Posts tagged SEC
Today was a quiet day in the market (even quieter than Bernie Madoff’s trading floor on a triple witching Friday or a Money McBags column without the dick jokes) as investors bask in the fictitious and marginally above consensus guessed jobs numbers from Friday (and if you missed it, Money McBags dove in to the jobs report this weekend with all of the skill, finesse, and aplomb of Kirstie Alley diving in to a vat of Cherry Garcia ice cream) and get ready for tonight’s highly anticipated college championship (and Money McBags is taking the Big East entrant and giving the points).
With Money McBags still getting over his hangover from cheering at this weekend’s slut walk (though it was nowhere near as fun as watching this slut walk) and with news more non-existent than this second girl’s vagina (and note to TLC, really? No, hold on a second and read that again, really? Money McBags honestly doesn’t know if that whole thing is an April Fool’s joke or way too much information but either way he’ll be sure to tune in, though with the sound off, his eyes closed, and a barf bag close by) or people who give a shit about Katie Couric leaving CBS news (note to CBS, you have a news program?), today’s column is going to be an old school When Genius Prevailed of 800 words and done because sometimes you have to play the cards which you are dealt.
In US macro news, Republicans released their first attempt at a budget which included cutting $4T by taking away many Medicare and Medicaid benefits in their attempt to become even less popular. Pundits are calling it “Operation Don’t Elect Us” because even if the budget deficit is spiraling more out of control than Lindsay Lohan‘s career or Raj Rajaratnam’s phone bill, cutting entitlements before the elections is one of the worst electoral strategies since Alf Landon’s refusal to campaign and Alton B. Parker’s refusal to be someone else. And as long as the macro news was driven by political gobbledygook, it is worth noting that President Obama announced his formal re-election campaign bid today and he promises to run on the strength of his accomplishments such as not being Bush, that super cool vegetable garden, and did Money McBags already say not being Bush?
In news you should care about if you’ve come to the award winning When Genius Prevailed (other than learning about Eva Green’s NSWF nude scene in the new show Camelot, where viewers apparently “came a lot,” and yes, that wins bad pun of the week so far), oil rose to 30 month highs as the Middle East remains in more turmoil than Southwest Airlines’ planes (where fuselages have developed bigger cracks than the one in Kim Kardashian’s ass) as Libyan rebels are being recognized as the legitimate government by France, Qatar, Italy, and a bunch of other countries who will run when it is time to support them. Rising oil prices obviously don’t bode well for the Fed led recovery (even though energy prices don’t figure in to the Fed’s calculation of inflation which is as non-sensical as Snooki getting paid $2k more than Toni Morrison to speak at Rutgers since we all know she should have been paid at least $10k more because let’s see Toni Morrison perform a San Diego Sandal while shotgunning a beer) which means the odds of QE3 rise by the day. The only other US market news was that the SEC is probing backdoor mergers which is bad news for both Chinese companies and Bree Olson.
Internationally, Japan apparently released radioactive waste in to the ocean (and Money McBags has seen this before and does not like where it is going), so it’s good to see they have things under control. The nuclear meltdown and the fact that the Japanese economy has been stagnant since David Vitters was in diapers caused business confidence to sag more than Chelsea Handler’s boobs as Japan continues to face more known unknowns than Magic Johnson’s wife.
In the market, McDonald’s said they will hire 50k workers which means there might eventually be one clean McDonald’s bathroom, while semiconductor stocks fell after Nomura Securities said the sector is facing weakening demand, peak gross margins, and higher capital spending which is known as the pu pu platter of bad news.
In small cap stocks, COOL keeps running as it was up nearly 20% today as Zumba Fitness continues to make waves in the video game space (waves of fat ripples that is). And Money McBags read a note from Roth Capital today on KITD where the analyst thinks The Platform is not KITD’s acquisition target but some Italian company named Deltarte, which interestingly enough is Italian for “dilution.” Apparently Northland Securities pointed this out a couple of weeks ago but Money McBags doesn’t read Northland research as he considers them the Sidoti of the small cap space (and see, that is funny because Sidoti is in the small cap space).
Look, Money McBags doesn’t give a fuck if KITD buys The Platform, this Deltarte company, or Jim Cramer’s taint hairs, as long as they just buy the $50MM in revenues they said they were going to buy and don’t do it while raising a fuckton of equity. To be honest, Money McBags is getting a bit nervous about the deal even though he has absolutely no information other than KITD’s CEO kind of hedging on their conference call (which Money McBags pointed out in his KITD analysis from last week, and he pointed this out too). Money McBags doesn’t need to go over his thesis for the 1MMth time, but if they don’t make the transformative acquisition they have been talking about, it would just make management seem a bit goofier than the Street already perceives them to be and that is why there is a higher short interest in KITD than in Matt Howard’s pro basketball career (and note to the reader, Money McBags just finished watching Butler absolutely shit all over a basketball court for the final 20 minutes of a championship game which marks the first time Money McBags has watched a scat film in its entirety, so please forgive his writing tonight because he is not sure his eyes are working properly). The point is, Money McBags is getting hella nervous about KITD pulling this shit off but they sort of don’t need to for the stock to work in the long-term. That said, if the deal underwhelms, there could be a steep sell off so if you are in this name just for a quick pop, be careful.
10/1/10 Midafternoon Report: SEC says Waddell and Reed caused the flash crash, also blames them for stuxnet virus, and Jay Leno’s career
The market treaded water again today as all 1,800 (give or take ~1,795) macro reports were vague enough and relatively inline enough (though absolutely out of line, like the phone number on a Chad Ochocinco cereal box or Fed Reserve Bank of Kansas City President Thomas “T Ho” Hoenig after one too many brandy snifters in the Fed’s conference room that caused him to vivaciously yell for Fed Vice Chair Janet Yellen to “put ‘em on the glass”) to leave investors hoping for better while HFTs pumped out just enough volume to make everything ok.
Before Money McBags gets to the macro news, it is important to share that the SEC has seemingly and finally found the cause of the flash crash and it wasn’t those pesky HFTs who consist of >50% of the market volume and buy and sell every nano-second based on the gap between bollinger bands on the S&P, the lunar tides on the planet of Uranus (as opposed to her anus), and the next digit in Excel’s random number generator, nor was it a fat finger (known to Ellen Degeneres as “heaven”). No, none of that is the case as after long and detailed analysis that likely involved much tranny porn and many hours studying noted market maker Paul J. Mladjenovic’s opus, the SEC has shunned industry fucking experts like well known HFTer Mark Fisher (who compared the current market structure to the Matrix) and instead is blaming a pissant midwestern do-shit asset manager called Waddell and Reed for igniting the crash by having one of their algorithms too heavily trade E-mini S&P futures while hedging their portfolio. Huh? Come again (and if you are Tiffany Selby, Money McBags means it in every homophonic way)? Money McBags believes this was the driver of the flash crash as much as he believes in the grassy knoll theory, alien life forms, or OJ ever having seriously looked for the real killers (except of course when he looks in the mirror everyday, but whatever).
But ok, let’s presume that somehow this milquetoast asset manager somehow had an algorithm go a bit fucking nutty, but then:
1. How did it infect the whole market like Nadja Benaissa on a bender or the US government in Guatemala quicker than Ben Bernanke can say “extended period?” If it was just this one “big trade” by this one do-shit firm’s algo, then how the fuck did it perpetuate faster than bacne or that fucking Justin Beiber kid?
2. How has WDR not done this before? Presumably they hedge their portfolio all the fucking time and don’t cause a once in a lifetime (until the next one) ubercrash that had the market dropping faster than Jenna Pressley on pay day? So why on that day was WDR’s e-mini algo different from all other days?
3. Why haven’t other, larger asset managers managed to trip up the market like this before? Are you telling me that Fidelity has never traded 75k contracts or whatever the fucking number was? Come on, we’re talking about Waddell and fucking Reed here, not T Rowe, or Cap Group, or George Soros’ lefticle.
4. And most importantly, what the fuck are you going to do to make sure this doesn’t fucking happen again? Let’s throw away our bullshit detector, suspend our disbelief, and believe that the SEC findings are valid. Even if that is true, while the flash crash may have been triggered by E-minis, it had to have been perpetuated by HFT’s sniffing out that trade and having their algorithms go more ape shit than Mel Gibson in marriage counseling. So how the fuck are you going to stop that from happening again?
Money McBags eagerly awaits the entire report and only hopes it is filled with other absurdities like pictures of unicorns humping Alan Greenspan’s stellar reputation (both figments of the imagination) because Money McBags remains whatever is more skeptical than just plain skeptical about the SEC’s findings (and after checking with the judges, both “fucking skeptical” and “rational” are acceptable terms).
In macro news, the President of the Federal Reserve Bank of New York William Dudley told the Society of American Business Editors and Writers (known collectively as “clueless”) that the Fed should get their quantitative ease on and buy more long-term assets to completely devalue the dollar, or as he says “support household net worth, allow more homeowners to refinance, reduce macroeconomic uncertainty and spur business investment,” potato, putaaato. Also, the ISM was down from 56 to 54.4 (and surprisingly inline with analyst guesses), construction spending was up .4% thanks to delayed stimulus spending on public works projects such as complex drainage systems to ferry away all of the shit economists have been throwing out there, consumer spending rose .4% (as the Commerce Department used the same memo to hardcode both the construction and consumer spend number), auto sales beat guesses, and consumer sentiment dropped to 68.6 but beat analyst guesses of 67 (though it still remains remains at its lowest level in a year and the forward looking consumer expectations dropped to the lowest since March of 2009, but those are just minor details).
Internationally, the market was a flutter this morning with news that China’s PMI rose from 51.7 to 53.8 as the country produced more specialized funnels to help put pee pee in to coke cans everywhere. Alas, all was not good news as Europe’s PMI fell but that news was shrugged off by European markets where trading is now a function of Katie Price’s bra size (which luckily seems to keep getting bigger) rather than economic fundamentals.
In the market, HPQ was down ~3% after naming SAP’s former CEO Leo Apotheker as their new CEO as apparently investors were not impressed by a guy who had to resign abruptly after 7 months of running his previous company or who said he wants to focus HPQ on software (because apparently making shitty hardware isn’t enough) which is only 3% of their current business. And NFLX fell again, this time as a result of Susquehanna downgrading them to “negative” because apparently Susquehanna doesn’t understand world domination.
In small cap news, GYMB was up ~20% on a price target rise and a report that they broke a deal to be sold to a PE shop before loudly yelled “no backsies,” while IMAX shot up after announcing Regal Entertainment has agreed to add 25 more IMAX JVs so more people can pay premium prices to see Kelly Brook‘s boobs in 3D on a large screen (which actually doesn’t sound too bad).
As for deeper small cap analysis, Money McBags is drained right now but he still has HSTM on his radar and wants to look in to OPEN which on the surface seems more overpriced than a can of soup. So he’ll be back next week with more analysis, but in the meantime, don’t forget to tell a friend (especially if this is your friend) about the award winning When Genius Prevailed and don’t forget to follow us on facebook and twitter. And as always, enjoy the weekend.
The market tumbled today like a broke Boy George on a floor covered with dong as consumer confidence continues to fade like LeBron James’ Q score or Haiti. Consumer sentiment fell to 66.5 which is the lowest since August and below the most pessimistic guesses of those not paying attention (also known as economists). The drop in sentiment from June’s made up reading of 76 was the biggest drop in two years and was well below the 75 guessed at by economists who eventually will understand that the old data they used to calibrate their regression models no longer holds in our fat tailed society. Newsflash economists: The world has fucking changed, people are all connected, and whatever correlations you saw in the past are now likely more spurious and outdated than civility, manners, and landing strips. Basically everything in the consumer sentiment survey got worse and that is as bad of a sign for future consumer spend as a “You must be 18 to enter” sign is at a NAMBLA convention.
According to a Bloomberg poll, seven out of ten Americans believe we are in a recession, but then again, four in ten believe in alien abductions and six in ten believe that Kathy Griffin is a woman, so whatever. The economic data has gone from marginal to whatever is worse than marginal and it’s not clear what is going to stimulate the economy out of this except for maybe a Bobbi Eden promise to take care of businesses if they hire. In other macro news, inflation continues to be modest as consumer prices were down .1% spurring louder whispers about deflation where cash will be king, and not some lame ass king like George III, but a cool one like Henry VIII or Kong.
In other US news, the SEC pulled themselves away from their tranny porn just long enough to settle with Goldman for $550MM as related to GS’s shady dealings with their Abacus mortgage CDO. The settlement will be among the largest in the history of the SEC with $15MM a result of the money GS made on the deal and $535MM as a punishment for GS being a bunch of asshats for the past 140 years. Of the fine, $300MM will go directly to the US Treasury where they can either buy 3 new planes for congress, help Timothey Geithner pay his back taxes, or hire Cintia Dicker to massage their data before they stick it in to a GDP model.
Along with a consumer nudging closer to life support (and unfortunately with a pre-existing spending condition, the consumer is no longer eligible for insurance to help them survive), earnings reports were marginally bad at best. BAC plummeted 9% and C dropped 6% after they released decent earnings but showed revenues to be more lacking than rhythm at a Republican convention or diction in an NBA lockerroom. BAC’s revenues were down 11% and C’s were flat but most worrisome was that the earnings beats were a result of reserving less for credit issues with BAC reserving $5B fewer than last year because apparently they developed retrograde amnesia sometime in June. Ugh. This is going to get uglier than an Amy Winehouse-Michael Berryman love child.
In other stock news, GOOG revenue beat guesses but EPS fell short by $.06 as they earned $6.45 per share vs. analyst guesses of $6.51. That <1% miss of made up numbers was enough to drop the stock 7% and the company has said the are going back in to investment mode which spooked investors as if investment mode were a book and investors were Dexter Manley. Even though the 24% rate of growth was a bit lower than last Q’s, this company is still the dominant player in one of the biggest and growing industries on the planet (right after hand set makers, gold mines, and porn) so while Money McBags is scratching his head a bit at GOOG’s continued fourth mover push in to things like handsets and social media, he is still a long term owner because if the consumer dies, they are still going to spend time online guessing muffs as a way for cheap entertainment, so online advertising is only going to get stronger.
In small cap news, everything was down today. JOEZ was out with their quarter and it was mostly inline with analyst guesses of $.01 eps but 50% below Money McBags guess of $.02 eps (and see how Money McBags used 50%, instead of $.01 to make it sound much worse than it was?). Anyway, JOEZ put up a nice topline number, growing revenue by 51% to $26MM but once again had earnings leverage more negative than the reviews for an M. Night Shyamalan movie. That’s right, despite growing revenue 51%, net income dropped by greater than 50% from $1.3MM to $500k defying the laws of common sense and business savvy. With that kind of inverse operating performance, it’s a good thing JOEZ didn’t grow their business 75% because then they might have lost money.
It would be easy to blame the drop in net income on the tax rate which grew to 48% over last year’s 14% thanks to a shareholder unfriendly earnout struck by management when they acquired Joes, so thanks for that guys, really (oh wait, Money McBags isn’t a shareholder, so he doesn’t really give a fuck that JOEZ management treated their stock owners like second class citizens in a third world country when structuring the acquisition), but operating income BEFORE TAXES was down 25% from $1.6MM to $1.2MM. So on the extra $8.7MM of revenue JOEZ brought in this Q compared to Q2 2009, they lost $400K before taxes. Wow. Now look, Money McBags is no Jack Welch (though he did manipulate his earnings this morning to Brooklyn Decker), but losing money on incremental revenue is so obviously bad that even business school professors know it is a failing strategy. It’s ok to have a loss leader, but when your whole business is a loss leader, you may have a problem.
Anyway, the reason for the operating earnings decline was threefold: 1. Gross margins declined worse than Louis XVI’s power in 1792 France or Yasmine Bleeth’s career after Baywatch. 2. Operating costs jumped up as if they had seen a mouse, or Kevin Federline, scurry across their kitchen floor. 3. Their core denim business is witnessing a second derivative decline in growth.
As for gross margins, which continued their descent, this time from 51% to 44%, the company said that the drop resulted from the addition of new lower margin product categories such as the T, the Pant, and the Top. CEO Marc Crossman did say that as volume grows for these products, margins should go back up as they can take better advantage of the factories and thus he expects meaningful margin expansion.
As for the increase in operating costs, that is a bit more troubling as costs jumped up to ~$10MM from ~$7MM which they said was the result of new worker salaries, rent costs, and a big night out at their local Rick’s Cabaret (ok, maybe not the third one, but whatever). The confusing thing though is that costs were up $400k sequentially when last Q JOEZ said operating costs were artificially higher due to $850k of one-time advertising expenses and the moving of their headquarters. If we strip out those numbers, operating costs were up by ~$1.2MM from Q1 or ~15% while sequential revenue was up only ~12%. So basically this company manages their cost structure about as well as Alan Greenspan managed interest rates, Bernie Madoff managed money, or Magic Johnson managed a condom. The company said with their new lines built out they don’t expect operating costs to rise, but again, last Q they pretty much said the same thing and blamed the higher costs on one-time charges which either became two-time charges or were filled in by new costs.
And finally, they said their denim is now a single digit grower (though Money McBags wasn’t sure if they just meant in department stores, or overall) so they are going to increasingly need to rely on new products to spur growth and to date, the new products have killed their margins. In a trendy business, continuing to hit on new products is more difficult than solving the Poincare Conjecture or listening to a Ray Romano stand-up routine and not wanting to cut out your ear drums, so this is getting to be a tricky proposition.
In terms of their balance sheet, cash is now down from $13MM at the beginning of the year to $8.5MM, driven by a $3.5MM burn from operations due to rising inventories and helped out by growing accounts payable (which sounds about as healthy as a cock sandwich with extra VD). While they aren’t in imminent danger (though at the rate of their cash burn from operations they only have 12 months of leeway), Money McBags would not be shocked by some kind of secondary offering because unless they can get their operations in order and start GENERATING cash, their growth plans are going to have to be put on hold.
So how the fuck does one forecast a company whose growth rate over the past 4 years was 30%, 35%, 10%, and 16%, who sells an expensive discretionary good in the midst of GLOBAL RECESSION, whose management team has grown revenue 46% this year and yet had earnings decline because they understand costs like Donald Rumsfeld understands war strategy or Sheyla Hershey understands when enough is enough, who burned cash in both quarters this year and is getting to the point where the may need to reload faster than Peter North on a day he is filming a double feature, who is in a market that is all about fads and their biggest product is starting to have its growth slow, and who has been so shareholder unfriendly that they stuck shareholders with a 48% tax rate so the management could get a better earnout and thus order a second helping of caviar when they were done screwing equity owners?
One could annualize the $.02 they have made in the first half of the year and call their earnings run rate $.04 and slap some growth on that, but that would be the easy way out. Money McBags is in a good mood today (mostly because he recently discovered Sofia Vergara) so he’ll assume JOEZ can kind of keep this up and grow revenue 35% for the rest of the year and 30% next year (assuming they don’t run out of cash or can raise cash to continue to expand). He’ll call gross margin 51%, operating margin 38%, and the tax rate 45% (though they say it will wind up closer to 40% sometime around the year infinity). Doing that, Money McBags gets to $.16 eps for next year at the high end because every single one of those estimates is giving them a fuckload more credit than they have earned. So next year the company should earn somewhere between their current $.04 run rate and $.16 assuming they don’t have to issue more shares to help quell their cash burn. JOEZ is now trading at between 13x and a bazillion x those numbers.
So in short, Money McBags is glad not to be involved in this company as they have been able to deliver profits about as well as George Will delivers a punchline but if one believes what management says and not what they have actually done (like you know, lose money, mismanage costs, fuck over shareholders, and burn in cash), one could make an argument that 13x for a 40% grower is cheap, of course one could also make an argument that Tori Spelling is hot, so be careful to whom you listen. Money McBags remains fascinated by this little stock though as it’s not often you find 40%+ topline growers who manage to consistetly shrink their profits.
5/20/10 Midafternoon Report: S&P slides closer to next technical level of 0, most economists predict a bounce from there.
Fucking Europe. Seriously. First they tried to tax us without letting us represent ourselves and you know what, we don’t play that way. Then they got all upitty and burned down the White House while poor little James Madison sat on his gelding and got his S’mores on. And after that we’ve had to bail them out of losing a fucking war to the worst human ever (and Money McBags does not mean Bill Laimbeer), got stuck with Pride and Prejudice being taught to every high school class in America, and were subjected to the fucking Spice Girls. Really? Jeesh. As if Europe has not treated us poorly enough by using us like a young lady in Lawrence Taylor’s hotel room, now they have decided to have their whole fucking economy go to $0 because the loose union of countries can’t keep the weakest links from exhibiting worse moral hazard than Magic Johnson’s wife after finding extra strength condoms. Sure, we fucked up the whole financial system first, but for fucksake Europe, at least we know whom to blame. So clean your shit up because Money McBags doesn’t want to have another revolution and have to throw your tea away because his tea bagging is reserved for Faye Reagan only. As an aside, Money McBags is aware that every example he used above refers to Britain and their tea and fucking krumpets eating, bad teeth having, and fag smoking nation, and that Britain does not use the Euro and therefore is not the problem. That said, his commentary stands after all, we all know it wasn’t over when the Germans bombed Pearl Harbor.
In US macro news, ain’t a lot of good shit going on today. New claims for unemployment spiked to 471k, up 25k from last week and the first rise in five weeks which surprised everyone but the 20MM people looking for jobs. Riddle me this, with unemployment so high, how the fuck are all of these economists still getting paid for adding absolutely no value? It is a more fraudulent occupation than the Chief Compliance Officer at Goldman Sachs or Lady GaGa’s stylist. Not only were new claims for unemployment up, but the index of leading indicators was down .1% which was worse than economist guesses for a .2% gain as apparently they confused the word “leading” with “made-up.” Finally, the Philadelphia Fed said manufacturing rose to 21.4 but was short of the 22 predicted by consensus estimates. In that same report, the jobs number fell and more unemployment is only going to do wonders for the lovely metropolitan Philadelphia area where the motto is “if it’s not nailed down, it’s ours.”
Politically, the SEC continues to investigate what is now being called the “flash crash” because “high frequency trade off,” “stock schlock,” and “holy fuck what just happened” apparently weren’t catchy enough. When they’re done investigating the crash and can completely rule out trannie porn as the cause, Money McBags hopes they investigate why the market is going to $0. Also, Senate Democrats apparently voted down a proposal for financial reform because Senators Feingold and Cantwell didn’t think the proposed regulation went far enough and Money McBags applauds the state of Washington’s lovely Ms. Cantwell who couldn’t well pass the current legislation without stricter rules on derivatives. The junior Senator said “Even something like Hoover Dam with all of the great concrete and all of the great engineering and all the great things that make that structure work, still has a problem if somebody drills a hole in the bottom of it.” Well said and to be brutally honest, Money McBags trusts any 51 year old single, never been married, woman when she talks about needing to proverbially put fingers in dykes.
Internationally, well, internationally things are more fucked than Dexter Manley in a spelling bee or Keynesian economics. Germany’s ban on naked short selling continues to spook the market as German traders all run to their nearest Breuninger’s to load up on slacks. Making matters worse is that Greek workers are on a 24 hour strike, or what used to be known as “Tuesday.” Money McBags isn’t saying that Greek workers are lazy, but does it really take more than 300 years to clean up some rubble from the fucking Parthenon? I mean we now have things called cranes and bulldozers. Luckily, French economy minister Christine Lagarde said: “I absolutely do not think that the euro is in danger” before adding “it will provide great kindling for Europeans when they can no longer afford heat.”
As for stock news, well, everything was down, especially financials though the always optimistic, rarely right, and yet deliciously named Dick Bove (rhymes with “oy vey”) said banks stocks “may fall another 10% to 12% reflecting market fears but they are still very attractive investments.” He then opined, “Longer term, I still expect that these stocks will grow in multiples, not percentages, as long as we feed them after midnight, expose them to bright lights, and dunk them in water.” SPLS actually put up a good Q today, unfortunately the market cares less about performance than a John Meriwether investor. Staples CEO said he is a little more optimistic than he has been and raised the low end of guidance for Q2. Williams-Sonoma also posted better than expected profits, raised guidance, and said they are getting more positive about their customers coming back as apparently there is still a demographic that likes to buy overpriced shit that they don’t need. Also, Game Stop also put up a good quarter thanks to popular games like “Battlefield Bad Company 2,” “God of War III,” and “Erin Andrews Peephole Finder.” It’s no surprise that a video game retailer would put up a good quarter because stoners are still selling the shit out of weed, something about inelastic demand. Finally, Sears put up a shit awful Q simply because they are Sears.
In small cap news, everything is going haywire again except KITD has somehow moved up on another high volume day. Money McBags has talked about KITD all week but their sell of was overdone if you believe management. The spike in A/R has investors worried, especially as those receivables are tied to european revenues but management had a mostly logical response to the spike which Money McBags broke down the other day. One of Money McBags’ favorite small shorts (along with Bridget the Midget), WGO, has been getting hammered lately and he’d like to think it is because investors are finally realizing this company is not going to break even for at least another year and not just because everything is down. WGO simply does not earn money and now that inventories have been un-destocked, they can’t play the positive cash flow game anymore. Even if WGO were to somehow earn money, for the stock to trade at its current price of ~$12.50, WGO would have to earn $1.25 next year because Money McBags would never pay more than 10x for a company selling an expensive discretionary good with little operational flexibility in the biggest recession since Herbert Hoover stuck to the gold standard. So if you want to play the downside, shorting WGO is a decent option. That said, when the market settles down, Money McBags will be looking to add with companies like CTGX, ARTG, TMRK, RICK, and QCOR on his to buy list. But hey, be careful out there.
Oh shit, the market sunk today like Bernie Madoff’s grandchildren’s hopes and dreams or like a booze cruise captained by Joseph Hazelwood. Just when you thought investors had forgotten about Greece like John Edwards forgot about dignity (though perhaps he never had any) or Britney Spears forgot about underwear, it is back in the news bringing down the Euro. Fears remain that Greece won’t be able to service its debt (and it won’t, unless perhaps Julia Alexandratou does the servicing), that the Euro may be doomed (is everyone else riding out EUO with Money McBags?), and that Nia Vardalos will finally make a sequel to My Big Fat Greek Wedding. Making matters worse are that Sony warned that they may suffer a “significant impact” if Europe’s deficit spreads, Chinese Premier Wen Jiabao said the foundations for a worldwide recovery aren’t “solid” thanks to the continuing debt crisis and the foundations being made out of tofu (and not extra firm tofu, but the regular mushy shit) and paper (the paper of course being the dying Euro), and Hannah Hilton still remains “retired.” Things are looking so bleak today that even the cheering of Alison Preston likely won’t cure the markets (though Money McBags would still like to put his rah in her sis-boom-bah). One way to stop the debt contagion from spreading is to go all Weimar Republic and inflate the shit out of the Euro, another is to break up the EU and stop rewarding moral hazard which seems to be at what Gremany is now hinting. Breaking up the EU would not only allow Germany and its strong economy to avoid taxing its workers in order to save its freespending neighbors, but it would also allow Germans to practice their favorite past time of schadenfreude. It is scary out there today so take a deep breath and start booking your vacation to Paris because the Louvre is getting cheaper by the day.
In the US, the banking sector is taken a beating like it’s 1986 and it just walked up to Mike Tyson and told him he talks like girl. Politicians finally seem to want to try to regulate the industry that gave poor people loans in order to sell those loans off to greedy rich people not paying attention and thus destroy the global economy. First off, credit card companies are taking it in the first bucket today (that was for all you credit card analysts out there) as the Senate voted on legislation to limit interchange fees. AXP, COF, MA, and V are all down 5% to 10% as a key source of their revenue appears to be drying up like Soul Glo-less jheri curls. Not only are politicians going after card issuers, but they are trying to fix the rating agencies by creating a middleman (or lucky pierre if you will) to determine who will rate bonds. This is a bassackward solution, but still better than having rating agencies bid for business and thus completely take objectivity out of just a little something called objectively rating fucking bonds. First of all, Money McBags doesn’t know why any bonds need third party ratings. Investors should just do their fucking work themselves or rely on the sellside or fucking Yelp.com for all Money McBags cares. Most importantly though, the current system is more screwed up than Oedipus’ sex life or Tori Spellings‘ face, so Money McBags applauds the baby fucking steps politicians are taking but it’s a bit like showering before you bone a hooker because at the end of the day you’re still going to get herpes. Finally, the SEC and NYAG are still going after banks who may have lied to ratings agencies about what they were actually putting in CDOs. Look, Money McBags has said this before, but they were all fucking complicit. Honestly, it would take about 3 minutes going through e-mails to convict every bank and every ratings agency of screwing the consumer like the consumer was walking home and hitched a ride on the the Bang Bus. It was a big shell game only the shell was the global economy and the game was gay chicken and no one flinched so we’re all left with flacid cock in our hands. Be very wary of the financials space right now because if the government wants to be serious and prosecute, there will be no winners, like a Wilford Brimley-Kathy Bates sex tape.
As for macro news, US consumer sentiment was up in May and inline with analyst guesses as the average US consumer can’t find Canada on a map, much less Greece, so it just proves that ignorance, and Madelyn Marie, are truly bliss. Also retail sales rose by .4% which beat analyst guesses of .2%. However, if autos, gas, and building materials are excluded, retail sales dropped .2%. Up .4%, down .2%, whatever, it’s all rounding to Money McBags, but the point is, and Money McBags has to put this extrememly elegantly because he expects his readers all to be very cunning linguists, shit is still fucked up.
In stock news, it was what Money McBags calls an AC Green or a celibate day as shorts were up and longs were down. In addition to credit card issuers having their balances transfered, chipmaker Nvidia put up a big quarter but was down on a forecast more lacking than diction on an NBA studio show. The stock was down 10%+ as they guided to a 3% to 5% revenue decline for the upcoming quarter and analysts were guessing flat to moderately up revenue growth. Videogame makers are also all getting hit as an industry tracker showed the worst year over year sales decline since the Mario Brothers were implicated in the steroid ring and thus became a bit less “super.” Software sales were down 23% and analysts were expected sales to rise, especially off of a week April number last year while hardware sales were down and amazing 37% as teenagers spent more time playing Scrabble on Facebook and learning to YoYo from the way ahead of his time K-Strass.
In small cap news, everything tumbled except sleepy Money McBags holding DFZ and IBKR. IBKR is a bit of an interesting play here as the CEO (who also owns 80% of the company) thinks there is $2 of eanrings power in his business but they face lumpy Qs as their market making business is always long volatility to hedge. Well guess what, unless you have been on the planet Melmac for the past week eating pussy, you are probably aware that volatility is spiking up and thus IBKR’s long vol play should bring earnings back to their market making business. The company takes little balance sheet risk as they are making markets in listed options and hedging their exposures and they have a nice other business which is an online trading platform that is growing 20%+. This business has been more of a value trap than going to the backroom in a Vegas strip club (and as a word of advice, save the $150 and just get 7 lap dances), but this is the kind of environment where they should excel. So if you are itching for risk, this is one way to play the financials space relatively safely and with the trends going in your favor and it’s still pretty cheap trading at only ~8.5x their earnings potential.
The markets were on fucking fire today as investors shook off the historic drop last Thursday, apparently confident that the SEC looking in to the causes of the sell off will yield answers other than the current ones whch include: “Beats me,” “How the fuck should I know,” “and hey look, it’s Enrico Pallazzo!“ The head of the SEC, Mary Schapiro, who in her short time leading the never distinguished agency has already instituted sweeping reform including such things as following up on leads, proactively going after market manipulators, and clamping down on tranny porn at the office, has called last week’s market failure “profoundly disappointing and troubling.” She then added, “I haven’t been this disappointed with anything since Meaghan Chung worked at the SEC or since I bought a slap chop.” Luckily regulators are getting closer to finding out what was wrong with the market by ruling out several potential causes such as erroneous fat finger trades (known here on WGP as Portia De Rossis), unusual trading in P&G stock, hackers, terrorist activity, and Noriel Roubini shouting “Beetle Juice” three times quickly. The SEC has sent out subpoenas to further look into this matter, though they have not said to whom they have sent them, but Mary Schapiro was seen asking Goldman’s CEO if his first name is spelled with one “L” or two. While equities are bouncing back, it is still showering gold in the markets as gold has hit an all-time high which means Mt. T’s neck is now the richest person in America (and he pities the fool who told him all that jewelry was silly). The fact that investors are rushing in to gold is not a good sign for the markets as it signals little faith in currencies and a fear that escalating debt will continue to cause gevernments to run their printing presses more rapidly than drunk Hollywood wannabes run through Paris Hilton‘s panties. Money McBags remains very afraid.
Helping drive the markets up today is that Spain has announced an austerity plan that will involve cutting wages of government employees, reducing public investment spend, and increasing the use of home grown green technologies such as spanish fly. There is real fear that workers may strike throughout the countrty, but economists are fairly certain strikes won’t come to fruition because strikes would cut in to workers’ daily siestas. In addition to Spain making like they are serious about their budget, in much the same way that James McGreevey made like he was serious about Dina Matos, Portugal sold the fuck out of some bonds. Portugal raised 1B euro (though the euro isn’t worth what it used to be) which is a good sign for the markets, though the fact that they need to raise another ~20B by the end of the year is a sign worse than waking up pantsless in a West Hollywood alley with a sore rear end and rainbow colored socks. Joining in on all of the debt lip service in Europe (and Money McBags wishes Faye Reagan would give his growing debt some lip service), is Britain who is instituting budget cuts as unemploymnet spikes to its highest level in 16 years. The new fiscal policies could include a tax on banks, black jeans, and Lucy Pinder downloads. Also, data came out today showing GDP in Europe was up modestly in Q1, growing .2%, or as it’s better known as: a rounding error.
In the US, markets rocketed up thanks to positive forecasts from tech companies who said they expect it to be sunny with a chance of silicon. Tech giants IBM and INTC both gave positive outlooks today with IBM saying they expect to earn at least $20 per share by 2015 which is double their current business and INTC’s CEO saying he expects a double digit percent rise in revenues and earnings. Additionally, MSFT was up today after they said they will offer Microsoft Office free online so the whole world can spend their days dicking around with PowerPoint for no charge. Wow. Technology hasn’t received news this good since Number 5 was found to be alive. Also, the US trade deficit widened to a 15 month high as exports were up 3.2% and imports were up 3.1% For March, the rise in exports reflected increased sales of American farm products, a wide range of heavy machinery, and dollars. The rise in imports was driven by a 26% jump in crude oil shipments (though not nearly as crude as Dice Clay CD shipments).
In small cap stocks, everything rode up like a hand on Alexis Texas‘ ample thighs. CRUS, TMRK, and KITD continue to rally even though Money McBags ditched them for liquidity reasons last week. Money McBags did buy back some KITD today in the $12.90s in anticipation of a good earnings call on Monday. If the market structure is healthy, KITD remains a high upside company. Also, QCOR is holding a conference call this afternoon to discuss the FDA panel’s ruling on Acthar last week where the drug was found to be both less filling and taste great by a panel of experts. The FDA panel voted 22-1 in favor of Acthar’s efficacy in treating IS but there was some concern over how manageable and reversible the complications were. Money McBags is sure QCOR will delve into all of this this afternoon, but on the surface it seems like very positive news since it points to the FDA putting IS on label for Acthar and thus allowing QCOR to market to IS doctors, something they have been unable to do despite being the favored IS treatment. Money McBags promised some analysis today and he has FHCO’s Q on his to do list (though it is much behind Alice Eve and Ashley on his to do list), but time ran short today so tomorrow he will try to hit you up with some micro to go with the macro.
The market is up today as sales of new homes were up 27% blowing past analyst guesses and rising by the most in five decades which is so long ago that baby boomers were still in grade school, man had yet to reach the moon, and full muff was still in style (like the very very NSFW 1561). Sales were spurred by the government tax credit which runs out next week, milder weather, and improved construction techniques. Additionally, orders for US manufactured durable goods were strong excluding the drop in commercial aircraft (no pun intended). Taking out transportation (and if you are going to take out transportation, be sure to grease it up with plenty of oil at dinner if you want to make sure you get a proper ride later on), orders rose by the most since December 2007 when the sale of wrecking balls spiked during the “Make Detroit Beautiful” phase of the recession. Driving up orders for durable goods was business spend on computers and electronics as companies are either gearing up for the recovery or trying to get enough computing memory to store all of the videos they have been downloading from spankwire. And the SEC is back in the news today as Goldman is choosing to press their luck (no whammies, no whammies, and stop) rather than settle with them over fraud allegations and a report is out showing SEC regulators spent more time downloading porn than they did trying to actually, you know, regulate the fucking markets (though if they were doing it as a way to research whether Heather Vandeven was causing investors to drop their shorts and get longer, Money McBags totally understands).
Internationally, Greece is activating their bailout plan while Prime Minister George Papandreou called the economy a “sinking ship” and with the bailout he hopes to avoid the fate of the Dokos. The bailout will give Greece 30B euros from Eurozone countries, another 15B from the IMF, and free two for one coupons at their local Red Lobster. The Greek requested bailout is the biggest test for the Euro since it had to guess French Economic Minister Christine LaGarde‘s gender. With the premium on Greek 2 year bonds approaching the premiums on both Pakistani bonds and Lindsay Lohan‘s life insurance, Greece needed to finally cry “theios” and get the aid promised them. Of course getting the aid may be a lot harder than asking for it as German politicians are wavering on their desire to bailout Greece citing Greece’s manipulation of economic statistics, the language in the EU treaty which forbids bailouts, and the potential for any funds to help energize Nia Vardalos’s movie career (though we hear she is working on a new movie titled: My Big Fat Greek Debt Spreading).
In stock news AMZN beat forecasts but like other tech companies, guidance was a bit lacking. Revenue guidance for next Q was $6.1B to $6.7B and analysts guesses were more in the middle than lucky Pierre at $6.4B so the Street is worried they could miss. That said, AMZN earned $.66 per share which beat analyst guesses by $.05 thanks to a 46% increase in revenue as people still hate going outside to buy shit. It will be interesting to see how long it takes for the iPad to make the Kindle obsolete and thus put further strain on AMZN stock. Also, MSFT put up a nice Q as sales rose 6% and net income was up 35% thanks to Windows 7 and businesses starting to spend again. That said, the Street was hoping for better growth, especially after INTC’s numbers, and as a result MSFT is trading down off of a pretty stellar quarter for them. Money McBags hates everything about Microsoft from their clunky operating system which allows in more Trojan Horses than Troy and more viruses than Paris Hilton‘s vagina to that stupid fucking paper clip that pops up in word everytime one mis-hits one of those F keys, but the cycle should be good for them and they are relatively cheap at around 12x 2011 estimates. So Money McBags bought a little in this dip and is going to try to get a quick 10% before puking it out like a KFC Double Down.
In small cap news, RICK had a big day yesterday on no news. Two weeks ago they announced that March sales were up 11% with 3.5% same club sales growth and revenue for the Q up 21%. Of course it’s not RICK’s top line that we’re worried about as they have proven to be literally and figuratively extremely top heavy, it is their bottom line that needs work.