2/3/11 Midnight Report: Bernanke Says Everything is A-OK (Other than Employment, Non-Core Inflation, and Anything Else That Makes a Healthy Economy)
The market closed up again today as Ben Bernanke let the National Press Club know that either the economy is fucked, or it isn’t (Money McBags is still trying to decipher Benny B’s speech but as “blowhard” is what Money McBags’ considers a command and not a language, it may take some time), protests in Egypt remain violent as the police are now targeting journalists (so Fox News reporters can breath a sigh of relief), and macro news was for the most part relatively positive (though absolutely still mostly shittier than a game of Total Black Out).
The news of the day was that Benny B. assured the distinguished members of the NPC that the Fed is doing all it can to lift the markets higher, which of course is as much a part of the Fed’s mandate as “luck” is part of Porter’s Five Forces or Jessica Bratich is part of Blonde Island (though hopefully they will make an exception). That said, with Goldman Sachs now running things, increasing the paper portfolios of the wealthy so they will have more money to not spend, is now more of a priority for monetary policy that keeping inflation in check, cutting unemployment, or making sure they don’t get it in the wrong hole (and note to readers, Money McBags considers himself one of the world’s foremost creative geniuses, right along with Banksy, Philip Roth, and whoever thought up the Royal Blumpkin, and yet he was creatively humbled by the Wrong Hole song which brought a tear to his eye as being the highest of art).
As Bernanke said in his speech: “… the Federal Reserve’s securities purchases have been effective at easing financial conditions…equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation-indexed securities has risen from low to more normal levels…”
Now Money McBags is no cryptologist (though he has found both Waldo and the little man in the boat) but where the fuck in that statement lauding the Fed’s success was employment mentioned? No really. It is the the only thing these assbags should be focusing on other than inflation (and since they continue to use core inflation as a metric, which is as cockposterous as something called National Porn Sunday (and not just because the idea is without merit, but because if you are campaigning against porn, shouldn’t you hold an Anti-Porn Sunday? Yeah, it’s just semantics, but um, fairly important semantics), Money McBags is forced to completely ignore anything the Fed says about inflation because they are looking at fucking apples when they should be looking at adam’s apples). The point is, The Bernank is saying things are ok, because the market is ok, which is a bassackwards and unsustainable way of looking at things.
So while QE2 has led the market to rise, which Bernanke says is the goal, in the paragraph before that he said: “we expect the unemployment rate to remain stubbornly above, and inflation to remain persistently below, the levels that Federal Reserve policymakers have judged to be consistent over the longer term with our mandate from the Congress to foster maximum employment and price stability. Under such conditions, the Federal Reserve would typically ease monetary policy by reducing the target for its short-term policy interest rate, the federal funds rate. However, the target range for the funds rate has been near zero since December 2008, and the Federal Reserve has indicated that economic conditions are likely to warrant an exceptionally low target rate for an extended period. As a result, for the past two years we have been using alternative tools to provide additional monetary accommodation.”
So let Money McBags translate that last paragraph. “We have fucking failed to live up to EITHER OF OUR TWO MANDATES (in fact they have created inflation, even though Bernanke says it remains low, but again, core inflation, core shminflation) and normally in this environment, we would do THE ONE THING WE CAN DO, which is to lower rates, but WE CAN’T LOWER THEM ANYMORE, and even though all of this other shit we have done in theory has the same effect as lowering rates (wink fucking wink), it still HASN’T ACTUALLY FIXED any of the long-term structural problems. So we’ll keep trying to do other shit, because we get paid to act, not think, and eventually something we do MIGHT WORK, and if not, we’ll just change the definition of the shit we measure (like using core inflation or just excluding more discouraged workers from the labor force in the unemployment rate calculation), to make our decisions look like they are working.”
Money McBags finds the whole thing intellectually dishonest, but then again, he also spent way too much time today pondering the awesomeness of Jack LaLanne’s wife being named Elaine (yep, Elaine LaLanne. And pour some juice out for the great Mr. LaLanne while we’re here) and training to join Italy’s government, so what the fuck does he know? But Bernanke didn’t end with his speech as he had a Q&A where he said “The economy, though it does look to be growing more quickly, is still in a deep hole,” and Money McBags would say a hole even deeper than Taylor Rain‘s poop hole, and the ponzeconomy™ “is still very far from where we’d like to be.” And while he did acknowledge that commodities have shot up like Janis Joplin in between sets, he still maintained that inflation “remains quite low” and if he thinks inflation is low, Money McBags guesses he knows who does the shopping in the Bernanke family.
So things are working, but they’re not. QE2 was a success, but it wasn’t. And inflation is here, but not really. Fanfuckingtastic.
And it wasn’t just Bernanke speaking for the Fed today as Dick Fisher (which sounds like the moniker for a drunk, motor impaired fat chick trying to undo a gentleman’s pants zipper), the President of the Dallas Fed, channeled his inner Thomas Hoenig and said he will not vote for more stimulus after June, just don’t hold him to it.
As for macro news, it was actually mostly positive today as initial claims for unemployment dropped by 42k to 415k (or by 39k if one uses the non-upwardly revised numbers from last week, but what is 3k job losses among friends?), and while that beat guesses of 420k, it continued to signal that the economy still sucks. Elsewhere, the services sector grew at its fastest pace since August 2005 largely due to strip clubs in Dallas hiring up for the Super Bowl. What was most interesting about the services report was that the prices paid component rose to 72.1 from 69.5 which either means inflation is worse than the Fed is ignoring, or more people simply paid up for the happy ending. Finally, retailers reported gains despite spending the last several weeks blaming the snow and no one having any fucking money.
Internationally, the ECB is keeping rates at record lows though “very close monitoring is warranted” for inflation and for Lucy Pinder. Inflation in the euro zone rose an estimated 2.4% in January which is nearly 50 bps above the ECB’s target so Europeans better buy those black jeans now before they become too expensive.
In the market, Merck beat guesses but gave a shitty profit outlook below analyst guesses as a result of higher costs and the failure of a blood clot drug (though while the drug may not have been successful in shrinking blood clots, it was successful in shrinking Merck’s shareholders’ portfolios). Elsewhere, Mastercard’s profit was up 41% to $3.16 per share which charged ahead of analyst guesses of $3.04 per share. Chief Executive Ajay Banga (which strangely enough doubles as Money McBags’ porn name) said the 11% revenue growth showed “quarter-over-quarter improvement in all regions” as people go back to spending money they don’t have with a desire to pay it back in the future with dollars that are worth less.
In other news, GMCR brewed up a good Q and jumped 15% on the strength of 65% revenue growth which caused shorts to cover faster than if someone walked in on them while they were browsing Spankwire.com. But since GMCR is a heavily shorted name, that could only mean that mouthpiece for the shorts Herb Greenberg was out slamming the company to try to save his masters’ books. It’s amazing how when a hedge fund short favorite pops, little Herbie Greenberg is there like an obedient parakeet to repeat the hedge fund company line and try to talk around numbers so his buddies don’t get caught holding the bag. Money McBags guesses It’s good work if you can get it.
Finally, BJs caused investors to smile as it jumped 13% on more talk of having the company swallowed in an acquisition. And NY Times was down as print advertising dried up worse than Cloris Leachman‘s uterus. Revenue slid 2.9% and they had a 26% decline in profit due to shrinking circulation and something called the internet.
In small cap news, DTLK continued its ridonkulous rally as it rises almost as fast as Amanda Seyfried’s popularity after her brilliant scene in Jennifer’s Body (and Money McBags would like to be in this Jennifer’s body). That said, the name Money McBags wants to point out today is SFLY which snapped its way up ~18% after their earnings beat guesses. Remember the other day Money McBags pointed this company out and said: “His gut tells him they are going to have a big Q (because everything else has) but with the way they are priced, a miss should cause a big sell off, like Pam Anderson‘s career once she turned 35. So the name should be volatile either way and Money McBags is curious to dig in because if they miss, it could be a good short candidate.” So if you bet with Money McBags’ gut, congratulations.
The company had 27% revenue growth and for the full year earned $67MM of adjusted EBITDA, $44MM FCF, and gave guidance for $1.16 to $1.24 in non-GAAP earnings for 2011 which means they are now trading at >33x guidance or ~25x minus the $8 per share of net cash they have on their balance sheet. With growth forecast to be ~20%, barriers to entry and any competitive advantage shrinking daily as new technology comes out, SFLY just kind of seems too expensive to Money McBags. Look, he gets it. People like being able to put their cock shots on mugs, magnets, and mouse pads. They also love creating photobooks of their staycations and calendars of their home decor, and that business is ~60% of revenue growing 35% and numbers like that usually makes Money McBags’ cock hard (though so does the wind blowing and the name Malene, but whatever). Fuck, Money McBags even likes that their product is hella user friendly, that they are trying to incorporate more video, and that Sarah Shahi decided to pose for Esquire (and this last point has nothing to do with SFLY, but it is a very good thing).
The point is this stock has been working and likely will continue to work but it’s just not a company that Money McBags will likely ever own. We all have our own investment styles and biases and Money McBags prefers growth stocks that are less momentum-y and have multiples that aren’t so high that one miss will cause the stock to crater. SFLY feels like a pretty classic momo growth stock, perhaps not as drastic as OPEN or NFLX, but a stock where valuation is less relevant than the perception of future growth. Money McBags can fully admit that SFLY may continue to work (though today’s run up was likely caused by short covering as much as anything since 10% of the float was short) as momentum players are in the name, the business is growing, and it has the kind of economies of scale that can deliver solid operating leverage. But with an elevated valuation, it’s not something Money McBags is itching to pursue (unlike this which he would let pursue any of his itches).
Money McBags wanted to dive in to SFLY’s quarter in more detail, but didn’t have the time. That said, he is sure he would have come out with a negative opinion and yet more sure that the stock will keep working (after it drops a bit tomorrow now that shorts have covered). It’s a style thing, so feel free to do some work and play the momentum here, you’ll probably do well, but Money McBags simply prefers names that offer him more downside protection (though he reserves the right to change his opinion if/when he dives in more).
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