Posts tagged COF
Timberrrrr. The market sold off today as a result of tech companies posting earnings that failed to titillate the street, China raising their interest rates to try to stave off an asset bubble that soon may be only a prick away from popping, and the rent still being too damn high. Up until now, the market had been able to continue its rally through the beginning of earnings season as QE2 was there to pump it up like the theme music from Rocky III or a good old Doc Johnson, but with QE2 now fully on the table and the debate moving from if, to when, to how the fuck much, micro news is beginning to be much more important again.
Speaking of QE2, Atlanta Fed Bank President Dennis Lockhart seemingly reinvigorated the gold club by talking about the further devaluation of the dollar that will happen with QE2. Situated in the Fed’s underground lair in Nevada, he informed CNBC that QE2 needs to be big enough to make a difference, and by big enough, he means $100B (no really he said $100B, check the video). So once and for all Lockhart proved that size matters to the Fed and it’s not just the promotion of the notion(al). Lockhart also told viewers that QE2 will help lower interest rates (because real interest rates already below zero for the 7 year and on in just aren’t low enough) and that in turn will help consumer spending and business investment because businesses really need more cash despite the fact that they currently have hoards of it on their balance sheets. This is a more assbackwards attempt to increase consumer spend than hiring Ice-T’s wife and charging consumers for cheek shots.
As far as Money McBags is concerned, the problem isn’t that companies don’t have access to cash to hire, it’s that there is too much fucking uncertainty for them to do anything as nearly 20% of the population remains long-term or pre-long-term unemployed. If anything, government policies should be aimed at GETTING PEOPLE JOBS so they will have money once again to spend on food, shelter, and those delicious chocolate Necco wafers. That in turn will create real demand, which will allow businesses to actually use their cash to invest in their business which equals more hiring and maybe, just maybe, an economy at least a nut hair healthier than Michael Douglas’ throat. So any government intervention (and perhaps Money McBags can get A&E to tape the intervention before the government runs out of the room in denial) should be focused on building bridges, opening tunnels, and erecting shit that will be useful in order to get people working, get money in to their pockets, and test out that the Keynesian multiplier isn’t just another irrelevant concept that doesn’t work in the real world like efficient markets, Mickey Rourke, and monogamy. Either that, or the government should leave the economy the fuck alone.
In other macro news, new home construction was up .3% in September driven by a 4.4% rise in single family homes thanks to the Commerce Department adding card board boxes and new cars to their construction models. While construction was up slightly, the forward looking metric of permits issued (and it is forward looking because it is predictive and not because Nicole Trunfio is standing in front of it) dropped by 5.6% due to a 20% drop in permits for apartments and condos as that market has more capacity than Rungrado May Day Stadium or Kim Kardashian‘s vagina.
Internationally, China raised their rates for the first time since 2007 to try to lift real rates above zero, cool down asset prices, and perhaps avoid a currency war that has put the US dollar in a figurative chinese fingercuff between the Yuan and the Yen. The 25bp rise in rates could signal the start of a new monetary policy to curb China’s asset inflation and that policy will have to be tighter than Kenny Roger‘s face to be successful.
But the real story today was earnings as AAPL and IBM both mildly disappointed the Street and GS, BAC, and COF all either met, beat, or missed guesses depending on what you want to include as one-timers, earnings manipulation, and straight up fraud.
Quick aside: Back in the day, Money McBags covered the financial services sector when he worked for the man and he quickly realized that there was absolutely no way to have any confidence in any of the numbers in 10Qs or 10Ks because an extra provision here or a different nomenclature there, and earnings would be whatever the companies wanted. Given that, Money McBags came up with a simple regression model to pick financial stocks that take balance sheet risk with the independent variables being the number of Wells notices a management team has received, the length of the CEO’s admin assistant’s skirt, the number of times the CFO says the word “risk” in a company one one one, and the color of their helmets. That model reduced his work by 99%, had an r-squared of .95, and actually gave him a track record better than the best sell side analyst who was right only 38% of the time.
But back to the key point which is that AAPL drove the market down despite killing it with revenue growth up over 100% (~$20B vs. ~$10B last year) and iPhone sales up 92%, as they saw margins decline, sales of iPods drop 11% (though buying an iPod when there are iPhones and iPads is a bit like buying an abacus instead of a calculator or DVDs when there is the NSFW Spankwire), and sales of iPads come in below guesses of 5MM at only ~4.19MM. AAPL had earnings of $4.64 per share vs. guesses of $4.08 per share but margins and iPad expectations were enough to send it, and the market down on the day.
The other big tech Q was from IBM where a 7% drop in service contracts served shareholders up with a shit sandwich, despite the company beating analyst guesses on both the top and bottom lines as well as raising full year guidance to above those same analysts’ guesses. Hmmmmm. The company is now trading at ~12.5 this year’s guidance but has been on a hockey stick type run so Money McBags guesses a sell off was due on anything that was just a Khagendra Thapa Magar stiffy below absolutely positive, so it is what it is and now the sell side has a reason to print reports to get more trades. Money McBags loves that S&P Equity Research downgraded IBM to “buy” from “strong buy” because the difference between those is completely non-sensical. Either you buy something, or you don’t. Fucktards.
Also, as mentioned earlier GS announced their Q and beat analyst guesses (wink, wink) on stronger than guessed trading results (unless you were guessing at them last year when they were ~60% higher than they were in this Q). As a result of their spanktastic relative Q (but their shitastic absolute Q), employees on average are now only going to earn ~$370k for the year which means instead of being the super rich assholes in the room, they are now going to be the whiny super rich assholes in the room.
Finally, BAC beat guesses of $.16 per share by earning $.27 per share, that is if one ignores their $10B goodwill impairment charge, and really what’s another $10B among shareholders, especially as it is non-cash? And KO put up a nice quarter and beat guesses all around with a surprising 2% jump in North American sales with continued strong international growth. Money McBags has said it here before, but he owns KO and this is the kind of company you can almost feel ok gambling on because when everything goes down the drain like Money McBags’ hopes and dreams, people are still going to drink the fuck out of some Coke, On top of that, strong aspirational brands that sell a cheap product should continue to do well in emerging markets because those populations strive to adopt American culture and dream of the day when they too can sit on their fat asses all day and spend money they don’t have on things they don’t need while blaming the government for their problems.
In small cap news, for some reason Money McBags dropped ~2k words on JOEZ last night which not only makes him the Charles Dickens of jeggings, but was also the biggest waste of his time since he tried to fucking find barley in a grocery store (and here’s a hint, just ask). One stock to keep an eye on (and just one eye, because you’ll need the other one to watch this) is SPU because it is doing what Money McBags believes technicians would call “going up.”
Look, Money McBags dove in to this company briefly a few months ago as it tripped his screens as being cheap, growing strongly, and having a good balance sheet and on paper it looked almost as good as Kelly Brook. That said, he never wrote it up on the award winning When Genius Prevailed because it had one huge problem, and that was that their business involves selling fruit juice and concentrate in China which is further outside of Money McBags circle of confidence than nuclear physics (because he does understand some fission and fusion and heavy elements). So this is one of those times where Money McBags is just going to tip you off about a stock that looked hella interesting, seems fundamentally sound, and is moving, but that he just can’t confirm anything about, so do with it as you please.
Money McBags will hopefully have more detailed stock analysis tomorrow as on his to do list is WGO’s Q, analysis of OPEN (which if the market turns should drop faster than Andrew Johnson’s support in the Republican party after 1865), and Leticia Cline.
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.