Posts tagged housing
5/19/10 Midafternoon Report: VIX shoots up, claims it doesn’t have a problem, just wants to try to take its mind off global recession
The market got clobbered again today (until a closing minutes rally) like it insulted Preston Brooks’ uncle or like it had one too many shots of tequila while watching the donkey show. Investors continue to fear the impending doom of Europe with their quaint monetary system, silly accents, and love of black jeans. However, macro news in the US was marginal today with inflation at its lowest level in 44 years which should allow the Fed to keep rates at historic lows until it causes the next bubble. Core inflation, which takes out the effects of things on which people actually spend their money like food, energy, and lap dances, was flat and thus led to the lowest 12 month gain since LBJ was president, yo-yos were a fad, and full muff was the style. Overall though, consumer prices fell by .1% so on average the little money you have left will now get you .1% closer to buying some shit you can’t afford. On the housing front, mortgage demand shriveled up worse than your “jumbo arm” after diving into the arctic ocean immediately after viewing a Hanna Hilton opus. With the federal tax credit for homebuying now expired, mortgage purchase applications fell by 27% despite record low rates and home sellers making sure all of their carpets match their drapes (and for the record, Money McBags is not in favor of carpeting for his hardwood). Making matters worse is that foreclosures rose to a record high 4.63% and now 1 out of every 7 homes is either in foreclosure or delinquency or as it’s known on the Street “a AAA rated Goldman MBS CDO.” Finally, the SEC is trying to put in circuit breakers for all S&P 500 stocks to combat the stranglehold high frequency traders have on the market (and as always, Money McBags is a big proponent of the Camel Clutch as the best stranglehold). While these measures may have the effect of bringing a knife to a gun fight or hiring Magic Johnson to judge a grammar contest, the circuit breakers will seek to pause trading for five minutes if the price of a stock moves by 10% or more in a five-minute period or if Bar Refaeli show up on the floor of any exchange.
Internationally, investors are still freaked out by Angela Merkel’s preemptive strike on naked short sellers and will make sure they have an extra pair of pants with them at all times just in case. Germany’s new shortng regulation has caused investors to wonder what exactly German leaders know that is not public as German bank stocks have yet to come under attack and usually politicians wait for things to crumble before acting. Strangely, the rest of Europe has not followed what could now be the biggest Merkel boner since Fred failed to touch second base (and Money McBags would never fail to touch Angela‘s second base). The failure of other european countries to follow Germany’s lead in regulating their markets is causing investors to question the strength of the EU while applauding Europe’s sanity because we all know what happened last time Europe followed the Germans.
In stock news, does anyone really care? No seriously. The market is not trading on fundamentals right now as forecasts for next year are more dubious than receiving a letter from Ted Kaczynski. Money McBags has been harping on analysts using normalized earnings as a valuation metric for awhile now since normalized went out the door with subprime CDOs, easy credit, and the advent of the very NSFW muff guessing (though Money McBags does use normalized earnings in his EPAX valuation, but there is something to be said about being logically inconsistent, just ask Mark Souder who apparently values families so much, he has more than one). Anyway, HPQ put up a nice quarter last night, beating analyst estimates and raising guidance thanks to strong demand for their PCs, a resurgence of their printer business, and absolutely no influence from Carly Fiorina in the past five years. The company earned $1.09 per share, beating analyst guesses by $.04 and gave full year guidance of $4.45 eps to $4.50 eps which topped analyst guesses of $4.45, or by about the amount of their beat this Q. The printing division grew revenue by 8% as they apparently supply the US Treasury with laser printers to spit out more dollars. In other stocks, TGT put up a solid quarter though not nearly as delightful as BJ’s who swallowed up the competition. BJ’s beat estimates and saw a 4% increase in customer traffic thanks to higher sales of candy, cigarettes and awesomeness.
In small cap news, once again Money McBags favorite KITD is getting demolished on high volume. Either a large owner had a margin call, a Portia De Rossi fat finger, or just wants the fuck out like Ricky Martin trapped in a closet. Here is what Money McBags knows:
1. CEO Kaleil Tuzman bought 100k shares the other week. When a CEO is buying, that usually means good news unless the CEO is Ken Lay and he is buying Enron. That said, this should be at worst slightly positive.
2. Their Q was ok by Money McBags’ standards but caused analysts to increase targets. This should be a slight positive as obviously, analysts are just guessing.
3. They diluted the shit out of shareholders last month and have yet to put the majority of that money to work. This is a big negative.
4. They are levered to EU revenues. Another big negative, like hiring Bernie Madoff to help allocate your assets.
5. Kelly Madison puts the ILF in MILF. And that is a huge positive for everyone involved.
6. When the markets are diving, nobody wants to own a weird little company posting negative eps (thanks to one timers and derivative charges) with a promotional CEO who just wants to build something big enough and quick enough to sell. There is obviously risk, that is why they call it gambling, I mean investing.
A lot of little stocks are taking it in the yingus right now. Look at former Money McBags favorite RICK which is down around 30% from where we sold and almost 40% from the top (and it is definitely time to start the due diligence on this stock again, especially if it invloves doing a stress test of their performers’ assets). Heck, FHCO was down 5% today, which was not unforseen by Money McBags, but their business is fine. The point is, no one wants to own dinky little companies when the world is going to zero, so take a deep breath and do some real due dilligence now because when the market stops falling, there will be some very good buys.
The market was somehow flat today after spending most of the day down again as the perilousness of Europe’s debt situation continues to worry investors like laryngitis worries Pavarotti or like coming in to contact with Paris Hilton worries osmophobes. Not only is Europe raining ash on the market’s parade (both literally and figuratively, though to be fair, the market’s parade today was in honor of Norwegian Constitution Day (better known as pedophilia Christmas for the tradtion of children’s parades), which ranks somewhere between the invention of nose hair clippers and the launch of the Edsel in the pantheon of modern events, so not a big deal) but US macro news was mildly disappointing as well. The NY Fed released their monthly manufacturing report and the gauge of general business conditions fell to empty. The business index dropped from 31 to 19 and analysts had guessed it would be 30. As always, Money McBags has no idea what the difference between 31 and 19 is (other than maybe a few kids and a meth problem), but he knows that they’re both legal. The new order index also tried to make this a Blue Monday by falling from 29 to 14 as inventories have been restocked (or un-destocked, whatever). One positive aspect of the report though was that employment strengthened as payrolls grew the fastest they have in six years as NY manufacturing plants try to keep up with demand for tools and building materials to help batten down foreclosed on houses. In other US macro news, home builders’ sentiment hit a 2.5 year high as apparently delusion has finally creeped in to lift their spirits. The index rose to a whopping 22 while analysts guessed it would be 20, so the difference is a rounding error or a stutter. The bigger issue is that 50 or greater means more people are optimistic, so with the index only at 22, people are just slightly less negative, like a guy who breaks up with Amy Winehouse to date Mayim Bialik.
Internationally, the Euro continues to sink today as if it were a Brazilian Real in 1999 or had just hired Ted McGinley to star in its new TV drama (tentatively to be called The Big Crash Theory). The ECB was out buying 16.5B of sovereign debt and in order to try to show they aren’t just printing Euros, they will be taking in 16.5B of deposits from banks and paying out interest. Wow. So the banks get some free money while the ECB gets worthless bonds and has to pay interest on the money they didn’t “print.” Seems a bit odd but then again, so does Rene Zellweger‘s face and that’s never seemed to hinder her. Also, bank lending in Europe is taking a significant hit as the rates banks charge each other for loans in dollars rose to a nine month high. The Libor-OIS spread (which isn’t nearly as interesting as the rumored Rachel Uchitel Playboy spread) increased to 24 basis points, the most since August, thus signaling that banks in Europe are as interested in lending as the FED is interested in transparency or as Ellen Degeneres is interested in penis.
In stock news, GM posted their first profit as apparently people can now only afford shitty cars. GM earned $865MM and proved that all you need to do to succeed in business is suck badly at your job, lose a ton of money, and then get bailed out by good old Uncle Sam and his magic printing press. Money McBags only laments that he missed that class during his business school days. Not only did GM post a profit, but they are on course to go public again in Q4 to try to see if the investors have learned the old adage “Fool me once, shame on you, fool me twice, go fuck yourself.” Additonally, GM is said to be looking to get back in to the financing business which is a bit like letting Bernie Madoff handle the prison finances, filling the Goodyear blimp with hydrogen, or hiring Roman Polanski to babysit your 14 year old daughter. In other earnings news, LOW beat earnings forecasts but like all companies in the past week, gave guidance more disappointing than Nicole Eggert‘s movie career (and Money McBags had so much hope). CEO Robert Niblock said that 2010 will be a “year of transition” while significant growth won’t happen until 2011, and if it doesn’t, no one will remember he said it would. Guidance for Q2 was $.57 to $.59 per share which was below analyst estimates of $.62 per share and sent the stock down for the day.
In small cap news, KITD had their quarterly earnings release today and you all know Money McBags loves KITD like Joanie loves Chachi or high frequency traders love turning off liquidity when the market is tumbling. The stock is trading down heavily thanks to some block trades around midday where someone just wanted to puke this out like a bulimic with emetophilia at an all you can eat Sizzler buffet. Money McBags hasn’t had a chance to listen to or watch their call, though he will tonight or tommorow, but he did go through their Q and hear the last 20 minutes of Q&A. To be honest, their Q was a bit lighter on the revenue side than Money McBags would have liked to see. Revenue of $17.4MM was up 80% y/y but up only 8% sequentially, though management explained that this is typically a sequentially down revenue Q due to reduced digital media consumption in the industry. That said, EBITDA margins were only 17% after being 19% last Q and accounts receivables continue to be higher than John Belushi at a Chateau Marmont casino night. Management explained that as they are a small company with Fortune 500 clients, they have about as much leverage in bill collecting as He Ping Ping does on a see saw with Shaquille O’Neal (and that’s not just because Mr. Ping Ping was so small, but also because he is dead). As they explained, they have been getting business in towards the end of the Q which causes A/R to spike right before the Q but their larger clients get around to paying them within 45 to 60 days typically since KITD’s services are usually a small expense for them. An interesting point made by CEO Tuzman was that they could factor their receivables but they choose not to because they are not worried about collecting and thus don’t want to give up the economics. Their customers are going to pay as they are big, established companies, but they just take a bit longer. Three other interesting points:
1. In the press release they say: “In answer to a couple of investors’ questions, we have not seen any slow-down in IP video-related expenditures in Europe as a result of the
2. They purchased a company called Benchmark which gives them a presence in Singapore, mainland China, and Southeast Asia. Benchmark is supposed to have $10MM in revenue in the next 12 months and they paid ~$11MM for it if Money McBags did the math correctly. The deal should be immediately accretive and will open up opportunities in Asia for them where there are two main competitors who they hinted that they may already be in negotiations with to do JVs or acquisitions. Money McBags is glad they are finding shit to buy with all of the dilutive equity they just raised.
3. Kelly Brook is hot.
Anyway, guidance for this year which was released a few quarters ago was $75MM+ revenue but since then they have added Multicast which should be ~$12MM revenue and 9 months of Benchmark which should be ~$7.5MM revenue, so they are now on pace for ~$94MM in revenue. However, they only earned $17.5MM this Q so in the next 3 Qs they are going to have to average ~$25MM revenue which seems a bit like a stretch. In terms of earnings, gross profit was up to 61%, a number they said will likely continue to climb a bit depending on mix and after stripping out merger, restructuring, non-cash stock comp, and integration expense, Money McBags has KITD with ~$1.5MM of operating income this Q and with the 23MM shares they now have, that would have been ~.07 EPS. So not great, but on the right track. To give you an idea about the leverage though, if they had earned $25MM in revenue, they would have had another ~$4.5MM of gross profit and even if op ex rose $1MM, that would have earned another $.15 putting them at $.22 eps or ~$.88 eps run rate and they are trading at ~15x that with today’s sell off. As highlighted earlier, guidance and acquisitions now get us to $25MM revenue quarters so over the next year that type of operating EPS is possible, and with 50% growth, KITD remains very cheap.
Oh no they didn’t. The SEC apparently found their shriveled ballsac hidden in Meaghan Cheung’s now empty desk and hired Faye Reagan to skillfully tickle it back to life which has led the re-testosteroned agency to go after the biggest turd in the punchbowl, Goldman fucking Sachs. Holy shit is it on. The government hasn’t gone after one of their own like this since Bill Clinton misplaced a cigar in the Oval Office (and yes, Money McBags considers GS one of the government’s own since they are more intertwined than chocolate and vanilla in a marble cake or Wilford Brimley and Betty White sharing an electric blanket). The SEC is claiming that Goldman Sachs defrauded investors by misleading them about the subprime mortgages they were packaging and selling as part of CDOs. The government’s case centers around the fact that Goldman is full of shit, and less importantly, around the fact that Goldman let John A. Paulson (no relation to former GS CEO and US Treasury Secretary Hank Paulson, and also no relation to other famous frauds such as Bernie Madoff) pick and choose which mortgages were going in to those CDOs despite the fact that Goldman knew Paulson was betting against those securities. To be more precise, the issue centers around a subprime CDO called Abacus, whose name apparently signifies the sophisticaiton of investors who bought this fraud because they apparently were using an ancient roman abacus to calculate the likely value of the CDO after losses as we all know roman numerals and hence roman abacuses, don’t contain a zero. It is the classic case of heads I win, tales you lose, now go get me a fucking vodka tonic and hold the fucking lemon. GS led investors to believe that an independent third party picked the subprime mortgages for their CDOs which was such a boldfaced lie that Money McBags is now going to rename them Boldman Sachs, or BS for short. The suit by the SEC also names Boldman trader “Fabulous” Fabrice Tourre with helping perpetuate this fraud which now vaults him past Milli Vanilli’s Fabrice Morvan as the most famous fraudster named Fabrice. One only wonders if Mr. Touree will also blame it on the rain.
In their defense, Goldman referred to the SEC accusations as “completely unfounded in law and fact” unless you are “talking about securities law and irrefutable details.” The firm did say they will “vigorously contest” the charges “and defend the firm and its reputation.” When reporters reminded them that after the financial crisis and their ties to Washington, their reputation might have already been blown, the Goldman lawyers simply responded with “That’s what she said.”
Taking Boldman out of the equation today, which is a bit like taking Modigliani out of the Modigliani-Miller thereom, jelly out of a PB&J, or facials out of porn, US macro data was positive. Housing starts beat forecasts and rose to their highest level since November of 2008 when everyone was putting up new cardboard boxes. New home starts rose 1.6% to a seasonally adjusted annual rate of 626,000 units and economists were guessing that they would come in at only 610k. Even more interesting is that February’s housing starts were revised up from a 5.9% drop to a 1.1% increase which is a bigger revision than Texas school text books are going through in the school board’s attempt to reverse natural selection.
In earnings news, Bank of America became profitable once again thanks to their trading portfolio. BAC earned $.28 a share which easily beat analyst guesses of $.10 but like JPM, earnings were driven by investment banking and trading profits as profit from the investment bank was $3.2B while overall net income was also $3.2B. So if one does the math, the consumer is still a little bit dicey while paper gains are leading to positive returns. It seems like we have seen this somewhere else before, but Money McBags can’t exactly remember where. Oh yeah, the last 15 fucking years of the financial sector. But don’t worry, nothing to see here, these guys have it all under control this time around. Afterall, 30 day delinquent credit cards fell from 7.23% to 7.07% and the bank wrote off only 12.5% of their card portfolio as uncollectible, so phew. Money McBags was a bit worried that they wouldn’t be able to create enough phony revenue through trading gains to be positive, but as long as credit card delinquencies are only 7.07%, then everything is hunky fucking dory.
In other stock news, GE beat forecasts by besting analyst guesses of $.16 per share and earning $.21. CEO Jeffrey Immelt said “We saw encouraging economic signs, including increases in airline passenger miles and freight loadings, declines in receivables delinquencies, and growth in local advertising markets.” He then said, and “even if we hadn’t seen markets pick up, we spent an inordinate amount of time relearning how Jack Welch “managed” earnings for so long and will be implementing that system once again.” That said, it wasn’t all lobster tails and BJs in Jeffrey Immelt’s exectuive suite as GE Capital’s earning dropped 41% as they couldn’t manipulate paper trades to hide their consumer lending portfolio like the recently profitable banks.
Finally, GOOG reported and is down 6% despite growing earnings by 38% with a 23% increse in revenues. Even though they beat analyst estimates, GOOG apparently missed the whisper number for earnings of $7 and to be honest, the only whisper Money McBags wants to hear is from Lucy Pinder and includes the words “no” and “gag reflex.” GOOG’s call was also notable because CEO Eric Schmidt did not take part in it which caused investors to worry that he may be leaving the company because apparently dominating the world has become less appealing. Money McBags is looking at this as a buy opportunity and if Goog drops into the $530s, he will be adding to his position.
In small cap news, everything is down except CRTX has strangely continued to rally. Money McBags mentioned this the other day and the stock has maintained it’s perky-ness. If you can believe management, the stock is probably 30%+ too cheap, but they have exectued poorly and had to buy growth at high prices in order to stave off the decline of their main drugs. The company reamins cheap if you believe them, but Money McBags is gong to keep sitting this one out as it feels more like a lottery ticket than an investment. That said, if you have some money about which you don’t care and don’t live close enough to a Rick’s Cabaret, doing some work on CRTX and dipping a toe in might not be a horrible idea. They are trading at around 1.5x revenue and are just starting to get the sales team ramped up on the acquired drugs so there could be some decent growth in their portfolio.
Until next week, enjoy your days off.
It’s the jobs, stupid. Good Friday was great Friday for the economy as investors got the day off to spend their hard earned dollars on cheap imported crap from China while the Labor Department released monthly data showing 162k jobs had been created. Labor Department Secretary (though Money McBags prefers the more politically correct term Labor Department Administrative Assistant) Hilda Solis, was heard exclaiming “it’s on bitches” after the report was released and was seen vociferously taunting “I got your fucking jobs right here.” Sure the economy has lost 8MM jobs during the recession, but at this rate we will have gained them all back in four short years, just in time for the next bubble to be burst (China anyone?). Before we get more excited by the jobs report than we were to find out that the lovely Anna Paquin is bisexual, the numbers need to be looked at objectively. While 162 jobs were created, 40k were temp jobs (likely people being hired to clean out the offices of those recently laid off), 48k were temporary census workers hired to make sure people correctly fill in the boxes (perhaps they should have just hired Peter North to make a box-filling instructional video), and the number of jobs created lagged the guesses of economists. Still, jobs are fucking jobs so even if they are mostly temporary, the more people who are employed, the fewer people the government has to support (like the 16.8% of Americans who are underemployed), and the more money people will not be saving in order to buy iPads they can’t afford. So hooooooooooofuckingray. In other US macro news, pending sales of US homes rose 8.2% which is the second biggest gain on record, nudging out the “buy one get one free” promotion installed by Alan Greenspan in late 2001. Finally, the ISM services index jumped to 55.4 from 53 and above economist guesses of 54. Money McBags has no idea what this means but anything above expectations is good, unless expecations were for the number of new AIDS patients, the number of Kathy Bates nude scenes in existence, or the number of gangbangs in which your current girlfriend has taken part.
In stock news, the iPad is out which means any day now cancer will be cured, there will be peace in the middle east, and we will finally get money shots in to lesbian porn because the iPad is that fucking good. Sales of the iPad on opening weekend were stronger than Magnus Ver Magnusson after a week long double steroid cycle and analysts have upped their price targets on AAPL to what ever is a bit higher than infinity. According to reports, 300k iPads were sold over the weekend with expectations now for ~5MM sales for the year which is more than the population of Ireland, Singapore, or Paris Hilton’s pants.
In small cap news, the Apple momentum continues to push CRUS higher (Money McBags broke CRUS down again for all of you last week) while FHCO perhaps forgot to protect itself this morning and is down 4% on no news other than it has run about $1 too much. Money McBags is more short of time this week than Dennis Hopper is so he likely won’t be able to provide dick jokes or market analysis until Thursday. He may pop up on twitter now and again or be able to pop out some quick analysis Tuesday night, but for the next few days you’re all more on your own than a deep thinker at a Tea Party. Stocks for all of you to keep an eye on include TMRK and KITD so do your work and remember to have your pets spayed and neutered.
The market is down a bit today on news that some country in Europe named Portugal has had their debt rating lowered by a whole minus sign (yikes, imagine if it had been a minus sign and a frowny face) and slightly negative US macro news. New home sales came out today and boy were existing home sales surprised by that, though it does explain why their come-ons were never returned and why new homes have so many closets. Sales in february fell to a record low partially due to blizzards and partially due to people not having any fucking jobs. Puchases were down 2.2% and were projected to moderately increase, so once again, nice job economists, don’t let the assumed door hit you on the way out. In other macro news, US durable good orders rose by .5%, but less than expected by economists. However, exlcuding aircraft, military orders, and wrecking balls to demolish foreclosed upon houses, durable goods were down .6%. Once again the economy is putting out marginally good data followed by marginally bad data and thus remaining at more of a stand still than a value destruction debate between John Meriwether and Bernie Madoff. It’s good that we appear to be at a new equilibrium, though it’s bad that that equilibrium appears to be stagnant growth and no dessert after dinner.
In international news, Japan passed a $1T budget to stimulate growth while hoping to avoid fiscal hari kari as their debt is twice the size of their economy. As part of the legislation, the government is trying to create more jobs by building more pachinko centers (they are now required to have three on every block instead of just two), hiring Mr. Miyagi to help train youngsters on how to paint fences, and by requiring 10 “shooters” in all future bukakke films as opposed to the usual 5. In Europe, Portugal was downgraded by Fitch ratings from a country to I guess a principality. Their debt moved from AA to AA- and we all know how drastic that – is from Fitch ratings, in fact Money McBags has nightmares about getting a – from Fitch like he has nightmares about losing his Michelin Star or about waking up next to Lady Gaga with the Ellen Degeneres show blasting on his TV. So now we’re going from Greece to Portugal, with their tasty sweet bread, their delicious salt cod, and their lovely export Vanessa Marcil. Look, what Money McBags knows about Portugal can fit into an empty bottle of Taylor Fladgate or a small Portuguese hot plate, in fact, though he is a world traveler, Money McBags has never actually been to Portugal or it’s capital Lisbon (though he hopes to find it’s mythical sister city of Lesbian one day), but he does know that Fitch ratings are about as relevant as the Know-Nothing party, the steady state theory of the universe, or Robert Guillaume, so who cares.
Starbucks announced a $.10 cent dividend which will allow shareholders to finally have something to drop in to the tip jars when ordering their grande mocachino lattofcrape. Dick Bove is out today saying bank stocks may quadruple by 2012 due to reduced loan losses and new math (where quadruple means something at least four times less than it does now). Of course this is the same Dick who raised Lehman Brothers to a buy 3 weeks before their bankruptcy so either that was a glaring typo or nobody should give a fuck what Mr. Bove guesses. Also, MF Global is rallying on news that John Corzine, the former head of Goldman Sachs and New Jersey governor will be taking over as CEO. MF board members are hoping Corzine can bring the kind of profitability to MF Global that he brought to Trenton, Newark, and every other near bankrupt place in New Jersey. More importantly, his Goldman background will now assure MF of a government bail out should they ever experience another rogue trader.
In small cap news RICK continues to get hammered after hitting Money McBags’ $16 sell point several weeks ago. Unfortunately Money McBags did not not sell and for the first time in his life he is regretting a decision involving Rick’s Cabaret that didn’t center around leaving or not getting another dance. There was a lot of momentum in the stock and their quarter was pretty awful on top of a questionable acquisition, so the sell off is not unwarranted. Money McBags will likely lock in his gains and buy back later when the stock settles back down. Also, long time value trap IBKR was downgraded to underperform by Zack’s, though luckily for IBKR Slater and Screech still have them at Market Perform (while Money McBags has Kelly Kapowski at a Strong Buy). Their downgrade was based on lower options trading volumes in the next few quarters and the recent piss poor performance. IBKR’s CEO still maintains that the company has $2 of annual earnings power if you smooth out their performance over the long run (though that long run is looking like Eons as opposed to years) and the company is trading at 8x that. They get hit when volatility works against them as their hedges become more expensive when implied volatility is much different from actual volatility. Money McBags mentioned this name the other week and it is worth keeping an eye on, though it is worth keeping two eyes on Olivia Munn, so not sure where you’ll get the extra eye to follow IBKR.
And readers, if there are small names you would like Money McBags to look in to, let him know. He’s here for you, well for you and Riley Steele.
The market is largely in neutral today as investors await the Fed’s decision on interest rates this afternoon. With the lilkelihood of the Fed keeping rates at their current low levels somewhere between the likelihood of Michael Lewis droning on about his bond trading days in his new book or the likelihood of getting herpes from a night of snorkeling Paris Hilton (and that of course is a trick analogy, since the odds of both of those are 100%), investors are anxiously waiting to see if the language of the Fed will change (and as always, Money McBags votes for a change to Esperanto or perhaps even pig latin, you hear that Enbay Ernankebay?). It is likely that the Fed will tweak the language just enough to hint that their accomodative stance (though not as wide or accomodative as a Larry Craig stance) will only last for so long, but there is unlikely to be enough detail for anyone to feel confident in a time frame. If by now you haven’t figured out that rates are eventually going to go up, Money McBags can’t do anything for you other than to help you strap your helmet back on and buy one of your handmade potholders. In US macro news released today, US housing starts were down in February by 5.9% to 575k, but that was slightly better than the 570k economists were guessing. Multi-family dwelling construction was down 30% which is probably bad news for Mormons and John Edwards. The decline in housing starts though is largely being blamed on snow storms in the South and Northeast where construction was down 15.5% and 9.6% respectively, though construction of igloos was up 58% in both geographies. Surprisingly, the West and Midwest both showed greater than 7.5% increases in new home starts, or on an absolute level, 2 houses.
In international news, the 16 EU countries (there used to be 17 but they kicked out Grumpy) agreed to back Greece with loans if needed. While the plan was almost as vague as a Nostradamus prophecy, the term “sexual relations” to Bill Clinton, or the US’s bank bailout plan, European markets greeted it with open arms and one of those cheek to cheek kissing things they so much love to do. The issue could come to a head in April or May when Greece faces more than 20B euros in debt redemptions which is one hell of a night out in Athens. For 20B Euros there should have a been a huge Greek fiesta with Daniela Eleftheraki serving up plenty of pancakes and ouzo. Bouying this positive news in Europe was German investor sentiment which fell less than expected from “heilige Scheisse” to just a case of schadenfreude. Apparently the Germans are slightly more confident that their weiners will produce adequate amounts of schnitzel.
In stock news, GOOG is once again rumored to be pulling out of China which would put them in the same catergory as Sean Waltman. Money McBags will likely buy any dip caused by these rumors as China is a small part of Goog’s current earnings and even if they were to exit, it would likely only be temporary (forest through the trees my friends, forest through the trees). GE is up on a JP Morgan analyst upgrade as well as comments from their CFO. The analyst thinks credit losses have topped out while the CFO said GE will resume growing their dividend in 2011 (if we still have a global financial market) and will use excess cash for buybacks and acquistions (as opposed to hookers and blow I guess). As long as they aren’t acquiring a crappy network TV station or AIDS, Money McBags is all for them trying to grow the business again.
In small cap news KITD is beginning to run (and remember Money McBags told you all to buy and bought in himself in the low 10s the other week) as they presented at a Roth small cap conference yesterday and also announced a new acquisition and that they are buying back 4MM of their outstanding in-the-money warrants. They are buying a firm called Multicast Media Technologies for $18MM of cash and stock ($4.9MM cash, 1.3MM shares) and post deal will have $15MM in cash and 17.7MM shares outstanding. Now Multicast said they earn around $12MM a year in revenues from annualized recurring licensing fees for its IP video management software and KITD expects the acquisition to be immediately accretive. Now remember, KITD guided to at least 60% revenue growth to more than $75MM and EBITDA margin exceeding 17.5%. They’re now adding $12MM to that revenue and should be able to hit those EBITDA margins because they take out cost quickly in this business as all they really need to do is transfer the data to their platform and then fire everyone at Multicast (Sorry guys, but hey, you’ll have company). But let’s not give KITD the benefit of the doubt and we’ll say they only get 10% EBITDA margins on this acquisition in the first year. So now their EBITDA will go up by $1.2MM to $14.2MM. They are currently trading at $125MM market cap with $15MM cash, so on an EV/EBITDA basis that is around 8x in a worst case scenario. If they can get to the 17.5%+ margin on the acquisition, EBITDA will be at least $15MM and would put them at a 7x EV/EBITDA multiple. The company is trading at 1.5x revenues (and analysts and the company maintain that their competitor Brightcove was valued at 12x revenue, though it’s unclear where that rumor started so it should be discounted by as much as one discounts Donald Rumsfeld’s war strategies or Lehman Brother’s book keeping). The only thing holding this company back is that it just has some fundamentally weird things about it that serve as red flags to old and stuffy institutional investors. They have a promotional CEO (not to say he is bad, but he is clearly only in this business for the short run so the higher he can sell it for and the sooner, the better), they were located in Dubai and now have moved to Prague, they rely on acquisitions, and they are still almost as small as He Pingping (and as an aside, the whole editorial staff here at When Genius Prevailed poured out a thimble this morning for the passing of the great Mr. Pingping who died at the age of 21, thus he both figuratively and literally led a short life. Even though he was only 29 inches tall, he lived life to the fullest. So I ask you all to take a short moment of silence now for Mr. Pingping). That said, the numbers don’t lie (well unless you’re Enron, AIG, Refco, etc.) and this company is headed in the right direction. They could easily get their EBITDA in 2010 to $20MM (remember, their guidance says revenue of at least $75MM and EBITA margins of at least 17.5%, so if we call revenue $100MM since its already at $87 after the acquisition and call margins 20%, because it’s a nice round number, we’re at $20MM of EBITDA) and if they just trade at 8x that, there is almost 50% upside. Plus they think the worldwide online video market is $10B and is only 4% penetrated by the cheaper than digitial video IP solution which they provide. Money McBags may buy some more today or tomorrow as the story remains intriguing and the new acquisition will help them beat their already lowballed numbers (though probably not as low as Abe Vigoda’s balls).
2/26/10 Midafternoon Report: AIG loses more in Q4 than entire GDP of Malta, warns Botswana they’re up next
The market is a bit mixed today like the drug cocktail found in Brittany Murphy’s stomach. Sales of existing homes dropped for the second consecutive month, this time by 7.2% which is the second largest decline ever and is creating more of a buyers market than the internet did for newspapers. The decline was caused by the government tax credit winding down, the high unemployment rate, and the disappearance of the barter system. Economists actually expected existing home sales to rise so it’s good to see they are once again about as good at their predictions as Stevie Wonder is at being the seeker in a game of hide and seek (or as he calls it “life”). An interesting data point is that 38% of all homes sold were distressed sales. That is a remarkable number. So homeowners, look to the house on your left and look to the house on your right, because on average one of those houses is being foreclosed upon and your new neighbors may be a few tax brackets below you. In more positive macro news, business activity grew more than anticipated and its most since 2005 according to the Chicago Purchasing Managers Index, or as its now more commonly known as: “Fiction.” Unless the index was measuring coffee sold while waiting in line at the unemployment office or tickets sold for the proposed Julia Mancuso/Lindsey Vonn catfight (and Money McBags would love to ski down Julia Mancuso’s hills), the data is perplexing to say the least. Also, GDP was revised up to 5.9% growth from 5.7% in the last Q. However, most of that growth was a result of inventory restocking. Looking at GDP without the change in private inventories, growth was a He Ping Ping-esque 1.9% and consumer spending was revised down from 2.0% to 1.7%. The point of all of this is that the economy is about as healthy as Mark Sanford’s marriage or Money McBags’ new found love of Alice Eve so until jobs can be created, we are going to have more and more marginal to disappointing economic news.
European markets were off to a better start today as the British Statistics Office revised up their estimate of UK economic growth in the fourth quarter to 0.3% from 0.1% citing the long awaited introduction of dental floss, while Asian markets advanced after figures showed that Japanese factory output, rose by 2.5% in anticipation of Nintendo’s new game console, tentatively called “Wii’re Fucked.”
The big stock news today is that investors are not down with AIG and their craptastic quarter. AIG posted an $8.57B loss or to make it seem smaller, $65 per share (and remember, shares are currently trading at $25, so that is a neat fucking trick). At least analysts were close as operating loss per share was estimated to be $3.94 and it just missed that number by coming in at whopping $53.23 a share. So estimates were only off by a factor of 14ish or as they say in the forecasting business, a nut hair (that is if it were one of Lexington Steele’s nut hairs, and not a regular Lexington Steele, but one who had grown to be 30 feet tall as a result of radiation poisoning from his last scene with Gianna Michaels). Shareholders should have faith though as CEO Robert Benmosche said in a pre-recorded (in order to duck questions) call: “While we are not out of the woods by any stretch, these numbers represent a substantial improvement from just one year ago…we believe we are on our way to regaining our stature as one of the world’s largest and most successful property-casualty insurance operations.” He then stated that he thinks Roman Polanksi is also on his way to regaining his stature as a successful babysitter and Bernie Madoff is on his way to regaining his stature as a first class investor. While $6.2B of losses can be chalked up to paying back the government, the addition of $1.8B to their property-casualty reserves can be chalked up to being bad at the insurance business, whch would be fine, if insurance weren’t their main fucking business. Money McBags knows it’s easy to kick someone when they are down, unless you’re Oscar Pistorius (and in that case you just knee them), but AIG’s situation is more convolutedly complex than the 11 dimensions needed in M-Theory or trying to figure out where the pictures come from for the still deliciously not safe for work Guesshermuff (and all my guesses remain “fantastic”). Trying to analyze AIG is a lot like taking your car to a mechanic, it’s always something and you have no way to prove the guy wrong. Money McBags is eagerly waiting AIG to come out and just blame their losses on a faulty johnson rod. There are easier ways to make money so pay attention to AIG only for any market risk insight you may get. In other stock news, C is replacing 3 of its directors as apparently Colombia Pictures has hired them back to shoot a remake of their long running hit Monkey Business.
In small cap news today RICK continues to show the market its tits by climbing another 3%. CEO Eric Langan announced yesterday that he expects the VCGH deal to add $50MM of revenue by 2011 to bring RICK’s revenues to $150MM. He also said they would be consolidating brands in an attempt to streamline their image so they can better promote it through television commercials on such channels as ESPN. Now look, Money McBags loves everything RICK is about, really he does, he loves the business, he loves the growth, and most of all he loves every coked-out part of their inventory. That said, the idea of turning it into some Hooters-esque national chain is the worst thing they can do. Strip clubs were not meant to be Walmarts or McDonalds and advertising them on prime TV channels is the wrong place and the wrong audience. Anyone who wants to go to a strip club knows exactly where they are and which ones are best, they don’t need a fucking TV commercial with some likely dopey jingle (Rick’s Cabaret: Plop, plop, jizz, jizz, oh what a relief it is) reminding them that they love vagina. So a TV ad campaign worries Money McBags like a parent learning their daughter will be going to Cancun for spring break. This company should stick to what it knows and put marketing dollars into the girls, airport billboards, and hotel concierges’ pockets. Money McBags is still awaiting more detail on VCGH’s financials, but the stock is nearing his price target. In other small cap news, PMFG, a company that provides separation and filtration products mainly for natural gas and which Money McBags has followed off and on for the past couple of years announced a secondary offering today at a price a measly 30%ish below their close on Thursday causing investors to collectively utter a befuddled “What the fuck?” They are selling 1.3MM shares for about 10% dilution at $11.50 and net proceeds from the offering will go towards repaying a portion of their outstanding borrowings in connection with their poorly timed acquisition of Nitram Energy, towards working capital, and also towards general corporate purposes such as settling the likely shareholder lawsuit to be filed against them for such a diltuive and poorly priced secondary. Wow. Money McBags is glad he doesn’t currently own PMFG and can only scratch his well-coiffed head and wonder what is going on in their Dallas headquarters.
2/17/10 Midevening Report: Fed hints at reversing stimulus, starts by canceling Bernanke’s Playboy subscription
The market was up today like a hooker’s skirt in Tiger Wood’s SUV. The rally was driven by earnings, earnings, earnings and some macro data. Apparently people are still building houses as housing starts hit their 6-month high, rising 2.8% to an annual rate of 591k. This marginally beat expectations and should be a good sign for the economy, even if half of the houses were built from legos and the other half have already been forelcosed on. In other macro news, the Fed announced that industrial output grew .9% which also beat expectations with capacity utilization coming in at 72%, 8% below the average from the last 37 years. So there is still room for the economy to rebound and thus produce more of those delightful “For Sale” signs to go in front yards, printers to print out resumes, and muzzles to put over Lady Gaga’s face. Also, import prices rose by 1.4% signalling inflation may be on the way (and for those of you who need a less subtle signal: INFLATION IS COMING!! And Ben Bernanke is going to have to make inflation think long and hard about baseball for him to try to stop it from coming). Many analysts were unphased by the rise in import prices claiming oil and natural gas drove up prices, so I guess it’s good we don’t rely on those fuels at all or else we might have to worry a bit more about the dollar. Phew.
There was one piece of macro news which caused a brief sell-off before the market put back on its pearl necklace and returned to the ball (and yes, all of those were very bad puns). The minutes came out today from the last FOMC meeting and the head of the Kansas City branch of the Fed, Thomas Hoenig (known at the Fed as T-Ho), was the one dissenting vote on interest rates. T-Ho got all up in Benny B’s grill and axed him why they needed to say the fed funds rate would remain low for an “extended period,” preferring to change the language to say the fed funds rate would remain low for “some time, and shit.” The minutes also revealed that the Fed is starting to look at downsizing their balance sheet and selling into the market the toxic assets, I mean mortgages, they previously bought. The key message here being that further stimulus to help the economy may be less likely than Brooklyn Decker dumping Andy Roddick for the first guy eliminated from next season’s The Biggest Loser. The Fed might actually be doing something smart here by looking to get in front of a bubble and stopping it before it happens rather than pulling an Alan Greenspan and blowing hot air into it like it was Andrea Mitchell’s rectum.
In earnings news, Deere’s profit climbed 19% and they raised forecasts thanks to strength in “large ag equipment”, or what’s more commonly known as: “Rosie O’Donnell’s dildos.” Also, WFMI not only had a kashi-tastic quarter as Money McBags predicted yesterday, but is was double fiber kashi-tastic. WFMI same store sales were up 3.5% and they gave total revenue guidance for 10.5% growth in 2010 while raising full year earnings guidance to $1.20 to $1.25 per share, about 10% above current estimates. Yeah, it was a good Q but they are now trading at around 25x 2011 earnings which wouldn’t be so bad if they were growing by more than 10%. Of course, EBITDA was up 25% and they raised EBITDA guidance by about 5% to $635MM-$685MM for 2010 which means they’re trading at around 7x to 7.5x 2010 EV/EBITDA which actually isn’t all that unreasonable. Money McBag’s guess is that there was a whole lot of short covering today and in the next couple of weeks WFMI will come down a bit, but it is still trendier than Jessica Biel giving free blow jobs to bloggers (and trust me, that is going to be a huge trend).
In small cap news, RICK reported yesterday and they managed to not only shit the bed, but then they announced they were going to buy VCGH and shit all over their bed too (though to be fair, VCGH’s bed was plenty shitty to begin with). Money McBags never thought he would be unhappy getting fucked by someone at RICK, and RICK not only fucked him, but they sent the 40 year old C-section showing, needle marks in the arm having, 2pm shift D-team dancer to do the job. Jeesh. Could they at least kiss me next time before they fuck me? Actually, scratch that. I mean I love the lovely ladies at Rick’s who express themselves through dance to pay their college tuition, but they probably have more lip herpes than Richard Simmons has anal warts, so they can hold off on the kissing. Anyway, RICK reported the quarter that Money McBags had feared since they bought their Las Vegas club. You see, in order to win business in Vegas, Rick’s pays the fuck out of cab drivers to bring patrons to their club. It is labeled as marketing costs, but it is payment of cash to cab drivers as clubs compete for traffic. All of the clubs kind of collude to keep that price to around $20, but to gain business and to slap their cocks on the table and let other club owners know they are serious, RICK had been occasionally upping the ante to as much as $100. Well it looks like in this quarter that occasional upped ante was both not occasional and was so far up that it gave itself a cerebral edema from hypobaropathy. Rick’s marketing costs soared by $1.7MM to $2.9MM and treated their earnings like an Alabama professor after learning she wouldn’t be tenured. Now on the call they said the marketing increase was related to more than just the Vegas club and that the Vegas club turned a profit in January and should be profitable for this Q, so that makes Money McBags feel a bit better, like how Jessica Simpson felt when she learned stupidity wasn’t contagious, but it is a huge red flag. Their earnings missed the high end by $.08 which is actually slightly less than the uptick in marketing costs. Revenue was up a healthy 16.5% but it was achieved in the most unhealthy way, by paying people/cab drivers to show up. To Money McBags it is a huge concern and kept him out of the stock until a few months ago. Now on top of their shittastic performance, they announced a $45MM cash and stock acquisition of VCGH which will make them the largest strip club operator in the world. While Money McBags is a firm believer in bigger is better (such as the fine backsides of Carmen Kinsley and Alexis Texas), this deal has a ton of dilution as Rick is going to have to issue somwhere around 2.5MM shares and thus increase their share count by 25%. Rick’s maintins that they will benefit from synergies such as corporate overhead, regional management, and shared thongs, and thinks EBITDA will be $25MM for the combined company. They also reaffirmed guidance for 2010 without VCGH of $.90 to $1.05 per share, so they are still fairly cheap on a p/e basis. The biggest problem is that Money McBags can’t really analyze this deal because VCGH stopped filing financials months ago so there is no way to understand if their clubs are even remotely profitable. So you have a shitty quarter, a questionable deal, and a stock that has been on the move but is still cheap if you believe the marketing uptick was a one-time offense (and Money McBags has no idea about that). If you own RICK, it might not be a bad idea to trim a bit here, and if you’re at Rick’s, it might not be a bad idea to see some trim there. Alot of questions remain after this call such as will decreasing marketing costs hurt top line, what does Rick’s new cap structure look like, and can a brother get a table dance? Unfortunately, after this quarter there will be no sex in Money McBags’ champagne room and for those RICK’s owners, you should really due some more work. Money McBags is holding for now, but leaning towards selling some as it’s unclear how RICK will still hit their guidance for the year after missing this Q and how they will grow if they lower marketing costs, since if lower marketing costs were to allow them to grow, why wouldn’t they have been lower this Q? Damn you logic.
The market is bouncing back today even though it is a relatively quiet day news wise (though not as quiet as a Lindsay Lohan straight to video movie premier or a Trappist monk game of hide and seek). Pending home sales in the US rose 1% after falling 16% last month thanks to renewed tax credits and something called math. Sure the 1% rise is good, but it is still down 15% from October, so let’s not break open the bottles of Dom and tins of beluga just yet. The biggest problem with home sales is that frictional unemployment has dropped the frictional and is just plain old unemployment. People are no longer moving between jobs and thus moving to new houses because, to close the transitive logic, there are no jobs. Also, Paul Volcker is supposed to testify in front of the Senate Banking Committee today where the 82 year old will rant about proprietary trading at banks, how he used to walk 2 miles up hill both ways to get to school, and then wonder why none of the dames look like Clara Bow anymore. The banking industry awaits Lord Volcker’s testimony like a necrophiliac awaits the cremation of a loved one.
In global macro news, Australia held their interest rates flat which was somewhat of a surprise since their economy is healthier than a vial of Jack LaLanne‘s urine (and that is for my older readers, but I can assure you young’ens out there that there is nothing on this planet healthier than the dickwater of the workout guru Mr. LaLanne who even at the age of 96 still can still rip a man’s heart out with his pinky finger). For those sheltered Americans out there, Australia is more than just boomerangs, crocodiles, and Miranda Kerr and Patsy Kensit pillow fights (though if it were just Miranda Kerr-Patty Kensit pillow fights, that would be sufficient). For the past several years Australia has benefitted from being close enough to China to supply it with natural resources out the wazzou while serving as a middleman in the shipping/trade business. Additonally, their banks missed out on the opportunity to cut up packages of mortgages and sell them for additional yield by inflating the mortgage market through lending money to speculators who bought and then sold houses to other speculators who couldn’t afford the houses in what is known now as the subprime vicious circle (and the circle was even more vicious than a daisy chain at an overeaters anonymous meeting). The point being, Australia has had a robust economy during this downturn and thus Australia holding their rates is a bit of a good sign that inflation is not running away, but it is more likely just a pause in their monetary rate hikes
As for stocks, Lexmark put up a huge quarter tripling earnings to $.76 a share and giving guidance for next Q of $.80, thus besting the $.62 earnings per share estimates. The printer maker also beat revenue projections and attributed their success to strong customer demand and the fact that HP makes such shitty printers. UPS also saw profits triple, yet their topline was down 2.5% and their CFO said the first quarter ”will be the most challenging of the year.” He then said it will be more challenging than the time they tried to ship a plane full of angry circus bears who hadn’t eaten in a week. However, the CEO said “It looks like this recession is finally over,” so I guess there’s nothing to see here.
In small cap news, ARTG was upgraded or maintained at strong buy today by most analysts on the street even though they chose to dilute shareholders yesterday like ice cubes in a Makers Mark at an overpriced NYC bar. Money McBags addressed this in yesterday’s Midday Report and its comments section, but ARTG has plenty of cash on their balance sheet so the capital raise is likely for a big acquisition and thus investors need have confidence in ARTG’s management team’s ability to negotiate and integrate a large deal before they become shareholders. Estimates are for around $.20 earnings for 2010 but $.25 could be reasonable so the stock isn’t expensive (nor extremely cheap) at 16x to 20x earnings. COOL is up 5% today as investors perhaps forgot the assrapingly bad Q they recently put up (here were Money McBags thoughts) though this should give shorts a better entry point. And TSYS was initiated as a buy by JP Morgan and a $12 price target and this is a company Money McBags has followed off and on for a while and used to own. They basically provide licenses for text messaging to carriers, location based services (like E911), and satcom solutions for the government. You really only need to know that text messaging is still growing 100% a year (TSYS powered almost 2B messages a day last year, which is fuckload of teenagers saying “cu l8r”) and they provide gateways for carriers to be able send these volumes of text messages. These licenses are sold as a step function so the company’s revenues haven’t scaled lockstep with the exponential growth of text messaging, plus there is competition and the pricing keeps coming down. That said, they did recently get a new deal with Verizon and their government business has been a solid performer. Estimates are for TSYS to earn $80MM of EBITDA in 2010 and they are currently trading at around 6.5x EV/EBITA. That is very cheap for a company that can still grow 20%+ (though the growth rate has been declining and that is not all organic growth). Today may be a good entry point though as the stock has been trading down and earnings are in two days so the JP Morgan analyst would not want to release a glowing report of the company two days before earnings were he/she not confident in the numbers. Now look, Money McBags is prone to mocking analysts like Adam Sandler is prone to starring in bad movies and Alexis Texas is prone to having to try on many pairs of jeans until she finds a pair to properly fit her best asset, so having faith in this JP Morgan analyst is a bit hypocritcial (though not as hypocritical as Larry Craig’s gay rights (wide) voting stance), but the timing of the report should be a signal that TSYS’s Q will be good or else the JP Morgan analyst is a complete dope (and unfortunately we can’t rule that out, so let’s say a 25% chance because JP Morgan is mildly reputable). It may be worth picking up some shares for at worst a trade. Money McBags does not own TSYS right now but may buy some before earnings after he does some more digging. If any of you have done work recently on TSYS, feel free to share with the rest of us, and if any of you have Hayley Atwell‘s phone number, feel free to share that too.
1/27/10 Midday Report: In bid to increase approval ratings, Obama to unveil Apple Tablet at State of the Union address as a panacea for US budget problems
The market continues to limp it’s way down as investors await tonight’s State of the Union address where President Obama is likely to whip out his small business tax breaks and smack them against a non-defense discretionary spending budget freeze. This budget freeze supposedly applies to 17% of the Federal budget and will have enough loopholes in it to make it less well-followed than the failed reality TV series: Federal Reserve Bank Governor Idol (though Sandra Pianalto yelling at Chuck Evans for leaving the toilet seat up in the house was must see TV). It does likely mean that the president won’t be getting the X-Box he asked for for his birthday as times are tough. In addition to Obama going after the budget tonight, Apple is set to finally release their new tablet which has techies more excited than they were for the release of Avatar, extra-strength Accutane, or Olivia Munn’s Princess Leia photos. Honestly, Money McBags has not seen anything this eagerly anticipated since the release of those vapidly redundant Harry Potter books or Hanna Hilton’s first girl on girl scene (and Money McBags gave that two bums up). The tablet is supposed to be so awesome that it is said to have cured Steve Jobs’ cancer and to run on the tears of baby unicorns. And finally, the FOMC is meeting today with Bernanke expected to keep rates at their current 0 to 25bps or what we in the business call “free.”
While the market awaits that news, there were some macro-reports that came out which highlight the worries people are starting to get about the economy. New home sales fell in December by 7.6% and were short of expectations as analysts expected sales to rise (and I believe this now makes analysts’ incorrect prediction of the simple 50-50 guess at the direction of home sales statistically significant at the 95% level, so they’ve got that going for them). Home sales were down as a result of the government tax breaks drying up and the forgotten fact that no one has any money. Plus as the job market is more frozen than an Alaskan’s nuts after a midnight skinny dip in Lake Chilkoot (and yes that is really the name of Lake in Alaska), people simply aren’t moving.
In world news, Greece teeters on bankruptcy causing investors to stock up on credit default swaps of sovereign debt and all the tzatziki sauce on which they can get their hands. Greece is trying to remedy the situation by pawning off 25B of Euro bonds to China as well as stadium naming rights to the Parthenon, and the Golden Fleece. The flight to quality and away from sovereign debt like Greece has caused one month treasuries to have a negative yield for the first time since March of last year which is about as good of an omen for the stock market as stairs are for Stephen Hawking.
Berkshire Hathaway’s B shares are shooting up today like a young Drew Barrymore as word is they will be added to the S&P 500 index after their acquisition of BNI. Also, Toyota announced they will be shutting down production on eight lines of cars which make up 57% of their 2009 sales due to problems with the accelerator pedals seemingly caused by something called a friction lever. A friction lever joke is way too easy for Money McBags but this bears watching as the street wonders if Toyota has started to slack on their quality which has been their competitive advantage. In other stock news, YHOO turned a profit despite a 4% drop in year over year revenue. Revenue was up 10% sequentially and management said they see search revenue stabilizing so any investor who wants to own a portfolio of market laggards, now is your time to buy.
As for small cap stocks, ZAGG once again continues to trade down making Money McBags’ bet on 12/31/09 seem even better as it was likely risk free. So just remember, betting against Money McBags is like challenging Greg Oden to a cock off (very NSFW or actually anyone, but the news needs reporting), you can’t possibly win. And SMCI put up a huge quarter. Now SMCI basically makes custom servers and server solutions for businesses, usually being the first to market with new INTC chips, hence the Nehalem release has been driving new business for them. They just put up $.22 of earning per share on $182MM of revenue (up 42% y/y), easily beating analyst estimates of $.17 and $160MM. The company also gave above street guidance of $.18 to $.21 eps for next Q and $180MM of revenue in what is typically a down quarter for the industry. SMCI is an extremely well run little niche company with $82MM of cash on their balance sheet and no debt. They have a competitive advantage in that they are small and nimble (like Speedy Gonzales or the slightly smaller and more nimble, Shawn Johnson) and therefore can be first to market and customize at the same time. The company may be peaking but on the call management said they could get back to 30% growth rates as the end of the year should be good for them with AMD and INTC introducing new products. Estimates for fiscal 2011 are for around $1.10 and they are currently trading at 13 or so times that not including their cash after today’s run up. This should be a cyclical company and this may be the top of the cycle as they have just strung together some very good quarters so Money McBags would not be buying today as the easy money has likely been made. That said, this really is a quality company and has proven over time that they are good at what they do and well managed. Should there be a dip, this is definitely a company to accumulate but either way it is worth doing your own research here as they could continue to outperform.