Posts tagged Volcker
6/25/10 Midafternoon Report: New finance legislation may cause banks to find different ways to screw customers
The market is up today after congress reached an agreement on legislation to better regulate the financial services industry after only two short years of debate and an economy that people have less faith in than Scientology. The legislation, being called the Dodd-Frank bill (and Money McBags only laments that Senator Tim Johnson did not sponsor the bill instead of Senator Dodd and thus we could have had the Johnson-Frank bill), was watered down though as politicians were worried it might actually accomplish something so they unanimously decided take out anything that might cause someone to change anything meaningful that they do. If passed, the new laws will include the creation of a Consumer Financial Protection Bureau (whose first rule of action will be to tell people to stop borrowing so much fucking money), a requirement for banks to segregate their derivatives portfolios by doing more than just creating separate water fountains for them on the trading floor (though banks are still allowed to use derivatives to hedge, still allowed to trade currency and interest rate swaps, and still allowed have a few years to move their CDS into capitalized subsidiaries, so suck on that Blanche Lincoln), and a monthly reminder to be delivered by Timothy Geithner to stop fucking so much shit up. What the legislation doesn’t do is restrict the size of banks and thus banks still have ability to grow too big to fail (which is the only way banks won’t fail). The most controversial act though was the Volcker Rule which was supposed to limit banks from proprietary trading through bank owned investment vehicles for the near future until banks could find loopholes around it. Luckily, they won’t have to waste their valuable time finding loopholes as the rule now merely limits banks’ ability to invest in these kind of investment funds to no more than 3% of a bank’s tangible equity or 3% of a fund’s capital, so bankers can go back to spending their time dreaming of AnnaLynne Mccord and new products to be used for predatory lending.
While agreement on legislation that may or may not turn in to law and may or may not be affective (and Money McBags will bet on the “may not” if anyone wants to take the other side) dominated the news today like the winner of a NSFW Ultimate Surrender match dominates her conquered foe (though the news domination involved many fewer dildos), the government managed to sneak in a downward revision of GDP. Due to consumers spending less than the Commerce Department previously guessed, GDP for Q1 was lowered from 3% growth to 2.7% growth which wouldn’t be a terrible number if the economy weren’t coming back from nearly going to 0. Finally, consumer sentiment rose according to the University of Michigan’s survey thanks to the one employed person in the state of Michigan the University found to answer their questions.
Internationally, not a lot was going on today as world financial leaders spent their day trying to get through customs in Toronto and exchange their currency for singles to prepare for this weekend’s G-20 summitt and group outing to the NSFW Brass Rail. Chinese currency hit a new high as China’s central bank set its key daily reference rate for the renminbi at 6.7896 per dollar meaning you now need ~350 renminbi to be loved for a very long time in Shanghai.
As for the market, with the Dodd-Frank bill more toothless than the perfect hummer, financial stocks are getting a short term boost. Investors were expecting worse so there is a bit of a short squeeze going on today since capital raises for derivatives books will be lower than previously thought and banks will still be allowed to partially invest in hedge funds, private equity funds, and any other type of SPE, SPV, or BBW to which they desire. While the market is mostly up, Ontario based RIMM is taking it in their arse (“arse” of course being Canadian for “badonkadonk“) as they once again missed analyst guesses of revenues which is becoming more of a trend than twitter, bros icing bros, and condoms. For those of you who don’t know RIMM, they are the company that produces the blackberry, you know, the thing people used to use for communicating before the iPhone came out. The company reported revenue of $4.24B which was up 24% but below analyst guesses of $4.36B while EPS was also up 24% to $1.38 and bested analyst guesses of $1.34 and yet featured no earnings leverage. The average blackberry price fell as did new subscribers but guidance was basically inline. RIMM maintains that their new product releases at the end of the year will help boost revenue growth but this company needs to start beating estimates as competition is only going to get more difficult.
In small cap news, QCOR is up 6% for no reason and even noted piece of shit MLNK is up 4% which means today’s rally is likely on light volume and just short term trading. Money McBags broke down MLNK after their last Q (just use the search box if you’re so inclined) and concluded that the company is cheap as balls in the Castro, yet is that way for a reason. Their performance has been worse than a Rich Little stand-up routine without the impressions and nothing about their business should turn around in the short term. Long term it could be a great value if you’re willing to stick with it, but there are probably better ways to not make money between now and a couple of years from now (like keeping your money under your mattress or joining the Peace Corp). Money McBags mentioned SPRT as a potential trade earlier this week but he hasn’t been able to get to a full break down yet but he will try to next week. That said, you should also keep your eyes on EPAY as they have traded down, yet have an interesting little niche business where they are building a payments network for banks as well as continuing to help automate bank cash management and business payment functions. The stock is trading at ~11x guidance with ~$2 of cash on the balance sheet and should continue to grow revenue at 20%+ while also having nice recurring revenue streams. So while you’re lounging around tomorrow trying to shake off your hangover, check out EPAY and do some due dilligence. Money McBags will try to get to it and SPRT next week, but until then, enjoy the weekend.
Oh yeah, Money McBags is trying to figure out this facebook thing so feel free to be his friend (just don’t ask him to hold hands, unless your hand hand is well manicured and is attached to this body).
The market is bouncing back today even though it is a relatively quiet day news wise (though not as quiet as a Lindsay Lohan straight to video movie premier or a Trappist monk game of hide and seek). Pending home sales in the US rose 1% after falling 16% last month thanks to renewed tax credits and something called math. Sure the 1% rise is good, but it is still down 15% from October, so let’s not break open the bottles of Dom and tins of beluga just yet. The biggest problem with home sales is that frictional unemployment has dropped the frictional and is just plain old unemployment. People are no longer moving between jobs and thus moving to new houses because, to close the transitive logic, there are no jobs. Also, Paul Volcker is supposed to testify in front of the Senate Banking Committee today where the 82 year old will rant about proprietary trading at banks, how he used to walk 2 miles up hill both ways to get to school, and then wonder why none of the dames look like Clara Bow anymore. The banking industry awaits Lord Volcker’s testimony like a necrophiliac awaits the cremation of a loved one.
In global macro news, Australia held their interest rates flat which was somewhat of a surprise since their economy is healthier than a vial of Jack LaLanne‘s urine (and that is for my older readers, but I can assure you young’ens out there that there is nothing on this planet healthier than the dickwater of the workout guru Mr. LaLanne who even at the age of 96 still can still rip a man’s heart out with his pinky finger). For those sheltered Americans out there, Australia is more than just boomerangs, crocodiles, and Miranda Kerr and Patsy Kensit pillow fights (though if it were just Miranda Kerr-Patty Kensit pillow fights, that would be sufficient). For the past several years Australia has benefitted from being close enough to China to supply it with natural resources out the wazzou while serving as a middleman in the shipping/trade business. Additonally, their banks missed out on the opportunity to cut up packages of mortgages and sell them for additional yield by inflating the mortgage market through lending money to speculators who bought and then sold houses to other speculators who couldn’t afford the houses in what is known now as the subprime vicious circle (and the circle was even more vicious than a daisy chain at an overeaters anonymous meeting). The point being, Australia has had a robust economy during this downturn and thus Australia holding their rates is a bit of a good sign that inflation is not running away, but it is more likely just a pause in their monetary rate hikes
As for stocks, Lexmark put up a huge quarter tripling earnings to $.76 a share and giving guidance for next Q of $.80, thus besting the $.62 earnings per share estimates. The printer maker also beat revenue projections and attributed their success to strong customer demand and the fact that HP makes such shitty printers. UPS also saw profits triple, yet their topline was down 2.5% and their CFO said the first quarter ”will be the most challenging of the year.” He then said it will be more challenging than the time they tried to ship a plane full of angry circus bears who hadn’t eaten in a week. However, the CEO said “It looks like this recession is finally over,” so I guess there’s nothing to see here.
In small cap news, ARTG was upgraded or maintained at strong buy today by most analysts on the street even though they chose to dilute shareholders yesterday like ice cubes in a Makers Mark at an overpriced NYC bar. Money McBags addressed this in yesterday’s Midday Report and its comments section, but ARTG has plenty of cash on their balance sheet so the capital raise is likely for a big acquisition and thus investors need have confidence in ARTG’s management team’s ability to negotiate and integrate a large deal before they become shareholders. Estimates are for around $.20 earnings for 2010 but $.25 could be reasonable so the stock isn’t expensive (nor extremely cheap) at 16x to 20x earnings. COOL is up 5% today as investors perhaps forgot the assrapingly bad Q they recently put up (here were Money McBags thoughts) though this should give shorts a better entry point. And TSYS was initiated as a buy by JP Morgan and a $12 price target and this is a company Money McBags has followed off and on for a while and used to own. They basically provide licenses for text messaging to carriers, location based services (like E911), and satcom solutions for the government. You really only need to know that text messaging is still growing 100% a year (TSYS powered almost 2B messages a day last year, which is fuckload of teenagers saying “cu l8r”) and they provide gateways for carriers to be able send these volumes of text messages. These licenses are sold as a step function so the company’s revenues haven’t scaled lockstep with the exponential growth of text messaging, plus there is competition and the pricing keeps coming down. That said, they did recently get a new deal with Verizon and their government business has been a solid performer. Estimates are for TSYS to earn $80MM of EBITDA in 2010 and they are currently trading at around 6.5x EV/EBITA. That is very cheap for a company that can still grow 20%+ (though the growth rate has been declining and that is not all organic growth). Today may be a good entry point though as the stock has been trading down and earnings are in two days so the JP Morgan analyst would not want to release a glowing report of the company two days before earnings were he/she not confident in the numbers. Now look, Money McBags is prone to mocking analysts like Adam Sandler is prone to starring in bad movies and Alexis Texas is prone to having to try on many pairs of jeans until she finds a pair to properly fit her best asset, so having faith in this JP Morgan analyst is a bit hypocritcial (though not as hypocritical as Larry Craig’s gay rights (wide) voting stance), but the timing of the report should be a signal that TSYS’s Q will be good or else the JP Morgan analyst is a complete dope (and unfortunately we can’t rule that out, so let’s say a 25% chance because JP Morgan is mildly reputable). It may be worth picking up some shares for at worst a trade. Money McBags does not own TSYS right now but may buy some before earnings after he does some more digging. If any of you have done work recently on TSYS, feel free to share with the rest of us, and if any of you have Hayley Atwell‘s phone number, feel free to share that too.
The big news spooking the market today is Obama’s unknown plan to try to regulate banks. He is now said to be giving former Fed Chairman Paul Volcker the keys to palace and Volcker is rumored to be getting all Glass-Steagall on bankers’s asses telling them they can’t trade financial securities using their own deposits. Money McBags is usually for the free market (especially if that free market specializes in foie gras or taint cleanings), but large financials firms need to be regulated. They have too much sway over the global economy, like Rasputin had over the Tsaritsa Alexandra or ugly chicks have over former President Bill Clinton.
The other news moving the market today is that China’s GDP rose the fastest it has in two years as it grew 10.7% thanks in part to their ability to make really cheap shit and therefore have consumers need to continually replace said really cheap shit when it breaks/tears/poisons them. Q4 economic growth was driven by a $586B stimulus package, subsidies for consumer purchases, a credit-fueled investment boom, and buy one get one free happy endings at local Shanghai massage parlors. The strong growth in China has investors worrying that the Chinese government will finally try to slow down their lending to avoid more of a bubble than they have already created, which in turn will dampen the global economic recovery.
In US macro news, first time claims for unemployment rose last week by 36k to 482k defying analyst expectations for a 4k drop. Money McBags is not going to harp on analysts for getting the number wrong as he knows it’s not easy to guess at a number that can be anywhere from 0 to 300MM, but guys (and gals), can we at least get the fucking direction right? You have a 50-50 chance on that one which is slightly better than your odds of not contracting herpes from shaking Tiger Woods’ hands, so can we do a little better? Luckily an economist for the U.S. Labor Department (or as it is soon to be renamed, the U.S. Non-Labor Department or simply You’re Fucked) cleared everything up by claiming that last week’s numbers were higher than expected in part because the Christmas and New Years holidays created a backlog in some states. To quote this brilliant economist: “It is not an economic thing — it is an administrative thing.“ He then went on to explain that the recent market crash also “wasn’t an economic thing, it was a math thing,” John Edwards denials about being some broad’s baby daddy “wasn’t a lying thing, it was a syntax thing,” and for the ladies out there, swallowing after a hummer “isn’t a romantic thing, it is a nutrition thing, so bottoms up” (when of course, we all know it is both). The main point is, whether or not the rise in new unemployment claims was due to an anomalous administrative glitch or more people simply losing their fucking jobs (you know, what the statistic actually measures), there were still at least 450k people who recently filed for unemployment so this economy is about as healthy as Amy Winehouse at an all you can smoke crack bar or a Krispy Kreme donut with extra transfats.
Also, the Philly Fed showed the pace of manufacturing slowed a bit in January as the index fell to 15.2 from 22 and was below the expectations of 17. Apparently a positive number still signals growth so since we have no idea of the impact of the relative values of the arbitrary numbers (how much worse is a 15 than a 17? And about 10% is not likely the correct answer), all we can say is that the Philadelphia area produced some shit, though it was likely all stolen by the residents, so should have minimal economic impact.
In stock news EBAY put up a huge quarter as PayPal revenue was up 28% thanks to an uptick in Nigerian princes needing funds to return to their homelands and reclaim their fortunes, while Starbucks (SBUX) beat analyst estimates by quadrupling profits from a year ago. Same store sales were up 4% proving that overpriced coffee may be a giffen good. The biggest stock news of the day though was Goldman Sachs beating profit estimates by raking in $4.95B in the Q. More surprising than Goldman’s success under the Obama administration was the Streltsys’ profitability during the reign of Ivan the Terrible, the benefits earned by the Imperial Guard during the Napoleonic era, and Haliburton’s favorable business wins during Dick Cheney’s vice-presidency. Goldman’s revenue was mostly inline and their outperformance was caused by putting aside only $16B for bonuses. The pay ratio dropped to 38.5% which means the average worker will be forced to scavenge with only a $500k bonus and with the way the dollar is dropping, that means these poor Goldman employees will only be able to buy one Maybach and 3 nights with Charisma Cappelli (though to be honest, if all 32k employees had 3 nights with young Ms. Cappelli, she may get a little tired, so to those Goldman employees reading this out there, try to be in the first 1k if possible).
As for small stocks, HAFC continues to love it’s long time shareholders as it erupts for the second day in a row on no news. As stated yesterday, TBV is somewhere around $3.60 so this stock has plenty of room to move up, but this is very speculative as Money McBags trusts that TBV number about as much as he trusts politicians, Mexican water, and 35 year old virgins. Also, anything that has recently risen, like RICK, is selling off faster than Rachel Uchitel’s 10 minutes of fame. This is going to present some buying opportunities for the better companies. Over the past several weeks Money McBags has mentioned several companies he thought were solid but had run up a little too much (CRUS, NTRI, TMRK, heck even INTC) so use this sell off wisely to re-evaluate and make some smart decisions like the guy who married Christina Hendricks. Oh yeah, a big shout out to When Genius Prevailed reader Matthew who has nailed NLS like a 19 year old girl in her first Monsters of Cock video. Kudos on that pick.