The market was relatively quiet today as QE2 continues to dominate the financial headlines like Pablo Picasso dominated the cubist scene in the early 1900s (and the current disjointed and broken market is perhaps an homage to the long gone cubists) or Eugene Fama dominated the Chicago school of thought in the 1970s with his quaint and now outdated belief in efficient markets (perhaps in addition to the “weak,” “semi-strong,” and “strong” efficient market hypotheses, Fama should have also devoted time to exploring the “Shit is fucked up” and the “Beats the fuck out of me” hypotheses).  Interestingly, non-voting member of the Fed (which as always, is like being a fluff girl for a lesbian porn movie, and let that one sink in for a second)  Narayana Kocherlakota (gesundheit) was out today saying he is not really in favor of QE2 as it will have a more “muted effect” than the original QE and at twice the calories.

Money McBags’ favorite part of the linked to article above is (bolding is from Money McBags):


Quantitative easing is often thought of as reducing the rate risk for the private sector, but it actually only shifts risk, from bondholders to taxpayers, he said.

“The ultimate macroeconomic impact of QE depends on the extent to which the extra tax risk deters economic activity on the part of this second group,” he said. “We know little about this effect, either theoretically or empirically.

So with taxpayers already struggling, the Fed may exact some form of quantitative easing even though LITTLE IS KNOWN as to the effects of this on the taxpayer.  Wow.  Talk about throwing spaghetti against a crisco rubbed wall and hoping it sticks.  So the Fed can do nothing, and there will be an uncertain, though slightly more certain outcome (deflation, potentially followed by hyperinflation, but letting the system start to work shit out) or the Fed can get their quantitative ease on once again and either make things worse or better, potato-puhtato.  Sounds like a great plan to Money McBags because afterall, if the Fed does nothing, then it will seem like the market doesn’t need them and if that happens then Ben Bernanke will have to go back to teaching unproven theory at Princeton instead of testing that unproven theory out on unwitting taxpayers.  Oh well, at least the latest government Treasury offering didn’t go off at it’s lowest yield ever (oh wait, scratch that).

The only macro news out today was that mortgage applications fell once again despite record low rates as why buy when you can squat?  The slight good news (or as Money McBags likes to call it, randomness) was that the purchase index was up 2.4% and thus it was refi mortgage applications that drove the overall decline by being down 1.8% because apparently you can’t refi what you no longer own.  Of course whether the number was up 2% or down 2%, it is completely irrelevant because until the economy picks up and people have job security (or jobs) housing will remain blissfully crawling along the bottom like an ass fetishist at Jessica Biel‘s house.

Internationally, Europe is on strike to protest austerity measures, economic uncertainty, and Madonna’s faux british accent.  Spain is leading the way with their first general strike in 8 years and they say 72% of union workers joined the strike which also means that 28% of union workers showed up for work which is the 2nd most ever after last year’s Nereida Gallardo free calendar day.  Of course most Europeans don’t know the difference between fellatio and inflation, so it’s not clear they understand that the current spending rates of European governments is less sustainable than a boner in Kathy Griffin‘s boudoir (unless it is her boner).

In stock news, Family Dollar put up a good Q as they beat wall street guesses, had same store sales growth of 6%, forecast earnings for 2011 that will likely beat analyst guesses, and simply said: “It’s the economy stupid.”  As people in this country grow poorer (well, except for the ultra-rich and Lindsay Lohan‘s legal defense team), owning FDO, NDN, and other discount retailers should continue to yield outperformance, so while they’re not cheap, they’re also likely to continue to churn out growth unlike just about every retailer not named Apple.  Finally Green Mountain Coffee (GMCR), a momo’s wet dream for the past several years dropped ~17% as they announced the SEC was looking in to how the company recognizes revenue (and apparently the answer “deliciously” was deemed unacceptable).  The company has had a ridiculous run and has not been cheap for years so if Money McBags owned this stock, he would be puking it out faster than a 10 day old Filet-O-Fish sandwich because there is no point being involved in shit when the SEC is trying to remind people that they can be relevant.

In small cap stocks, CRUS is once again going nuts as apparently Jim Cramer yelled about them during his infomercial for euthanasia, or whatever it is he is now calling his show.  Remember, Money McBags told you about this stock when it was in the $7s so hopefully you bought then so remember Money McBags when you are buying festivus gifts this year.  The stock has actually been performing like shit for a while but Money McBags fully expects them to put up a HaYuge quarter when they report.  This was Money McBags analysis of their last Q and nothing for him has changed since then, well except for his socks and his newfound love of everything Karissa Shannon.

In other small cap news, MLNK put up their quarter today and traded down ~14% and Money McBags would say they shit the bed this Q, but that wouldn’t have made a difference since they were already in a shit-infested bed from the previous two bed shitting quarters.  No what they did was worse than shitting the bed, they actually shit the entire room, including the faucets, the phone receiver, and even inside the toothpaste tube.  And remember, Money McBags first told you about this stock when it was ~$10, so you might want to hold off on that festivus present (well, unless it is a ticket to a Justin Bieber concert, because Money McBags loves him some Biebs.  And yes, that was a fucking joke), though to be fair, last week he said the stock was running up and putting in a $7 limit sell order wasn’t a bad idea.

Anyway, MLNK’s revenue was basically flat with slight growth in core business (~3%), a bump up from acquisitions, and then a 33% drop to $26MM for new business, and this is the second quarter in a row in which new business has cratered which is probably a bit of a warning sign that this company might be fucked (and “a bit” of a warning sign in the same way that Veronica Varekova is “a bit” hot).  They also saw their gross margins drop again, this time to 10.7% from 13%, which they said was a result of revenue mix, new client programs (though as they had fewer of these, so it is a bit flummoxing how that would lead lower margins, but logic be damned), and an increased bonus accrual because the company hit 2 of their 3 targets.  And yes, read that last part again as Money McBags is not making it up.   So despite horrible execution and a declining business, the management team is going to get bigger bonuses as apparently the two targets they beat were “running a shitty company” and “destroying value” while the third target “not sucking at their jobs” remains unattainable for the forseeable future.

The company also took a ~$25MM goodwill impairment, mostly on recently purchased businesses, so management proved they can not only suck at execution, but also at acquisitions.  They had ~$5MM in operating cash flow (a decent enough proxy for EBITDA) which was down from $12.6MM last year and $8MM last Q in their race towards $0.  Other highlights include a decrease in their business in Asia (which is their most profitable business), increasing pricing pressure (including a $4MM concession to a large customer), and guidance for things to remain this shitty as even though customers want to cut costs (which Money McBags thought was A SELLING POINT for MLNK), those customers are cutting costs by no longer holding inventory (and this all sounds very strange).

So what to do with this company?  Honestly, stay the fuck away from it.  They have ~$160MM in cash and a ~$270MM market cap with positive free cash flow, so in theory they should have ~30% downside protection, but Money McBags has no faith in this management team being able to do anything other than create declining EBITDA streams.  We’re now at ~$20MM EBITDA run rate so the company is trading at ~5.5x that, and while EBITDA has been a fuckload higher in the past, this company deserves no credit for that so be glad you don’t own it and if you do, perhaps renting a NSFW room in Rome will cheer you up (and yes, Money McBags is morally and contractually obligated to link to that once a week).

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