Posts tagged JPM
The market keeps rolling because retail sales missed expectations, ratings agencies threatened to lower the US’s pristine AAA credit rating, consumer sentiment dropped, and Hannah Hilton remains retired from porn. Makes perfect sense, like trying to borrow money while saying you are about to go bankrupt or wearing a power balance bracelet (and yes, that was sarcasm).
With the market closing with its 7th consecutive weekly gain on news and data that still seem mediocre at best, like a Whitney Tilson missive or a Seth Rogen film, Money McBags continues to scratch his head at all of the reverse-dip buying as the market seems to be more forward looking than a kid on spring break. All Money McBags can think is that investors are looking to the year 2030 when all of the foreclosures will finally have worked their way through the system, unemployment might finally be below 5% (and hopefully not just from the “Fuck You” strategy of purposely discouraging workers in order to bring the labor force participation rate down), and NFLX will be delivering food, drinks, and rusty trombones to you at the touch of a button in order to finally justify their valuation. But fuck common sense as the market remains nuttier than Vincent McCrudden so lets look at the actual data released today.
First off, retail sales were lower than expected coming in at .6% growth vs. guesses of a .8% gain which was a whopping a 25% difference (and see how by saying a 25% difference rather than just a .2% difference, Money McBags can use numbers to manipulate his message as if he were a real journalist?). It was the sixth consecutive month that retail sales rose but this time it was driven by non-core spending such as on gasoline and that fancy printer paper in order to send out more fucking resumes (speaking of which, should anyone be looking to hire, Money McBags would be happy to perform stock analysis, or simply at bar mitzvahs, for the right price). While the number was somewhat disappointing, analysts simply blamed that disappointment on snow storms and the existence of so many fucking poor people.
In addition to retail sales, consumer sentiment fell thanks to rising gas prices (which is good for both OPEC and Will the Farter) and reality. Overall consumer sentiment slipped to 72.7 which was below the 74.5 in December and even more below the 75.4 guessed at by economists. But here is the stat that Money McBags likes best (other than 32-24-34 with no gag reflex), of the 72 analysts polled by Bloomberg, not one had a guess below 73 which once again shows that analyst models are outdated (since they rely on historical data and not data for a ponzeconomy) and are less reliable than Tom Delay‘s campaign financing or Antonio Cromartie’s birth control techniques (which Money McBags thinks involves crossing his fingers and hoping for the best, or the breast).
Other macro news included the CPI which was up .5% and was the biggest increase since June 2009 thanks to the aforementioned 8.5% gain in the gas prices but luckily the (No) Labor Department strips that out and just shows a .1% core inflation increase which means inflation is tamer than a Vegas show tiger (though maybe not this one), unless you want to buy food or drive anywhere. Finally, business inventories grew less than expected as they were up just 0.2% which was below analyst guesses and this lack of growth may have a negative effect on GDP like AOL had a negative effect on Time Warner or Mister Brainwash had a negative effect on street art.
Internationally, China raised the loan reserves that banks are required to hold, from 19% to a record high 19.5%, as a way to protect against inflation and make sure banks don’t spend all of their renminbi in one place. The idea is that by requiring banks to keep more money with the central bank, excess money will flow out of the economy and in to central bankers’ wallets, or dampen inflation, potato-potahto. With China’s rapid growth and with food prices rising faster than Paris Hilton’s skirt on a Friday night, the government needs to try to control the asset bubbles or else people won’t even be able to afford capsules on their once every ten year vacations.
In the market, INTC put up record profits as demand was strong for machines used in data centers which store and process the huge amounts of information and porn that flow across the internet. Profit rose nearly 50%, revenue of $11.46B was slightly above analyst guesses, and Q1 guidance was also ahead of analyst guesses as INTC shows that Moore’s Law is better. The company talked about the PC upgrade cycle for businesses being a driver of growth as businesses need more computing power to make up for all of the laid off workers.
Also, JP Morgan kicked the snot out of earnings as if earnings had talked shit to them in front of a gas station. Profits were up 48% to $17.4B as JPM can afford to take on riskier loans since the government will never let them fail as moral hazard isn’t just the youngest Kardashian‘s nickname. The rumor is that JPM is pushing to increase their dividend as average pay has shrunk to a meager two BMWs and one nanny $370k per employee, so dividending out cash is one way to make employees who were given shares as bonuses feel like they aren’t slumming it.
In small caps, COOL continues to run up on the strength of sales for their Zumba Fitness game as apparently fat people love salsa even as a form of exercise. COOL basically sells low end Wii games hoping that for every ten or so they launch, one will be a hit in the “if we produce enough shit, something should work” strategy. This worked a few years ago with something called Garden Mama where apparently you could choose a MILF and have her trim some bushes or something, but since then, their games have been mostly flops and their cost management has been more lacking than Silvio Berlusconi’s IDing (or Lawrence Taylor’s). In a way, COOL is a bit like McDonald’s (only if no one ate McDonald’s food) as one McRib can be a boost to sales.
So now this Zumba thing is working for them and they have finally hit on a fad again which as long as they stay in business, they should be able to do every few years. The point is, this isn’t really a long-term strategy that a good company follows as they don’t have any competitive advantage or any real core capabilities other than the wherewithal to keep trying shit until they find that next wacky wall walker. So Money McBags would never be a real investor in this company, but one could ride the momentum of their hit games as long as one keeps in mind that the run will be finite and the end will be more disappointing than the end of Dead Souls or the end of Jennifer Love Hewitt.
Anyway, Money McBags hates to play the momentum game and speculate on stocks but COOL is undoubtedly on to something here, some Wedbush analyst (and Money McBags would wed Carla Ossa‘s bush) guesses they will earn $.15 in fiscal 2011 (and Money McBags wishes he knew how much COOL made per unit to be able to get any type of forecast, but he is flying blinder here than a glaucomad Stevie Wonder), and the stock is trading at less than 10x that for what could be 20%+ revenue growth. So if you want to make a short-term risky momentum trade in a kind of illiquid stock about which no one gives a shit and has been pumped up in the last few days more than this Coco person’s boobs, then COOL is for you. Money McBags is not getting involved, but if you’re feeling lucky, you may be able to squeak out another 30% or so in relatively short time. Just don’t get greedy, protect your downside, and don’t cross the streams.
And oh yeah, have a great weekend.
Oh shit, it is on again like white on rice, stink on shit, and Black on Scholes (and for you quants, just know that Brownian motion has more than one meaning), as a flurry of blue chip companies beat earnings guesses and pushed the market higher. With the 50 day moving average now rising above the 200 day moving average the S&P has hit the fabled Golden Cross (which is kind of like the Hindenburg Omen only less fiery, with fewer McClellan Oscillators, and the exact opposite), which means technicians are expecting to be showered with returns.
Of course Money McBags believes in technical analysis about as much as the LPGA believes in letting former wood swingers on to their tour or Bristol Palin believes in condoms (or rhythm), but with HFTs controlling the market and their algorithms likely hardcoded to trigger when shit like this happens, the market could push much higher here even as ~20MM people remain out of work, foreclosures continue on (minus the technicalities), and Olivia Munn continues to refuse to do a nude Playboy photo shoot. To say Money McBags is perplexed by all of this would be more of an understatement than saying the Abacus CDO was a bit of a bad deal for investors or Moby Dick was a bit long (and Money McBags is talking about this Moby Dick, so get your heads out of the gutter). But it is what it is so enjoy the capitulation while it lasts.
Interestingly, the driver of the rally had nothing to with US macro news as the only macro news today was that import prices declined (fueled by a drop in petroleum, so prices were actually up using the “core” number that the government likes to use when it is more favorable to do so, unlike today) and applications for refis rose for the first time in 6 weeks as homeowners eagerly await robosignatures to sign off in order to refi to lower rates and take more money out of their homes to be able to buy necessities like food, clothing, and 50 inch flat screen TVs.
As stated earlier, the reason for the rally was that blue chip earnings beat expectations. JPM beat analyst guesses even though revenue declined ~10% and margins declined as they were able to channel their inner Jack Welch and manage earnings by slashing their provisioning (and if Money McBags ran a bank, first he would hire Debrahlee Lorenzana to train the tellers, and then he would move his provision for loan losses to $0 because if shit goes bad, the government will just bail him out since they already exhibited worse moral hazard than Roman Polanski driving the baby sitter home).
Along with JPM, Intel in-told (yes, it is bad pun day here) the double dip recession (or single extended dip ex. the stimulus) to eat a fat dick by posting earnings above street guesses, guiding revenue to above street guesses, and saying that they see “2011 as being a “pretty good” year for computer sales.“ Of course those computer sales are being driven by emerging markets and enterprises (as they need machines to make up for laying so many people off) with “consumer demand in developed markets being a little less than we thought when we started the quarter.“ In other blue chip earnings, CSX also beat guesses as freight volumes keep chugging higher.
But here is the interesting thing, while the market rallied on those numbers, two of those three stocks (JPM and INTC) actually traded down which is as perplexing as that whole tramp stamp trend. Seriously, if the numbers were so good that the market got swept up in the frenzy of positive earnings announcements to come, why the fuck did the stocks putting up those numbers sell off? Something is fishier here than Portia De Rossi‘s breath in the morning, but Money McBags guesses a rising QE2 lifts all stocks.
Internationally, Chinese exports are surging again as their trade surplus reached $16.9B thanks to the Chinese government keeping their currency down thus making their electronics, clothing, and Coke infused with pee pee (no joke), cheaper to foreign countries. This currency manipulation is fueling new global currency wars which Treasury Secretary Tim Geithner addressed on Charlie Rose’s TV show (because apparently George Lopez was already booked up) by downplaying the risks but re-iterating that this is a global issue and not just a US issue (like Madonna).
Elsewhere in the market, AAPL broke $300 a share on their way to a bazillion, WMT announced that they are going to stop discounting so much to try to help margins and hopefully bring in a more respectable clientele, and natural gas provider WMB tooted up ~10% as they announced a CEO succession plan. Also, JOE dropped 10% as David Einhorn crapped all over them in front of his minions at the Value Investors Conference where tickets to the Whitney Tilson kissing booth were completely sold out, and finally, MGM dropped ~11% after their largest shareholder said they were reducing their position, they announced a secondary offering, and they doubled down on a 12 with the dealer showing a 6.
In small cap news, Money McBags’ favorite little name KITD bizarrely filed a $250MM shelf (plus another 242k shares) even though they currently have ~$46MM in cash, have only a ~$293MM market cap themselves (well it was >$300MM until they announced this fucking shelf), and have diluted shareholders more times in the last nine months than Ben Bernanke has diluted the dollar. Honestly, as a shareholder, Money McBags is more confused/perplexed/annoyed (and not regular annoyed, but a-fucking-nnoyed) by this than he was when NBC canceled the A-Team in the late 1980s.
In the award winning When Genius Prevailed’s comment section at the end of August, a reader brought up KITD’s filing to get approval for more shares at their annual meeting and this is what Money McBags had to say about a potential capital raise:
“Fucking A, if they do something like that, Money McBags will personally fly to Prague and nail his shares to the front of their office door to protest ala Martin Luther in 1517 (though he will stay in Prague a day or two for some indulgences). The company already raised an assload of cash by diluting shareholders and is currently sitting on a war chest so unless they want to raise money in order to change their business plan and become a bank, Money McBags can not think of one reason they would need to do so.
So Money McBags will assume you are just making up that rumor because it is as preposterous as a straight porn movie with no money shot or David Hasselhoff’s career.”
Followed by bold (and now likely wrong statements) such as: “Money McBags would be very very surprised if they issued shares anytime in the next 6 months, basically before doing any new deal. Then again he was shocked at the last raise so take it for what it is worth” and “Money McBags has been wrong before, especially about KITD’s capital raises, but he doubts we see dilution again this year.”
So Money McBags guesses he doesn’t know what the fuck he is talking about when it comes to CEO Kaleil Tuzman and his alter ego “The Great Diluter.” Look Kaleil, Money McBags thought we were friends here, we had our little interview, we exchanged many emails, heck Money McBags was even thinking of inviting you over for Pesach this year, but then you go out and do something like this just as the taint from your shitastic explanation of the DSO spike 2Qs ago and previous capital raises was wearing off.
So this begs three questions:
1. What the fuck is KITD going to do with the funds? Money McBags is taking it as a given that they will raise funds and it will likely be a pretty substantial raise (and that is based on nothing other than the huge shelf they filed, their history of doing this, and sheer exasperation) so who is out there to buy? Brightcove is probably too big, so what does Mr. Tuzman have his eyes on (and if his eyes are on this, then Money McBags understands)? Money McBags is assuming they have a deal lined up and are not just going to raise capital to be able to fly the whole company to Amsterdam for a night on the town (as we know Amsterdam is only a hop skip and a hump away from Prague), but who are they after? They look for geographies they are not in and companies that need balance sheet help, so what company is that?
2. What the fuck is an investor supposed to do here? No one likes getting diluted over and over and over again as fool me once, shame on you, fool me twice, shame on me, but fool me three times and I am a fucking idiot who doesn’t want to be fooled by you anymore. So now that we have established that, how can an investor be confident in anything KITD is doing if they say one thing about growth and then continue to do another. Yeah, Mr. Tuzman has always said he will look at strategic options, but there is a little something about crawling before you can walk, walking before you can run, and getting to first base before you try for the Cleveland steamer. So slow the fuck down a bit and show investors that you can, you know, CREATE POSITIVE EPS (though operating EPS is positive, but not every investor is willing to dig through numbers as Money McBags is) before you try to take over the world. Anyway, Money McBags is stumped here because he likes the company but knows dilution is coming so his shares will likely be worth less in the short run and now he has no way to value them and is a bit tired of feeling like a second class citizen.
3. Do you think Brooklyn Decker has an open marriage (and this has nothing to do with KITD, but Money McBags is wondering if he should keep aiming high)?
So Mr. Great Diluter Tuzman, the stock was finally moving, the company seems to be working, and the short story seems to have abated, so why the fuck did you have to do this now? You have Money McBags’ email address (firstname.lastname@example.org), feel free to let him and his loyal readers know when the dilution will ever end and if there is a game plan (and please, no cock shots).
7/15/10 Midevening Report: Senate approves financial reform only 5 years too late, next up, what to do about all of those indians
The Senate passed a sweeping financial reform bill today, though the only thing it is likely to sweep is more problems under the rug. After many compromises between Democrats and Republicans, the bill basically lets regulators feel the financial sector up but then caucusblocks them from going all the way. Sure there are now limits on how much banks can invest in hedge funds and sure some prop trading desks will be sold, but all this bill really did was create a fuckload more complexity in regulating the financial sector and The Street thrives on complexity since they make money by basically exploiting loopholes. So the bill gives the Fed more strength (and really, haven’t they earned it?) to create a bunch of redundant regulatory groups and gives them power to do a bunch of shit that they will only do after the fact because pro-active regulation is more of an oxymoron than deafening silence or David Hasselhoff’s talents. Money McBags gives the financial reform 3 yawns out of 4 as it’s like thinking about putting a band aid on a gaping bullet wound.
In macro news, new claims for unemployment were the lowest they have been in 2 years, until the (No) Labor Department revises them upward next week. Claims dropped by 29k to 429k after they were once again manipulated upward from last week’s 454k number to 458k. The large drop in claims is being attributed both to temporary layoffs at factories being postponed as companies like GM announced they will keep their plants open for most of the season, and just making up numbers. One reason the drop didn’t move the market up is that the (No) Labor Department concentrates on seasonally adjusted numbers and their seasonal adjustment is likely as good as Sheyla Hershey’s boob job so therefore if we look at unseasonallly adjusted numbers, we see that they rose by 45k to 513k, the highest number since January. Also, continuing claims jumped up by 247k to 4.68MM which is as healthy for the economy as smoking a cigarrette spiked with asbestos and Charlie Sheen’s taint hair. Either way, Money McBags is sure that the 429k number will be revised upwards to something like 437k next week so it’s hard to get excited about a big drop that is really due to a timing issue and will be changed anyway. And just to show that Money McBags is here for you in analyzing the numbers, remember that last week after claims were announced at 454k, Money McBags predicted that:
“The big macro news is that new claims for unemployment dropped to 454k or some number higher than that depending on how much the (No) Labor Department manipulates/readjusts numbers next week. Money McBags is not a betting man (unless there is money to be won or young ladies to impress) but he is willing to wager that next week we learn that new claims for this week should have actually been 459k.”
And sure enough they were manipulated up to 458k so either Secretary of Labor Hilda Solis (though to be honest, Money McBags thought we did away with the word “secretary” and were now calling them “administrative assistants,” but whatever) is using WGP to set her numbers or Money McBags’ forecasting method which involves sticking his finger in the air while figuratively pulling a number out of Sofia Vergara‘s voluptuous ass is not just more delightful than the bullshit models used by the (No) Labor Department but also hella more accurate. See, anyone can make up numbers.
In other macro news, the NY Fed’s Empire State Manufacturing index dropped like George Steinbrenner on Tuesday (too soon?). The index came in at 5.1, only slightly below the 18 economists had guessed, and while Money McBags has no idea what the difference between 5.1 and 18 is (other than 12.9), he’s pretty sure something less than 1/3 of predictions isn’t good in the same way that being the only female smurf or hiring MC Esher to design your staircase isn’t good. Not only did manufacturing in New York decline, but it did in Philly as well where the Philly Fed’s manufacturing index also fell to 5.1 which was below guesses of 10, though the 5 point miss was said to simply be stolen like everything else manufactured in Philly. While Money McBags finds it odd that two Fed manufacturing surveys would each register 5.1 in the same month (something about as likely as Paul Krugman winning a nobel prize), he does not find it surprising that manufacturing was starting to slip because we’re in something called a GLOBAL FUCKING RECESSION.
On a slightly more positive note, the Fed said industrial production creeped up .1% in June thanks to mining and utilities, on an even more positive note, Brooklyn Decker. Finally, producer prices fell again, this time by .5%, led by a steep 2.2% decline in food prices which were driven by an earlier weather-related jump in the price of tomatoes and an even earlier economy related dive in people’s incomes.
Internationally, China’s growth slowed in the Q to 10.3% from 11.9% in last year’s Q1 while industrial production rose 13.7% which would be great if it weren’t lower than what 26 out of 27 analysts on Bloomberg had guessed. Of course on WGP, Money McBags has shown both that analysts have no ability to forecast numbers and the numbers themselves as mostly fictitious like supply side economics, big foot, and Lauren Conrad‘s career, so ho fucking hum again. While China’s growth was basically inline, it left investors hungry for more just twenty minutes later and thus asian markets were down.
In the market, JP Morgan beat estimates in their quarterly game of numbers roulette. Net income was up 76% to $4.8B despite an 8% decline in revenue thanks to a $1.5B reserve release which was the biggest release in NY since Stephon Marbury. That said, while the reserve release is a bit puzzling since the economy is nudging south like a wannabe hollywood actress on her first casting couch, JPM’s credit card division turned profitable for the first time in several quarters and overall the company beat guesses by ~$.03 after stripping out one-timers. The biggest surprise though was WGP favorite Dick “Don’t call me Richard” Bove who never saw a financial stock he couldn’t misunderstand or artificially pump up, lowered his rating of JPM claiming revenue was weak and earnings were more manipulated than new claims for unemployment numbers or Tiger Woods’ image. In other large cap news, the market braces for GOOG’s earnings release and Money McBags is long the stock but he bets it will drop 8% regardless of whether they beat or not because high frequency traders hate growing companies with solid earnings and instead have calibrated their algorithms to find companies that are correlated to the phases of the moon and since HFTs control 50% of the market volume, they win most of the time.
In small cap news, JOEZ is set to report tonight and they will likely show more revenue growth, and yet declining earnings as their cost of operations and tax rate have them more set to fail than Amy Winehouse in a “girls I’d like to bone contest.” Also, Money McBags favorite KITD had their buy rating reitirated by Janney Capital today. Janney maintained their $13 price target which is only ~50% too low, but remember, analysts are paid to just publish and not to be right or stick their necks out for anything. As Money McBags isn’t getting paid for his research and has no constituency to please other than his own trading account and the lovely Teresa Palmer, he is not afraid to make big calls and unless KITD’s management is completely and utterly full of shit (10% chance but moving up proportionally with their growing A/R), this company is more undervalued than sharing a chilli dog with Natalie Portman.
6/8/10 Midevening Report: Bernanke speech fails to significantly rally the market, says he’ll overpromise more next time
The market was relatively quiet today as there was a lack of macro news though Fed Chairman Ben Bernanke was out late Monday saying: “My best guess is that we’ll have a continued recovery, but it won’t feel terrific like a blumpkin from Sara Varone followed by a nice wipe with that oh so soft aloe infused Cottonelle. Instead, it will feel more like having your nut hairs pulled out while listening to the smooth adult contemporary sounds of Sade”. Ok, Money McBags made part of that up but that’s not the point, the point is, Bernanke is hedging on this recovery like he just bought FAZ in his IRA. While he says the economy won’t likely have a double dip recession, he did not say it wouldn’t have a single dip recession followed by a falling off the cliff depression, so it’s merely a matter of semantics. Bernanke also dusted off his Phillips curve (though it wasn’t as curvy as Kimberly Phillips) and added that the central bank would raise rates before the economy returns to full employment, which should be any century now. That’s great, but Money McBags would like to know what the full employment rate is? Is it 4%, 6%, or whatever proof the whiskey was that Milton Friedman was drinking when he came up with NAIRU (seriously Milt, you couldn’t have come up with a catchier name than the Non-Accelerating Inflation Rate of Unemployment? Really? That name could put Ritalin out of business because just reading it has to make even the most hyperactive person drowsy.)? The point is, the full employment rate is a bogus hurdle as there is no set rate so saying rates will rise before we reach that level is as helpful as saying you’ll stop running when you catch the horizon. With the stimulus funds coming to an end over the next few quarters and the economy already starting to show signs of coming down from its stimulus induced bender where it got drunk off of bail outs and hand outs and now finds itself waking up in a pool of its own spending while dry humping Greece’s Aegean coast to the sweet whisperings of Benjamin S. Bernanke and and his magical money making machine, the economy is in a precarious position (though not as precarious of a position as Kirstie Alley‘s girdle).
Internationally, the new government in Hungary has announced a set of austerity measures aimed at solving their debt crisis. The austerity measures include cutting public wages, overhauling the tax system, banning mortgage lending in foreign currencies, and stopping free cookie day at the National Assembly. Also, the European Union’s finance ministers met in Luxembourg with the most important outcomes being an agreement to allow tighter oversight on countries suspected of falsifying economic data and an agreement that Ginger Spice was the hottest of the Spice Girls.
In stock news, AAPL introduced a $199 iPhone which has a front facing camera that should now allow users to masturbate on chatroulette wherever they may be. The new iPhone is slimmer than the previous version, has better picture quality, and doesn’t insist on cuddling when you are done with it. In other stock news, MCD had better than guessed at growth for the month of May of 4.8% worldwide thanks to the fact that they sell cheap shit and people can only afford to eat cheap shit. The company announced the falling Euro would impact yearly earnings but announced that to make up for those lost earning they are forming a partnership with American Heart Association to get a portion of the profits from all angiograms caused by eating their food. Finally, analysts were busy today with INTC downgraded by SIG to neutral because the analyst had to do something to try to drum up trading business for SIG and Dick Bove, who never saw a financial stock he didn’t like and didn’t understand, cut his price target at JP Morgan from jizztastic to just ballticklingly good.
In small cap stocks, Money McBags favorite KITD continues to get pounded like Alexis Texas on payday. With ~70% of their revenues coming from Europe, topline should be impacted by the 15%-20% drop in the Euro with investors seemingly betting on worse. Given that, it is difficult to come up with a short term valuation for KITD as the Euro appears to be falling off worse than proper grammar or Britney Spears’ top. Last Q, the $/Euro exchange rate was somewhere around $1.38 and this Q, it’s likely going to be around $1.25, and after that, who knows? So lets take a worse case scenario where we assume the exchange goes to parity. So that would be a 28% drop in the exchange rate from last Q. Money McBags thinks at the high end KITD can do $150MM of revenue next year, but let’s call it $130MM because of the global uncertainty. The thing is, that number was derived off of the old $/EU exchange so if we knock 70% of their revenue (their EU exposed revenue) by 28%, revenue decreases by ~$25MM. So insted of $130MM, a worst case scenario yields revenue of $105MM and at 20% EBITDA margins, that is ~$21MM EBITDA. The company currently has a market cap of $210MM but they have somewhere around $30MM in cash after their last deal so they have an enterprise value of roughly $180MM and thus are currently at a worst case scenario of ~9x EV/EBITDA and topline growth in that scenario would still be ~20% (and dollar euro parity is almost as bad a scenario for the financial markets as having your daughter bring home Jordan Van Der Sloot for Thanksgiving Break). Of course all of this assumes that their costs and revenue are tied together so if the euro drops by 28% the associated costs with that will drop by 28% and thus margins will remain intact. The point is, Money McBags still likes this company longterm as they are in a rapidly growing space that is going to continue to grow for several years, but there are certainly short term currency issues. However, they are diversifying their revenues in to the US and Asia so as to become less dependent on Europe so while things look bad now, in the long run this company should be fine. With uncertainty comes opportunity and it is getting to the point where this company is just getting stupid cheap.
4/14/10 Midafternoon Report: Market movin’ on up, only a matter of time before it buys a dee-luxe apartment in the sky
Oh shit, it is on today like fucking Donkey Kong only this time Mario is not only going to save the Princess but he’s going to get rich while doing so. The market is rallying like it’s 1999 with positive earnings, positive macro data, and not a fucking peep out of those Greek assholes who keep trying to fuck things up by going bankrupt (You hear that Greece? Stay the fuck away from the market, put your hands on the car, and assume the position). On the day before tax day, the market is making investors forget about the dough they are handing over to Uncle Sam and instead focusing them on the dough they will have to hand over to Uncle Sam next year with all of their oh so sweet gains. Ahh, to be young and invested. The rally today was sparked by earnings from JPM and INTC who treated earnings like it was a cup and they were the two girls (and if you don’t get that reference and have a very strong stomach and lenient internet rules, Money McBags begrudgingly recommends you google “two girls one cup,” but don’t say he didn’t warn you). Along with positive earnings, macro data was so good Ben Bernanke was seen taking it out to lunch, playing a little footsie with it under the table, and then inviting it back to his hotel for a little regression analysis to make sure it was heteroskedastic.
US retail sales were up 1.6% in March over the previous month and up 7.4% from March of 2009 which beat economists’ guesses. The beat was driven by car sales which were up 6.8% thanks to incentives such as tax breaks, low financing, and taint massages by Kelly Brook. Even with unemployment stuck at 9.7% like Keely Shaye Smith in a mudslide, consumers are spending because that is what they do. When the AIDS scare hit the porn scene in the 1980s, did that stop great films from being made? Maybe for a bit but now 20+ years later we’re back to bareback ATM films with no worries by the performers about diseases. This is just like consumers coming back after the recession and levering up again because daddy needs his 60 inch tv. People have short memories (and Money McBags’ short memories are mostly of He Ping Ping) and are generally optimistic so good news spurs them to repeat behaviors that may not be optimal for them in the long run. In other macro news, the CPI was up only.1% and was flat excluding food and energy (or you know, the things you actually need). The lack of an increase in CPI bodes well for the Federal Reserves’ plan to keep interest rates low for an “extended period” as inflation looks like it will be pushed out for another few quarters until investors can actually finish counting all of the cash the US government printed (you all remember Money McBags’ “Too big to count” hypothesis). The one small turd in the punchbowl today was that mortgage applications fell for the second straight week as people seem content to live in their current abodes and the game of flipping houses has finally passed like a painful kidney stone, Mickey Roarke’s comeback, or one piece bathing suits.
On top of the good macro news, Bernanke was getting his Fed on today in front of Congress by saying that he doesn’t plan to change any policy decisions but the recovery may be moderate due to high and prolonged unemployment, low construction demand, the poor fiscal condition of state and local governments, and Rasheed Wallace. Bernanke was quoted as saying about borrowing that “The decline in large part reflects sluggish loan demand and the fact that many potential borrowers no longer qualify for credit, both results of a weak economy.” Luckily, banks have shorter memories than investors and it is only a matter of months before FICO 560 people are once again getting $500k loans to buy houses in states they don’t work at variable interest rates. But hey, until then, rally on!!!!!!!
In stock news, JP Morgan beat estimates, grew income by 55%, and raised their outlook for the year. So fuck you right in the ear recession, you hear that (though maybe you won’t hear it with a dick in your ear)? JPM earned $.74 per share which was $.10 above analyst guesses and revenue was $28.2B, ~$2B above guesses of $26.5B. While JPM’s retail bank and customer card businesses are still struggling a bit, the investment bank blew it out thanks to strong fixed income trading. And if a weak retail business and strong fixed income trading don’t bode well for the economy, then Money McBags didn’t learn anything over these past few years. Oh wait, trading profits and a fuckshit consumer are exactly what got us in to this situation, ugh. But I guess there is something to say about the classics. CEO Jamie Dimon did say that “We continued to see delinquencies stabilize, and in some cases improve, in our credit portfolios,” which is a good sign, but then he added “and if they don’t stabilize, we’ll just create some complex products to trade with other banks and further boost our illusory profits.” While Chase card may have struggled, at least the bad loans have been siphoned off into a holding company to separate the risk and to hopefully make investors forget about what happened and just concentrate on Chase’s growth portfolio which won’t need to be put in to it’s own holding tank, until it does. In other stock news INTC crushed their quarter with eps coming in at $.43 which was well above last year’s $.11 eps and revenue was up $3B to $10B. They also announced strong revenue guidance, an improving gross margin, and they will be hiring 1k to 2k people which will be their first new hires in 5 years, so take that unemployment rate. INTC’s Q was so good that Money McBags may have to take it in to the bathroom and have a little time for himself with it while thinking about INTC’s motherboards which are so sexy they can be considered MBILFs. Finally Apple announced that they are going to delay the iPad launch outside of the US because demand in the US has been stronger than the demand for accutane in Jessica Simpson‘s house or the female condom in Britney Spears‘ house.
In small cap news, AAPL’s strong demand for the iPad could bode well for CRUS if CRUS actually has a chip in the iPad like they do the iPhone. The stock is reacting well today to the INTC blow out quarter and potentially the iPad news. Money McBags thinks they can earn $.73 next year but assumes only 12% topline growth so if their energy business can continue to come back and if their audio business just slows down a little from their current 80% growth rate, that number should be surpassed easier than a 3rd grader surpasses Kim Kardashian‘s reading level. The stock is now near $10, and remember Money McBags has been talking about CRUS since 1/12/10 when it was trading just under $8 and he mentioned he bought some on 1/29/10 when it had fallen below $7, so a >40% gain in 2+ months isn’t too bad. Money McBags hopes you all joined him on this ride and have been able to take your lady friends (or man friends) out to many lobster tail and bj dinners. That said, they have $2 in cash so they are really trading at ~10x Money McBags admittedly cautious estimate for this year which is pretty fucking cheap for a company that sells a chip to the biggest fucking electronics seller/fad in the Universe. Also, JOEZ is rallying today after the huge sell off from their earnings. Money McBags is still on the sidelines here for reasons he has laid out over the past few days. Basically, if you’re in the market today you can’t lose, like flipping a two headed coin, having your brother be the Governor of the state you need to win in a contested election, or being Alexis Texas in a great ass contest. One stock that is down which Money McBags is going to start looking in to again is CKSW which produces the best logistics/scheduling software for fleets. The company announced a 15MM share shelf offering today which is really fucking odd since they only have 30MM shares outstanding so this would be hella dilutive if they actually went through with the full offering. Money McBags is going to look more in to this over the next few days as the company apparently has the best software, but a shelf like that is more perplexing than Jennifer Love Hewitt‘s career or an Amish computer camp.
It is a bizarre day on the market today as INTC crushed numbers and is down, JP Morgan turned a huge profit, yet disappointed, and the dollar actually gained last night as apparently Amanda Drury was at the New York Rick’s Cabaret and only accepted the local currency (ok, the last one may not have been true, but Money McBags would certainly contribute his market insights to Ms. Drury’s Squawk Box anytime). Before we get to earnings today, there were a flurry of macroeconomic reports this morning. Inflation was flatter that Lindsay Lohan’s derrierre as the consumer price index rose only .1% and the Michigan Consumer Sentiment index rose only slightly from “holy fuck” to “we’re just kind of screwed.” These data points continue to signal that the lack of job creation and lingering 10% unemployment are likely to temper the economic recovery like ALS tempered Stephen Hawkings’ dreams of becoming a dancer. With inflation proving to be tamer than a Jay Leno monologue, the fed is poised to keep rates low for the near and immediate future. This should be continued good news for the banking industry (and again, the only business plan better than lending free money for more than free is the US Mint, mmmmmmm mint) despite JP Morgan’s topline miss today. Given that yields are still juicy and rates unlikely to go up, smart investors may want to dabble in NLY and their 16%ish dividend yield as those guys just know how to make money (of course, investing in a company that relies on repo funding makes Money McBags more skittish than a paraskevidekatriaphobic at an all day Jason Vorhees marathon on Friday the 13th, so buyer beware).
As for stock news today, INTC blew away their quarter like they were auditioning for an upcoming role in a bukakke kings film. Expectations were for $.30 eps and they dropped $.40 eps on analysts’ excel models while hitting record gross margins and guided to above Street revenue. The fact that they are trading off today is nuttier than a cock sandwich with extra balls as analysts question whether things can get any better. INTC is suffering from Wall Street’s buy the rumor, sell the news mentality which doesn’t make sense to Money McBags. It’s like boning Brooklyn Decker and then complaining that you’ll never do better. Hey assholes, you’re still boning Brooklyn Decker so quit your whining and ride out INTC. Just because she’s 22 doesn’t mean she’s peaked and just because INTC had record gross margins doesn’t mean Moore’s Law won’t still propel them to better quarters. I mean INTC had a record gross margin despite the record sales of their lower end Atom chip. There is still room to grow here.
The bigger news on the market today is that JP Morgan’s profitlicious quarter disappointed The Street as revenue was a little light (though not as light as a bulimic with a supercharged gag reflex), the retail bank put up a loss, and while EPS beat estimates, the beat was seen as lower quality than a Rollex watch or a Louis Vuittone bag as it was driven by tax benefits, lower comp, and the end of lobster Wednesdays. The low quality beat has sent the market down as investors now worry about other, less well-managed big banks (Citi, cough, Citi) and their retail exposures.
In small cap news today, COOL not only shit the proverbial bed, but they then remade the bed and shit in it all over again before tucking themselves in for the night. Analysts expected $.11 of eps and COOL was able to deliver a not so cool $.16 eps loss. For those of you not familiar with the company, they license and buy the rights to cheap crappy games for the Wii and DS aimed at families and girls in what is called the “casual gaming” segment (“casual” of course being an interesting epithet for “non”). Anyway, in a neat trick (though not as neat as the hidden button illusion) COOL has seen revenues increase but bottom line decrease as they believe profitability is just a suggestion. After diluting shareholders last Q by raising $9MM in cash, COOL further ingratiating themselves to their owners by accruing a $.10 impairment loss because nobody actually wanted their crappy games, a $.05 charge because their Our House franchise was apparently foreclosed upon, and another $.07 eps drop from lower margins due to something called “poor sales”. Their gross margin dipped from 28% to 3% and they guided to 2010 non-gaap eps of $.05, so even though they are down 22% today, they are still trading at 20ish times 2010 eps and that number is less believable than Larry Craig having a wide stance. This company continues to grow revenue and become less profitable every quarter (and for their next trick they will lose weight and become more unattractive) and should probably trade at no more than $.50 or 10x their unlikely 2010 eps. If you were short them, congratulations. Money McBags was on the sidelines for this one, but thought the company was potentially cheap if management could show progress, which of course they didn’t.
Enjoy the long weekend, Money McBags will be back when the market reopens on Tuesday.