Posts tagged Wholesale Prices
The markets fell again today as US macro news was mediocre at best, fears in China have risen from red alert to Kung Pao levels, and Germany has banned naked short selling of stocks and CDS (though you are still encouraged to get long Salzgitter and Money McBags’ “salzgitter” would get very long for Sonya Kraus and he would certainly let her take the other side of his Siemens trade). With the ban on naked short selling in Germany, the markets floundered as traders sought to unwind positions and find alternative ways, or countries, to continue with the same bets they have been making. This market reeks of dislocation worse than Ronnie Brown’s lisfranc.
Not helping matters was that US macro data was more mixed than a can of nuts (and please, write your own punchline). Home building rose in April with new home starts up 5.8%, the most since October 2008 as home builders prove to be more optimistic than Brooklyn Decker‘s bikini waxer. However, construction plans fell to their lowest level this year as the tax credit ran out and people remain unfucking employed. Building permits were down 11.5% and economists had guessed that they would be moderately up which once again proves that a broken clock is wrong 86,498 times a day. In other macro news, seasonally adjusted PPI was down .1% last month due to more people keeping their eyelids shut as a result of allergies (and yes Money McBags has used the PPI pun before, but it is still horribly funny). Core PPI, which excludes the essentials such as food, energy, and oxygen, was up .2%. Money McBags always loves that economists apparently don’t care about food and energy prices as a gauge of inflation which is as rational as a pareto inefficient nash equilibrium like the prisoner’s dilemma (and if Money McBags were ever a prisoner, he would have no dilemma because he simply wouldn’t pick up the soap). Interestingly, energy prices actually slumped by .8% thanks to natural gas prices retreating from booming to silent but deadly and food prices declined by .2% despite meat rising 5.1% and thus beating meat price rises going back seven years. The good news though is that inflation appears to be tamer than a Dane Cook stand up routine.
Internationally, in addition to Germany banning naked shorting (and Money McBags hopes they don’t ban naked cavorting), the EU sent 14.5B euro to Greece today and told them to keep the tip. With that 14.5B, the EU hopes to stave off Greek defaults, restore order to the European financial system, and receive a free two-liter of coke with their souvlaki since their order exceeded $20. Also, the ZEW Center for European Economic Research (ZEW of course standing for zero economic worth) said its indicator of German economic sentiment fell in May to 46 from 53. The good news is that the indicator’s historical average is 27, the bad news is that the 46 was below the consensus guess of 47, and the even worse news is that Lucy Pinder has never been in my kitchen. But it’s not just Europe that is going in to the crapper like last night’s bean burrito washed down with an extra large cup of metamucil and healthy dollop of “we’re fucked,” but also China as Chinese investors are also starting to get more nervous than Jackie Chan trying to roll his “r”s. The stock market in China remains lackluster, down 21% for the year despite being sprinkled with MSG to keep investors coming back for more. Driving the sell off has been expectations of rising interest rates, fear of tighter bank lending to help rein in inflation and quiet soaring property prices, and fortune cookies throughout the region reading “You’re going down” (in bed. Booooyah!!). The markets remain more jittery than Sarah Palin in a spelling bee, so remain careful.
In stock news, Walmart put up a good quarter beating analyst guesses of $.85 eps by $.03. The world’s largest seller of cheap crap had sales of $99B which were up 6% despite a 1.4% drop in same store sales. Guidance was generally inline though management said sales are shifting away from entertainment and apparel and into do-it yourself auto repairs, pharmacy, and tight fitting tops. Home Depot announced a good quarter and raised their outlook, yet the stock traded down as analysts think the outlook to be too rosy after Lowe’s took a giant dump on Q2 forecasts yesterday. Finally, financials fell again as potential new credit card regulations hit card issuers and fear of Europe imploding hit banks. In all, it is uglier out there than Minnie Driver‘s face and tomorrow could get much much worse as fear has seeped back in to the market.
In small cap stocks, everything sucked. KITD got hit with another big block trade around midday despite both Merriman Curhan Ford and Roth Capital’s analysts raising price targets after yesterday’s Q. Money McBags promised he would listen to or watch their quarterly call today but he has been too busy to follow through on that, so his analysis from yesterday still stands. The fact is it is a weird little company, exposed to many different currencies, and highly acquisitve in a market that may soon like none of those three things. So the market may trade this down on technicals and fears, but fundamentally, if you don’t mind some pain for awhile, it is worth holding on to like a drowning straight man would hold on to Christina Hendricks‘ life preservers.
The market is up strongly this morning after EU Bank president Jean-Claude Trichet decided to leave Australia where he was attending the Reserve Bank of Australia’s 50th Anniversary Symposium which was a party likely as raucous as a staring contest between Bea Arthur and JD Salinger (mainly because they’re both dead). Even so, we are told things got a little out of control when the bankers let their toupees down and played a little game of “name your favorite currency” with Vietnam’s Dong easily winning out even if it is not as big as the other currencies. Trichet flew back to Europe where he was invited to a summit of European leaders called by the deligthfully named Herman Van Rompuy (and Money McBags is calling bullshit on this whole thing because no one is named Herman Van Rompuy). This is leading to speculation that the EU has a plan to bail out Greece, and Portugal, and Spain, and maybe Italy, and then maybe even Freedonia (where time flies like an arrow and fruit flies like a banana). As one analyst said: “The markets are smelling a deal for Greece, and for that reason, we’re seeing some stabilization.” Of course, that smell could actually be Greece and not a deal for Greece but Money McBags remains optimistic because as he has been saying all along, the Euro is not going away, it’s just not. Now it’s unclear how the EU plans to deal with the struggling countries, whether it’s a good old fasion bail out, some kind of debt guarantee, or a lifetime ban on Nia Vardalos movies, but help is on the way.
In US macro news, there’s not a whole lot of new information. Wholesale inventories unexpectedly dropped by .8% in December while sales rose .8%. Both numbers were marginally below estimates yet close enough that the market let out a collective yawn. Inventories bear watching though as we’ve made it through the obvious restocking and now we’re at the point where they need to at least maintain their new level in order to signal new steady state or some real growth.
In stock news, KO had a blow out quarter as earnings rose 55% thanks to India and China who love them some sugary water. Overall revenues were up by 5.4% even though they were down 4.5% in the US thanks to some people apparently giving a shit about not being fat. Luckily, developing countries haven’t yet reached the point where they have large middle classes whose teenage girls read People magaine and stress about weight from the caloric intake of soft drinks and thus KO benefitted from 19% growth in Latin America, 29% in China, and 20% in India. Coke also annonuced they bought back $1.5B (known colloquially as a “shitload”) of their own stock last year which was $500MM more than they committed. Money McBags is an owner of KO for the simple reason that it has ginormous brand equity in developing countries and is a relatively cheap product that people can buy to feel like they are part of American/pop culture (kind of like Paris Hilton’s vagina). MCD, another longtime holding of Money McBags came out with their monthly sales numbers which featured a 2.9% rise in same store sales driven by a 4.3% increase overseas. Sure, people were disappointed that US same store sales were down .7% but people were also disappointed that the Kim Kardashian sex tape was a bit grainy. So as always, you can’t please everyone (unless you are Blake Lively and are manning the free blumpkin and waffles booth at the local greeting center), but you can be happy with MCD’s numbers and Money McBags owns them for the exact reason he owns KO. They sell cheap shit with huge brand equity that developing countries love the fuck out of (and this will be the first sentence in When Genius Prevails’ short and illustrious history that will end in a preposition). Also, ERTS put up a terrible quarter as their attempt to take on the Grand Theft Auto franchise with Moral Theft: Vatican City failed to generate sales while damning them all to hell (or as it is more commonly known, the guest audience of The View).
In small cap news, two companies Money McBags follows reported today with TMRK putting up a marginal quarter with lackadaisical guidance and DFZ slipping it’s quarter some ruphies and having their way with it like a young Charlie Sheen at the Viper Room. DFZ has been a small holding of Money McBags for a few quarters because it has been cheaper than Valtrex at Lindsay Lohan’s house in addition to being a well run company with growth prospects completely under the radar of investors because their business is more boring than a Jane Austen novel or watching two pieces of lint hump (and now that I think about it, watching lint hump may not be so boring afterall, so scratch that). They are the market leader in slippers, yeah, you know, the things your significant other bought you that you never wear. The point is that even though the market is small (about $300MM), they dominate it like Nipsey Russell dominated the 1970s Hollywood game show circuit. They have 35% of the market and are the sole owner (pun intended) of the slipper business for a little company called Walmart. DFZ continues to win business from smaller players as their supply chain and logistics management give them an advantage in winning business by giving buyers confidence in their ability to easily handle a relatively unimportant vertical. Since turning the business around, they have had yearly EBITDA no worse than $12MM and had been trading at 6x that trough EBITDA even though prior to their announcement last night, they guided for slight growth. In the quarter released last night, they earned $.74 per share, which was around 30% growth on sales growth of nearly 15% ($56MM compared to $49MM) thanks to margins moving from 39% to 43%. Cash on hand was up to $37.5MM and they have no debt so they are now trading at around 4x to 5x EV/EBITDA depending on how much credit you want to give them for growth in the second half of the year (Money McBags has not had a chance to listen to their conference call yet). Before this huge Q, Money McBags was pegging them to earn $.80 per share this fiscal year by maintaining a 41% margin but they almost beat that $.80 number just this quarter. Now it’s likely they’ll earn closer to $1 (again, Money McBags has not listened to their call yet to know if there was any guidance) so they are trading at less than 10x fiscal year 2010 earnings and they have a June Q so they are probaly closer to 8x full year 2010 earnings. The company is so cheap it makes my balls hurt, or in the case of DFZ, it makes the balls of my feet hurt which can be soothed by slipping on my DFZ made Dearfoams. Not only are they cheap, but they have been rumored to be in talks with WMT’s international business to expand there and were actively looking to get into Payless/DSW/other shoe stores and to be honest, Money McBags is shocked they are not already in those stores. The other rumor is that they are looking at acquisitions, potentially of a sandal or flip flop company to help smooth out the seasonality of the slipper business. They also recently launched a Levis brand and earlier last year turned down a take out offer of $7.50 per share for the company, so we have some good downside protection in cash and in potential buyers if this company were to shit the bed. There is no reason this company shouldn’t trade for at least 12x earnings which would yield at a minimum a $12 stock price and it is currently trading for $9.50 (and this is not even to mention the now stupid multiple of EBITDA for which it currently trades). The downside is that it is a tiny company with little institutional ownership and almost no coverage, but that is more of an opportunity than a concern. Money McBags is happy with his current position and may buy more should it dip down tomorrow or after he goes through their call.
As for TMRK, they gave guidance for $95MM to $100MM 2011 EBITDA so despite a decent quarter, they are already trading at around 8x 2011 EBITDA. While that is cheaper than competitors, and while TMRK is in a terrific growth market as Money McBags believes more in the growth of cloud computing and colocation than he does in the existence of Hanna Hilton (and as he watched about 22 hours of her terrific performances yesterday, he is 99.87% sure she is real), they do carry around a large amount of debt and have significant cap ex. This was Money McBags analysis of TMRK from last month and he stands by it (especially as TMRK was trading at around where it fell back to today). The growth targets announced this Q are a bit below expectations but if the stock continues to drop, Money McBags will likely start a position. No need to get involved today as the momentum buyers fly out, but worth watching.
1/20/10 Midday Report: China flexes pimp hand and vows to curb lending, businesses cower in the corner and promise to work harder for daddy
The big news bringing the market down today is that China is beginning to realize they may have a bit of a bubble on their hands as they opened up their fortune cookie last night and saw their fortune was written on the back of a yuan (as for the fortune, it said “man who puts balls in peanut butter is fucking nuts”). As a result, China will reel in their profligate lending. The chairman of the China Banking Regulatory Commission said that he expects banks in China to decrease their loans by 22% in 2010. So in the year of the golden tiger (and also the year of Tiger Wang), businesses may not receive the showers of money they saw in 2009 (now aptly renamed from the year of the Ox, to the year of the golden shower). It is good that China is realizing that they need to reign in their stimulus sooner rather than later, but this news of course is putting fear in to investors who worry about the short term recovery from the global recession.
In US macro news, US wholesale prices showed virtually no inflation as energy price declines offset increases in food prices. This is bad news for fat people but good news for the Tin Man.
In stock news, BAC and WFC reported earnings, well to be more precise, WFC reported earnings and BAC reported losses. BAC underperformed analyst expectations by posting a loss of $.60 per share vs. estimates of a $.52 loss per share. They blamed the $.08 miss on analysts being really bad at math. Without the TARP repayment and dividends paid on preferred stock, the Q4 loss would have only been $194MM, and in related news, if I didn’t have a dick, I’d be a chick, so unfortunately the details matter (and if I were a chick, I would be totally gay for Aubrey O’Day). BAC also raised their provision for credit losses to $10.1B in Q4, from $8.5B a year earlier because of some little thing I believe they referred to as “people not wanting to fucking pay shit back.” They also had total write-downs for the year of $33.7B, more than double the $16.2B in 2008, so at least we finally know the price of dignity.
The point is, BAC benefited from the investment banking gains of Merrill Lynch while they still took it in the yingus from their consumer portfolio. They suffered a loss of $4.9B on their consumer credit card business, compared with a $3.3 billion loss a year earlier. So guess what market, things aren’t getting much better. People still love charging off like Martha Coakley loves being bad at politics (and I need to digress for a second here. Money McBags does not get involved in politics. He does not care one iota what the fuck happens in this world as long there is world peace, no capital gains tax, and free blumpkins for all. And to be honest, he’d be happy with just one of those three, unless that one was world peace, and then he’d need at least one of the other two. The point is, Money McBags is completely apolitical, for all he cares, a gay person could marry an abortion while smoking a joint through the barrel of a shotgun in the middle of the oval office while spraying chlorofluorocarbons all over a bald eagle, so the fact that he has an opinion on this senate race is unusual. But this must be said. For a democrat to lose Ted fucking Kennedy’s senate seat in Massachusetts after having a 30 point lead in the polls and without having killed someone, been arrested for fraud, or openly rooted for the Yankees and claimed Bill Russell was a bitch, is perhaps the worst performance not just in the history of politics, but in the history of anything. Think about it. Ted Kennedy killed a lady and that couldn’t stop him form winning election after election. All this Coakley broad had to do was be alive, and yet somehow she fucked that up. Sure the dude who beat her (and yes this is really him, and sorry to my straight male readers) had a secret weapon in his lovely daughter Ayla, for whom Money McBags would cure cancer (though not one of those hard cancers like nut cancer, something much easier, like cancer of the mouth, also known as Kathy Griffin), but Coakley’s loss is so colossal it should be part of the lexicon. So here we go, BAC did not lose $.60 per share this Q, they Coakleyed $.60 per share. Diatribe over).
Most interesting was the verbiage from BAC’s CEO who said “economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth.” Which seemed at odds with WFC’s CEO’s statement that: “While losses remained elevated during the quarter as expected, a more favorable economic outlook and improved credit statistics in several portfolios further increase our confidence that our credit cycle is turning, provided economic conditions do not deteriorate.” Of course, WFC managed to turn an $.08 profit compared with a ginormous loss last year, so things are looking a bit rosier for them, except if you look at their charge-off numbers which were up sequentially $300MM to$5.4B driven by commercial and consumer real estate.
So are all banks created equal or will performance differences really start to show now that the economy has sort of recovered? More importantly, has the economy actually recovered? Here are four interesting stats from this NYTimes article (as always, buyer beware with facts and the NYTimes):
1. Bank of America said the percentage of credit card loans it thinks will never be paid hit 13.53 percent in December. JPMorgan Chase expects to charge off 10.5 percent of its credit card portfolios in the first half of 2010.
2. Fourth quarter of 2009, the number of domestic credit card accounts has declined by 20 percent from its peak in the second quarter of 2008, to 341 million from 426 million
3. the amount of available credit on cards has declined by 21 percent since its peak, from $3.51 trillion in the third quarter of 2008 to $2.77 trillion in the fourth quarter of 2009, the data shows
4. Hayley Atwell is still really hot, and Money McBags will drive this bandwagon into the ground until playboy drops by the Atwell residence.
So available credit is shrinking for the US consumer. What would be interesting to know is how utilization rates have changed and whether anything can be gleaned from this other than people got rid of their 3rd and 4th credit cards which they rarely used anyway and unemployment is still high (no word on how it can afford to keep getting high though).
In small cap news, KITD, a company Money McBags is following closely announced they will be issuing shares in both the US and Prague (where they will soon be listed). They are seemingly raising capital for more acquisitions where they buy companies for their customers, fire all the employees, and enjoy the benefits of leverage. KITD is basically a large database of videos for internet/IP delivery. They get raw video from customers and then help clients manage, view, distribute, manipulate, and store that data. They have a greater than 99% customer renewal rate because once a customer gives them their data, it is a huge pain in the ass for that customer to get all of the data back and have to reformat it, etc. (it is more of a pain in the ass than Valentine’s day). KITD’s market is growing 100% a year as IP takes off, they have little competition, they also have a ton of NOLs, and 93% of their business is outside of the US. IP video is cheaper and better than digital and it represents only 23% of the global video market so there is a lot of room to grow. That said, the company is a bit odd as it has had headquarters in Dubai and now Prague and they are still unprofitable from an operating eps standpoint. Also, the CEO loves himself almost as much as he loves money and looking silly at the movies and the company basically just relaunched less than a year ago when this new CEO came in and developed a new strategy. Now the good news is that the CEO is the biggest owner and has a substantial portion of his net worth in the company, the bad news is that the CEO has led failed companies before. But he has had success recently and at least we are betting with him. Also, despite little US exposure, they did win the business of Verizon Fios which is the only IPTV telco user in the US. The company has little sell side coverage but recently announced fiscal 2010 guidance for revenue to increase at least 60% to more than $75 million, with an annual operating EBITDA margin exceeding 17.5%. Ok, so EBITDA will be somewhere around $13MM and their market cap $120MM is with $13MM of net cash as of their last 10Q, so they are trading at around 8x EV/EBITDA before their just announced capital raise and at around 1.5x revenues when companies like this who use the software as a service model tend to trade at between 2x and 6x revenues. These are relatively cheap multiples for a growing company with a high recurring revenue base which contains many blue chip customers. Money McBags does not yet own KITD because he is still trying to fully understand the company’s competitive advantage, but he is thinking about buying a starter position and will throw down the gauntlet to his loyal readers to do some of their own research here and see if they come up with anything else important.
Oh yeah, a Money McBags longtime reader e-mailed him about a Korean-American bank HAFC which is apparently now trading at around .5x of TBV (even with today’s big run-up) and promises to love you long time. Money McBags knows nothing about HAFC and how real their TBV really is but if it is even 80% correct then there is room to grow here. So you should all do some due diligence.
The big news today is that wholesale inflation is up 1.8% and manufacturing in the US is churning out more goods people can’t afford to buy, especially if prices have to be raised now that input costs/commodities are moving up faster than expectations (weird that expectations were wrong, though much less weird than the new hair trend sweeping across the US). With the continued increase in commodity prices, unemployed aging workers are rushing to their dentists to have their gold/silver/mercury fillings pulled to sell them on the black market.
In world markets, Greece is the latest country now seemingly assfucked (which apparently the Greeks actually enjoy, so kudos to them on that) as their credit rating was downgraded last week by Fitch from “you need a little perfume” to “take a fucking shower.” The Greek prime minister George Papadapolis has said he will cut Greece’s current 12.7% budget deficit to 3% over the next few years by exporting more baklava, feta cheese, and Greek Helmets.
And in stock news, WFC becomes the latest bank to raise money to pay back their TARP funds in order to be able to pay bonuses to all of the employees who didn’t destroy value (surely someone gave a small business loan that worked out, I mean they are getting free fucking money. Even Bernie Madoff could make money doing that.). At this rate, the banks will have their balance sheets all squared up in no time so they can continue to not lend to consumers and businesses without having to worry about the pesky government.