Posts tagged GS
The market rallied a bit in the afternoon as rising new claims for unemployment missed analyst guesses by somewhere near a fuckton (give or take an asshair or ten), Portugal and Greece saw bond yields rocket up more than applications to LaSalle’s MBA program and even more than Kate Upton on the awesomeness scale, and the US government got even closer to banging up against their fictitious debt ceiling (and it is more fictitious than the Easter Bunny, Hanukkah Harry, and Goldman Sachs’ congressional testimony) that in the past 25 years has been lifted more times than Joan Rivers’ face or Lisa Sparxxx‘s gunt. So as always, rally on Money McBags’ friends because the solution to a weak (or non-existent) real recovery, to global turmoil so uncertain that it has even caused Heisenberg to roll over in his grave, and to long-term unemployment more structurally fucked than a Sarah Palin sentence, is to simply buy the dip and thank the great Bernanke in the sky for making QE a permanent part of the lexicon (and for making the US government closer to insolvency than Lenny Dykstra is, though unfortunately with fewer hookers and tobacco stains).
In macro news, new claims for unemployment rose by 27k to 412k which was just a rounding error away from analyst guesses of 380k (and a rounding error in the same way that Kathy Bates is a rounding error away from Kathy Gardiner) and signals the economic recovery may be losing steam faster than John Tyler’s 1844 re-election campaign (because pissing off both parties is a worse election strategy than telling the truth, or at least more of the truth than others) or Hosni Mubarak’s heart (though who knew he had one). And what Money McBags loves most about the number isn’t just that it was likely the result of someone at the B(L)S forgetting to hit the goal seek function, but that the (No) Labor Department chalked it up to unusually large layoffs that happen at the end of quarters, but umm, while Money McBags is no econometrician (heck he couldn’t even tell Daniel McFadden from Darren McFadden if he were given a discrete choice, and yes that was the first econometrics joke in the history of the award winning When Genius Prevailed) he is pretty sure analyst regression models should fucking account for seasonality since that is kind of the entire fucking point of a regression model. So either all of the analyst regression models suffer from some kind of spurious correlation (and correlation more spurious than thinking people buy Playboy for the articles) or the data is more made up than the Fed’s mandate, so it is hard to have any real confidence in the numbers.
And it’s not just that the data is likely completely bogus, but in the continual “hold the shock and hope for no awe” government strategy, last week’s numbers were revised up for the infinityillionth time from 382k to 385k which made last week’s beat, now a miss. But of course the market cares about details about as much as the Brits now care about the Royal Bride’s virginity (and Money McBags will take the over on that), so it is what it is.
In other macro news PPI was up .7%, though mostly because R Kelly was seen chugging bottles of Gatorade while telling his lady friends not to blink. Excluding food and energy, the core index rose only 0.3% which is great news for rocks who as far as Money McBags can tell are the only things that don’t use food or energy to survive. Also, foreclosures dropped 27% from a year ago to their lowest level in 3 years mainly due to lenders’ inability to keep foreclosing on the same homes. Actually, the drop was mostly caused by the the mortgage documentation scandal delaying many foreclosures as borrowers chant “if the documents are bogus, you can’t foreclose us.”
And finally, the budget remained in the news as on Wednesday night President Obama released his deficit reduction plan which was so well received by critics that it has already been nominated for a Pen/Faulkner award. Obama’s plan aims to cut the deficit by $4T in 12 years through overhauling the tax code, cutting defense spending, and collecting underpants. Of course Republicans hate Obama’s plan with the main differences being a lack of an overhaul of medicare and the fact that they didn’t write it.
Look, Money McBags hates getting political (unless it is to support the Femen Movement, the Slut Walk, or the right to bare arms and barer breasts) but why do people give a fuck about this theater of the absurd which is more farcical than a Marx Brothers movie (where time flies like and arrow and fruit flies like a banana) or the notion of efficient markets? Seriously, it is a 12 year plan. Do you know who will be president in 12 years? Exactly. Shit, do you know who will be President in 2 years?
So this plan is completely irrelevant because it will change next year or the year after as whoever is in charge will continue to make short-term trade-offs for long-term pain because that is how you win fucking elections. Sure eventually someone will get caught holding the bag, but delaying the inevitable is more American than apple pie, pick-up trucks, and Carrie Prejean so why get so worked up about which plan is less full of shit when they both will accomplish less than Heather Mills in an ass kicking contest. And just to prove that point, the spending bill that was so fucking important last week that it threatened to shut down the government was finally passed by the House and the $38B in cuts were really only $350MM (or a year’s supply of botox for Nancy Pelosi), so wake Money McBags up when either party gets serious about anything (though if you are going to wake him up, please make sure you are appropriately dressed).
Internationally, Greece’s borrowing costs soared almost as high as Icarus as they rose to 18.3% which to put in perspective is the same as the rate on Stephen Baldwin‘s credit cards (though without the opportunity for cash back). The reason for the jump was that Germany said for the first time that Greece may need to restructure its debt and after last year’s $140B bail out, any shenanigans with Greece’s balance sheet could be more catastrophic to Europe than the bubonic plague or a black jean shortage. So keep an eye on Europe here, and also keep an eye on this.
The only other global news was that computer shipments fell 3.2% worldwide as earthquakes in Japan, uprisings in the Middle East, and no one having any fucking money, hindered sales. Computer shipments in Japan fell 15.9% as something called “not going outside to avoid radiation” took precedence over buying discretionary products while shipments in the US fell 10% as consumers either switched to tablets or decided not to upgrade due to the hassle of having to transfer all of their porn to a new machine.
In the market, RIMM was down after its tablet received worse reviews than “Our American Cousin” did from Mary Todd Lincoln (apparently she liked it as much as a hole in the head). Money McBags has been crapping all over RIMM for months now as like YHOO, EK, and Kourtney Kardashian, you never invest in the the second tier player when there is a clear market leader.
Also, GS was down today as Senator Carl Levin released the findings of a 2 year investigation that showed GS acted like a bunch of assshats by misleading clients and lying to congress. While Lloyd Blankfein tried to slip Levin some iocane powder and some more BS before the report came out, it doesn’t really matter because the government has no interest in actually trying their own. The fact that no one at GS has been jailed for being complicit in the biggest financial meltdown of our time is more cockposterous than Taco Bell testing a taco shell made of Doritos or the Waterfall TALF Opportunity, but it’s good to be King.
In small cap news Money McBags spent all day on KITD answering emails, tweeting away, and trying to figure out WTF sent the stock down 12% in the morning as Money McBags actually really liked their large acquisition from the other day. Money McBags talked to a shitload of people on the Street and just couldn’t find anything that made sense so he reiterated his buy recommendation when the stock was getting absolutely clobbered and it wound up going from down ~12% to closing down only ~1%, so hopefully you all bought in today because it is at times of fake uncertainty like this that real money can be made.
And this is one of the reasons Money McBags started the award winning When Genius Prevailed, so regular investors could see how the sausage is made. See, Money McBags is still very connected to the Street and talks with many analysts and PMs so when KITD was dropping down like Tori Black on pay day, Money McBags called the fuck out of people who are just privy to information that the average investor isn’t. He talked with sell side analysts, hedge fund colleagues, and even fired up the magic eight ball. Fuck, CEO Kaleil Tuzman sent out and email to analysts defending the stock and was then on an hour invite only phone call and Money McBags not only had the email forwarded to him but listened in to the phone call. Retail investors of KITD just don’t get that kind of access which is why investing is not a fair game. And again, that is why Money McBags started the award winning When Genius Prevailed, to shed light on what really goes on in the market and how asymmetric information and access kills the retail investor.
Anyway, Money McBags thought Kaleil absolutely killed it on the phone call and email where he basically pissed all over the shorts who thought ioko was a flat growth company (which it is only because they have a dying legacy business which is not in KITD’s projections or numbers), that ioko somehow changes KITD’s mix of service vs. software business, or that ioko was KITD’s third choice. Money McBags still promises to get his full KITD analysis out sometime before Monday but it’s really pretty simple. This company is going to have ~$300MM in revenue in 2012, at least $70MM in EBIDTA, is the market leader in a market growing ~30% with huge long-term potential, and is now trading at ~6x EV/EBITDA, so um what else do you need to know? No really? Money McBags guesses he will add ~2k words of dick jokes and hot chick pics to that thesis to spruce it up a bit, but there just isn’t much more he can say.
Oh yeah, old friend RICK is finally shutting down their club in Vegas which is a great decision since that club has been an absolute money suck (and there is a terrible pun in there somewhere). While Money McBags applauds the decision (and as a shareholder, he is happy it will add a few cents to earnings), his heart does go out to all of the girls who will now have no way to afford that college education. It is a sad day for humanity, but a happy day for shareholders.
Writer’s note: Yeah, Money McBags has used the headline before, but shit, when there is no theme of the day, writing a headline at 2:30am is fucking difficult. Money McBags will gladly refund your dignity for having a bit of a redundancy tonight.
1/19/10 Midnight Report: Market Goes Down on Earnings, Did it Swallow Idea that the Economy is Improving?
The market sold off today as earnings were more mixed than Tiger Woods’ family tree, housing data continued to remind people that double dipping can cause more than just herpes, and investors were all liquidating their portfolios to get cash to buy those 50% off Amazon coupons at Living Social in order to get in on all of the good vibrations and buy two rabbits for the price of one.
With the market due for a correction more than Sarah Palin’s grammar or Janet Jackson’s boobs, it is not surprising that there was a bit of a sell off as the S&P has become more top heavy than the delightful and appropriately named (and NSFW) Lacey Banghard (and young Lacey having a last name like Banghard would only be eclipsed by either Paul Krugman or Monica Lewinsky changing their last names to Blowhard). So the question now is will investors come back tomorrow or is this the start of the end of the euphoria over QE2, billion dollar government incentive plans, and Justin and Jessica (and Timberlake, Money McBags is watching you so stay away from his binky)? Actually, that was a trick question since with the Fed’s new third mandate to lift stock prices (after their first two man dates with Ricky Martin and Neal Patrick Harris went terribly wrong after they refused to pick up the dropped soap), you all should just buy the fucking dip.
In macro news, housing starts dropped to an annual rate of 529k, which was their lowest rate in a year and down from November’s 553k, analyst guesses of 550k, and a healthy fucking market of ~1MM. With a glut of shadow inventory and foreclosured homes still available, it makes less sense for homebuilders to ramp up production than it makes sense for alliterative North Dakota Senator Kent Conrad to quit to better focus on reducing the debt (hey Kent, um far be it for Money McBags to tell you how to not do your job, but you do know that, 1. they’ll pay someone else your salary so quitting as a way to cut government dead weight won’t actually reduce the debt and 2. you realize if you are not a Senator, NO ONE WILL GIVE A FUCK ABOUT YOUR DEBT CUTTING IDEAS. Seriously Kent, the whole point of being a fucking senator is to have the power to fix shit that pisses you off (for instance if Money McBags were a senator, first he would make Gracie Glam‘s birthday a national holiday, second, he would steal the shit out of soaps from the Lincoln bedroom, and finally, he would try to figure out how to balance the budget while getting everyone health care because that is the shit that fucking matters in this country), so quitting to concentrate on the shit you should be concentrating on as a Senator makes as much sense as people who still use MySpace or anyone who wants to live in Camden.).
Anyway, the bright side of housing starts being down is that the cardboard box industry continues to rise with bigger models released daily for those who want room for a kitchen to warm up their rat chewed and half-eaten bagels. The only other data was that applications for home mortgages increased last week by 5%, however it was driven by a 7.7% increase in refi applications thanks to record low rates and people needing money to pay off their credit card bills.
But the real story was earnings as GS, AAPL, IBM, WFC, and Ashley Dupre all showed their bottom lines. Leading the way was AAPL who shit all over earnings as if earnings were a coprophiliac and AAPL had just eaten a Denny’s Grand Slam breakfast with an extra helping of e coli. The company reported eps of $6.43 which was up from $3.67 a share last year and assraped analyst guesses of $5.40 per share in a way that not only made Kobe Bryant jealous, but will leave guesses walking bowl-legged for the remainder of the year. Sales were up 71% to $26.74B and ahead of analyst guesses of $24.43B as AAPL simply sold the fuck out of some shit. They sold 7.3MM iPads, 19.5MM iPods, and 16.2MM iPhones, as their mobile products continue to sell faster than hot cakes (though to be fair, hot cakes don’t stream porn). With AAPL’s market cap now larger than the entire GDP of Greece or Portugal, investors can take solace in the fact that any slow down in sales will surely be followed by an EU bailout, so buy away.
In other tech news, IBM beat the Street as they earned $4.18 per share vs. guesses of $4.08 per share thanks to an increase in services contracts which gave investors hope that global businesses will continue to up their technology spend to make sure every worker can view spankwire in HD in the privacy of their own cubicles. The company also gave guidance for 2011 eps of “at least $12.56″ per share (up 9% from 2010) and reiterated their target of ~$20 eps by 2015 (of course part of that target involves the upcoming hyperinflation which will make the dollar more worthless than a blackberry in Indonesia (and note to self: cancel trip to Indonesia)).
The other big news of the day was that Goldman announced their Q and quarterly profits droped 53% as Neel Kashkari was not around to backdoor them some of that free government cheese. While their $3.76 eps slightly beat guesses, the story was that their revenue was weaker than the “tabasco sauce” excuse. Net revenue fell 10%, with FICC revenue down 48% (which was FICCing bad, though not worse than that pun) and investment revenue down 10% as GS may simply have run out of markets to manipulate. Earnings were saved by expense management as GS cut their worker comp pool to only $430k per employee which is a mere 10x the median household income in the US but certainly well deserved as it is horribly difficult for traders to push the right buttons on their keyboards (especially as the US government is there to back them should they develop any fat fingers). The comp number was down 13% which is bad not just for GS employees, but also for poor people as less wealth will trickle down to them since we all know that poor people are directly affected by rich people shopping at Tiffany’s, the Mercedes dealer, and Kristin Davis’ house.
GS wasn’t the only financial to report today as WFC put up an inline Q, the trust banks BK, NTRS, and STT (though why anyone would ever trust a bank is beyond MMB) put up mixed to bleh Qs, and AXP pre-announced a shitty Q which will be below analyst guesses. AXP did promise to fix things by laying off 550 employees in a giant circular clusterfuck (AXP needs consumer spend to make money, consumers need jobs to spend money, AXP cuts more jobs. Problem solved, only the opposite of solving the problem, and yes Money McBags knows 550 jobs don’t make a difference for AXP’s consumer spend, but there could be a ripple effect, as opposed to a nipple effect).
Finally, the FCC approved Comcast’s purchase of NBC Universal, so now a shitty cable company can own shitty content (seriously, the last time Money McBags watched anything on NBC, Jerry Seinfeld was considered cutting edge and Saturday Night Live was still a comedy show). The deal was approved with conditions that require the new company to offer its content to online video distributors at the same terms that would be available to competitors, to ensure it doesn’t use its Hulu ownership to wield control over the digital content space, and to get rid of that awful Jay Leno.
In small caps, momentum stock COOL cooled the fuck off after they once again announced a shitty Q but also gave below street guidance for $.06 to $.10 next year. Money McBags mentioned them as a short term momentum play last week as sales of their Zumba fitness for next Q were preannounced as titriffic. As Money McBags warned, COOL has always been a terrible company so buying them was just a trade. They may have another bounce tomorrow so get the fuck out if you haven’t already.
Also in small caps, as Money McBags mentioned yesterday DTLK preannounced a huge quarter and shot up 30%+ and remember Money McBags pointed them out on 10/25 as an interesting little company that was breaking out more than Cameron Diaz’s face. Well this Q they are going to keep up their huge growth by bringing in ~$90MM of revenue which is up from last Q’s guidance of ~$77MM and up 70% from Q4 2009 and we all know 70% growth in little companies that aren’t trading at ridiculous multiples is spanktastic.
Gross margins guidance was for 22% as they are going after bigger deals and trying to steal market share so they must be discounting as much as a used Yugo dealership, but a 200bp drop on 70% growth with solid operating cost management is good enough for Money McBags. So if we take the 22% gross margin and once again gross up their costs by 5% and then apply a 40% tax rate, we are at $.18 GAAP eps for Q4 and guidance is for $.21 to $.24 non-GAAP eps, so the operating cost assumptions seem reasonable. This puts DTLK at a $.72 GAAP run rate or a $.84 non-GAAP run rate (assuming no growth, which may be a conservative assumption, but you all know Money McBags is so conservative that he doesn’t actually kiss on the first date, though mainly because he hates the taste of chloroform) and the company is only trading at 8x to 9x that depending on which number you want to use, and remember, they have ~1/4 of their market cap in cash, so it is still a cheap fucking stock.
In their release, they said the key drivers of growth were closing several multi-million dollar sales at Fortune 100 companies during the quarter and success from their previous investments to expand market share around data center solutions. That sounds perfectly reasonable, but it’s not like the company has some huge competitive advantage. They are basically selling the same shit as everyone else so either they discounted the fuck out of it (which we saw in gross margins) or their sales force somehow became more efficient. That said, their backlog was only $47MM and while that is a record for them, it is only ~1/2 of this Q’s sales, so they are going to need to close a shitload more deals to keep this kind of revenue run rate. And that is why this company will never be a core holding of Money McBags as they simply rely on big deals every Q and eventually those dry up or one gets pushed in to the next Q or some dumb shit like that because that is how non-subscription based sales work.
So look, the company is cheaper than George Michael’s balls and traded up again today in a terrible tape after a 30% up day yesterday. Good things are happening here and there is still reasonable downside protection so this continues to be a good play. Hopefully we get more detail on the drivers of growth on their call next month (and this is a driver of Money McBags’ growth) but the technicals are good and the numbers are good, so enjoy the ride.
It was a fairly quiet day on the market as investors get ready for earnings season, brace for an East Coast snow storm, and actively try to bet on which porn star Charlie Sheen will bang next (and for the record, Money McBags is taking Gracie Glam, in the kitchen, with his lead pipe). That said, of the shit that did happen, most of it was less positive than a Ted Williams family reunion. The market is just less interested in data right now than banks are interested in marking to market or Americans are interested in common sense (because there is really no fucking reason to own a glock, no joke here) but none of that is relevant because the market believes in the Bernanke Put more than Money McBags believes in riding the subway pantsless, so Money McBags guesses you should just buy the dip and the undip.
On the economic front, wholesale inventories fell by ~.2% which was within ~1% and an absolute value sign of economist guesses of a 1% gain. But hey, so economists missed again, it’s not like they shot anyone’s cock off so Money McBags will give them credit for guessing an actual number for wholesale sales and not something like “b.” That said, falling inventories could be a positive in that it means people are buying shit, or it could be a negative in that it means wholesalers realize people are going to stop buying shit and aren’t restocking, it just depends on if you see the glass as half full or half empty. The only thing to take from this is that the number should have a negative effect on GDP since about 2/3 of GDP growth was driven by restocking so be very careful about expectations.
Elsewhere, small business owner optimism slipped as the National Federation of Independent Businesses’ index fell from 93.2 to 92.6 which means about as much to Money McBags as or a copy of Strunk and White means to a Palin. Also, job openings decreased by 2.4% to 3.25MM which means there are only ~5 people overqualified for every job out there (or 7 if you include the discouraged, the downtrodden, and Tom Delay).
But all of that data is irrelevant because newest voting member of the Fed, Narayana Kocherlakota (“Kocher” from the Sioux for “Full of” and “La Kota” from the Inuit “The shit”) said the economy will grow slightly more rapidly” in 2011 than last year, which is a bit like saying Ellen Degeneres will suck slightly more dicks than last year, but why let details get in the way of a good narrative (you hear that James Frey or James K. Polk?). Kocherlakota guessed an inflation rate of between 1.5% and 2% by the end of this year, though he was likely using core inflation which is about as useful as a paint by numbers kit is to Ray Charles (and not because Ray Charles was blind, but because he’s dead) since it excludes necessities such as food, energy, and Bangbus memberships. Mr. Kocherlakota (gesundheit) also opined: “...it is clear to me that the recession and its subsequent recovery would have been significantly worse in the absence of the actions of the Federal Reserve” which is like thanking the iceberg for curing the Titanic’s kitchen of their problem of having run out of beef.
Internationally, Portugal says they won’t seek a bail out despite borrowing costs being at levels more unsustainable than OPEN’s stock price or a Pam Anderson marriage. After a series of dialogues, Prime Minister Jose Socrates has not revealed his method for slashing the debt but he let it be known that Portugal’s budget deficit should fall from 9.3% of GDP to 7.3%. Should that miss, Socrates may be charged with corrupting the truth. Either way, the country needs to raise ~20B euros this year and Wednesday will be their first debt offering so the market is anxious to see at what yields they raise the funds and if they will have to include Luisa Beirao as collateral. And speaking of debt, China’s foreign currencies swelled to the size of John Edwards’ ego as they now own a lot of fucking dollars. Chinese foreign reserves leaped by $199B in the Q4 to $2.85T which was much larger than economists guessed and at the rate of $2B a day, China will soon be holding more dollars than Lisa Ann‘s g-string on a Friday night at Rick’s Cabaret.
In the market today, Goldman released a 63 page report on its business practices and disclosure policies which can be whittled down to 2 words: “Suck it.” Also, financials were up today after Societe Generale upgraded European banks to overweight, saying banks can achieve more profitability than the market expects thanks to their proven ability to manipulate their balance sheets and earnings.
And earnings sort of officially started today with AA putting up decent results by beating guesses by $.02 with revenue inline, yet they traded down ~2% as the Q caused AA investors to sober up. Interestingly, AA’s CEO says he sees growth continuing from emerging economies such as India, Vietnam, and Miley Cyrus‘ pants. In other earnings news SHLD rose after posting guidance above guesses thanks to their strategy of simply having a lower tax rate. So well done Mr. Lampert, what’s next for the business, including “browsing” in revenue recognition? Despite the better than expected earnings, SHLD saw same store sales decline because even most poor people have standards (except for any of Kelsey Grammar’s wives). In other news, LEN jumped up after beating earnings guesses despite lower revenue but then again, how hard is it to beat a guess of negative infinity?
Not everyone was a winner though today as Talbots customers Tal-bought a fuckload less shit. The stock fell ~17% after the company reduced guidance and announced that revenue in the fourth-quarter is down 7% compared to a year ago which they blame on the growth of chubby chasers causing their clientele to all of a sudden care about what they wear. Finally AMD was down ~10% after their CEO resigned citing his desire to not lead such a crappy company. When asked, former CEO Dirk Meyer said: “Look guys, the economy is tough and if something should happen and AMD goes to zero, how the fuck am I going to get a job with that on my resume?”
In small caps, RICK announced that this Q’s revenue will be up only 4.3% with same club revenue down 3.7% driven by their Las Vegas club still sucking dick (actually, sucking dick might have increased revenue). Money McBags bought the stock recently and while this Q’s growth was below his guess of 10% for the year, the stock is still cheap enough that there shouldn’t be much downside as 4% growth is still growth. That said, Money McBags does have one suggestion to help grow the business: more tits. Also TSTC which Money McBags wrote about in November was down 20%+ after something called The Forensic Factor wrote a scathing analysis of the company. If you go back and read what Money McBags wrote, he was dead fucking on in his disdain of the company. There is simply no way to really know what the fuck is going on in these small Chinese companies so the only reasonable thing to do is to stay the fuck out unless you can somehow build confidence in their management teams.
Finally ININ pre-announced their Q today and crushed the fuck out of numbers as if numbers were Alexis Texas’ backside and they were Whitezilla. After their last pre-announcement, Money McBags broke them down and said they were an interesting company with growth potential, so you’ll have to excuse Money McBags while he figuratively fellates himself (though if his new found love Malene Espensen were here, he’d be happy to have her do it literally).
Anyway, ININ will grow top line ~40% this Q which is well above Money McBags’ high end guess and if they can keep that up next year, EPS will be ~$2.00 with non-Gaap eps closer to $2.25 which means at $36.50, they are only trading at 16x which is fucking cheap for 40% growth. Of course growing 40% for a year is harder than winning a land war in Asia or a cock off against Peter North so it is important to try to get some more color on the drivers of this growth when the company has its earnings call. But look, when little companies like this pop on good earnings, if they can hold that and form a new base over the next couple of days, it is usually a hella positive sign. The 24% jump today could have been a bit of short covering, but good things are happening here so as ININ creeps down a bit in the next few days, you may want to take a position here (and not just the t-square position). Money McBags will continue to point out interesting companies like this because recognizing companies early where good things are happening is the easiest way to get alpha.
Editor’s note: It’s late. There was no theme today. Fuck the headline.
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.
9/3/10 Midafternoon Report: Inconceivable! Money McBags does not think jobs report means what market thinks it means
Oh no you didn’t. The monthly jobs report came out today and destroyed analyst guesses of 41k private sector jobs created by coming in with a headline ~67k private sector jobs created, so break open the bubbly and call the Mrs. (or Mr. for Money McBags’ female, or vagina-challenged, readers) because with a report that good, we’re going out for a night on the town. Afterall, only 14.9MM people remain unemployed (6.2MM longterm employed and and 8.7MM pre-longterm unemployed) with 2.4MM people remaining marginally attached to the workforce (and marginally attached in the same way that Ellen Degeneres’ lips are ever marginally attached to a ding dong) so what is not to like about private sector job growth beating analyst guesses? It’s not like the unemployment rate went up to 9.6% (while the U6 rate hit 16.7% but who cares as those extra discouraged people are just a bunch of whiners anyway so fuck them), or maybe it did, but that is totally irrelevant. With 67k private sector jobs added it’s time to once again buy houses you can’t afford, book those reservations for The French Laundry, and go back to making fun of the poor and unfortunate. Rally on my friends, rally on, as Happy Days are truly here again.
More than anything, Money McBags doesn’t want to be the party pooper here (as these guys seem to have cornered the market on that) or the pasties in the Megan Fox kind of NSFW not quite nude scene if you will, so he won’t mention that the economy didn’t really gain ~67k jobs, but instead LOST ~54k jobs thanks to 117k government temporary census workers being fired and 7k permanent government employees losing their jobs (which apparently included Jan Brewer‘s speech writer). And he won’t mention that of the 67k jobs added, 17k were temporary jobs where overqualified workers were reduced to filing papers which will soon all be electronic anyway. Money McBags also won’t mention that of the 19k construction jobs added, 10k were just workers who had been on strike in July going back to their old jobs (yep, it’s in the data) after no doubt striking due to being overworked as a result of all of the new construction going up (and yes that was sarcasm).
Most of all though, Money McBags won’t mention the 115k jobs added by the Birth/Death model which is likely more fictitious than God (at least according to Stephen Hawking, though to be honest, if Money McBags had spent the last 30 years in a wheelchair he wouldn’t believe in God either, that said, if there were no God, how would one explain this?). Anyway, for those of you who remain unfamiliar with the B(L)S’ Birth/Death model (and as always the “L” in BLS is in parentheses because it is silent), it is a bigger black box than that of Montana Fishburne and is supposed to estimate new businesses opened or closed not captured by the B(L)S survey. It does this through the use of a “probability-based sample design and estimator” (their words, not Money McBags’), fortune cookies, and whatever B(L)S Commissioner Keith Hall tells his analysts to manually input. While the 115k is not supposed to be additive to the numbers, it is somehow folded in to the manipulated 67k new jobs, like a chicken leg folds in to one of Kirstie Alley‘s fat rolls. But again, Money McBags doesn’t want to mention any of that and instead would prefer to think about the 67k new jobs added (or 40k when one subtracts out the 17k temporary jobs and the 10k construction workers who merely ended their strike) which puts the economy at a run rate of only ~100 more months like this (not including the 121k government jobs lost) until we can return to the outdated perception of a normal unemployment rate, and really, what’s a mere ~8-9 years among friends?
For those of you keeping score at home (and now would be the time to turn off chatroulette, zip up your pants, and sharpen your pencils), Money McBags went to the B(L)S website (which his ISP has surprisingly not blocked even though it is more harmful to society than animal porn) and took the data from the Employment Situation Summary Table B (the “B” of course standing for “Bwahhahahahaha”) and reproduced the jobs numbers in a more meaningful table below. As you can see, the economy lost between ~53k and ~168k jobs last month depending on how you interpret the Birth/Death model plug (and Money McBags chooses to interpret it in the dead language of Cayuse).
|Government Jobs||Change in Jobs #|
|Govt Temp/Full-time Plug||(7,000)|
|Permanent Private Sector Jobs|
|Education and Healthcare||45,000|
|Leisure and Hospitaility||13,000|
|Total Permanent Private Sector||51,000|
|Temporary Private Sector Jobs||16,800|
|Total Headline Jobs #||(53,200)|
|Birth/Death Model Plug||115,000|
|Actual Jobs #||(53,200) to (168,200)|
The only other macro news is that the ISM showed the service sector slowed and was below analyst guesses but on a day when the economy manipulatedly added 67k jobs, who the fuck cares about a declining service sector?
In the market today, financials rallied led by GS (and Money McBags is not lost on the irony of a company who never saw a number it couldn’t manipulate rising on the manipulated jobs data of today, it’s a bit like RICK rising every time Heidi Montag gets more plastic surgery) while Campbell’s Soup cooled off despite beating estimates due to operating efficiencies after weak guidance and disappointing revenue.
In small cap news TTWO and ULTA put up big Qs and rocketed up today. Money McBags doesn’t follow TTWO but he once spent time looking at ULTA and ultimately (alliteration intended) decided that cosmetics are about as discretionary of a purchase as one can make (other than candwiches and for pop singers, underwear). If Money McBags remembers correctly, ULTA basically sells cheap down market, yet brand name cosmetics, in off mall locations. They grew revenue 11% and guided to higher earnings for next Q so perhaps there is a middle class trade down play here or perhaps cosmetics are just really inelastic for females who are constantly bombarded by images like this or this so feel like they need to keep up. Money McBags wouldn’t buy anything up 20% on the day, and his gut tells him this is probably a short, but without having done enough research on it, he will hold back an opinion. Perhaps next week he will be able to take a closer look at it (though with any luck, he’ll also be able to take a closer look at Lara Bingle).
So enjoy the weekend and the start of college football.
7/20/10 Midevening Report: Republicans fail to stop unemployment benefits from being extended, next up, trying to outlaw wheelchairs for quadriplegics
The market was moderately down today like a dysthymic after downing a plate of sugar coated prozac and a 2 liter of Jolt Cola before it ran up in the late afternoon due to the Senate extending unemployment benefits. Earnings were the biggest disappointment early on with IBM, TXN, and GS all putting up subpar topline numbers (see Money McBags’ prescient headline from yesterday) as if they were a Jerry Bruckheimer film or Greece. That said, macro news also disappointed which is about as surprising as learning that BP may have more problems or Hilary Swank is really a man.
The main US macro news out today was that home construction declined because, well, because people don’t even have enough money to build confidence, much less houses. Construction of new homes fell 5% in June led by a 20% drop in the construction of condominiums and apartments but helped out by the increase in the construction of shanty towns and modern day Hoovervilles (and hopefully soon, Hootervilles, which will be made out of plenty of wood and pure awesomeness). On the positive side, there was a 2.1% increase in the demand for new building permits though the Commerce Department listed it as “wishful thinking,” and on the slightly more positive side Russian spy Anna Chapman may pose for Playboy.
The big news of the day was that the senate is set to extend jobless aid after some guy named Carte Goodwin was appointed to Robert Byrd’s old Senate seat, making it in fact a “good win” for struggling people everywhere (and yes, that was an awful pun, nowhere near as good as someone named Mr. Goodjoint looking like this). Yeah, Money McBags knows spending more money is not the best longterm strategy and that if the government keeps perpetuating this global ponzi scheme, we are all going to be more fucked than Lisa Ann on the set of Who’s Nailin’ Paylin, but having 4MM people surviving on month old pop tarts and feces is certainly not the answer. There are easily other areas where one could cut spending to make up for supporting people who need extended unemployment benefits (like maybe buying 2 or 3 fewer stealth bombers, using credit cards instead of cash in Iraq, and taking memberships to Tranny porn sites out of the SEC’s benefits package).
That said, never before has there been a need to cut costs to allow for extended unemployment and never before has the government tried to do that in the middle of a recession, but apparently Republicans hate winning elections. Look, all of this money gets put right back in to the economy and is a mini stimulus which might buy the US another month or six to give it a chance to hit a patch of dumb luck and thus avoid being knocked in to bolivion. Either way, Republicans blocking this package is among the stupidest political strategy blunders in American history, right up there with Nixon sweating through the Nixon-Kennedy debate, anyone allowing Sarah Palin to be interviewed, and Warren Harding banging a hooker with a teapot (or something like that). Obviously the deficit needs to be better managed lest we fall further in to Keynes’ folly, but cutting extended unemployment benefits is not the way to go unless one wants to speed up the oncoming anarchy and see what happens when crime starts moving to the suburbs.
In stock news, earnings disappointments led the day with Goldman missing estimates of ~$2.98 EPS by earning only ~$2.75 per share ex one-timers and if this keeps up,
theWhite House GS’ management team, may be in trouble. Those one-timers included the $550MM settlement with the SEC, $600MM for a British bank payroll tax, and Raven Alexis the night of the company picnic after wowing her with how deep their structured products run. It is a rare miss for the company, as they have perfected the ability to control both the markets and the government without winning a popular election or being likeable, but every once in a while even the great Ron Jeremy must come up flaccid. The biggest issue with GS’ Q was on the topline driven by revenue from trading of fixed income products, currencies and commodities, falling to $4.4B from $7.4B in Q1 and $6.8 billion in last year’s Q2 which is a more precipitous decline than Lloyd Blankfein‘s hairline (or reputation) and caused him to vociferously utter “inconceivable” to anyone who would listen. Of course with revenue falling, GS had to cut compensation in order to keep some profits (though profitability did fall 82% even with the cuts) and the ratio of compensation to net revenue fell to 43% in the first half from 49% in the first half of last year which means employees will now have to buy the in the lot Lamborghinis rather than have them custom made.
While last week Goldman settled with the SEC and admitted no wrongdoing (which is a bit like Roman Polanski claiming it was consensual or Eddie Murphy claiming he only acted in The Adventures of Pluto Nash and didn’t write or direct it), the VP in charge of the (allegedly) fraudulent Abacus CDO, Fabulous Fab Tourre still faces a law suit from the SEC which could undermine Goldman’s lack of admission of guilt, especially if Fab continues to blame it on the rain (and that reference will never stop being funny). Tourre made a filing today with the courts saying that he isn’t responsible “for any alleged failings” by GS and he didn’t mean to sucker people out of their money, it just seemed like the thing to do.
In other earnings news, IBM’s revenue came in short of analyst guesses at $23.72B vs. guesses of $24.17B due to a drop in service contracts which the company says were merely pushed back in to next quarter and sluggish growth in Europe due to it being siesta season overseas. Also disappointing was TXN, whose earnings and revenue were at the midrange of guidance but failed to outperform whisper numbers (and Money McBags only hopes it was Alice Eve whispering the numbers). Despite a 900bp increase in gross margins, 42% revenue growth, and above street guidance, the stock tumbled today as if it had downed a fifth of Jack Daniels and had vestibular neuritis. On the positive side, Pepsi beat estimates and earnings were driven by strength in emerging markets with sales in Asia/Middle East/Africa up 16% proving that the demand for sugary water is more inelastic than the demand for running water, shelter and malaria medicine. After beating earnings estimates of $1.08 per share by $.01, PEP maintained their 11% to 13% earnings growth estimate for the year despite currency hurting their growth rate by 1% and Coke hurting their feelings by calling them copycats.
In small cap news, just about everything ran up end of day and Money McBags is pressed for time today so he’ll just leave you with one thought: CRUS. Apple reports tonight and CRUS provides an audio chip that goes in to their iPhone. Money McBags has talked about this stock in depth here and all it has done is go up like the age of consent in Georgia over the past 200 years. You can read Money McBags’ analysis of CRUS by using the search function on WGP but he was alerting you to this stock when it was below $10 and his estimates have continued to go up with the surprisingly quick rebound of their energy business. Money McBags thinks they can earn $1.20 per share and with the type of growth they have been witnessing, there is no reason the company shouldn’t trade at 20x that which means you can still earn >25% here. So pay attention to AAPL’s release because strong iPhone sales should bode well for CRUS’ upcoming Q.
The market tumbled today like a broke Boy George on a floor covered with dong as consumer confidence continues to fade like LeBron James’ Q score or Haiti. Consumer sentiment fell to 66.5 which is the lowest since August and below the most pessimistic guesses of those not paying attention (also known as economists). The drop in sentiment from June’s made up reading of 76 was the biggest drop in two years and was well below the 75 guessed at by economists who eventually will understand that the old data they used to calibrate their regression models no longer holds in our fat tailed society. Newsflash economists: The world has fucking changed, people are all connected, and whatever correlations you saw in the past are now likely more spurious and outdated than civility, manners, and landing strips. Basically everything in the consumer sentiment survey got worse and that is as bad of a sign for future consumer spend as a “You must be 18 to enter” sign is at a NAMBLA convention.
According to a Bloomberg poll, seven out of ten Americans believe we are in a recession, but then again, four in ten believe in alien abductions and six in ten believe that Kathy Griffin is a woman, so whatever. The economic data has gone from marginal to whatever is worse than marginal and it’s not clear what is going to stimulate the economy out of this except for maybe a Bobbi Eden promise to take care of businesses if they hire. In other macro news, inflation continues to be modest as consumer prices were down .1% spurring louder whispers about deflation where cash will be king, and not some lame ass king like George III, but a cool one like Henry VIII or Kong.
In other US news, the SEC pulled themselves away from their tranny porn just long enough to settle with Goldman for $550MM as related to GS’s shady dealings with their Abacus mortgage CDO. The settlement will be among the largest in the history of the SEC with $15MM a result of the money GS made on the deal and $535MM as a punishment for GS being a bunch of asshats for the past 140 years. Of the fine, $300MM will go directly to the US Treasury where they can either buy 3 new planes for congress, help Timothey Geithner pay his back taxes, or hire Cintia Dicker to massage their data before they stick it in to a GDP model.
Along with a consumer nudging closer to life support (and unfortunately with a pre-existing spending condition, the consumer is no longer eligible for insurance to help them survive), earnings reports were marginally bad at best. BAC plummeted 9% and C dropped 6% after they released decent earnings but showed revenues to be more lacking than rhythm at a Republican convention or diction in an NBA lockerroom. BAC’s revenues were down 11% and C’s were flat but most worrisome was that the earnings beats were a result of reserving less for credit issues with BAC reserving $5B fewer than last year because apparently they developed retrograde amnesia sometime in June. Ugh. This is going to get uglier than an Amy Winehouse-Michael Berryman love child.
In other stock news, GOOG revenue beat guesses but EPS fell short by $.06 as they earned $6.45 per share vs. analyst guesses of $6.51. That <1% miss of made up numbers was enough to drop the stock 7% and the company has said the are going back in to investment mode which spooked investors as if investment mode were a book and investors were Dexter Manley. Even though the 24% rate of growth was a bit lower than last Q’s, this company is still the dominant player in one of the biggest and growing industries on the planet (right after hand set makers, gold mines, and porn) so while Money McBags is scratching his head a bit at GOOG’s continued fourth mover push in to things like handsets and social media, he is still a long term owner because if the consumer dies, they are still going to spend time online guessing muffs as a way for cheap entertainment, so online advertising is only going to get stronger.
In small cap news, everything was down today. JOEZ was out with their quarter and it was mostly inline with analyst guesses of $.01 eps but 50% below Money McBags guess of $.02 eps (and see how Money McBags used 50%, instead of $.01 to make it sound much worse than it was?). Anyway, JOEZ put up a nice topline number, growing revenue by 51% to $26MM but once again had earnings leverage more negative than the reviews for an M. Night Shyamalan movie. That’s right, despite growing revenue 51%, net income dropped by greater than 50% from $1.3MM to $500k defying the laws of common sense and business savvy. With that kind of inverse operating performance, it’s a good thing JOEZ didn’t grow their business 75% because then they might have lost money.
It would be easy to blame the drop in net income on the tax rate which grew to 48% over last year’s 14% thanks to a shareholder unfriendly earnout struck by management when they acquired Joes, so thanks for that guys, really (oh wait, Money McBags isn’t a shareholder, so he doesn’t really give a fuck that JOEZ management treated their stock owners like second class citizens in a third world country when structuring the acquisition), but operating income BEFORE TAXES was down 25% from $1.6MM to $1.2MM. So on the extra $8.7MM of revenue JOEZ brought in this Q compared to Q2 2009, they lost $400K before taxes. Wow. Now look, Money McBags is no Jack Welch (though he did manipulate his earnings this morning to Brooklyn Decker), but losing money on incremental revenue is so obviously bad that even business school professors know it is a failing strategy. It’s ok to have a loss leader, but when your whole business is a loss leader, you may have a problem.
Anyway, the reason for the operating earnings decline was threefold: 1. Gross margins declined worse than Louis XVI’s power in 1792 France or Yasmine Bleeth’s career after Baywatch. 2. Operating costs jumped up as if they had seen a mouse, or Kevin Federline, scurry across their kitchen floor. 3. Their core denim business is witnessing a second derivative decline in growth.
As for gross margins, which continued their descent, this time from 51% to 44%, the company said that the drop resulted from the addition of new lower margin product categories such as the T, the Pant, and the Top. CEO Marc Crossman did say that as volume grows for these products, margins should go back up as they can take better advantage of the factories and thus he expects meaningful margin expansion.
As for the increase in operating costs, that is a bit more troubling as costs jumped up to ~$10MM from ~$7MM which they said was the result of new worker salaries, rent costs, and a big night out at their local Rick’s Cabaret (ok, maybe not the third one, but whatever). The confusing thing though is that costs were up $400k sequentially when last Q JOEZ said operating costs were artificially higher due to $850k of one-time advertising expenses and the moving of their headquarters. If we strip out those numbers, operating costs were up by ~$1.2MM from Q1 or ~15% while sequential revenue was up only ~12%. So basically this company manages their cost structure about as well as Alan Greenspan managed interest rates, Bernie Madoff managed money, or Magic Johnson managed a condom. The company said with their new lines built out they don’t expect operating costs to rise, but again, last Q they pretty much said the same thing and blamed the higher costs on one-time charges which either became two-time charges or were filled in by new costs.
And finally, they said their denim is now a single digit grower (though Money McBags wasn’t sure if they just meant in department stores, or overall) so they are going to increasingly need to rely on new products to spur growth and to date, the new products have killed their margins. In a trendy business, continuing to hit on new products is more difficult than solving the Poincare Conjecture or listening to a Ray Romano stand-up routine and not wanting to cut out your ear drums, so this is getting to be a tricky proposition.
In terms of their balance sheet, cash is now down from $13MM at the beginning of the year to $8.5MM, driven by a $3.5MM burn from operations due to rising inventories and helped out by growing accounts payable (which sounds about as healthy as a cock sandwich with extra VD). While they aren’t in imminent danger (though at the rate of their cash burn from operations they only have 12 months of leeway), Money McBags would not be shocked by some kind of secondary offering because unless they can get their operations in order and start GENERATING cash, their growth plans are going to have to be put on hold.
So how the fuck does one forecast a company whose growth rate over the past 4 years was 30%, 35%, 10%, and 16%, who sells an expensive discretionary good in the midst of GLOBAL RECESSION, whose management team has grown revenue 46% this year and yet had earnings decline because they understand costs like Donald Rumsfeld understands war strategy or Sheyla Hershey understands when enough is enough, who burned cash in both quarters this year and is getting to the point where the may need to reload faster than Peter North on a day he is filming a double feature, who is in a market that is all about fads and their biggest product is starting to have its growth slow, and who has been so shareholder unfriendly that they stuck shareholders with a 48% tax rate so the management could get a better earnout and thus order a second helping of caviar when they were done screwing equity owners?
One could annualize the $.02 they have made in the first half of the year and call their earnings run rate $.04 and slap some growth on that, but that would be the easy way out. Money McBags is in a good mood today (mostly because he recently discovered Sofia Vergara) so he’ll assume JOEZ can kind of keep this up and grow revenue 35% for the rest of the year and 30% next year (assuming they don’t run out of cash or can raise cash to continue to expand). He’ll call gross margin 51%, operating margin 38%, and the tax rate 45% (though they say it will wind up closer to 40% sometime around the year infinity). Doing that, Money McBags gets to $.16 eps for next year at the high end because every single one of those estimates is giving them a fuckload more credit than they have earned. So next year the company should earn somewhere between their current $.04 run rate and $.16 assuming they don’t have to issue more shares to help quell their cash burn. JOEZ is now trading at between 13x and a bazillion x those numbers.
So in short, Money McBags is glad not to be involved in this company as they have been able to deliver profits about as well as George Will delivers a punchline but if one believes what management says and not what they have actually done (like you know, lose money, mismanage costs, fuck over shareholders, and burn in cash), one could make an argument that 13x for a 40% grower is cheap, of course one could also make an argument that Tori Spelling is hot, so be careful to whom you listen. Money McBags remains fascinated by this little stock though as it’s not often you find 40%+ topline growers who manage to consistetly shrink their profits.
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 rallied today in the morning like a chubby chaser with a bottle of crisco on his way to a Peter Paul Rubens exhibit until it faded in the afternoon thanks to common sense and volume. Rallying the market in the morning was news that China is going to unpeg their currency from the dollar thanks to pressure from global leaders who felt that the currency peg gave China an unfair trade advantage in selling their cheap shit even cheaper. The announcement comes ahead of the G-20 summit in Toronto this weekend where finance ministers and central bankers from around the world will no doubt descend upon the NSFW Brass Rail and flaunt their ability to negotiate currency while manipulating bottoming assets (of course after the EU’s latest bailout, finance ministers will certainly wonder if that is a printing press in EU central bank governor Jean Claude-Trichet’s pants or if he is just happy to see them). While it’s good that China is willing to let the renminbi/yuan float (and if anyone can explain to Money McBags the difference between “renminbi” and “yuan,” other than several letters, he’ll send you a free autographed poster of Gong Li), China has stated that they will do it gradually so as to avoid a potential destabilization bubble like what happened in Japan when the yen was unpegged from the dollar in the mid-1980s or like what happened in Britney Spears’ pants after she was unpegged from Justin Timberlake. With the return of a “managed floating rate,” the yuan/renmindbi/johnson rod was up ~40 bps against the dollar to its highest level in five years which means happy endings just got a little less happy for all of us.
In US macro news, less is happening today than on a Bernie Madoff trading desk in 2006 or in a eunuch’s pants. The SEC is going after a firm called ICP Asset Management for manipulating CDOs in ways that would have made even Meggan Mallone blush. ICP is accused of pumpng up CDO prices to increase the value of their funds, pushing profits to their owners rather than their investors, and being what I believe the SEC called “a bunch of dicks.” In other news, the proposed Durbin Bill which is supposed to keep credit card companies from charging merchants exorbitant interchange fees as a way for those credit card companies to have adequate reserves when their customers charge off due to the high prices the customers have to pay for goods which of course are partly caused by merchants raising prices to make up for high credit card interchange fees (it is the least fun daisy chain Money McBags has ever encountered), is rumored to be losing steam. News today is that the bill will take out “network fees” from interchange and thus credit card companies will still be able to charge retailers the fuck out of transactions due to a semantics loophole. The result of all of this is that V and MA shot up at midday while politicians once again do their best to to take the bite out of their bark or the steam out of their cleveland steamer if you will.
In stock news Alcoa ran up today as high frequency algorithmic traders have stumbled on to the phonebook approach and are just buying the first company listed alphabetically (though a smiliar strategy worked for Malachi Constant). Actually, AA is up as over the weekend their CEO said he expects demand to grow 10% with half of that coming from China and with China releasing their yuan today, demand for imports in China should improve. In other stocks, BP is down again today because the stock hasn’t reached zero yet and Goldman Sachs cut their earnings forecast for banks causing banks to rally as investors realize trading against GS’ recommendations and thus WITH GS’ ACTUAL BOOK is the best way to make money. GS front runs and ditches shit to clients once it has appreciated more often than marginal celebrities come out as bisexual (and today it was some singer named Vanessa Carlton who claimed she is bisexual which would have made Money McBags excited if he knew who Vanessa Carlton was and if she didn’t look like the man in the relationship). Anyway, the short GS recommendation, long their actual book trade wins again.
In small cap news a Money McBags favorite KITD was down 9% on no news that Money McBags could find though he wouldn’t be shocked if they were getting ready to dilute shareholders another 25% just because they can. This company is more frustrating than a one-armed man trying to solve a rubik’s cube. That said, Money McBags still believes in the long term growth story so is not sweating their huge Euro exposure and their predilection to raise equity as a daily operating procedure. Money McBags is short on time today, so no detailed analysis of any small cap names but if the market has topped out here with the sell off in the afternoon (and Money McBags is no chartist, though he will technically analyze Hilary Rhoda‘s bollinger bands if need be), then he would be selling his illiquid names in to the downturn.
The market didn’t do much today as it tries to come down off its volatility high which was fueled by mass uncertainty, broken technical barriers, and a fuckload of pixie sticks. In macro news, new claims for unemployment were much worse than analyst guesses and also once again tested the (No) Labor Department’s ability to do simple math. Claims were up by 12k, bringing total claims to 472k which would make sense if last week claims weren’t 456k. You see, once again we’re left with an equal sign that has to be more confused than Chastity Bono’s bikini waxer because 456k +12k = 472k only in the land of make believe where it rains gum drops, pants are optional, and everyone looks like Diora Baird. Once again the (No) Labor Department (though the parentheses may drop from the No if claims keep up at these levels) revised last week’s number upwards by 4k which only gives initial false optimism and then leads people to believe any of these results about as much as they believe in the existence of the Loch Ness monster, vampires, or Abe Vigoda. All one can glean from things is that directionally things remain bad no matter what made up number is given by Hilda Solis’ henchmen and henchwomen and that when the number is released next week, this week’s 472k new claims will have been revised up to somewhere between 475k and “we’re all fucked.” With the federal government now paying 73 weeks of unemployment on top of the 26 weeks people already receive from the states, 10MM Americans are being paid to fix up their resumes for the one current job opening in this country which is for a ticket taker at the Regal Cinemas in Topeka, Kansas (and if you’re interested, just leave your resume in the box). Job growth remains more stunted than He Ping Ping with a bad case of whiskey dick. In other macro news, the Philly Fed announced today that business activity for manufacturers in the Mid-Atlantic region declined which was most surprising because everyone assumed the Philly Fed had been robbed and burned down like everything else in Philadelphia. The Philly Fed’s index of business activity fell to 8.0, from 21.4 in May, and was well below analyst guesses of 21.0 since analysts are clueless and no one in Philly can afford shit. Finally the CPI was out today and was up 2.2% from last year but basically flat with last month which is a good sign for those worried about inflation but a bad sign that the Fed is going to continue to keep rates at a level where the next bubble is only a financially engineered instrument away.
Internationally, the EU says they will release the results of their bank stress tests but will release them only in the ancient and dead language of Yola. Of course the language is irrelevant because Money McBags is 100% sure that the results will show European banks are in better shape than a young Jack LaLanne and he is also 100% sure he won’t believe any of those results. It serves Europe, the US, and the whole global financial system no good to be honest about the banking problems in Europe unless we really want to try to fix the problems rather than sweeping them under the rug for another few years as we bask in our own delusions and continue to fight windmills for the love of Dulcinea (though if she looks anything like Elizabeth Canalis, it will certainly be worth it). Also, a Spanish bond offering went off without a hitch as Spain saw strong demand for their 10 and 30 year bonds thanks to raising the premiums by 80bps and 110bps and promising that Nereida Gallardo would personally service all of the debt.
In stock news, AAPL is reaching record highs as they announced they sold more than 600k of their new 4G iPhones in one day (though they failed to disclose that the iPhones were laced with heroin and MSG). Apple’s news is also pushing up a Money McBags’ favorite small cap name CRUS. Goldman was up despite Credit Suisse cutting their price target on GS from $235 to $225 once again proving that Credit Suisse moves the market about as much as Stephen Hawking moves his trachea. And finally the great Dick “Don’t call me Richard” Bove cut his price target on USB from $29.50 to $27 continuing his run of cutting bank price targets to only 40% above their current prices making him as bearish (though still as deluded) as he has ever been.
In small cap news, WGO came out with earnings today and Money McBags told all of you to keep your eyes on it as the company has run way ahead of actually putting up any kind of numbers. Those who have owned the company got in earlier than a NAMBLA member gets in to the dating pool. While Money McBags has hated the stock and still thinks it remains overvalued, he will give them credit for putting up a decent quarter, though not as decent as the headlines would lead you to believe. The good news for the company is that sales grew 165%, they were profitable, had positive ~$8.5MM EBITDA, prices were up 20% for an average of $98k per unit (because they’ve now infused their motor homes with the scent of Diane Kruger‘s vagina which I am told smells like talcum powder, fresh rose petals, and rich people), and apparently people will still buy expensive shit that they don’t need. Honestly, Money McBags is flummoxed by this one. He understands why people would be dropping $100k for new motor homes when they are on sale for a fuckload less than that at maybe a year old on the used market as much as he understands Naked Lunch or country fucking music (and if it’s not clear, that is “not at all”). Now the bad news for the company is that the earnings headline number was 2x what it really was thanks to a tax benefit, the sales growth rate slowed down from last quarter, gross margins are still fuck awful and below 10%, accounts payable jumped, they are trading at a ridonkulous multiple, and the economy still sucks like Nikki Dial on the set of White Men Can’t Hump.
Ok, so let’s just look at the quarter a little bit. Revenue was ~$135MM, up 165% year over year but up only ~20% sequentially. Alternatively, last year in this sequential Q revenue was up 60% while last Q year over year revenue was up 247%. So sure, it sounds stupid to call 165% growth bad, but contextually sales are slowing down after a big ramp up post stimulus. More importantly, headlines say the company earned $.21 per share but that number is phonier than Jack Nicholson’s accent in The Departed or a married woman who says she likes giving hummers. WGO had $.21 in earnings per share thanks to a $2.4MM tax benefit. If we take out the tax benefit, they had $3.4MM in operating earnings for ~$.11-$.12 in EPS. But hey, Money McBags will give them credit for making money, good on them, really, too bad their unrecognized tax benefit is only going to last another couple of quarters. Anyway, Money McBags’ big concern is that they can’t keep up this pace and have reached a new near equilibrium level and at that new equilibrium level they are still more expensive than bald eagle foie gras (and nowhere near as tasty). The market cap is $357MM after today’s run up and they have ~$77MM in cash so an enterpirse value of $280MM. This Q EBITDA was ~$8.5MM so if we annualize that, WGO is trading at ~8x-9x EV/EBITDA. Also, they just earned ~$.115 per share so annualizing that yields ~$.46 eps and they are trading at ~27x that. Obviously those who own the stock think that they are not at run rate earnings levels and can continue to grow even though the economy is stagnating, even though inventories have already been rebuilt, even though input prices are rising for WGO, and even though someone spending $100k on a completely discretionary item in this economy is more confusing than Schrodinger’s cat (and newsflash, it wasn’t the poison that killed or didn’t kill Schrodinger’s cat, it was fucking curiousity as he tried to figure out why the fuck he was in a box). Anyway, it could happen, really, sales could somehow keep growing but this industry was in a sector decline BEFORE the recession hit and there is no way one can call this a growth company over the long run. Money McBags would never put more than a market multiple on WGO and thus to justify the current $12.30 price WGO would have to earn $.82 next year to have a more likely 15x multiple and that just doesn’t seem reasonable. So look, Money McBags was expecting worse than what WGO has done and it’s been a crappy short, but he still thinks the stock is overvalued. Let the short squeeze die down today and monitor this company for another quarter to see if they can replicate this success before making any big calls. Money McBags previous downside price was $7.50 and now it’s probably closer to $9 (15x ~$40). WGO was at ~$11 when Money McBags posted his initial short thesis and the market has been flat since then, so it hasn’t been a good trade, it happens. If Money McBags were right about everything he’d currently be in the Bahamas about to share a cleveland steamer with Hannah Hilton and not writing this, so it is what it is.