Posts tagged KITD
Buenos dias on this lovely Cinqo de Mayo as investors smack the market like a pinata in hopes of breaking it open to catch some falling CDS. Things remain ugly today as Europe is still on the verge of going bankrupt thanks to Greece’s steroidal Wimpy strategy of having a gyro today while promising to pay for five of them on Tuesday. Unfortunately this strategy is finally coming back to bite Greece on its hairy proktos. Fear continues that Spain and Portugal will be next to need bailouts while even more fear continues that Heidi Montag will put out a new album or Alan Greenspan will find someone to listen to him again. Moody’s put Portugal on review telling the country that they need to start paying down their debts, show up to class on time, and stop throwing spitballs at Spain. Moody’s is threatening to cut Portugal by two notches from the contrived “Aa2″ to the less contrived “AaYour’efucked.” Of course as always, Money McBags cares what the rating agencies have to say as much as he cares about John Meriwether’s advice on starting a hedge fund or Fabulous Fab Tourre’s sales pitch for subprime bonds. Moody’s will likely be late once again to the dance with their downgrade of Portugal as by the time Moody’s figures it out, Portugal will long have fled the prom in a fit of tears after busting out of their prom dress and leaving their assets exposed and devalued. Making matters worse in Europe is that Europeans hate to shower and it’s getting hot outside, but making matters even worse than that is that three people were killed when Greek workers protested the new austerity measures yesterday. On the bright side, that is one way for the government to extinguish the debt, though on the negative side it’s a bit morally lacking. In the protests a bank branch also burned to the ground, luckily, the bank only held subprime debt and thus was worth more as ash than as a solvent entity. And finally, EU central banker Axel Foley Weber warned about “grave contagion effects” of the Greek debt crisis for the rest of Europe but added that it doesn’t mean the EU should use every instrument necessary to quell it such as more bailouts, rate changes, or sticking bananas in tailpipes (though if it is Kristin Bell‘s tailpipe and Money McBags’ banana, Money McBags will heartily disagree).
In US macro news, ADP reported that 32k jobs were added to the economy and it was the third month in a row of increases while Challenger, Gray & Christmas stopped by for some milk and cookies before reporting that planned layoffs decreased by 40% from the previous month. Also, mortgage applications soared to a 7 month high thanks to the ending of the federal home buyer tax credit and an extra strong dose of meth while the ISM reported that service industry expanded at the same pace as last month as a result of a Viagra milkshake and being shown Carmen Electra workout videos.
In stock news, News Corp put up a good quarter thanks to revenues from Avatar which Money McBags will see as soon as he grows a vagina. The company is trading down 5% though as they warned of a likely fourth quarter profit decline due to rising costs and lower revenues in their Fox network TV business, decelerating revenue in their cable business, and lower revenues in their film division as they are replacing Avatar with a film slate including the sequeals Alvin and The Chipmunks Get Rabies, The Thunder From Down Under Presents: What Happens in Vegas, and My Big Fat Greek Bankruptcy. In other market news, GOOG is up today on news they are going to start selling e-books and investors realizing that GOOG is only a nut hair away from world domination.
In small cap stocks, Money McBags’ biggest small cap holding KITD is getting pounded like they walked up to Brock Lesnar and told him not only is his mom a whore, but she’s like a shotgun because one cock and she blows. KITD has ~70% international revenue so with Europe about to join Atlantis and Chritsina Applegate’s breasts in the annals of fictional places that once really existed, it is not a surprise that there is some movement down. That said, Money McBags believes in this company and is in it for the long term (and by long term, he means until CEO Kaleil Tuzman sells to CSCO or whomever). Tomorrow pay attention to EBIX reporting quarterly results which Money McBags is sure will look good but will lack any semblance of detail as that business is more obfuscated than John Goodman’s belly button or Tiger Woods’ sense of dignity. On any metric the company is a screaming buy yet the red flags with CEO’s disdain of the Street, his self promotional nature that makes Kim Kardashian seem like a recluse, and his penchant for changing auditors like Ben Roethlisberger changes alibis, is alarming. Money McBags is going to stay away but if any of you can get comfortable with whatever it is in the insurance business they are doing other than installing johnson rods, you could have some nice upside. FHCO also reports tomorrow and with any luck they will have been protected from the European debt disease. FHCO has had a nice run on good earnings and a newly declared dividend and remains a strange and small company which Money McBags likes. He doesn’t own it as it ran a bit too much for him but he’s going to reconsider after they report the Q. Money McBags did make a couple of trades today by hedging his portfolio with EPV and selling his CIT shares for no reason other than to take profits and get some risk off the table. CIT should actually fare well with new CEO John Thain, a cleaner balance sheet (but who really knows for sure how clean it is no matter what the 10k says), and a valuation of right around book value. Should the market continue to drop, Money McBags will look to re-enter CIT while should Abigail Clancy‘s knickers drop, he will look to re-enter her.
4/29/10 Midday Report: HP thinks it bought a rosy PALM, no word on whether they will also buy her five sisters
The rally is back on thanks to solid earnings, Greece likely getting bailed out again (for now), and the FED reaffirming their promise to keep rates low until the next bubble. Not only that, but new claims for unemployment were down by 11k which was just shy of analyst guesses and just shy of asking Kristen Bell out on a date. In financial news, Republicans voted to finally allow debate on financial reform because somehow the good of the country became more important than the search for birth certificates, reigning in wide stances, and understanding what about tea bagging is so appealing to Sarah Palin. Money McBags hopes there will be real reform like you know, requiring reserves to be held on insurance contracts more commonly known as CDS, limiting the size of financial institutions, and closing down the ratings agencies whose business models incent them to do the opposite of give unbiased ratings and who sucked at their jobs like a blind skeet shooter or a fluff girl on the set of a Sabrina Johnson record breaking film. While there is no doubt Wall Street will eventually find the loopholes in any regulation because greed is a dish best served with caviar, Dom Perignon, and peach cobbler (the first definition of course) and that shit ain’t cheap, at least the government can make it a bit harder. Money McBags is all for the Volcker rule, for hedge fund regulation, and for derivatives regulation even if the last one may cause Warren Buffett like a millisecond of a sleepless night on his mattress made of gold and the tears of baby bald eagles. The SEC’s new found ballsac is refreshing and Money McBags hopes they are serious about regulating the markets and watching porn instead of just watching porn (unless it is first time lesbian porn, and then Money McBags understands).
Internationally, Greek is getting some drachma again as the IMF promised to raise their bailout funds from 45B euros to 120B over 3 years. However, as part of the stipulation for getting funding, Greece is going to have to put in place stricter austerity plans and better track and report their finances by allowing the IMF to inspect their “cash boxes” once a year on the island of Lesbos. Greek Prime Minister George Papandreou was said to have started negotiating with labor unions to cut two of their fourteen monthly salaries, to institute higher value added taxes, and to require they work longer than three hour work weeks. The real question is whether German Chancellor Angela Merkel stops being a sour kraut and agrees to help with the bailout or if she continues to waffle in hopes of maintaining support in Germany to propel her party to victory in the upcoming North Rhine-Westphalia election. That’s right, Merkel is letting Greece, Europe, and the global markets dangle in the wind because of some do shit election in a country that isn’t going to even exist should Europe go bankrupt. Angela, be a good girl and come listen to Money McBags. I know it is fiscally irresponsible to continue with the steroidal Wimpy strategy of getting a hamburger today and paying for ten of them on Tuesday, I know you want to stay in power (though Germans fighting for power scares the gifelte fish out of Money McBags), but sometimes you have to do stupid stuff for the greater fucking good. Yeah, Greece acted less fiscally responsible than Stephen Baldwin or a homeless crack addict on pay day, but as the great Zeno Cosini once said “complete freedom consists of being able to do what you like, provided you also do something you like less.” So fucking lend Greece the damn money already and enjoy the freedom to have a European economy. Now go get me a Kreppel but go light on the powdered sugar because Money McBags hates getting that shit on his fingers.
In stock news earnings were so jizztastic that the market is now expecting octuplets. But before we even get to earnings, HP is buying PALM for $1.2B in a move that had been rumored for weeks. Money McBags gets why HP did it as PALM has a good ass operating system and HPQ has the means to try to make it work with better hardware and distribution, but going after AAPL and Blackberry and GOOG is kind of like buying Dr. Pepper and trying to take on KO and PEP or thinking you can beat Lisa Ann and Alexis Texas in a nice ass contest relying on only the Butt Blaster and not implants. The handset market is more fully penetrated than Bridget the Midget in a tryst with Lexington Steele so sure you might get a little market share with HP behind a Pre-type phone/operating system, but $1.2B seems like a lot to pay for a company that was dying. Anyway, in other stock news MOT put up a quarter that beat on the bottom line thanks to aggressive cost cutting which did away with lobster thermidor Thursdays in the executive cafe. Mobile phone shipments fell 43% despite the rise in smartphone sales but the company’s guidance of $.07 to $.09 eps next Q was well ahead of analyst guesses of $.03 eps. BIDU also put up a ridonkulous quarter as chinese people apparently searched for more than just their freedom. Their profit was up 165% and BIDU’s market share in China rose by 600bps to 64% thanks to GOOG’s exit from the chinese market and thanks to Olivia Munn’s new billboard which was posted online. Other companies that beat earnings include V, HOT, FSLR, and anyone who sold anything anywhere over the last three months.
In small cap news CRUS continues to run while Money McBags’ largest small cap holding KITD is breaking out like Cameron Diaz’s face after a pepperoni pizza. Money McBags has blogged about this so many times that he is risking being more repetitive than a stutterer reading a tongue twister, so he will spare you the details (just use the search function on When Genius Prevails), but this stock is easily worth $20. They had a call the other day about the $50MM capital raise they just did and basically said it is a war chest to help them fend off Brightcove for acquisitions as Brightcove is going public, any deal they make will be immediately accretive and between 5% and 15% of revenue, they are still targeting 60% organic growth, and world domination is only months aways. Ok, that last one was made up but the point is the video asset management space is more fragmented than J Howard Marshall’s beneficiaries and KITD is in a strong position to help roll it up while putting on it’s nicest Sunday dress to appeal to buyers (and yes, KITD will be acquired in the next 1-3 years, that is the play). And it’s still not too late to get in. Money McBags has purchased three times and if you look at the archives, the first time was at ~$10 so hopefully you’re all doing well on this too. In other small cap news, another Money McBags holding, CTGX, put up a decent Q the other day. Money McBags broke down CTGX on 2/22/10 so read the full analysis there but the story is they are basically a shitty IT services/staffing outsourcing business with a growing health care IT focus and a specialty in installing electronic medical records. It’s a bit like Y2K IT firms in 2000 in that there is a specific event (hospitals moving to EMR) that will last a finite time (though probably 3 to 7 years starting in 2011), but there are only a few firms who can do this and CTGX is the lowest priced one with the best service. In this last quarter they finally saw revenue growth after a number of down quarters due to business spend going away in the recession like an 18 year old wanna be actress’ dignity on her first casting couch. Revenue was up 5%, operating income was up 28%, operating margin increased to 3.9%, and eps was $.11. No real surprises but a nice sold quarter and that is all we’re playing for right now. Just keep ticking along until hospitals spend their stimulus money and seek out IT professionals to give them the MANDATED EMR systems (and yes, caps were intentional because hospitals are required to have EMR systems up by 2015). The best news is that they said they closed a significant multi-year deal with a large physician practice for EMR, EMR proposal activity is accelerating, and “the first portion of the $19 billion in federal stimulus funds allocated to EMRs has been released to help states advance EMR projects.” Guidance was raised a bit for 2010 to 15% topline growth and EPS between $.47 and $.55, but if you go back and read Money McBags’ archives, you’ll know that 2010 is irrelevant. It is not until 2011 that EMR will hit for them and as those projects have greater than 10% margins and bring in $2MM to $3MM of revenue per year, it is not inconceivable that CTGX can earn an incremental ~$.25 per share in 2011 from EMR and thus if they just hold their main business steady (though it should increase if businesses start spending again), they could earn $.75 and thus are only trading at ~11.5x that despite the possibility for >50% growth. It’s still early for this stock but now is the time to get in before it takes off.
4/22/10 Midday Report: Market struggles to find green on Earth Day thanks in part to the new planet threatening phenomenon of Goldman Warning
It’s Earth Day which means Al Gore is likely so giddy that he is rolling around the back seat of his electric car while warming his globes to thoughts of Susan Solomon’s ozone hole and Carmella Bing’s flourescent bulbs. And sadly, while all of this is happening, somewhere a polar bear dies. Anyway, the market is trying to shake off a sluggish start thanks to poor earnings, the Greek economy’s impending trip down the river Styx, and the release of a new Jennifer Lopez movie suggestively titled The Back-Up Plan (and yes, Money McBags would plan to back that up).
But all is not bad today as US macro news was largely positive. Existing home sales in March rose for the first time in four months climbing 6.8% thanks to government incentives, the weather, and buy one get one free Sundays. Also, new claims for unemployment were down 24k to 456k which was surprisingly pretty much inline with analyst guesses thus giving credence to the old adage that even a broken clock is right twice a day (as opposed to the new adage that even a broken cock can love Hanna Hilton twice a day). As always, 10MM people are still receving unemployment benefits, extended benefits, and for the really lucky ones, friends with benefits. Finally, Producer prices rose but only modestly above analyst guesses. The PPI was up .7% largely because of food costs which were up by the most in 26 years since the great Dorito shortage of 1984. The price of vegetables was up a remarkable 49%, which did wonders for Stephen Hawking’s market value, but at some point those cost increases wil start being handed down to consumers. Excluding food and fuel though, PPI was flat, so once again, as long as you don’t need to eat or go anywhere, your money should last a long time. The point is, no matter how long economists want to delude themselves by using core PPI, inflation is coming because the goverment fired up the money making machines to try to push our economic problems off on the next generation (so next generation, here’s a big fuck you, but on the positive side, we did give you the NSFW Spankwire.com). Money McBags would call it the largest ponzi scheme in history, but it already has a name: Keynesian Economics.
In international news, apparently the Greek budget deficit was worse than originally thought and may top 14% of GDP which is a fuckload of dolma. The bigger problem is that there are many “uncertainites” about the quality of Greece’s data including the currency swap noted fraudsters Goldman Sachs hid for them and the fact that they hired David Friehling to audit their books. As a result of all of this nonsense, premiums on Greek bonds continue to reach new heights like Enceladus going through puberty. Greek Prime Minister George Papandreou is caught between a rock and his nether regions upon viewing Greek sensation Julia Alexandratou’s sex tape (which can be viewed in its entirety by searching for it on the aforementioned spankwire) as further austerity measures may crumble the spirit of the already striking Greek workers while doing nothing may hinder Greece’s ability to get aid from the IMF and Eurozone. As always, Money McBags is going to assume this is much ado about nothing because the Euro countries are not going to let Greece fail and if the country survived the Trojan Wars and Criss Angel’s career, a little debt is not going to hurt it.
In earnings news SBUX put up a quarter stronger than a venti Sumatra with no cream or sugar. Not only was traffic up 3% up, but spending was up 5% which helped drive eps of $.29 beating analyst guesses by $.04. SBUX rasied their outlook from $1.09 per share for 2010 to $1.19 to $1.22 and the stock is now trading at ~22x the top of that range which isn’t ridiculously expensive, except when you factor in that overall revenue growth was only 9%. Money McBags doesn’t own SBUX but he would be long biased. Driving the Street down though were earnings from EBAY and QCOM. EBAY actually beat estimates, but revenue growth in their core US business was inline and guidance of $.37 eps to $.39 eps for next q was below analyst guesses of $.40. Money McBags is not a bidder for EBAY since their business model ex. Paypal is so 1998 that he just doesn’t get it as the only people who still buy shit on EBAY auctions get kicked off half the time because their dial up AOL accounts fail. As for QCOM, they also gave disappointing guidance which has caused a sell off as fear that handset sales may be weak despite AAPL’s rindonkulous quarter yesterday.
In othe market news Moody’s downgraded Toyota due to their recent vehicle recall, while Money McBags once again downgraded Moody’s. So well done Moody’s, though downgrading Toyota now is a bit like downgrading White Star Lines a month after the Titanic sunk, but hey, at least you were earlier on this downgrade than the one for Lehman. You know what though Moody’s, go fuck yourself. You are worse at your job than an achluophobic night watchman or Heidi Montag’s voice coach.
Finally, the NYTimes turned a profit, but then again, Money McBags learned that from reading the New York times for free online so it could all be made up. And last and most definitely least, in a deal no one gives a shit about, Century Tel is buying Qwest for $10.6B in stock and one outdated business model.
In small cap news today Money McBags favorite KITD is out with another share offering and this one is even more dilutive than the last. Money McBags has broken down KITD’s business may times (just type KITD into the search box here), but is a bit concerned about the size of this offering which is for ~4.3MM shares at $13 in order to get ~$55MM in cash. The good news is the $13 price is above where it closed yesterday, KITD’s CEO has maintained that any acquisition will be accretive, and Heather Graham has another NSFW nude scene in her new movie. The bad news is that the share offering is about 25% dilutive and without knowing how it is going to be used, it reduces Money McBags $2.00-$2.25 high end eps estimate for next year to closer to $1.75 at best. Money McBags is glad that KITD is finding opportunities and the CEO owns a fuckload of equity so he is diltuing himself as well, but there comes a point in time where they are going to have to run this business and put up results with what they have. So while they say only 40% of growth is from acquisitions, they are going to need to show some strong numbers to support that. Money McBags has no intention of selling on this news, he still trusts management is doing things right, but the size of the deal and the fact that it is coming so soon after the last one gives Money McBags just a small pang in his gut that he hopes is merely last night’s dinner and not some early subliminal warning sign that this company may be biting off more than it can chew.
The news today is earnings, earnings, earnings, and Sophie Turner. The markets are inching up after a strong slate of mostly positive earnings reports (not so fast AT&T and GILD). However, before we get to earnings which featured Apple taking other handset makers out to eat, getting them drunk, and then giving them a cleveland steamer as a reminder of their dominance, Greece is back in the news. Investors are worried that Greece may take 45B euros in aid before actually agreeing on the terms which is very TARP-esque of them (one wonders if they are going to use Hank Paulson’s preferred contractual device of a napkin to agree to country changing policies). With terms of the aid more open than Joslyn James‘ anus right before Tiger Woods “sinks a putt,” the risk premium on Greek bonds has soared to 512bps which is higher than anything in Greece has gone since Icarus let his ego get the best of him. Concerns remain that Greece may not be able to pay the 8B euro coming due in a month and in a show of support, Greek workers are about to embark on their 3rd 24 hour strike since the crisis began which would be crippling if that weren’t somehow still more hours than they typically work in a day. Luckily for them, France is gearing up to loan Greece 6B to 8B euros as part of the aid package. French economy minister Christine Lagard, who in 2009 was named Best Finance Minister in Eurozone by the Financial Times after a stunning rendition of “Mo Money Mo Problems” in the talent portion of the show, tried to calm the fears of a Euro meltdown by opining: “I won’t say Portugal is next in line…” before adding “but I just saw Prime Minister Jose Socrates listing the Iberian Peninsula on Craigslist for “roses.” Boooyah!!! Can I get a Quelle Quelle?”
As for earnings, AAPL crushed their quarter with iPhone sales up 130% leading to a 90% increase in profit and a 49% increase in sales. Apple earned $3.33 per share, well above analyst guesses of $2.45 and said they were “shocked” by how well the iPad was selling. Holy fucking shit is it on. Apparently Apple’s app for taking over the world is a little too good as their products are selling faster than Adam Smith’s invisible hand can fondle unwitting young ladies during New York’s Fashion Week. In other earnings news, Morgan Stanley traded the fuck out of some shit (and Money McBags apologizes for getting overly technical there) earning $1.03 per share after one-timers largely because of their sales and trading unit. Book value is up to ~$28 per share and ROEs are creeping back up hitting 13%. Like every other investment bank, revenues and profits were driven by fixed income traders who bought and sold shit we’ll never know about, who we can’t actually track to see what the fuck they are doing, and who are likely ignoring all but one SEC regulation (and that one of course is to not get high off their own supply). The paper economy lives on, long live made up shit. Also, MCD beat guesses by earning $1.03 per share after one-timers and Money McBags is an owner of this stock because there is huge brand equity for continued international expansion. Operating margins were up 2.2% and same store sales were up 4.2% for the quarter and 5.2% in March driven by 4.2% growth in the US, 5.9% growth in Europe, and 7.9% growth on Mars. MCD is not going to be a high flyer but it offers a nice yield for a franchise that should do well in a world becoming more globalized, even in a down economy.
In other earnings, BA beat numbers, YHOO had a nice bottom line (though not nearly as nice as Jessica Biel’s bottom line) yet missed on revenues since they compete with something called GOOG, and AT&T had a good Q but is selling off as new subscribers were the lowest since 2004 during the bizarre and short lived rotary phone trend. Also, VMWare put up a huge quarter and Money McBags did something he rarely does by buying the quarter of a ridiculously high priced stock. Honestly, Money McBags hates buying things this overvalued more than he hates long walks on the beach, sentences that end with prepositions, and Jane Austen, but he believes in virtualization. This not a fucking fad like Wacky Wall Walkers, YoYos, or the way way too short lived rainbow parties. Revenue was up 35% to $634MM, Non-Gaap earnings were up 45% to $.32 per share, free cash flow was up 68% to $326MM, and overall cash on the balance sheet was a healthy $2.8B. Guidance was for 30% 2010 revenue growth of $2.6B to $2.7B which means the company is currently trading at around 9x 2010 revenues but closer to 6.5x 2011 revenues ex. cash. Yeah, it is a total bullshit metric and Money McBags crapped all over metrics like this yesterday when he advised that SFSF was too fucking expensive, but companies like VMWare often get purchased at multiples of revenue between 6x and 10x so we’re still at the low end of 2011 potential revenue multiples. It certainly isn’t cheap and on a P/E basis it is trading somewhere between astronomical and Warren Buffet heart attack high, but they are a market leader in a space that is absolutely here to stay. IT departments are cutting costs quick and deep, like Lexington Steele losing his virginity, and VMWare’s virtualization software is at the forefront of this (or, to continue with the Lexington Steele analogy, the foreskin of this). Money McBags believes in this sector and cloud computing almost as much as Burton Malkiel believes in efficient markets or as much as aspiring Hollywood actors believe in Scientology and it is why Money McBags will soon be buying TMRK (who by the way received a big investment from VMWare last year). So yes, the stock is pricier than an Ashley Dupre blumpkin, but sometimes you have to pay up for quality.
In small cap news, a Money McBags favorite and his largest small cap holding KITD is bouncing back after a big block trade on them yesterday afternoon which sent them stumbling. The stock is probably range bound to down until they announce a new acquisition or until their next quarterly call in a couple of months so there is no reason to panic and if you are are not an owner, buying any dip is certainly worthwhile. Also, CRUS which Money McBags owns and has written about many times is getting some AAPL momentum today as they produce an iPhone audio chip and as said earlier, iPhone sales were ridonkulous.
4/9/10 Midafternoon Report: Greek bail out back on causing market to fly like Icarus (though hopefully not quite as close to the sun)
The markets are higher today as fears of a Greek blow up subside for about the 69th time which is one more time than Ben Bernanke has taken an “accomodative stance” for the market in the past two months (and Money McBags isn’t quite sure what that means). In macro news, Retail sales were out yesterday and they posted their strongest monthly gains since the data started being collected in 2000 and since the introduction of the Snuggie. Sales were up 9.1% over March 2009 as people are feeling safe in their jobs and are now willing to once again run up their credit card debt and buy those Joe’s jeans that fit so snugly (and Money McBags will get to JOEZ later with their 40% revenue growth that avoided falling to the bottom line like Gabrielle Sidibie avoided salads). Easter falling a week earlier this year helped boost sales a bit so retailers aren’t quite ready to pop open the beluga and take the Dom off ice, but the number was much stronger than analyst guesses and bodes well for the recovery. A number of retailers including Target, Macy’s, Ross Stores, and Vivid Video (ok, Money McBags is just speculating on the last one based on his consumer spend) said their results beat expectations which is more positive news on the strength of the consumer. In other macro news, US wholesale inventories rose .6% in February which was apparently well above guesses, while wholesale sales were up .8%. What is interesting is that wholesalers still only have 1.16 months of inventory on hand which means there is still a fuckload of restocking potential (or un-destocking potential for those who want to nit pick). Money McBags has doubted the path of the economy for quite some time because the labor market is still weaker than a sand in the face Charles Atlas (shout out to the over 70 crowd. All the ladies in the house yell “Arthritis.”), but things look like they are legitimately getting better. Sure there could be more issues in Europe, and sure the S&P isn’t hella cheap, and sure with earnings season kicking off next week companies are going to have to put up better results than GE when they used to manage earnings or Tiger Woods in a full of shit contest, but things seem like they have a worst plateaued. Money Mcbags got longer the market today, at least for the short run.
In international news, the Greek bailout plan is on again today which is less surprising than when Ricky Martin came out of the closet, when Colin Powell admitted there were no WMDs in Iraq, or when Jennifer Aniston’s latest movie flopped. Greece still needs to raise around 15B euros by the end of next month which means they have to sell a whole lot of gyros and Julia Alexandratou sex tapes, but the rest of Europe will be buyers. The EU, IMF, and NAMBLA will not let Greece default and will issue them bilateral loans (which have all the benefits of lateral loans, only I am told the interest goes both ways). Look, Greece has been around for roughly 5k years since the Cyclades in the Bronze Age and has been through wars, revolutions, and prodigal son Yanni’s musical career, and none of that was enough to bring them down so a few poorly written CDOs/subprime mortgages/bad loans are not going to be the demise of this once great country. It’s not happening. There is more chance of Michelle Hunziker stopping by the When Genius Prevailed offices and handing out free ice cream sundaes than there is of Greece going bankrupt so buy anytime the market gets freaked out by Greek bond premiums shooting through the roof. In other Greek news, Fitch downgraded Greece’s credit rating today just in time for the latest bail out, so again great timing by credit rating agencies who continue to have less credibility than Amy Winehouse‘s stylist and Greta Van Susteren‘s plastic surgeon.
In stock news, despite yesterday’s strong retail sales report WMT announced a plan to lower prices in furthering their quest for world domination. With slowing same store sales, WMT is hoping lower prices will win back middle class customers, make them more competitive with grocery stores, and allow their shoppers to upgrade their wardrobes. In other stock news, PALM is mimicking their phones and flying through the roof (of course the roof their phones fly through is a sun roof as users forcibly and angrily chuck them out of their cars when the Pre’s operating system crashes on them for like the 42nd time) on rumors of being acquired. A large scale PC maker is said to be interested in buying Palm’s phone and technology because rather than being in just one ultra-competitive commodity business, they’d apparently like to be in two. A PC maker buying Palm makes a bit of strategic sense if there were no iPhone and blackberry, but given that the market is already saturated and with better products, a deal seems a bit implausible unless it is at bargain prices.
In small cap news, Money McBags bought more KITD today and is probably done buying for now unless it gets stupid cheap again. The stock is simply worth a fuckload more than it is trading for today so Money McBags is a bit less price sensitive than Richard Branson at a McDonalds. As discussed earlier, JOEZ announced their quarter last night and is selling off like their quarter created AIDS (and not regular AIDS, but AIDS of the anus). The stock is down 16% despite 40% top line growth because bottom line growth was non-existent (though showing a picture of Alice Eve would have caused Money McBags’ bottom line to grow). JOEZ exhibited less leverage than the immortal He Ping Ping on a see saw with Kirstie Alley (and that’s not just because He Ping Ping was only 29 inches tall, but because he’s dead). JOEZ margins were essentially unchanged with gross margins coming in a bit worse at 49% from 50% and operating margins improving by less than 100bps. What hurt them most was their tax rate jumping from 15% to 47% as a result of NOLs running out and having to accont for an earnout from their acquisition of the Joe’s business. Plus, they said they had an extra $700k in advertising expenses and a $150k expense from moving their headquarters, but even taking out that $850k in “one-time” expenses, that would have barely added back another penny. This business simply needs to figure out how to grow while managing expenses. As a quick exercise, do 25 jumping jacks. As a quicker exercise, assume the company grows sales 40% to $111MM for calendar 2010 (which is very aggressive, but work with me here). Then hit them with 50% gross margins (even though those might actually be getting worse as they are moving downstream in their pricing and products), 39% operating margins (which is what they were this Q absent the $850k “one-time” costs), hold interest and depreciation constant (though depreciation should grow as they open more stores), tax them at 46% (they said over time that should drop to 40%, but the earnout is over 7 years), and keep their diluted share count at 63MM. If you do all that and say Beetlejuice 3 times quickly, you get to earnings for the year of about $.07 per share. You see, that’s the problem with running a low margin no leverage business, you’re kind of fucked unless you can get scale quickly by ramping up sales faster than Lindsay Lohan snorts a dime bag. So if they can’t get any leverage and earn $.07 per share in 2010, they are now trading at 40x that which is way too expensive for anything not involving Hannah Hilton putting her musical skills to use and playing Money McBags’ rusty trombone. And remember, the exercise we just walked through assumes 40% topline growth which is huge. Now look, the company is doing a very good job of growing the top line and despite burning through $2MM of cash from operations, still has a decent balance sheet with $10MM cash and no debt, so it is possible they start figuring out how to manage the bottom line, that said, Money McBags is going to continue to take a pass on this until they fire the the Underpants Gnomes and figure out how to turn revenue into profit. Obviously a business growing top line at 40% has some good qualities, so it is worth monitoring, but unless Money McBags’ math was wrong in the analysis he laid out above (and while Money McBags has an MBA in Finance and a BA in Economics, he is not a maffamatecian so often has to work it out with a pencil), the numbers don’t make sense. If any of you have a better grip on the numbers, let Money McBags know because he wants to like this stock, but with crappy and unimproving margins, it’s not clear he can.
And don’t forget to enjoy your weekend.
4/8/10 Midday Report: Citi execs sorry they broke the economy, wipe their tears with their outsized bonuses
Money McBags is back and the markets are selling off a bit as apparently people somehow still care about Greece going bankrupt (but then again, some people also still care about the Poincare conjecture, the etymology of Star Wars languages, and saving the whales, so whatever). Seeing as how Greece hasn’t been relevant since the Battle of Corinth or the internet rumor of a Maria Menounos side boob shot, their financial crisis shouldn’t be enough to derail the market from rallying back. What should be enough is continued unemployment as new claims for unemployment rose last week by 18k to 460k which was worse than economists’ guesses of a drop to 435k. So once again supposed experts even got the coin flip direction wrong (Money McBags told them to call tails instead of heads). Economists are blaming the Easter holiday for some of the variation in the jobs number because the floating holiday comes at a different time each year and seeing as how no calendar existed last year and the day Easter fell on this year was a complete fucking surprise, it makes sense that data to allow economists to properly seasonally adjust for Easter would be difficult to obtain. The Easter excuse is about as plausible as a bunny laying colored eggs, Santa Claus, or a male friendly lesbian (shout out to Chasing Amy on that one, it’s too bad Kevin Smith died shortly after that movie came out, he had such promise. And if he didn’t die, how does one explain Jersey Girl or you know, the last 10 fucking years of his supposed career?). The positive news on the jobs report is that continuing claims decreased by 131k to 4.5MM which is the lowest it has been since December of 2008 and companies like Home Depot say they are starting to hire more workers. Money McBags is more positive on the economy than he has been in months and is looking to add to his exposures if the market consolidates here.
Internatonally, as mentioned before Greece is still taking up all of the headlines as they try to boost their resume from reality star to working actress status, and if this debt issue doesn’t work, they’re either going to adopt a Malawan kid or try to get Crete drunk and have octuplets. Bonds of the country are slumping worse than sales of Alan Greenspan’s new book: Bubbles for Dummies: How any Dummy can create one. The premium for Greek bonds over German bonds is now 427bps, the highest it has been since the Euro was created and the great deodorant crisis of 1964. Of course, Greece isn’t going anywhere so hedge funds, asset managers, and Pete Rose can bet against them all they want, but if the country survived the release of My Big Fat Greek Wedding, it can survive anything. In other international news, China is going to revise their currency policy where they will now let it float and perhaps appreciate as much as 2% against the dollar. This is another small step in trying to prick the Chinese bubble but most importantly, China is trying to do this without using any MSG. Also, Europe is keeping their benchmark rate unchanged at 1% as they hope the cheap cost of capital can pull them out of recession by increasing the sales of black jeans.
In stock news, United and USAirways might be merging which is a little like if syphilis and gonorrhea had a baby and you had to spend 6 hours sitting next to that baby on an LA to NYC flight. Of course this merger fits in with the old adage, two wrongs don’t make right (though two Wrights make an airplane, three rights make a left, and I believe four rites make a Scientologist) as two crappy airlines don’t make a good one. Also, Citi’s failed management team has been testifying before congress where they have promised to tell the truth about how they were more incompetent than Gabirelle Sidibe’s dietician or John Edwards penis. Charles Prince opened with: “Let me start by saying I’m sorry,” which was succinct, to the point, and no doubt a great solace to all of the people who lost money due to his criminal risk controls. He then expanded on that by saying: “I’m sorry the financial crisis has had such a devastating impact for our country. I’m sorry about the millions of people, average Americans, who lost their homes. And I’m sorry that our management team, starting with me, like so many others could not see the unprecedented market collapse that lay before us.” Well thanks for that Chuck, really. I am sure every average American will sleep better on their worn out mattresses knowing that you feel badly that you missed the biggest financial crises in the last 80 years even though you were in the fucking center of it. Either you are blinder than Mr. fucking MaGoo after downing a bottle of Wild Turkey or you were just a greedy fuckwad, so let’s just be up front about everything. You didn’t “not see the unprecedented market collapse” you didn’t bother looking for it, which is you know, something on which someone running a bank is supposed to focus, it’s called risk fucking management, jeesh. So while you were out getting your teeth whitened for the 38th time, your company wrote, traded, and packaged enough bad loans to help sink the global economy, but Money McBags is glad you are so sorry that you have now permanently relocated to your multi-million dollar Florida mansion where you no doubt sadly eat caviar off of hookers’ ass cheeks all day (and just a head’s up, that stuff in the crack may not be beluga). But hey, thanks for being sorry dickbag.
In small stock news, JOEZ has been rocketing up into their quarterly results release after hours tonight. Money McBags broke the stock down after their last earnings call and will do so again tomorrow, but in the meantime the stock has become more fashionable than Giselle Bundchen in a pair of their jeans. Money McBags does not get $150 jeans as he understands fads as well as prisoners understand game theory or Tiger Woods understands texting (hey, Tiger, your messages don’t just disappear into thin fucking air. A blind person leaves fewer tracks when walking through the mud than you did while cheating on your wife, but kudos to you for being more clueless than a colorblind synthesthesiac). Money McBags will start breaking more stocks down again next week as he is evaluating a number of names. KITD remains his top pick as they have more potential than a slightly overweight 18 year old girl with low self-esteem and no gag reflex. What is interesting about KITD is that their smaller competitor, Brightcove, just raised another $12MM in their 4th round of financing. Brightcove is barely breaking even (so is KITD, though this year KITD should earn at least $.55 and likely closer to $1) but this round of financing should allow them a nice private plane with all of the accoutrements for their likely upcoming IPO road show. Money McBags is creaming at the possibility of Brightcove going public and thus giving analysts/the market/Pauly Shore a public comp for KITD to show how undervalued KITD remains. So keep your eyes on Brightcove (while Money McBags will try to keep his eyes on Michelle Lombardo‘s not so bright cove) for any news to help with valuation.
3/30/10 Midafternoon Report: Market rests today after spending all night trying to find the afikomen
Before we get to the market news, today marks an important achievement for mankind (perhaps an even more important achievement than Brooklyn Decker) as the Hadron particle collider is finally working sending two protons smashing in to each other at 99% the speed of light. Results hope to answer some of the Universe’s most essential questions such as the existence of the Higgs Boson, the presence of dark matter, and who the fuck the people are who actually watch American Idol. So planet changing discoveries aside, the market is flat today as international concerns temper the moderately better than expected US macro data. Consumer confidence jumped thanks to the new health care bill, which has made it easy for people to buy deliriants. The index reached 52 today, easily besting the 46 from February, which would be all the more impressive if we actually knew what a difference of 6 points meant. Additionally, Home prices rose in the 20 city Case-Shiller index (named of course for “Hot” Karl Case and Bob Shiller) from “take this fucking thing off my hands” to “take this fucking thing off my hands but I am keeping the toaster.” The index was up .3% sequentially and down .7% from a year ago which is the smallest y/y decline in two years. However, on an adjusted basis the index was down .4% sequentially due to the initial petering out (and yes, I said peter) of the government first time home buyer’s tax credit and the realization that monopoly money is not a valid subsitute for cash or a claimable asset to mortgage guarantors. That said, there was some really interesting news that tax receipts are now expected to rise in the 15 most populous states by 2011 which would be huge for the economy (no joke, it would literally be bigger than Manuel Uribe at an all you can eat taco bar. Ok, maybe a little joke.). California has already taken in 3.9% more in taxes than forecast since December while NY is $129MM above budget. This is largely the result of higher sales tax receipts from increased consumer spend likely as a result of this rise in consumer confidence and the hiring of Jeffrey Skilling to audit all state tax records.
Internationally, S&P cut Iceland’s local currency credit rating from BBB/A-2 to BBB/A-3 (and if Money McBags were rating Iceland, they would always be rated “frosty.). And yes, those are the actual fucking ratings S&P uses which are about as helpful as chopsticks to a leper. I mean really, BBB/A-2? Even Heidi Montag‘s singing career and Poncaire’s Conjecture are less confusing (especially if you are tone deaf or Grigori Perelman). Money McBags hasn’t seen anything so contrived since Ricky Martin acted straight in one of his videos. That said, the downgrade made Magnus ver Magnussen, a man so important they named him twice, pick up a giant boulder and crush the S&P’s entire Iceland office. Anyway, Money McBags scoffs at any rating, no matter how confusing, by any rating agency due to the inherrent conflicts of interest and the piss poor track record of those ratings agencies (see US financial markets circa 2007). Of course this downgrade has caused investors throughout the world to not just try to locate Iceland on a map, but to learn for the first time that Iceland actually had credit ratings. In other international news, an auction of 1B euros of 12 year Greek bonds garnered interest in only 390MM euros worth of them which caused the offering to be more undersubscribed than Bernie Madoff’s new investing magazine (tentatively titled, MisFortune). The lack of interest in the bonds (well, technically the interest is actually quite high at 5.9%) has caused the yield spread between Greek debt and German debt to double. Investors continue to worry about Greece’s ability to fund themselves while Money mcBags bets in 1 year no one will remember any of this.
In stock news Apple is up on reports that they are designing an iPhone to be CDMA compatible thus potentially giving iPhone users a choice of carriers and not restricting them to AT&T. AAPL allowing competition is a bit like North Korea alowing photographers or Ellen Degeneres allowing penetration, but it should be positive for consumers and thus positive for the stock. In related news, RIMM announces earnings after the bell tomorrow and is limping in to that announcement. While Money McBags likes owning the number two competitor in a market about as much as he likes country music, RIMM is cheap for its growth trading at less than 20x earnings estimates. Money McBags is an owner of RIMM and will be holding it through the quarter because this should really be at least a $95 stock. That said, if they miss, look out below because RIMM will go down faster than Hillary Duff after getting an engagement ring.
In small cap news, CRUS seems to be riding the news of the potential newly designed iPhone and is up 6%+. Money McBags is an owner of CRUS (he mentioned he was buying in his 1/29 Midday Report where he said he “did dip his toe into the CRUS waters yesterday (and it was delightfully stripper piss warm)).” The original analysis of CRUS was done on 1/12/09 but the company basically produces ICs for two sectors, audio and energy. In the audio market they won a chip in the iPhone a few quarters ago as their IC delivers better sound quality and as a result, that segment grew 83% last quarter and was 72% of sales. In the energy market, their business was hit harder than a bottle of Mad Dog by Betty Ford in the 1970s as sales dropped ~40% in the downturn. Their main energy segment involves selling chips that go into power meters and their biggest customer is Itron and Itron sales were up 10% last Q, so that could be a good indicator of this business coming back. Of course a better indicator is that they have had two sequential up quarters in the energy segment after bottoming out and that segment is what delivered their positive earnings surprise last Q. Money McBags thinks the company can earn ~$.65 in the fiscal year ending 3/2011 and that assumes just 10% growth in the audio segment (and remember they just grew 80% and could be getting more business if the Apple news from today is true) and 20% growth in the energy business. The 20% energy business growth is a bit aggressive because it has been down so much, but that growth assumes $18MM in revenue per quarter and before the downturn they were regularly doing $20MM-$24MM. The company has $2 in cash on it’s balance sheet and is trading at ~13x Money McBags estimate (which may now be too low) including that cash. They could also earn ~$50MM in EBITDA in this next fiscal year and thus are trading at only ~8x EV/EBITDA. This stock is cheap and has a nice cash cushion (while Jessica Biel has a nice ass cushion). Money McBags doesn’t like to own cyclical companies, but CRUS is in the spanktasitc part of the cycle so it is worth owning at these levels. In other small cap news, RICK continues to tumble (and remember, Money McBags sold last week, so phew) while KITD had their quarterly call and didn’t disappoint. Money McBags previewed KITD’s Q yesterday but will break it down for you tomorrow. Let’s just say he found it titillating and is looking to add to his holdings.
Break out the menorahs as it’s Passover and thus time to light the candles, forgo yeast, and drink Manischewitz until the market makes sense and Mayim Bialik becomes attractive. The market is up today as economists ponder their own four questions: 1. “Why is this market different from any other market?” 2. “Why in this economy does the market not dip when in all other recessions it dips twice?” 3. “Why does the market continue to go upright, instead of reclining for a bit as news has been only marginally not bad?” 4. “What does a Jew have to do to get a table dance (And in honor of passover, Money McBags would only take table dances from fellow yids Nikki Reed, Bar Refaeli, Emmanuelle Chriqui, and Joan Rivers)? That said, in macro news today consumer spending was up modestly by .3% which was a bit less than the .4% from January and a whole lot less than that of you know, a healthy fucking economy. It could have been worse though with February snowstorms but luckily most people were still able to consume by staying inside and ordering shit they didn’t need from QVC with money they don’t really have. Excluding food and fuel as the Fed likes to do when looking at consumer spend (which is a bit like excluding Enron when talking about financial fraud, excluding Fischer Black when talking about Myron Scholes, or exculding rhyming couplets when analyzing Dr. Seuss), spending was equal to last month’s spending and up 1.8% from last year. Salaries for the month were flatter than a Steve Forbes tax rate and household savings fell once again to 3.1% of disposable income or the lowest it has been in over 2 years. It’s good that people didn’t learn anything in this downturn and continue to run their personal finances like the US government runs their Keynesian budget. The difference of course being the government can’t max out on their AMEX black card while consumers can only run up so much debt before getting BAC to renegotiate their mortgages.
In international news, Greece is selling 5B euros of 7 year bonds to try to pay for all of the shit it bought after having one ouzo too many and winding up face down on the floor of a Greek massage parlor in a puddle of it’s own debenture. This is the first bond offering since the EU and IMF said they would bail Greece out of their fiscal calamity and will likely to be the most expensive bond offering since the Quantum of Solace (and Jay Leno, feel free to steal that one when your Jaywalking bit becomes stale. Oh wait, we’re already five years late for that). The good news is that the Greek government just needs to raise another 48B euros by the end of the year, the bad news is that the Greek government needs to raise 48B euros by the end of the year. So I guess Greece’s financial position depends on whether you see the glass as half full, half empty, or as cracked as Alexis Texas’ backside. The seven year offering should help extend the average maturity of Greece’s debt and thus divert this crisis until the next remake of Clash of the Titans (and Money McBags eagerly awaits the parody to come out titled “Ass of the Titans” starring Kim Kardashian’s better half).
In stock news, the US Treasury announced that they are going to sell all 7.7B common shares of C they own sometime in 2010, as soon as they find a big enough sucker, I mean buyer. The Treasury assures investors though that C is in good standing, at least that is what Money McBags thinks they said in between coughs that sounded like “bullshit.” In other stock news, Ford sold Volvo before it crashed (though if Volvo had crashed, at least no one would have been harmed). Ford is getting $1.8B for Volvo from a Chinese conglomerate called Zhejiang Geely Holding Group and seeing as how Ford only paid $6B for Volvo 11 years ago, their -70% return makes it Ford’s best business decision since cancelling the Edsel. So good on you Ford. Money McBags really likes this acquisition for China because if ever anybody needed a safe car (other than maybe Mary Jo Kopechne), it is asian drivers.
In small cap news QCOR continues to rise and Money McBags broke QCOR down for all of you after their earnings in the first week of March. The company is up ~40% since then and there is still value there as they could earn $.70 this year and thus are trading at less than 12x that number and still at only ~.3 EV/sales. They have a drug which people need (its demand is as inelasitic as the demand for medical care, an Olivia Munn nude scene, or chocolate Necco wafers) and are finding new markets for it to grow (multiple sclerosis spasms, nephrology spasms). Money McBags is still waiting for a sell off to buy. More importantly, KITD is having their earnings call tomorrow and Money McBags is anticipating this more eagerly than he is anticipating the movie Chloe which features Amanda Seyfried in all her sapphic glory. Money McBags has broken KITD down on When Genius Prevailed more times than an Olsen twin has binged and purged and more times than Michael Lewis has inserted himself into his books. This was the last detailed post on KITD but in a nut shell (and it’s not clear why anyone would be in a nut shell, but whatever), the company has 99% recurring revenue, 99% retention rates, and this year is going to grow more than 99% (though almost half through acquisitions). Of course there was a glaring error in Money McBags break down of KITD in the blog post to which he alluded, and for that he is more ashamed and embarrassed than Kathy Hilton on take your daughter to work day. Money McBags took Google Finance’s market cap as fact when in fact Google’s calculation uses KITD’s sharecount from the end of the previous quarter. Since then, KITD has raised a number of shares for acquisitions and to pay off warrants so their actual share count is now 17.7MM which puts their actual market cap at $223MM, not the $125MM implied by Google Finance. Therefore, KITD is trading at 11x their upside EBITDA for the year and isn’t quite as cheap as an Albanian hooker, yet is still cheaper than 2010 Kansas Final Four t-shirts. The company is going to book $85MM to $100MM of revenue this year and next year it is not inconceivable that they can grow by $50MM (or the same absolute amount they will grow this year). They are in a market (IP video) which is 4% of the overall online video market and is cheaper than competing technologies such as digital video or simply hiring the people from online videos to perform live at your house. Not only that, but even if they don’t gain share from more expensive alternatives, the online video market is growing at a 38% CAGR (which isn’t quite as exciting as a sorority kegger, but still pretty good) so just by inertia or as they say in business school “being in the fucking market” they should be able to grow. So if they just grow at the market rate, that is $138MM in revenue next year and if they just gain a bit of share from the current 4% IP video market share increasing, they can get to that $150MM number. Their EBITDA margins are 17.5%+ so let’s say they get those to their 20% target , then the upside is $30MM of EBITDA next year, so they are trading at 6x to 7x EV/2011 EBITDA. Not only that, they should become EPS positive. With 48% gross margins at $150M in revenue they could earn $72M in gross profits. SG&A has been running at $32-$35MM a year, but let’s say they somehow have to increase their cost structure (even though they really don’t in order to grow) and have $40MM in SG&A in 2011, that gets them to $32MM in operating earnings and since they have more NOLs than the Pythagorean theorem has proofs, that $32MM should all flow to the bottom line. With 17.7MM shares, that is an upside of $1.80 eps which puts the stock at 7x 2011 earnings. And honestly, that number is so fucktasticly low that surely Money McBags’ maff must be wrong so feel free to run your own numbers. As for downside, let’s say they come in at a low $85MM in revenue this year and grow 20% off that to reach $100MM next year (as opposed to the $150MM upside). Using the same cost structure, they would earn $.45 per share next year and be trading at ~25x that right now which would be a bit expensive for a 20% top line grower, but not outrageous. So downside seems pretty limited if you trust the management of a company run out of Prague by guys who are in the business of building companies quickly and flipping them (and yes that last sentence made Money McBags want to throw up on his socks). Tomorrow’s earnings will be very interesting and if there is a guidance raise, Money McBags will likely be buying even more. That said, if they disappoint, this stock could easily trade down 20% because they have to execute given their current business stage.
The market is up again today and as far as Money McBags can tell the main reason is that it is open. There was a flurry of economic data released today, all of it inline, further signalling the stagnation of the recovery from a potential V-shape to a Bea Arthur-esque flatline (which is of course because she’s dead). Consumer sentiment remained unchanged from the previous month at 73.6 which was slightly higher than economist guesses of 73 (we are told the Albanian judge scored it a 75 due to difficulty, imagination, and grace under pressure which helped drive up the score). Fourth quarter GDP was revised downward for the third time proving that three times isn’t always a charm (unless of course you’re the Dahm triplets). GDP for Q4 is now said to have grown at 5.6%, down from the last guess of 5.9%, and the initial guess of 5.7% growth. Economists had expected it to be unchanged but they also expected markets to be efficient and the overvaluation of the financial sector in the 2000s and undervaluation of Hayley Atwell easily disprove that theory. GDP was driven by business spend and exports with US consumers largely remaining keeled over in the fetal position hoping the mortgage man won’t come touch them in their foreclosure. Money McBags anxiously awaits GDP to be further revised next month, pehaps becoming just DP by dropping the barely politically correct and bad for its self-esteem, “Gross” moniker. And Alan Greenspan is at it again. The 84 year old pontificated on the threat of rising long-term interest rates on the housing market right after wife Andrea Mitchell changed his depends and cut his food into little pieces to make it easier for him to chew. Greenspan said he is “very much concerned about the fiscal situation,” because the “last boob in charge really fucked things up.” When he was reminded that he was that boob, he simply replied that he has always been a breast man. His concerns about longterm rates rising are that they “will make the housing recovery very difficult to implement and put a dampening on capital investment as well” whereas holding them low indefinitely will only create a bubble and lead to one of the worst global recessions in history, so I guess you’re damned if you don’t and you’re damned if you do, which describes the philosophy of Roman Polanski in a nut shell (though it’s unclear how or why he would be in a nut shell). But all is not despair as unemployment rates fell in 7 US states including Michigan where now only 14.1% instead of 14.4% of people are out of work. Of course unemployment rose in 27 states, but that is just a minor detail, like remembering to pull the rip cord on your parachute or always remembering to check for an adam’s apple. Overall, unemployment held flat at 9.7% furthering driving home the sluggishness of the recovery.
Internationally, Greece is still fucked, though maybe a bit less fucked as the EU and IMF finally have come to some sort of nebulous agreement on a bail out plan until next week when they will likely start all over again. The IMF and EU are respecting Greece’s personal choices and allowing them to take their funds anyway they want by making the funds bi-lateral.
In US stock news, Radio Shack, or as it has been rebranded “The Shack” after it’s first rebrand of “Irrelevant” didn’t work is rumored to be in the process of selling themselves and is up 8%+ on that news. The company is armed with $900MM of cash and thinks they are worth $3B which is about where they are currently trading. Potential buyers include PE firms, Best Buy, and anyone else looking for outdated business models. Seriously, Money McBags doesn’t get Radio Shack. They sell batteries and cable cords and wires when we are like 18 months away from everything being wireless. If you want to buy a tv/stereo/computer, you go to the internet or Best Buy or Circuit City (and see that’s funny, because Circuit City is no longer in existence, so you get my point), not to a RadioShack. Money McBags is a bit flummoxed by this one, perhaps there is some real estate value but otherwise he can’t think of one reason for a company like this to exist.
In small cap news, KITD is set to have their earnings call next week and Money McBags is expecting big things or at least updated guidance to reflect their Multicast deal. If guidance is only 10% as positively surprising as logging on to the not safe for work and perhaps not even safe for home spankwire.com and seeing a video starring, Hannah Hilton and Faye Reagan (and yes, that happened today), then KITD should rally. It’s been a pretty quiet week in small cap world and Money McBags has been very busy so he apologizes for the lack of analysis. He will be back next week breaking down more companies for you and trying to continue to find good values.
Until then, enjoy the weekend.
The market is moving up again today as to the surprise of none, the Fed held rates near zero yesterday while restating their intention of keeping them low for an “extended period” (known as their menorrhagia strategy). The Fed did say they will stop buying MBS now that they have successfully kept home prices inflated, I mean stabilized the market. They believe private investors should now be confident enough to continue to lend without an appreciable increase in mortgage rates which should be great for all zero people looking to buy new homes. Once again, the lone dissenter and the turd in Bernanke’s punchbowl was Thomas “T Ho” Hoenig who wanted to strike the “extended period” language from the Fed’s release. T Ho keeps tryin’ to dis all his sucka FOMC peeps as he is more concerned with fighting inflation and not overdoing the stimulus than he is in creating another bubble (and along those lines he is rumored to be releasing a mixed tape featuring the dis track “Ain’t nuthin but a Greenspan thing”). In other US macro news, wholesale prices fell by more than estimated calming inflation fears for just a bit (of course worrying inflation fears is the bazillion dollars the Treasury printed in what Money McBags termed the “Too Big To Count” strategy). The .6% drop in prices was the biggest drop since July and should bode well for companies who now apparently get to pay less for shit while still getting to pay fewer workers lower salaries. The drop was led by energy with gas prices down 7.4% and crude goods (such as raw materials and Andrew “Dice” Clay’s 1980s stand-up cd) down 3.5%. However, Food prices were once again up .4% which is great for trade down edibles such as SPAM and Ramen Noodles but bad for coronary arteries and health insurance premiums.
Internationally, we haven’t heard from Japan for awhile as they have apparently been reduced to a catatonic state after a non-stop epileptic fit from watching too much anime, but they’re back in the news. Channeling their inner Sesame Street, Japan is the one country not like the others as they are doubling a bank loan program to fight deflation. Given that rates are already at zero, this is one of the only ways Japan can try to stimulate liquidity (though a game of “Find the Pokemon” with Reon Kadena and Ourei Harada may be a better way of stimulating liquidity, assuming liquidity swings that way). The Japanese government hopes that these measures will be affective in fighting deflation and allow them to refocus on their real job of fighting Godzilla. In other international news, the World Bank raised their growth estimates in China from exponential to astronomical. New growth forecasts are for 9.5% but the World Bank tempered the forecast by stating that rates will have to rise, the renminbi is undervalued and needs to appreciate, and Chinese dentists will have to start scheduling appointments at times other than two thirty to better serve the growing population.
In stock news, Blockbuster is talking about filing for bankruptcy due to something about the fact that no one fucking rents movies anymore. With the emergence of Netflix, video on demand, and the internet, going to a video store is becoming as antiquated as candlestick phones, vinyl records, and civility.
In small cap news, crappy video game maker COOL announced their Q last night and it was decent, or at least not as puke awful as last Q where they did things to their shareholders that would make Jefffrey Dahmer blush (and also probably make him a bit hungry). COOL earned $.08 Non-GAAP this Q on a 11% drop in sales which they claim was a result of a tough comp due to last year’s Q1 being the release of their Jillian Michaels game. They did manage to cut some costs, have $12MM of cash on the balance sheet, and touted the success of the Garden Mama franchise and the performance of their game centered around Alvin and the Chipmunks (and that is actually not a joke). Margins were back up from nonexistent last quarter (like Rod Blagojevich’s dignity) to 30% but included a 300bp hit due to an impairment charge on two titles (those two titles are rumored to have been Teenage Mama and Jillian Michaels’ Guess the Tranny). Even so, gross margins were still below Q1 2009′s 36% as they shipped more DS games which cost more to produce than Wii games. The best part of COOL’s $.08 Non-GAAP first quarter eps is that they kept guidance at $.05 for the year and while Money McBags is no maffematician (though he does have a BA in Economics, an MBA in Finance, and a PHD in NSFW muff guessing) that seems to indicate a loss of $.03 per share for the next nine months. This company is still trading at 20x that $.05 number which is way too high for a company that is banking their growth on titles such as The Daring Game For Girls (which is apparently aimed at pedophiliac gamer set) and Pizza Delivery Boy (subtitled, Who Ordered All of This Sausage?), and yes, those are the actual names of games this company is releasing. Money McBags is just waiting for them to extend their Garden Mama franchise to the MILF arena with Cooking MILF where you can direct the MILF to toss salads while trying to avoid having your nuts crushed in the Sundae challenge. If this company were bigger with more liquidity, Money McBags would be short. In other small cap news, Money McBags bought more KITD yesterday (and he broke down his logic for you at the end of yesterday’s blog) and on the heels of their recent acquisition, KITD’s estimates were raised today by an analyst at Merriman Ford Curhan. This of course caused most people on the street to wonder, who the fuck is Merriman Ford Curhan*? The analyst raised their price target to $15-$17 based on the Mulitcast deal and the exceptional price KITD was able to get on it. Money McBags may still buy more KITD as it could easily be a $20 stock with limited down side seeing as how they have a 99%+ retention rate and the only other things with retention rates that good are crack dealers and Kate Bosworth‘s vagina.
*For the record Merriman Ford Curhan is a small investment bank in San Francisco who away from work enjoys long walks on the beach, candle lit dinners, and visits to the World Famous Mitchell Brother’s O’Farrell Theatre (NSFW). They’re not looking for anything serious, but up for just about anything, so if you’re interested, they’d love to hear from you.