Posts tagged financial regulation
The market was chugging right along today like a Kennedy at a sorority mixer after Apple titillated the market with sales stronger than the breath of either of the world’s foremost cunning linguists, the great Vladmir Nabokov and the greater Janine Lindemulder, until Ben Bernanke got up and threw his figurative Baby Ruth into the market’s pool causing investors to run for safety. Bennie B. got his best gangsta lean on and told the Senate Banking Committee, who never met a bubble they couldn’t regulate after it had already deflated itself, that the recovery remains “unusually uncertain and shit” before repeatedly rhetorically axing “you know what I mean?” His befuddling remarks caused the market to fall faster than Andrew Johnson’s reputation in the Republican party after suceeding (or more appropriately, failing) Lincoln and thus negated a rare day where earnings were mostly positive.
While it’s not entirely clear what “unusually uncertain” means, especially since Money McBags finds all uncertainties a bit unusual, he believes the term is Fed-bonics for “We have less of a fucking clue about what is happening than we usually do.” Bernanke did say the Fed is ready to step in as needed and while he didn’t say what those steps may be, one can assume they include keeping rates low (for an extended period like a metrorrhagia sufferer), manipulating the Fed’s balance sheet, and the Charleston.
Prior to Bennie B. unleashing his pimp hand and treating the market like his bottom bitch, President Obama signed the financial legislation bill which after two years of debate has been watered down more than a virgin bloody mary without the tomato juice or tobasco (though he signed it “Alan Smithee”, so it’s not clear if the bill will hold). The most worrisome part of the bill is that many of the details are more open ended than Alexis Texas right before filming Buttwoman which leaves regulators plenty of wiggle room to fuck more shit up. As far as Money McBags is concerned the bill didn’t go far enough in regulating the use of derivatives, in limiting the size of banks, or in raising reserve requirements and making banks responsible for their greed which led to credit scoring models to be less frequently used than MySpace (does anyone remember that piece of crap?).
In macro news, mortgage applications jumped last week for the first time in five weeks in what surely is a fictitious number, or a typo. What is more believable is that refi applications were at 14 month highs as record low mortgage rates of 4.59% have led homeowners to lower their interest payments faster than the Stoughton, MA police department lowered the boom on one of their officers who was just doing a little (and Money McBags stresses “little”) due diligence.
The real story of the day (other than Bennie B.’s uncertain uncertainty) was Apple’s Q in which they sold what is known in the retail space as “a fuckload of shit” and put up a huge earnings number. Apple’s net income rose by 78% by selling 3.3MM iPads, 8.4MM iPhones despite people waiting until the end of the Q for the iPhone 4 launch in order to be able to make use of the front facing camera while masturbating for strangers on chatroulette from work bathroom stalls everywhere, and a whopping and quarterly high 3.5MM Macintosh computers making everyone loudly say “Apple sells computers?” Revenue was up 60% to $15.7B, beating analyst guesses by $1B, and putting the company only $4B away from world domination. Steve Jobs also defended the iPhone antenna problem by simply saying “deal with it. And if you don’t like it, go by one of those Blackberries and make sure it matches your 8-track player and Jams.” That said, Lenovo is set to launch a challenger to the iPad using GOOG’s Android system and they are referring to it as “LePad” because apparently “LeThingThatIsn’tGoingToSell” was already taken.
In other strong earnings news, MS put up a ginormous Q, harkening back to the pre-2006 days when investment banks ruled the markets like Jessica Simpson ruled the short bus in her elementary school days. Revenue grew 53% to $7.95B and beat analyst guesses of $7.93B driven by MS’ trading business which earned $4.1B in operating profits after trading their souls for three more months of manipulating the markets and a good night kiss from Rose Huntington Whiteley. Also, KO put up a good quarter on the heels of PEP’s outperformance yesteray once again reinforcing the demand inelasticity of sugar and water. KO earned $1.06 per share, beating analyst guesses of $1.03 per share, and saw 5% growth worldwide led by international growth ex. Europe of 6%. Money McBags is a longterm owner of KO because it is a cheap aspirational brand that appeals to emerging markets that will continue to grow as the US slogs its way towards mediocrity (though mediocrity would be a good thing). Finally, YHOO dropped 8% on a disappointing earnings report as revenue growth remains more challenging than Sudoku for a dyslexia sufferer.
In small cap news, Money McBags mentioned CRUS yesterday but he was in such a time rush that he missed their quarterly earnings release from earlier in the day which turned out to be more positive than Robin Williams’ herpes test. The company earned $.29 per share in the quarter on 118% y/y revenue growth and margins going to 57% from 52% last year and 56% last Q. Most surprisingly, their energy business jumped up to $28MM from $22MM as a result of the both the power meter business and their energy exploration business. On the call, they talked about this business but gave fewer useful details as to what is driving it than a republican strategist gives details about their plan to fix the economy.
That said, it’s really CRUS’ consumer audio business that has investors drooling over this company as if it were Hayley Atwell as they provide an audio chip for the iPhone and that segment absolutely killed it. Revenue was up 32% sequentially in that segment with Apple moving to 35% of their overall revenues. Company guidance was also stellar with next Q predicted to have at the midpoints $102MM in revenues, 57% gross margins, and $27MM non-Gaap op ex. and while Money McBags is no maffematecian (he only counts to two when told to turn his head and cough), those number should get them to ~$.44 eps as they still have more NOLs than Money McBags has broken dreams.
The hard part is forecasting this company since they are obviously a play on the iPhone and AAPL could find a new suplier or put more pricing pressure on them at any time. Now look, Money McBags doesn’t think that will happen anytime soon as their chip is supposed to provide the best audio quality and they are continually investing in R&D, but it is something of which investors should be aware. Money McBags’ previous estimate for fiscal year EPS was $1.20 but with CRUS earning $.29 per share in Q1 and guiding for $.44 per share in Q2, $1.20 seems like it is lower than Andy Rooney’s balls. So Money McBags is going to get a bit conservative here and estimate that the energy business falls to ~$24MM quarterly run rate, the non-AAPL consumer business stays flat, and the AAPL business only grows 10% sequentially.
Doing that (and using 55% margins which may be on the low end and $110MM op ex), Money McBags gets an estimate of $1.47 which is about double what they should earn in the first half of the fiscal year. Of course, those are very low end estimates as the AAPL business has been growing 30%+ sequentially and gross margins have been above 55%, so at the hgh end we could be looking at closer to $1.70 EPS for the fiscal year.
Either way, the stock is now trading at ~$19 which is ~13x Money McBags’ low end estimate and the company has ~$2.50 in cash on the balance sheet and 13x for a company growing this fast is just way too fucking cheap. If you want, throw a 20x on $1.47 and get to ~$30 for a target price. As long as Apple doesn’t pull the rug out from under these guys, there is plenty of room to move up even though it has already had a better run than a roidal Ben Johnson.
7/15/10 Midevening Report: Senate approves financial reform only 5 years too late, next up, what to do about all of those indians
The Senate passed a sweeping financial reform bill today, though the only thing it is likely to sweep is more problems under the rug. After many compromises between Democrats and Republicans, the bill basically lets regulators feel the financial sector up but then caucusblocks them from going all the way. Sure there are now limits on how much banks can invest in hedge funds and sure some prop trading desks will be sold, but all this bill really did was create a fuckload more complexity in regulating the financial sector and The Street thrives on complexity since they make money by basically exploiting loopholes. So the bill gives the Fed more strength (and really, haven’t they earned it?) to create a bunch of redundant regulatory groups and gives them power to do a bunch of shit that they will only do after the fact because pro-active regulation is more of an oxymoron than deafening silence or David Hasselhoff’s talents. Money McBags gives the financial reform 3 yawns out of 4 as it’s like thinking about putting a band aid on a gaping bullet wound.
In macro news, new claims for unemployment were the lowest they have been in 2 years, until the (No) Labor Department revises them upward next week. Claims dropped by 29k to 429k after they were once again manipulated upward from last week’s 454k number to 458k. The large drop in claims is being attributed both to temporary layoffs at factories being postponed as companies like GM announced they will keep their plants open for most of the season, and just making up numbers. One reason the drop didn’t move the market up is that the (No) Labor Department concentrates on seasonally adjusted numbers and their seasonal adjustment is likely as good as Sheyla Hershey’s boob job so therefore if we look at unseasonallly adjusted numbers, we see that they rose by 45k to 513k, the highest number since January. Also, continuing claims jumped up by 247k to 4.68MM which is as healthy for the economy as smoking a cigarrette spiked with asbestos and Charlie Sheen’s taint hair. Either way, Money McBags is sure that the 429k number will be revised upwards to something like 437k next week so it’s hard to get excited about a big drop that is really due to a timing issue and will be changed anyway. And just to show that Money McBags is here for you in analyzing the numbers, remember that last week after claims were announced at 454k, Money McBags predicted that:
“The big macro news is that new claims for unemployment dropped to 454k or some number higher than that depending on how much the (No) Labor Department manipulates/readjusts numbers next week. Money McBags is not a betting man (unless there is money to be won or young ladies to impress) but he is willing to wager that next week we learn that new claims for this week should have actually been 459k.”
And sure enough they were manipulated up to 458k so either Secretary of Labor Hilda Solis (though to be honest, Money McBags thought we did away with the word “secretary” and were now calling them “administrative assistants,” but whatever) is using WGP to set her numbers or Money McBags’ forecasting method which involves sticking his finger in the air while figuratively pulling a number out of Sofia Vergara‘s voluptuous ass is not just more delightful than the bullshit models used by the (No) Labor Department but also hella more accurate. See, anyone can make up numbers.
In other macro news, the NY Fed’s Empire State Manufacturing index dropped like George Steinbrenner on Tuesday (too soon?). The index came in at 5.1, only slightly below the 18 economists had guessed, and while Money McBags has no idea what the difference between 5.1 and 18 is (other than 12.9), he’s pretty sure something less than 1/3 of predictions isn’t good in the same way that being the only female smurf or hiring MC Esher to design your staircase isn’t good. Not only did manufacturing in New York decline, but it did in Philly as well where the Philly Fed’s manufacturing index also fell to 5.1 which was below guesses of 10, though the 5 point miss was said to simply be stolen like everything else manufactured in Philly. While Money McBags finds it odd that two Fed manufacturing surveys would each register 5.1 in the same month (something about as likely as Paul Krugman winning a nobel prize), he does not find it surprising that manufacturing was starting to slip because we’re in something called a GLOBAL FUCKING RECESSION.
On a slightly more positive note, the Fed said industrial production creeped up .1% in June thanks to mining and utilities, on an even more positive note, Brooklyn Decker. Finally, producer prices fell again, this time by .5%, led by a steep 2.2% decline in food prices which were driven by an earlier weather-related jump in the price of tomatoes and an even earlier economy related dive in people’s incomes.
Internationally, China’s growth slowed in the Q to 10.3% from 11.9% in last year’s Q1 while industrial production rose 13.7% which would be great if it weren’t lower than what 26 out of 27 analysts on Bloomberg had guessed. Of course on WGP, Money McBags has shown both that analysts have no ability to forecast numbers and the numbers themselves as mostly fictitious like supply side economics, big foot, and Lauren Conrad‘s career, so ho fucking hum again. While China’s growth was basically inline, it left investors hungry for more just twenty minutes later and thus asian markets were down.
In the market, JP Morgan beat estimates in their quarterly game of numbers roulette. Net income was up 76% to $4.8B despite an 8% decline in revenue thanks to a $1.5B reserve release which was the biggest release in NY since Stephon Marbury. That said, while the reserve release is a bit puzzling since the economy is nudging south like a wannabe hollywood actress on her first casting couch, JPM’s credit card division turned profitable for the first time in several quarters and overall the company beat guesses by ~$.03 after stripping out one-timers. The biggest surprise though was WGP favorite Dick “Don’t call me Richard” Bove who never saw a financial stock he couldn’t misunderstand or artificially pump up, lowered his rating of JPM claiming revenue was weak and earnings were more manipulated than new claims for unemployment numbers or Tiger Woods’ image. In other large cap news, the market braces for GOOG’s earnings release and Money McBags is long the stock but he bets it will drop 8% regardless of whether they beat or not because high frequency traders hate growing companies with solid earnings and instead have calibrated their algorithms to find companies that are correlated to the phases of the moon and since HFTs control 50% of the market volume, they win most of the time.
In small cap news, JOEZ is set to report tonight and they will likely show more revenue growth, and yet declining earnings as their cost of operations and tax rate have them more set to fail than Amy Winehouse in a “girls I’d like to bone contest.” Also, Money McBags favorite KITD had their buy rating reitirated by Janney Capital today. Janney maintained their $13 price target which is only ~50% too low, but remember, analysts are paid to just publish and not to be right or stick their necks out for anything. As Money McBags isn’t getting paid for his research and has no constituency to please other than his own trading account and the lovely Teresa Palmer, he is not afraid to make big calls and unless KITD’s management is completely and utterly full of shit (10% chance but moving up proportionally with their growing A/R), this company is more undervalued than sharing a chilli dog with Natalie Portman.
It was another volatile day in the market as initial jobless claims came out and were much worse than expectations which is not surprising to anyone except for those who make those expectations. Claims were up by 13k to 472k while analysts had guessed that they would drop to 452k which means on average they couldn’t even get the 50-50 directional guess right. And as usual, claims were part of the weekly we suck at math derby (also known as “Numbers Manipulation Thursday”) as last week initial claims were 457k, so if they grew by 13k this week, that should have made claims 470k, but of course the (No) Labor Department wants to try to mitigate the fuckawfulness of the economy so they always release a slightly better number and then revise it worse when no one is paying attention. So last week’s claims were revised up to 459k and thus we get the true mathmatical equation 459k + 13k = Holy shit we’re fucked (or 472k, potato, puh-tato). The good news is that people claiming extended benefits dropped by 376k, the bad news is that number fell because the government voted to stop paying them, so um, welcome to the double dip (and not the kind where you only get bacteria), make sure you are properly supplied with canned foods, matches, and plenty of viewing material because this could get interesting. And to reiterate, Republicans filibustered a bill to continue extended unemployment benefits which is the first time this has ever happened with an unmeployment rate above 7.5% during a recession and it immediately cuts off 1.5MM unemployed people from cash flow they may need. If ever Money McBags wanted to lose an election, that is exactly what he would do, fuck the people who need help in the midst of the biggest recession in history. What wasn’t reported was that Republican Senators also filibustered dignity and common sense while proposing legislation to have unemployed people serve as speed bumps on Pennsylvania Avenue to keep drivers from going to fast.
In other US macro news, pending home sales also hit the shitter (and hit it with the force of a taco bell bean burrito slathered in extra hot sauce and Ecoli) which surprised analysts but shouldn’t have surprised readers of WGP. The pending home sales index fell to 77.6 from 110.9 because the first time home buyers tax went away which is only something that has been known for months. The 30% drop in the index dwarfed the 12% drop analysts had guessed once again proving that past performance is no indication of future performance in regression models when we live in a fat tailed economy. Finally the House passed a financial overhaul bill which will now go to the Senate for a vote on what should be sweeping changes but has been watered down more than Christina Hendricks in a wet t-shirt contest.
In addtion to macro news that was so bad not even Chris Dodd could have done something to make it worse, Goldman was further questioned by the FCIC today on their derivatives trading as relates to AIG (and as usual Money McBags would love to have the FCIC’s Heather Murren question him about the exposure of his long derivative). CFO David Vinnar was nice enough to constantly conflict himself by telling the commission that Goldman doesn’t have a “derivatives business,” but when questioned on how Goldman can call themselves a “top five derivatives dealers in the world,” he acknowledged that Goldman’s derivatives business is “a very big part of what we do.” Money McBags guesses that kind of logical fallacy or semantics masturbation is bound to happen when one talks out of their ass. Anyway, this whole thing is just theatre since if the government really wanted to shut themselves, I mean Goldman, down, it would take about 3 minutes of actual investigation.
Internationally, China is showing more signs of slowing down than Robert Byrd, as new data shows the second derivative of their manufacturing sector is likely abating. Two indexes (indices? indi? indiyouknowwhatthefuckimean) came in below analyst guesses, though still showed expansion (but that expansion is now more like from flaccid to quarter chub as opposed to full pitched tent). Tao Wang (not to be confused with Tiger Wang, Dong Wang, Peter Wang, or Wang Chung) an economist at UBS China said “economic growth is strong but momentum has peaked” and if that is true, the global recovery may need another shot of stimulus or else it could flatline worse than Gina Lee Nolin‘s acting career. In other intentational news, Spain was able to sell 3.5B of 3 year Euro bonds after promising not to default on them and promising to have Rebecca Ronda personally deliver them to all buyers along with a refreshing spanish milkshake. The fact that Spain was able to get their bonds out and not at a too exorbitant yield is a positive, though Moody’s has now placed Spain’s credit ranking on review for a possible downgrade, citing “deteriorating” growth prospects, challenges in meeting deficit targets, and the fact that no one in the country works. That said, Money McBags cares what Moody’s has to say about as much as he cares about Donald Rumsfield’s thoughts war strategy, Chuck Klosterman’s opinion on pop culture, or Aristotle’s view on the heliocentric universe.
In stock news it’s uglier out there today than it was in Barbara Streisand’s bridal suite when James Brolin went out for a smoke. One stock moving nicely up though is Ford as they announced a 13% rise in sales for the month of June led by the Ford Focus, their Super Duty F1 series, and pure luck. That said, the company announced a $4B buyback yesterday so has had good news two days in a row which currently qualifies it for the award as greatest stock ever. In other news, financials continue to sputter because there is currently less faith in the financial system than there is in Norse mythology. The Treasury department has been reducing their holdings of C which is good because the government shouldn’t own public companies, especially ones going $0.
In small cap news, ZAGG is unsurprisingly selling off after it hit $3 for no reason the other day and Money McBags broke down why the stock was at least $1 too expensive. One sector that Money McBags has liked but is getting destroyed today like a college senior’s hopes and dreams is the home health care sector. Small cap names AFAM and LHCG have been solid performers as they offer a service that is both cheaper than hospital stays and better for patients as home recovery rates are better than hospitalization recovery rates. The problem is these companies rely heavily on medicare funding and their billing practices have always been questioned.
Well today, the SEC announced they are launching an investigation in to AFAM and AMED around the companies billing more home visits to medicare than they actually made. That news is less good than waking up next to an unshaven Kathy Bates. As a result the sector is down 10% today and rightfully so, in fact if Money McBags owned any of these companies he would be puking them out like a bulimic with a vomit fetish. That said, LHCG does not seem to be part of the investigation so it could be a good time to try to pick this up on the cheap once things settle. Money McBags has always preferred LHCG in this group because they are a bit more rural than the others and therefore face less competition. That said, the market is enticing as it is growing 10%-15% a year as the population ages and home health care becomes a more ready solution. It costs medicare $132 per home health care visit vs. $6k for a hospital stay and as mentioned before, recovery rates are better at home because patients aren’t around so many fucking sick people all day.
LHCG earned $.64 a share in Q1 and gave guidance for $615MM to $625MM in full year revenues and $2.75 to $2.85 eps. With the sell off today the stock is trading at only 9x this year’s eps guidance and yet the market is growing by double digits. Revenue was up 17% last Q and guidance does not take in to account any de novo branches which only take a year to reach full margins. The company has ~$13MM net cash to still make acquisitions and the market is ripe for continued rolling up as the top 4 players are only ~10%-12% of the market. The problems are the reliance on medicare funding and the government’s ability to slash that at any time, the need for continued acquisitions, the uncertainty of any future medical liability issues (as with all health care providers), and the current SEC investigation on competitors. Still, this is a growing market and is a cheaper alternative for medicare and insurance companies that ultimately provides better service and better results so why not buy this for 9x earnings when you can? As he said, Money McBags would let this settle because the last time fudged billing fears struck the industry, these stocks got pulverized even though none of the public companies were found to be complicit. So bide your time but put this on your buy list. And to reitirate for those of you new to WGP (and if you’re new, don’t forget to join WGP on Facebook), Money McBags’ buy/interesting list consists of KIRK, KITD, TMRK, CTGX, CRUS, QCOR, NTRI, EPAX and now LHCG among others. Many of those are getting to be pretty washed out (KIRK, KITD, CTGX) and yet have nice earnings streams and solid longterm businesses so once the market is done dying, those are companies that should see positive momentum. And while the market drops, there is always WGO and ZAGG to short, or just buy TWM and watch Wall Street burn.
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.