids and a meth problem), but he knows that they’re both legal. The new order index also tried to make this a Blue Monday by falling from 29 to 14 as inventories have been restocked (or un-destocked, whatever). One positive aspect of the report though was that employment strengthened as payrolls grew the fastest they have in six years as NY manufacturing plants try to keep up with demand for tools and building materials to help batten down foreclosed on houses. In other US macro news, home builders’ sentiment hit a 2.5 year high as apparently delusion has finally creeped in to lift their spirits. The index rose to a whopping 22 while analysts guessed it would be 20, so the difference is a rounding error or a stutter. The bigger issue is that 50 or greater means more people are optimistic, so with the index only at 22, people are just slightly less negative, like a guy who breaks up with Amy Winehouse to date Mayim Bialik.
Internationally, the Euro continues to sink today as if it were a Brazilian Real in 1999 or had just hired Ted McGinley to star in its new TV drama (tentatively to be called The Big Crash Theory). The ECB was out buying 16.5B of sovereign debt and in order to try to show they aren’t just printing Euros, they will be taking in 16.5B of deposits from banks and paying out interest. Wow. So the banks get some free money while the ECB gets worthless bonds and has to pay interest on the money they didn’t “print.” Seems a bit odd but then again, so does Rene Zellweger‘s face and that’s never seemed to hinder her. Also, bank lending in Europe is taking a significant hit as the rates banks charge each other for loans in dollars rose to a nine month high. The Libor-OIS spread (which isn’t nearly as interesting as the rumored Rachel Uchitel Playboy spread) increased to 24 basis points, the most since August, thus signaling that banks in Europe are as interested in lending as the FED is interested in transparency or as Ellen Degeneres is interested in penis.
In stock news, GM posted their first profit as apparently people can now only afford shitty cars. GM earned $865MM and proved that all you need to do to succeed in business is suck badly at your job, lose a ton of money, and then get bailed out by good old Uncle Sam and his magic printing press. Money McBags only laments that he missed that class during his business school days. Not only did GM post a profit, but they are on course to go public again in Q4 to try to see if the investors have learned the old adage “Fool me once, shame on you, fool me twice, go fuck yourself.” Additonally, GM is said to be looking to get back in to the financing business which is a bit like letting Bernie Madoff handle the prison finances, filling the Goodyear blimp with hydrogen, or hiring Roman Polanski to babysit your 14 year old daughter. In other earnings news, LOW beat earnings forecasts but like all companies in the past week, gave guidance more disappointing than Nicole Eggert‘s movie career (and Money McBags had so much hope). CEO Robert Niblock said that 2010 will be a “year of transition” while significant growth won’t happen until 2011, and if it doesn’t, no one will remember he said it would. Guidance for Q2 was $.57 to $.59 per share which was below analyst estimates of $.62 per share and sent the stock down for the day.
In small cap news, KITD had their quarterly earnings release today and you all know Money McBags loves KITD like Joanie loves Chachi or high frequency traders love turning off liquidity when the market is tumbling. The stock is trading down heavily thanks to some block trades around midday where someone just wanted to puke this out like a bulimic with emetophilia at an all you can eat Sizzler buffet. Money McBags hasn’t had a chance to listen to or watch their call, though he will tonight or tommorow, but he did go through their Q and hear the last 20 minutes of Q&A. To be honest, their Q was a bit lighter on the revenue side than Money McBags would have liked to see. Revenue of $17.4MM was up 80% y/y but up only 8% sequentially, though management explained that this is typically a sequentially down revenue Q due to reduced digital media consumption in the industry. That said, EBITDA margins were only 17% after being 19% last Q and accounts receivables continue to be higher than John Belushi at a Chateau Marmont casino night. Management explained that as they are a small company with Fortune 500 clients, they have about as much leverage in bill collecting as He Ping Ping does on a see saw with Shaquille O’Neal (and that’s not just because Mr. Ping Ping was so small, but also because he is dead). As they explained, they have been getting business in towards the end of the Q which causes A/R to spike right before the Q but their larger clients get around to paying them within 45 to 60 days typically since KITD’s services are usually a small expense for them. An interesting point made by CEO Tuzman was that they could factor their receivables but they choose not to because they are not worried about collecting and thus don’t want to give up the economics. Their customers are going to pay as they are big, established companies, but they just take a bit longer. Three other interesting points:
1. In the press release they say: “In answer to a couple of investors’ questions, we have not seen any slow-down in IP video-related expenditures in Europe as a result of the
2. They purchased a company called Benchmark which gives them a presence in Singapore, mainland China, and Southeast Asia. Benchmark is supposed to have $10MM in revenue in the next 12 months and they paid ~$11MM for it if Money McBags did the math correctly. The deal should be immediately accretive and will open up opportunities in Asia for them where there are two main competitors who they hinted that they may already be in negotiations with to do JVs or acquisitions. Money McBags is glad they are finding shit to buy with all of the dilutive equity they just raised.
3. Kelly Brook is hot.
Anyway, guidance for this year which was released a few quarters ago was $75MM+ revenue but since then they have added Multicast which should be ~$12MM revenue and 9 months of Benchmark which should be ~$7.5MM revenue, so they are now on pace for ~$94MM in revenue. However, they only earned $17.5MM this Q so in the next 3 Qs they are going to have to average ~$25MM revenue which seems a bit like a stretch. In terms of earnings, gross profit was up to 61%, a number they said will likely continue to climb a bit depending on mix and after stripping out merger, restructuring, non-cash stock comp, and integration expense, Money McBags has KITD with ~$1.5MM of operating income this Q and with the 23MM shares they now have, that would have been ~.07 EPS. So not great, but on the right track. To give you an idea about the leverage though, if they had earned $25MM in revenue, they would have had another ~$4.5MM of gross profit and even if op ex rose $1MM, that would have earned another $.15 putting them at $.22 eps or ~$.88 eps run rate and they are trading at ~15x that with today’s sell off. As highlighted earlier, guidance and acquisitions now get us to $25MM revenue quarters so over the next year that type of operating EPS is possible, and with 50% growth, KITD remains very cheap.