Archive for October, 2010

10/29/10 Midnight Report: GDP is the trick for Bernanke’s QE2 treat

The Commerce Department’s Bureau of Economic Analysis (the uglier, less douchey stepsister to the B(L)S) released their first take on Q3 GDP this morning and it was unsurprisingly relatively more benign than a testicular mole or even Henry the IV of France.  With both the mid-term elections and Fed meetings slated for next week, every single BEA model was likely hardcoded to produce a number just unfucked enough (to use a technical term) so the administration can have their elections and QE2.

The report showed the economy grew by 2% in the Q, was up slightly from Q2′s 1.7% growth, and most bizarrely matched consensus analyst guesses proving that even a broken regression model in a non-gaussian environment is right at least once a decade.

On the surface, the GDP number seemed relatively decent since any growth right now is good, especially as time is the only thing that is going to heal the economy’s gaping wound so the longer we can try to stall for that to happen, the better.  That said, there were a few issues below the surface of the GDP headlines and Money McBags is here to peel away the onion on them (or unlatch the push-up bra if you will) to better understand the data.

1.  Much of the growth seems to have been driven by a huge uptick in business inventories which ramped up to $115B.  This is likely the result of businesses stocking up on cardboard boxes and cans of lysol to properly dispose of laid off workers’ personal effects when the next round of lay offs comes.

2.  Consumer spending increased at a 2.6% rate which is above last Q’s 2.2% rate and the biggest gain since 2006.  This would normally be a good sign, but it was more likely a result of the back to school shopping season featuring items cheaper than on a five finger discount as retailers strove to push inventory and hit top line numbers.  To be frank (though if Money McBags is going to be frank, hopefully it’s not this Frank), Money McBags is a bit perplexed by consumer spend as we saw strong Qs from high end companies like COH and yet the unemployment rate remains more shittastic than a Four Loko hangover.  The best explanation is that we truly live in a bifurcated economy where rich people are STILL FUCKING RICH and poor people (and I’m talking about you middle class) are GETTING FUCKING POORER, which is all fine and good for right now, but eventually everyone is going to want to eat cake again and that may lead to things getting a bit ugly.  Either way, the consumer spend number was more than likely driven by discounts, promotions, and “buy this and we won’t lay you off” Fridays, so it is hard to get too jazzed, or jizzed, about it.

3.  As the NY Times reminds us (and yes, Money McBags is going to use something in a New York Times article as factual, so buyer beware) Friday’s number is merely the Commerce Department’s first estimate based on a reading of many sectors of the economy, bags and bags of tea leaves, and their fortune by a nice lady on the Psychic Friends hotline for only $2.99 a minute.  Given that, the final number can be substantially different when it is re-released AFTER THE UPCOMING ELECTIONS.  Seriously, there was more of a chance of Stevie Wonder paying the extra $5 to attend a 3D movie or Ashley Dupre not agreeing to do Playboy than there was of the GDP number making any kind of waves right before the midterm-elections, just wasn’t going to happen.  Last Q GDP dropped from initial estimates of 2.4% to 1.7% and the “hold the shock and hope for no awe” is still in full effect as a viable government strategy, so who the fuck knows what the final GDP is going to be but Money McBags will taker the under (especially if it is under Kelly Brook).

4.  Even if the BEA’s estimate of GDP doesn’t change, even if consumer spend wasn’t a result of deep discounts, and even if Chewbacca was a wookie, the number was still way too fucking low.  2% growth simply won’t sustain any kind of economic growth where a healthy unemployment number is achieved so while we can all jump up and down (and by we all, Money McBags especially means Sofia Vergara) about GDP not being negative or being relatively ok, we have to remember the absolute and right now the economy absolutely sucks like Sasha Grey in the climactic scene of Face Invaders 4.

Most importantly, the GDP print does nothing to waylay QE2 and its attack on the dollar.  CNBC had a prescient quote from some guy named Hugh Johnson, chief investment officer at Hugh Johnson Advisors (because apparently Dick Fitzwell, Howie Feltersnatch, and Art Laffer weren’t available) and Mr. Johnson spewed forth that: “The economy is recovering, but recovering at an anemic pace, and this certainly will help the Fed in its deliberations on Tuesday.”  Not in Money McBags wildest dreams did he ever believe he would be quoting some guy named Hugh Johnson with a straight face (especially because the only huge johnson in Money McBags’ wildest dreams is his own), but Mr. Johnson absolutely nailed this one.  The GDP number did nothing to stop the FED from unleashing QE2 which was really the only scenario for today.

In other macro news, consumer sentiment fell to its weakest level since last November as apparently the survey spoke with real consumers and not the algorithms that have been moving the markets.  Sentiment registered 67.7 which was .3 below analyst guesses, .5 below last month’s reading, and 1.3 below a good fucking time.  Also, the Chicago purchasing managers index came in at 60.6, above the 60.4 of last month, and above the 58 guess by analysts as Chicago increases their spend on neck braces for Jay Cutler and lap-bands for gastric bypass surgery because those people really love to eat.

In the market today, MSFT put up a good Q with revenue up 25% and net income up 50% to $.62 per share which beat guesses of $.55 per share.  However, that growth was driven by the deferral of $1.47B of revenue for business customers who had paid in advance for Windows 7 finally hitting the income statement and also driven by a circular reference in their accounting system about which that fucking pop up paper clip kept warning them.  Without that one-timer (and one timers on the award winning When Genius Prevailed may now always be referred to as “Christine O’Donnells“) MSFT’s revenue would have increased 13% and net income would have increased 16%, which isn’t terrible for a company that has a virutal monopoly on something people use every fucking day and is coming off of a product refresh.

Elsewhere, MRK missed topline guesses and traded down but they promised to try to find a way to make people sicker next quarter in order to boost sales.  GNW ate a big fat dick with a Q that missed all kinds of guesses as a result of too many people in Florida defaulting on mortgages of condos they bought with $0 down and no savings that they intended to flip to the next sucker before the music stopped.  And FSLR had its light turned off when they warned of shrinking margins and that their energy source will only be around for another 4.5B years.

On the positive side, monsters were the story a couple of days ahead of Halloween as Monster Worldwide rose from the grave and shot up ~25% thanks to a strong quarter and a flurry of upgrades.  People need jobs so MWW (which Money McBags believes is also what you call an MFF film with two MILFs) is not surprisingly growing but it looks like they may have fixed any operational issues as well.  And Estee Lauder made up some ground today with a solid Q where earnings grew 36% as all of the wanna be reality show stars can no longer afford botox so must over do it on cosmetics to try to hide their lack of talent.

In small cap stocks SPRT had a nice Q, unless you care about a little something called profitability.  Money McBags has mentioned SPRT here before and this company is either a big winner or a screaming short with his gut telling him it is a short, but a short that can run the fuck up in to momentum for a while.

Also, QCOR put up a very nice Q which Money McBags will break down in more detail either this weekend or on Monday but he needs a break right now as his brain is fucking hurting from all of the dick jokes this week and from trying to figure out how exactly QE2 is going to avoid sinking the economy even more.  Money McBags’ estimate for QCOR’s Q3 eps was $.15 on net revenue of $31.2MM and the company earned $.18 per share on $31.3MM of net revenue.  So Money McBags’ revenue was dead on but he had $2MM in higher operating costs which is what he juiced up SG&A for for the doubling of the sales force due to NS so he’ll have to dig in to why that was a discrepancy.   The point is, the company keeps ticking along and still has upside.  And remember, Money McBags first mentioned this company to you as a buy at the end of December last year when it was trading ~$5 and it is at ~$12 now, so during this holiday season, don’t forget to tip your analyst.

Have a happy Halloween and try not to tip over too many Pumpkins.

10/27/10 Midafternoon Report: Quick Update as Money McBags needs some him time

Dear Readers,

Money McBags has been writing dick jokes and providing analysis at a furious pace over the past few weeks and he is in desperate need of a mental health day (well that and a rusty trombone from the uber talented Jennifer White, but baby steps).  He takes the award winning When Genius Prevailed very seriously and rather than provide you with uninspired, second rate jokes (though top notch analysis as always), he is going to take a day to relax and enjoy the view.

Had he written a column today, it would have been overflowing with information such as the market selling off due to speculation from the WSJ that QE2 may not be as big as investors hoped.  Though that news would have been littered with analysis and references to Janet Yellen furiously claiming that in her experience size doesn’t matter.

He would have mentioned that both Bill Gross and Jeremy Grantham got their crotchety on and let the investing world know that they think the Fed is being a bunch of irresponsible ass hats, all while talking up their own books.

He would have discussed that sales of new single family homes rose 6.6% sequentially, though down 21.5% y/y as frictional unemployment has gone the way of a bridge and tunneler’s wet dream (though not all of their wet dreams).  He also would have dissected the data showing applications for mortgages rose 3.2 % and durable goods orders rose by 3.3% (or fell .8% taking out sales of aircraft and thus failed to build on the momentum of last month’s 1.9% rise worse than internet meme’s such as 2 girls 1 cup* failed to build on their momentum).

In small cap stocks, he would have either broken down SMCI’s Q or CTGX’s Q and done it so lovingly and with such verve that it would have warmed the cockles of the great Warren Buffett’s heart (that is if Mr. Boofay found DCF models much less appealing than D or F models).

Alas, Money McBags needs a day to refresh.  The column is taking up an increasingly large amount of Money McBags’ time as he is a perfectionist, so he needs to make sure he finds just the right marginally safe for work picture of Alice Eve while also making sure he can properly explain QE2 and break down small cap stocks.

Anyway, if any of you have thoughts or ideas for how to make the award winning When Genius Prevailed better, other than to hire a different writer, Money McBags would be happy to hear from you.  There is a comments section below or if you would prefer to keep your anonymous name even more anonymous, Money McBags can be reached at moneymcbags@gmail.com (he can also be found on twitter and facebook).  The column is starting to build some scale so if you all remember to tell a friend or 10k, Money McBags will be able to devote more time to breaking down the market in his unique and highly unprofessional way.

To the pain,

Money McBags

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*And yes, in a joke about dead internet memes, you got rickrolled.