Posts tagged ISLE
The market was down strong in the morning as both fears of rising inflation in China and common sense seemed to hurt sentiment, but then like a phoenix rising from the ashes (though luckily not River Phoenix rising from his ashes, because that would have been weird) investors stopped adjusting their bollinger bands, refused to overlay any more pivot points (and Money McBags would love to over lay any of these pivot points), threw away their Ouija boards, and remembered that the key to making money in this market is to simply buy the fucking dip. It is a more fool proof strategy than settling disputes using a two-headed coin or solving a rubik’s cube by merely peeling off the stickers and putting them back on, as the “Bernanke Put” lifts all falling markets (except for maybe Tunisia‘s).
As for data today, new claims for unemployment dropped by 37k to 404k which was below analyst guesses of 420k (and no surprise the guess of 420 was too high, and strangely left analysts hungry). The most surprising thing of all though was that last week’s claims were revised down for the first time since full bush was still in style as they dropped from 445k to 441k, and no that is not a typo. Money McBags hasn’t been this surprised by anything since he learned that Paul Krugman won the Nobel Prize in Economics or Maria Vagina is a real person. As loyal readers know, the B(L)S has consistently employed the “hold the shock and hope for no awe” strategy of announcing better numbers and then revising them worse the next week with hopes that investors’ memories will be shorter than He Ping Ping‘s taint, and it has worked marvelously so far, so Money McBags can only scratch his head at this sudden reversal of strategy as it has made him more confused than Joe Lieberman (though without that old man smell).
In other macro news, existing home sales were up 12.3% to “are you fucking kidding me?” Sales reached an annual run rate of 5.28MM units which destroyed analyst guesses of 4.85MM as a 1% drop in home prices, a jump in mortgage rates, and a buy one foreclosure get one free deal swept the market. That said, it is hard to, well, get hard about these numbers (unless you are reading them while Ali Sonoma gently whispers sweet nothings in to your ear) as sales are still 3% below last year’s number and 36% of sales were from distressed homes which include foreclosures, short sales, and wherever Charlie Sheen is sleeping.
Finally, the Philly Fed index dropped to 19.3 from a downwardly revised 20.8 and those numbers mean less to Money McBags than brevity means to Tolstoy (though Money McBags does love him some War and Peace) or “no” means to Ben Roethlisberger. If anything, Money McBags is surprised the Philly Fed doesn’t always register as a negative since the only thing the city knows how to produce is crime, broken dreams, and heart attacks. Oh yeah, the Conference Board also came out with their index of leading indicators which rose 1% and brought the index to a record high thus securing its place in the annals (and anals) of economic forecasting as the least valuable index yet (just nudging out Art Laffer’s random number generator and GDP).
Internationally, China’s economy expanded 10.3% in 2010 thanks to lending being looser than Arizona’s gun control laws or Alexander Hamilton’s interpretation of the Constitution, a shitload of state run infrastructure investments, and overwhelming demand for pee pee flavored coke (and loyal readers, Money McBags is terribly sorry for using that joke again, but you see, he has made the same reference now for the past bazillion China stories and is experiencing a bit of joke OCD). The big concern is that inflation continues to be high as the rate was 4.6% in December and many economists expect that pace to pick up again soon due to rising wages and seasonal factors like the Lunar New Year holiday in February and the release of Yoko Matsugane‘s new calendar.
In the market, MS was up 5% as their profit jumped 60% to “lobster tails and blow jobs for all.” That said, the company either beat or missed analyst guesses of $.35 eps depending what you want to count as one-timers, gains from sales, and straight up manipulation. The driver of MS’ performance was their strong retail brokerage fees as clients came back in to the market to buy the fucking dip and that offset shitacular results from MS’ fixed-income division. And in the fourth most closely watched number (after 36, 24, and 34), MS’ compensation expense was 51% which dwarfed GS’ sub 40% ratio and ensured that no one at Morgan Stanley will ever have to lower themselves to slumming in a 5 series again.
In other earnings news, EBAY was up after they beat earnings guesses on sales of $2.5B which is a fuckload of Johnny Dickshot autographs. To be honest, the most surprising thing to Money McBags was that EBAY is even still relevant since the last time he used them was to a buy a new stylus for his fucking Palm Pilot. That said, Paypal revenue (and yes, Paypal sounds like a NAMBLA dating site) was up 22% and is now 39% of EBAY’s revenue as mobile devices have made e-commerce more ubiquitous than bad grammar or Paris Hilton’s vagina. More importantly, EBAY gave above the Street guidance for 2011 as analysts were outbid on their guesses after EBAY waited until the last second to make guidance public.
Elsewhere, F5 Networks was down ~20% after posting weaker than guessed results, having a book-to-bill ratio below 1, and closing fewer big deals than a member of BBW Personals Plus with a book of McDonald’s coupons and a year’s supply of Crisco. You all know Money McBags is a big proponent of cloud computing because there is no reason for any business to have an IT department, so look to buy into weakness in the sector. And finally. Arby’s is for sale with the bidding starting at “go fuck yourself” because why anyone would want to buy a shitty fast food restaurant with an outdated concept is more puzzling to Money McBags than why someone would build a cathedral from trash (or from anything) or want to watch this.
In small cap News ISLE was down ~12% after pricing an offering of 5.3MM shares at $10.25 and as you all know Money McBags has called this company out as a short many times (though he did tell you to take some of your profits off the table after their last Q). As he said, they are simply burning too much cash and have too much debt so it was obvious that they were going to have to raise cash somehow since their run down casinos don’t bring in the poor and unfortunate like they used to.
Also, Money McBags wanted to bring CTGX to your attention again as ~35% of their business is tied to staffing for IBM server installations and as we saw yesterday, IBM’s service contracts were up like a priapism sufferer when standing next to Bree Olson. In the past year Money McBags has broken CTGX down exhaustively on the award winning When Genius Prevailed (just throw them in to the search box, while Money McBags throws himself in to searching for Katie Savoy‘s box) and we’ve made well over 50% on the name but the stock still remains relatively cheap if they can continue adding EMR projects at the pace they have been (they had 6 new RFPs last Q) and especially if they continue to see a pick-up in their boring and shitty staffing business which Money McBags has completely discounted.
Guidance is for ~$.50 in eps this year and with new EMR additions, Money McBags thinks $.75 eps is possible for next year if everything else stays as flat as Jennifer Connelly‘s acting. That said, their staffing business has had a huge bounce back growing ~27% and if the pick-up IBM saw this Q can trickle down to the shit CTGX does for them, then the company could easily beat the $.75 eps guess. CTGX is currently trading ~15x that but IBM’s Q is intriguing enough that they could put up a surprising quarter and Money McBags thinks you can buy in ahead of that Q.
Rally!!!!!!!!!! With the war in Iraq over, manufacturing data around the world showing more buoyancy than Archimedes’ “principle” in a bowl of jello, and warts finally shown to be unrelated to herpes (which means Paris Hilton now needs to look for two culprits as opposed to just one), the double dip has apparently been averted and the market should be back to 1,600 any day now. Whew. That was a close one but Money McBags is glad it is all over and he can get back to analyzing stocks that trade on fundamentals (not so fast DGIT, KITD, or WGO), using the tools he learned while getting his BA (though it clearly should have been a BS) in Economics and MBA in Finance to analyze quaint and outdated macroeconomic indicators, and guessing muffs to his hearts content. That is until Friday when we remember that no one is fucking employed and people are getting less employed by the day. But let’s not dwell on that after this day of hope and enjoy the rally while it lasts, like finding an oasis in the Saharan desert or a nip slip in a Jessica Simpson red carpet appearance.
The big news today was that the ISM manufacturing report came in at 56.3, above last month’s 55.5 and above analyst guesses of 52.8 and remember, anything above 50 signals expansion while anything numeric signals made-up. Manufacturing was driven by strong demand from overseas, a continued restocking of inventory, and Heidi Montag‘s massive need for collagen and botox. The other positive from the report was that managers’ desire to increase jobs reached 60.4, the highest since December 1983 and that should bode well as long as desire is more than just an unrequited emotion. Unfortunately, it wasn’t all lobster tails and taint tickles in the manufacturing report as new orders sunk to their lowest in over a year but why let forward looking data get in the way of a good rally?
In other US macro news there were mixed reports on the employment situation with some people thinking things look worse than Mayim Bialik on Blossom and others thinking things look worse than Mayim Bialik after Blossom (and you may have to adjust the brightness on your computer screen on that last one to either pitch black or off). ADP reported that 10k jobs were cut in the private sector last month which was much worse than the 13k gain analysts guessed but is consistent with the stumbling economy and analysts not quite figuring out how pluses and minuses work. ADP also revised the 42k job gains from last month to 37k saying they were just fucking around with people and didn’t expect to be able to carry it this far. That said, outplacement firm Challenger, Gray & Christmas reported that job cut announcements fell by 17% from July to the lowest level since the year 2000 as companies only plan to send ~35k more people this month to the government payroll where they can soon be longterm unemployed and have their hopes and dreams for prosperity destroyed like Money McBags’ belief in cougars. So more people lost their jobs than expected, fewer are expected to lose their jobs going forward (though there are obviously fewer jobs to lose), and according to the ISM, factory managers are looking to hire. Recession over (and yes that is sarcasm).
And it wasn’t just the US that put up good manufacturing numbers today as China produced the fuck out of some shit to ease fears that their economy was slowing down faster than Michael J. Fox’s motor skills. Two measures of Chinese production including the official PMI and HSBC’s PMI both registered above 51 and also above readings from last month and show that China is still the best at manipulating data, Money McBags means running a growing economy. While South Korea and Taiwan showed softening manufacturing, those two are merely the scallions in China’s wonton soup so as long as China is relatively healthy (that is if one doesn’t dig too deep and care about real estate bubbles because we all know real estate bubbles have never caused any harm), that bodes well for Asia. Finally, India and Australia both showed minor declines in manufacturing but both economies continue to grow as they mostly avoided Greenspan’s folly.
In market news, sales for automakers declined precipitously from last August when “Cash for Clunkers” spurred sales and there was still some hope for an economic recovery. GM sales were down 25%, Ford sales were down 11%, and Toyota sales were down 35% as people become pickier about where they spend the money they no longer have. AAPL was up today after holding an event to showcase updated iPods, Apple TV, and plans for world domination (there’s a reason the new Nano has front and rear facing cameras, and it’s not just to make masturbating on chatroulette easier). The Apple TV update is the most interesting as they will be teaming with Netflix to stream videos and Money McBags continues to maintain that Netflix is a hella interesting stock as they keep innovating and finding new ways to deliver content.
Other stocks moving today included Burger King which was up ~15% as rumors are that private equity firms are interested in buying them out, Amazon which was up 6% as they have become the 12,000th company to propose some kind of web based TV application (newsflash, Money McBags will start using his computer for TV when the NSFW Spankwire is shut down and his screen grows to 52 inches, though he could just buy Apple TV or something but whatever), and BAC which was up 6% as they reached a settlement for being such colossal asshats.
In small cap news, every high beta company that had been getting clobbered whether rightly (WGO) or wrongly (CRUS, KIRK) bounced back today. KITD led the charge up 8.5% no doubt as a result of the brilliantly insightful interview with KITD CEO Kaleil Tuzman on the award winning When Genius Prevailed yesterday which may be more of a career limiting move for Mr. Tuzman than going for a hike on the Appalachian trail, yet seems to be working out ok so far.
That said, not every small cap stock was up today (and don’t think Money McBags is overlooking you SFSF, but we’ll get to you another time) as ISLE continued to sell off after a bad Q yesterday. Money McBags has broken this stock down many times including after last Q when he told you all the rise was likely just a temporary short squeeze and this Q they didn’t fail to disappoint (which of course is good for those of us who expected it).
In the Q, revenues were down 2% (and both gross revenues were down while promotion costs were up, which is a neat trick and means their marketing team is really applying what they learned in their business school classrooms), net income from operations flipped from mildly positive to negative, and they missed analyst guesses (analysts were guessing the company would earn $.11 per share and instead they lost $.08 including the $.05 tax benefit they received). Also, EBITDA declined 11% thanks to worse gaming revenues, an attempted equity offering (so they didn’t just try to screw the shareholder by potentially diluting them worse than a network TV showing of Animal House, but they did screw them by having to pay >$1MM for that threat of dilution), and higher expenses due to the acquisition of Rainbow Casino and buying a shit load of disinfectant to try to get the old man smell and puke stains out of all of the carpets.
The company has $65MM in cash and $1.3B of debt (just read that again) which means their balance sheet is uglier and has more unwanted liabilities than Shawn Kemp. Their interest expense this Q was $24MM and it is now greater than their non-cash depreciation charge which can’t make their cash flow statement happy and their enterprise value is ~$1.5B with an EBITDA run rate of $172MM so they are trading ~8.5x EV/EBITDA, which means the company still isn’t cheap. The business is flat with costs rising and the story remains that they are in shitty parts of the country where the economic outlook still remains bleak (Mississippi, Missouri, Lindsay Lohan‘s pants) with old and run down casinos and the only plan to get out of it was to RAISE MORE MONEY (which by the way didn’t work, though it did cost shareholders an extra $1.1MM in costs so hooray for that). Look, if you shorted it after last Q, you’ve done well enough that you should take some profits here but things remain ugly and if we are now at a new run rate of negative earnings thanks to higher interest expense (even ex. the one-time fee to raise equity) and moderating revenue also causing declining EBITDA, there is more down to go. Money McBags doesn’t see why ISLE shouldn’t trade closer to 6x EV/EBITDA since they have razor thin margins to be able to service their debt so there is still at least 25% more to be made here. That said, it’s never good to be too greedy so trade appropriately.
But hey, the economy in the middle parts of the country could come back, people could prefer run down casinos to nice ones, and Lisa Ann could ring Money McBags’ doorbell any minute and ask if he would like any baked chicken, so perhaps ISLE can turn it around. That said, Money McBags finds that scenario unlikelier than Smurfette being a lesbian (and not just because there were no other female smurfs, but also because Papa Smurf was hung like a badger) so do with it as you will.
The market was flattish for most of the day until the last hour as some of the fears about Europe abated in the morning thanks to their banking system remaining open for at least another three months (so long enough for depositors to carve out space in their mattresses and pull their funds before the next bank run). The big news is that european banks didn’t seek as much capital from the ECB as people feared they would with the ECB’s 442B Euro line about to expire like the late great Diaperman. Banks only needed an additional 131B Euro 3 month loan which was below the 210B Euro estimate and only 131B Euro above being healthy. In other international news, German unemployment was down for the 12th straight month as German workers have to put in overtime to make sure their Spanish counterparts can take their proper siestas. Ahhh, to be young and in the Euro.
In US macro news, private employers added 13k jobs in the US in June according to ADP which makes a huge dent in the 20MM unemployed/underemployed/already given up people in the US (and by huge dent, Money McBags means the opposite of that). Really, 13k out of 20MM is as significant as a null hypothesis with a p-value of 1 trillion or as likely to change the current atmosphere as a stink bug crawling in to Lady Gaga’s underwear changes her cuntosis. Analysts had guessed that 60k jobs would be added in June so they were only ~250% too high which for them is good enough to win Institutional Investor’s golden shovel as analysts of the year which can then be used clear out all the crap they have been spewing. One has to remember that analysts have confidence intervals wider than the divergent opinions on global warming or Taylor Rain’s rectum. The report should quell hopes of Friday’s Labor Department jobs number release being positive so the government may need to hire Melissa Archer to deliver the release in order to keep investors from paying attention to the actual numbers. In other US news, the FCIC is beginning their two day hearings on AIG and Goldman’s relationship to understand how those firms exacerbated the financial meltdown through their selling of derivatives and then how Goldman profited when AIG was bailed out as AIG used the bail out money to repay their mortgage partners of which Goldman was one (Goldman was repaid to the tune of $12B and Money McBags is told that tune is a mash up of Flight of the Bumblebees and Don’t Worry Be Happy). While Money McBags doesn’t believe anything will come from this inquiry, if it just puts the FCIC’s Heather Murren in the spotlight for a few minutes, he will at least be moderately titillated (and yes, that is Heather on the left).
In market news, S&P is cutting their ratings of Moody’s which is a bit like Jeffrey Skilling calling Dennis Kozlowski a fraud, Attila the Hun calling Ivan the Terrible a bit mean-spirited, or Lindsay Lohan calling Paris Hilton a whore. S&P cited that with new financial regulation investors now may be able to sue (and rightfully so Money McBags will vociferously add) rating agencies for sucking at their jobs (and as a reminder, their only job is to recognize when bad debt exists, and they missed the entire subprime/Alt-A fiasco like an anorexic misses dinner), there could be reduced demand for ratings if regulation removes the need for companies to be rated by nationally recognized organizations (here here), and Moody’s sucks at their job. It is only a matter of time before Moody’s lowers their ratings of S&P on the same concerns and we get a tit-for-tat ratings agency cock-off. In other news, Playboy announced a restructuring where they will become even thinner by eliminating low level workers but will keep senior executives to remain properly top heavy and Ford was rising after paying down $4B of debt and telling people they changed their name to Tesla.
In small cap news, ISLE continues to get shellacked and was doing so even when the market was slightly up today. Two day ago Money McBags told you all shorting ISLE would be a good trade and now you should be up 8% to 15% on it depending at what price you were able to short. A healthy company with a ton of debt doesn’t just dilute shareholders by ~23% unless bad shit is happening. That said, this was purely a trade so if you want to lock in your profits and go home, Money McBags would applaud that move like he applauds charitable donations, rags to riches stories, and rainbow parties. Also, old friend COOL has dropped below $.70 and remember Money McBags broke them down after their last Q and said the $1 they were trading at was much too high and he would be short if the stock were more liquid. Well if you were able to short it, congratulations but you might want to start covering because the easy money has been made. The point is, Money McBags has been hitting some good names for you all and providing you with enough dick jokes to make even Bob Saget shudder so tell a friend, tell an enemy, and follow WGP on twitter and facebook because the revolution has begun.
It was ugly out there today, real ugly, like a Lady Gaga- Alan Greenspan love child with a bad case of facial neurofibromatosis. Investors are worried that China is slowing down (they are), that Europe won’t be able to roll their debt (eventually they won’t), and that US consumer spend will shrivel up like Khagendra Thapa Magar‘s muchkin in a cold shower (it will). Leading the the market down was a sell off in China after the dynamically named research group The Conference Board (which apparently researches everything but how to market a business) said they had recalculated the leading economic index for China to show a 0.3% gain in April which is much lower than the 1.7% gain they reported two weeks ago and they blamed it on a calculation error (no really they did, but Money McBags doesn’t believe that for a second because aren’t asians supposed to be the good ones at math? Oh right, The Conference Board isn’t asian). Anyway, with the people calculating the economic data unable to actually calculate it properly, we are once again left guessing at what is really going on and all we have to go by is what we see and that is a lot of closed retail stores, packed job fairs, and blurry objects as our health care ran out and we can’t afford new glasses. As China is the engine that is fueling the global recovery (the lobster in the bisque, the plutonium in the flux capacitor, or the extra F in the MFF, if you will) any slow down in their economy will certainly put a damper on economic growth and thus reduce all of us to subsisting off of Ramen Noodles and our tears of despair. Also, with Spain having to roll over debt on Thursday, the same day the whole European banking sector will have their one year 442B Euro line of credit from the ECB expire, Europe is jitterier than Michael J. Fox going through the DTs. Thursday could be a momentous day in the market as Spanish banks are hinting that the ECB’s line of credit is crucial to their viability so we may see a financial crash so bad one would think Ted Kennedy were driving it over a bridge.
Unfortunately, US macro news wasn’t any better with consumers only confident that the economy sucks. The Conference Board (the research group who miscalculated China’s leading indicators, so take the following with a grain of salt, though if you’re feeling really adventurous, take it with several grains of salt firmly planted around the rim of a shot glass containing tequila) reported the US consumer confidence index fell to 52.9 from 62.7, a number which was also downwardly revised (likely due to a goal seek input error in Excel). Basically every metric measured by The Conference Board fell except for belief that things will get worse, belief that there will be fewer jobs, and belief that Keynesian economics is a farce. Not helping matters was that the Case-Shiller index posted only a .8% gain despite government tax credits still juicing the system like a Lance Armstrong steroid cocktail. Sure a gain is better than a loss, but the gain should have been higher even with 18 out of 20 cities showing increases. Of course with that tax credit now expiring, there is certain to be a pull back next month so large that it will make even Kenny Rogers shudder. If there were ever going to be a double dip recession, now is the time, so sit back and cross your fingers that the government will re-stimulate the economy and push the second dip off for another few years when you’ll be too old to care.
In stock news, shares of C were halted at one point today because the market couldn’t believe the company hasn’t hit zero yet. The stock traded down 17% thanks to what is being reported as a fat finger trading error (and again, we call that the Portia Di Rossi because someone who looks like this must have some hella fat fingers to keep the lovely Ms. Di Rossi satisfied) though it was likely just the run of the mill high frequency trading stock manipulation. New circuit breakers were put to work for the second day in a row and trading in C stock was shut down for five minutes until it had time to cool down and think about what it had done before re-opening down only 5%. In other news Barnes and Noble dropped 20% as with the advent of TV, the internet, and the NSFW spankwire.com people no longer read books. The CEO announced the company will be investing $140MM in to their digital book business and their digital book reader, the absurdly named NOOKie (and if Money McBags were running BKS the first thing he would do would be to change the name of the NOOK to something more catchy like “iPhone” or more honest like the “not going to be around for long” since the market is going to be dominated by the Kindle and iPad). Anyway, 2011 guidance was for break even to a $.40 loss per share due to falling margins and investment, and as analysts had guessed the company would be profitable, shares sank faster than General McChrystal’s chance at winning a Medal of Honor this year. Finally Verizon was break even in a down market as they are rumored to be signing a deal with Apple and Tesla Motors (TSLA) shot up 40% on its first day of trading despite never earnings a profit, having $300MM of lifetime losses, not forecasting a profit until 2012, and having their business revolve around selling an electric car when we all know eletric cars only exist in the land of make believe where it rains gumdrops and every Friday is free blumpkin day at the local Rick’s Cabaret.
In small cap news everything was down except for ZAGG which Money McBags exhaustively broke down for all of you earlier today (so check it out, really). A name Money McBags told you about last week, KIRK, continues to get hammered but it is getting to the point where one may have to actually step in, put some gloves on, and catch the falling knife as it’s now at 8x Money McBags’ high end earnings estimates with ~20% of its market cap in cash. Also ISLE was down 6% after Money McBags said yesterday it would make a good short trade. Of course Money McBags isn’t bragging about that call because everything went down faster than a call girl working for tips only, so any short call from yesterday looks prescient. There may be a short term rally tomorrow but Money McBags is warier of this market than Thomas Hoenig is wary of keeping rates too low for too long, so he is staying on the sidelines for now.
And don’t forget WGP is on Facebook, even though it goes against everything in which Money McBags believes.
Stocks were bouncing around today as macro data came out, courts made some rulings, and the Unicorn meat industry took a hit. Consumer spending numbers were reported and shockingly, income grew faster than spending which means that either the numbers are going to be adjusted later, consumers had their credit card lines lowered significantly, or common sense has crept back in to the US consumer after a 30 year Dionysian spending orgy (and Money McBags will vote for 1 or 2 before he votes for 3). Spending was up .2% which beat the median guess, while incomes were up .4%, pushing the savings rate to its highest level in 8 months since back when people were snowed in and couldn’t overconsume.
The bigger news on the day though was a couple of court rulings which brought slightly positive news to the markets. First of all, the Supreme Court decided not to listen to the federal racketeering case against the tobacco industry because it would have interferred with their daily viewing of Judge Judy (and Money McBags is told Justice John Paul Stevens would like to drop his case load onto Judy Sheindlin’s thin docket). The decision is a positive for both the tobacco industry and the health care industry as tobacco companies are now unlikely to face large industry crippling fines and instead will be free to continue bringing cancer to people everywhere while also helping the top line growth of health care companies.
The other big news of the day of which Money McBags could give a fuck about (right up there with the World Cup, General McChrystal’s dismissal, and anything having to do with Miley Cyrus), the Supreme Court upheld the Sarbanes-Oxley law except it allowed the SEC to now fire members of the Public Company Accounting Oversight Board (known better as the acronymly challenged PCAOB). So now the SEC, an institution that was so fuck awful that they promoted the person who ignored Bernie Madoff’s machinations despite evidence gift wrapped for them, and an institution so incompetent that they spent their days investigating tranny porn instead of securities fraud (when we all know the night time is for tranny porn, the day time is for NSFW guessing muffs which thankfully is back up and running and its return has truly made Money McBags understand how Pamela Smart’s family felt when they found her alive), has the ability to fire the members of some board that supposedly does something to track public auditors. Well thank you for that Supreme fucking Court, really. Money McBags is glad you are wasting your time on shit like this instead of abortion, gun control laws, and banning Ray Romano from network TV. But hey, it’s great that the SEC can now fire any of the five board members of PCAOB for any reason and not just incompetence, especially as THERE ARE ONLY 4 CURRENT MEMBERS of the PCOAB board. So hoo-fucking-ray that a board which does absolutely nothing based on the fact that no one has ever heard of them and is not even at a fully staffed level, can now be better regulated. Perhaps if we got our panties out of a bunch and stopped regulating regulators (especially ones as irrelevant as PCOAB) and instead tried to stop fraudulent activity, the economy would be a wee bit less fucked.
Internationally, world leaders are still coming down from the G-20 summit which likely featured as much excitement as a summer theatre production of Pride and Prejudice. Finance leaders seem to have come to an agreement to cut deficits by 2013 yet made it clear the deficit reduction is an “expectation” and not a firm or binding deadline. In a similar vein, Money McBags has agreed to marry Brooke D Williams by 2012 but that is also just an “expectation” and not a firm deadline (he’ll give her until 2095 if she really wants). So basically, all that happened at the G-20 summit is that no one fucked anything new up and everyone agreed to keep the staus quo until the the status quo causes the next major downturn, whew. Not only were fiscal policies less changed than Michael Vick after a prison sentence and rehab, but banks avoided new regulations as policy makers said any regulations won’t be finished until the next G-20 summit in November, will take longer than two years to institute, and will be just as bad as current regulation but in a different way. So now we wait until Basel III for new regulation which will likely be the worst performing sequel since Karate Kid III: The Puberty Years or Speed III: Runaway Segway.
In stock news, tobacco companies were up due to the previously mentioned supreme court ruling and BA dropped 44% before the markets opened in trades that were cancelled and were either the result of a fat finger (as always, known on WGP as the Portia De Rossi) or the fact that the market structure is more broken than John Edwards’ wedding vows. The market continues to ponder circuit breakers to avoid manipulated fluctuations like BA had before hours (even though only 1k shares were traded). The fact that 50% of volume is made by non-fundamental investors should make fixing the market structure a priority for all 1,800 regulatory groups looking in to Wall Street, including the now can be fired board of the PCAOB where four out of five members exist.
In small cap news, ISLE dropped 14% today as they announced their intention of issuing 9MM shares to raise $100MM (or at this rate, $75MM by the time of actual issuance). The shares should lead to ~22% dilution and Money McBags broke the company down after their last Q in which they put together a marginal quarter and yet were still burning cash. The problem with this company is that their balance sheet makes Greece look like a fucking miser and they have run down casinos that need to be upgraded because even though gambling is essentially inelastic, it’s not inelastic in shitty casinos with 1970s carpeting that smell of old men and despair. So ISLE needs more cash to modernize their real estate and yet is already almost as highly levered as a Bernie Madoff fund (and his leverage was $50B to $1). So there is room for this company to fall even more since the drop today didn’t equal the dilution (32MM shares going to 41MM shares so owners now own ~22% less) and thus if you want a short term short trade, what better way to do it than jumping in on a shitty company with bad things happening?
The market was chugging along today, taking a brief respite to lick its wounds after Friday’s jobs report gave even the most virulent Bull a bad case of Foot in the Mouth disease, until it dropped precipitously in the last half hour like Helen Thomas’ reputation at a B’nai B’rith fundraiser. With Europe’s ongoing debt problems and the US’ stagnant at best job growth, investing long in the market remains more perilous than fighting a land war in Russia in the deepest of winters (though not as deep as Money McBags would go in Ophelie Winter) or challenging Anamika Veeramani to a spelling bee (or just challening Anamika Veeramani to spell her name). The US news that had the most effect on the markets early today was that Goldman Sachs was issued a subpoena from the FCIC, also known as the “too little, too late” commission. Money McBags eagerly awaits the FCIC’s findings in several years, after no doubt much excrutiatingly toilsome research and much tax payer money has been spent, where they will 100% determine that we are fucked (of course we could save the time and money and just look for the reset button, but that would be too easy). Seriously, that we need a 10 member commisson to figure this out makes as much sense as firing an employee because she is too hot (reason #989 why C is going to $0. And as an aside, if Money McBags owned a bank, he would hire Ms. Lorenzana to manage his branch deposits anyday). Anyway, the subpeona was issued as Goldman refused to submit documents the commission requested and when reached for comment, a Goldman spokesman said they just wanted to see if FCIC Commissioner Heather H. Murren would deliver the subpoena in person. All along, Goldman Sachs has maintained that the suit is “unfounded in law and fact” and if one can’t believe what a company that has manipulated the market while bringing in absorbitant profits and destroying value for average citizens thanks to their buddy-buddy taint tickling relationship with the federal government says, then whom can one trust? As Money McBags has maintained all along, Goldman and every other Wall Street bank were complicit in the destruction of the US financial system and it would be easier to find incriminating evidence on them than it is to find rolls of back fat on a topless, sunbathing Kathy Bates, you just need to find someone with the stomach to do that dirty job. So it’s good that the FCIC is trying to grow a sac and go after them, but until they actually make some charges, this is all still lip service (though if the lip service is coming from the aforementioned Heather Murren, perhaps it’s not all that bad).
Internationally, German factory orders apparently grew faster than the cells of Henrietta Lacks as they surged due to the weaker Euro, increased private sector investment, and the uptick in demand for industrial strength floor buffers to help clean up the sets of Germany’s growing scat film industry. Orders were up 2.9% in April from the 5% they were up in March which for the first time ever makes Germany Europe’s shining example. Also, Hungary is still in the news as investors continue to try to find it on a map and wonder if to solve their financial crisis they should just gobble up Turkey. Hungary’s financial crisis is the biggest turd to hit the country since the famous Diet of Turda in 1558 which established the freedom to practice Catholicism, Lutheranism, or by the name, apparently coprophagia. Finally, fears are starting up again that China is increasing prices which will cause world wide inflation as they raise the minimum wage by 20%, though it will still leave workers wanting more half an hour after they receive their paychecks. However, if China unpegs their difficult to spell renminbi from the dollar and allows their currency to appreciate while the their own product prices increase, foreign exports could become more competitve than Alan Greenspan at a bubble blowing contest.
In stock news, BP is showing their first signs of progress in stopping the oil leak which is destroying the Gulf and causing the slogan “drill baby drill” to be returned to Peter North where it rightfully belongs. At this rate, the oil leak will be stopped and cleaned up somewhere around the time Paris Hilton finds some dignity. Also, Money McBags favorite Dick “don’t call me Richard, or Rich, or Rick, or Rightaboutanything” Bove (and again, Bove rhymes with “Oy vey”) lowered his price target on BAC yet maintained his buy rating, mimicking his brilliant market call of Lehman right before they collpased. Bove cited increased regulation, foreign exposure, and his lack of understanding of the financial markets for the price target cut. Finally, BMY shares are taking off today as they announced that their experimental drug for skin cancer was found to extend the lives of patients with incurable melanoma by 4 months. Patients were ecstatic, until they were told that four months that were being extended were Winter.
In small cap news today ISLE is falling back to where it was pre-earnings and after earnings Money McBags said the jump up was likely a quick short squeeze as the stock wasn’t cheap and the company is debt-ridden, and features bleaker properties than the Detroit version of Monopoly. Not only is ISLE falling but WGO is finally ticking down under $11 on its way to $7.50. The price of this stock makes less sense than the 11 dimensions of M theory or any song by the Black Eyed Peas. And look out tomorrow for MLNK earnings. Money McBags has written about this company many times as it is cheaper than a kissing booth being manned by Gabourey Sidibe after she downed a gallon of extra spicy garlic fries and 2 liter of Dr. Pepper. It is trading at 3x a run rate EV/EBITDA with 50% of their market cap in cash. They key to tomorrow’s release will be their cash flow statement to see if they were able to avoid burning cash as their business will likely have another sluggish quarter (according to them, though Money McBags doesn’t quite understand why, since their biggest customer HP had a good Q, but perhaps tomorrow they’ll make it more clear). So look for the release because when the markets get better (which is sometime between 2015 and the next Galactic Empire), this stock should have some nice upside with its current limited downside (again, barring a huge cash burn this quarter).
6/2/10 Midafternoon Report: Market runs in the late afternoon as it attempts to get home in time for Oprah
It was a relatively quiet day in the market today which is more of a rarity than a downward sloping supply curve, a funny Adam Sandler movie, or a bad picture of Olivia Munn. The market was up though as pending home sales shot through the roof, of course now someone will have to go back and fix the fucking roof so the buyers won’t back out, but those are just details. Home sales rocketed up 6% but the government first time home buyers tax credit ended in April so sales were likely more pulled forward than a lottery winner’s payout or the keg tap at David Hasselhoff’s house at breakfast. So while it is exciting that pending home sales went up, it’s way too early to suck each other’s dicks about it (though if you’re Alice Eve and it’s Money McBags dick, then it is never too early, or too often) as next month’s sales should be down appreciably, like Steven Rattner’s reputation or the mood at a suicide prevention hotline going away party. In other real estate news, mortgage applications fell for the 4th consecutive week and if you read the fucking analysis in the sentence directly before this, you will know why. And in the latest job report by some outplacement firm called Challenger, job cuts were just as bad as last month though 65% better than last year, so welcome to your new normal.
Also, Mr. Buffett went to Washington to meet with all of his GS cronies, I mean the federal government. Money McBags needs to stop getting those two confused. Buffett spoke to the Financial Crisis Inquiry Commission, or as it’s more commonly known as “Huh?” after being subpoenaed to testify about the ratings agencies and their utter failure to do anythng but suck at their jobs like a one legged long jumper. While Buffett has been selling his shares of MCO, he is still their largest shareholder so his testimony was about as unbiased as Joe Francis testifying about age of consent laws. Honestly, Money McBags finds it strange that the FCIC would give a shit what Buffett has to say about the ratings agencies since he’s not going to talk down his own book. It makes less sense than the Laffer Curve or Jennifer Connelly‘s acting career. And guess what? Buffett defended these assclowns who failed miserably at their jobs and served as bottom bitches for investment banks to manipulate the markets. To quote a CNBC article, Buffett said ratings agencies “”were wrong like everyone else” due to a widespread “bubble mentality” that believed housing prices couldn’t crash”. Wow. So let me get this straight, the ratings agencies who are paid NOT TO BE WRONG like everyone else because they are the SUPPOSED EXPERTS, fucked up just like everyone else. So riddle me this Mr. Oracle of Omaha, why the fuck would anyone pay these “experts” if they are providing the same information or reaching the same conclusions as everyone fucking else? WHAT THE FUCK ARE THEY EXPERTS IN? This is more perplexing than the fact that neither of the participants of Stocking-Huang wedding was stocking a “huang.” Money McBags knows Buffett needs to keep MCO stock propped up so he can sell it, but there is absolutely zero reason for these ratings agencies to exist, at least under the current incentive system which is more screwed up than Tiger Woods’ kids are going to be.
In international news, Japan’s Prime Minister Yukio Hatoyama resigned to spend more time cultivating his Pokemon collection. His term was the shortest by a Japanese Prime Minister since1994 when Mothra swooped down and carried then Prime Minister Tsutomu Hata back to Infant Island. With asian markets already more jittery than a nanny at Roman Polanski’s house, a change in Japanese leadership brings more uncertainty than Jamie Lee Curtis’ true gender. Japan has been mired in a decades long economic crisis stemming from a real estate bubble, low rates, and sites like the NSFW spankwire.com distributing their main export of bukakke films for free. Investors now must worry about how the new regime will handle the world’s largest public debt while securing investor confidence in Japanese issued bonds. Finally, european banks are moving money overnight to Europe’s Central Bank at a record pace as they grow more fearful of write-downs and bad loans. Euro-zone banks are doing this as they apparently view counter party risk to be more dangerous than political support from John Edwards. Now look, Money McBags is no genius (though he is likely whatever is just one notch below genius), but if banks would rather earn fewer bps on overnight funds because they are worried about lending to other banks who may have lending problems, what does that say about their own fucking balance sheets? When Money McBags sees a CEO selling company stock, he stays away from that company and when he sees banks scared shitless of lending to other banks, he stays the fuck away from that financial system. It’s like a canary in a coal mine or a turd in a punchbowl of turds.
In stock news, energy companies are rallying after being down 18% due to the Gulf oil spill and due to people realizing that their cars don’t run on wind, the sun, or Heidi Montag’s implants. Ford is moving up as well, as both GM and Ford reported stronger sales than analysts guessed. Ford’s sales rose 22%, besting analyst guesses of 16% and GM sales rose 17%, besting analyst guesses of 6%. Driving the sales increases was the fact that people no longer care about driving shitty cars. With gas prices having hovered around $3 for a year and a half, SUVs are once again becoming popular buys with sales of Chevy’s Equinox tripling and GM’s Edge moving up 43%. This just proves that people are shorter sighted than Mr. Magoo without his glasses and are only setting themselves up for more pain when the gas market is remanipulated upwards. Finally, a UBS analyst who had a neutral on JPM for 5 years finally upgraded them to a buy. Money McBags would like to applaud this analyst who stuck to his guns despite JPM being the best run large cap consumer bank in the industry. For his next trick, the UBS analyst is going to pick up technology companies and slap a hold on AAPL until they can finally show the Street that the iPod is more than a trend.
In small cap news, CTGX is flying today despite no news and average volume. Money McBags has talked about CTGX many times on When Genius Prevailed and still believes they can earn ~$.75 in 2011 when electronic medical records take off. That would be 50% growth and the company is now trading at 11x that so it is still very cheap if you don’t mind owning an illiquid company that is short term highly levered to IBM. Meanwhile, crappy casino operator ISLE announced earnings today and beat analyst guesses despite profit falling to $.15 per share from $.45 per share in last years’ fiscal quarter as Red came up on the roulette wheel more times than they expected. Revenue was down 6% to $287MM but still beat analyst guesses of $260MM and those same analysts expected a $.08 loss per share for the simple reason that ISLE’s casino’s are more run down than Madonna’s vagina and also smell a heck of a lot worse. The company managed to trim out $12MM of operating expenses for fiscal 2010 and for the fiscal year, they earned $175MM of EBITDA but they have only $90MM of cash and $1,200MM of debt which means they are trading at ~9x EV/EBITDA which is not that cheap for a debt ridden company relying on consumer spend (though to be fair, gambling consumer spend is inelastic to some degree, like Joan River’s nose). The company isn’t currently burning through cash and has a $300MM line, but they have casinos in every city to which you would never want to travel (Biloxi, Davenport, Natchez, etc.) and their properties tend to be the most run down casinos in those run down towns. Today is basically a classic short squeeze and Money McBags would avoid this stock like he avoids hitting on 16 when the dealer is showing a 4 and avoids betting on “don’t come” in a craps game or a movie involving Hannah Hilton‘s face.
The market has hit a speed bump today as consumer confidence fell to its lowest level in 10 months. Consumers are now less confident than a slightly overweight 16 year old girl with bad acne and a spastic colon on her first day in a new school. The confidence index dropped to 46, which is below the 56 economists were expecting, and Money McBags has no idea what 46 means but he is confident it is not good in the same way he is confident having one’s ladyfriend say “we need to talk” is also not good. While the consumer confidence index is a forward looking metric (and if you really want to look forward, just tape a picture of Kate Bosworth to your glasses), the measure of present conditions came in at its lowest level in 27 years. Wow. That is not an exaggeration. People are not only finding jobs harder to get, but growth in the job market seems to be more stagnant than Bobby Jindal’s political career (and as an aside, Money McBags doesn’t give a fuck about politics because they are all the same person, just a different suit, but has any politician ever had a faster and bigger fall than this Bobby Jindal guy has had without mismanaging a war, getting caught in a crack house, or banging Peggy Eaton? Jeesh, that guy has disappeared so fast he was on the back of my milk carton this morning). Anyway, the point here is that investors are now worried that retail spending will be weaker than expectations with the drop in consumer confidence providing a swift kick to the nuts. In slightly positive macro news, home prices declined but the annual pace of decline slowed from “holy shit” to “is it hot in here?” The decline was .2% and was worse than the flat expectations, but only by a rounding error. Interestingly, 15 of the 20 metro areas saw price declines and that sound you just heard was Money McBags throwing up in his mouth. Ugh. The market is now teetering after such a nice totter last week, but that is why this is called an inflection point.
In stock news, Home Depot followed competitor Lowe’s strong quarter yesterday with solid results of their own including their first increase in same store sales since 2006. Of course the comps for same store sales were much easier due to the fact that the only people buying anything at Home Depot in Q4 last year were repo men and the guys who strip empty houses of their copper wire, but still, a 1.4% increase is positive. Home Depot also gave fairly rosy guidance and said they gained 100bps of market share which was likely a result of their November promotion “buy two shower heads, and we’ll throw in a golden one for free.” In other stock news Barnes and Noble is down after posting an inline-ish quarter after they announced same store sales were down 5% and then blamed it on something called the fucking internet. Sorry guys, but the classic brick and mortar book selling business is about to go the way of video rental stores, address books, and civility. Sure Barnes and Noble had strong growth in their online business, but that is a fraction of their sales.
In small cap news, EBIX is getting a case of the dropsies again while ISLE crapped out on another quarter as people don’t like gambling in run down casinos. And yesterday, long time Money McBags reader and ninja assassin (and Money McBags loves any word with two “ass”es in it) Matty McSacks put up some solid thoughts on LOV in the comments section. Matty treated the comments section like he was two girls and it was one cup with his mancrush on LOV. Apparently he loves LOV so much that he is lobbying for them to start intrinsicvaluedate.com, where investors can go to WACC off while getting their shorts squeezed. Anyway, Money McBags knew nothing of LOV until yesterday but he spent some time last night reading their 10Q, playing around on their site, and watching some Tori Black videos on Spankwire (and you may be asking what the Tori Black videos have to do with LOV, and the answer is absolutely nothing). LOV apparently runs about 30 online dating sites with their crown jewel being JDate which accounts for 50% of the company’s subscribers. Now Money McBags lights the menorah but he never understood the appeal of JDate as he prefers his ladies to be over 5 foot 2 and without what I believe is referred to in medical circles as the “nag you to fucking death” gene. Other sites LOV runs are Blackchristiansingles.com, Singleparentsmingle.com, and Canadwarfgetatabledance.com (ok, one of those is made up). They also run a delicious dating site aimed at weight challenged people called Moretolove.com which Matty claims is their fastest growing site and Money McBags only hopes that the pun was completely intended. And while Money McBags loves this concept, he would have named it either Cushionforthepushin.com or Dinnerfor3.com. Anyway, Matty values this stock at at least $5 based on $8MM-$10MM free cash flow per year and some brand value for JDate. Hmmmmm. Let’s see. They earned $.05 per share last Q and while there may have been a sequential lift in subscribers (unclear if that was seasonality), JDate still had a 6% decline on a year over year basis in lonely Jews and those who are looking for some gifelte fish on the side. But here’s the weird part, revenue declined by 16% in that segment which is more than subscribers declined which means they are either discounting more or are losing their premium clients (and it’s unclear what their premium clients get, perhaps a chance to date the one Jewish girl who swallows, and again, Money McBags is a yid, so he can make those jokes). Not only is their revenue dropping faster than they are losing subs, but their marketing cost went up as a % of income by 300bps. And here is another red flag, industry sources have the online dating industry growing 10% to 15% a year (though that industry source is Piper Jaffray, so buyer beware as one should never trust anything from a person who chooses to live in Minnesota). But let’s assume that the number is directionally correct. So the market is a moderate double digit grower and yet this great affinity site JDate is losing subscribers. Something doesn’t smell kosher. The company claims to have had $8MM of adjusted EBITDA in the first 9 months but there was also $1.7MM of income from a legal judgment which I believe they included in that number. So really closer to $6MM of EBITDA or an $8MM annual run rate. That puts the company with it’s very marginal balance sheet at a run rate of around 7.5x EV/EBITDA to go along with their 15x run rate p/e. So the multiples aren’t too high, but the investment in this company really has to come down to whether or not you think it can actually grow, especially with increasing competition from Facebook, Twiter, and the completely NSFW Guesshermuff. JDate has been around for several years already and given that it has grown through word of mouth and the Jewish population is closer knit than a purl stitched willy warmer, there probably isn’t much more free growth left. The point being, 99.95% of Jews already know about JDate and if they haven’t yet signed up, they are not going to do so. As for the Jews just reaching dating age, they are simply using twitter and the like and not dropping $40 a month or whatever in order to have a mitzvah. So I am very skeptical that the drop in JDate subscribers is just the economy and also very skeptical that they will be able to keep their spanktastic margins in that business because marketing costs simply have to go up. You can only rely on word of mouth for so long, unless that mouth belongs to Faye Reagan and the word is “enter.” Anyway, having the stock 45% owned by a PE shop certainly doesn’t hurt because we know PE funds rarely make mistakes (just ask Warburg Pincus about their MBIA investment), but the fundamentals of the business still remain weak. Matty did a nice job on NLS last time so he does get mad props here for his calls on companies who are sucking and have yet to show things are getting better, but LOV just doesn’t have the margin of safety to make Money McBags comfortable and he fears their business is going to continue to face headwinds. If the company were to show some growth and get to an industry growth rate, then sure, Money McBags could see it trade up to $4 or $4.50 but until then, a $.20 eps annual run rate company with no growth and few barriers to entry should probably trade closer to 10x which would make this a $2 stock and thus leave us with 33% downside. If you really want to invest in a shitty internet affinity play, why not just buy INET who at least has exhibited solid business growth? Money McBags will monitor LOV, but he’d rather own a company like KITD right now that is trading at like 7x EV/EBITDA and growing 60% a year with 17% EBITDA margins.