Posts tagged Inflation
4/11/11 Midnight Report: Will Margin Pressure Make Earnings Season A Bigger Bust Than Christina Hendricks’?
Apr 12th
The market was down today as there was little news to keep the momo of the ponzeconomy™ going as investors await earnings reports (which promise to be spanktastic, as long as investors don’t care about silly little things like margins, profits, and expectations more reduced than those of Sbarro’s owners, Alan Greenspan’s parents, or Russell Brand’s agents), Japan got hit with a 6.6 level aftershock continuing to make that country less stable than the price of silver or a hammock for a Candice Huffine/Tara Lynn threesome, and the media continues to ignore spiraling US debt and the diminishing labor force participation rate to focus on important shit like Jenn Sterger’s career struggles (and Dear Ms. Sterger, Money McBags hates to tell you how to manage your career, but perhaps more of this and less of you, know, everything fucking else would be the way to go) and whether there were gay caveman or not (perhaps the archaeologists thought the sediment layers signaled the yet undiscovered peniolithc age). But with the market trading near highs and eventually performance to determine its direction (until the clock strikes QE infinity), a small sell off in front of earnings makes more sense than a Michael Jackson statue being put up in front of soccer stadium (though Money McBags hears the gloved one was quite good at juggling small balls, heyyooooooooooooooooo!).
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In macro news, the big story was Democrats and Republicans reaching a budget agreement over the weekend to keep the government functioning (and the government reaching an agreement to keep funding itself was about as suspenseful as a sunrise or a Shannon Tweed movie). In the agreement, the government will cut $38B dollars of spending which is a mere drop in a bucket or a pimple on Coco’s ass, but it is a sign that the government will fake being serious about shit that matters because perception is more important than reality, just ask the dickbags who paid to see Charlie Sheen’s NYC show. With the short term budget issues now fixed (mainly by ignoring them and thinking about baseball), President Obama is set to release his debt cutting plan which will include raising taxes on the rich, cutting military spending, and no longer allowing John Boehner to expense purchases of kleenex.
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In other news, Janet Yellen was yelling some BS today (and yes, that was a horrible pun, even worse than asking if the name Pavlov rings a bell, but don’t forget to tip your analyst) about rising commodity prices being irrelevant to inflation since they are merely “attributable to a combination of rising global demand and disruptions in global supply.” Whew, Money McBags is glad to read that and he feels much better knowing that all we need to happen to temper spiking input prices is peace in the fucking Middle East and people to stop using energy, and those seem like perfectly reasonable things to happen. In fact doing some quick back of the envelope calculations, those should occur sometime around “go fuck yourself.” No really, Yellen’s statement is more cockposterous than caring about a Meredith Viera upskirt or cowboy poetry (roses are red, violets are blue, that’s not a lasso in my pants, I’m just happy to see you) and the fact that she holds the number two position at the Fed is scarier than taking your kid to an Applebee’s (and not just because the food sucks).
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Finally, oil dropped after the IMF cut growth forecasts for the US and Japan citing something called a global ponzi scheme, nuclear meltdowns, and common sense. The IMF now thinks U.S. growth in 2011 will be 2.8% instead of 3.0% as a result of the job market being more figuratively’ fucked than Traci Lords legitimate acting career (or literally fucked than her non-legitimate one). The fact is that the economy is completely bifurcated and split between the haves and everyone who doesn’t work on the Street and it’s not clear it is getting better with 6.3MM people now having been unemployed for over 6 months (and those 6.3MM people include Money McBags, but with competition this difficult, he clearly needs to step up his game). So while politicians debate $38B in cuts vs. $39B, and while Janet Yellen and the rest of her coven chant melodiously over the economy (bubble bubble, oil isn’t trouble, jobs return, or QE we’ll double) to try to jedi mind trick it back to health (because if they are not trying the jedi mind trick, Money McBags has no idea what the fuck they are doing), the middle class fades further and further in to bolivian.
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Internationally, another aftershock hit Japan (or as they now call it, Monday) just as the Japanese government expanded the danger zone (and the highway to it) around the Fukushima Daiichi nuclear power plant. The government warned residents that they need to evacuate as if they stay, they could receive higher doses of radiation over the coming months than Bruce Banner. The point is, Money McBags has absolutely no fucking idea what is going on in Japan as it is way above his pay grade (and see, that is funny because Money McBags gets no pay) but every day seems to bring slightly worse news and that is more troublesome than being Lebron James’ moms’ valet.
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The only other international financial news was that a British bank panel concluded that sweeping changes to the banking system do not need to happen because it’s not like the banks almost caused a complete global financial meltdown (and yes that was sarcasm). Other than the panel saying retail units should be “ring fenced” to allow them to survive even if other parts of the banks need to be wound down, the conclusions were less meaningful than foreplay or the lyrics to a Black Eyed Peas song as bank reform is so 2008.
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In the market, M&A was the big news as Level 3 Communications is buying Global Crossing for $3B, something called ENDO is buying AMMD for a ~20% premium, and NASDAQ and ICE are still bidding for NYSE even though the NYSE wants to exchange their bid for the one they received from Deutsche (bag) Bourse. The NYSE prefers the lower monetary buy out from Deutsche (bag) Bourse because they want to show they can even manipulate the M&A market.
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In small cap news, WGO and ZAGG continue to sell off because, well, that is what happens to shitty companies (actually, WGO isn’t a shitty company, but a 30x earnings multiple for a company selling a discretionary big ticket item that relies on low oil prices in this economy is a worse investment than Air Jordans are for Stephen Hawking). Money McBags remains whatever is the exact opposite of awestruck by WGO’s valuation and thinks there is at least 40% down from here.
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But most importantly, Money McBags favorite KITD finally announced their transformative acquisition and it wasn’t The Platform (as Money McBags kept hearing) or some Italian company (as the Sidoti of small caps Northland kept saying), but rather it was a US company called ioko, and Money McBags seems oko with that. Money McBags will wait for the call tomorrow before diving in too deep, but here are his thoughts after just a quick run through with no real deep analysis yet:
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1. It was a great fucking price, no really. KITD is paying $91MM for $54MM in revenues but after accounting for the cash on ioko’s balance sheet and earnouts and the like, the price is closer to $80MM. So jizzzzzzzzzzzz.
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2. The dilution was minimal for this serial diluter which is absolutely shocking. KITD is only issuing another 1.5MM shares in the deal (and even though they said they would not go back to the public markets to raise equity and this pretty much has the same effect, we’re talking baby steps here) which is well below what Money McBags guessed and should be music to shareholders’ ears. To put the awesomeness of so little dilution in to the modern vernacular, KITD’s pussy be yankin.
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3. 2011 guidance is for $212MM in revenues which is right on pace for them to hit Money McBags’ guess of ~$300MM for 2012 and remember, at $300MM and 23% EBITDA margins, they will hit a delicious $69MM of EBITDA.
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4. There was news today that some chick named Karina Smirnoff is going to appear nude in Playboy. Now this has nothing to do with KITD, and Money McBags could give a fuck about who is going to be in Playboy since the magazine is more irrelevant than core inflation, but Money McBags is very confused by it because he has no idea who this Karina Smirnoff is and is curious how this can be playboy material? Money McBags isn’t saying she is fugly, but, well, um, she ain’t Crystal Mccahill, heck, she’s barely even Billy Crystal.
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5. KITD is moving their executive offices to NYC which means Kaleil will be better able to manage his fantasy baseball team and more likely to invite Money McBags over for tete-a-tete over a scrumptious meal in the executive suite.
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Those are very quick thoughts because it is late and Money McBags has other shit he needs to get to, like sleep (where he hopes to have very sweet dreams). At first glance, and not having a fucking clue what ioko does, this seems like a great deal in terms of price, revenue and geography and there are enough shorts in this name that there could be a huge pop on Tuesday. Money McBags hopes to have more after the call either tomorrow or Wednesday but his long-term view that KITD is ridiculously cheap for their earnings potential has only been enhanced.
Writer’s Note: It’s 2:50 AM, the headline is what it is, but it would be a big bust.
3/7/11 Midnight Report: Market Goes Down on Libya as Qaddafi Proves not to be a Cunning Linguist
Mar 8th
The market sold off today as the Fed came out (not that there is anything wrong with that) and said that they are both for and against QE3 (which is as useful as a yersinia fecal transplant. And a quick side note on the whole fecal transplant as the new curative breakthrough but Money McBags finds it hard to believe that after tens of thousands of years of human invention, inserting shit into oneself would be some kind of panacea, after all, if that were true wouldn’t Snooki be near immortal?), an oxymoronic civil war in Libya (though not moronic, because Money McBags is against despots of all kinds such as Qaddafi, Ahmadinejad, and Mr. Furley) continued to send oil prices to 2.5 year highs (causing thousands to be thankful jheri curls are no longer in style), and the most obvious rapist search in history still befuddled police and frightened citizens.
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The big news obviously continues to be Charlie Sheen’s sleeping arrangements, while the other big news is that Libya is mounting air strikes against its own people as Qaddafi’s power slips faster than MySpace’s valuation or a Ben Bernanke autographed Federal Reserve rookie card (Money McBags remembers when you could trade three Volcker’s and a Janet Yellen for one Bernanke, but now you can’t even get a tattered Artie Burns for it). With news from Libya coming faster and more furious than Peter North in the 1980s, as one minute Qaddafi is seeking asylum and the next the opposition is looking to put him in the asylum (and feel free to use that one Jay Leno, see, Money McBags can write shit that sucks too), oil prices continue to rise as Libya controls whatever is more than a fuck load of oil (perhaps a fucking fuck load). Given that, President Obama is considering tapping US oil reserves (while Money McBags is considering tapping this), in order to lower prices and have less reliance on the Middle East (and note to everyone, it’s called energy independence so lets call up Ed Begley Jr. and figure out what the fuck the electric car is).
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The other uncertainty in the market was caused by the Fed who can’t make up their mind about QE3 and today they had more he said/she said than when RuPaul performs a monologue in her bathroom. Federal Reserve Governor and fantastically named Dick Fisher said he wants to end QE2, Dennis Lockhart said QE3 is not impossible, and Charles “Chuck Nice” Evans said to lose his fucking number. Money McBags has no idea what the answer is to the question of “will there be a QE3?”, but he is pretty sure it isn’t titmouse.
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As noted, the Fed’s Dick Fisher (which is also what it says on Larry Craig’s last police report) may vote to end the asset buyback program early as he feels it has already caused enough harm to the ponzeconomy™. Speaking at the annual conference of the Institute of International Bankers in Washington (where the hubris blends in nicely with lack of real accomplishment in whatever the opposite of schadenfreude is, we’ll call it “lucky to be privileged”), Dick Fisher spewed about QE2: “I remain doubtful enough as to its efficacy that if at any time between now and June, it should prove demonstrably counterproductive, I will vote to curtail or perhaps discontinue it.” Dick is worried about the Fed blowing it and doesn’t want them to overshoot their goals. Fisher then finished with “What is needed now is for business to be incentivized to commit that liquidity to creating American jobs. This is the task of the fiscal authorities, not the Federal Reserve” before being summoned in to Bernanke’s office for a healthy dose of “shut the fuck up.”
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In stark contrast to Dick Fisher is Pussy Farmer (and yes, that is the worst pun in the history of the award winning When Genius Prevailed, but Money McBags is a bit under the weather, and unfortunately, this is not the weather), but also in stark contrast was the Fed’s Dennis Lockhart who said more bond purchases may occur after June, but he would be “very cautious” because once the Fed has already inflated their way in to stagflation and a global commodity spike, then it is time for caution. Lockhart said “My first inclination is to be very cautious about extending asset purchases after June,….given the emergence of new risks, however, I prefer a posture of flexibility as regards policy options‘” He then added that he prefers the posture be even more flexible than an arc de triomph.
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Finally, Fed Governor Charles Evans put his WTF hat on and said the Fed isn’t to blame for rising food and commodity prices because apparently the money supply is not the way to measure inflation. Evans opined: “It has been interesting during this time period that people who I socialize with in a variety of formats who haven’t ever paid attention to the state of monetary policy say, ‘Hey Charlie, what’s up with this QE 2 program and will I ever get anything for my passbook savings?’” Um, not to be a dick Charlie, but why do you find it odd that people who have never given a shit about monetary policy now all of a sudden do? It’s like finding it odd that passengers on the Titanic after it hit the iceberg all of a sudden gave a shit about learning to swim or that Andy Roddick all of a sudden gives a shit about being home for dinner. See Chuckles, when shit is fucked up and out of the ordinary, that is when people take notice.
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Anyway, to lose all credibility (and see that is funny because he never had any), Evans finished by claiming. “Inflation is not always well-understood. We focus on the prices going up, the things that catch our attention. Car prices have been lower, rent has not been increasing very much, recreation has been negative....what we tend to forget is that technology is improving and those prices are going down.” Awesome logic Chuckster, the next time Money McBags wants to eat some technology to survive, he’ll thank you for spurring on technological innovation, but good job pointing out that shit Money McBags can’t afford, like a car or recreation, hasn’t gone up because once can afford the shit he needs, like food, gas, and a blumpkin from Larissa Riquelme, he’ll get right on that other stuff.
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As for the market, technology took a hit as stories came out that lawyers are being replaced by software, which means everyone must now hate software. Bringing technology down was a ratings downgrade of chipmakers from a WFC analyst who cut the group to “market weight” from “overweight” as “an indication of a more moderate though still optimistic view of the sector rather than any active concern about the chip stocks as a group” which in analyst speak means WFC needed more trading volume so had to say something to try to drum up some business.
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Also in the market, the world’s No. 2 hard drive maker Western Digital (and they make drives even harder than if Jessica Talarovich were your passenger) is buying Hitachi for $4.3B in stock and cash while LVMH is taking over Bulgari in a 3.7B euro deal. Finally SBUX rose after Morgan Stanley upgraded them to “overweight” citing SBUX’s growth in domestic and international units, plans to enter the single-serve coffee market and bring its packaged coffee business in-house, and world domination.
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As for small cap stocks, well Money McBags took it in the yingus today as his shit tends to be higher beta and has had good runs (perhaps it ate whatever Money McBags ate last week) so when it comes to selling the dip, these dips get sold first. That said, it should be a busy week with more earnings (and Money McBags is interested in SAAS, COOL, and KIRK among others) and tweets from Bree Olson. Money McBags did run some screens today and came across a tiny do shit company that may be interesting but has less liquidity than Hilary Clinton’s vagina. That company is PMD and they do some sort of substance testing using hair samples and Money McBags is pretty sure crabs isn’t the substance for which they are testing.
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Anyway, Money McBags has done almost no research on this company (which qualifies him to launch coverage on it at any of the major investment banks, though, it makes him too qualified to launch coverage on it at places like Craig Hallum and whatever ThinkEquity is calling themselves these days) but they have ~$6MM cash, no debt, just grew revenue 20% for the year and the Q, and had EPS up 70% for the year (though down for the Q as it looks like operating costs jumped). The company is trading at ~18x trailing twelve month eps but they have a 5.5% yield and three years ago earned ~$.85 per share on $24MM of revenue (and they just did $20MM this year), so the earnings power is there as they are trading ~10x that $.85 eps. They’ve been profitable since 1993 and the CEO said “While some of our growth in 2010 can be attributed to the economic recovery, the primary increase has come from new customers and introducing new programs to existing customers.” So again, kind of interesting.
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That said, it’s a $46MM market cap company that trades ~10k shares a day so, um, what’s the fucking point? Money McBags guesses revenues could grow if employers start hiring and thus running more background checks but other than PMD’s CEO Raymond C. Kubacki’s last name being a spoonerism for “bukkake,” it’s not clear there is enough here to tickle Money McBags’ fancy (unless it is Elle Liberachi doing the tickling because that would be hella fancy). Shit, throw it on a watch list and if you get a spare minute do some work, though if you get two spare minutes, do some work and some Kate Upton googling.
2/16/10 Midnight Report: The Fed’s New Slogan: Where M-Raising Happens
Feb 17th
The market rose again today (which is actually the new permanent opening line for Money McBags’ daily column so if you want to save yourselves five minutes, just add references to unemployment, inflation, Fermat’s last theorem, and Malene Espensen, then rinse, spit, and consider the column finished). That said, the market didn’t just rise because it is Wednesday, it rose because the FOMC said things are picking up just enough to keep QE2 going (because apparently making sure the dip is bought is in the Fed’s charter along with keeping inflation in check and acting like a bunch of asshats), Iran is moving warships in to the Suez Canal (though they claim it is just a sight seeing mission as the crew is short one of those Jerusalem snow domes to complete their collection), and people at the playboy mansion continue to fall ill (and note to Hef, that is what happens then you invite Corey Feldman over one time too many) with the illness being blamed on a mystery bug (perhaps it was a Katy(Marie)did or a headwig).
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Oh wait, those are all reasons for the market to go down, because the need for fiscal stimulus and the unrest in the Middle East are about as positive for the ponzeconomy™ as googling “Santorum” is for Rick Santorum’s election campaign (and the awesomeness of this being the top result for that search might be reason enough to give Al Gore whatever is greater than a Nobel Prize for creating the internet), but as always, just buy the fucking rip.
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Anyway, the big news today was that the FOMC’s minutes were out from their last meeting and we learned that the Fed will be keeping QE2 in place because the economy remains somewhat shitty. That said, the headlines for the minutes had more spin than a drunken lepton as the media ran with things like “Recovery on Firmer Footing” (perhaps footing even firm enough for Rex Ryan) and focused on the Fed raising their GDP growth expectations to 3.4% to 3.9% growth this year, from their previous guess of 3.0% to 3.6% while ignoring the fact that <4% growth doesn’t do a shit ton for getting the ponzeconomy™ back to healthy levels and the jobless rate will remain elevated through at least 2012 (unless the Fed can continue to push that pesky labor force participation rate down).
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In the minutes we also learned that there was some debate about slowing down QE2 until dissenters were reminded that doing nothing is tantamount to admitting their jobs are meaningless, the Fed is disappointed in the pace of job creation (no fucking shit, you know who else is disappointed? The ~18MM people not working and Pam Anderson‘s agent), the cockposterous rise in commodity prices will not cause inflation (mainly because the B(L)S will just keep rejiggering the weights of core CPI until the only thing it measures is the number of people who spell “Kocherlakota” correctly on their first try as that will never be an elevated number), and Janet Yellen is really pissed that Charles Evans keeps forgetting to leave the toilet seat down in the Fed’s private bathroom.
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But Money McBags’ favorite part of the minutes was when the fed shrugged off rising commodity prices by saying “the factors affecting the ability of businesses to pass through higher prices to consumers were viewed as complex and hard to monitor in real time.“ First of all, cry Money McBags a fucking river that your job is “complex” and “hard,” seriously you want a real hard and complex job try being the asshole that has to write dick jokes about this shit every fucking day instead of the fuckrods who just set the policies, big difference in the degree of difficulty. But guess what, you are getting paid to do that hard and complex job so would a bonus of “shut the fuck up” help.” And secondly, um, you know this is already monitored in real time so what is so hard and complex about clicking on a link? And these people are in charge. Ugh.
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In macro news, core PPI rose .5% which was highest rate in more than two years as apparently R. Kelly went on a drinking binge and aimed for the head (trust Money McBags there is a really bad pun in there). The number was above the .2% guessed at by economists and foreshadows the build up of inflationary pressures in the economy about as subtly as Michael Chabon foreshadows anything in his writing (and there is a reason Money McBags doesn’t read modern novels) or as subtly as Charlie Sheen foreshadows his intentions on a new hooker‘s first trick.
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In other macro news, housing starts were up 14,6% which makes as much sense as Keith Olbermann joining something called Current TV (because Money McBags is pretty sure the award winning when Genius Prevailed gets more traffic than whatever the fuck Current TV is) or Melissa Archer not having a better career, because shouldn’t the weather have affected the numbers since it supposedly wreaked havoc on anything else having to do with going outside such as shopping, working, and dickflashing. That said, permits for future home construction dropped sharply after they were pulled forward last month to get ahead of tax code changes in three states (with the largest of those states being the state of despair).
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As for the market, DELL beat guesses and jumped ~11% thanks to a surge in business hardware and something about people no longer having enough money to buy Macs. DELL earned $.53 per share which was up from $.28 per share and well ahead of guesses of $.37 per share and the company guided to 5% to 9% growth, though stripping out warranty replacements, growth will be closer to flat.
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In other earnings news, Deere’s profit doubled thanks to sales of large high-margin machines and price increases (inflation inshmation) and the company raised their full year guidance. Deere said rising prices of food commodities like corn, wheat, soybeans, and Trustex flavored condoms (and Money McBags hears the Strawberry is mouth tingling good) have boosted farmers’ investments in new equipment and are helping Deere’s topline. Also, Officemax was down 10% after returning to profitability but announcing that increased promotions, the fuck awful economy, and the fact that their stores look like homeless shelters, will continue to pressure results.
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In retail stocks, Family Dollar was up ~21% after it was announced to be going private in a $7.6B transaction (which is just $1B below the price of going for Brooklyn Decker‘s privates) and Abercrombie and Fitch was up after a strong Q thanks to sales in Europe where the douchebag look is just coming in to style.
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And finally RIMM was up ~5% after C upgraded it to a buy from a sell and boosted its price target to $80 a share from $56. When asked for the reason behind the upgrade, the analyst cited RIMM potentially benefitting from the Nokia-Microsoft smartphone partnership and cited the fact that he hadn’t printed research in a while and needed to get something out so funds would trade with C and thus boost C’s commission revenue.
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In small cap stocks just about everything was up today so good on you if you owned anything (though better on you if you owned this). Money McBags mentioned GLNK briefly yesterday and they were able to hold their 28% gain from Tuesday which is a good sign that there may be real investors getting in to the name. It is on Money McBags’ to do list (just after TNAV and Izabel Goulart) as the growth seems real and it has been pretty consistent, but the company just hasn’t been able to get scale until perhaps now. Speaking of TNAV, they continue to break out and on the surface it looks hella fucking cheap with strong growth trends. The problem is that Money McBags hates their business as they are basically the SIRI of the GPS world because they are selling a service people can essentially get free from a little something called Google maps. That said, the company does have strong recurring revenue (which Money McBags loves), nice growth trends, and a very reasonable multiple so Money McBags hopes to spend some more time on them in the next few days if he gets a chance.
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Money McBags is a bit worn out right now so no detailed small cap analysis today, but hopefully tomorrow he’ll dig in to some more ideas (especially this idea). And if today’s headline didn’t make sense to you, it is a pun on the NBA’s “Where Amazing Happens” marketing campaign, trust Money McBags that it is both clever and funny.
2/15/11 Midnight Report: Businesses Admit They Are Feeling Inflation But Claim Inflation Likes It
Feb 16th
The market was down today as retail sales disappointed (thanks to the weather, a little something called rampant unemployment, and everyone hoarding cash for the next generation of the fleshlight to be released), food prices continued to increase and spook investors as rising costs pushed 44MM more people in to poverty (though at least 13% of the increase in food costs was caused by Kirstie Alley‘s night out at Sizzler’s all you can eat bar), and Sports Illustrated’s latest Swimsuit issue hit the stands which caused investors’ dip buying trigger fingers to be otherwise occupied (oh wait, what’s that, it’s not 1970 and at the click of a mouse people can easily go to spankwire, meinmyplace, and goldmoney.com which all make the Swimsuit issue more irrelevant than valuation is for NFLX shareholders or Valentine’s Day is in Iran? Hmm. (And quick digression, but Money McBags hopes you all got his Valentine’s Day heart yesterday)).
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The real news though continues to be the scent of inflation which is wafting through the air like the gentle bouquet of a carafe full of Chateau Lafite, only if that Chateau Lafite had been shit in by a homeless skunk who had eaten a week old Arbys roast beef sandwich and a pair of Tila Tequila‘s underwear. Money McBags has been harping on this for months now as you simply can’t perpetually stimulate the economy without pumping more money in to the system than Charlie Sheen at an AVN Awards show afterparty, and now inflation is starting to rear its ugly head.
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As a result, companies are all warning about rising prices and more articles like this one about clothing prices to rise 10% are coming out daily as the media finally figures out that prices can get high off their money supply. Money McBags listens to a shit load of conference calls during earnings season (well technically he just reads the transcripts because the only thing more boring than listening to a CEO drone on about his/her business for an hour is Network TV) and ~90% of the companies he follows talked about rising costs and in turn raising prices. Holy Stagflation “Using the Wrong Stat” Man (the wrong stat being core inflation), maybe it’s time to make like Annabel Chong and load up on hard assets while everyone buys the rip.
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And inflation is a global issues as UK consumer prices were up 4% to their highest in more than two years and double the Bank of England’s target as the country rushes to stock up on black jeans before the price of denim reaches cockposterous levels. Also, China’s inflation was up 5% on soaring food prices even though their version of the B(L)S (perhaps the phonetic BRS for them) recalculated the index to give less weight to food costs and more weight to housing costs because “Chinese food prices rising 50% in ten days” headlines were starting to look as bad for the country as Pedobear showing up to a Justin Beiber concert.
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As commodities rise and cause rioting in Egypt, Jordan, Algeria, Iran, Bahrain, and casting couches across the world, one can only guess that Bernanke is playing for some kind of Kerr solution to occur (and if Money McBags were in charge, Miranda Kerr would be a frequent solution) and thus have time freeze before hyperinflation wreaks havoc like Silvio Berlusconi at a finishing school. It is certainly an interesting strategy, and not one Money McBags would have picked, but alas, Money McBags is a simple dick joke writer and not the unelected head of the becoming less free world.
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As far as macro news in the US, retail sales rose .3% which was the smallest gain since a drop in June but witch doctors once again blamed the weather for the disappointing number as the weather is now becoming a bigger scapegoat than Waddell & Reed or Steve Bartman and will soon be blamed for other such atrocities such as kidnapping the Lindbergh baby, weakening the levees in New Orleans, and encouraging Chuck Klosterman to keep writing (that is if one considers what he does writing). In the details, building material and gardening outlets saw receipts down 2.9%, food service and drinking places saw receipts down .7%, clothing and clothing accessories stores saw receipts down .3%, and Lindsay Lohan‘s agent saw receipts down 69%.
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In other macro news home builder sentiment remained shitacular as builders must compete with a glut of unsold properties, a shit ton of foreclosures, and stubbornly high unemployment causing fewer people to switch jobs than Manuel Uribe skips meals. The National Association of Home Builders/Wells Fargo Housing Market Index held steady at 16 from last month with readings above 50 indicating that more builders view sales conditions as good than poor and readings below 20 meaning more builders view sales conditions as fucking poor than really poor. And finally a report from the New York Federal Reserve showed a gauge of manufacturing in New York State climbed to 15.43 in February as the state produces more paper bags for Mets fans to put over their heads now that baseball season is getting close to starting.
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In the market, The Gap was up ~6% after decent comps and after it was announced that Sears Chairman Eddie Lampert has taken a 5% stake in the company in his attempt to run another proud US brand in to the ground. Also, Fed Ex delivered a crappy quarter as a result of weather and rising fuel prices but the stock was up as investors focus on increased long-term shipping demand as emerging markets continue to emerge and the closing of local businesses ramps up e-commerce.
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Finally, Barclay’s was up ~7% on better than expected results proving that even tougher regulations can be manipulated, Deutsche (bag) Borse bought the NYSE for $9.53B and a promise not to fire any of NYSE’s croupier’s, and SIRI reported a loss, though Money McBags was unable to hear the reason why as management was interrupted by a caller yelling BaBa Booey over the response.
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In small cap stocks, SAAS traded down at the end of day on decent size volume for them on the same day Money McBags dropped 2.5k words on why he has such a crush on this stock that it causes him to be more tongue tied than Serene Branson. Also, GKNT got its geek on and shot up ~28% on a 53% jump in revenues. This is a weird little company and Money McBags actually spent a few hours looking in to it about a month ago and decided to punt on it because they are still burning cash and rely on hitting on trends to sell products (though they do have an audience that is potentially sticker than the floor of a bukkake movie set, so that is positive), Even with the huge Q the company still had negative EBITDA and earnings for the year, and a bunch of the jump up today had to be short covering, but Money McBags is intrigued because they have shown consistent topline growth. Definitely put this on a watch list for more work (and put this on a watch list for more jerk).
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That said, Money McBags wanted to get to DGIT today as they obliterated estimates and jumped another 7% to close at a price ~$32.50 (and remember Money McBags told you to buy when it dropped under $16 on 8/30/10 after a bad Q and even took on some assclown in the comments section a few times showing everyone why Money McBags is the premier small cap analyst on the Street). After DGIT’s last Q, Money McBags advised readers to take some profits because the easy money had been made, but hopefully you didn’t take all of your profits because even more easy money is now being made.
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As for the Q, revenue was up 32% but most importantly HD revenue was up 61% and that is the driver of this whole fucking business. They said HD is still only 11% of volume so there is more room for growth than in Sheyla Hershey’s old bra, especially as they grow internationally. EBITDA was up 47% to $38MM, GAAP net income was $.51 per share (though included a $.13 impairment write-down for Springbox, and Money McBags would like to spring in this box), and non-gaap net income was $.76 per share. Both their HD revenue and standard revenue beat Money McBags’ guesses as he had $29.5MM for HD and $38.5MM for standard and they killed it with $34.5MM for HD and $41.6MM for standard, so boo fucking ya.
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So what do we do here as the company seems to be firing on all cylinders and the rumors of competition from Extreme Reach and Ascent Media are but a whisper. HD just grew 70% for the year so one question is what will it grow next year and another question is who is this girl and is she free for dinner? Anyway,after last Q Money McBags estimated HD could grow ~30% in 2011 and got an eps guess of ~$1.95 and an EBITDA guess of ~$125MM for the year, but shit that may be low. Lets assume HD grows 40%, their standard business grows 10% (~22% total top line growth), costs go up 15%, and the tax rate is 40% and we get to ~$2.23 in GAAP eps and the company is trading at only ~15x that right now but using a non-gaap number with stock comp we get to ~$2.50 per share. Not only that, but they have been running ~46% to 48% EBITDA margins so if we call it 47% (though it should scale as they continue to get leverage), and revenue ~$295MM, we get ~$140MM EBITDA.
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The company has ~$73MM in net cash and a market value of ~$923MM, so an EV of ~$850MM and they are trading at only 6x that high end but reasonable EBITDA estimate. Shit, with that kind of growth they should trade closer to 8x and thus 30% upside to ~$42 is not unreasonable here. So if the stock trades down, consider adding a bit and if you still own some, hold on because this could be another solid year as they continue to have the killer app for HD ad delivery and as we saw, HD video is still at the inflection point.
2/9/11 Midnight Report: Fucking Crickets
Feb 10th
Kind Readers,
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Money McBags was out for most of the day and thus was unable to find the time to get a column up that suitably dealt with the news of the day such as Ben Bernanke’s speech before the House Budget Committee (which includes such great financial luminaries as Heath fucking Shuler, who was less than stingy with his interceptions, and 37 other fucking people of whom Money McBags has never heard) where Benny B. lamented slow job growth, professed his unwavering commitment to price stability, and told Paul Ryan if he asks anymore hard questions, he will unfriend him on Grindr.
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That said, Money McBags hopes to finally get out his SAAS analysis in the next few days where he will slobber all over that company as if it were Diora Baird wrapped around India Reynolds and stuffed with a healthy dose of Kellly Brook. Money McBags also has a bunch of shit to do tomorrow but he will do his best to get out a column and break down RICK’s Q which was released after the bell and was pretty much inline with Money McBags’ .044 Lap Dance per share full year guess. Their Vegas club is still eating a dick (or perhaps not eating enough dicks), but they got a shit ton of leverage on flat growth (and that is likely the first time anything flat has not grown at Rick’s).
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Anyway, Money McBags wants to say a few words about the award winning When Genius Prevailed. Long time readers know Money McBags never intended for this to last as long as it has, fuck, it was just a lark started by a guy who needed to stay fresh on the markets and wanted the world to understand what was behind the buy side when the curtain was pulled back (and also what was behind Alice Eve when her curtain was pulled back). The writing has evolved over time as macro analysis and daily news has grown to be as much of the daily column as the small cap analysis and over the past few months, somehow Money McBags has managed to put up an expanded 1.5k to 2k words a day of original fucking content (on which he is proud to put his name) which is such a cockposterous undertaking that he now sleeps only 4 hours a night as finding just the right coprophilia joke (such as Money McBags’ favorite line which was from his recent jobs report break down “…even though it was more disappointing than the book Cooking with Pooh is for coprophiliacs who order it sight unseen“) and clicking away from meinmyplace is very fucking difficult.
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Anyway, this is the point. Traffic continues to grow ~20% a month and it’s getting to the point where Money McBags is getting some scale and while there is no light yet at the end of the tunnel, there is at least a tunnel. The key thing here is that Money McBags enjoys doing this and would actually like to somehow do this full-time and not have to worry about other shit and thanks to your readership the traffic is encouraging, but the growth needs to keep coming (so perhaps Money McBags should just show growth a picture of Hannah Hilton). In all honesty, Money McBags wasthisclose to taking a job on the buy side last month (and if that had happened WGP would have died), but at the last minute some weird shit happened. The fact is that he is constantly talking with buy side funds out there but when he does so now, a part of him wants it to not work out so he can keep writing his daily column. It is a weird thing to admit, but Money McBags feels he is really doing something differentiated here and would like to do this in perpetuity (though he would really like to do this in perpetuity). While he’s not quite sure how he’s going to monetize this shit yet (because Google Adsense certainly isn’t going to do it), he does know that if he can get the eyeballs, eventually good shit will happen (it is the “If he builds it, they will come” strategy, and if “they” is Marisa Miller, then mission accomplished).
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So if you enjoy Money McBags’ writing, his analysis (just in the last month or so he’s given you NEI, DTLK, RICK, etc.), his point of view (and these are the points he mostly likes to view), and his sense of humor (and if you’ve made it this far you likely do, or else you’re just waiting for another link), then take a minute to tell a friend about the award winning When Genius Prevailed (especially if your friend is Odette Yustman, and make sure you also tell her Money McBags can be very gentle). Money McBags is getting closer to his goal of 1MM readers (as now one only needs to round up to the nearest 100k to be within 1MM of that) and getting that kind of scale would be tittastic.
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So sorry for the lack of a column today, but if you need a fix, just hit the archives as surely you have missed a dick joke here or there. And if you need to find something to do with the 10 minutes a day you’re not clicking on Money McBags’ links, take the time to love some NSFW strangers.
2/8/11 Midnight Report: Market’s First Law of Bernankity: What Goes Up, Must Go Up
Feb 9th
The market rose for the 7th straight day (and the day was so straight that it wouldn’t even look at other days of the same gender, and yeah, that means you Thursday) as earnings continue to be relatively decent (until the speedboat effect of rising input prices catches up with them next Q, which is nowhere near as fun as the motorboat effect catching up with Katie Price, but it is what it is), the Fed both hinted that QE2 was a success (because the paper portfolios of rich people are now higher giving them more fake money they eventually won’t spend, so good on QE2) and that there may be no QE3 (because they’ll call it QE2 Lite, the alliterative QE Cubed, or simply “Suckers”), and Ben Roethlisberger didn’t rape anyone.
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With the market now passing levels it hasn’t seen since unemployment was half of what it is today, home prices were worth 20% more, and Jenna Jameson still had a career (and her original facial structure, because really Jenna, how the fuck did you turn this, into this? It’s more bizarre than getting killed by a knife wielding bird at a cockfight since the only thing one usually needs to be worried about in a cockfight is getting poked in the eye), one has to wonder at what point having people with income and real wealth will matter or if the economy can leap ahead of where it was despite more than 8MM fewer people contributing. Of course, all of that is irrelevant because as long as you buy the rip, all should be good (as long as you sell before you get ripped).
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As for macro news, the only sort of real data out today was a survey from the National Federation for Independent Businesses that showed small business confidence picked up marginally in December rising 1.5 points to 94.1. Of course since Money McBags has no idea what the 94.1 is out of (perhaps a billionity?), what the fuck the magnitude of a 1.5 move means, and why he had never heard of the lovely Anja Rubik until today (and he would solve any of her cubes, and yes, that pun had to be made), all he knows it that it is likely irrelevant. That said, the report highlighted that “Owners are not optimistic enough about the future to commit to some serious spending and hiring,” so um, Money McBags guesses the 94.1 really is out of a billionty.
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In other news, the Fed continued their Winter of Discontent 2011 speaking tour as today Federal Reserve Bank of Richmond President Jeffrey Lacker (lack her? Money McBags doesn’t even know her) addressed all three students who attend the University of Delaware while Federal Reserve Bank of Atlanta President Dennis Lockhart addressed the Calhoun County Chamber of Commerce in between their Business ‘N Biscuits lunch and their History of French Wine seminar (and really?). Of course as both are non-voting members of the FOMC (the fluff girls of the Fed meetings if you will), Money McBags cares what they say about as much as he cares about who the next guest star on Glee will be (unless it’s the AIDS virus), but news is news.
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In his speech, Lacker said that we can almost halt QE2 right now as the “distinct improvement we’ve seen in the economic outlook since the program was initiated suggests taking that re- evaluation quite seriously,” When asked to quantify this “distinct improvement” he has seen, Lacker simply stated: “The market is up, dickbag.” And in Money McBags’ favorite example of either positive thinking, complete lunacy, or a credibility gap bigger than Anthony Garcia serving as a yogurt spokesperson (and the thing Money McBags loves most about that story is that the woman immediately knew what the yogurt tasted like, proving practice does make perfect), Lacker said the decline in the savings rate suggests that many households have made substantial progress toward repairing their balance sheets following the financial crisis. Yeah, and it also (and more likely) suggests that people aren’t making enough money to be able afford food and gas with rising prices and thus can’t fucking save anything in this ponzeconomy™. But hey, if economists want to take a decline in savings as a positive sign for an economy still reeling from an over-extended credit bubble, then, well, buy the rip.
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As for Dennis Lockhart, he shared that he thinks inflation is below the Central Bank’s comfort level because apparently the Central Bank’s comfort level is somewhere around stagflation. Lockart went on to say “For the moment, inflation, properly defined, is tame, in my view. And the rise of individual prices does not signal incipient inflation’‘ and there is so much wrong with that statement that it makes Money McBags balls hurt. First of all, “inflation, properly defined” should include the shit that people need to buy like food, gas and copies of Italy’s February GQ magazine featuring the lovely Diora Baird, so the Fed’s insistence on using “core inflation” to gauge prices is like using a rectal thermometer as a pregnancy test. Secondly, “The rise of individual prices does not signal incipient inflation?” Really? Hmm let’s see, per the definition, inflation is a “rise in the general level of prices” and incipient means “to become apparent.” So just for shits and giggles, Lockhart said “the rise of individual prices does not signal an apparent rise in the general level of prices.” So um if prices rising doesn’t signal an apparent rise in prices, what the fuck does?
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Elsewhere, President Obama will ask congress for $53B for a high speed rail which would be awesome if A. We didn’t have something called airplanes and B. We had $53B to fucking waste on a piece of shit train that no one is going to use anyway. For fucksake, take that $53B and pay some fucking teachers, get sick people some fucking health care, have one hell of a night out at RICKs, or just don’t fucking spend it. Just because you can print money, doesn’t mean you have to, shit, just because Money McBags can go to spankwire, doesn’t mean he has to, well, actually bad example. But Money McBags knows why the White House wants this as GE is the leading manufacturer of diesel-electric locomotives, and who is the new Chairman of Obama’s outside economic advisers? The guy who runs GE, Jeffrey Immelt. Does anyone know if conflict of interest spelled with one “fuck you” or two?
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Internationally, China raised interest rates for the third time since October as the government tries to put a lid on the rapid inflationary growth which has been driven by a fuckton of lending, massive state investment projects, and the introduction of and now rampant demand for new technologies such as the fork. A slow down in China would be worse for the ponzeconomy’s™ recovery than having to live in Stockton, CA as the US needs the growth of developing countries to make up for the lost consumption due to the 17% U6 unemployment.
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In the market, commodities continued to rally with gold trading up again and copper reaching all-time highs but as commodities don’t go into making all of the shit we use and thus won’t increase final prices, there is no reason to worry about inflation (and yes that was sarcasm). In earnings news, Toyota raised their profit forecast even as profit slumped 39% in Q3 due to slow sales in Japan, the lingering effect of recalls, and cars being really fucking expensive. Also, MCD announced same store sales were up 5.3% even with US sales being hurt by the fucking weather and that sent the company up ~3%. MCD had strong growth internationally (7% up in Europe, 5.2% in Asia), in their nascent breakfast segment (McCafe and oatmeal), and finally caught the Hamburglar. Money McBags is a shareholder of MCD because as always, cheap shit with a ton of brand equity should outperform in developing markets as poor foreign people want to emulate the poor people in the US. Finally, AIG delayed their re-IPO as apparently they can’t find enough investors who have never heard of AIG.
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In small cap news, boring sleepy little company DFZ announced their quarter and traded down ~9% as their gross margins were really fucking gross. For some reason Money McBags keeps writing about this company as they are fairly cheap, but then every 4th or 5th Q they blow margins like they were Briana Banks in Titsicle. Gross margin is typically around 40% for this company and it came in at a fuck awful 34.7% (down ~800bps from last years 43.1% in fiscal Q2) as they fucked up their sourcing in China by relocating from Hong Kong to the Mainland. They say this wreaked havoc on their procurement (so good planning there, was the move spur of the moment?) which caused them to have to ship their product to customers through the air to ensure on-time delivery. Given the option of fucking shareholders in the short-term to try to keep long-term business, or fucking long-term business to keep short-term shareholders, DFZ chose to keep the business and Money McBags sort of applauds that. They say this is a one-time issue (which they always say, so um, ok) and the new location will allow them to get better pricing on procurement as they can now order goods 6 to 8 weeks earlier (which will bump inventories, but whatever).
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The other news is that they gave some color on their recent $14MM acquistion of Foot Petals which is a company that produces some kind premium insole for womens’ shoes usually sold in stores like Nordstroms and Dillards. They said the company earns ~$2MM to $2.5MM in annual EBITDA (so they paid ~6x to 7x), is cash flow positive, will immediately be accretive, will have only a modest contribution on 2011, and is not the “game changing” deal investors may have expected, but more of “game enhancer,” like a Sean Michaels Maximizer. They are also still looking at larger deals as they will have ~$31MM cash after the acquisition.
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One more interesting thing is Mini Anden, but another is that they said they see input prices rising 8% to 12% and they plan on passing this on to the consumer. Just more evidence that inflation is here despite the Fed’s denial.
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So what the fuck do we do with this company? Guidance for the last two fiscal Qs is for their usual few penny eps loss as their business is more seasonal than thong bikinis so they’ll earn ~$.71ish this year, but who the fuck cares. What is important is next year so if revenue this year ticks up 1%, they lose $5MM in sales due to cutting ties with Nautilus and Superga, and then grow 4%, they should be ~$125MM of revenue for fiscal 2012 or pretty much what they will bring in this year. So how much will Foot Petals add? In 2010, DFZ had 13% EBITDA margins so if we say they are similar to what Foot Petals should have (and why the fuck not, you got any better guesses?), that gets Foot Petals revenue to ~$19MM and thus ~$144MM revenue for DFZ in fiscal 2012. Assuming the company can hit their 40% gross margin goals (and assuming margins are the same for Foot Petals) and costs tick up to $40MM, that gets them to ~$1.00 eps and thus they are trading at ~10x that right now but with ~$3 of cash per share on the balance sheet which they may or may not spend on an acquisition. So DFZ certainly isn’t expensive, but the questions are: 1. Can they really get back to 40% gross margins or even the nearly 42% they achieved last year? 2. Will Foot Petals grow and what will the synergies be? 3. Why hasn’t the Food Network tried this to help slumping ratings (this has nothing to do with DFZ, but it is a fair question)? 4. Are they going to make another acquisition?
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The current price seems reasonably cheap, especially with a $.07 per share quarterly dividend, but there is absolutely no momentum in this name so no real reason to buy it unless it just gets stupid fucking cheap which would be below $8. So if this drops ~20%, Money McBags will consider buying, otherwise there is just too much upside elsewhere on which to focus.
1/27/11 Midnight Report: S&P Touches 1300, 1300 Says it Liked it
Jan 28th
Despite new claims for unemployment putting up the largest weekly increase since September 2005 (and you all remember September 2005, right? Alan Greenspan was still a genius, iPads were still just the truncated spelling of a sanitary napkin, and Kim Kardashian’s vagina was still underwraps (and some guy named Damon Thomas too)), despite Japan being downgraded by S&P due to greater risk of default than Charlie Sheen’s liver, and despite a little bit of happiness being squelched by studies showing breast implants are linked to a rare form of cancer (And no shit, really? You mean to tell Money McBags cutting open your tit and shoving something artificial in there might be a health risk? Shit, what’s next, finding out that eating Twinkies causes obesity or watching CNBC causes dementia?), the market continued to rally as investors buy the fucking rip.
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The S&P flirted with 1,300 today in ways that would make the delightful Lisa Ann seem like a cocktease (and Ms. Ann, Money McBags can be reached at moneymcbags@gmail.com should you ever want to tease anything of his) as it nudged above that psychological support level before closing a Robert Reich nut hair below it at 1299.54. Money McBags doesn’t know what to say anymore as the market races to the next bubble top (as opposed to the next muffin top), he just hopes you all are properly hedged and can get out before cookie crumbles.
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That said, before Money McBags gets to the macro news, he has to go on a bit of a rant today because the Financial Crisis Inquiry Commission released their final report on the global clusterfuck (also known as the ponzeconomy™) and the report was strangely just one sentence: “Everyone acted like a bunch of asshats.” Ok, it was a bit longer than that (probably two sentences claiming that they were asshats and douchelickers) but Money McBags only read the highlights because he is waiting for the book on tape to come out.
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The point is, and what really puts a turd in Money McBags’ punchbowl (or a copy of Pride and Prejudice in his bookcase if you will), is that in a letter to the FCIC, Fed Chariman Ben Bernanke admitted that the Fed just fucking missed the complete collapse of the financial system, no really, he did. But Money McBags guesses that all is forgiven because it’s not like that was their main job. Oh wait, what’s that? That is pretty much their only fucking job? Well fuck Money McBags but at least we fired all of the assholes who fucked up and said things in 2005 like: the economy “might bend but would likely not break” from a large home-price drop, and that the market may rest on “solid fundamentals,” and now say: ” it was hard for many FOMC participants, in the summer of 2005, to ascribe substantial conviction to the proposition that overvaluation in the housing market posed the major systemic risks that we now know it did.” Oh wait, what’s that? The fucking assclowns who said that are the same people who are still running the show? Are you kidding Money McBags? Holy shit. This is more fucking cockposterous than if Exxon rehired Captain Hazelwood and put him in charge of ship safety, neighbors insisted that Roman Polanksi take their RV and drive their babysitter home, or President Obama appointed Michael Jackson’s doctor as Surgeon General. Seriously.
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Look congress/executive branch/Tina Wallman, Money McBags knows that you like to keep all of your chummy buddies at GS happy and he knows you just recycle the same shitty people through the same shitty jobs, but here is DOCUMENTED PROOF that these fuckers MISSED THE ONLY THING THEY HAD TO NOT MISS. Fucking A, you think Faye Reagan would keep getting hired if she always ducked and missed the money shot? Fuck no, because taking it on the chin IS HER JOB. So how the fuck can these guys still be in charge of this shit when they SUCK AT THEIR JOBS? They have already shown that they aren’t capable, so what makes you think they won’t fail again? Sucking at one’s job isn’t a random walk and sometimes past performance is an indicator of future success and the fact that we have LEARNED NOTHING FROM THIS DOWNTURN and are still sucking off the assholes who missed it, is so fucking ridonkulous that it makes Money McBags’ balls hurt just to think about it (which is why he spends his day thinking about this). Rant over.
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Anyway, as for macro news, new claims for unemployment were up to 454k, a jump of 51k and the highest the number has been since October, right before QE2 created all of those jobs, oh wait, what’s that? QE2 wasn’t geared towards creating jobs? It was just supposed to pump up the markets so rich people could have their paper net worth artificially grow and cause them to buy maybe one more tennis bracelet from Tiffany’s for their “babysitter”? Well Money McBags guesses he was misled. Anyway, witch doctors blame the huge jump in new claims on snowstorms because when in doubt just blame an inanimate variable (and the jump was so large that it made Evel Kneivel roll over in his grave and it wasn’t even within a standard deviation of analyst guesses of 405k).
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In other macro news pending home sales rose 2%, which beat analyst guesses of a 1% rise and is now only 5% below last year’s ass awful number. Meanwhile, bookings for durable goods increased bv .5% according to the Commerce Department, or fell by 2.5% if we take out transportation and anything else that might have made the number look shitty. Analysts guessed durable goods would rise 1.5% but in fairness to them, no one cares about this number anyway.
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Internationally, S&P downgraded Japan from “super happy fun times” to “country and western karaoke night.” The ratings agency expressed concerns over Japan’s escalating debt (which is now twice GDP) and their inability to stop Godzilla after all of these years. In their report, S&P said Japan’s government lacks a “coherent strategy” to address the debt, before adding “for fucksake, they don’t even speak in English, so how are we supposed to understand any strategy of theirs?” That said, unlike the PIIGS, most of Japan’s debt is held domestically, so when the Pokemon hits the fan, they will implode rather than explode.
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In the market, a shit ton of companies reported earnings led by NFLX who grew subscribers by 3.1MM and saw their stock price rise 15% which meant shorts like Whitney Tilson once again took it in the pooper (which of course makes NFLX a win-win stock for Mr. Tilson). Profits were up 52%, revenue was up 34%, and gullibility was up 900% as the plethora of free subscribers inflated numbers and caused gross margins to go down from 38% to 34.4%, but luckily for NFLX, that part of the press release was pixelated over. After the quarter, a number of analysts raised their target prices with Cannacord Genuity (formerly Cannacord Adams which, as always, is Canadian for “Roth Capital”) leading the way with a target price of $250, which is only about $1 Billionty too low.
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In other news, 1985′s NFLX, MSFT, proved that you can be too big and fail as despite 5% revenue growth, their profit fell slightly as tablet sales started to eat in to sales of computers as if sales of computers were a cheesecake and tablets were Kirstie Alley. Elsewhere, QCOM shares jumped ~6% after the company put up a good Q and raised its outlook for the year citing the need for mobile phones to have more and better chips to be able to properly display HD porn while users are dropping logs at the office. Also, Motorola’s recently spun off mobility business announced their first Q today and dropped 12% on weak guidance, proving once and for all that you can’t polish a turd.
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Finally, SBUX was flat despite a blow out Q as they announced that higher input prices will start to hurt margins and as a result gave guidance way below Street guesses. When reminded that Bernanke says there is no inflation, SBUX CEO Howard Schultz replied: “Are you talking about the guy who also missed the biggest economic downturn in our lifetime? Or are you talking about Scarlett Bernanke, who is causing my assets to inflate? Either way, they can both go fuck themselves because inflation is here, though if it is Scarlett, then I’d like a window seat for that.”
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In small cap news, holy shit has it been a week for Money McBags and hopefully for you, his loyal readers as well. Last week he mentioned he was looking forward to earnings from KEYN, SMCI, and CRUS and all three crushed it in the last two days with KEYN up ~22%, SMCI up ~6%, and now CRUS up ~19% after they destroyed guidance. And then out of nowhere after hours today, TMRK agreed to sell for a 35%+ premium (and remember Money McBags has been pimping this stock since it was worth ~40% of what it is now). So boo-fucking-yah.
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Before Money McBags breaks CRUS down today, he wanted to let you know that he did buy a tiny bit of NEI today despite their lackluster guidance for next Q. It’s a miniscule position because Money McBags knows he is really just guessing based on stock movement, increased volume, and long-term implications of their expanded manufacturing facility in Europe. For whatever it is worth, people more familiar with the industry than Money McBags (which would include everyone except for perhaps Carrie Prejean and a slice of bacon) keep telling him that they wouldn’t be expanding that facility unless they already had signed deals to increase production. In the low margin business they are in, one simply doesn’t put the cart before the horse so we should see ramping revenue. That said, guidance was for a 20% sequential revenue decline so either they need time to build out that facility, or the people Money McBags has been talking with about the industry are more full of shit than Kirk Douglas’ adult diaper. Money McBags thinks NEI has ~20% downside from here with the potential for 100% upside, so as a small speculative position, it is a risk worth taking.
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As for CRUS, well they CRUShed it. The company grew revenue by 43% (though it was down 5% sequentially) and earned $.34 per share as their audio business which sells chips to AAPL was up 54%. They gave guidance for next Q for revenue to be $91MM ( up 65% y/y but down ~4% sequentially) with gross margins to maintain in the 55% range and operating costs to scale up a bit to ~$32MM or ~$29.5MM non-gaap. Taking their guidance, Money McBags gets to ~$1.30 eps for fiscal 2011 which is exactly where he was on them last Q. The question is, what the fuck does fiscal 2012 look like because revenue has now sequentially stabilized and they remain at the whims of AAPL. Unfortunately, their transcript hadn’t been posted anywhere by the end of the day and Money McBags refuses to listen to conference call as they are more of a time suck than NSFW Muff Guessing without any of the fun. Given that, Money McBags isn’t entirely sure how to forecast their next year.
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If CRUS grows audio revenue 25% and energy drops 10% while operating costs grow 10%, they can earn ~$1.50 per share, so are trading ~15x that, which seems fairly reasonable. That said, if they grow their audio business 50% (and it will grow 70%+ this year) and their energy business is flat, they could earn $2 per share and thus are only trading at ~11x that which would be for ~37% growth. So look, Money McBags has no idea if either of those scenarios are reasonable, he is pulling them so far out of his ass that he thinks he actually pulled out some tongue as well, but it does show that there still might be some upside here.
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Hopefully their transcript will be out tomorrow (because their earnings release had less color than a NSFW Betty White nude photo) and Money McBags will be able to find some information (and hopefully this will be out tomorrow and Money McBags will be able to find some gyration). When CRUS hit $18 several months ago, Money McBags told you to trim and with the run up today, he would be doing the same because for it to appreciate significantly from here, you have to believe the audio business can continue to grow at 30%+ and this cyclical company with one customer can trade at at least a market multiple, even though it may be at the top of the cycle. It is possible, so perhaps they gave some better info on the call.
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Tomorrow, Money McBags hopes to break down NEI’s Q, CRUS’ transcript, TMRK’s sale, and everything that is going on in this picture. He also hopes to have a headline that doesn’t suck.
1/26/11 Midnight Report: If a Fed Statement Falls During a Rally, Does it Make a Noise?
Jan 27th
The market continued to rally today as the Fed voted to keep QE2 going (something about the economy being shitty, so rally on), bankers at Davos figuratively whipped out their cocks (which now seem so much smaller since they no longer get to mark to market) and pontificated about how regulation is bad for their industry (so rally really on, and excuse Money McBags while he punches himself in the nuts on that one), and traders all vociferously signed up for social media platforms to more quickly “get on top” of the news (which Money McBags fully supports, especially if this is the news).
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The point is, as the S&P barrels its way to 1,300, a number it hasn’t seen since tweeting was just something for the birds, reading out loud wasn’t such a must see event, and there was something called Lehman Brothers, Money McBags is still very fucking cautious because the real causes of the depression haven’t been addressed (and Money McBags hears they like to be addressed as “Your Misery”) like unemployment, an income gap bigger than the gap on most resumes, and the spiraling debt, so this recovery feels way too over blown, like Evan Stone in Tiger’s Got Wood. Money McBags gets that the market is rising because the Fed is pumping it up, but shit, something just feels so dirty about this, like NSFW muff guessing in public.
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That said, the most interesting news today for Money McBags was that Alice Eve was literally out on the town, while the second most interesting news was that the Fed released their monthly policy statement and caused the market to move less than Milton Friedman’s hair (and not because he’s dead, but because he was bald). It was more of a non-event than an Art Laffer lecture or a Tila Tequila sighting as the Fed basically reiterated their nonsense from last month and said: “the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions” and as a result, they unanimously voted not to stop their quantitative easing (and somewhere Thomas Hoenig is rolling over in his grave. He is dead right?).
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More importantly, the Fed finally admitted that commodity prices have risen but then claimed that “longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward” which is so fucking cockposterous that Money McBags can’t believe that was written with a straight face because continuing to ignore food prices in the inflation calculation is like ignoring every fucking movie M. Night Shyamalan has made since the Sixth Sense when giving him funding, or ignoring Heather Mills’ prosthesis when signing her up as your partner in a three legged race. It is amazing to Money McBags that this statement literally had less effect on the market than grammar rules have on a Palin or dignity has on a Kardashian, but shit, this is Bernanke’s world and we’re all just living in it.
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In other macro news, home sales were miraculously up 17.5% while mortgage applications were down 12.9% as people are either now buying homes with 100% cash down, or someone forgot to take the absolute value sign out of the calculation. Falling mortgages applications (and both purchase and refi mortgages apps fell) with other worldy home sales (including a 72% rise in the West thanks to a California homebuyers tax credit and 7 homes being sold instead of 4), is more of a paradox than Suri Cruise or the statement “this sentence is a lie” (and the Suri Cruise one may take a few seconds to hit you).
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Finally, the rhetoric ran deeper than a Nabokov novel (or his theories on butterflies) as the President’s State of the Union Address was applauded as he promised to freeze spending as long as that spending doesn’t pertain to medicare, social security, or any other government program. Obama rightfully claimed that “we need to out-innovate, outeducate and outbuild the rest of the world” which would take us out of our sweet spot of just “out-manipulating” it. Speaking of which, the business elite were still getting their ski on in Davos at the exclusive invite-only World Economic Forum (and Money McBags can only assume his invitation got lost in the mail) where CEOs, witch doctors, and world leaders hobknob during the day while keeping their fingers crossed that they won’t pick Christine LaGarde in the nightly key party draw. That said, it wasn’t all champagne and laughing at poor people, as rising commodity prices and spiraling debt caused Nouriel Roubini to get his panties in a bunch, which is of course reason #2 why Money McBags always freeballs (this of course is reason #1).
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In earnings news, Boeing delivered fewer planes, saw revenue drop 8%, and gave guidance below analyst guesses thanks to higher pension expenses, lower defense contracting spend, and the fact that planes are really fucking expensive. That said, the commercial airline sector flew a whole lot fucking higher today thanks to UAL turning a profit after adjustments that beat analyst guesses (with those adjustments being merger costs and their on-time reliability) while US Airways put up a big Q as higher ticket prices, fees for baggage, and the selling of more special seats (including extra wide, vibrating, and for kilt wearers) caused revenue per passenger to rise 3.4%. It’s the first time in four years that US Airways has made money in Q4 as demand for travel picks back up and reduced airline fleets boost occupancy rates higher than Kate Bosworth’s cheeks.
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Lastly, Eastman Kodak fell 16% due to a 25% drop in revenue and something called the digital camera. Money McBags isn’t saying their business model is outdated but he heard Louis Daguerre called and wanted his strategy back.
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In small cap news, shit went wild today like Amartya Sen with a book of food stamps, or like a polar bear trying to find ice (and scientists, it’s not global warming that is causing the bears to swim nine miles for ice, it’s that they were told Rachael Cordingley would be there to warm them up. And that bad reference was for this challenge.). NTZ bizarrely got a $60MM cash infusion when the Chinese government told them to relocate one of their plants, now if only that $60MM could buy them a better business model, they might be on to something. Money McBags has broken down NTZ before and has called their business of selling high end sofas, mainly in Europe, during the worst financial crisis of our lifetime one of the worst business models out there, on par with marketing Fred Phelps fatheads.
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The company now has $125MM in cash (using ~1.35 Euro/dollar conversion) and ~$15MM in debt for an enterprise value of ~$100MM and in the first 9 months of the year had $24MM of EBITDA (though they burned ~$20MM cash from operations thanks to their payables being pushed out further than Barbara Streisand’s nose). So the company is trading at ~3.5x run rate EV/EBITDA but their top line is slumping, they are worse operators than Dr. Kevorkian, and the only positive thing they have done in recent history is have their Chinese manufacturing plant in a place that the Chinese government wanted for themselves. So unless they make plant relocation their new strategy, the huge cash balance (~50% of their market cap) doesn’t really change anything except for their ability to pay out a special dividend (something they have done in the past). So if you think they will kick out a $1 special dividend with most of the $60MM they didn’t just earn, then you could make an easy ~28% here seeing as how the stock trades at ~$3.60 per share. That said, you would be buying a business model more poorly positioned than the front guy in a lucky pierre, so be careful about the dividend you seek.
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In other news, COOL is getting its mojo back on and NEI leveled off after yesterday’s predictable profit taking sell off. Money McBags gave his thoughts on NEI on Monday, but he wants to see if the stock can level off here ~$2 and build a new base, because if it can, then that is a huge signal that someone believes revenue growth is for real, and as we saw with NEI’s fairly fixed operating costs, they have a shitload of leverage and could earn the fuck out of some income if they can accelerate top line. If they can hold this level for another day or so, Money McBags will buy a bit, but given that the rise was on no real news, he is still being cautious.
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Finally, last week Money McBags said he was interested in Qs from SMCI, KEYN, and CRUS this week and SMCI and KEYN reported and mobelcrated analyst guesses. Money McBags has yet to breakdown KEYN on the award winning When Genius Prevailed, because they are kind of a low quality company that was cheap and is now not so fucking cheap, but they put up a great Q by nearly doubling non-GAAP eps from last year’s Q and then giving cockriffic guidance. Money Mcbags hasn’t been able to go through their Q in a whole lot of detail yet, and after the 20%+ up today, he doubts they are cheap anymore, but it is certainly worth digging in to because the market for mobile site testing (which is what they do) isn’t going to get smaller.
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As for SMCI, shit, Money McBags has written about this company a ton and he has always liked them as a long-term hold, but they are more cyclical than Lindsay Lohan‘s boob jobs so the timing of when to get in is always a bit tricky. That said, revenue kicked the shit out of guidance as if guidance were an IHOP and revenues were some drunk assholes. Guidance was for ~$225MM in revenue and they came in at $240MM for 32% growth. Gross margin rose from 15.9% to 16.7% which is huge because margins had been getting squeezed as if they were Alexis Texas’ buttocks in a pair of daisy dukes. They also earned $.31 non-GAAP eps which was well above guidance and above Money McBags’ $.25 guess from last Q. So what the fuck happened?
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Well, it sounds like they may finally be getting some brand equity (they said they saw “growing brand awareness with strong growth in our high-end server product lines“), but more than that, they have expanded geographies and products and just sell good shit. This company has always been levered to INTC and new INTC product launches and on the call they mentioned that there is now a “..a very significant design change from Intel.“ So that could be nice upside (though not as nice as this up side).
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This company has ~$93MM in cash, and is giving guidance for basically a flat Q sequentially which puts them at ~$1.20 run rate eps so they are trading ~11x that and at ~7x run rate EV/EBITDA, so not really that expensive for just a well run little company. So shit, if you want some relatively safe beta with perhaps some real upside if there is something to INTC launching a new design, then SMCI is an interesting buy here.
1/13/11 Midnight Report: Once Again, New Claims for Unemployment Claim the Economy Still Sucks
Jan 14th
The market limped in to the close today as the dip buyers were somehow distracted by the jump in new claims for unemployment which were so far from analyst guesses that they were perhaps a Nassim Taleb-ian black swan (as opposed to a Natalie Portman-to-lesbian Black Swan), the continued rise of commodity prices (as companies get ready to exclaim “we don’t need no stinking margins”), and the news of Mt. Etna blowing again (which makes it the biggest thing to blow since Veronica Bottoms).
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With macro news continuing to show little to no improvement (unless you count a lower labor force participation rate, falling inventories, and an increase in meth users as improvement), Money McBags remains very cautious about buying any dips as cognitive dissonance is not his preferred investing strategy (you all know Money McBags is more of a bottoms up investor than he is a top down investor anyway). The point is, Money McBags gets that the market offers some inflation protection especially since bonds are deader than the Lebanese government or Alan Greenspan’s reputation as the “Bernanke Put” floods the market with dollars and keeps interest rates lower than Uma Thurman’s boobs, but at some point people need to get the fuck back to work because even the tiniest prick can pop a stimulus inflated bubble economy.
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As for actual data today, as mentioned above, first time claims for unemployment were announced and they rose to 445k while analysts guessed they would fall by 5k to 405k (or by 4k if one wants to use the non-upwardly revised number in the B(L)S’ weekly game of “psych“) and it was the biggest rise in 6 months. The good news though is that it gives people more free time to buy the dips. That said, the most disturbing part of the number was that non-seasonally adjusted claims (and if it were Money McBags, the season he would use to adjust claims would be saffron) was 770k, which was the highest it has been in a year and as good a sign for a real recovery as a “bridge out ahead” sign was for Mary Jo Kopechne in 1969.
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In other macro news, U.S. producer prices climbed 1.1% in December after a 0.8% rise in November, but luckily core inflation was up only .2% so the Fed can sleep easy tonight (as long as they don’t have to buy any necessities like food, gas, or shovels to clear the snow in the morning). Honestly, judging inflation by using core inflation (and thus taking food and energy out of the equation) is like is like judging Andrew Johnson’s presidency by taking all of his policies out of the equation (you know the ones where he basically negated any gains from the Civil fucking War, so well done you fucking asshat) or judging a Jay Leno monologue by taking all of the jokes out of the equation (and see, that’s funny because as far as Money McBags can tell, there are no jokes in a Jay Leno monologue).
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And the macro news kept coming as the trade deficit narrowed to a 10 month low thanks to exports rising as a result of a weaker dollar and pre-orders for Faye Reagan‘s new release Bottomfeeders. Finally, home foreclosures topped 1MM for 2010 with the lucky 1MMth foreclosed on homeowner winning an all-inclusive night’s stay at their local YMCA where they are free to contract all of the scabies and old man smell they want (unfortunately, trips to the bacteriologist are not included). But none of that mattered to Benny B who got his Fed on again today at a Small Business Forum in Washington DC co-sponsored by the FDIC, CNBC, and the ATC. Benny B stepped away from his cauldron long enough to say that 3% to 4% growth is likely this year (and he can have the B(L)S goalseek to prove it) but that won’t reduce unemployment “at the pace we’d like it to” before mumbling “or at all.”
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Internationally, Spain sold some fucking bonds (well $3.9B of five-year bonds to be exact) at a yield of 4.54% which was 97bps more than the previous auction in November, but 33bps below expectations and 400bps below a healthy fucking market. That said, it gives Spain at least one more month as a contributing member of the global ponzeconomy to enjoy some tapas and milkshakes with Helen Lindes.
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Also in Europe, the ECB kept rates on hold as inflation concerns were overshadowed by renewed debt tensions and something called selective memory. Of note though was that this was the first time the ECB governing council included a representative from new euro member Estonia, and for those of you unfamiliar with Estonia, it is just north of Latvia, its capital city is called Tallinn, it likes long walks on its oil shale deposits, and if you get it drunk enough, it will whip out pictures of its large Peipus (or Peipussee in German).
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As for the market, MRK was down ~6% after they dropped their trials of blood clot drug Vorapaxar which in turn clogged up their hopes for revenue growth. Vorapaxar was thought to be a multi-billion dollar drug and was a big reason for MRK’s $41B acquisition of Schering-Plough in 2009, so um, oops. The problem is that the drug was found not to be safe for stroke patients, which in turn gave investors a stroke, thus lowering the drugs potential market opportunity even more.
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Elsewhere in the market, SAP SAPeed on guesses as the stock surged ~6% after the firm reported a 27% increase in software revenue driven by business demand, Infosys infosucked after the Indian firm’s profit grew 14% but was below guesses due to the strength of the Indian rupee, and Marathon Oil ran all day after it announced it would move its refinery and pipeline operations into a separate company which continued the trend of large break ups including Motorola, ITT, and the zodiac.
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In small cap news, COOL continued to rise after Tuesday’s announcement that they shipped more than 500k units of something called Zumba Fitness for the Nintendo Wii where players burn calories through dances such as the meringue, salsa, and daggering, Money McBags wrote about COOL quite a bit at the beginning of 2010 and was right that it is a terribly run company but now that they have a supposed hit, there might be some value here (though the company has mastered the concept of unprofitable growth). Unfortunately, Money McBags does not know the economics of what selling 500k units does for the bottom line in terms of margins etc., so he has no idea how to translate this news and whether COOL may actually be a buy, but he hopes to get some clarity in their call (and this is why professional investors can kick the shit out of regular guys like Money McBags because they can just pick up the phone and talk to COOL’s CFO to figure that shit out).
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Also, on Monday a Money McBags favorite, QCOR, pre-announced that Acthar prescriptions for MS grew only 9% sequentially and 66% y/y while also warning that profits will be down due to investing in doubling their sales force (something Money McBags already pointed out, and he already pointed this out too). Anyway, Money McBags was expecting closer to 20% sequential growth and has ~$1.5MM of extra costs baked in to his Q4 numbers so if he lowers the growth rate to 9%, he gets to ~$.18 eps. For 2011 his guess is ~$.90 eps and that is the important number because no one really gives a shit about this Q4 given that the company has said they are in sales force growth mode. So QCOR is trading at ~17x Money McBags 2011 guess (and that guess may be low if their NS segment gets any kind of traction, of course it may be too high if MS only grows 9%, but whatever) which is no longer that cheap so if you’ve been in since Money McBags first started writing about this company when it was half the price it is today, you should definitely take some off the table. Q4 is going to suck so take your profits and buy back if you want when the stock sells off since it has had a monster run and is due for a bit of disappointment.
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And yeah, Money McBags is aware that he used a very similar headline in August, but there is something about the classics.
1/12/11 Midnight Report: Quick Update for the Readers
Jan 12th
Money McBags isn’t going to be able to get to a full column today because other shit has come up (and it’s not just up because he found Olivia Munn’s new Maxim photo shoot). Money McBags knows his column has been a bit sporadic since he hit his one year anniversary (and loyal readers know he took maybe one day off in that whole first year which was a pace that has garnered him several entries in the next Guinness Book of World Records such as “most original humor content in a year,” “most Paris Hilton herpes jokes in a year,” “most one-liners written in a year,” and “most use of the third person in a year”), but the column has been getting longer and Money McBags is just at a time where he has other shit he has to do. Remember, all he charges his readers is their dignity, and unfortunately, dignity doesn’t put lap dances on the table.
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Money McBags is doing his best to maintain this as a daily column, so just tickle his balls here a bit as he works through the other shit (and if you are his new crush Malene Espensen, then seriously, tickle his balls) as even at three or four days a week, Money McBags’ stuff is still better than any of that shit out there, so either live with Money McBags missing a day here or there for now or spread the fucking word because if Money McBags can just get 1MM readers (and he is within a rounding error of that, that is if Chris Burke were doing the rounding), he is pretty sure he could put everything else on the back burner and pump more and better shit out for all of you.
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Anyway, Money McBags knows what you’re all thinking “cry me a fucking river funny boy now shut up and write some jokes.” So without further ado (and as always Money McBags has no idea what “ado” is, but he is glad there will be no further of it), this is what Money McBags would have written about had he had time for a column today.
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He would have written about Portugal floating some bonds and seeking to cut its debt (though hopefully not getting desperate enough to use practices seen in Amsterdam).
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He would have written about banks being upgraded to “buy the shit out of them” by the Wells Fargo, which is a bit like Alan Greenspan defending the Fed in front of congress, but whatever.
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He would have had a shitload of jokes and analysis about the Fed’s little beige book which said holiday spending and increased manufacturing drove an economic expansion across the U.S. in November and December, businesses remain cautiously optimistic for 2011, and Elizabeth Duke doesn’t put out on the first rate hike (unless you get her a bit TIPS-y and apply excessive stimulus).
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He would have mentioned that import prices rose 1.1% which would have led Money McBags to once again harp on the fallacy of “core inflation” which is like using a nut hair as a measure of Lexington Steele’s schlong.
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He would have yawned at mortgage applications rising by 2.2%, rolled his eyes at Geithner whining about China’s currency being undervalued (and likely thrown in a fantastic pee pee flavored coke joke), and salivated over the leaked JWOWW topless photo even if it obviously isn’t her as one must dare to dream.
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He would have also pointed out the interesting fact that short selling is at one year low (which is a huge contra-indicator), and then pointed out the even more interesting fact that Abe Vigoda‘s balls are at their 80 year low.
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He then would have tackled the market and pointed out that ITT was up 15% after announcing they were going to split the company in to three separate business units (no doubt called called I, T and T) in order to do away with any economies of scale. He also would have pointed out that Zales was up 40% thanks to an 8.5% jump in same store sales which highlights the fucking inzanity of the economy because if a store as zhitty as Zales which is selling down market luxury items can start performing, then clearly the extra 14MM people unemployed above the fictitious natural rate of unemployment are completely fucking worthless.
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Finally Money McBags would have jumped to small caps and pointed out CKSW which sold off after pre-announcing lower revenue yesterday and is getting to a very interesting entry point (though not as interesting of an entry point as any of Kayla Collins‘ orifices, or is it orifi?). The company is still going to put up $18MM of revenue in Q4 which is 5% growth but will give them $70MM revenue for the year which is 15% growth. That said, they also guided down profits due to investing for growth (and their book to bill is going to be greater than one which is titriffic) and having to write-off a customer bankruptcy (which is just not good, no way to make that shit funny). The company earned $.40 per share last year on lower revenue but margins are down this year as the company tries to expand. The point is, if they can continue to grow in the 15% to 20% range and better manage their cost structure, it is possible they could earn $.50 per share next year (depending on how one wants to estimate their tax rate given that they are an Israeli company and the tax rate seems to be as predictable as where the afikomen will be hidden at passover) and thus are trading at only 16x that which is not terribly expensive, especially as ~20% of their market cap is in cash. Their technology/algorithms are supposed to be the best out there and eventually someone will buy this company, so if the stock continues to sell off and drops into the $6s, Money McBags will think long and hard about buying (though he will also think long and hard about buying this).
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Anyway, if Money McBags had the time to put out a full column (though um, he just dropeed ~1k words on a supposed day off, so fuck him), that is what he would have written about, only with more references to great authors (such as Fante, Bolano, and the guy who wrote this), more metaphors than Britney Spears has chins, and a fuckload more Malene Espensen. Money McBags will likely be back tomorrow with a full column, but be sure to follow him during the day on the twitter because he has been smitten with that medium of late (and smitten with this medium too) and now tweets out a few one-liners during the day.
